Category Archives: Investing in Kenya

KWAL at 50

This week, Kenya Wine Agencies Ltd (KWAL) celebrated fifty years of business. At a Nairobi dinner event to mark the occasion, KWAL Managing Director, Lina Githuka, said that the company, which had been privatized four years earlier, had renovated its portfolio and improved its operation. These had resulted in volumes going up threefold and, with profits up ten times, had set the stage for a second round of privatization.

During the event, there were clips and narrations showing the history of the companywhich was established in 1969 by the Government of Kenya to bottle wines and spirits. initially, and up through the 1990s when Kenya’s economy was liberalized, KWAL had a monopoly to import leading international brands like Martell, Hennessy, Bacardi and Campari which they worked with local business owners to distribute to hotels and shops. Later in the 1980s, they opened a commercial winery and embarked in the manufacturing, process and bottling of local wines. While grapes are not easily obtainable here, they used other fruits, starting with pawpaw from Kakamega and later Pekera, and “Papaya” became the first domestically produced wine in Kenya. They later added variants based on passion fruit (Passi Flora), strawberries (Kingfisher), and apples (Woodpecker).

KWAL, under KWA Holdings E.A, is now a subsidiary of Distell, which owns 55% of the company after acquiring a 26% stake in April 2017 for Kshs 1.1 billion.  The company produces 20 brands locally including Kingfisher for the last 36 years, and through its partnership with Distell, also distribute many top international brands. The KWAL portfolio includes Yatta juices, ciders (Savanna, Hunters, Kingfisher) wines (Nederburg, Drostdy-Hof, 4th Street), Amarula, and Viceroy.

Distell reported that Kenya had a stellar year (in 2018) with volume up 32% and revenue up 27%, which was partly attributed to the impressive performance of local brands like Kibao and Hunter’s Choice. KWAL plans to open a production facility at Tatu City, near Nairobi, their first new manufacturing plant in two decades, at a cost of Kshs 3 billion to meet the demand of fast-growing brands.

Kenya’s Cabinet Secretary for Industrialization, Peter Munya, who was the chief guest at the event,  said the Government was prioritizing value addition and local content in investments and that the Cabinet had recently approved an investment policy to legally safeguard all the incentives offered to investors. He applauded the privatization process which had rejuvenated KWAL, and he hoped this would extend to the sugar sector where private companies were doing very well, unlike the Government-owned ones.

Reading the Kenya Rugby tea leaves

The Kenya Rugby Union held its annual general meeting on March 20. On the agenda too was the election of officials, including a new Chairman.

Officially called the Kenya Rugby Football Union (KRU)  the AGM came after a tough year, for the sport. Kenya does relatively well in international rugby, with its colourful ‘Sevens’ team featured on television broadcasts and with a loyal fan following around the world. The sevens team is currently ranked number 14 (after finishing number 8 in 2018)  and sometimes features Collins Injera, the all-time top try scorer.

But the team and the sport is rankled with management and funding issues, and while some corporations have supported different rugby series, competitions, and programs, there are still issues of team selection, coaching support and player welfares. During one series in Paris, the sevens team covered up logo of their shirt-sponsor, Brand Kenya, in protest over not receiving their allowances by the time they started their matches, and that drew the wrath of Kenya’s Tourism Minister, Najib Balala, who angrily cancelled their sponsorship contract, only to reinstate it a few days later.

AGM: The meeting was held after members overruled a request from the Government for them to postpone the AGM. The financial accounts of the Kenya Rugby Football Union (KRU), audited by PFK auditors, were shared with members at the meeting.

What do they tell us about the state of rugby?

Income: The income for 2018 included national squad income of  92 million (down from 117M in 2017), annual competitions income of 80M (up from 17M in 2017), World Rugby 21M and World Rugby sevens team support of 20M. There was also other income from jersey sales of just Kshs 736,000.

The annual competition income included 35M from Radio Africa and 9M  from Stanbic. East African Breweries donated 24M and 15M in 2018 and 2017 respectively while tickets sales in both years were 5.5M and 11.6M respectively. 

Of the national squad income in 2017, 97% of that (Kshs 113 million) came from Sportpesa, who later withdrew all sponsorships in protest at the Government increasing taxes on sport betting companies.  The 2018 income was more balanced, with Kshs 52M from the Government, and 20M from Brand Kenya as, to their credit, the Government fulfilled a pledge, at least for rugby, to plug the hole left by the Sportpesa departure.

In 2018, they also got 18M from Bidco, and enjoyed use of a vehicle that was donated by Toyota Kenya and containers from Bollore Logistics. Sponsorship income in 2017 included Kshs 20M from Wananchi (Zuku), Tatu City 5M, 4M from Bidco and a 2M bonus payment from Sportpesa

Expenses: In 2018, Kshs 132 million was spent on national squad operations (comprising 65M for the sevens team and 57M for the 15’s team), and 38M on competitions (comprising 10M each for club subsidy and the Safari Sevens tournament, and 8M each for international matches and the national sevens circuit). On rugby development, 10M was spent while 40M went towards administrative expenses (including 21M of salaries and 6M million on marketing and agency – which was down from 20M in 2017).

OverallThe Kenya Rugby Football Union (KRU) took in Kshs 227 million in 2018 and spent the same amount to end with a Kshs 527,104 surplus. The year before it took in 212 million and spent 247 million, resulting in a deficit of Kshs 36 million.

KRU has an accumulated deficit of Kshs 61 million, on its balance sheet with current liabilities of Kshs 120 million far greater than its current assets of Kshs 47 million. KRU had a negative bank position of minus 1.9M in 2018 (comprising a cash balance of Kshs 661,822 and overdraft of 2.5 million. They are owed 47M in receivables but owe 118M in trade payables (62M) and accruals of (50M)

These items were flagged by the auditors who also noted that KRU does not have a tax exemption certificate and the Society has made no provision for the payment of corporate tax.

Elections and Way Forward: The campaign manifesto of Sasha Mutai, one of the candidates for Chairman, was circulated online a few weeks before the election. In it, he articulated his plans including, short-term ones of settling the KRU debt, encouraging more (tax-eligible) corporate sponsorships, ensuring salaries are paid on time, supporting programs to nurture more women and schools rugby, increasing broadcast coverage and improving player welfare (including providing health insurance). His long-term goals include building an affordable national rugby stadium at Kasarani and to have Kenya qualify for the 2023 Rugby World Cup in France.

After the votes were counted, George Gangla was elected to succeed Richard Omwela as the  Chairman of the Kenya Rugby Union. He received 33 votes against Sasha Mutai 20 and Asiko Owiro who got two votes.  Geoffrey Gangla is the CEO of Genghis Capital, an investment bank while Omwela is Chairman of Scangroup and a managing partner at a leading law firm – HH&M.

Knight Frank on High Net Worth Kenyans – HNWIs

Knight Frank has released its report on wealthy Kenyans or HNWIs (high-net-worth individuals)  whose number and wealth grew in 2018, which was considered a difficult year for the country with the increased cost of living, credit shortage, and post-election economic slowdown.

According to the Knight Frank Wealth Report, the number of Kenyan HNWIs, with net worths, excluding their primary homes, of over $1 million (Kshs 100 million) grew by 306 to reach 9,482 individual. It noted that there were also 82 “ultra-wealthy” individuals, with net worths of Kshs 3 billion, residing in Nairobi.

Some characteristics of the group of dollar millionaires (which also draws from an Attitudes Survey by Knight Frank, among other reports):

  • Home ownership: First and second homes make up 45% of their wealth. Kenyan HNWI’s own an average of 2.7 homes, while those in South Africa own an average of four homes.
  • 18% of HNWI’s bought new homes in 2018 in the country, and 8% bought homes abroad,. 22% plan to buy new homes in the country this year with the drop in luxury home prices and unfavourable economy in Kenya last year considered a good opportunity for property investments. 39% own investment properties in Kenya and 22% have investment properties overseas. 
  • Investment Portfolios: 25% of HNWI investments are in equities (company shares), 22% for properties that earn income, 22% in cash and 20% in bonds. Just 3% goes to private equity – and this has been a sore point for upcoming young companies who have to turn overseas to get equity funding.  
  • Local Preferences:  The report notes that governments around the world are targeting global wealth, and 24% of the ultra-wealthy Kenyans have second passports or dual nationalities but only 9% are considering emigrating with an indicated preference for the UK, Canada and the USA. Half of them educate their children overseas for primary and secondary school and 65% of them send their children overseas for university education. 

  • HNWI’s allocated 3% of their wealth to luxury investments such as arts, wine and classic cars, among other collectables, with the majority collecting cars and jewellery followed by art and furniture. Whiskey and Chinese ceramics also feature, while gold gets 1%.  The Report mentions that EABL has a mini mentorship program to woo more Kenyans to invest in collectible whiskies. 
  • Generational Wealth: Transferring wealth is still a delicate matter among Kenya’s rich, with only 43% of respondents to the Attitudes Survey saying their clients have robust succession plans in place to pass their wealth to the next generation. 

Turning Dreams into Hotels – Angama and Hemingways

From recent social media posts, we have two tales about how two award-winning hotels came to be built.

Angama: The story of Angama was published back in 2017 but was re-shared this week in a newsletter from the lodge. It was contained in a blog that was written by the founder on the putting together of finding the right partners and putting together a project team and how they managed to execute on a design and vision to build a 10,000 square meter lodge on a cliff in the Mara, in just ten months. This came after eight months of chasing funding.

Hemingways:  The story of Hemingways, is from an interview of the Chairman of Hemingways Holdings, Dicky Evans by journalist Joy Doreen Biira.

He narrates how they operated a hotel in Watamu on the Kenyan coast for 30 years before deciding that there was an opportunity to do a hotel property in the capital city of Kenya. Then, on to the search for an ideal location, acquiring the land, growth by acquiring other companies, working with planners and neighbours, sourcing environmental permits, utilities etc. all to build and fit out what became Hemingways Nairobi at a total cost $22 million. To do this, they also got some funding from I&M Bank, and also invested in other properties in the Mara and in Naivasha and are doing renovations and expansion into new apartments at Watamu.

The importance of partnerships comes in both stories; Hemingways at Watamu partners with other hotels in Nairobi, which don’t have properties as the Coast, to host tourists who want a  private luxury experience at the beach, while Angama, in another post, narrates how local airlines came together to reduce the flying time for their tourists moving between the Mara in Kenya and Serengeti in Tanzania to just a few hours – eliminating an extremely  long process of several flights through Nairobi, Kilimanjaro, and Arusha and airports.

In the two posts, there are unique insights you rarely hear local investors talk about such as how much money they put have invested into their projects, the process of acquiring land, and how infrastructure developments lead to new investment opportunities and possibilities. Also, the day-to-day running and management, and the use of expatriate project managers is a theme that runs through the stories of the two properties that were built quite fast and which are now receiving global accolades for excellence.

Some of the recent awards the hotels have been feted for include the “Best Resort in the Middle East and Africa” by Conde Nast Traveller for Angama, while Hemingways was named the “Best Hotel in Kenya” in three categories (top 10 hotel, top luxury, top service) by Trip Advisor.

Bank Roundup: January 2019

The boards of NIC and CBA banks confirmed their plans to go ahead with a merger to create the largest bank in Africa by customer numbers. Serving over 40 million customers in 5 countries, the combined entity will have Kshs 444 billion in assets (~ $4.4 billion).

Currently, they are both at 115 billion of loans and have differences in deposits with 145 billion at NIC to 191 billion at CBA and customer numbers of 142,000 at NIC to 41 million at CBA. They had relatively similar customer numbers prior to CBA’s launch of M-Shwari in partnership with Safaricom. 

Going forward they aim to obtain shareholder approval in Q1, obtain regulatory approval in Q2 and have the new entity commence operations in Q3 of 2019. Currently, NIC has 26,000 shareholders and is listed on the Nairobi Securities Exchange (NSE) while CBA has 34 shareholders (20 individual, 14 corporations) including Enke Investments (24.91%), Ropat Nominees (22.50%), Livingstone Registrars (19.90%) and  Yana Investments (11.14%). The merger will be effected through share swaps that will result in NIC shareholders owning 47% and CBA shareholders 53% of the new entity whose shares will remain listed on the NSE.

MCB in Kenya:  Leading Mauritius Lender MCB Group has officially opened its representative office in Nairobi. The largest and oldest bank in Mauritius, with $12 billion in assets and a presence in nine countries, it had been licensed in Kenya back in 2015 and it will bank on its new office to gauge opportunities in the Kenyan market and build strategic relationships.

The 19th largest bank in Africa by assets, it is listed in Mauritius and has 19,000 shareholders. It has a strategic objective of growing its international footprint and expanding non bank activities. It has 1 million customers, 3,500 employees and 55 branches but, as it was communicated at the launch, they have no intention of opening branches in Kenya or East Africa.

Ethiopia Bank summary: Asoko Insight gave a summary report of the Ethiopian banking sector, parts of which are only available to subscribers. While some foreign investment is expected in Ethiopia, the banking sector is already privatized with fifteen of the country’s eighteen banks all having private local owners. The state-owned Commercial Bank of Ethiopia is the largest bank in the East Africa region with 1,280 branches and earns 67% of the sector profits in the country.  It has revenue of $1.3 billion, while 11 (other) banks, have revenues of between $50 million and $500 million, suggesting a more concentrated market in terms of size.

Tanzania:  NMB bank has waived several bank charges for their customers from February 1 including account opening, monthly maintenance, transaction fees, dormant account reactivation, and internal transfers – all in a bid to promote finance inclusion in the country.

Meanwhile, several Tanzania banks have a series of new managing directors including NIC Bank, Akiba Commercial Bank and Bank of Africa Tanzania

Family Bank pled guilty in the NYS case:

Diamond Trust CEO questioned.