×
× Digital News Videos Weird News Health & Science Sunday Magazine Lifestyle Opinion Education Columns Moi Cabinets Arts & Culture Special Reports Fact Check E-Paper Lifestyle & Entertainment Nairobian Entertainment Eve Woman Travelog TV Stations KTN Home KTN News BTV KTN Farmers TV Radio Stations Radio Maisha Spice FM Vybez Radio Enterprise VAS E-Learning Digger Classified Games Crosswords Sodoku The Standard Group Corporate Contact Us Rate Card Vacancies DCX O.M Portal Corporate Email RMS
×

CMC banks on deep-pocketed shareholder to rise from ashes

By Paul Wafula | July 12th 2016 at 08:59:36 GMT +0300

CMC Holdings is determined to shake off a history of scandal and warfare.

The firm is already cleaning up its top management. Managing Director Wanjohi Kangangi, who joined the company three months ago, is working with a new human resource director and finance director.

It also has a new shareholder, Al-Futtaim Automotive Group (AFG), who has put in Sh8.6 billion ($86 million) in acquisition costs. In return, CMC is giving the United Arab Emirates conglomerate access to the East African market.

Eventually, this will become AFG’s entry point into the rest of Africa.

Read More

In 2011, CMC took a dangerous turn after it was rocked by a major boardroom war that opened the lid on the mismanagement, theft and corporate governance issues among listed companies in the country.

Damning revelations

In the wake of damning revelations, the company lost its grip on prime brands, including a franchise deal with Jaguar Land Rover, whose brands accounted for 30 per cent of CMC’s annual sales.

Shareholders were left holding stock in a firm that was slowly spinning out of control. The 68-year-old firm had broken almost every rule in the book on how not to run a company.

It is the entry of the strategic investor that stopped the boat from rocking.

Mr Kangangi told Business Beat that with the backing of AFG, his company firm now has access to “limitless resources” and best practices the world over.

But can this deep-pocketed investor turn around the fortunes of the company at a time when taxes, competition and preference for used motor vehicles have softened demand for new cars?

The firm recruited its new managing director from one of its rivals, Toyota Kenya, to steady the ship. Kangangi, who was also at General Motors for 16 years and served at Toyota for four years, believes CMC has what it takes to bounce back.

“Al-Futtaim has paid out all the shareholders and has embarked on a process of professionalising the organisation, bringing in management talent and bringing in a new vision,” Kangangi said.

“We are also trying to get alignment of this business to put it at par with what AFG runs worldwide. The shareholders bought the company 100 per cent, and we have traced all the shareholders and their money has been paid out.”

The MD added that AFG, which is in several other businesses, including real estate, hospitality and food, wants to align CMC operations to its international operations without disrupting the organisation.

Kangangi said to this end, new employees have come on board, old staff are being trained, and there have been “some discussions with some employees to make sacrifices for the organisation”.

“The shareholders have a commitment to have the business run at the same standards as AFG. AFG is extremely professional; they sell more than 300,000 vehicles around the world,” Kangangi said.

CMC, which has about 1.000 employees across the region, is an attractive investment for Al-Futtaim.

“Our network is unrivaled. If you go to Kisumu, we have more than seven acres. We have land in Kitale and Mombasa. Here in Nairobi, we are at the heart of Industrial Area; our land crosses three streets,” Kangangi said.

And CMC knows it has hit the jackpot with AFG.

“We certainly have the resources to grow our brands and we have got a shareholder who, as long as you justify that he is getting value for money, his resources are limitless,” the MD said.

Government vehicle

At its peak in 2008 CMC made a net profit of Sh927.1 million and paid a dividend of Sh0.45 per share — which last sold at Sh13.50 each before they were suspended from trading on September 16, 2011.

Before its wave of woes, there was a time CMC was synonymous with the Government. It was the sole supplier of Land Rovers, which was basically an official Government vehicle brand; it was the face of the provincial administration and security agencies.

“There was a time when CMC, Kenya Railways and the Government were the same. CMC was almost like part of the Government as an institution. The best talent and real estate was assigned to CMC as part of the Government’s industrialisation plans,” Kangangisaid.

Cooper Motor Corporation traces its beginnings to borrowed offices in a wooden hut along the then Jackson Road in Nairobi. The motor dealer was incorporated as a private limited company in July 1948 when two British nationals identified as Allen and Cooper came to East Africa to sell Land Rovers.

With a share capital of 10,000 pounds sterling, the two men opened for business.

Four years later, CMC moved to Connaught House on Lusaka Road where its head office sits today.

The firm later made billions of shillings by supplying Government officials with vehicles, and was converted from a private company to a public company in 1956. It also made its name selling parts and servicing vehicles.

As Kenya’s economy grew allowing more individuals to own cars, CMC added Volkswagen, Audi, Nissan, Nash, Marine crafts and Evinrude outboard engine cars to its portfolio.

Buyers fell in love with the Volkswagen Beetle that won the East African Safari Rally four times. CMC then introduced the Volkswagen Microbus, which played an important role in growing Kenya’s transport and tourist industries.

In 1971, the firm restructured into CMC Holdings Limited, the holding company for the group.

With solid footing built over two decades, the firm went on an acquisition spree and bought several companies, one of which was Wilken Group, which became CMC Aviation Ltd.

CMC’s involvement in vehicle assembly started in 1974 after the conclusion of negotiations with Leyland Kenya, now Kenya Vehicle Manufacturers (KVM), when it acquired 33 per cent shareholding.

Other trading subsidiaries owned by CMC Holdings include Cooper Motor Corporation (Uganda) Ltd and Hughes Motors (Tanzania) Ltd.

This, together with its substantial property between Nairobi’s Bunyala and Lusaka roads, pushed CMC into the league of the top five biggest vehicle importers and assemblers in East Africa. At some point, the Government acquired a 20 per cent stake in the company.

Wrong turn

Then CMC took a wrong turn.

“There was a certain level of complacency that came with having a privileged position. Things started going wrong about 10 years ago when the leadership started seeing this as a cash cow,” Kangangi said.

September 2011 was the worst month in the firm’s 68-year history, after it was almost crippled by a boardroom war that forced the capital markets regulator to suspend its shares from trading and launch independent investigations into the rot at the company.

Almost no one, from the chief executive, the board and several top-level managers, was found clean after audits unearthed several scams at the firm.

“You can say the top leadership was not as engaged in growing the company as it should have been,” Kangangi said.

At its peak in 2008 CMC made a net profit of Sh927.1 million and paid a dividend of Sh0.45 per share — which last sold at Sh13.50 each.

Two independent audits revealed massive fraudulent activities at Car dealer from failure to disclose to its shareholders that it operated a subsidiary company in South Sudan to operating offshore accounts.

An audit commissioned by the Capital Markets Authority (CMA) which was caught off guard revealed that the subsidiary was operated secretly, and the proceeds were never reflected in the company's financial statements.

It was also revealed that directors had stolen billions of shillings over time from the company by inflating bills for services rendered.

The audit done by a South African firm, Webber Wentzel, also found fault with the company's business model.

The firm was borrowing to extend credit to its customers, a practice that was found to be detrimental to the interest of the shareholders.

The Webber report also shows that the firm had a weak internal audit function that gave directors the necessary leeway to defraud the company.

It was also established that CMC products were sold on an unsecured cash sales basis without collecting the cash.
That was not all, a second audit by PricewaterhouseCoopers (PwC) zeroed in on the management of the company. It is PWC that first found that some directors at the firm operated undisclosed offshore accounts.

It was also discovered that one of the directors did not disclose an acquisition of more than three per cent in the firm which was contrary to market regulations.

But the most shocking revelation in the PWC audit was the revelation that the motor dealer lost more than Sh1.1 billion in extra charges to Andy Forwarders Services Limited (AFS), a transport and logistics company majorly owned by Mr Peter Muthoka, a former chairman and director of CMC.

Most of those named in the reports, have denied their involvement, and are battling the accusations in court.
September 2011 was the worst month for the firm's 68th year history, after the firm was almost crippled by the boardroom war which forced the Capital markets regulator to suspend its shares from trading and launch independent investigations into the rot at the company.

Almost no one was found clean after the audits unearthed several scams at the firm touching on many levels from the chief executive, the board and several top level managers.

It is the entry of a strategic investor that stopped the boat from rocking. But will the deep pocketed investor turn around the fortunes of the company at a time when taxes, competition and preference for used motor vehicles have softened demand for new motor vehicles?

The firm fished a new managing director from one of its rivals, Toyota Kenya, to try and steady the ship. Mr Kangangi, who was at General Motors for 16 years and another four years at Toyota says the firm has what it takes to bounce back.

"All-Futtaim has paid out all the shareholders and has embarked on a process of professionalising the organisation, bringing in management talent and bringing in a new vision," Mr Kangangi said.

Mr Kangangi said the new suitors have put in Sh 8.6billion ($86 million) in acquisition costs and CMC has given the conglomerate access to East Africa market.

"We are also trying to get alignment of this business to put it at par with what All-Futtaim runs worldwide. The shareholders bought the company 100 per cent and we have traced all the shareholders and their money has been paid out," he said.

The firm which has about 1000 employees across its operations in the region is cleaning up its top management and has invested in training of its old employees.

Mr Kangangi, who joined the company three months ago is also working with a new Human resource director and a finance director.

"The shareholder wants to align CMC operations as much as possible to the international operations without disrupting the organisation. There is already training going on in our various departments even as they bring on board new talent," Kangangi said.

"We got a lot of people that have come on board recently and we have had some discussions with some employees to make sacrifices for the organisation," he said.

Kangangi says with the backing of the Al-Futtaim Automotive Group (AFG), the firm has access to best practices the world over.

"The shareholders have a commitment to have the business run at the same standards as AFG. AFG is extremely professional, they sale more than 300,000 vehicles around the world," he said.

"They are some of the best distributors of vehicles in the world. They are bigger than just vehicles. They are in real estate, hospitality, foods and several other sectors. The idea is to sort out CMC to become an entry point into the rest of Africa," Mr Kangangi said

CMC gives AFG Kenya, Uganda and Tanzania. Once that is sorted, they can use this as a springboard to the rest of Sub Saharan Africa," Mr Kangangi said.

"Our network is unrivaled. If you go to Kisumu we have more than seven acres. We have land in Kitale and Mombasa. Here in Nairobi we are at the heart of Industrial Area, our land crosses three streets," Mr Kangangi said.

"We certainly have the resources to grow these brands and we got a shareholder who as long as you justify that he is getting value for money, his resources are limitless," Mr Kangangi said.

The firm says it will focus on growing the current brands as opposed to going for competing brands on their portfolio.

The delisting from the stock market also meant an end to the troubles with the CMA given that it is now a private company. But Mr Kangangi said this does not mean that CMA cannot proceed with any investigations it was doing on any of its directors.

"Because of what happened in the period in which we were listed, CMA had some questions, had some investigations and those ones were not suspended by the buyout. They want to make sure that if any guidelines were violated, the people responsible are held to account," he said.

But the firm does not see itself getting back on the stock market any time soon.

"If in future we decide to list again, then we will come back under the ambit of CMA but people list generally because they need additional funding and you are trying to mobilise funds from the public. Our shareholder is not in a position where he is likely to need funding soon," he said.

The firm is also considering extending its local assembly lines to cover all commercial vehicles to benefit from the incentives of local assembly.

"We had discussions with MAN last week and EICHER are coming in this month. As a starting point, we are assembling some of their commercial vehicles but we want to assemble all the commercial vehicles," he said.
CMC hopes this will help them benefit from the implementation of the procurement law that requires government to give first preference to locally assembled vehicles.

"Commercial vehicles include those prime movers and the buses. Assembling them is helpful because during the assembly process you are able to get stronger chassis, a bigger axis, and engineer it for Kenya."


CMC United Arab Emirates
Share this story

THE STANDARD INSIDER

Read More

Feedback