Companies

CMC Motors reverses to Sh181m loss

Troubled CMC Motors has moved to the loss-marking territory in the year to September on lower vehicle sales, rising expenditure and boardroom wrangles.

The auto firm on Monday reported a loss of Sh181.1 million in the review period compared to a net profit of Sh406.6 million a year earlier.

Its sales dropped to Sh11.8 billion from Sh12.7 billion while administrative costs increased to Sh1.6 billion from Sh1.1 billion— a performance that denied its shareholders a dividend.

“We recorded lower sales mainly because of the weak shilling which raised cost of vehicles,” said Bill Lay, the firm’s chief executive. The lack of dividend is a double blow to investors in Kenya’s fourth largest auto dealer since its shares have been suspended at the Nairobi Securities Exchange (NSE) from September 17 to February 26. However, the CMC share stood at Sh13.50 at the time of suspension and had weathered the bear run at the NSE to gain 29.19 per cent.

CMC Motors has recorded a steady decline in profitability since its 2008 peak performance when its net profit stood at Sh927.1 million compared to last year’s Sh406.6 million.

This performance also hit its dividend payout that dropped from Sh0.45 in 2008 and Sh0.35 and Sh0.20 in 2009 and 2010 respectively.

Analysts said that the shake-up in its executive suite and the boardroom wrangles had also slowed down the firm. Its market share dropped to 13 per cent last year compared to 14 per cent a year earlier.

Its immediate former CEO, Martin Forster, was fired in March last year and two finance directors were also replaced. The auto firm has also had two chairmen — Peter Muthoka and Jeremiah Kiereini — who were replaced in a boardroom coup.

Trouble at the firm came to the fore when the board ousted Mr Muthoka and replaced him with Joel Kibe on September 8.

CMC management had accused Mr Muthoka of defrauding CMC of millions of shillings in inflated billings through his logistics firm Andy Forwarders, which held the biggest supply contract with auto firm.

Mr Muthoka is said to have overcharged CMC by Sh1.1 billion in the past five years, according to a PWC report.

Mr Muthoka, who is the single largest shareholder at CMC with 24.7 per cent, then called an extraordinary meeting for December 21 to oust Mr Kibe and three other directors-- Paul Wanderi Ndung’u, chief executive Bill Lay, and Andrew Hamilton.CMC’s loss comes at a time when the government –its single biggest client—has announced plans to cut back on vehicle purchases to contain the rising Budget deficit.

The government accounts for a quarter of CMC sales, buying brands such as Volkswagen Passat (VW) and Land Rover Defender.