The CMC Soap Opera: Season Finale
We have traced the CMC scandal from the time their former CEO was ousted on short notice to the court drama around Mr. Muthoka and finally covered the court proceedings.
For a timeline of the five-part tale read part 1, part 2, part 3 and part 4. This piece will conclude this soap opera.
By March 2012, it had been established that;
- Martin Foster’s short notice sacking was ill-willed
- The money overcharged by Andy Forwarders was over KES 1 billion
- Mr Muthoka’s appointment as chairman contradicted company laws and it resulted in conflict of interest between those of CMC Group and his company’s, Andy Forwarders.
Exit South Sudan...
Towards the end of March 2012, the group shut down its South Sudan subsidiary. According to Joel Kibe, CMC’s chairman then, they wrote off KES 44 million doubtful receivables. The write-off was one of the reasons the company made a net loss of KES 181.1 million in the year to September. Its existence was alleged to be fraudulent despite claims by the previous CEO-Martin Foster-that it was registered in South Sudan in 2003.
Allegations of its non-existence were backed by the forensic report by Weber Wentzel. Shareholders did not know of the subsidiary’s being and were exposed to losses resulting from it. Around the same period, CMC lost part of its business in Northern Tanzania. The Ford dealership in was cancelled. Effects of the boardroom wrangles were regional and their decreased sales did not help with the situation. The government of Kenya was one of the top customers but a budget cut on spending on motor vehicles saw revenues decrease for CMC in the millions.
...Closely Followed by Deloitte...
The firm was CMC’s official auditing company and the probe into their involvement was imminent. The CMA filed a com
plaint with the Institute of Certified Public Accountants of Kenya (ICPAK), claiming that Deloitte had mishandled CMC’s financial statements and falsifying the auto dealer’s accounts. The audit firm quickly responded, saying that the directors and board of CMC intentionally presented falsified documents that the audit firm used as the basis of its opinions. As an auditor, they were not required to collect information via whistle-blowers or investigators.
The watchdog (ICPAK) would later extend the probe to PriceWaterHouse (PwC) Coopers since some accounting concerns dated back to the era before 2005, when PwC was CMC group’s auditor. Deloitte resigned from being their audit firm on February 28 2012, citing frustrations in getting information from the company.
.... And Car dealerships
Thoughts of pulling out of Kenya did not wander far off from Ford’s move in Tanzania. Cutting down on unsustainable business was key and the explosion of the boardroom drama in Kenya was bound to have greater effects. CMC had come close to losing the Ford dealership in 2011 because of poor sales. The small breather they got did not do them any good.
Volkswagen wanted the group to build a modern workshop and a clean one at that. A dust-free showroom would better the manufacturer’s brand position and increase its sales volume, which the German carmaker was unhappy with.
Ford on the other hand, wanted CMC to upgrade its existing showroom. It wanted them to build a separate unit where only Ford vehicles would be sold. Its separation would create a favourable position for the units to peak. Jaguar Land Rover (JLR) had a similar demand and also aimed at increasing unit sales. They were concerned that financiers’ confidence in CMC was dwindling and an action plan was needed to save the auto dealer.
The group however, failed to provide concrete plans that would boost their sales and both JLR and Ford appointed another dealer in Kenya called RMA. This Thailand-based dealer set up shop in Nairobi in July after successfully becoming the biggest distributor of JLR and Ford units globally. The car franchise that CMC lost made major contribution to the group’s unit sales and the contract loss would result in further loss. JLR has purportedly terminated its franchise agreement with the group with effect from 2nd February 2013. An intention to terminate it had been communicated around August 2012 but was made final via a letter dated 26 November 2012.
CMC Group in an attempt to retain its market share, unveiled the MAN brand of units that would retail trucks and buses. The units’ electronic functionality was set to give the drivers of light, medium and heavy commercial vehicles a smooth ride. 6 months into selling, the group lost the exclusive dealership. RT East Africa was appointed as the new distributor.
In a move that saved the group’s face, the judiciary and electoral commission ordered Land Rovers worth KES 830 million. The sale was the single largest that the group had secured from government since 2009 when austerity measures were taken on government spending.
Suspended trading
The listed company has been suspended from trading on the Nairobi Securities Exchange for what seems to be an eternity. Reasons given by the Capital Markets Authority range from giving time for investigations to be conducted, to protecting shareholders from the effects of possible share dump. Appeals to the authority have fallen on deaf ears. The most recent of the bans was in September when the CMA extended it by 60 days. The row of banishment from trade has been on since September 16 2011. Members of the board such as Sir Charles Njonjo, Jeremiah Kiereni and Martin Foster have already retired.
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