Company CEOs feel the heat as profit growth slows down


Jonathan Ciano and Kenneth Kareithi. PHOTOS | FILE

Some of Kenya’s corporate executives are coming under increasing pressure to quit in the wake of an economic slowdown that has pulled back profit growth, placing them on a collision path with their boards.

More than four executives have been replaced over the past year, their careers mainly imperilled by a reversal in the fortunes of the companies they led and changes in ownership that impacted their tenures.   

Jonathan Ciano of Uchumi Supermarkets became the latest chief executive of a listed firm to exit, joining Kenneth Kareithi, who was replaced at Olympia Capital last year.

The board of the privately-held UAP Holdings — which has now been acquired by Old Mutual — also recently let go of its chief executive Dominic Kiarie in a decision that was seen to have also been informed by a past relationship.

Other CEOs whose recent and abrupt resignations have yet to be explained to the market are Musyoki Muli of Longhorn Publishers and George Mwangi of East African Cables.

The rising turnover in executive suites comes against the backdrop of reduced profitability among banks, which are considered Kenya’s economic bellwether.

Some of the firms letting go of their CEOs have registered weaker performance linked to a mix of bad strategies, market challenges and alleged mismanagement.

The board of Uchumi in June fired Mr Ciano for what it termed as gross misconduct and gross negligence that saw the listed retailer sink into losses driven by a credit-fuelled expansion spree.

Uchumi has been struggling to pay suppliers since late last year and the board said it was selling non-core assets like land to raise Sh2 billion it would use to pay suppliers.

Uchumi has failed to return to its glory since it got relisted on the Nairobi Securities Exchange (NSE) in June 2011 after a five-year suspension, following gross mismanagement that saw it close shop in June 2006.

Ironically, it was Mr Ciano who is credited with resuscitating Uchumi, with the help of a government bailout and suppliers, who agreed to convert their debt into shares.

READ: Why Uchumi sent Ciano, finance chief packing

To find its position in the market the board said it was set to hire a management consultant to write a new blueprint for the 38-year-old firm which is yet to hire a substantive CEO to replace Mr Ciano.

Signs that Mr Ciano was set to exit began to show in the retail chain’s inability to handle suppliers yet it had borrowed loans and funds from shareholders in a 2014 rights issue that raised Sh896 million.

Uchumi made a pre-tax loss of Sh262.3 million in the half year ended December compared to a pre-tax profit of Sh106.9 million a year earlier after sales fell to Sh6.8 billion from Sh7.2 billion during the same period.

The retail chain, which has been accused of cooking books, obfuscated its net loss/profit figures by leaving them out of its financial statements.

The board of loss-making investment firm Olympia Capital also sacked Mr Kareithi last year after reportedly failing to agree with him over the strategic direction the firm should take.

Mr Kareithi has since sued Olympia seeking millions of shillings in what he termed as wrongful dismissal.

His departure saw the return of Michael Matu as CEO of the company that made a net loss of Sh29.5 million in the year ended February, reversing a net profit of Sh45 million the year before.

The performance largely reflected an 81 per cent drop in “other operating income” to Sh16.5 million.  Olympia also incurred a loss of Sh15.5 million from the closure of two subsidiaries that have been in the red for years.

The investment firm lacks a coherent growth strategy, having previously announced several geographic, product and sector diversification plans that have not been followed through.

UK conglomerate Old Mutual last month disclosed that it had let go of Mr Kiarie who for years had served as the CEO of its newly acquired subsidiary UAP Holdings.

Mr Kiarie’s departure has been read as Old Mutual’s payback for his snub of the company’s offer of appointment as CEO of Old Mutual Kenya in 2008.

Mr Kiarie initially accepted the job and quit his position as the managing director of British-American Asset Managers (BAAM) to take up the new post but only stayed for a few days before going back to Britam.

Old Mutual said Mr Kiarie’s position was scrapped as UAP and Old Mutual Kenya were merged to create an entity now headed by Peter Mwangi.
Longhorn and East African Cables have also witnessed CEO turnovers but which have not been clearly explained.

Mr Mwangi of East African Cables will leave the company at the end of September, and the company’s board said it had “resolved” to accept his resignation at a meeting held on July 14. Mr Mwangi declined to comment.

East African Cables’ net profit declined 14.3 per cent to Sh341.1 million in the year ended December as cost of sales rose faster than revenue which grew 13.2 per cent to Sh5 billion

Longhorn has one of the highest executive turnovers having hired two CEOs in just over two years, the latest being Simon Gachomo who was appointed in May.

Mr Gachomo replaced Mr Musyoki Muli who “retired” early in March after serving since December 2012 when he was appointed to replace Ms Jane Wangari who retired.

Longhorn’s net profit rose by a third to Sh39.8 million in the half year ended December as lower distribution costs made up for lower sales.

The slowdown in corporate earnings is expected to further pile pressure on CEOs, especially those whose contracts are due for renewal in the near term.

The depressed profit outlook is heralded by the slow and double-digit contraction of earnings seen among top lenders Standard Chartered Bank Kenya, Housing Finance, and CfC Stanbic in recent quarters.

Banks’ performance is seen as a proxy of the general economic health as it reflects spending and investment activities in the broader economy.