Category Archives: Centum

Rea Vipingo AGM & EGM

AGM

The 2014 Rea Vipingo AGM took place on April 28, 2015, at Southern Sun Hotel, Westlands Nairobi. It was actually two meetings in one for the company whose shares have been suspended for over a year as different buyout offers were to be resolved by tribunals and courts.

One of the strong bidders was Centum who recently reached a settlement with other company bidders to get land, and that left the original buyout offer by the majority owners – R.E.A Trading with 57% to be the only offer presented to shareholders.

Shareholders to decide on Rea Trading’s Kshs 70 plus 15 offer

The meeting was somewhat acrimonious. Shareholders wanted to know about their dividend and their possible exclusion from the company as the Rea Trading had indicated right from their initial bid that they intended to buy out the minority shareholders and delist the company from the Nairobi Securities Exchange.

In the early part of the meeting the shareholders present, numbering about 300, did not want to even approve the financial accounts. They wanted to discuss their lack of dividend and their being cut off from the company, and the board not entertaining better offers. At one point the board Chairman threatened to resort to a poll vote in order to get through the business of the day including approval of accounts, the election of directors and auditors.

He said there was no legal way to alter the discussion at the meeting to and declare a dividend – and that discussions on the buyout offer should wait till the EGM meeting. He also said when a takeover is on, directors can’t declare or pay dividends – and that If the offer goes through, the directors will consider a substantial interim dividend to those who remain as shareholders, when the offer closed. He said that when the meeting agenda was prepared and circulated, a settlement had not been reached with Centum (who had since withdrawn their bid).

One shareholder said the company’s retained earnings are being used to buy off shareholders, but the Chairman said the accounts are factual documents for discussion and did not represent policy decisions. Some shareholders accused him of being dictatorial, but once the poll issue was raised, the meeting settled down and was quickly done.

Two directors were re-elected, and the board remuneration was also approved. That it included a slight increase from Kshs 65,000 to 70,000 per month for all directors, (and 75,000 to 80,000 for the chairman) was not disputed, shows that the minority were now defeated.

EGM

The Extraordinary General Meeting took place five minutes after the AGM ended at which the shareholders approved:

1. Sale of Vipingo Estates to Centum.

2. Sale of land owned by the company at Vipingo to Vipingo Development.

The Chairman said the motions had been cleared following proposed settlement, with, and sale of company land to, Centum. Investment. He said he was not an employee, but also a minority shareholder who had bought the shares at Kshs 10.50 in 1995, and that he had accepted the buyout (at Kshs 70 plus the top up), which was a good deal. He also said before the various offers for the company, from Rea Treading at 40, Bid, and Centum, the market (other NSE investors) had valued the company at Kshs 27 (the share price of the company) – and that Kestrel had found that Kshs 40 was a good price that the board had been ready to recommend at the time.

Other findings

• Kenya’s new capital gains tax (GCT) has caught up with the deal. In answering a question on if CGT would apply to the payout to shareholders, the Chairman said it was possible, but that CGT had been unsatisfactorily introduced and may be clarified in the upcoming budget speech, and probably before the deals and payment are done.

• The Chairman said that one hazard of investing in the country is there are delays which led to CGT. But it also led to the competitive nature of offers that had seen offers to shareholders go from Kshs 40 to Kshs 70.

•On the land, he said Rea had conditionally offered to sell the land to Centum if they get all approvals (from the Competition Authority, and land control boards) and Centum brings the money. The offer was a good price from Centum that will, crucially, allow Vipingo’s sisal production for export business to continue for many more years as Centum will take over small pieces of land over a period of time. The sale price is slightly less than the Kshs 2.1 billion (~$23 million), value, but they still have their machinery, operations, and can harvest sisal for export for many years

• One shareholder was upset by the patterns of major shareholders such as at General Motors, Elliotts Bread, Access Kenya and CMC who when they meet their targets, chase away minority investors, and wondered why the CMA allowed this. The Chairman said Vipingo was going to invest in new (expensive) sectors like energy generation, and the majority shareholders wanted to give minority ones a chance to exit.

• The prospectus offer shows Rea Trading have placed $6.2 million with CBA who would fund the balance of the takeover via a $15 million term loan. Rea have put $4.4 million for the cash top-up. If they get 75% they will move to take over the rest of the shares, and if they get over 90% they will delist the shares.

Lamu, Kenya and Amu Power – Part II

See Part I of the visit to Lamu with Amu Power

After the morning session with the county officials, we had a chance to visit the planned site of the Amu Power coal plant at Kwasasi, on the mainland. This was my third visit to Lamu in four years, but my first chance to visit the mainland of Lamu County.

The Lamu islands are incredibly beautiful, and once you experience Lamu, you are unlikely to look at Mombasa the same way again. It’s a beautiful place for tourists to visit; boat rides, the endless beaches of Shela, the quaint town with tiny streets, curio shops, friendly residents, ancient buildings, tasty foods served on roof top restaurants, and a world heritage status conferred on the town.

Also for tourists who come to Lamu, unlike travel to Mombasa where they have to contend with at least an hour of traffic around both Jomo Kenyatta and Moi airports, they can fly to Lamu having skipped the traffic bit by using Wilson airport in Nairobi, while in Lamu, there’s no such thing at traffic – as you land on Manda island, walk 300 meters and get on a boat that can get you to a hotel or villa within ten minutes. But while it’s beautiful for tourists, life is not getting better for residents. The boat rides are expensive, unemployment is high, and education is low, and the land has other challenges.

To get to the Kwasasi site, we took a 15-minute boat ride to Mokowe jetty where several taxis were waiting. Mainland Lamu, which borders Somalia about 100 kilometers away, has been in the news over the last two years due to sporadic attacks and incidents, with the most catastrophic being Mpeketoni in June 2014, where 48 people were killed by a terror gang.

The first stop after stepping off the ferry on the mainland was to drive to the local police station to collect some armed policemen that the company had hired for the day. After that it was a long drive over about an hour that covered about 30 kilometers on narrow dry dusty roads. Lamu County is said to have 6 kilometers of tarmac, but this main road on the mainland had none.

Eventually, we got to a Navy base, which also marked the edge of the port area. This was our starting point and we drove along the fence of the navy base, which had a road then away from the fence with satellite tracking devices to pinpoint the coordinates of the corners of the site and this took about two hours to navigate. Amu Power had contracted a landscape architect to produce real life drawings of what the plant would look like in the current environment, and he took several pictures at each corner of the site and strategic points on the road.

The site of the plant was a large plain field with sparse bush. This was a shock as I expected to find warehouse sheds, office and residential buildings to mark the edge of a LAPSSET (The Lamu Port Southern Sudan-Ethiopia Transport Corridor) port city. But the place was sparsely populated and devoid of structures or developments.

This was apparently communal land, but there were sticks in the ground to mark boundaries in some places and burnt bushes in other places presumably for cultivation clearing. In some places targeted for LAPSSET projects, speculators in the area have pushed up the price of land five times in the last few years.

Another shock was seeing many women and girls walking along the road with yellow 20-liter drum, full of water. This is an arid area, with few water points and the role of fetching water is one performed by women who walk long distances. We later stopped at one of Amu Power’s CSR projects, which were a series of water tanks at a central point to which a company lorry delivers water every week for area residents to use. It should not be the business of prospective investors to provide water, but that’s the reality of doing business in many parts of the world, and the water delivery has made life easier, with more to be done.

Amu Power has plans for the construction of a water desalination plant, which will be the first ever, built in Kenya, and the excess of this will be shared with the local community.

We left just before sunset and asked the taxi driver about the ongoing curfew that was in the area. He said it was still in force, but had been relaxed of late.

After we got back to the Island we had a few more talks to recap the day. Earlier, one of the community leaders has talked of the challenges Lamu had faced and why it had remained largely unchanged 50 years after independence with issues like water shortages, transport challenges and lack of roads. He said, while Lamu was poor, there had been resistance to several past attempts to introduce development projects in the area– including a fertilizer plant, the new port (because it would spoil fishing), and wind power in Shela (because it would spoil the water).

The day after the visit, as we prepared to leave and fly back to Nairobi, we started hearing reports of the ongoing attack at the university in Garissa. The full scale of the attack did not become apparent till later in the day.

It is expected that President Uhuru Kenyatta will be in the area in a few weeks to commission the first three berths of the Lamu port that is set to be completed in 2019.

The port, crude oil pipeline, the coal plant in Lamu and Lamu-Garissa-Isiolo Road will raise the profile of Lamu and thus the government’s investments to enhance the security profile of the area. The fringe benefits of this infrastructure will be to open up the Eastern and Northern part of Kenya to development and settlement, the way that the British railway did over 100 years ago between Mombasa and Kisumu.

Clearly, not only is change coming to Lamu, change has to come to Lamu. The LAPSSET projects and the coal plant are about 30 kilometers from Lamu town and the picturesque islands that most people in Lamu are familiar; that’s about the distance from Mombasa island to Diani beach and its possible that the two will coexist and mutually benefit like the South coast neighbours.

Lamu, Kenya and Amu Power: Part I

Earlier this month, I took a trip to the Lamu county at an invitation from the Gulf Energy side of Amu Power, and Gulf are the leading a project that will see the construction of a coal power plant that will generate 980 MW for Kenya.

This is part of an ambitious project by the government to invest in and diversify its future energy generation capacity, from one that’s relied for years on hydropower dams and more recently to diesel, geothermal and wind power sources.

The coal plant to be built by Amu Power is one of several large projects planned by the government for Lamu, and the team from Amu Power has been meeting with various stakeholders over the last few months including sessions with residents of the area, coastal governors, other politicians, and elders.

This one, at the American Centre in Lamu town, saw the Amu Power team meet with their community partners, and local county staff, led by the Lamu county commissioner, district officers and area chiefs, and DO’s. They form a vital link being the government administrators in the community, heading security and intelligence teams, and it was to explain what the company would be doing over the next 3 years.

The 980 MW Coal Plant in Lamu is being built for Kenya’s Ministry of Energy and Petroleum on a build, own, operate and transfer basis for 20 to 25 years. But already, there has been some controversy by some NGO groups who have started a campaign in communities and on social media to stall or discredit the project. By having such sessions with the area leaders, Amu Power were hoping to avoid a repeat of issues such as in Kinangop where residents have delayed a wind power project.

Sanjay Gandhi, a consultant working for Amu Power, explained that coal plants of years past are not built anymore and there is new technology that mitigates the old environmental challenges that come from coal. He noted that all projects have effects on the community, but with good mitigation measures these can be alleviated. The Amu Power plant will be built by Chinese contractors, but to standards set by American institutions. Also the Amu Power offices will be on site and they will live and supervise the plant with full teams of staff for the next 25 years.

Sanjay explained that Kenya needs the electricity and that peak demand has gone up from 899 MW in 2005 to 1,470 MW in 2014, with Lamu town itself still powered by diesel generators. KPLC is adding 200,000 customers every year, and it is expected that peak demand for electricity will reach 5,359 MW by 2017.

Coal is also the cheapest form of energy at 7.5 US cents (Kshs 6.30 per unit) compared to geothermal at 9 C, and solar and wind power 12 C /kwh (Kshs 8 per kilowatt-hour). He said coal is the most cost-effective way of generating industrial power, and once you turn it on, the plant will be able to run for 8 months without turning off. Kenya’s ability to add new hydro dams is diminishing and renewable energy sources like wind and solar power are not consistent enough for industries to run.

The government’s only investment will be a through commitment to buy electricity 981.5 MW of electricity at Kshs 6.3 per unit and the Amu Power plant will be built to handle different types of, whether from Kitui county (where coal has been found), or imported from South Africa, Mozambique, or Indonesia.

Amu Power is planning to complete the plant through 21 months of day and night work; this is after 7 months were lost in court following the government decision to award them the project. They will build on 870 acres of land that the company will lease from Kenya Ports Authority who are buying land from residents in the area, and while actual boundaries have not all been determined, people have been buying and speculating on land value appreciation in and around the site.

They have identified a Chinese contractor to do the work, and the company wants 1,000 local youth to go to the National Youth Service (NYS) for 6 month training to be ready for work in October. They have started with Pate area and plan to find 100 people in each of the 10 Lamu wards to be trained and employed as masons, brick layers, welders, fitters, riggers, electricians – and if the contractor can’t find local people, they will get others from outside the area.

They estimate that the plant will need 2,000 employees on a full-time basis during construction, and 3,000 at peak. Thereafter, there will also be 500 permanent jobs for 25 years, and while early managers will be Chinese, there will be a requirement for each foreigner to have a Kenyan understudy throughout. There are opportunities for the local community to prepare and provide all that is necessary for these workers, such as housing and food in addition to supplying building materials for the construction.

After the talk, there was question and answer session in which local chiefs raised various points of concern including – plans for local fishermen who rely on fish catches for they livelihood, need to re-forest the area, need for completion of school classrooms, need for sea wall rebuilding in some places, a need to train youth in small business skills, the lack of bursaries for school kids, as well as the challenge of combating drugs and alcohol, which were mentioned in the Lamu county development plan. They also raised the issue of controversial payments for land ownership that has happened in some areas of the planned Lamu port.

The county commissioner spoke and appealed to chiefs to look at security in their areas, and talk to people, as ultimately, all Lamu people will benefit from the new Lamu projects. He noted chiefs have a lot of influence and can combat propaganda, as people still believe what a chief says and this has a big impact on communities. He asked the chiefs to look out for issues that concern him including ensuring that no one invades other people’s land, especially with violence, that they curb burning of bushes to eliminate historical land barriers, watch out for illegal cutting of forest trees and ensure that there are no more night weddings / night discos – as they had to put an end to the practice of school girls being married off.

See Part II which includes a visit to the proposed power plant site.

Shares Portfolio August 2014

The Stable

Bralirwa (Rwanda) ↑

Diamond Trust Bank ↑

ICDCI (Centum) ↑

Kenya Airways ↓

Kenya Commercial Bank (KCB) ↑

Kenya Oil Company (Kenol) ↓

Safaricom ↓

Scangroup ↓

Stanbic (Uganda) ↓

Unga ↑

Review

Comparing the basket to one year ago, the portfolio, excluding new shares, is up 22% since May 2014 while the Nairobi Shares Exchange main index is up 5% over the same period.
Best Performer: Centum (up 36% in 3 months), KCB 23%
Worst Performer: Kenya Airways (down 15% in 3 months), Kenol -8%
In: NSE
Out: Barclays, Equity, Portland Cement
Increase: Diamond Trust, Centum, Kenya Airways
Decrease: None
Unexpected gains/losses: Centum’s endless deal making.

Reading the Tea leaves at Centum, Kenya Airways, Safaricom

Three companies that had their year-end in March 2014 have just published their annual reports which are now found on their individual websites.

Centum
Has a (massive ) 160 page annual report and 37,000 shareholders

At the August 2014 AGM shareholders will be asked to approve items including:

The incorporation of Two Rivers Property owners Company
The incorporation of Two Rivers lifestyle Centre limited Kenya branch
The acquisition of 30% shareholding in Broll Kenya
The acquisition of 73% shareholding in Genesis investment Managers Kenya
The incorporation of King Beverages
The incorporation of Bakki Holdco
The incorporation of Shefa Holdings

Other Notes

Rent income went from Kshs 6 billion in 2013 to Kshs 17 million in 2014?
Other income was Kshs 443M, up from 12M
Cash flow went from Kshs 1.5B to (minus) -448<
The restated accounts have Kshs 237M paid to company shareholders, yet there are no dividends declared to be paid this year
For Genesis, they paid 1 billion for a company worth 153 million
They raised Kshs 4.1 billion in 2012 at about 13%
Centum Exotics owe Kshs 2 billion, Centum developments owe 1.8 billion and Two Rivers owe 2.5 billion to the company
81% of investments are in Kenya, 13% in East Africa, and 5% outside and 87% of the groups assets are not held on any stock exchange. Centum’s investments include 17.8% of General Motors East Africa, 15% of NAS Air services, 27% of KWAL, 27% of Nairobi Bottlers & 43% of Almasi (Coca Cola bottlers), 35% of Platinum Credit, 1.6% of K-Rep bank, and 21.5% of AON Minet & 13.8% of UAP insurance companies

Kenya Airways (KQ)
130 page annual report and has 77 000 shareholders.

Are owed Kshs 156 million of Precision Airline of Tanzania (down from 242M) and they own 41% of the airline. KLM owns 27% of KQ. KQ are owed 4 billion by Aircraft Cargo Handling and they owe the company back 7 billion
Have 12 year loans with Afrexim, Citibank, Stanchart that are guaranteed by USEximBank, while Co-Op bank financed purchase of a spare Embraer engine. The loans are at rates of 3.5 to 6.5%, and total $1 billion
KQ has paid Kshs 27 billion in airline deposits, and got a refund of about Kshs 2.8 billion in 2014 (from Boeing?). KQ also has Kshs 26 billion of aircraft lease commitments in the future.

The B787-8 aircraft will replace the B767- 300s on a one for one basis. The B777-300ERs provide growth in capacity. The B737-300s exit the fleet as JamboJet gains it’s Operating Certificate and determines its own fleet requirements. Two of the E170s will be returned to the lessor as will two B737- 800s, which will be replaced with new leased aircraft.

The most important project for the Information Systems team during the year under review was the Boeing 787 e-Enabling project. The project was set up in February 2013 to implement the e-Enabling platform design recommended by Boeing for the B787 aircraft. The purpose of the e-Enabling platform is to ensure secure transfer of B787 Aircraft Software from Boeing servers to Kenya Airways servers and subsequently into the B787 aircraft.

JamboJet lost Kshs 118 million so far, but KQ will apply a deferred tax of 221 million from Flamingo, their previous low cost subsidiary airline against that
KQ sas 4,000 employees and also has an ESOP that has been inactive since 2006 (with 2 million shares) . While outgoing CEO Naikuni (famously) still has no shares, directors with shares include Alex Mbugua with 25,000 while Chairman Evans Mwaniki has 42,000.
Spent Kshs 40 billion on fuel & oil, and 8 billion on aircraft hire. Have Kshs 1 billion in fuel derivatives
Have Kshs 106 billion in revenue (85% from passenger flights) and 89% of revenue is foreign (i.e. non-local flights) and they fly to 62 foreign destinations
Putting a damper on Africa Rising, the Chairman’s statement notes that

African airlines international air travel expanded by 5.5% in 2013, a solid result but slower than growth in 2012 (7.5%). Overall, the demand backdrop for carriers in the region was strong, with robust economic growth of local economies and continued development of internationally trading industries. But some parts of the continent showed weakness, including the South African economy which recently experienced a slowdown. There has also been some slowdown in regional trade growth

The Kshs 5 billion loss in 2014 is an improvement from an 11 billion loss the year before.

Safaricom
136 pages and has 660,000 shareholders.

The Communications Authority (ex-CCK) gave Safaricom credit of Kshs 542 million against a license of Kshs 696 million.

Safaricom’s operating licence was issued for a period of 15 years from 1 July 1999 to 30 June 2014. On 25 June 2014, the Communications Authority of Kenya (CAK), formerly the Communications Commission of Kenya (CCK), confirmed the renewal of Safaricom’s operating licence for a further ten years from 1 July 2014 to 30 June 2024 at a renewal fee of USD 27 million.

Own 32% of TEAMS (up from 22.5%). The company acquired 10% at a cost of (just) Kshs 550, 620?! TEAMS had revenue of Kshs 382 million and a profit of Kshs 42 million in 2014. In 2013 they paid Kshs 556 million for the remaining 49% of One Communication which also has a deferred tax asset of Kshs 204 million.
There is an M-Pesa holding company that is separate from the company and who are trustees of all the funds that are held in M-Pesa. There is also a Safaricom Foundation that participates in many (small) projects and an M-Pesa foundation that is involved in larger (and fewer) projects.
Have Kshs 12 billion of bonds that retire in the next 18 month (7 billion in Nov 2014 and 4.2 billion in Dec 2015)
Bonga points; 84% of the points redeemed were for non-merchandise items (airtime, voice minutes, data bytes and SMS) while 16% were redeemed for merchandise items (phones, tablets?) in 2014.
The company bid and won a Kshs 201 million deal to brand Kasarani stadium and gymnasium
Lipa Kodi has 88 housing agents collecting rent from 60,000 houses while 122,000 merchants have signed on with Lipa Na M-Pesa
Directors: Chairman Nicholas Nganga has 885,00 shares, Michael Joseph has 2.3 million, Esther Koimett 517,000 and CEO Bob Collymore has 908,000
The newspapers in August 2014 note that shareholders will be asked to approve base station purchase from Yu for $1 million

Bankelele

Nairobi writer on Banking, Finance, Technology, and Investments