Companies: Last November, KPMG and H2 Ventures released a report listing their fourth annual fintech innovators (‘Fintech100’) comprising 50 established companies and 50 emerging companies to watch in Fintech. The companies are innovation across sector like banking, payments, remittances, spending, artificial intelligence, data management, and insurance.
They noted that China continues to dominate the fintech landscape, with 5 of the top 10 companies on the list. Digital or new banks in the list include Solaris Bank, Nu Bank, and Atom Bank.
Some notable companies on the list;
ZhongAn (online property insurance)
Stripe (frictionless financial transactions)
OurCrowd provides an equity crowdfunding platform for accredited investors to access and invest in Israeli companies)
Circle (free international remittance via email)
Xapo allows users to utilize their bitcoins while Xapo safely stores them)
Future Finance (gives students loans of 2,000 to 40,000 pound, within 24 hours that can be paid over 5 years)
Coinbase (enables digital currency transactions)
AfterPay Touch (from Australia gives online shopping users an option to spread purchases across four equal installments)
Robinhood (free stock trading of US stock and ETF’s)
Alan (Europe’s first digital health insurance company)
Bud (enables users to combine bank accounts and get personalised insights from a single source)
Capital Float (from India provides collateral-free working capital loans to small businesses within 3 days)
Cuvva (provides short-term, flexible car insurance to consumer groups, including taxi- drivers that range from 1 hour to 28 days)
Flutterwave (from Nigeria, is in over 36 African countries, enables individuals and businesses to accept online and offline payments)
GrassRoots Bima (from Kenya matches customers with micro-insurance products – known as WazInsure)
KredX (from India matches SMEs seeking working capital with investors looking for above-average yield on short-term investments)
Leveris (banking platform for digital retail banks)
Riby (Nigeria cooperatives enabler)
Sensibill (allows bank customers to get their receipts in a few different ways)
SoCash (addresses cash logistics issues for banks)
Token (an API banking platform)
Valiant Finance (an online broking platform for SME’s)
Influencers: Also, Jay Palter has a list of 195 fintech influencers for the year 2018; have only heard of a few – Brett King (who visited and spoke in Nairobi in January 2017), Yann Ranchere, Elon Musk and Vinod Khosla, but will check out the rest.
Also, the new CB Insights report on fintech observations and trends to watch in 2018 cites:
No billion-dollar fintech M&A in 2017
Chinese firms drove fintech IPOs in 2017
Europe saw record for fintech investing in 2017, as Asia and the US saw fintech funding recede
Amazon gets more aggressive in fintech — outside of the US, but Amazon’s US efforts are a far cry from Tencent and Ant Financial’s global fintech forays in China
The largest deals in 2017 went to companies providing insurance…
Startups are allowing Chinese investors to access overseas securities and In 2017, Ant Financial’s Yu’e Bao became the largest money market fund in the world
Banks forgo partnering in favor of fighting fintech with fintech
Kenyan banks have been given more time to implement increased provisions as part of the capital compliance in new accounting rules IFRS9.
According to KPMG IFRS9 is still effective as at 1 January 2018 for all entities reporting under International Financial Reporting Standards (IFRS), which includes companies in Kenya. However, because IFRS 9 is likely to have a significant negative impact on banks’ capital adequacy ratios, CBK has given banks a 5 year period in this regard to meet the resulting capital requirements from implementation of IFRS 9. In practice, this means that CBK will allow Banks to stagger the effect of the increase in provisions on capital adequacy ratios over 5 years.
Last year, KPMG joined Barclays Kenya in unveiling IFRS 9 by giving the perspective from the auditor’s side on how they were assisting banks to prepare for the change over including reconciling the enormous amounts of data called for by IFRS9 rules and working with banks to develop models including for better management decision-making and provisions.
See the KPMG IFRS page with stories on how “All corporates need to assess the impact of IFRS 9” and “How corporates might be affected” as well as the recently issued guidelines from the Institute of Certified Public Accountants of Kenya (ICPAK) on the requirements of IFRS 9.
Barclays Kenya held a workshop session in Nairobi today to explain about the coming of IFRS9, a set of new accounting standards that will replace IAS 39 on January 1, 2018. which will have a great impact on banks, their capital, customer assessment and ultimately their profits.
All institutions will adopt the impairment standard in 2018.
One challenge will be on how to report for impairment: Banks will have to do three sets of accounts, one for impairment according to Central Bank of Kenya (CBK) rules, one for the Kenya Revenue Authority to calculate taxes on profit after impairment, and another for Impairment according to IFRS9. This makes compliance a costly affair.
IFRS9 is data intensive, so auditors will be concerned with the quality of data and reconciling it to bank financial statements. They will have to trust that management is providing the right data to make decisions, and if not, they will engage with the bank board, then the bank regulator (CBK).
Banks need systems that are able to capture a lot of this customer data and products and come up with impairment models.
Banks will use predictive analytics, and big data to manage risk in customer lending.
IFRS9 brings cross-product default, and if a customer defaults on one loan item like a credit card, a bank has to provide for impairment across all products advanced to them
Expect a change from the current practice of using credit reference more from the negative perspective (a blacklist of borrowers) to a good one (banks will check to see who has been paying on time and offer them better rates)
Collection strategies will become very important, given the financial impact of IFRS9 for defaults over 30 days and 90 days.
Kenyan bankers are working to enable customers to get access to their own data and shop for products that will be easy to compare across different banks. This will be an enhancement of the loan calculatorthat the bankers association rolled out earlier.
IFRS9 seems to give an incentive for banks to lend shorter duration loans.
IFRS9 gives incentive to shorter loans
With IFRS9 banks estimate the credit risk of an instrument, at the point of origination – so losses are recognized earlier.
Previously, under IAS 39. banks only recognized a loss once an event occurred e.g customer does not pay a loan for many months. Now banks will have to expect and estimate some defaults and recognize the loss upfront.
Under IFRS9, accounting provisions are expected to be higher than the current regulatory provisions.
Financial Statement Changes
From day one of IFRS9, there will be an impact on retained earnings and a reduction in Tier 1 capital at all banks
Under IFRS9, letter of credit, financial guarantees, performance guarantees, unused credit cards, non-traded government bonds will also be used to calculate impairment.
Studies show that IFRS9 running concurrently with IAS 39 can impact on the capital of a bank by between 25 to 100 basis points.
Are government securities still risk-free for local traders and investors? Not so under IFRS9. But since Kenya has never defaulted on debt so IFRS9, provisioning will be minimal compared to bonds of some other nations
On 1 Jan 2018, international accounting standard IFRS9 will replace IAS 39.
Kenyans banks are at a fairly satisfactory stage in terms of getting ready for IFRS9 with Tier I banks, and those with global parentage at an advanced stage compared to local indigenous banks e.g. Barclays has been working on IFRS9 for two years
ICPAK (Institute of Certified Public Accountants of Kenya) is working on. rules for the consistent and uniform application of the IFRS9 standard and these will be ready by the end of October.
ICPAK will have other forums to further explain IFRS9 as will the Central Bank.
CBK will come up with new classification of loans to replace the current measures of normal, watch, sub-standard, loss etc..
Last week brought news that Co-Operative Bank had a new Chairman – John Murugu, who has previously worked at Treasury and CBK, is to take over as chairman on October 1, 2017, replacing Stanley Muchiri who is retiring after attaining the mandatory age of 70.
The age of seventy as a cap for directors to serve on corporate boards has been paid lip service, until recently. But this year has seen prominent septuagenarians (70+ years) exit from financial firm boards including Peter Munga as Chairman at Equity Bank Group, Francis Muthaura as Chairman of Britam Holdings and now Mr. Muchiri who joined the board of Cooperative in 1986 and became Chairman in 2002. There could even be one more at Centum Investments with regard to top shareholder and director, Dr. Chris Kirubi who is also a former Chairman of the firm.
Dr. Kirubi was re-elected to the board in 2015, but the Centum AGM next week, where three other directors – Dr. Jim McFie, Henry Njoroge, Imtiaz Khan, all retire from the board, has an oddly-worded resolution – “Director above the age of 70 Years” Pursuant to paragraph 2.5.1 of the Code of Corporate Governance Practices for Issuers of Securities to the Public 2015, to approve the continuation in office as a Director by Dr. Christopher John Kirubi, who has attained the age of seventy (70) years, until he next comes up for retirement by rotation.
Section 2.5.1 of the Capital Markets Authority (CMA)Code of Corporate Governance Practices for Issuers of Securities states that it is desirable for board members to retire at the age of seventy years. Other changes in the code which are now been enforced more strictly include:
The Board shall rotate independent auditors every six to nine years (this is now happening at some banks that have had the same auditors for more than a decade),
Auditors now narrate in the annual report to shareholders on key audit matters they encountered the company.
The status of Independent directors shall be checked annually, and they must not be associated by way of being an advisor to the company, or having a relationship – business or personal, with major shareholders or have cross-directorships with other directors.
A director of a listed company (except a corporate director) shall not hold such position in more than three public listed companies at any one time.
Independent directors can’t serve for more than nine years.
That a comprehensive independent legal audit is carried out at least once every two years by a legal professional in good standing with the Law Society of Kenya.
The Chairperson must be non-executive and not involved in day-to-day running of the business ( e.g. there wide expectations that Michael Joseph would play such a role as Kenya Airways chairman).
Publication of director resignations in the newspaper.
More engagement with institutional investors and media.
Following up from last year, three companies that had their year-end in March 2017 – Centum, Kenya Airways, and Safaricom have just published their annual reports. Later this month, they will all have shareholders annual general meetings – Safaricom’s will be on September 15, Kenya Airways, who already had an EGM will have their AGM on 22 September, while Centum’s will be on September 25th at Two Rivers, Nairobi.
Notes from the annual reports.
Has a massive 234-page annual report (up from 192 pages), and the company has 37,163 (last year 37,325) shareholders. 44 shareholders have more than 1 million shares.
Board changes at the AGM: New chairman Donald Kaberuka will meet shareholders, and this year Henry Njoroge Imtiaz Khan and Dr. James McFie all step down from the board.
Shareholders will also be asked to approve the incorporation of ten Ramani Arch companies as Vipingo subsidiaries, Rehati Holdings, Zahanati Holdings Greenblade Growers, and a Greenblade EPZ.
Centum will pay shareholders Kshs 1.2 per share dividend (up from 1.0 last year)
Had 86 billion assets. Profit was Kshs 1.5 billion for the year then added with other gains from value changes, this reached Kshs 6.1 billion.
Their auditors, PWC, flagged issues like loan impairment at Sidian, loans at Chase Bank, the value of unquoted assets, the value of goodwill, and the value of investment properties.
Centum shareholders to meet at Two Rivers.
Centum has 35 billion worth of subsidiaries including Two Rivers Development (50% of lifestyle centre and 100% of water, ICT, apartments, and phase 2) , GenAfrica Asset Managers (73%), Almasi Beverages (52% of Investment holding company for Mount Kenya Bottlers, Kisii Bottlers and Rift Valley Bottlers), Bakki Holdco (Sidian Bank) and Vipingo Estates
Associates: Centum sold off their entire 26.4% of KWAL (for Kshs 1.1 billion) while at Longhorn they raised their stake to 60%.
Unquoted investments include General Motors East Africa (GMEA – estimated Kshs 3 billion worth), Nas Servair (estimated Kshs 765 million) and Nabo. NAS, where they own 15% opened three Burger King restaurant franchise outlets in Kenya. Centum still owns 17.8% of GMEA after Isuzu bought a majority 57% stake from GM. They also own 25% of Platinum Credit that provides loans to civil servants and has 80,000 customers.
Their Lulu Field acquired 14,000 acres in Masindi Uganda for agriculture.
They own 27.6% of Nairobi Bottlers which accounts for 47% of the Coca Cola sold in Kenya.
In energy, they own 37% of Akira geothermal and 51% of Amu Power.
Managers earn more from performance bonuses than salaries.
They have borrowed Kshs 1.4 billion from Coca Cola Exports (for Almasi to buy crates and bottles), 3.1 billion from First Rand, Kshs 982 million from Cooperative Bank (for working capital), Kshs 573 million from Chase Bank (for infrastructure at Two Rivers and vehicles for Longhorn), and Kshs 440 million from KCB (for machinery at Mt. Kenya Bottlers)
They are owed Kshs 12 billion by related parties including 1.1 billion by Two Rivers Development, 3.1 billion by Centum Exotics, 3.3 billion from Centum development, 1.3 billion by Mvuke (Akira geothermal), 672 million at Vipingo Development and 533 million from Investpool Holdings.
The report is 172 pages (up from 149 pages) and KQ has 79,753 shareholders (up from 78,577).
Going Concern: While their auditors KPMG have a material matter about KQ’s uncertainty as a going concern, the Directors have prepared the consolidated and company financial statements on a going concern basis since they are confident that the plans described above provide a reasonable expectation that the Group and Company will be able to meet their liabilities as and when they fall due and will have adequate resources to continue in operational existence for the foreseeable future. The Directors believe the plans above will improve the Group and Company’s profitability, cash flows and liquidity position.
Sebastian Mikosz takes over as Group Managing Director & CEO, replacing Mbuvi Ngunze.
Tax treatment: the accumulated tax loss of Kshs 71 billion of Kenya Airways and Kshs 782 million of JamboJet will be carried forward for ten years and used to offset future taxable profits.
The fleet in 2017 had 39 aircraft down from 47. The board approved the sale of 6 aircraft, and 5 have since bene sold. Also, two Embraer 170’s were returned early to the lease owners while three Boeing 777-300 were leased for four years by KQ to Turkish Airlines with another two Boeing 787-800 leased to Oman Air for three years.
Borrowings Barclays Bank PLC – Aircraft loans 325 million at 4.87%, Citi/JP Morgan – Aircraft loans Kshs 71,649 million at 1.89%, African Export – Import Bank (Afrexim) – Aircraft Loans Kshs 21,050 million at 4.82%, and short-term facilities of 24,776 million at 8.58%, and Government of Kenya 24,540 million at 8.58%. The short term facilities were drawn down from Equity Bank, Jamii Bora Bank, Kenya Commercial Bank, Commercial Bank of Africa, I & M Bank, Chase bank, National Bank of Kenya, Diamond Trust Bank, Co-operative Bank, NIC bank and Ecobank for the financing of pre-delivery payments for ordered aircraft.
On Time Performance (“OTP”): The top delays contributors were:1) Aircraft serviceability and availability;2) ATC restrictions and weather;3) Passenger and ramp handling;4) Crew shortage; and5) Connectivity due to new schedules with more efficient use of aircraft.
13 incidents related to disruptive passengers/inappropriate behaviour were reported in 2016/17 financial year compared to 21 incidents reported in the prior year.
A total of 70 bird strikes were reported during the period under review compared to 63 cases in the prior year. Most of the reported bird strikes caused minimal damage to our aircraft, but several resulted in costly maintenance, parts replacement, and operational delays. These include two reported air turn back incidents and two rejected take-offs due to bird strikes.
The report is 144 pages (down from 172) and the company has 582,775 shareholders (down 600,000 shareholders last year and 660,000 the year before that).
At the AGM, shareholders will approve payment of a dividend of Kshs 0.97 per share (out of EPS of 1.21) – for a total dividend payout of almost Kshs 39 billion. Last year they paid Kshs 57 billion in dividends (35% of which went to the government to whom they also paid Kshs 84.3 billion in taxes and other fees).
Shareholders will approve a name change to Safaricom PLC. Also, they will vote on special board change resolutions following the Vodacom Vodafone deal; these will mandate that the Chairman and all independent directors of Safaricom be Kenyan citizens, and also to require that a super-majority of the board (75% of directors) vote to approve changes to the business plans, appointments of the managing director and chief financial officer, and branding of the company – which previously Vodafone had a direct veto over.
Balance sheet of Kshs 108 billion down from 117 billion.
Bonga points (a loyalty scheme) now total Kshs 3.3 billion (up from 3.2 billion) are a liability to be converted to revenue as customers utilize their points.
Safaricom also has deferred revenue of Kshs 3.4 billion from unused airtime and bundles (up from 2.7 billion) which include Kshs 243 million of managed services under the police contract.
For, the National Police Service communication project an amount of KShs7.5 billion was received during the year and the outstanding balance at the year-end was KShs4.47 billion.
The Group has short-term borrowing facilities with Commercial Bank of Africa, Standard Chartered Bank and Barclays Bank of Africa.
Safaricom has an active ESOP: 13.7 million shares historically valued at KShs193.2 million (2016: 30.4 million shares valued at KShs375.12 million) vested and were exercised by eligible staff.
Risks: their auditors, PWC, flagged issues such as accuracy of revenue recognition, while
Safaricom itself considers business risks including terror and cyber attacks, competition (from companies like WhatsApp), the regulatory environment and weakened economic growth.
They have an Insider trading policy. Directors and staff are made aware that they ought not to trade in the company’s shares while in possession of any material insider information that is not available to the public or during a closed period.
Subsidiaries are One Communications, Instaconnect, Packet Stream Data Networks, Safaricom Money Transfer Services, East Africa Tower Company, IGO Wireless, Flexible Bandwidth Services, Comtec Training and Management Services, and Comtec Integration Systems – all 100& owned, while The East African Marines Systems Limited (TEAMS) is an associate company where they own 32.5%.
New products and innovations include Blaze, Flex and M-Pesa Kadogo under which they waived all charges for m-pesa transactions smaller than Kshs 100 ($1).
Besides partnerships such as M-TIBA, Eneza and M-KOPA, they had others with women in technology, Little Cabs, athletics and music. Also, the Safaricom Spark Fund invested in six companies – Sendy, mSurvey, Eneza, Lynk, FarmDrive, and iProcure.
The company donated Kshs 381 million to the Safaricom foundation.
Twaweza – when we come together, great things happen– is the next phase of the Safaricom brand.