Category Archives: McKinsey

Kenya Airways Restructuring Update

Yesterday Kenya Airways had a press conference with new Chairman Michael Joseph and outgoing CEO Mbuvi Ngunze. They spoke of restructuring changes happening at the company some of which included:

  • CEO search: Kenya Airways has listed between 15 and 18 candidates for CEO position, from all over the world. Shortlist will be 3-4 for final interviews (Via @wgkantai)
  • Challenges with staff. During the restructuring, some engineers have left KQ to work for Middle-East carriers. Crucially, the Chairman now seems to agree with the CEO on the need to revisit talks with the pilots union and to enhance staff productivity during the restructuring.
  • The contract with Mckinsey consulting is being wound down. It had been criticized for being very expensive. Many of the restructuring initiatives under the airline’s Operation Pride for revenue generation and cost saving were formulated by KQ staff and are being implemented by KQ staff, and hence the consultants’ time is over. Mr. Joseph said that this restructuring plan is now 55% complete.
  • KLM partnership:  The chairman defended the joint venture between KLM and KQ which some of the airline’s critics, especially its pilots, a claim was to the airline’s disadvantage. “Right now KLM is the best partner for us in terms of the route structure. The benefit is to KQ because KLM flies more routes and sells more tickets. We get revenues from the countries we don’t fly to into the joint venture. In the end, we benefit
  • The Chief Executive of KLM resigned from the KQ board and was replaced by Jos Veenstra who is a chartered accountant and is currently the VP Mergers Acquisitions and Holdings for Air France/KLM, and who has ben alternate director at KQ. It does not appear to be related with the restructuring. (via Capital FM)

Coop Bank 2016 AGM

Co-operative Bank of Kenya (Coop) had its 8th AGM (since listing) on Friday 27th May, at Bomas, in Nairobi. At the end of 2015, Kenya’s 3rd largest bank had 342 billion in assets, and profits of Ksh 15 billion. It had Kshs 208 billion in loans and Kshs 265 billion in deposits. The CEO also mentioned that Q1 profit in 2016 was almost Kshs 5 billion and they hoped to attain Kshs 20 billion by the end of 2016.

Highlights

  • Soaring Eagle: The CEO gave an update of  the ongoing transformation project that seeks to improve Co-op’s efficiency and services to the 5.9  million customers of the Bank. Now, only 25% transactions are done at branches, as customers  have the choice to use other channels like mobile phones, ATM,s internet, or bank agents. Internally, staff are tasked to cross sell bank products & open accounts, and they receive promotions, bonuses, and increments based on KPI’s and appraisals. They consulted with McKinsey for some of this.
  • Regional Expansion / Subsidiaries & Associates: They own 60% of Kingdom Securities (stockbrokers), and in South Sudan they own 51% of Coop Bank there, with the government of South Sudan owning the other 49%. The bank went from a loss of Kshs 687 million to a pre tax profit of Kshs 850 million, and the CEO said that Sudanese see the bank as their own, as they have a stake a board and management are local. They plan to use the same joint venture approach to take Coop Bank to Ethiopia, another large closed banking market. They also own 100% of Co-op Consultancy and Co-op Trust Investment Services, 35% of Cooperative insurance (parent of the listed CIC insurance) and 31% of CIC South Sudan.
  • Shareholders: The bank has almost 96,000 shareholders who will each receive Kshs 0.8 per share in dividend – and this will total Kshs 3.9 billion in 2015 (up from 2.4 billion). The bank Chairman said that they had to maintain a balance with the dividends paid out so that they they did not have to call on shareholders to put money back in to the bank as it grows. Coop shares were issued after a 2008 IPO at Kshs 9.5, and now trade at 18.3. They have also issued  bonus shares (twice?).
  • Elections: During the shareholder election, the CEO explained two unique points. One was that Coop Holdings which owns 65%  of the bank, had already had its AGM and nominate 7 directors (that they are entitled to) and merely forwards the names to the Bank for endorsement at the AGM. Second was that the CMA now requires that companies make shareholders aware that they have audit committees, and to have shareholders vote for the members of the audit committee at the AGM.
     Chami meets CEO

Q&A

  • One Shareholder asks about the cost of banking saying that If he deposits Kshs 100 at an agent, Kshs 20 is cut, and there’s another Kshs 50 for each of his ATM withdrawals. The CEO they share these fees with the agents who have to pay for costs like electricity or to run their kiosks. Another one asked that Coop asked the bank to open more agent locations (now at 8,765) to serve other parts of the country.
  • Insider Lending at Coop? The CEO assured that all loans taken by directors (total about Kshs 300 million) and employees (about 6.5 billion) are being serviced properly, and that they are known to, and approved by the board. Insider lending had brought down other banks in Kenya, but, he said, this was not an issue at Coop.
  • Legal cases? All banks have legal cases, and they highlighted the main ones in the annual report.

New African Consumer

Today in Nairobi McKinsey & Co, and TBWA released a report on The New African Consumer. It’s one that trends towards rapid urban driven growth with people having with more discretionary spending power,  and one not based on resources. The top states with the highest consumption per capita, and accounting for 75% of all of Africa are SA Egypt, Nigeria, Morocco, Algeria, Sudan, Tunisia Libya Ethiopia and Kenya. Crucially most of the growth (80%) will come from people who earn more than $10,000 per month.
It’s a useful road map for companies looking to understand future trends in Africa and offer lessons such as be online (Africa had more Google ad clicks than Western Europe), brands & quality matter, distribution is king, data is scare, respect country differences & act local, prepare for talent shortage, and expect to iterate (have dynamic execution).
 
The report should lead to a bigger debate, one based on future sustainable economic trends. The same report points out that more babies were born in  Nigeria than all of western Europe. So more studies need to be done in that regards to answer where will the increased African population work? Where will they learn and get medical care? Who will build houses for them? How will they commute? Who will grow food for them as more will reside in large urban centres? Will they be able to cross-borders in such of improvement in any of these challenges? That’s the next set of questions & opportunities to balance out with the insightful trends in this report.