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US$10M KENAFRIC'S INVESTMENT IN CHOCOLATE BUSINESS WHICH FAILED - THEIR BIGGEST MISTAKE, BHARAT SAYS new projects in the pipeline, which may begin at the end of 2019. How have you managed this growth, especially when your export market sprung to 70%, you increased the value of investments? We sometimes wonder how we managed! We started with 20 people, today we are at about 1800 people as a group. The good thing is that the banks had been watching our progress. We evolved over time to get out of the capital caps set by the Central Bank of Kenya and other financial institutions. Our strength was in a strong balance sheet, favorable cash flows, clear goals, our achievements and a capable management team. For us it has been the overall health of the business and not much to do with the capacity to provide securities that worked in our favour in our growth path. In 2005-2007 we took US$ 5 million loan from PROPARCO, a development financial institution partly owned by the French Development Agency (AFD), which is an equivalent of IFC in Europe. This funding was expensive, we nonetheless took it and it changed our name and reputation in the country and region. When we finished paying back the loan on time, Proparco approached us to go for US$ 20-30 million and not another US$ 5 million. However, we didn’t have any project for that much money. Today it is not an issue to get any kind of financing from a bank, we have surpassed that. This was the goal, by building on a journey to a strong reputation, credibility, focus, strong balance sheet and the like. This has been the basis of our success. A few years ago you brought in some private equity funders into your food side. How did you arrive at that and how significant is that for the company? I think for a family business that was the most significant step to take. Remember FOODBUSINESSAFRICA.COM
we had built from our foundation to this strong level in 2014/15. Our children who had opportunities elsewhere in the world were keen to come back to Kenya: it was their goal as they left. The headache was, what were these educated people coming to do back here? We had a business, by Kenyan standards big in size. In our confectionery line, the key raw material is sugar. One of our biggest suppliers took up one of my nephews to work with them for about a year to learn the ropes in sugar trade. My son, an aerospace engineer, worked for a British Petroleum firm in charge of North Sea oil fields. After two years he decided to return home. My son went into the production side of the business and my nephew joined strategic planning, finance and procurement but of course my brother Ketan is still handling the company’s procurement portfolio and all that. As a family, we decided, sugar being a political item and having faced a myriad of challenges, it was apt to look at private equity. Everybody from Helios to many more companies had been approaching us for years, but we were not ready. Thus, as a family we chose to hire two consultants to oversee the process. We did this for two reasons. One was for the founding shareholders to create liquidity and cash their shares and two, to pave the way for the young generation to take over the lead and run the business. Private equity will not be interested in me running the business, they want young blood. This was a long process with challenges, disturbances, lack of happiness at times within the family, but we had to come through that and settled on one among the many suitors. The private equity investors were looking for growth and that is why we have started in Uganda and the reason for the expansion plan this year. We will allow things to settle, then may be the next project will be in Ethiopia or West Africa. It is a process we are building and after a few years probably cash-in and go into something else. What's your take and advice to young businesses and entrepreneurs? Looking at the history of Kenyan businesses, most have been family owned. The challenge has been continuity especially when the founders grow old or are no longer there. The young generation may have divergent ambitions and dreams and may not want to enter the business, and this is the challenge I have come across. You have a vision, a dream and probably a product but you lack the financial muscle, marketing muscle, regulatory muscle and whatever other requisite muscle. My advice to the youngsters is to look towards private equity, venture capital and all these available
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THE STRENGTH OF OUR COMPANY IS A STRONG BALANCE SHEET, FAVOURABLE CASH FLOWS, CLEAR GOALS, OUR PREVIOUS ACHIEVEMENTS AND A CAPABLE MANAGEMENT TEAM funds. But then there must be an exit plan with them. If these young businesses can get an investor locally to invest and guide them, they should consider it. That’s the favorable way to grow while remembering that failure is part of life. FAIL actually means “First Attempt In Learning”. They should not get disheartened by failure. All the success stories have their failures, but they kept their goals and vision and remained focused. It’s of course easy to talk but managing the same is quite a task. They should be determined and plan their journey. As they say 5Ps: Proper Planning Prevents Poor Performance. This is an important doctrine. Emotions and thoughts are always fighting each other and how one makes a conscious decision to the right path is important. But above all, young people must express happiness in their pursuits. Be fun going, create something and go on the journey for a journey is never ended quickly, it’s like a life journey. There will be stops, gaps, decisions to be taken and to this, there is nothing cast in stone. With time a person’s thinking does change. We never thought we would go for private equity, tomorrow we could be a public limited company, so thinking keeps changing along the journey. As you usher in the next generation into the business are there any strains? What are the lessons to be learnt? How have you managed the challenging part of working with family? When you’re four brothers in a similar age-group and you’ve grown up together, you tend to know each well to manage yourselves. The challenges appear when the young Y-generation get into the mix and how you manage that transition is critical. We had our own goals that we focused on, we possibly achieved them. The focus of the young generation is diverse: brand development, serious operational efficiencies, technology investment, power and overall cost reduction. By the way we have won the Energy Management Awards (EMA) in Kenya for 5 consecutive years. We have made fantastic savings in energy and are now moving to water management. All these factors have enabled us to become JUNE 2019 | FOOD BUSINESS AFRICA
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