Centum Investments Ltd has taken a cautious approach in venturing into new business lines as the firm moves to preserve capital in government bonds to cushion it against volatile operating environment that pushed it into loss making territory in the financial year ending March 31, 2021.
The move comes barely a year after the firm, which is majority (30.94 percent) owned by the late businessman Chris Kirubi suspended further private equity (PE) investments over valuation fears related to the Covid-19 pandemic.
Centum Group posted a net loss of $12.14 million during the financial year ended March 31, 2021 compared with a net profit of $41.25 million last year, weighed down by declining sales and investment income.
According to the firm’s audited financial statements, the bulk of the losses in the consolidated statement of comprehensive income was driven by the Two Rivers Development Company (TRDC) Ltd in which Centum holds 58 percent stake. TRDC booked a loss of $16.96 million during the same period.
Centum Chief Executive James Mworia told The EastAfrican in an interview that the firm had opted to increase its stake in market securities, which it considers a cash-yielding portfolio that generates recurrent income.
“The purpose of diversification was to find new sources of value. That is the idea. Can I get an opportunity that can create significant value for Centum? All these lenders are willing to lend us for new opportunities but the issue now is finding those opportunities. It is not as easy because if you get a wrong opportunity you lose your money and our idea is not to lose money,” he said.
Centum has increased its investments in government securities to Ksh7.5 billion ($66.96 million) from Ksh4.1 billion ($36.6 million) in 2019, according to its annual report (2021).
“The key thing is finding entities that we can scale up, an entity that can make four to five times return, which is not easy. It is not easy to find that kind of entity where you can work on, scale it up and then be able to exit at a profit,” Mr Mworia said.
The firm has made a strategic shift to fund its investment using internally generated funds as opposed to debts whose interest payments previously threatened its operations.
Currently Centum is indebted to the tune of $35.71 million from a high of $142.85 million in 2019.
“Having accomplished the foregoing objectives of debt repayment and enhancement of recurrent cash income, I believe we are well-positioned to generate sufficient free cash flows into the future that will help improve distributions to the shareholders,” he said.
Prime sector focus
The firm, which is listed on the Nairobi Securities Exchange (NSE) adopted a five-year (2019-2023) plan dubbed ‘Centum’s 4.0 Strategy’ in which it seeks to scale down investments in real estate to between 45 percent and 55 percent from 64 per cent of the total assets and reduce investment in marketable securities to about 10 percent from 16 percent of the total assets.
However, as at March 31 this year, its investments in real estate, private equity (PE) and Marketable securities stood at 63.5 percent, 20.5 percent and 16 percent respectively.
“We are currently clearing the debt and scaling up the existing entities. If we get some [investor] exits, we could use part of the money to do a share buyback,” said Mr Mworia.
Centum is currently focused on making investments across six sectors in the East African market including Financial Services, Fast Moving Consumer Goods (FMCG), Energy, Agribusiness, Education and Healthcare with a bias towards Buyout and Growth transactions.
In 2019, it completed the sale of beverages companies (Almasi Beverages, Nairobi Bottlers and King Beverage Ltd) realising total sales proceeds of $175 million.
The firm’s existing PE portfolio companies include Sidian Bank, Isuzu East Africa, Longhorn Publishers, NAS Servair and ACE Holdings.
Centum is also seeking to sell part of its shareholding in TRDC Ltd to retire a Ksh4 billion ($35.71 million) short-term debt whose repayment is taking a toll on its finances.
TRDC has a total debt of $80.35 million comprising $44.64 million and $35.71 million long term and short term debts respectively.
The proportion of shares to be surrendered to the new investors will be determined based on the current valuation of the Two Rivers Development project whose initial investment cost is estimated at $223.21 million.
Centum invested $18.5 million into the project for a 58 percent controlling stake, with the remaining shares split between the Aviation Industry Corporation of China (Avic) and ICDC at 39 percent and three percent respectively.
The restructuring of the TRDC balance sheet involves adding equity and taking out the debt.
TRDC and Old Mutual Property Africa Investment Company each own 50 percent in the Two Rivers Lifestyle Company Ltd the developer of the $142.85 million Two Rivers Mall in Nairobi.
The Two Rivers Development Group narrowed its net loss to $16.51 million during the financial year ended March 31, 2021, from $53.12 million in the last financial year.