Emirates Airlines, 30th Year of Profit

In its recently released annual reports, Emirates Group had revenue of US$ 27.2 billion, and it’s 30th straight year of profits at $1.1 billion and will pay $545 million as a dividend to the Dubai Investment Corporation.

Emirates Airlines revenue increased 9% to US$ 25.2 billion, while its profit increased to $762 million and this was attributed to strong performance in cargo which offset fuel price increases of 15% during the year. Fuel now accounts for 28% of their operating costs, while staff expenses are 15%. The Emirates Group has 80 subsidiaries and 103,000 employees, a number which declined by 2% in the year. The report notes that there was a 2.2% reduction in flight handled at Dubai’s two airports due to termination of flights between Dubai and Qatar, from the, still ongoing, dispute with Qatar.

Emirates carried 58.5 million passengers and received 17 new aircraft, in the year taking its fleet to 268. It is the world’s largest operator of the Boeing 777 and A380 planes and announced new orders for 36 A380’s and 40 B787-10’s. Emirates revenue was from six regions topped by Europe with $7.3 billion revenue, followed by East Asia/Australasia $6.9 billion, the Americas $3.7 billion, and revenue from African routes was $2.6 billion (an increase 8%).  In Africa, they fly to 27 destinations and the report notes that their results in Africa were achieved in spite of political instability and currency volatility including massive devaluation in some countries. Revenue from the Gulf & Middle East was $2.3 billion, and West Asia/ Indian Ocean was $2.1 billion. During the year Emirates signed partnerships with Fly Dubai and Cargo Lux and extend one with Qantas.

Emirates SkyCargo revenue was US$ 3.4 billion (14% of the airline’s revenue) from its freighter fleet of 13 777’s, while Emirates’ hotel’s revenue was US$ 203 million, Emirates also tested the use of blockchain to streamline cargo delivery, digitize their supply chain and eliminate paper usage.

Dnata, a separate entity in the Emirates Group, had its best year yet with $3.6 billion of revenue and $359 million profit. Dnata serves 300 airlines in 35 countries and its international business which included handling 3. 8 million tons of cargo and serving 55 million meals during the year, now accounts for 68% of its revenue. Dnata acquired AirLogistics in the US, signed deals to do ground handling in New York,  and maintenance in Singapore and had other expansions in Europe while creating two new travel reservation systems.

Kenya Airways and Delta Codeshare

Delta Air Lines and Kenya Airways have applied to the US Department of Transportation with an expedited request for the two airlines to be expeditiously granted reciprocal codeshare rights for each others’ flights.

The application (PDF) dated 7th May, applies to Delta and Delta Connection flights in North America, Latin America, and the Caribbean to carry the Kenya Airways (KQ) code, while the Kenya Airways will immediately place Delta’s code (DL) on flights between Nairobi to/from Johannesburg (South Africa), Lilongwe, (Malawi), Djibouti (Rep. of Djibouti) and Maputo, (Mozambique).

Delta routes will be part of the codeshare.

Delta which reaches 325 destinations, currently has services to Dakar (Senegal), Lagos, Accra, and Johannesburg, while Kenya Airways is scheduled to start flights to New York in October 2018. There is no mention of Air France/KLM, who have been Kenya Airways long-term joint-venture partner for two decades, in the new US codeshare application.

The new codeshare arrangement which covers “persons, property, and mail,” is an expansion of a previously approved reciprocal codeshare arrangement between Northwest Airlines and Kenya Airways for flights originating in Kenya and North America. Northwest merged with Delta in 2009. The new codeshare will also extend to all Delta Connection regional affiliate airlines (namely Compass Airlines, Endeavor Air, ExpressJet Airlines, GoJet Airlines, Republic Airline and SkyWest Airlines).

Aside from Kenya, Ethiopian Airlines, which flies to several American destinations of Washington (DC), Newark, Los Angeles, Chicago, Toronto (Canada), Buenos Aires (Argentina) and Rio de Janeiro & São Paulo (Brazil) is also expanding its American network via routes in West Africa. The airline is reported to have secured rights to fly passengers to Houston via Accra, while it also confirmed that it had entered a codeshare with Air Côte d’Ivoire for flights to Newark via Abidjan.

Safaricom 2018 Results, Driven by M-Pesa and Data Growth.

This morning Safaricom released their March 2018 results, reporting that they had overcome a challenging year in Kenya to post record results as their shares also touched record highs.

Kenya’s largest company reported revenue of Kshs 224.5 billion (~$2.24 billion), a 10% increase shillings an EBIT of Kshs 79.3 billion, and a net income of Kshs 55 billion ($553 million). They will pay out a Kshs 44 billion ($440 million) as dividend (Kshs 1.1 per share)  to their shareholders.

As was the case the previous year, the results were driven by innovations in data, and mobile money (M-Pesa_. Mobile data revenue was Kshs 38.4 billion (up from Kshs 29.3 billion) and data usage per customer has grown to 56% to 421 MB, with more than 90% of data consumed through bundles which offered customers better value and freedom of usage.

M-pesa revenue was Kshs 62.9 billion as customers had moved from traditional M-Pesa to payments. The company has signed over 100,000 Lipa-Na-M-Pesa merchants and customers did 147 million Lipa na M-pesa transactions, an increase of 63%. Safaricom had reduced merchant fees by 50% and also made customer transactions that were smaller than Kshs  200 ($2) free of charge. In financing, Safaricom now issued 3 (micro) loans every second through partnerships with banks – M-Shwari (CBA) and KCB’s M-Pesa. Overall, M-pesa accounted for 28% of service revenue, and mobile data was 16% reducing Safaricom’s earlier reliance on voice and SMS which together were still a significant 50% of revenue.

These results were achieved in a year that Kenya had a prolonged electioneering period which slowed economic activity while credit growth was also the slowest in 14 years. But in releasing the results, Safaricom director, and former CEO, Michael Joseph cautioned that a draft industry competition study had proposals that seriously concerned Safaricom such as the introduction of price controls and regulated infrastructure sharing. The proposals, he said, would prevent Safaricom from rolling out services that their competitors could not replicate.

The results announcement also saw a surprise reappearance (via video) of Safaricom CEO Bob Collymore who took personal leave late last year to seek medical treatment. Collymore announced that he was completing the final phases of his treatment and expected to be back in Nairobi in a  few weeks once he was cleared to travel by his doctors.

Some ongoing innovations include in food security (Digi Farm and Connected Farmer) and healthcare (M-Tiba which now has 1 million users. They recently created an agri-business department that will to seek to deliver mobile-based solutions to address food security in the country. Also, the Safaricom Foundation is refreshing its strategy to address sustainable development of communities in three areas; education, health, and economic empowerment.

Going forward, Safaricom projects EBIT of Kshs 85 – 89 billion for 2019 as they look to drive shareholder value through growing M-Pesa across borders, and appropriate partnerships and in environments with the right regulations, Also from e-commerce and they recently signed payment partnerships with PayPal and the Google. 

Ethiopia – Kenya relations impact roads and coastal developments

This week, Ethiopia’s new Prime Minister, Dr. Abiy Ahmed Ali, visited Kenya on a state visit and with his host, President Uhuru Kenyatta made commitments for regional infrastructure projects of aviation roads, railway, and electricity.

According to the joint communique released by Kenya’s President, some resolutions going forward from their talks include:

  • The two countries will develop Moyale on the border as a city and economic zone.
  •  Kenya will avail land to the Ethiopia government at Kenya’s new port in Lamu that is under construction, and Ethiopia will develop that to facilitate logistics for their country,

  • The two countries will develop the LAPSSET projects including the road from Isiolo, (via Moyale) to Addis Ababa, a railway line from Addis to Nairobi and an electricity transmission line between the two countries. They would also supervise the road between Lamu, to Moyale (via Garissa and Isiolo) and on to Addis (via (Hawassa).
  • Ethiopian Airlines would be granted a second flight frequency to Mombasa,
  • Also, the two countries will have joint military training even as the leaders the lack of  international support to combat Alshabab through AMSIOM which faced inadequate funding and attention. The countries would also cooperate on agriculture, and the exchange of prisoners (edit: this is already happening).

Changes at Lamu are coming, including land acquisition by the government which has been slow and sometimes controversial and recently, a court ruled that the government should compensate Lamu fishermen (4,600 of them) for not consulting them on the port design plans.

Vivo Energy – London IPO prospectus peek

Last week Vivo Energy had the largest African listing at the London Stock Exchange since 2005 and the largest London IPO so far in 2018. Vivo  raised £548 million by selling 27.7% of the company at 165 pence per share, which valued Vivo at £1.98 billion.

The company which operates fuel businesses in 15 Africa countries, will have a secondary listing in Johannesburg while it will report primarily to the London exchange.

A peek at the 288-page prospectus

Performance: In 2017 revenue increased by 16% to $6.6 billion and earnings before taxes were $210 million, a 21% increase. Revenue was 66% from retail (Shell fuel stations, convenience stores, restaurants) and 29% from commercial business (large customers, LPG), with the rest from lubricants business.

Vivo has Subsidiaries: in Madagascar, Tunisia, Senegal, Burkina Faso, Cote d’Ivoire, Guinea, Uganda, Kenya Ghana, Mali Mauritius, Morocco, Cape Verde) and a 50% investment in Shell & Vitol Lubricants. All these companies are registered in Netherlands or Mauritius. Prices are regulated in 12 of the 15 countries that they operate in, including Kenya.

Engen: The company is in the process of buying Engen for $399 million, and this will comprise a payment of $121 million in cash and 123 million new shares of Vivo, after which it is expected that Engen will own 9.3% of the company. The Engen deal which is expected to be completed later in 2018, adds 300 stations and brings on 9 new countries to the group.

Johannesburg: Another 10% of Vivo is being availed to get the company listed in South Africa. The listing at Johannesburg will cost $16.3 million which includes payments for legal advice $4M (Freshfields Bruckhaus Deringer), $2.6M to the reporting auditors & accountants (PWC), other legal advisor fees of $1.5M and $142,000 to Bowman, JSE fees for listing and document inspection of $180,000, and $7.1 million in other expenses in South Africa.

Taxes: Sale of shares in the UK will attract a stamp tax duty of 0.5% of the offer price, while a tax of 0.25% is payable on every sale in South Africa.

Managers & Employees: There is an extensive listing in the prospectus on Vivo’s key managers and directors, their roles, compensation and other benefits. For directors, it lists current and past directorships e.g. Temitope Lawani, the co-founder and Managing Partner of Helios Investment Partners, has 47 current directorships. A top Kenyan official is David Mureithi, the Executive Vice President for Retail, Marketing, and East & Southern Africa.

Vivo has a long-term incentive plan for executives and senior directors and also an IPO share plan for employees. They have a total of 2,349 employees, with 240 in Kenya, which is third in employ size behind Morocco (579) and Tunisia (270).

In Kenya: they had sales of $1.3 billion in 2017 up from $1 billion in 2016. They have 189 stations in the country (56% of which are in Nairobi) and are the number one in the country (due to the strong Shell brand) with a 27% market share. They also supply jet fuel at four airports and sell lubricants. And while employees of Engen have just filed objections to the deal in Kenya, going by past transactions, Kenya’s Competition Authority will approve a deal as long as there is no severe loss of jobs.

Shareholders: Prior to the listing were Vitol Africa B.V. 41.6%, VIP Africa II B.V. 13.3%, (Helios) HIP Oil B.V. 2.4% and HIP Oil 2 B.V. 41.8%. After the deal, with a full subscription, it is expected that Vitol goes to 28.9%, VIP to 9.2% and HIP 2 to 30%.

Litigation: A government ministry in DRC has tried to put a hold on the sale of the Engen subsidiary in DRC (in which the government owns 40%), but Vivo believe the case has no basis and are contenting this.