Category Archives: Corporate governance

Kenya’s Money in the Past: Bethwell Ogot Footprints on the Sands of Time

My Footprints on the Sands of Time is an autobiography by Professor Bethwell Ogot (wikipedia),  an eminent academic scholar. It is a tale of a young man overcoming incredible hardships, and going through early schooling at Maseno, and later through winning scholarships and prizes, on to excelling at Makerere, St. Andrews (Scotland) and teaching with Carey Francis at Alliance High School. It also touches on his work and roles in the establishment of the University of Nairobi, and Maseno University, and at his travels to present papers and speak at prestigious conferences and other institutions across the world.

Ogot narrates tales on growing up in Luo culture, seeing emerging economic changes e.g. he took a honeymoon trip to Uganda in 1959 traveling on first class from Kisumu to Kampala via Nakuru, a twenty-seven-hour train journey. Later, when his father died on August 30, 1978, this was the day before Kenya’s first president Mzee Jomo Kenyatta was to be buried, and it was a period when the sole broadcaster – the Voice of Kenya refused to publish any other death announcements, newspapers would not publish any other obituaries as a sign of respect to Kenyatta, and coffin-makers were not willing to make any other coffins.

He was close to former schoolmates, who were now in government and its leaders. Ogot was waiting to meet Tom Mboya for lunch at the New Stanley Hotel when Mboya was shot (his death was not unexpected to his friends), and Ogot had an encounter with Mboya’s killer who was fleeing the scene.  He writes of his work to establish and get government and financial support for the Ramogi Institute of Advanced Technology – RIAT and a delicate dance with community leaders including Oginga Odinga who was firmly out of government.

The book has a wealth of information on corporate governance and management from Ogot’s time at regional bodies, parastatals, international organizations, donor-funded ones, universities that were in slow decline and government. He writes of working in research and publishing, and struggling to document and publish African history. Also of his times at the East African Publishing House that published books on political science, history, geography and a modern African library with much opposition from British Publishers who controlled publishing and later from government officials who set out to shut down independent academic stories. They published Okot p’Bitek’s Song of Lawino that some critics considered a terrible poem ahead of its publication but which went on to be celebrated and sell over 25,000 copies.

There are also stories of navigating the East African Legislative Assembly, travels around East Africa, interacting with leaders and observing actions that were either supporting or undermining the East African Community. Uganda’s President Amin spoke of supporting the community even as he launched Uganda Airlines that he said would only do domestic flights in Uganda. There was also the importation of goods for Zambia through Mombasa that undermined the Dar es Salaam port and the Tazara railway, so Tanzania banned Kenyans trucks with excess tonnage from using their highways, and Kenya retaliated by closing its border with Tanzania. Officials in different countries also tried to keep community assets from leaving their borders, and Kenya grounded planes and withheld fuel of East Africa Airways which owed money to Kenya banks in a move designed to hurt vast Tanzania the most.

The most shocking tales are from his time working at the Museums of Kenya and its spinoff that saw Ogot as the first director of The International Louis Leakey Memorial Institute for African Prehistory – TILLMIAP (see an excerpt). It is a serious indictment of Richard Leakey who regarded TILLMIAP as his personal family fund-raising institution and who, with the support of Charles Njonjo in government and diplomats and donor agencies, warded off transparency and Africanization efforts – and was eventually to hound Ogot out of the institution.

Another tale is of when, as the candidate representing Africa on the executive board of UNESCO, he ran for the Presidency of the General Conference. But what should have been a formality of confirming his position became a long process after a surprise Senegalese candidate emerged to run against him – and France lobbied Francophone countries to only vote for a French-speaking African candidate, rules were changed, documents forged, and additional multiple election steps added before Ogot finally won.

The 500+ page book by Prof. Ogot does not have an index, but it’s worth reading all over again.

Kenya’s CBK risk safeguards against bank laundering and terror financing

The Central Bank of Kenya (CBK) has published new guidelines to assist Kenyan banks to assess and mitigate the risk that their institutions and systems may be used for money laundering (ML) or terrorism financing (TF).
They risk rules stipulate, among other proposals that:
  • Senior management of banks are to implement board-approved money laundering/terror financing policies.
  • Bank staff are to prepare periodic reports on money laundering and terrorism finance for their senior management and boards of the bank and also communicate these to the CBK. 
  • Financial institutions will be required to appoint a money laundering reporting officer who will be the point of contact for CBK.
  • Banks should assess and rank TF and ML instances and actions in terms of high, moderate, and low risk. 
  • They should identify countries and regions that are high risk for business; high-risk includes countries subject to sanctions from the UN and other credible organizations, countries that don’t have appropriate banking safeguards and countries known to sponsor terrorism.
  • Banks are to assess their customers for money laundering and terror financing risks; suspicious customer activities include frequent and unexplained movements of money to other accounts, or other institutions, and to far locations. They should also look at politically exposed persons who bank with them including prominent public figures, senior politicians, judicial officers, corporate CEO’s who dealing with them, or their families, may bring a reputational risk to the bank.
  • Banks are to assess their service delivery channels for money laundering risks. They are to pay attention to cash-intensive businesses, including supermarkets, convenience stores, restaurants, retail stores, liquor stores, wholesale distributors, car dealers. 
The guidelines follow an earlier directive on paper bag banking from two years ago. The new ML and TF rules are in draft form and bankers and any interested persons are invited to send comments to the CBK on the proposals before January 31, 2018.

Government Guarantee to Kenya Airways and Shareholding Increase

Today the Kenya government signed guarantee deals to secure Kenya Airways (KQ) continued financial support from EXIM Bank US, and a consortium of Kenya banks and also converted its debt to more equity, significantly altering the ownership structure of the airline.

The Government had advanced loans of Kshs 4.2 billion and $197million to KQ, and the debt conversion will see a 19.1% increase in their shareholding. Aside from, that Kenyan banks, which were owed $217 million, received a 38.1% shareholding in KQ in exchange for $167 million of that debt.

The $267 million government debt and bank conversions are part of a series of complex restructuring deals. The resultant shareholding of KQ will be Kenya Government 48.9%, Kenyan banks 38.1%, KLM 7.8%, and other shareholders will have 5.2%, after a  massive dilution that shareholders approved at an EGM in August 2017. Not all bank and all government debts were converted as that would have seen the government stake go above 51% and they wanted KQ to remain a private company, not a state/parastatal one. The restructured board will comprise 3 directors from the Government, 2 from the banks, and KLM will have 1 representative.

Treasury Cabinet Secretary Henry Rotich said that the guarantee and restructuring by the government was not a bailout and the Government expected repayments of dividends from KQ within the next decade. The Government had been faced with two options with regard to KQ one of which (folding the airline) it could not pursue, and it chose the other, to support the airline, for which, the Cabinet confirmed through an independent business case study by the Seabury Group, that the airline could, through shareholder support, be turned around and have a viable future. He said the capital optimization would enable the airline to trade on its own balance sheet.

Transport Cabinet Secretary James Macharia said that aviation sector, led by Kenya Airways,  contributes 10% to Kenya’s GDP and was a central engine that supports other economic activities like investments, horticulture, and tourism. Also by having a strong KQ, this would strengthen the case to make Nairobi’s JKIA airport a regional hub and his Ministry was in the process of finalizing plans to add a second runway and expanding existing terminals to enable the airport to serve 12 million travelers a year.

The bank shareholding will be through KQ Lenders Co, a special purpose vehicle that will be managed by Minerva Fiduciary Services of Mauritius and the agreement was signed by Madabhushi Soundararajan a career-banker, as director.

Safaricom CEO Leave and Impact

Safaricom is not expected to undergo major changes or see much impact following the shock statement released this week about CEO Bob Collymore leaving the company for a few months to undergo medical treatment.

“During this time, Sateesh Kamath, the current Chief Financial Officer for Safaricom who is also Mr. Collymore’s alternate on the Board, will take a primary role.  He will be supported by Joseph Ogutu who is the current Director – Strategy and Innovation, Safaricom. Mr. Ogutu will be responsible for Safaricom’s day-to-day operations until Mr. Collymore’s return from medical leave.

Following the news about the CEO’s leave, the Safaricom CFO had a session with investors, and according to a Citi report afterwards on the implications of the events:

We have no concerns over operations of the company in the CEO’s absence. Based on examples in other geographies, it would take a couple of years to derail a well-run company.The company may become exposed on the regulatory side. We think the regulation is likely to remain balanced with consideration of the contribution the company makes to the state (in taxes and dividends)

The discussion about succession and its impact at Safaricom comes exactly seven years after Collymore took over from Michael Joseph as CEO. He then made his formal debut announcing the half-year results back then, and that event will recur again tomorrow (Friday) when Safaricom releases its 2018 half-year results. Also at the results announcement, updates will be given on the e-commerce plans and international expansion of the M-pesa platform.

CFO Kamath with CEO Collymore and Chairman Nganga at the Safariom 2017 results announcement in May.

At the announcement of another year of record 2017 financial results announcement in May this year, company chairman, Nicholas Nganga announced that the expiring contract of Collymore had been extended for another two years. No interim CEO will be appointed at Safaricom, Collymore came to Safaricom from Vodafone, but an appointment of a CEO is one of the governance clauses that changed with the Vodacom buyout of Vodafone’s interest in Safaricom in the middle of the year.

The Safaricom Sustainability Report for 2017 which Collymore launched a month ago, noted that the company’s shareholding had experienced a decline in local and retail shareholders due to their profit-taking from the company’s high share price and a corresponding increase in investment stakes of foreign corporate investors due to Safaricom’s performance and strong fundamentals.

Arsenal Football AGM

Yesterday, Arsenal Holdings, parent of Arsenal Football Club held their annual general meeting (AGM) at Emirates Stadium, London. There were news reports about some tense moments and here a full recap of the AGM

Here’s a peek at their latest 67-page annual report (PDF)  for the year ended, 31 May 2017.

For 2017, Arsenal income was £432 million (up from £353M the year before) and this comprised £100 million from match day revenue (26 home games had average ticket sales of 59,886 attendees), £198M from broadcasting, £90M from ‘commercial’, £26M from retail and £7M from player trading.

Group profit before tax was £44M in 2017 up from £3M and the tax charge for the year was £9 million up from £1.2M. This was at a tax rate of 19.86% and this will go down to 17% from April 2020.

Arsenal Assets and Achievements in the last 5 years.

Over five years, turnover has gone from £280M to £424M and profit after tax from £4.9 million to £35.2M. Over the same period, net assets have gone from £302M to £363 M and fixed assets are now £618M (up from £572M in 2016)

Operating expenses were £371M including £199 million on staff, £79M on other, expenses and £77M on amortization of players, (the increased amortization charge is a direct result of a record level of investment into the Club’s playing resources). Led by the acquisitions of Granit Xhaka, Shkodran Mustafi and Lucas Perez the Club invested £113.9 million in acquiring new players and to a lesser extent extending the contracts of certain existing players, for example Hector Bellerin).

Arsenal staff payments totaled £199M in 2017 to 695 employees who comprised 75 players, 117 training staff (the development of our own players through our academy remains a priority for our football club), 395 administration staff and 112 ground staff.

In 2017 Arsenal paid £111M for players compared to £66M the year before and received £9M (compared to £12M in 2016). The Club was fully compliant with the Premier League’s wage cap/short-term cost control regulations – The ratio of total wage bill to football revenues was reduced to 47.2% (2016 – 55.7%).

Arsenal directors earned £25,000 per year, but the total payment to directors was £3M with I. Gazidis (CEO – £2.6 million) and K. J. Friar (Club Managing Director – £664,000) earning the bulk, as one director, Lord Harris of Peckham, waived his director’s fee and donated it to charity. The accounts were audited by Deloitte who also earned £25,000 for this report.

The report lists highlight of the year;  how they did in tournaments, a win percentage of 63% (up from 52%,) and names individual players, goal scorers, and some transfers (we secured Sead Kolasinac and Alexandre Lacazette, our two primary targets for this transfer window)

Risks: These include the adverse impact of competing in the UEFA Europa League (they missed out on the 2017/18 Champion league), which is forecast to be £20 million. The full financial impact will depend on a number of factors including the actual progress made in the competition, as this impacts both performance and market pool distributions from UEFA. The Club has previously fully self-insured against a season’s participation in the UEFA Europa League within its cash reserves. Another risk highlighted in the annual report is from BREXIT the Group is monitoring the impact of the UK’s decision to leave the European Union. This weaker pound against the Euro has already made it more costly for them to get players from the European Union, but that the greatest risk is from an economic downtown in Britain which will affect their revenue from broadcasting and sponsorships.

Finances: Arsenal has approximately £200 million of debt most of which is long-term and which mature in over 5 years. For 2017, the fixed bonds were at 5.8% and the floating ones at 7.0%. As part of its bond covenants, Arsenal has to maintain a certain amount of cash in the bank – and had £103 million in 2017 (compared to £117 million in 2016). They owe £47 million from recent player transfers. Finance charges in the year were £14M, which included bond repayments of £11M. Arsenal has exposure to the Euro and the US dollar on currencies and uses interest rate swaps for its bonds.

Subsidiaries & Investments: The Arsenal group has about 20 subsidiaries in which they own 100% of and which are used to manage areas like property development, retail operations, ladies football, stadium operations, and data management. Arsenal has also invested £20 million in a company that runs the club’s portal – Arsenal.com has 25 million unique visits a year; the club has 10 million Twitter followers with 9.6 million others on Instagram.

Partnerships: Their main partnerships are with Puma and Emirates. During the year, there was an increase in commercial revenues of £10.3 million, driven primarily by secondary partnerships. There’s no mention of deals in Kenya, which may include Sportpesa and Wadi Degla.

Edit: On November 17, Arsenal welcomed WorldRemit as its first-ever official online money transfer partner. The partnership will support WorldRemit’s growth ambitions by helping them reach Arsenal’s 74 million followers on their official social media channels and 185 supporters’ clubs worldwide.

For Investors:

  • Over a five-year period, earnings per share have gone from £78 to £567 per share. There are 62,217 shares issued.
  • The ultimate parent of Arsenal is KSE UK (which owns 67.05%) which is wholly-owned and controlled by E.S. Kroenke.
  • The directors do not recommend the payment of a dividend for the year (2016 – £Nil).
  • See this on buying shares in Arsenal football club.