Vision Group Jinx?

As Geraldine Busuulwa Ssali, the NSSF deputy managing director, sat at the New Vision Ltd annual general meeting on Nov.13, only one thing was on her mind: the billions her organization is continuing to lose in the USE-listed company. When the opportunity came for her to take the microphone, she was literally scathing.

The applause that kept punctuating her ten-minute speech from the audience was a clear indication that many of the shareholders were equally not happy. By the end of the meeting, the board of directors and non-shareholders (senior staff), led by CEO Robert Kabushenga, were left in no doubt about the feelings of the shareholders.

The financials of the company must read better come the next AGM. Ssali was particularly irked by the fact that NSSF, which boasts of a massive 20% shareholding, is not even represented on the board. She demanded rotation on the board chaired by David Sebabi saying it needed people who would bring about the turnaround the shareholders deserved. When the time came for Ssebabi to ask one shareholder to second the resolution to approve the company’s annual financials, there was no response. It was only after a long-winded explanation that the accounts were audited and approved by the Auditor General that a shareholder seconded the motion.

Ssali’s ferocity was then directed at the motion for the re-election of Ssebabi, Orono Otweyo and Charles Tukacungurwa on the board, which she attempted to block. Though all the motions were eventually passed, the board and NVL management didn’t miss the shareholders’ frustrations about the company’s below par performance. NVL is a different entity from the stock NSSF and other shareholding workers’ pension funds invested in five years ago. Apparently, the hopes of making a good return for their members are being dashed. At a time when the share price had appreciated dramatically from the IPO price of just Shs 200, NSSF saw a lucrative opportunity and bought shares worth Shs 22 billion in the secondary market at Shs 1,000 per share.

That was in 2009 – five years after the NVL IPO was floated on the USE. Come June 2014, the shares had slumped to just Shs 600 per share, which meant the total stock NSSF held shrunk to Shs 9 billion, which Ssali described as a loss to shareholders’ value and of workers’ money. “It is obvious that the business is not profitable,” a visibly perturbed Ssali said. She added that NVL is currently one of NSSF’s poor performing assets having offered a “flat dividend throughout,” while the management’s profligacy wiped out the company’s profits. Yet, they want to diversify more, which diversification might not be focused in a manner that would bring good returns for the shareholders, Ssali said amid clapping from a section of shareholders.

As it was, the company’s 13th AGM was a clear signal to the management and the board that come next year the shareholders’ expect better news.

Dwindling profits:

It is easy to see why the shareholders are not happy. While the company’s turnover grew by Shs 4 billion from Shs 78.8 billion to Shs 82.9 billion, total assets and shareholders’ funds grew by just 1% from Shs 66.3 billion to Shs 66.9 billion and from Shs 52.4 billion to Shs 52.8 billion respectively in the period under review.

Profits for 20132014 reduced by 12.75%, which affected earnings per share by Shs 5, having declined from Shs 46 to Shs 41. From that, shareholders will be paid a dividend of Shs 35 per share come January 21. NSSF will consequently walk away with a miserable Shs 525m from its original investment of Shs 22 billion in NVL.

The company last increased a dividend payment per share in 2012 to Shs 35 from Shs 30 a year earlier. There was a downward trend of profits for the second consecutive year – for the first time since the company listed on the Uganda Securities Exchange (USE) ten years ago. Will there be a dramatic turnaround in the next 12 months? That is the question.

Ssebabi attributed the unsatisfactory performance to the “challenging year” owing to a “general reduction in expenditure across the economy,” which he said led to a rise in cost of sales and other operating costs. But among the items computed under direct costs were production salaries, aertising commission, communication, TV content, rent, news services and licenses, meetings and public events such as Pakasa Forum, Yiiya Sente, Bride and Groom Expo and Coca-Cola Rated Next.

The group has 2,514 shareholders, 98.75% of whom are Ugandan institutions or individuals. It has ten publications, four TV stations, six radio stations and four digital websites – making it one of the biggest media conglomerates in the EAC region.

The officials also singled out the decline in the print aertising industry as a major factor and the introduction of import duty on raw materials used in the production process as major contributing factors to the company’s low revenues.

As Ssebabi was quick to note that the group’s products TV and radio stations plus newspapers continue to increase in market share, he challenged the management to now focus on “translating this bigger market share into real returns to our shareholders.” Securities experts have a semblance of optimism though it is not clear if it will be any consolation to the long-suffering shareholders whose main interest is to make a return.

Dan Edoma, the head of corporate finance of the stock brokerage firm African Alliance, said despite VG’S worrying financial performance, there has not been much change on activities regarding its stock on the bourse – an indication that shareholders are ready to continue holding onto their shares. “The greater percentage of its shareholders [comprises] institutions that are not moved by short term activities or results. They invest for the long term.”

The government – the majority shareholder has 53.3% of the 76.5 million shares. Others include NSSF with 19.61%, National Insurance Corporation Ltd with 2.7%, BoU Staff Retirement Benefit Scheme – AIG with 2.23%. NSSF, Tullow Uganda, Bank of Uganda and Makerere University staff retirement schemes hold between 1%-2% each, while Wazunula Samuel Mangaali is the biggest individual shareholder in the company. Edoma blamed what he called “a weakness in terms of efficiency of information in the market or corporate action, which essentially means that investors rarely or never react after results are released or when dividends, bonus issues or rights issues are announced.”

For example, currently, the DFCU counter has outstanding demand of over Shs 2 million but there is no supply despite its recent bonus issue. Yet NVL and DFCU are not the only ones affected by illiquidity. Uganda Clays Ltd and British America Tobacco Uganda Ltd (BATU) are also on this list. The most active stocks are Umeme and Stanbic Uganda Ltd (SBU) because to Edoma, they have a significant number of retail investors, which makes them appealing as it is easier to acquire and also dispose of shares.

But the shareholders appeared to have the feeling their reluctance to react on the USE is being taken for granted hence the apparent below par performance. Some analysts argue that NVL can afford to give a deaf ear to the concerns of the minority shareholders for as long as the media conglomerate serves the overall political interests of the majority shareholder (the government). No one will touch them over low profits. But the board and management will thus find themselves stuck between a rock and a hard place. It has to fulfil the needs of the majority shareholder – whose most important interest is obviously for Vision Group to continue being a mass medium to reach voters and other stakeholders- and the minority shareholders who want value from their investment. Indeed, Ssali’s view that the members who save with NSSF want to see a business overhaul that should turn around the company’s financials might win the support of the majority shareholder. For instance, she expressed concern about NVL’s short term activities, which she referred to as ‘freebies’ – including flying Bukedde readers to visit Dubai, Pakasa Forum – activities that contributed 48% to the group’s cost of sales and wiped out the shareholders’ profits. “Do not forget your mandate which is to make money for me,” Ssali said in a staccato tone. But her pleas could have fallen on deaf ears as these activities serve an important political purpose.

Kabushenga’s strategy:

Some analysts have observed that Robert Kabushenga, the Chief Executive Officer, whose dream is to expand the group at all fronts, may not come easy as his once clean bill of health is showing signs of haemorrhage even in its flagship products particularly print.

The electronic media’s profits grew much more than those for print by almost 50% from Shs 3.2 billion to Shs 4.6 billion while the latter increased by 20% to Shs 7.6 billion from Shs 6.4 billion.

Kabushenga says the tight expenditure budget across most businesses has led to a reduction in aertising which translates into a reduction in revenue. “In addition, the share price has continued to decline, which has denied shareholders capital gains and has put management under pressure to grow revenue despite increasing operating costs.”

His strategy going forward is to grow the group’s revenue while ‘strict measures to control the rate at which cost of sales are growing are being implemented.’ Some of these measures include managing editorial staff by relying on a bulk of free lance journalists that are paid on a story count basis which management says is a cheaper option than having permanent staff. In the annual report, Kabushenga says the most important aspect of his strategy is to transition the business into digital platforms. So far, the group has four digital websites that contributed 4% to the aertising revenue. Print TV and radio and events contributed 65%, 18% and 13%.

The ease with which staff from different segments work across the group’s platforms may reduce human resource overheads on hiring but it is yet to materialize.

Kabushenga pledged that his team will work to improve the share price, profitability even if some of the company’s new investments may have to be delayed. This obviously shows that shareholders’ pressure for real returns is mounting. “This is a very difficult afternoon for me… all the criticisms about us are correct.” I suggest that you trust me and appeal that you trust me… Everybody deserves a second chance.” But the shareholders remained largely unconvinced.

Source : The Independent

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