Over 30,000 Centum investors are at risk of losing an investment that most have held for over five decades.
According to the company’s annual records, in over 14 years Centum James Mworia has earned a remarkable Sh1.1 billion in remuneration, which translates to Sh78.5 million each year, the most of which has been paid in bonuses.
Impressively his executive remuneration amounts for more than 30 per cent of the total staff costs of Sh3.5 billion throughout that time period, which includes wages, medical, pension, bonuses and other benefits.
However, 37,000 Centum stockholders received only Sh3.8 billion in dividends during the same time period.
Centum’s share price has remained constant throughout the same period, returning only 1 per cent per year to investors, with the market capitalization rising from Sh7 billion to Sh7.7 billion.
These investors, most of whom are in their eighties, would have been better suited putting their money into a government bond with a low risk and a 12 per cent annual yield with excellent cash flows.
The firm’s increasing and unsustainable debt levels have sparked market speculation, which has been reflected in part by the stock’s decline as the market tries to price in the dangers connected with the high debt.
What’s more remarkable is the lack of analyst reports or even media articles covering this developing worry, and the corporation and its auditors have handled a lot of material very well.
Centum, for instance, has resorted to very creative reporting by splitting the consolidated income statements into segments that break down the finance costs into smaller (more palatable) sizes according to business type to distract less sophisticated minds from the bigger picture – comparing the 2021 annual report to the previous year’s annual report.
This type of segmentation is usually done in the notes to the financial statements.
Debt repayments are obligations that require cash flow to service the payments, real estate assets are illiquid assets that create cash flows over extended periods of time.
To get a sense of the magnitude of the problem, compare Centum’s collection record from its real estate portfolio to its interest payments alone.
Looking at the financial status of the Two Rivers Mall, which displays current assets of Sh2.5 billion compared to current liabilities of Sh11 billion, one can see that some of these corporations are technically insolvent.