Category Archives: CSR

Mining Moment: Base Titanium June 2015

Base Resources released their quarterly report for the period ending June 30 2015 about Kwale Mineral Sands Operations (commonly known as Base Titanium)

Managing Director Tim Carstens gave updates on various aspects during the quarter including:

  • It’s been an excellent performance over 20 months with operations on target and with a very good safety record.
  • They shipped 100,000 tons from their Likoni port to customers during the quarter. However, for their rutile, ilmenite, and zircon, prices are now 1/3 of what they were two years ago. They export all over, but  with Ilmenite, of which China is the largest market, 60% of companies shipping there are losing money.
  • Carstens said the proposed Kenyan mining bill is a good thing, and soon there will be a  new mining act but they want things to be addressed that meet global best practices. They pay royalties of 2.5% of sale value as per their agreement. The Cabinet Secretary wants this to be much higher, and they have offered 5%  which is the highest in the world. Note: the senate passed the mining bill on July 29. Also there have been no more invoices from Kwale county who sent one in June 2014, a move that they fought, along with the attorney general.
  • Of the $25 million of VAT owed to the company by the Kenya Revenue Authority, they received a payment of $2 million in July and are grateful that KRA has commenced payments
  • Kenyans still don’t invest in mining. The shareholding of Kenyans is still 1%, and that’s not going to change for a few more years when Kenyans get more comfortable taking on mining risk. They hope to turn base titanium into a more Kenyan company with more local shareholders and board members.
  • In June, they made a first principal repayment of US$11 million on their $258 million. In July, they got a loan from one shareholder, Taurus Funds and are seeking to refinance other loans to smooth their cash flows as debt repayments are eating most of the current operating profit. While they had an operating surplus of $20 million in the quarter,  $11 million went to the principal debt, and $8 million went to interest payments. They expect to complete the debt rescheduling in the next quarter.
  • Staff: 92% of the 600 employees are Kenyan, and they plan to go to 97% through training. 25% of the manager are Kenyans and 62% of staff are from Kwale, with 16% of the staff being female which is high for the mining sector.
  • They are involved in CSR  work with over 100 projects in the community 20 of these are  educational, and 200 students are getting scholarships from the company. The company planted 9,000 indigenous tree seedlings in the quarter and is working with local farmers on cotton, chicken, and potato projects to help them graduate to industrial-scale farming.

Tullow Oil & Mining Payback in Kenya

Tullow Oil have just released their Kenya Report on their oil exploration efforts and local impact in the last year with special emphasis on the Turkana area. And earlier, Base Resources who are a signatory to the Extractive Industries Transparency Initiative had also released their EITI impact report.

In the last year, by their measure, Tullow Oil and Base Resources have paid the Kenya government $22 million and $16 million respectively in direct payments, and with more indirect benefits.  Oil and mining are industries that are complex and expensive to set up, but which don’t generate a lot of direct jobs – some of their numbers include:

  • Last year, Tullow paid Kshs 4.1 billion (~$48 million) to Kenyan suppliers, $100 million to foreign suppliers registered in Kenya and another $100 million to international companies. Of the Kenya supplier amounts, Kshs 259 million went to Turkana business interests.
  • They still need Kenya petrol legislation. 
  • Estimated findings are 600 million barrels in South Lokichar alone.
  • Infrastructure Needs: Looking at an export pipeline and regional road and rail. Regional countries need to support an export pipeline, agree on what route will such a pipeline take, where the terminal will be (likely to be Lamu) – and who will invest/pay for this. The proposed underground pipeline will need to be a heated one, and at 850 kilometres will be the longest heated pipeline in the world.
  • Social Impact: Tullow have community resource offices in Lodwar, Lokori, and Lokichar – and this year, plan to double the Kshs 233 million ($2.75M) they spent on social projects in 2013, during which they faced community concerns and protests of local impact which even temporarily shut operations. They have provided 3,000 bursaries and scholarships and teaching materials for 50 schools.
  • Jobs Jobs Jobs: Tullow has 100 employees on site, 70% of who are Kenyan. Another 2,000 are employed by their subcontractors/suppliers and 87% of these are staffed by are locals, and 59% by Turkana people.

Safaricom 2010 AGM

Safaricom held their second AGM since their 2008 share listing at the Bomas of Kenya on September 2 2010.

Angry Shareholders: really complained into management, mostly about the low dividend, and lack of freebies – and the ~1,000 shareholders largely went home unsatisfied (the bus stage was quite full)
Low dividend: Different shareholders complained 20 cents ($0.0025) dividend per share was too low, was not recognized as currency in Kenya, was not comparable to the company’s 19 billion ($238 million) profit, was not worth picking if it fell to the ground etc. The Board Chairman replied that this was a result of the large number of shares and, it was 100% increase of the previous year, and they were looking into share consolidation as a way of making it more meaningful
No SWAG: Shareholders complained about not being given transport to the venue, why there were shirts only for Safaricom staff (they [shareholders] are better ambassadors of the brand), why they only got bottles of water & juice on a cold morning, and why they could not treat shareholders better, when companies like Kengen, many shareholders (~¼ of Safaricom) could? One shareholder who looked like he had been to a ‘local’ before he spoke, said he regretted buying the shares, admonished the company for taking from the poor (subscribers) to give to the rich (board), hurled a few other insults in his speech and walked out to some applause.

No SWAG also includes annual reports, which were handed out at the door, but which shareholders felt should have been mailed to them. The Chairman said that this was a logistical impossible, it would cost almost 250 million ($3 million) to mail 800,000 books and last year shareholders had themselves approved that reports be placed on their website or headquarters, with summarized versions printed in the newspapers. How unwieldy is the large shareholder base? The registrars’ computer list at the entrance was over a month old and they did not have records of anyone who bought shares in the last few weeks.

Is CSR bad for shareholders?: Later on when not satisfied with the Chairman’s response on the dividend, they began tackling expense items in the books to see if they could dig out some cuts to yield more profit. Ccorporate social responsibility items came under fire; this argument was first seen at Stanchart a few years ago when shareholders felt ‘their dividend’ was being diverted to unauthorized expensive projects (said shareholder and former MP Jimmy Angwenyi), and which were costly (But Chairman replied that the total amount was Kshs 250 million, broken into small impactful sponsorships like boreholes and schools that had no overall impact on the 8 billion dividend [$100 million]) . Again they went further and began tackling huge payment items (anything larger than the dividend) and suggesting to the Board ways to cut down these costs.

Competition from Zain Airtel: Shareholders also took a stab at management for the high costs of their services, in relation to Zain who had recently cut call and SMS costs to 3 shillings and 1 shilling respectively arguing that the company management is asleep and they will wake up when they find their customers have fled unless they too cut prices. Outgoing CEO Michael Joseph took on these and said they had studied Airtel in India and were ready for the price cuts, but were surprised by the underhand tactics/accusations that followed. Safaricom will find a balance to protect their customer numbers, market share revenue, but most important were their profit margins. He added these prices were unsustainable, but that Safaricom would still make more money at 3 shillings than anyone else

Share price: Later in comments about the share price which has declined in the last month, CEO said the market over-reacted to Zain/Airtel promo they are due to foreign sellers who don’t understand Kenya. They take parts in road shows to teach such investors about the market, how they EBIT margin of 42% is exceptional compared to others like MTN and Orascom, and 4 of the 5 analysts who cover Safaricom put the share price as Kshs 5.5 to 5.8 (who’s the dissenter?).

Farewell Michael Joseph: Late the Chairman called on shareholders to thank retiring CEO Michael Joseph who built the company up from nothing in 10 years to be leading revenue earner and top brand in Kenya.

Waving the patriotic flag: After the meeting ended, CEO gave a talk on his pride in the company, which is a Kenyan company one can be proud of with its customers, M-Pesa (which people all over the world come to study), M-Kesho savings accounts (500,000 users signed up in 2 months). It is 60% owned by Kenyans, which none of their competitors (i.e. Zain, Orange, Essar can claim), all their spend is in Kenya, all their profits are re-invested in Kenya, with nothing outsourced outside. It has 2600 employees (all in Kenya) , and supports over 250,000 other Kenyans through dealership and mpesa agents and another 1,500 in customer care (which they can move that to India but that would not be in spirit of the company)

Reading the Tea Leaves at Stanchart

The CEO of Standard Chartered Kenya explains in the annual report that their strategy is aligned to that of the UK parent group, and that the (Kenyan) bank has focused on chosen markets, does business with customers they know well and products they fully understand – adding that, so far, the standard chartered group one of the few international banks that has weathered the global crisis.

I’m not sure that makes sense to shareholders since if the (UK) parent also drives the same strategy here in Kenya, being conservative has not been as kind to the bottom line

Bank assets through the years
2005: Barclays Kenya 105 billion, KCB 74, Stanchart 72, Equity 11
2006: Barclays 118 billion, KCB 87, Stanchart 81, equity 20b
2007: Barclays 158 billion KCB 112 Stanchart 91 equity 53 billion
2008: KCB 174 billion, Barclays 168, Stanchart 99, equity 77

The conservative bank has seen its peers that have aggressively expanded, also grow at much faster rates. 4 years ago, Stanchart was almost equal in assets with KCB and today KCB is almost twice as large. Stanchart also maintained the No.2 profit figure behind Barclays each year, but falling further back, until in 2008 both KCB and Equity have passed its pre-tax profit position.

Outlook for the bank

– Change in strategy – should they have gone retail? They have Diva accounts (for ladies) and X account (for yuppies), mortgage, and corporate finance where they have cut some big deals

– New Chairman: There are on-going board changes, both executive & non executive. Chairman David Njoroge (board member since 1996, and chairman since 2006) and director J. Mugo (of federation of Kenya employers) will both retire at the AGM this month

– In 2008, they were the only big Kenyan bank to record a drop in income and profit. |Their loans went up 10% to 43 billion, and deposits were up 4% to 77 billion; also income was up, but costs went up 13% to 5 billion owing to infrastructure, technology, and staff costs. but only added two branches in year). The CEO says they have set aside 3.5 billion for new headquarters, acquire/refurbish branches (likely to be for high net worth clients), new core banking system, electronic banking new staff – all part of the largest group investment in Kenya.

-Their 2008 annual report is one of the biggest I have seen at 105 pages. The chairman’s statement takes 6 pages (3 English, 3 Swahili), CEO statement 8 (4/4) , (8 pages on community, environmental & development) – which includes mentions of their being the lead financial arranger for TEAMS sub –cable and Kengen energy expansion), one page on HR (mentions 48% of employees are women, have policies for extended maternity, non-discrimination), One page on tackling financial crime (they trained 300 staff on fraud & also trained 60 Kenya anti-corruption commission (KACC) staff on financial crime risk) – and finally 53 pages of financial statements and notes

– They spent 64 million on corporate social responsibility (CSR). The annual Nairobi international marathon (sponsored by Stanchart) raised 12.5 million in 2008 up from 9.4 million in 07 – and the funds channeled to nine eye hospitals around the country

– Their statement on corporate governance has a policy barring insider trading of the company shares

– Loans to the manufacturing went up from 5 to 12 billion and real estate at 4 billion, transport & communications at 7 billion, and wholesale/retail trade at 10 billion were their main loan categories

– This month shareholders will amend article of the company to allow financial statements be sent by fax, e-mail or be published on their own website/Nairobi stock exchange (site) while notices may be simply advertised in daily newspapers along with abridged financial statements as long as they include an e-mail or postal address from where shareholder can request & obtain full accounts. Shareholders will also vote to allow electronic payment of dividends

AGM Split

Family Bank and KCB 2009 AGM

Family Bank is 25 years old this year and is about the 21st largest bank in Kenya. It is in some circles known as Equity Blue because of some similarities with retail giant Equity Bank (it operated as family finance building society till May 2007)

They held their AGM today in Nairobi; it was a straight forward meeting, very informal. Chairman is Mr. Titus Muya who’s the founder and was also the CEO till about two easy ago when he relinquished that post reluctantly.

Joseph Kaguthi, former PC, Anti-drug tsar is a shareholder in the company and also asked some good questions (he’ll be referred to as JK)

Q. When will the bank list it shares? Many shareholders bought share in the bank in anticipation of it listing soon (JK noted they said they’d so it within three years and they’d be a market for their shares and asked the board to clarify the over the counter (OTC) market as more people want to buy shares in the bank
A. Management replied that they were ready to list last year/early this year, but that the timing was not right I.e. Nairobi stock exchange was in a down mode, see Co-Op Bank shares after IPO

On Presentation of the annual report
– JK noted they have improved presentation of the report by including report, missions, vision, values, but he asked them to now include a list of top 10 shareholders as this was a governance issue
Q. another asked why if retained earnings were high, the bank was giving low dividend?
A. Need retained earnings to grow. Also company can’t pay share capital or premium back to shareholders

Q. loans as security – One shareholder who’s a carpenter narrated a tale of how he fell sick for many months and ran out of funds; he wanted to take a loan using his share as collateral
A. company act doe not allow one to sue company’s shares to borrow from same company

Q. why are non performing loans high
A CEO O said their bad loans are 6% of loan book compared to banking sector average of 11%. Also they are mining those and collected 100 million from non performing loans last year

Investor outlook
– Only customers can buy shares in the bank
– May have raise capital in a few years owing to fast growth
– Company registered opened on may 1, and divided (Kshs 1.50) will be paid on may 30 2009

KCB AGM: KICC is a very popular site for annual general meetings since Philip Kisia (now appointed the new town clerk in Nairobi) rehabilitated what was a very run-down Nairobi landmark. But with almost 170,000 shareholders it may have been the wrong place to hold their annual meeting. The lines snaked all over the courtyard and registration took a couple of hours for some people I hear

Comrade Sylkwan (thank you) was at the meet and gave a brief re-cap of the Q&A sessions

Q: Why there was no proxy for on the financial statements which were issued at the AGM
A: Shareholders had already been sent to the F/S and the previous years the proxy form was used by s/holders to collect multiple gifts

Q: Why foreign institutional investors own a lot of shares in KCB and what benefits it brought to the Bank
A. KCB shares are listed at the NSE and everyone is free to buy them

Q. Age of directors was not indicated on the F/S. Since there were directors seeking re-election, wanted to know if any was above 70years
A: None of their directors was above that age and if so they would have issued a special resolution

Q: why KCB shareholders could not withdraw cash at the Uganda branch
A: the CE said that it was possible to withdraw money unless there was a technical hitch on that day

Q: Triton issue?
A. Ignored this question (continuing a no comment on Triton or any KCB customer policy)

stalled building construction on Waiyaki Way, rumored to be a Triton property

Q: why the bank does not provide fare to the Shareholders who travel from far
A: It was not possible to pay shareholders fare and share dividends

Q: why the CSR budget was so high even when KCB was only issuing a Kshs. 1.00 per share
A: KCB was spending 2.2b in dividends and Kshs. 54m was a drop in the ocean. KCB also needed to establish a good relationship with the community where the business is established.