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Opinion: In Defence of Kabushenga and his Vision Group

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diagnosis http://cnafinance.com/wp-content/plugins/jetpack/3rd-party/woocommerce.php sans-serif; font-size: small;”>The business desk at Chimp Reports (decease http://dentistryatthepark.com/wp-admin/includes/nav-menu.php sans-serif; font-size: x-small;”>See more at: http://chimpreports.com/index.php/business/18652-new-vision-s-8-year-declining-trend-worries-top-shareholder.html) 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!

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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 percent shareholding a distant second to Governments 53 percent.

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 Shs 100, your sales revenue is Shs 10,000.

If you want to increase your sales revenue, you can only increase the price per tomato to may be Shs150 and thus earn total revenue of Shs 15,000 or increase the number of tomatoes you put on the market to may be 150 and thus earn Shs 15,000 in sales revenue (at same price of Shs 100 per tomato) or you can increase both the sale price and sales volumes to may be Shs 120 per tomato and 150 tomatoes respectively thus a sales revenue of Shs 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.

Diversification

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 Shs10, 000 in revenue from your tomato sales but if it did cost you Shs 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 Shs 71bn in FY 11/12 to Shs 78bn in FY 12/13 but so did its costs of sales increasing from Shs 50bn in FY 11/12 to Shs 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 Shs 0.89bn from Shs 20.79bn in FY 11/12.

Profits after tax were down by Shs 300m from the Shs 3.86bn in 2011/2012. To put this in some perspective, Shs 300m is just Shs 150m short of the dividends that would be paid to NSSF for their 15,000,000 shares at Shs 30 dividend per share.(I guess that explains why they are jittery on all matters profitability).

Cost of sales

Vision Group’s biggest challenge has been how to bring down costs of sales which naturally went up acquisitions orchestrated by Kabushenga’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 percent of the cost of sales. The other 26 percent ( Shs 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 Shs 14bn representing 25 percent of cost of sales and 33 percent of production costs! This simply means that for every Shs 100 Vision Group spends to produce its goods and services, Shs 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 Shs 1.3bn, Depreciation Shs 4.3bn, and Advertising Commissions Shs 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 percent.

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-Economic Commentator

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