Centum CEO James Mworia on coping with void left by ‘irreplaceable’ Chris Kirubi
By Patrick Alushula | December 7th 2021
Barely a month after Centum Group’s founder Chris Kirubi died, the company has announced a full-year loss of Sh1.37 billion — the first in more than 42 years.
Centum Chief Executive James Mworia opens up to the Financial Standard about the tough period following the death of the firm’s long-serving chairperson and the new direction for the diversified investment firm.
It is about six months since Chris Kirubi (CK) — a key figure for Centum — died. What gaps would you say Centum may never fill in his absence?
We miss his presence. He is irreplaceable. The only luck we had is that he did not work alone. He worked along with the board of directors. Though we collectively miss him, we have been able to move on with the strategy without having to change. CK had made his contribution to the planning and governance of Centum.
What adjustments has the company been forced to make in the post-CK era?
CK was not operationally involved in the business. The only vacancy that arose was at the board level, which the board filled. If he had been heavily involved in operations, it would have been very difficult to adjust.
You mourned CK as a friend, a mentor and someone you used to reach out to for advice. Where do you turn to for dependable advice in his absence?
This is irreplaceable. That is what an elder is there for. That, you can’t replace; an elder you can reach out to for ideas.
The rest of the directors, led by chairman Donald Kaberuka and vice-chairman Laila Macharia, have stepped up, and they are very active. Everyone has come together as a team to fill the gap. I feel very supported by the board.
How about your relationship with key shareholders in the absence of the person who founded the vision and entrusted you to execute it?
We have maintained a great relationship with Kirubi’s family and Kenya Development Corporation (KDC) — the successor to Industrial and Commercial Development Corporation (ICDC).
A month after CK’s death, you announced a loss — the first in over 42 years. Were you worried that the market was going to read too much into it?
No one wants to announce a loss. But remember in the half-year before Chris’ death, we had announced a larger loss (Sh2 billion). In the full year, that had reduced. I explained why the loss arose. We have been having a mismatch between our cash profit and our book profits.
Everybody within the business understood that, but the challenge was to communicate to the market so that it doesn’t take the loss at face value. It was about ensuring we communicate clearly to be understood. But internally, we understood.
Centum’s growth has been defined by investing in companies and building value. You have exited several of them. What is holding you back from entering into new deals?
The last major exit was in 2019, and we had done our strategy 4.0, re we decided to focus on increasing our stake in marketable securities and cutting debt. Our exposure to marketable securities had gone down to 3 per cent, and we are looking at increasing it to 20 per cent.
We also said we were going to pay long-term debt. So between 2019 and now, we have put about Sh4 billion into marketable securities and cut debt by about 12 billion. We have also paid about Sh1 billion in dividends. So all these have taken a bit of capital. Up until 2019, we were borrowing and deploying that money into private equity.
Centum’s target is now to invest in companies that can give at least Sh1 billion net present value. Isn’t that too high a target that could lock out many companies?
The issue is the return on effort. If you look at where we have made most of our money, it is concentrated in a few deals. Instead of spreading out your effort in, say 10 deals and stretching yourself too much, you would rather find a few large impactful opportunities than many small ones and then end up spreading your time and not moving the needle. We don’t want to do many small things. We would rather do a few big things that will make a difference.
How close are you to announcing that next big deal?
I can’t say. A deal is a function of what the negotiating parties agree. So it takes time, and we are not in a rush to announce. The objective is not to announce a deal. Anyone can announce a deal. The objective is to do a transaction that can be viable to create additional value to shareholders.
We don’t want to hurry. There are discussions in the pipeline. If something comes up which we think is fairly priced and has good growth prospects, we will do it.
Covid-19 knocked off value from some businesses, setting them up for acquisition at a reduced price. How much of an opportunity is this for Centum?
That is true. Covid-19 created this opportunity. But the challenge is that the pandemic slowed growth and complicated returns target. So we find good companies at a good price, but the growth expectation is too low, and that means a flat valuation. That is not ideal because it also means dividend yields are very low.
Given the impact of Covid-19 on the valuation of companies, will this be an ideal time to be pursuing partial exits in companies?
Some of the companies have done well, and we are in those discussions. Maybe we will announce soon some of the deals we are about to reach.
Yes, we hope for a higher valuation. But we also say, relative to what we invested, if we are still getting a reasonable return on the investment, then it is fine. You have to leave some upside for the incoming investors. You can’t take everything.
Fixed income has offered attractive yields. How much of a breathing space does this offer as you scout for companies to invest in?
The idea of fixed income was that as we wait for the economic cycle to pick up, let us have assets that can give us reasonable cash yield. This is giving us about 15 per cent compared to growth equity where one earns about two or three per cent on dividends.
The other return is through the growth of assets, which is realised through an exit. It was also useful because this is what we wanted to use for dividend payout. Exits are very unpredictable. You don’t want to have a dividend policy based on exits because they don’t happen every year.
There is a significant pricing gap on Centum shares. Does this set up a good environment to have conversations around a share buyback programme?
The share buyback rules were released last month. The board has asked our investment committee to look at it and come back with a proposal. So, yes, we are considering it, but there is nothing specific at the moment.
You have grown Centum largely through long-term debt. What is going to fund the next growth phase?
There are usually two options: borrow or raise equity. But equity depends on whether investors are ready to put in the money... at least into the foreseeable future, this is what we will be doing.
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