Monthly Archives: August 2005

KQ follow-up

Results are out following the Kenya Airways director elections which were again decided by KLM (120m shares) and the Government in Kenya (106m shares), the major shareholders, who were in harmony in their voting this time. Minor shareholders (i.e. the rest of the top 10 owners) had limited impact on the outcome.

New directors in bold are:
Neil Canty: for 251m votes, against 5.6m votes (against all major shareholders for; one minor shareholder against)
Joram Kariuki for 500,000 votes, against 256m (all major shareholders against)
Ayisi Makatiani for 241m, against 15m (all major shareholders for; some minor shareholders against)
Evanson Mwaniki: for 241m, against 15m (all major shareholders for; some minor shareholders against
Chris Obura: for 15m, against 241m (1 minor shareholders for; KLM, Government & other minor shareholders against)
Japheth Rob: for 745,000, against 256m (all major shareholders against)
Lois Wambua: for 934,000, against 241m (all major shareholders against)

Also, the East African Standard has an intriguing take on the exit of former Chairman, Isaac Omolo Okero.

Redemption?

Eliud Kipchoge (centre) beats Kenenisa Bekele (left) and Hicham El Guerrouj (left)in Paris in 2003

Now that Kenyans are no longer the favourites, can they Kenya pull out more suprises and regain some track and field glory? Find out at the following upcoming events on Super Sport this month:

Friday 19 August: 20:45 – 21:30 SS6 IAAF Golden League: Weltklasse, LIVE
Sunday 21 August: 18:00 – 21:00 SS1 IAAF GP: GP – Sheffield, LIVE
Tuesday 23 August: 20:30 – 23:00 SS1 IAAF GP: Super GP – Linz, LIVE
Friday 26 August: 21:00 – 23:30 SS2 IAAF Golden League: Memorial Van Damme, LIVE
Sunday 28 August: 18:00 – 21:00 SS1 IAAF GP: GP – Rieti, LIVE

At the Nairobi Stock Exchange

IPO

Kengen
Kengen has now invited tenders for the advertising and public relations services (deadline September 8) for its IPO. The transaction and legal advisors they selected earlier are now hard at work towards the IPO which is expected early next year.

Equity
While Equity Bank management have told their staff that their IPO will be in October 2005, they have not publicly engaged any IPO advisory firms and partners.

Others
Other firms which have expressed interest are not expected to be ready for at least another year.

Buyouts

Barclays
Absa Bank of South Africa is expected to buy Barclays Kenya and 10 other Barclays Africa operations within the next two years following the successful conclusion of Barclays return to South Africa through a majority buyout of Absa. to buy Barclays Kenya

Pan African Insurance
South African underwriter, Sanlam has offered to purchase Africa Life (SA) which owns 50% Pan Africa Life Assurance Company which is listed at the NSE

Uchumi Rights

The Capital Markets Authority has approved an Uchumi Rights issue, to take place later this year which is expected to raise 1.2 billion shillings for the supermarket chain. The Uchumi shares register will close next Monday (August 22) and only shareholders of record will be allotted rights to subscribe to new ordinary shares.

Bad Loan
“Never borrow to play the market” is advice that is given the world. Yet Co-operative Bank is marketing a personal loan geared towards enabling people to buy shares at the Nairobi Stock Exchange. Terms are no security required for amounts below 500,000 and the maximum loan term is 36 months at competitive interest rates.

Sterling Comeback
Sterling Securities has been re-admitted as a broker at the NSE. The company has first had its license first suspended in 1999 following operational and managerial constraints

Daily Results
The NSE has set-up a daily price list, available at the end of each trading day at its web site click on the picture. It’s an excel spreadsheet with a major error – that can give you 27 copies if you choose to print it.

Kenya Airways 2005 AGM


Kenya Airways held its 2005 annual general meeting at the Bomas of Kenya auditorium on Friday August 12th

Erase 2004 memories
The airline was determined to avoid a repeat of the chaos that marred its 2004 meeting at the Carnivore. Some of the improvements made include:

  • They provided free transportation by City Hoppa shuttles to and from the railway station to Bomas
  • They handed out lunch boxes at the entrance to shareholders after registration (around 10 in the morning) along with a gift bag (with t-shirt and water bottle) – (some shareholders immediately turned around and left having got their objective for the day)
  • They also set up an additional Hall at Bomas with A/V conferencing so that excess numbers could be accommodated and participate in the AGM.

Who’s Chairman?
Lawyer Dinesh Kapila was the company & board chairman today. Mr. Omolo Okero was also seated on the dais as a board director for the last time, after resigning as Chairman two weeks ago, at the end of July. Kapila will chair the company until the newly constituted board of directors elects a new chairman next week.

Mr Okero never said a word the whole meeting, sitting quietly as shareholder after shareholder repeatedly called for him to be commended for steering the company to great heights during his 14 years on the board, 10 as chairman. Strangely, the company has not seen fit to honour him with a fitting farewell, as Barclays did for their retiring Chairman, Sam Ambundo at their AGM. Maybe the company has something planned or perhaps has some reason for not wanting to honour Mr. Okero better.

Mr. Kapila is a no nonsense lawyer, with a relaxed style who ran his first KQ AGM like the pro that he is – having no doubt chaired other meetings and made presentations before courts and companies. He introduced the board, management, company secretary and auditor’s report in about ten minutes before opening the floor for shareholder questions.

Shareholder queries
The first questions were by shareholder Mr. A. W. Chami who I have seen at every AGM I have attended over the last year. He asked why borrowing was up, and all the loans were from Barclays UK Company Response: debt is from fleet expansion and Barclays made the best offer

Dividends: More than 1/3 of the questions asked, were requests for increased dividends. In 2004 the company paid a dividend of 0.75 shillings per share (from earnings of 3.14) and this year they proposed to pay 1.25 out of earnings of 6.54 per share. Many felt this was too little and that the company should either pay interim dividends, convert revenue reserves, stop giving sumuni dividends (50 cent dividends), give bonus shares, pay a special dividend to honour chairman Okero, hand out actual cash or even forego giving lunch – all in a bid to pay more dividends. Company Response: Most earnings are retained as the airline must have huge amounts of cash available at all times since the industry is very unpredictable and also for fleet expansion

Fuel: Oil prices are cause for concern. They constitute 26% of airline costs, and oil prices are 61% up from a year ago. CR: the airline hedges its fuel costs for 3 months, and is considering adding a fuel surcharge to passenger tickets

Women: There are no lady board members – can the company rectify that? CR: KQ has had women directors before such as Dr. Eddah Gahukia, and more women should apply for director elections

Drugs: KQ’s “Pride of Africa” image is being tarnished by repeated arrests of KQ employees for drug trafficking, perhaps they should pay their staff better? CR: drugs are a national problem bigger than KQ and caused by greed. The airline plans to employ some sniffer (dogs?) from later this year

Directors: Shareholder concerns included;

  • Directors elections are a sham, as the two majority shareholders (KLM: 26% and the Kenya Government: 23%) call the shots.
  • The proposed maximum terms of 8 years for directors to serve.
  • There are no true minority shareholders on the Board. All directors of the company hold 3 to 4 other jobs elsewhere.
  • Directors should eat lunch with shareholders and hear more of their concerns

Government: Finance Permanent Secretary Joseph Kinyua was present as a board member and he confirmed that the government will not be selling off is 23% shareholding saying that the KQ is a national airline it is in the strategic interest of the Government to retain its minority shareholding in the company.

Fleet: Why buy new 777 planes instead of leasing? CR: At the time the decision was made, buying new aircraft was the only available option as leasing companies were not comfortable with the airline’s position. But now the airline is better established they will in fact be leasing 737-800 aircraft next year to replace some 737-200 planes

Privileged shareholders: Can shareholders get preference by giving them discounted air tickets or employing their relatives? CR: KQ carries 180,000 passengers a month and if they give each of the company’s 80,000 shareholders discounted flights they will have no profits to report. Also the airline has no favours/does not discriminate in employment matters

Funny: Questions that got the most laughs;

  • The font in the annual report is too small
  • Dividend so pitiful that street kids will not accept it if it is thrown at them.
  • Now that shareholders all have their lunch (boxes), the meeting could go on till 5 p.m.
  • Directors should be elected on the floor by acclamation, not by secret ballot
  • One shareholder wondered if he could get the gift bag he missed at last year’s meeting

Media
Immediately after the AGM ended, reporters rushed off for a separate media only briefing (no bloggers) to get some straight talk from management, away from the shareholders nonsense. Later on TV, MD Naikuni was shown denying that he had a conflict with former chairman Okero. I feel the media should pay more attention to shareholder questions as they sometimes bring out some candid answers from the Board.

Elections
There were three director vacancies, which were created by Dr Chris Obura, Neil Canty (the airline Finance Director, and Mr Omolo Okero retiring. Canty and Obura offered themselves for re-election while Okero retired for good.

Others candidates were

  • Joram Kariuki – former NBK manager and politician
  • Japeth Rob, a HR manager, vocal shareholder and a perennial candidate
  • Evans Mwaniki, the Chairman of BAT Kenya and former shell executive
  • Ayisi Makatiani, founder of Africa Online
  • Also one lady got was on the panel, but she was absent today.
  • Surprisingly, Paul Wanderi Ndungu, a lawyer with a substantial number of KQ shares (he’s the #4 shareholder with 2.14%) withdrew his candidacy at the meeting.

I predict that Dr. Obura and Neil Canty will be re-elected. The third slot will be a fight between Evans Mwaniki and Ayisi Makatiani. Audited election results will be published in the Tuesday paper.

All work and no play…

On the way out, I had my first view of the new and much raved about Land Rover Discovery LR3. It was being driven by KQ MD Naikuni.

Trees: a great investment

Kenya has a forest cover estimated at 1.7% and shrinking. Yet, tree planting is actually a great investment opportunity that has remained under-appreciated in many parts of the country.

Market
Depending on how you space the tree seedlings at planting and when you harvest the trees, there is a market for them. After 3 -4 years, you can harvest and sell the trees at 1 – – 4,000 shillings each for firewood or from 5 – 8 years, you can sell them off at 6,000 shillings per tree for poles. This can translate to profits of between 1 million and 6 million shillings per acre ($13,000 – $80,000 per acre) all from an initial crop of tree seedlings that can be bought for about 10 shillings each. One also has to factor in the opportunity cost of not growing maize or other cash/food crops over the years on the land, but these tend to have high annual production costs. Also, one advantage of trees is that they can be planted on undesirable or uncultivated land.

Major buyers of trees include tea factories (who use firewood to process tea leaves), Kenya Power & Lighting Company, East African Cables, Telkom (for poles), and numerous saw millers and local wood vendors.

Dangers:
Two main ones are fire and pests/disease which can wipe out a mature crop of trees. Also one must also protect land from squatters, who may destroy trees for firewood, or to build homes in what they consider to be “unoccupied forest” land, or whose grazing animals may eat young tree seedlings.

Science
Numerous advances have been made in research to speed up tree growth, and new fast-growing hybrids of trees from South Africa and Australia can be easily obtained. Some of the trees being planted around the country by enterprising land owners include Pinus, cypress eucalyptus grandis, and blue gum.

the Future
One farmer told me that he has no worries about funding his kids university education in ten years time and even recommended that parents should plant one acre of trees per child to cater for the cost of their upbringing and education.