Category Archives: Kenya real estate

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.

WDR 2017: Governance and the rule of law

WDR2017, the World Development Report from the World Bank for 2017, looks at governance and the rule of law around the world and how they can impact countries and economic development.

Illustrative pic from the Star Newspaper to show what a large sum of cash will look like

some excerpts;

  • Elections alone are not enough to bring change – even when citizens manage to remove politicians whose performance is poor or diverges from their preferences, elections alone offer no credible guarantee that, once elected, new leaders will not shirk their electoral promises and credibly commit to citizens’ demands.
  • Local elites can capture public spending despite participatory programs; as they can disproportionately sway expenditure decisions
  • Inequality begets inequality In societies in which inequality is high as the effectiveness of governance to deliver on equity outcomes can be weakened structurally because those at the top of the income ladder not only have control over a disproportionate amount of wealth and resources, but also have a disproportionate ability to influence the policy process.
  • Devolve: By multiplying the number of more or less autonomous arenas within which public authority is exercised, decentralization increases the opportunities for policy innovations and the emergence of effective leaders. Often these innovations are spurred by political outsiders, who may not have access to the national policy arena but are more likely to acquire citizen support locally and spur local institutional reforms.
  • Female leaders are less prone to patronage politics and corruption.
  • Media content is often defined by elites leading to a bias, but new media can counteract this.
  • Political parties are on average the least-trusted political institution worldwide
  • Politically connected firms gain undue advantage in countries through using market regulations to favor firms, granting import licenses to favored firms, and diverting credit.
  • Land redistribution policies often fail due to transaction costs, incomplete contracts, and political agreements.
  • The Panama Papers highlighted legal and illegal ways in which assets found their way to 40 countries: Funds are legally earned through tax evasion and evading currency controls and shifting profits, but also illegally by exploiting natural resources, violating intellectual property rights, corruption, embezzlement, drug trafficking, and human smuggling etc.

See the 2016 WDR report.

World Bank Reduces Kenya Economic Forecast

A new report from the  World Bank slightly revised down the forecast for Kenya economic growth from the 5.9% achieved last year to 5.5% in 2017. This is attributed to ongoing drought, depressed private sector growth, and rising oil prices while 2016 had low oil prices, tourism recovery, and favourable weather conditions.

At the launch, Central Bank Governor, Patrick Njoroge said the focus should not be on the rate change, but on the medium term in which Kenya’s economy had distinguished itself by its resilience. This comes from Kenya having a highly diversified economy  – a mix of largest export is tea but his tea, and that goes to Egypt (not the UK), the economy has a strong regional focus (25% of exports are to EAC, and 40% to sub-Saharan Africa), a dynamic private sector (that’s becoming more transparency, with good governance & better business models), a well-educated labour force and investments in infrastructure (he said more should be written about the SGR vs. the old lunatic express railway) which will improve the country’s competitiveness. He said that foreign exchange reserves were at an all-time high (5.3 months) and while rains had failed in 2017 and there was a slowdown in bank lending, the risk of Brexit to Kenya was more on foreign direct investment (FDI) side and less on exports.

At the launch, the World Bank also did a report on housing in Kenya titled unavailable and unaffordable that highlighted that there were fewer than 50,000 new houses being built each year compared to an annual demand for 200,000 homes. Also, there’s low financial participation with fewer than 25,000 mortgages in the country, yet mortgages are one of the most secure loans, as people do not default on their homes easily.

The World Bank proposes having a Kenya mortgage refinance company (KMRC) that adapts from other successful models in Malaysia, Morocco (guarantees for 70% of loans) and Nigeria (fully subscribed bond scheme) to see if the number of mortgages in Kenya can go up to 60,000. They also have private-public partnership at Naivasha in Nakuru County to build 1,000 low-cost homes, most of which will be below Kshs 2 million (~$20,000)

Also see a report of an IMF staff visit to Kenya.

Wadi Degla Opening in Kenya

This week, Wadi Degla will open their first facility in Kenya, on 10 acres at Runda, about 20 minutes away from Nairobi, and just off the Northern bypass. The facility is busy now with visitors of media and members signing up inside the offices, while outside,  crews of workers are laying the artificial soccer pitch, the multi purpose fields, walking and running tracks, several swimming pools, installing gym equipment and completing several restaurants.

Wadi Degla, Runda, Nairobi

Wadi Degla, Runda, Nairobi

Wadi Degla started in Egypt in 2002, and opened their first facility in 2003 that combines sports, social and leisure aspects. They now have 5 clubs in Egypt with over 600,000 members (from about 130,000 families)

They have also been in Kenya since 2005 in the telecom sector. After Runda, Wadi Degla will have two clubs at Migaa (off Thika Road), one at Karen (at the former Mamba Village) and one on Mombasa Road.

The Runda one will have the largest gym in East Africa which has enough Cybex weights and machines for 200 people to use at a time without waiting or sharing. There will be similar facilities at the other clubs, but in addition, at Migaa will have an 18 hole golf course and an Olympic-size (50 metre) swimming pool, while at Karen there will be facilities to accommodate horses.

Their goal is to have several Wadi Degla club facilities in Nairobi within a half hour of their members. Eventually they plan to be in other towns, and countries (Uganda, Tanzania and Rwanda).  A member of the club gets to use any of the clubs anywhere in the world – so e..g any member visiting or caught in traffic, can stop and exercise, use a gym or get a massage at the nearest Wadi Degla club.

The Runda club is part of Kshs 2 billion investment and members who visit and sign up ahead of the official opening can get a discount or arrange payment plans.

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

 Follow up from two years ago

Three companies that had their year-end in March 2016 have just published their annual reports which are now found on their individual websites. On Thursday both Centum and Kenya Airways boards will face their shareholders at the annual general meetings (AGM’s). Centum is ending a 9 year dividend drought, and Kenya Airways which had another a record-breaking loss, now believes the worst os now behind them. Meanwhile Safaricom will create 6 ‘mini-Safaricoms’ that operate in six Kenya regions and create more segment products like Blaze.

Centum:

  • Has a (massive 192) page annual report (up from 160 pages), and the company has 37,325 shareholders.
  • Will pay Kshs 665 million in dividend (1/= per share) ending a long dividend drought (since 2009)
  • Significant joint ventures are Amu Power (51%) and Two Rivers Lifestyle Center (50% – following a partial disposal). Old Mutual advanced Kshs 5.7 billion to Two Rivers with the debt convertible to 40% in the equity of Two Rivers, with shareholders loans previously held by AVIC and ICDC offset against the consideration. Further developments at Two Rivers  include luxury apartments, a five-star hotel and residences, a healthcare facility and additional structured parking. Property owners who have purchased plots at Two Rivers include  South Africa’s City Lodge Hotel group who are establishing a three star hotel; and Victoria Bank, who are constructing an office block.
  • The completion of the transaction on disposal of interest in Two Rivers and the acquisition of additional interest in Kilele, Sidian Bank and Almasi resulted in a net gain on disposal recorded in equity of Kshs 2.5 billion.
  • The half-year report will be available online to shareholders who register.
  • NAS, where they own 15% will continue diversifying its income streams by launching two Burger King restaurant franchise outlets in Kenya.
  • Will enter the healthcare business with a significant investment this year
  • Centrum plans to build 20 schools across Africa in the next three to five years, as part of a tripartite consortium with SABIS and Investbridge Capital. The consortium has acquired a suitable site along Kiambu Road that will host the first SABIS school in Sub-Saharan Africa, offering both 8-4-4 and K-12 education curricula with a capacity of up to 1,700 students.
  • In agri-business, Centum incorporated Greenblade Growers and acquired a 120 acre farm in Ol Kalou  that will be used for value addition and will have a capacity to process 10 tonnes of fresh produce per day, to key export markets of Netherlands and later the  UK.
  • Energy: to date, the company has invested Kshs 3.1 billion in the development of two landmark projects – Amu Power and Akiira One Geothermal.
  • At the AGM, Centum Chairman James Muguiyi, retires after 13 years and also the Principal Secretary – Ministry of Industry, Trade and Cooperatives, (representing the Kenya government) will retire from the board and not seek re-election.
  • Shareholders will be asked to approve the incorporation of Zohari Leasing, Rea Power Company,  Le Marina  (Uganda) and Two Rivers Development Phase Two. Also that the acquisition of 100% shares of Vipingo Estates and an additional 29% of Longhorn Publishers be ratified (they paid Kshs 393 million for the new shares).
  • Shareholders will also approve a name change from Centum Investment Ltd. to Centum Investment PLC.
  • Shareholders will approve an indemnity of the company directors .. against all relevant loss including any liability incurred by him (her) in defending any civil or criminal proceedings.. the directors may decide to purchase and maintain insurance, at the expense of the company.

Kenya Airways (KQ) kq-ticket-sleeve-old-style

  • The report is 149 pages (up from 130 pages) and KQ has 78,577 shareholders (a slight increase as  their share price has dipped)
  • The Group operates domestic flights and flies to 53 destinations in Africa, Middle East, Asia and Europe.
  • After their 31 March 2016 year-end, they received Kshs 10 billion from the Government of Kenya, (being the second and final tranche of the KShs 20 billion (US$ 200 million) bridge financing that has been on-lend from African Export–Import Bank (Afreximbank), and they sub-leased two Boeing 787 & three Boeing 777-300 aircraft as part of the turnaround initiatives in order to improve its liquidity position.
  •  JamboJet tax losses stood at Kshs 856 million, and Kenyan income tax laws allow for carry forward of tax losses for a maximum period of 10 years.
  • 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 Eco bank. During the year, the airline negotiated for extended repayment periods for all short-term loans ranging from 4 – 7 years except for Kenya Commercial bank. The Government of Kenya Loan is at 10.20% far much more than previous financing that was at 4-7%. Citi JP Morgan Kshs 78 billion is at 1.5% , Afrexim Bank 23 billion is at 4%, while other short-term Kshs 22 billion is at 9%
  • In addition to the Kenya government, KLM, and IFC, top 10 shareholders now include Mike Maina Kamau, Vijay Kumar Ratilal Shah, Gulamali Ismail and Galot International.
  • They implemented a business class upgrade system in January 2016, under which economy class passengers can bid & buy upgrades to fly on  business class.
  • A total of 63 bird strikes were reported in the year (down from 77 last year).

 Safaricom

  • The report is 172 pages (up from 136 pages) and the company has 600,000 shareholders (down from 660,000).
  • At the AGM a few weeks ago, shareholders approved payment of a dividend for Kshs 0.76 per share for 2016 and also a special bonus dividend of Kshs 0.68 per share.
  • According to a True Value report (they commissioned it, and it was done by KPMG), the total value the company contributed to Kenyan society in FY15 was Kshs 315 billion and they  sustained over 682,000 jobs.
  • Bonga points totaling Kshs 3.2 billion are a liability to be converted to revenue as customers utilize their points
  • Lent Kshs 500 million to Safaricom money transfer services, a subsidiary that derives revenue from international money transfer services.
  • The license  fee for M-pesa dropped from 10% to 5% from August 2015.
  • Donated Kshs 414 million to the Safaricom foundation
  • Spent Kshs 9.3 billion on the National Police Service communication project that’s now 92% complete.
  • They now require all new business partners to sign up to the “code of ethics for businesses in Kenya” during the on boarding process, and 269 companies have signed this.
  • They were fined Kshs 157 million by the Communications Authority of Kenya for not complying with its quality of service thresholds.