Category Archives: Kenya Airways

Kenya Airways March 2018 results

Kenya Airways (KQ) announced their full-year results in Nairobi this morning covering the nine-month period April to December 2017, as in a change for past years, they have shifted their year-end to December to be in line with their airline partners. It was tough to compare 2017 to 2016 which was a full year but it was a significant year in which the airline  completed a capital optimization to wipe out a deficit in their balance sheet which was achieved by Kenyan banks converting debt into equity, and becoming the second-largest shareholder (38.1%) after the Kenya Government who also funded their airline with cash and guarantees as their shareholding went up to 49%.

CEO Sebastian Mikosz said that fuel prices (which went up from about $52 to $62 in the year combined with elections (which included a 20% drop in East African domestic travel) had the biggest impact on the bottom line. He said that they flew 3.4 million passengers with a 76.2 average cabin factor and 8.1million revenue kilometers and increased frequencies to Cape Town, and added a  new route to Victoria Falls.  He

Acting CFO Hellen Mwariri read the results which included an operating profit Kshs 1.3 billion and a loss after tax of Kshs 6.1 billion. This was from revenue of Kshs 81 billion (compared to Kshs 106 billion in the full year before) and with assets at year-end of Kshs 140 billion (146 billion the year before) and they had also wiped out the negative equity position that went from minus Kshs 44 billion to minus 4 billion.

Mikosz spoke of the need to get more revenue from Kenya Airways corporate brands –  Jambojet, Technical (servicing their own aircraft and they gained two external customers in the year), Cargo, Pride (training), and Holidays. He also spoke of network optimization at the airline –  adding New York flights, new routes to Mauritius and Cape Town, and using more Q400 turboprops on short regional routes. Kenya Airways will also be enlarging their joint-venture with KLM to now include Air France and will KQ introduce an “economy comfort” product in all aircraft in the next 12-15 months, something that is popular with European partners customers. They have also recalled a Boeing 787, that they had sub-leased Oman Air, which they will now use on the New York route from October.

Mikosz said he was not a big fan of “open skies” that African nations were pushing for as Africa was not like Europe that regulated and policed open skies and was able to monitor the competitive space and the support availed to all airlines and the levels of state protection.

NSE Shares Portfolio February 2018

Comparing performance to six months ago a year ago, this portfolio is down 4% mainly due to shares sales, while the while the NSE 20 share index is down 7% from August 2017.

The Stable

Atlas —
Centum ↑
CIC Insurance ↓
Diamond Trust ↑
KCB ↑
Fahari  REIT↓
Kenya Airways ↑*
NIC ↑
NSE ↓
Stanbic (Uganda) ↑
TPSEA ↑
Unga ↓

In: None
Out: Bralirwa, at a 55% gain since buying in the Bralirwa IPO in 2011.edit TPSEA (Serena)
Increase: None
Decrease: None
Best performer: Kenya Airways*  (shares were diluted four times, price is up 235% from six months ago), Serena (up 36%), Diamond Trust 8%
Worst performer(s): Unga down 12%, CIC down 10% from six months ago)
Unexpected Events: (1) The offer by Seaboard to buy and de-list Unga (2) Kenya Airways restructuring impact on retail shareholders(3) Kenya bank shares resilience in their share prices even with concerns about their earnings growth in the era of interest rate caps.

Looking Forward to: (1) Banks expect interest rate caps to be re-assessed in 2018 (results in February 2018 (2) More infrastructure bonds from the government like M-Akiba (3) CIC developing a mixed-use project (Residential, commercial, educational, and recreational units) on 200 acres near Tatu City, Kiambu.

 

Kenya Airways launches Nairobi New York direct flights for $869

Kenya Airways (KQ) has started selling tickets for non-stop flights between Nairobi’s Jomo Kenyatta and New York’s John F. Kennedy airport that will start on October 28, ahead of the 2018 US winter season.

Posted by Kenya Airways on 10 Januari 2018

The ultra-long flights from JKIA to JFK (15-hour KQ002 23:25 – 06:25 next day) and return leg (14-hour KQ003 12:25 – 10:55 next day) will be operated using two Boeing 787-8 Dreamliners, and an extended crew of 4 pilots and 13 flight attendants on each leg.

KQ welcomes its first Dreamliner in April 2014

KQ Chairman, Michael Joseph said this was a significant event after long planning and extensive interaction with US authorities (11 different agencies in the US are involved) while CEO Sebastian Mikosz said that they were targeting two main groups of flyers – corporate (48 US companies and international organizations that have their regional hubs in Nairobi) and premium leisure tourists (the USA is a top tourist source for Kenya that had 95,000 visitors between January and October in 2017, which was a 20% increase over the last two years).

Kenya Airways is  investing heavy with daily flights to New York (85,000 seats each way per year) that they estimate will have significant uptake, similar to the airline’s current routes to Europe (~85% loads) due to the attractiveness of non-stop flights between Nairobi and New York and they expect that the USA flights will constitute up to 10% of the airline’s revenue after 2019. The KQ Boeing Dreamliners seat 234 passengers – 30 in business class (tickets start at $2,499) and 204 in economy class (tickets start at $869).

In future, the airline will take back two other B-787 from Oman Air when the leases expire in 2019 and they also plan to sign a joint venture code-share with Delta Airlines in 2019 to expand the sale of tickets in the USA beyond New York.

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.

Reading the Tea leaves at Centum, Kenya Airways, Safaricom – Part III

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.

Centum:

  • 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.

Kenya Airways 

  • 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.

Safaricom

  • 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.