Monday, March 31, 2014

On Jose Chameleone, Gen Sevo, China, Nigeria and a legacy!


The best way to understand Gen Sevo's politics is to look at Jose Chameleone and his Tumboge Concert! Apparently, Jose made a rallying call to Ugandan musicians to start staging their concerts and album launches at Lugogo Indoor Stadium. The intention is to send a signal that Ugandan music is as big and good as Nigerian and Jamaican music! You may want to know that in the mid 90s Jose Chameleone had to ally with Kenyan musicians and Ogopa DJs to launch his assault on Congolese music. We could say he went to the musical "bush" in Nairobi together with Bebe Cool.
Now, you know Gen Sevo had to go the bush in the early 80s to dislodge UPC's Obote. After capturing power, the Geo-political dynamics of the cold-war forced him to adopt the IMF and World Bank SAPs on free market fundamentalism and capitalism! We have been suffering the political indigestion of this policy since then. 26 years later, the marriage is hanging on threads! He has had to look East, to China to finance the building blocks to his legacy; Roads, Electricity and Bridges. 20 years down the road, Jose Chameleone (well into the evening days of his music career) is also looking for allies to fight the second invasion on Ugandan music; Nigerian and Jamaican artists. He is seeking for allies from within! He has had to reconcile with some of his "foes" Goodlyf, Bebe and Bobi.
Gen Sevo has not sought for allies from within! He prefers the tigers across the Indian Ocean. He has also played chess on behalf of Uncle Sam in Somalia, DRC and now Juba! If you ask me, his legacy shall forever be shaped by the cards played across our borders not within. Jose Chameleone seems to prefer legacy shaped by the cards played within Lugogo not Abuja or Capetown. Sevo is in search of new friends. Sevo is unhappy with his old friends. Sevo is a man in search of a legacy. Sevo is a man on a mission, and so is Jose Chameleone.


New Vision's 8-year Declining Trend Worries Top Shareholder - See more at: has arguably been one of the biggest online media stories of the week. The business desk at Chimp Reports attempted to put into perspective the financial performance of one of Uganda’s best corporate entities. It created an online buzz, a healthy buzz too!

We thought we could put some of the issues raised into key focus and perspective. For starters, NSSF Uganda is not Vision Group’s top shareholder. With its 15,000,000 shares, the Pension Fund holds 19.6% shareholding a distant second to Governments 53%.

The Chimp Reports business desk reported that NSSF desires to see CEO Robert Kabushenga’ s plans on increasing revenue, improve operating efficiency, debt financing and a re-think of the electronic media strategy. We shall restrict ourselves to these salient issues and the financial ratios put across by the Chimp Investigations Team.

For starters, traditionally, there are limited ways of increasing sales revenue! In basic understanding, sales revenue is simply a product of selling prices and sales volumes. If you have 100 tomatoes and sell each at Ugx 100, your sales revenue is Ugx 10,000. If you want to increase your sales revenue, you can only increase the price per tomato to may be Ugx150 and thus earn total revenue of Ugx 15,000 or increase the number of tomatoes you put on the market to may be 150 and thus earn Ugx 15,000 in sales revenue (at same price of Ugx 100 per tomato) or you can increase both the sale price and sales volumes to may be Ugx 120 per tomato and 150 tomatoes respectively thus a sales revenue of Ugx 18,000.

What CEO Kabushenga has been doing with his expansion strategy is to have more products on the market thus have a higher market share and thus be able to increase sales revenue. The expansion in the electronic media and print media e.g. Urban TV, TV West, XFM, Kampala Sun etc are all attempts to increase the products ( read tomatoes) that New Vision has to offer and sell. The idea is that every time one is consuming a media product or service, they are consuming a Vision Group product. We ought to see the electronic media strategy with such lenses.

In modern day business, diversification is key and important. Overreliance on a single or very few products is a recipe for disaster. Secondly, diversification through mergers and acquisitions as exhibited by Vision Group helps to grow market share since they now have strong foothold across the country in both electronic and print media. Imagine this; the growing young and urban populations in upcountry Uganda e.g. Mbarara, Soroti, Gulu etc are consuming Vision group products and services e.g. TV West, XFM, Orumuri, Rupiny, ETOP paper, Kampala Sun etc. Vision Group’s diversification and expansion drive ought to be seen as a legitimate plan to increase sales revenue. But sales revenue is just half the story. And this brings us to the next issue; operating efficiency. Using our tomato illustration, you could make Ugx10, 000 in revenue from your tomato sales but if it did cost you Ugx 10,000 to grow, spray, clean, refrigerate and transport your tomatoes to the market, and then you will be left with no profit. In the context of Vision group, it grew its sales revenue from Ugx 71bn in FY 11/12 to Ugx 78bn in FY 12/13 but so did its costs of sales increasing from Ugx 50bn in FY 11/12 to Ugx 57bn in FY 12/13. It is clear that whatever increment in sales revenue they registered in 2012/2013 was wiped out by the increase in costs of sales! Gross profit was up by Ugx 0.89bn from Ugx 20.79bn in FY 11/12.
Profits after tax were down by Ugx 300 m from the Ugx 3.86bn in 2011/2012. To put this in some perspective, Ugx 300m is just Ugx 150m short of the dividends that would be paid to NSSF for their 15,000,000 shares at Ugx 30 dividend per share.(I guess that explains why they are jittery on all matters profitability).

Vision Group’s biggest challenge has been how to bring down costs of sales which naturally went up acquisitions orchestrated by Rob’s expansionist agenda. It means the wage bill went up, the utility bills, rent fees, training costs, operational costs, production costs, start-up and set-up costs etc all went up. According to the Vision Group Annual Report for FY 2012/2013, production costs account for 74% of the cost of sales. The other 26% (Ugx 14.9bn) is the cost of raw and packaging materials! The bulk of Vision Groups raw materials are imported so are subject to foreign inflation and foreign exchange pressures. Production staff salaries and wages were at Ugx 14bn representing 25% of cost of sales and 33% of production costs! This simply means that for every Ugx 100 Vision Group spends to produce its goods and services, Ugx 25 is salary or wage to a staff or worker on the production shop floor. Estimates indicate that Vision Group has a head-count of 1500 workers! For long, it has been one of the top employers of choice in the Uganda’s nascent corporate world, but owing to its current financial performance and weak economy, they have no choice but to down size. Some functions may have to be integrated, re-aligned and centralized e.g. Human Resource Management, Finance and IT could all be centralized at Head Office. Production planning may also require some new shift configurations to drive factory and operating efficiencies.  The other big production cost drivers at Vision Group are Utility bills, Advertising commissions, Depreciation of plant, machinery and equipment, machine repairs and promotional expenses. Utilities cost Ugx 1.3bn, Depreciation Ugx 4.3bn, and Advertising Commissions Ugx 6.4bn for the FY 2012/2013.

The word on the grapevine is that Rob is already driving strong cost reduction measures; apparently he walks the shop floor with an axe cutting costs and staff numbers in equal dimension. We wait to see the fruits of this necessary but painful paradigm. He has already increased the price of NEW VISION daily the flagship brand for the Group by 30%. It is apparent he has gone for the two pronged approach to increase revenue and profitability. Price increment may get him the desired sales revenue while cost cutting may get him the desired operating efficiency profitability. Like they say, the jury is still out on CEO Kabushenga’s expansionist agenda.

Agaba Rugaba
Socio-Economics Commentator.