Category Archives: Kenol

Kenol Kobil 2016 AGM

KenolKobil had its annual shareholders meeting on May 12, at the Hilton Hotel in Nairobi. The board chairman spoke of the company’s performance in the three years since they had lost Kshs 6.2 billion. They had thereafter embarked on a turnaround that involved reducing costs, divesting from non-performing territories, focusing on profitable business rather than growing their market share, paying down debt, and corporate governance moves (separating the role of  Chairman & CEO role) .

Highlights

Regional Business: 

  • Tanzania: The company would up their short foray in Tanzania where they were losing $2 million a year. They had a depot that was part of their venture was an expensive lease, and while fuel prices in Tanzania are set by the government, many companies sell below that price as they don’t pay taxes. The directors said that Kenol was a responsible company that could not and decided to close shop.
  • DRC: They invested here, but did not ship product there as they were not happy. with the business climate and decided to sell out.
  • Burundi is doing well despite the political turmoil there.

The board faces shareholders at the 2016 KenolKobil AGM

Dividends: One shareholder said the dividend was too low, but the chairman said they have a consistent policy of paying 25% of net  profit as dividend, while the Group MD (GMD) said they still had to pay down a lot of debt.  One long-term shareholder told the meeting, that it was better for the company to be conservative with dividends, rather than aggressive, like other companies, and come back in a  few years to ask shareholders to invest more money in a right issues

Property: They have decided not to put up an office building in Haile Selassie street in downtown Nairobi for now as the office property market is saturated.

Goodies: Lunch box (which Hilton guards would not allow to be eaten on site), and tote bag. Some shareholders pleaded for the company to provide them with caps and umbrellas to promote the brand.

Odd Point: One shareholder asked why the AGM had not started with  prayers. The Chairman said it would not be productive, as they would have to have prayers for Christian, Muslim, Jewish, and traditional African religions  to be fair to all shareholders present.

Arranged Corporate Marriages

Some local merger activity of note
 
Barclays of UK and South Africa’s Absa Group are in talks to merge their African operations – but this is not really new as the plan was set in motion six years ago. 
There’s no certainty the talks will lead to any deal, which wouldn’t be completed until 2013, the banks said in a statement. The combination would affect assets in Kenya, Botswana, Zambia, Tanzania and Ghana. 
Barclays, based in London, bought 54 percent of Absa in 2005 for $4.5 billion to expand in emerging markets. Absa dropped its original plan to buy the Barclays assets in 2008 after commodity-driven economic growth in Africa sent their earnings surging, making the businesses too expensive to acquire. Barclays revived the plan in April 2011, aiming to consolidate operations at Absa headquarters in Johannesburg and move other work to Dubai, but Barclays’ listed subsidiaries in Kenya and Botswana will be maintained.
Coca Cola have prepared the Information Memorandum (with D Capital Partners, UK) to persuade local coca cola shareholders to buy into the deal that will see their shareholding in three local bottlers – Mount Kenya Bottlers, Rift Valley Bottlers and Kisii Bottlers merged into a new holding company called Almasi.

Coca Cola dominates the non alcoholic beverage in Kenya with a 78% market share, leaving EABL, Kevian, Del Monte, Excel with 2-4% each. The global giant  has 6 bottling licensing agreements in Kenya with Coastal, Equator, Rift Valley, Mount Kenya, Kisii and Nairobi – which itself was boosted by earlier partnership deals ( with Flamingo Bottlers and East Kenya Bottlers Limited).  The three bottlers each which each sell about 9% of cokes cases, will become Coke’s second largest after Nairobi with about 28% of sales. 

Peeling back Almasi
The boards of the three have approved it and now have to sell the deal to their shareholders as a potential value addition through increased revenue and cost savings of Kshs 2.5 billion ($29 million) derived from  lower management costs (single management, single board of directors) shared purchasing, and the IM noted none of the three can afford to invest in new bottling line, or plastic packing lines for soda, juices and water
Mt Kenya has 2011 sales of about $29 million, Rift Valley $21 million and Kisii $18 million, with Mt. Kenya and Rift both having after tax profits of ~$1.3 million. A nominal shareholding of 20,000 (1,000 shares of par 20)  in each, will be worth Kshs 80,000 (11,400 new shares) for Kisii Bottler shareholders, Kshs 526,000 (75,000 shares) for Mount Kenya Bottler and Kshs 112,000 (16,000 shares) for Rift Valley Bottler shareholders. The IM also dangles a carrot that, Almasi could one day be a listed company.
Haco boost?  – Tiger Brands which own 51% of Kenya’s Haco are now buying 63% of Dangote Flour Mills in Nigeria. Will Haco get a boost in the food business, exporting to Nigeria?
Kenol  Reassures – Kenol made a surprising (to many)  half year loss  due to foreign exchange hedging contracts. They subsequently issued a statement of reassurance that a planned majority sale to  Puma Energy was sill on, with the due diligence process yet to be completed. Unfortunately, it is likely that, once the deal is done, Puma will also buy out the other minority shareholders and de-list the company – which is a shame, as it was one of the most pro-active companies in shareholder communications

Urban Inflation Index: September 2011

One year after the euphoria of a new constitution, the direction of the economy is uncertain as seen in the weakening Kenya shilling, tangles in implementation of the constitution, and rising food prices. It has been a year of some price controls in the fuel, and possibly in the food sector whose parliamentary price control bill was signed into law last week by the President.

Comparing prices to six months ago and last year. On to the index

Gotten Cheaper: Nothing really.

About the same:

Communication: All Kenya’s mobile phone companies have call rates of about Kshs 3 shillings ($0.03) per minute to call across networks. It is unclear what will happen with call rates, as the smallest company in the market, Yu, launched free daytime phone calls, Airtel Kenya lost a CEO, and Safaricom has indicated that they may raise their call rates, as has happened in Uganda with MTN . The real battle is in data, where prices have not really dropped but companies are offering more speeds for less. The market here is divided between the companies with 3G (Orange & Safaricom) who compete on speed, and those without 3G(Airtel & Yu) who offer cheap internet rates of about Kshs 50 (~$0.5) per day for unlimited use.

Another communication developments that, in a way, lower the cost of business include the launch last week at G-Kenya of GKBO, which encompasses free website creation tool, domain registration, and site hosting for small companies by Google in Kenya.

Utilities: The bill on pre-paid electricity is still at about Kshs 2,000 ($21) per month, and getting about 30 – 35 units per buy via M-Pesa. However that is expected to go up after notice was issued for rates to go up 22% per kwh unit. So what alternatives are there? In a somewhat timely move, Samsung launched the NC215, a solar powered netbook laptop last week. It gives 1 hour of power for every 2 hours of charge in the sun, has a 15-hour battery life, and is able to charge other devices by USB even when it is off.

Also got a gift of a solar phone charger (T2126 Hemera from Hirsch) that works quite well; it takes about 12 hours to charge in the Sun or 2 hours via USB, has a flash light and can charge a variety of phone models.

But when you look at the rapid advances in laptop batteries and cell phone batteries over the lasts decade, you get the feeling that there has been a lag in the pace of solar devices, and that more solar based solutions and advances should be emphasized.

More Expensive

Fuel: A litre of petrol fuel, which is regulated by the Government, now costs 117.75 (~$5.6 per gallon) in Nairobi. Regulated fuel has proven to be more expensive than unregulated fuel, and while this can be attributed to the weaker shilling and fluctuating oil prices, the formula used to arrive at the price remains vague, and the limit on margins (stipulated buying and selling price of petrol, diesel, kerosene in each town) appears to have hurt small oil industry companies, more than large ones. However, among the listed companies, Kenol appears to have weathered the regulatory regime better than Total, by having diverse operations in other countries in East and Central Africa that remain unregulated.

Staple Food: Maize flour, which is used to make Ugali that is eaten by a majority of Kenyans daily. A 2kg bag which cost Kshs. 80 six months ago, and Kshs 65 a year ago, is now Kshs 119, the highest it has been in the short history of this index.

Other food item: Sugar : A 2 kg. Mumias pack which has hovered at about Kshs 200 for the last years, now costs Kshs. 385 (90% more than last year) and . The sugar sector has really gone full circle causing many to questions its relevance, recurring shortages shortage (why all factories close at the same month for maintenance), why sugar is grown in a food producing area and how many items we can consume without having to use sugar as a sweetener e.g. tea without sugar, or use of honey as a substitute.

Foreign Exchange: 1 US$ equals Kshs 95.6 compared (now 96.8) to Kshs 80.8 a year ago (and 83 in June 2011) – a loss of almost 20% in a year. It’s unclear of this has been a concern to the Central Bank which has made other confusing policy moves as related to interest rates at a time of mounting government debt and their laxity has enabled banks to spot and take advantage of an arbitrage opportunities to trade with government money.

Beer/Entertainment: A bottle of Tusker beer is Kshs 180 ($1.9) (at a local pub) a slight increase from compared to Kshs. 170 a year ago. However beer has become out of reach for many poorer Kenyan who have resorted to drinking unsafe local brews, which in some unfortunate cases have resulted in blindness or even death.

Motoring Moment: Thika Road, Commuter Trains

Discovering Thika road: Took a road trip up Thika Road to hang with the Kuweni Serious crew last weekend. Chinese contractors are converting the road into a super highway and the dramatic transformation (follow Thika Road blog ) has plenty of soil hills, deep valleys, closed roads, missing roundabouts etc. It was a fun trip, but as it is said every day, don’t drive on Thika Road if you’re a stranger, or it’s dark, or the road is wet.

The journey is made more dangerous by Matatu’s and some road regulars who make their way anywhere they see fit – by driving in the wrong land, making U-turns in traffic, over-lapping patient motorists etc.

The highway defies belief, and when it’s done it will probably need other roads to be closed off or expanded. e.g Outer Ring Road and a bypass to Mombasa Road. The large volumes of traffic need to enter and exit cleanly and without delay otherwise there will be more situations like the one at Riverside Drive and (current) Museum Hill Roundabout where traffic waiting to enter these smaller roads spills over backwards onto the large highway causing more jams.

The on-going rains make it more difficult and with all the un-drained water, some cars are probably washed daily only to end up covered in red mud. For users of public vehicles, the rains mean added journey times and increased fares on Matauts.

More Commuter Trains: However there is some relief for commuters who live along Thika Road since Rift Valley Railways (RVR) has upped the number of daily consumer trains in Nairobi from 8 to 18 which collectively serve Kahawa, Dandora, Embakasi, Ruiru, Kikuyu, and Kitengela/Athi River

The addition of the early morning trains has slashed some commuters’ fares by almost 2/3 e.g. some Embakasi residents who take the train paying Kshs 30/- per trip compared to the previous Kshs 70 – 100 per trip by Matatu. Also, the train is more dependable, and takes 25 minutes to complete the journey, unlike driving in a car or matatu, which usually takes over an hour in ‘rush hour’.

Ultimately having dependable train travel may lessen the burden on the roads (fewer Vitz card) and while there is talk of having a train to Jomo Kenyatta Airport, it is not a government priority or feasible in the short to medium term.

Commuter trains aside, the reason that the concessionaire, Egypt’s Citadel (operating as Kenya Uganda Railway Holdings) invested was for cargo and the train transport while significantly cheaper than the Kshs 120,000 ($1,500) to transport a container by lorry from Mombasa to Nairobi ($3,600 for Mombasa to Kampala) needs to emphasize this aspect and demonstrate more reliability to business owners. This will relieve the burden on the roads.

Oil Shipment: As the international price of oil is expected to go up owing to instability in the Middle East, in Kenya there is a small dispute between oil companies led by Shell and Kenol pitted against NOCK – National Oil Corporation (NOCK), a Kenya government state agency that imported the latest shipment of diesel on behalf of all the oil companies. After some postponed arrival delays, and tales of missing phantom ships [MT Volga, MT Adden, MT Ratna Sheruti, MT Ratan Namrata], which resulted in a partial cancelation by Shell, a shipment finally arrived on March 1.

However that did not put the matter to rest since NOCK has announced that they would bill the oil companies using the higher March prices instead of the February price. And where is the diesel? NOCK says it has all been sold, but the other oil companies say they have not bought it, and won’t be buying it owing to the higher price being demanded.

Fuel Relief: Some slight relief for motorists comes from Kenol who have discounted the price of petrol and diesel by 2 shillings on Tuesdays and Fridays – so petrol today costs about Kshs 100 (~$5.30/gallon) under Deal Poa promotion, and for holders of Kenol corporate fuel cards, they enjoy a 2 shilling discount every day, which doubles to Kshs 4 on Tuesday and Friday

In Car Beverage: My current in-car beverage is Nestea iced tea that you can make in a supermarket. How? (i) Buy a Kshs 20 Nestea satchet (ii) Buy a one litre bottled water for Kshs 40 – 60 (any brand) (iii) pour the sachet contents in the bottle & shake (iv) you have a litre of iced tea for less than $1.

Too Big to Fail?

Embattled market leaders Kenol and Safaricom got some reprieves last week.

In the case of Safaricom, it was signaled in the form of a public complaint from rival Zain Kenya CEO (and which he followed up in a letter to the President) alleging that the communications industry regulator altered its new rules to shield Safaricom.

At Kenol, the Permanent Secretary for Energy announced a settlement of the dispute between Kenol and the Ministry (Kenya Pipeline Company, Kenya Pipeline Refineries), which Kenol echoed that with a cautious statement.

Kenol, Safaricom, and probably Kenya Airways and Equity Bank (with 5 million bank account holders) have reached a status of being too big to fail. They are huge tax-payers (Safaricom, Kenol), models of privatization (Kenya Airways), critical to the country and region (Uganda was affected by the Kenol shutoff) or source of international pride (Safaricom’s M-pesa)

The government goes out of its way to listen to these companies and protectthem and make rules that will assist them in their growth. In the case of Safaricom, cracking down on them does not guarantee that Zain or Orange will fill the gap in the near term. The price war started by Zain has been called unsustainable by the Safaricom CEO and that language is also creeping into government circles