Fireworks in boardrooms as firms shift tack

By Morris Aron

The kicking and jostling that has characterised a number of boardrooms is a pointer that companies are radically reviewing strategies after a difficult 2009, when profits dwindled and investment decisions went haywire.

Boardrooms of some leading companies have now been turned into battlefields as the country undergoes the biggest turnover of directors in its corporate history.

From Equity Bank to the listed Internet services provider AccessKenya to the leading mortgage provider Housing Finance, boardroom intricacies are reading like a novel.

Perhaps the most dramatic of them all played out recently at Housing Finance following the exit of the chairman Kung’u Gatabaki and directors Beatrice Sabana and Naftali Mogere (the NSSF representative) resigned in protest of a scheme by Equity Bank and British American Investment Company (Britak) to take control of the board by installing their chosen chairman.

Joint ownership

Equity Bank and Britak jointly own 24.9 per cent stake in Housing Finance acquired from the Commonwealth Development Corporation (CDC) in mid 2007.

At AccessKenya, formerly a family enterprise, Eddy Njoroge, who is also the chairman of Nairobi Stock Exchange resigned as a director raising eyebrows.

As speculations continue on the reasons for Mr Njoroge’s March 26 exit from a public listed company and largest internet services provider, those close to the on-goings say that action stems from differences over past and future growth strategies carried by the rest of the board members and the Somen brothers — Jonathan and David.

Sources privy to the dealings but who asked not to be quoted told Financial Journal that trouble started after some directors expressed concern over past investment decisions that have turned out to be not so profitable after all.

Differences are also being expressed over the future profitability prospects of the AccessKenya following the entrance of telephony giant Safaricom — and a number of other players — into internet services provision and the stiff challenge that these development is bound to tag along especially after AccessKenya spent a good chunk of money raised from the Initial Public Offering three years ago in new investments.

Key highlights, insiders say, is alleged discontentment by a number of board members. The Somen brothers run the company by virtue of being the largest shareholders after listing at the Nairobi Stock Exchange, and have strongly denied the allegations.

"My interests in AccessKenya and that of my family lies in the benefits to shareholders’ which means increased profitability of the business," David Somen the executive director of AccessKenya, whose family has a controlling stake of the ISP firm.

Muted concern

Before the resignation, a number of board members expressed disappointment over a decision by the company to conclude the acquisition of Openview Business Systems at a cost of Sh168 million in early February despite the fact that its information technology (IT) arm was not doing so well.

In the just released results for the financial period ended December 31 last year, where AccessKenya recorded a 31 per cent drop in its pre-tax profits, the firm’s IT services department made a loss of Sh37 million compared to the Internet services division that made a profit of Sh219 million.

The previous year AccessKenya announced a 65 per cent increase in pre-tax profit.

AccessKenya attributed the performance to the IT services department strategy in 2008 that targeted high revenue-low margin equipment sales.

Loss making

"It is true that the board expressed concern over the loss making, management also expressed concern and that is why we changed strategy," said David Somen AccessKenya executive director, whose family has a controlling stake of the ISP firm.

AccessKenya has since revised its strategy to focus on high margin recurring revenue contracts with more focus on higher margin hardware and software sales.

"This strategy should result in higher profit margins for the coming years," said David.

Since raising Sh800 million from the Initial Public Offering in 2007, AccessKenya has spent a significant amount of the cash on expansion plans.

The company has spent between Sh400 million and Sh450 million on a metropolitan fibre structure in 2008.

AccessKenya also put a considerable amount of capital into the undersea fibre cable, Teams, where it is a shareholder, among other investments that in total is said to be approaching the Sh1 billion mark.

"We felt like we were at the right place at the right time and had to invest in infrastructure that would provide value to our customers," said David

"In our view, the investments give us the competitive edge and the future looks bright."

After Njoroge’s exit the analysts began reading different signs into the whole debacle. Some feel that probably AccessKenya over expanded and the returns have been at the speed that they expected.

And it is not AccessKenya alone that is battling the over expansion phenomenon coming just before the economy tanked thanks to the now famous four economic shocks of post election violence, high food and oil prices and drought.

Replaced management

Just last week, Kenya’s biggest bank by customer base, Equity Bank, did away with its loss making investment banking arm, and replaced five senior managers leading to a loss of jobs of 15 senior employees.

Two directors — Gakuru Wahome and Rodney Schuster – and a number of other senior managers who headed the finance, information technology and risk management departments have since left the bank. Wahome was the director in charge of marketing, advocacy and policy, while Schuster was incharge of regional expansion.

The sweeping changes, analysts say, was the climax of a major strategy to review the business announced by the bank’s chief executive James Mwangi at the start of the year that also saw a number of business growth and development managers re-designated.

The shake-ups came at a time when the bank started feeling the pinch of the economic downturn, that ate into its profitability after an extensive branch expansion.

Equity broke the banking sector growth records between 2004 and 2007 but has been under immense pressure since last year when the four economic shocks ate into its micro lending business and slowed profit growth

Last year, Equity returned Sh5.2 billion in pre-tax profit, a four per cent growth from Sh5 billion the previous year when profits grew by 111 per cent.

The bank has also closed its Equity Investment Bank division after barely two years of operation after recording losses.

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