Kenya: BAT's Staff Exodus Weighs Down Company Operations

Source from:  The East African Standard (Nairobi) 18 December 2007 12/18/2007

Boardroom intrigues, disquiet with company operations and a quiet retrenchment programme have led to the departure of senior staff and a long-serving director at the biggest cigarette manufacturer in East and Central Africa - British American Tobacco-Kenya (BATK). The recent exit of former Managing Director, Mr Simon Wellford, Finance Director, Mr Philip Lopokoyit and Corporate and Regulatory Affairs Director, Mr Keli Kiilu, capped a nine-month period during which at least 20 senior employees have either resigned, been retired or sacked. Wellford and Lopokoyit were transferred to Nigeria. "You could call it a mass exodus. Many senior managers and staff have been leaving for other places. I don't want to call them greener pastures because many of those who left BATK went to much smaller companies," says a former senior manager who joined the exodus. Enquiries by FS revealed the exodus has seen the departure of close to 15 senior staff, including senior managers. The changes affected key departments such as human resource, corporate affairs, finance and marketing. Prior to his elevation to the MD's position, Mr Simon Welford was the company's general manager. He took over from Mr Chris Burell, who despite the transition, continued serving on the company's board as a non-executive director. So far, no reasons have been given to explain the unfolding situation, as enquiries by FS about this and other issues related to the operations of the company have not been responded to. Some of the former employees who agreed to talk to FS under a condition of anonymity, said they were summoned and offered conditional retirement packages. The new MD, Mr Nicolas Maistre, has largely remained out of the public eye, but is believed to have initiated a business mainstreaming programme that seeks to reduce overheads by creating a leaner and more efficient staff. Some staffers opted out due to what they referred to as stringent extra demands and uncertainty about the future of the company's operations. The uncertainty about BATK's future was sparked by a raft of by-laws and bans on public smoking by several local authorities and a profit warning it issued in July as a result of the new regulatory regime for the tobacco industry, which it said, could cut its profits. The efforts to enact tobacco control measures, including smoke-free legislation and health warnings consistent with some international practices were largely unsuccessful until about six months ago when some local authorities began enforcing no-smoking restrictions in public places. The Tobacco Control Act, which excludes streets from being classified as public places, only came into force about two months ago and the cigarette manufacturer still has to contend with arbitrary arrests of smokers by council askaris and confinement of smokers to smoking zones. Ultimately, this is expected to result into a reduction in sales volumes for the cigarette manufacturers. The company's share price has also declined by a whooping Sh115, from an all time high of Sh250 about 12 months ago, to a low of Sh135 by close of business last Friday, a situation dealers at the bourse attribute to investment perceptions brought about by the effects of the regulations. Besides Maistre, other new members on the company's board of directors include Mr Leonardo Senra (Finance Director) and Mr Keith Gratton, who replaced Kiilu as Corporate and Regulatory Affairs Director. According to the World Health Organisation (WHO), Kenya is now the third largest cigarette manufacturer in Africa and BATK is the largest cigarette-manufacturing company in East and Central Africa. But Kenya's role as the epicenter of cigarette manufacture only began catching attention in 2004 as a result of a report by an industry lobby group that brought to light the country's deep involvement in the sub-sector. The report by Action on Smoking and Health (Ash), which has been instrumental in pushing for various smoking bans in public places in other countries, accused BATK and other tobacco companies of being instrumental in helping block the enactment of an effective tobacco control Act, mostly through lobbying legislators. Generally, the global tobacco environment is under pressure from a myriad of factors, including concerns that smoking can lead to serious health risks. According to the Ministry of Health, smoking prevalence rates among children aged under 15 years now stand at between 13 per cent and 15 per cent, while among those aged between 18 and 29, the rate is estimated to be 45 per cent, college and university students (52 per cent). The ministry also estimated that while tobacco taxation raised around Sh5 billion each year, it costs the country five times as much in disease, disability and death. Despite these concerns, BATK remains one of the largest corporate tigers in the economy and has managed to pay out dividends consistently over the past five years. Last month, the company announced a second interim dividend of two shillings for each ordinary share of Sh10 for the year ending December 31, 2007. The firm also reported earnings results for the six months ended June 30, 2007, during which it announced an eight per cent increase in profit for the six-month period ended June 30, 2007. The pre-tax profit rose from Sh1.02 billion to Sh1.083 billion. The company explained that the growth was mainly driven by a surge in domestic volumes following enhanced distribution and continued economic growth. The Kenyan arm of the transnational British American Tobacco (BAT) rules the roost with close to 60 per cent of market share, followed by StanCom Company (25 per cent) and Mastermind Tobacco Kenya. The firm engages in the manufacture and sale of cigarettes in Kenya. It primarily offers its products under various brands, such as Dunhill, Benson & Hedges, Pall Mall, Embassy, Sportsman, Sweet Menthol, Crown Bird, Safari, Score, Rooster, and Crescent & Star. The company also offers contract-manufacturing services for tobacco related products. The company has tobacco leaf operations in Kenya and Uganda where it contracts over 35,000 tobacco farmers. Its manufacturing operations in Kenya are the largest in the region from where it exports its products to East, Central and Southern Africa countries. The Ash report also indicated that other than direct health implications, the growing tobacco epidemic among breadwinners in Kenya is having far-reaching effects on dependants' well-being, including in nutrition and education. In 2004, as BAT and the tobacco lobby battled over the Tobacco Bill, the report accused BATK of hosting MPs at an exclusive beach hotel in Mombasa to discuss concerns about the proposed new law. But the company denied these claims saying it had, for the preceding five years, actively supported the enactment of a balanced and pragmatic tobacco legislation. Enditem