Category Archives: EABL

Visiting the Home of Tusker Beer and KBL

Last Friday, the management of Kenya Breweries (KBL) offered a media tour of their plant at Ruaraka, Nairobi. One of the oldest companies in Kenya, KBL is now part of East African Breweries (EABL) that is controlled by Diageo. The tour was a chance to walk see their production lines for different products like Tusker beers, Senator, and spirits like Kenya Cane. It was also a chance to meet and hear the top management of including Managing Director of Kenya Breweries, Jane Karuku, and heads of some divisions including bottled beer (Janice Kemoli), Spirits (Annjoy Muhoro) Sustainability (Jean Kiarie), and Innovations (Fred Otieno)

EABL has 2017 net sales of Kshs 70 billion (~$700 million) and Kshs 8.5 billion ($85 million) profit. Their financial year ended just before the election season in Kenya which saw nationwide general elections held on August 8 and a surprise repeat Presidential one on October 26. and the KBL Managing Director said that the prolonged elections period had resulted in a slow first half of their new year, including the Christmas season which is usually a peak. EABL gets 72% of its revenue from Kenya, 17% from Uganda, and 11% from Tanzania, and they also serve South Sudan, Rwanda, and Burundi.

Beer is still the cornerstone of the company, accounting for 80% of their revenue. This is led by Tusker, then Guinness (second by volume). Premium and lite beers are growing around the world and KBL has Tusker malt and Tusker Lite. There is also Senator Lager that was introduced in Kenya to combat the illicit alcohol trade. Senator is distributed by kegs and sold by pitcher or glass, And as part of a Kshs 15 billion Senator investments, a  new Senator line was commissioned in Kisumu, and MD Karuku said that the old plant has a great location to serve Uganda, Tanzania, South Sudan, is next to Lake Victoria, and it is modular in design which will allow more product lines to be added on in future. She said beer would continue to be the main part of their future as beer keeps up with GDP (growing at about 5% a year) and grows as young people reach the legal drinking age.

They also have spirits which contribute about 20% of the revenue of the company, and they control half the spirits market in Kenya. They have three segments of spirits; Reserve (luxury) in which they have  Singleton whiskey, Ciroc, and Tanqueray gin. Then they have a Premium segment that includes Johnnie Walker (Kenya was the fastest growing Scotch market for Diageo in 2017) & liquours (Baileys which is marketed for ladies). Finally, they have a Mainstream segment, which is 80% of their spirits business in Kenya. Their main products here are Kenya Cane, a forty-year-old sugar cane blend, and also Chrome vodka. The company invested Kshs 900 million in a line that will double their spirits production capability, and they aim to grow spirits contribution from 20% to 30% of revenue. They also invested in tamper-proof plastic seals to combat a wave of counterfeiting of popular alcohol brand products in Kenya and 50% of the alcohol purchased is illicit.

In life, tastes and consumer preferences are constantly shifting, and the company has an innovation division that tries to anticipate what consumers will like in the future.  New products rolled out include a citrus fusion variant of Kenya Cane, non-alcoholic Álvaro (which is being revamped), a craft premium beer called Hop House 13, Tusker Cider, Tusker draft beer )that is predominantly at all-inclusive hotels at the Kenya coast), and Zinga a new beer brand being piloted that is priced between Senator and their other bottled beers. With the new citrus fusion introduction, sales of Kenya Cane grew 46% last year, and overall innovation contributed 18% to turnover in Kenya and 33% in Tanzania.

Last year EABL contributed Kshs 52 billion in taxes (it was the third largest taxpayer after Safaricom and the Teachers Service Commission) equivalent to  4% of government revenue.   Besides with the Senator beer, KBL also works with the government to explain that importance of a stable tax regime and business environment, and have pushed a caution that alcohol is not price-sensitive to the sin-taxes that seem to be a favourite add-on in the national budget every year. Already, while a Tusker bottler has a recommended retail price of Kshs 140, Kshs 84 shillings will go out as tax, Kshs 23 goes to the distribution chain and the company gets Kshs 33.

For the long-term, EABL which contributes 0.8% to Kenya’s GDP plans to source 100% of their inputs locally by 2020 (up from the current 80%). They work with 31,000 farmers through their East Africa Maltings and pay Barley farmers Kshs 1.7 billion and sorghum ones Kshs 660 million every year, with the new Senator line expected to see 15,000 more farmers contracted, and 5,000 new Senator outlets. The company has 102 distributors (57 main ones, 45 senator ones) and 22,000 main outlets and 19,000 senator ones and they handle distribution to get products to customers at the lowest price possible.  The outlets have benefitted through getting access to management systems and electronic tax receipt (ETR) systems, and the next step is to harness all the data they have collected to enable better decision-making. Other initiatives of KBL include ‘Utado’ (which encourages responsible enjoyment of their products by advising consumers to take taxis, drink water, eat food) and Heshima (through which the recruited illicit alcohol sellers and trained and turned them into entrepreneurs and sellers of a legal affordable product).

A Tusker Beer remains part of the urban inflation index for tracking changes in the cost of living in Nairobi over time.

EAVCA: East Africa Private Equity Snapshot

Ahead of the 3rd Annual Private Equity in East Africa Conference, (taking place on June 15 in Nairobi) the East Africa Private Equity & Venture Capital Association (EAVCA) and KPMG East Africa released their second private equity survey showing increased funding and activity, and with a lot more opportunity for deals to be done.

They estimated that of the $4.8 trillion raised between by P/E funds globally between 2007 and 2016, about $28 billion was raised by Africa-focused funds and $2.7 (including $1.1 billion in 2015-2016) had been earmarked for investment activity in East Africa.

This private equity had funded over 115 deals in the period that were included in the survey. Out of these  the 115 deals, 23 were agri-business, 20 were financial services, 13 manufacturing, and 12 FMGC representing 59% of deal volume. The average deal size had also grown to the $10-15 million range, while in the initial survey it was below $5 million.

East Africa Private Equity Survey

Of the 115 deals, Kenya had 72 deals (63% of the total), Tanzania 19, Ethiopia 8, Uganda 12, and Rwanda at 4. Some of the large deals in the survey, by country, include:

• Rwanda: Cimerwa – PPC ($69M), Cogebanque ($41M), BPR-Atlas Mara ($20M), Pfunda Tea ($20M)
• Uganda: topped by oil deals CNOOC and Total SA (both $1,467 million), Tullow $1,350M, Total $900M, CSquared-Mitsui $100M, Sadolin-Kansai $88M
• Ethiopia: National Tobacco – Japan ($510M), Meta Abo-Johnnie Walker ($255M), Dashen-Duet ($90M), Bedele-Heineken ($85M) and Harar-Heineken ($78M), Tullow-Marathon ($50M)
• Tanzania: Africa Barrick Gold ($4,781 million), Tanzania – Pavilion ($1,250M), Vodacom ($243M), Export Trading Co ($210M), Millicom-SREI ($86M), Zanzibar Telecom-Millicom ($74M)
• Kenya: Safaricom-Vodacom ($2,600 million), Africa Oil-Maersk ($845M), I&M-City Trust ($335M), Ardan-Africa Oil ($329M), Kenya Breweries-EABL $224M, UAP-Old Mutual ($155M), ARM Cement-CDC ($140M), Wananchi ($130M), CMC-AlFuttaim ($127M), Essar ($120M)

P/E operations: There are about 72 funds operating/focused in East Africa (up from 36 in the first survey) with over 300 employees. 89% of the survey respondents have a local presence in East Africa.

Some of the fund companies that responded to the survey include Acumen, Abraaj, AfricInvest, AHL, Ascent, , Catalyst, Centum, CrossBoundary, Grofin, Emerging Capital Partners, Kuramo, Metier, Mkoba, NorFund, Novastar, Phatisa, Pearl Proparco, Swedfund, and TBL Mirror

Returns:  Of  the deals done, survey responders had an average IRR target was 22% while the actual IRR achieved was 19%.  There were 34 exits between 2007 and 2016, with increased recent activity; 2014 (had 7), 2015 (7) and 2016 (6). The preferred mode of exit is sale to a strategic investor (preferred by 78% while this mode accounts for 38% of exits) followed by share buy backs (32%), then sales to another P/E (21%).

Many of the funds in the region are still in early stages, and 54% have made nil returns to their investors. They surveyors estimate there are more opportunities for Africa private equity in health, education, retail, and manufacturing sectors.

Bond Moment: M-Akiba, EABL and other NSE Bonds

Update on NSE Bonds or bonds listed at the Nairobi Securities Exchanges and other bonds, since the last bond moment in May 2015.

Globally, the bond market is bigger than equities one, and according to the latest CMA Kenya quarterly statistics (PDF),  bond market turnover in Kenya has been larger than the equities one since 2009 mainly due to government bonds. In 2016, equity market turnover was Kshs 147 billion (down from 209 billion) in 2015. Bond market turnover was Kshs 433 billion (~$4.2 billion) in 2016 (up from 305 billion in 2015). Turnover has been 99% due to government treasury bonds, while that of corporates is less than 1% of bond turnover in a year – except in the years 2010 and 2011.

If one doesn’t want to buy NSE bonds directly, there are CMA-approved bond funds for investors including the Apollo Bond Fund, Co-op Bond Fund, Diaspora Bond Fund, Dyer & Blair Bond Fund, ICEA Bond Fund, Madison Asset Bond Fund, and the Old Mutual Bond Fund. These fixed income /bond funds total Kshs 1.4 billion (or 2.5% of the 57 billion) of funds under management by fund managers in Kenya.

Government Bonds

  • M-Akiba: Following the successful launch of M-Akiba, Kenya’s Kshs 150 million, 10%, tax-free, 3 year bonds that were entirely sold via mobile phone (the minimum investment was Kshs 3,000 (~$30))  another Kshs 4.85 billion (~$47 million) is to be floated in June 2017.
  • Following the launch of a green bonds program, banks, under the ambit of the Kenya Bankers Association (KBA), have partnered with Nairobi Securities Exchange (NSE) towards raising the country’s first bank-supported climate change-aligned corporate debt instruments in the next six to eight months. The capital flows from the green bonds in Kenya will go towards funding bank clients that require finance for clean and sustainable development projects in the priority areas of energy, agriculture, transport, infrastructure, building and urban planning, and water and waste management…so far, banks operating in South Africa and Morocco are already tapping the green finance opportunities in partnership with local municipalities and development finance institutions. projects. Also in South Africa, the World Bank’s International Finance Corp (IFC) successfully raised a 9-year, 1 billion Rand Green Bond via the Johannesburg Stock Exchange. More on the Kenya Bankers Association Sustainable Finance Initiative.
  • The Kenya Government finance bill 2017 will give Islamic finance bonds the same treatment as conventional bonds and also allow Islamic finance products in the cooperatives sub-sector.
  • The Rwanda government is about to issue a 10 billion Rwanda franc (~$12 million), 7-year Treasury bond. It will be issued on May 24 and the funds will be used for infrastructure project and capital markets development. The bonds will be listed at the Rwanda stock exchange and trade in multiple of 100,000 francs (~$120).
  • Nigeria has asked Goldman Sachs & Stanbic IBTC Bank to advise it on the sale of a debut “diaspora bond” targeted at Nigerians living abroad. – via @kenyanwalstreet

Corporate NSE Bonds:

  • Centum announced a Kshs 2 billion one year 14.5% note for the Two Rivers Development.
  • Cytonn is seeking advisors for their medium-term notes to raise Kshs 5 billion from the public towards the financing of Cytonn real estate’s (CRE) projects including Taraji Heights in Ruaka and The Ridge in Ridgeways.
  • On Monday EABL listed the Kshs 6 billion (~$58 million) of bonds at the Nairobi Securities Exchange (NSE) as the second and final tranche of its Kshs 11 billion shilling medium-term note program that was launched in 2015. The tranche attracted bids worth Kshs 8.4 billion, representing a 41% over-subscription. The bonds maturing in March 2022 will pay an annual fixed interest of at least 14.17% and the raised funds will go towards optimising operations and restructuring the brewer’s balance sheet. “This is the first corporate bond to be listed on the bourse this year, and we are confident that its success, a subscription rate of 140.9% will open the doors for more listings in the course of this year,” said Nairobi Securities Exchange CEO Mr. Geoffrey Odundo. Citi upgraded EABL as a buy, due to its low price – seeing value even as the beer market was flat. The first half of FY17 (ended December 2016) showed decent volume growth for EABL (+5% YOY) but weak sales growth (-6%) as beer demand continued to shift from mainstream to value. EABL is doing well in spirits but struggling in beer, and Tanzania continues to present a challenge. – Citi report.
  • A South African credit-only micro-finance institution Real People Investment Holdings which issued a multi-billion bond in Kenya late 2015, has received a negative rating. Global Credit Ratings (GCR) said it had downgraded the primary and special servicer quality ratings assigned, with the outlook accorded as negative.
  • Transcentury bondholders lost 50% in a restructuring buyout deal.

Other Bonds

  • The African Development Bank had led the establishment of an African Domestic Bond Index and a $200 million African Domestic Bond Fund to deepen liquidity in local bond markets. It has also issued local currency bonds in 11 countries, including Kenya, South Africa, Egypt, Ghana, Nigeria, Botswana, and Uganda. leading the African Union in mobilizing domestic resources required to execute the Bank’s five developmental priorities dubbed the ‘High 5s’. – Light up and power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve the quality of life for the people of Africa.
  • The Africa Finance Corporation issued a US$500 million 7 year Eurobond. The senior, unsecured Eurobond which carries a coupon of 3.875% was priced to yield 4.000% and matures in April 2024. It attracted orders of US$2.4 billion, representing about 5 times over-subscription from 231 investors. The bond will be listed on the Irish Stock Exchange. The Eurobond was distributed to investors in Europe (29%), United States (25%), United Kingdom (24%), Asia (18%) and the Middle East (4%). Citi, J.P. Morgan, MUFG and Standard Chartered Bank acted as Joint Lead Managers and Bookrunners for the U.S. dollar-denominated issue.
  • FSD Africa (Financial Sector Deepening Africa) and KfW Development Bank will invest £15.3 million (~$19.8 million or Kshs 2 billion) in the African Local Currency Bond Fund enabling it to step up its engagement with developmentally important industry sectors such as green energy and housing and take on investments in fragile and conflict-affected states. ALCBF is managed by Lion’s Head Global Partners (LHGP) Asset Management LLP.
  • Bonds, Loans & Sukuk Africa “the continent’s only Pan-African debt event” takes place on 13th & 14th March 2018, at the Cape Town International Convention Centre.

Urban Inflation Index: March 2013

Gift from Uganda during the Kenya Supreme Court hearings
March 2013 saw the highly anticipated Kenya general election. There was a lot of uncertainty in the country, and beyond on what  impact it would have on the regional economies.

There were some familiar and ominous signs. The heavy investment the government had made in electronic vote systems failed, and it was a close race with a disputed result. However, unlike in 2008, the dispute was settled in the Kenya Supreme Court, and not in the streets. 

Ahead of all this, some Nairobians engaged in some extra shopping or stocking up which some called it panic shopping – but this was actually as prudent as shopping ahead of an approaching hurricane or storm, which may veer off at the last minute.
On to the index that compares prices to 3 months ago and a year ago.

Gotten Cheaper

N/A

About the Same


Staple Food: A 2kg pack of (Unga) Maize flour, which is used to make Ugali that is eaten by a majority of Kenyans daily, costs Kshs. 105, which is down from 107 in December, but up from 97 a year ago

Other food item: A 2 kg. pack of Mumias sugar pack is Kshs 250, same as three months ago. It was 245 a year ago.

Communications: Telephone call and data rates are largely unchanged, and there have been few new mobile promotions,  with some items offered free like access to Facebook (Yu), Wikipedia (Orange), money transfer (airtel).

Fuel: Petrol prices in March were Kshs 117.6 per litre (~$6.12 per gallon) slightly higher compared to Kshs. 111.6 per litre a year ago and 112.6  last December.

Utilities/Electricity:  A pre-paid token purchase of Kshs. 500 purchase from the Kenya Power & Lighting Company (KPLC) gets about  33 units, compared to 31 a year ago. However the units are only a fraction of the bill with 4/5 of that Kshs. 500 payment going to pay for power generation debts, forex & fuel charges and even inflation. It’s odd that even as heavy rains cause floods around the country, and presumably fill hydro dams,  KPLC still procures private thermal power and bills consumers for the costs.

Foreign Exchange: 1 US$ equals Kshs. 85.63 compared to Kshs. 86 three months ago and Kshs. 83 a year ago. The shilling did not dip much ahead of the election as many had expected.

More Expensive

 
Beer/Entertainment: A bottle of Tusker beer is Kshs 200 ($2.35) (at a local pub) up  from Kshs 180 where it has been for quite a while. The price increase was driven by local brew giant  East African Breweries that’s got some debt issues.

Idea Exchange: Opportunities Galore: Blogs, Dust, Eggs, Interns, PhD’s, Oil, Social Media, Weddings

Some open opportunities to apply for; 

(Edit) African Banker Awards: The 2013 African Banker Awards competition is now on. Winners will be selected in categories of  African bank, African banker, best bank (in North Africa, East Africa, Southern Africa, West Africa, Central Africa regions),  retail bank,  investment bank , most innovative bank, socially responsible bank,  financial inclusion award, investment fund/private equity fund,  deal of the year, mortgage bank/product,  and brokerage house of the year. Deadline is 11 March.

African Development Bank: 2013 Internship Programme Session 2 – Provides students with an opportunity to acquire professional and practical experience at the African Development Bank and the Bank with a pool of potential candidates for future recruitment purposes.

Also, the #AfDB’s Regional Integration Dept is seeking junior consultants. Apply now.

PhD Fellowships from the African Economic Research Consortium  for people who have gained admission in 2013-14 to selected universities such as Cornell, Oxford, Ohio State or the Universities of Bonn, Sussex, Newcastle and others.  Apply through these university websites before April 30.  
The African Leadership Academy seeks to  enroll the most outstanding young leaders from across Africa and around the world. Deadline is February 28..

The African Leadership Academy also has the inaugural ‘African Teacher of the Year Award’ to celebrate teaching excellence on the African continent. The final 3 shortlisted finalists will be honored at a gala dinner in Johannesburg, South Africa in October in front of media, the headmasters of 100 of the leading schools in Africa, and other dignitaries. The winner of the award will also win a cash prize of $10,000. Nominate an outstanding African secondary school teacher- by the 31st of March, 2013 to teacheroftheyear_at_africanleadershipacademy.org.

Aga Khan Foundation: International Scholarships – scholarships and loans for postgraduate studies in 2013-14 to outstanding students from the developing world. The Foundation assists students with tuition fees and living expenses only and half of the scholarship amount is considered as a loan, which must be reimbursed with an annual service charge of 5%. Application deadline is 31 March.

(Edit) Anzisha Prize 2013: Has $75,000 in cash prizes for youth entrepreneurs. Details here and deadline for the @anzishaprize is April 1.
BAKE: Kenyan Blog Awards 2013 awards aim to reward and recognize exceptional bloggers creating content in technology, photography, creative writing, business, food, environmental / agricultural, style, politics, corporate, sports, lifestyle, travel, new blog and others.  Deadline is February 1.
Big Brother Africa: BBA 2013 kicks off in May. To qualify, participants have to be above the age of 21 and speak fluent English.
Blackberry: Developers may apply for Built for Blackberry reviews and the $10,000 Developer Commitment before February 18.

(Edit) CNN Multichoice African Journalist 2013 is open to African nationals, working on the continent for African owned, or headquartered, media organisations and with work that has appeared in printed publications or electronic media that is primarily targeted at and received by an African audience. Deadline is 17 April 2013.

(Edit) The 10th edition of Diageo’s DABRA awards is now open. The Diageo Africa Business Reporting Awards will recognize journalists and editors who provide high quality coverage of the business environment in Africa in ten categories including ICT, finance, infrastructure, agribusiness / environment, tourism, best business story, business feature, newcomer, media of the year, and journalist of the year. Deadline is March 15.

(Edit) East Africa Philanthropy Awards: The 2013 EAPA awards from the East Africa Association of Grantmakers is now open for nominations in philanthropy categories for individuals, youth, faith-based, community, social entrepreneurs, and corporate philanthropy. Deadline is 30 March.
Egg Hatching Incubators are being lent to individuals and groups on credit, and with no interest charge. 
Faithful Frames: Win a free wedding photoshoot worth Kshs. 15,000 (~$175). Deadline is  Jan 28.

(Edit) Film Mentorship Program: Opportunity for talented young African filmmakers involved in directing, scriptwriting, production, camera, production design, sound design and editing, to enroll in a workshop where they will meet professional filmmakers from all over the world in September 2013. Details here and deadline is 1 May.

(Edit) The International Academy of Journalism 2013/2014 Fellowship program Journalism in the Digital World is now open.  Deadline is May 3, 2013.

Kings Pool Challenge League: EABL’s Pilsner brand is sponsoring a national pool tournament that runs from 21 January to May 4 2013.
(Edit) The 2013 edition of Mobile Web East Africa  is on later in February in Nairobi. Read more about the event.

Nestlé Prize in Creating Shared Value (CSV) seeks innovative programmes, businesses or social enterprises that innovate with impact in water, nutrition, or rural development. Deadline is March 31

(Edit) PivotEast: The third edition of this mobile startup showcase competition takes place on June 25-26 2013 in Kampala, Uganda, and it is open to  all companies in East Africa including South Sudan, Ethiopia, and Somalia. Competition will be in five categories of mobile finance, mobile enterprise, mobile society, mobile utility, mobile entertainment – and this year companies can submit a product in more than one category. The deadline for entries  is 15 April.


(Edit) Poptech: The 2013 Social Innovation Fellows program. Details here and deadline is 2 April.

(Edit) The Rockefeller Foundation Next Century Innovators Award series is now open. Nominate people or organizations that can win up to $100,000 for solving entrenched social problems. Deadline is February 28

Squad Digital: The digital agency is seeking an experienced digital business director with  knowledge of social SEO, Mobile (e.g. M-banking) 
TAHMO: Design a sensor that measures a weather or hydrological variable (temperature, wind, dust or lightning) and is both inexpensive and robust.  Deadline is 1 March 2013.
Tony Elumelu Foundation: Is seeking companies to place interns with for periods of  8-10 weeks. They should have revenue of $250,000 – $5 million per year and agree to pay for stipends while the Foundation will  cover the cost of recruitment, travel, and accommodation  
Toyota: Dream Car art contest dubbed “Your Dream—The Car of the Future” aims to create an opportunity for children (in 3 categories) —through drawing pictures of their “dream cars” —to develop their interest in cars. Deadline is January 31. 
Tullow Oil: The Group Scholarship Scheme will offer up to 114 scholarships across its countries of operation (10 for Kenya) for the 2013/14 academic year and these can be in engineering & tech., oil & gas economics, business journalism, law, and others. Deadline is 13 February. 
World Bank Africa: Social media internship – apply by responding to the phrase: #iwant2work4africa because..