Category Archives: ESOP

Reading the Access Kenya Tea Leaves

one of three
Over the last few years’ shareholders have voted to allow their companies to reproduce abridged financial statement summaries in the newspaper. One of the benefits of these resolutions would be to reduce costs of administering to thousands of shareholder, who previously were entitled to receive a full copy of a company’s audited results by mail.

Now companies have the full accounts on their websites for shareholders, to download, with a summary of the annual general meeting notice, dividend, chairman statement, and financial summary that appear in daily newspapers.

Limited numbers of the accounts are still printed and kept at the company premises, and distributed to analysts, partners, or to any shareholder who requests one. However most shareholders do not have Internet access or computers to read these PDF’s and may miss out on some details of events at the company.

Three companies are about to have their annual general meetings in the next few days, and have all converted to the digital format in lieu of printed copies. Kenya Airways and Safaricom both had their financial year-end in March 2010, while Access Kenya has had a good year (2009), but their meeting was delayed by boardroom wrangles which saw a new chairman brought in, and later by a drop in first half 2010 results (announced earlier this month).

AGM – Auditors Deloitte continue in office (new Chairman Mr. Ndonye was a long time partner there)
– Shareholders will be asked to endorse a concluded deal to buy out the remaining 30% in Openview, which they describe as a company that sells IT equipment to enterprises and corporate customers. Openview had sales in 2009 of 165 million, up from 147m the year before, but it seems the minority owners opted to sell the company to AK (their right under original sale agreement), and a settlement was reached where payment was made by share transfers, but they also agreed to pay Kshs 38 million to settle some claims by AK group biz daily

Notes – Dividend of 0.3 shillings per share will be paid for 2009, amounting to about Kshs 62 million
– AK still enjoys benefit of listing as a group by paying 20% in income tax compared to subsidiaries and other Kenyan corporates, which pay 30%
– Borrowings are up to 724 million (57m in 2009), but overdraft has been reduced from 166 million to 30 million. The group still has an overdraft position of 128 million. The loans are from NIC Bank and CFC Stanbic for both US$ and KES, with the bulk of this borrowing is in US$ which is cheaper (3%) is cheaper than the shillings ones (7%), unless the shilling depreciated significantly. Interest expenses for the year were 44 million compared to 6 million in 2008
– Communications solutions limited charged 370 million as management fee and owes 364 million
– Fibre: AK paid 106 million as investment into TEAMS (62.5 shares)

Shareholders: Has 32,674 shareholders and while there are some top shareholder changes, the AK ESOP has increased stake in the company

Website AK has an active presence on twitter, but is hounded by claims of poor customer service. Also from Twitter: The board has indicated there is strong interest in acquiring the company from three Telco’s but Safaricom have denied being one of them
-@bankelele reading vacationing @alykhansatchu in the star – safaricom share dips back below IPO price as CEO denies interest in buying access kenya
– @jgmbugua MJ is lying. I have impeccable information that they have approached AccessKenya at least three times. TKL, Airtel interested too
– @coldtusker @jgmbugua @bankelele Maybe in the past but does #AccessKenya add real value to @SafaricomLtd today? [I say no]

Safaricom DRIPs

On Thursday Safaricom announced the possibility of allowing investor to use dividend re-investment programs to utilize their dividends to purchase additional shares in the company.

Last year post was about DRIP’s and other ideas that Safaricom can adapt from Vodafone to manage their large shareholder base.

Promote alternative methods for shareholders’ to enhance value. Support a dividend re investment program (DRIP). Not everyone wants an M-Pesa dividend; some may prefer to buy 100 more shares in the company instantly, while the shares are still cheap (Kshs. 3.7 or ~$0.05 per share) and a DRIP will be a useful tool that keeps cash within the company and its owners. Alternately, if feeling philanthropic, Vodafone shareholders may donate their meagre shares to a charity – and why not to a school in Kenya that was Tahidi High last night!

Other IR Initiatives: This requires approval of Nairobi Stock Exchange share regulators, but now that the Mobitelea monkey has been shed, Safaricom is leading in the region in terms of investor relations = and their latest media briefing was put up at their website in one day, while their CEO’s exclusive interview at Rich.co.ke is also up on the internet.

Other suggested proposals mentioned at the media briefing include share consolidation, and an employee share option program (ESOP), which however have a mixed record in corporate Kenya.

2009 Kenya Bank Rankings Part II

10. Diamond Trust (2008 rank 11) : assets of 44.9 billion ($600 million) and nine month profits of 1 billion ($14.2 million). Loans (28.6 b) grew faster than deposits (33.1b), but expenses also grew faster than income. Neck and next with NIC and I&M banks with 44 and 41 billion in assets in position 11 and 12 respectively.
9. Commercial Bank of Africa (7): assets of 52 billion and nine month profits of 1.39 billion. Deposits flat (40 b) but loans (28.2 b) are up 20% this year and with GOK paper up 77%, however income and expenses are lower than 2008.

8. National Bank of Kenya (9): assets of 55.2 billion and nine profits of 1.4 billion. The bank is in great demand with a planned further divestment by GoK which may attract significant interest next year. For 2009, NBK has had a remarkable 40% growth this year, with 27% loans (12 b) and 48% in deposits (41 b)

7. Citibank Kenya (8) assets of 55.6 billion ($742 million) and nine month profit of 2.3 billion ($31 million). while embattled in the US, Citibank had a slow down in growth of loans (22.7 b) and deposits (29.7 b) compared to ‘08 but will still record a healthy +20% growth for year 2009.

6. CFC Stanbic (4) assets of 83.5 billion and nine month profits of 981 million. Bank had no growth in loans (43 b) and assets, but sitting on a load of cash – almost 16b billion (~$214 million)

5. Equity Bank (6) assets of 92.4 billion and nine month profits of 4.2 billion. Equity is still one of Kenya’s fastest growing banks though the 100% growth margins have tapered off to more manageable 30%+ for loans (55 b)and deposits (63 b) as it expands regionally in Uganda and Sudan and continues to roll out unique banking products.

4. Cooperative Bank of Kenya(5) with assets of 98 billion and nine month profits of 2.9 billion. The bank continues its 20%+ annual growth a year after listing and has diversified into investment banking. However their re-jigged executive shareholding following n ESOP is a sore point to be debated further.

3. Standard Chartered 3 with assets of 122 billion ($1.6 billion) and nine month profits of 5.2 billion ($69 million). Despite my earlier negative outlook, stanchart was a late bloomer and has come on strong: significantly, unlike other big banks, stanchart grew faster this year compared to 2008 – with 18% growth in deposit (89 b) and loans (40 b) while profits are up by 40% as income is up 23% compared to just 5% for costs while spearheading technologial products & services to their customers. Also increased investment in government securities by 77% and holds ~ Kshs. 36 billion now.

2. KCB (2) assets of 163 billion ($2.17 billion) and nine month profits of almost 5 billion ($66 million). KCB group is larger than Barclays in assets (185 b to 168 b) but has a smaller asset base than last year. In 2009 deposits (133 b) and loans (93 b) are up over 20% but profit is up just 3% – income is up 11% but expenses are up 15%, as KCB continued its expansion, opening six branches in November and also expanding in Rwanda Uganda, South Sudan and soon to Burundi. The bank also continues to weather occasional storms against it sustainability with triton and now Kenya planters coffee union.

1. Barclays Kenya (1)assets of 168 billion ($2.25 billion) and nine month profits of 6.63 billion ($88 million) . Barclays shrunk by 2% compared to growth of 17% a year ago with lower deposits (123 b) and loans (96 b) compared to a year ago but with profits ahead of last years pace, perhaps boosted by GoK securities investments which are up 23% this year.

Olympia Capital 2009 AGM

excerpts from the last ½ of the meeting

Q&A leading into the 2009 AGM, Olympia shareholders had many questions revolving around the companies investment strategy, governance issues, disastrous foray into South Africa and prospects of escaping an Uchumi like future as the AGM was postponed, and happened a week later than scheduled.

Governance: – the AGM was delayed, the Board said, because the annual accounts were late coming out; one shareholder urged them to do better, not aim for the minimum corporate of 21 days only to avoid being late and incurring regulator penalties. CEO (Michael Matu) said they had noted this and had improved to the extent that the ½ year accounts were released in September, just over month after completion of period.
(lacking) corporate governance (missed this part where the auditor read out a statement that the company had no corporate governance in place. The auditor apparently made a similar remark last AGM, but that was omitted from the minutes of the meeting presented today – the directors mentioned they have engaged consultants and were embarking on corporate governance measures. One shareholder noted that the board had promised the same last year and no piece meal measures have been implemented to which the directors said they were doing this now and would brief shareholder in about two months
director loans increasing each year amount to 18.3 million – who, for what, what terms? CEO said he’s the only director and he has borrowed to buy house and car. Loan interest is paid and assets are charged to the company
insider board: One shareholder complained that 5 of the 7 directors had links to the parent company, so board was not truly independent
investor briefing -one shareholder presented the directors with a list of 35 detailed questions. The chairman suggested they have an investor briefing in about two months where all these and other shareholder questions can be exhaustively answered it will not be an EGM. CEO also promised to reply to all these questions via e-mail to the shareholder and copy his replies to the Capital Markets Authority whose representatives were in attendance
– at that time, the directors all also explain what measures they have taken in the area of corporate governance

Strategy Going Forward – For SADC (southern Africa) Olympia is still keen on the building materials market which is still strong. Even plan to go back into South Africa but without a link to Builders Warehouse – who handled 75% of their sales. They hope to revive and relocate the Natwood business to Botswana (Gaborone) from South Africa from where it will be easier and cheaper to supply their core markets in the Gauteng region (transport distances will halve from 600km to 300km)
– now going into Zambia on a smaller scale, and will look at Zimbabwe since economy is more attractive after dollarization
– part of problem was they did not make the management changes that they hoped to make; hire right people

Investments – Dunlop is profitable this half year, though had not yet installed new plant they bought to replace their exiting 1970’s plant. However with what they know from the Botswana tiles operation, they know how they can multiply their products & sales in Kenya with Dunlop once new plant is installed. From Botswana they supply South Africa, Zimbabwe, Angola Nigeria and Mozambique. Answering a separate shareholder question, mentioned that factory land had been given to Dunlop to support their balance sheet, but transfer had not been effected since they were awaiting confirmation that there would be no stamp duty to be paid on deal
– Mather & Platt, they bought out centum’s shareholding, but are yet to beef up the management there
– A shareholder (who was transaction adviser on the rights issue of 2007) said he was surprised to see how share transfers were disclosed in 2009 accounts. CEO said that at the time of rights issue, shares were allocated pending investments later made. E.g. Olympia had no cash to take up Heri rights issue, but Avon advanced Olympia cash against balance sheet . In answering a similar question CEO said of their strategy – when they see opportunities, but have no cash they arrange for third party to buy shares and agree to re-sell them to Olympia at later date
– No due diligence in describing Natwood investment, CEO had mentioned that they paid ½ the funds but later their due diligence showed that there were come issues within the company and a shareholder questioned if any initial due diligence was done at all. CEO explained that if company went after blue chip companies, they would pay premium prices, but they chose to go after viable but distressed companies and in this case they had consulted advisers and lawyers before natwood deal.

Shareholder votes – One director was re-elected, but COO Mwangi Wamae opted out of re-election to the board.
– ESOP though directors said employee share options plan (ESOP) will be a key tool to attract top managers for the various companies, shareholders voiced concern that this was the wrong time to bring up an ESOP, with the board governance not in place. Directors argue that the ESOP approval was separate from the implementation noting that – they have had an ESOP in Botswana for 3 years with no shares issued, and that the CMA (Kenya) would not be discuss and approve an ESOP unless shareholders had approved it. Since this was a formality it was approved.
– A dividend of 10 cents was approved. Chairman joked that this was the same as Safaricom was paying

Summary: Olympia CEO and Board pulled it off (again) – reassuring shareholders that the company was sound, strategy & governance would improve, they had a plan to take it forward and that the worst (of the SA foray) was behind them now.

Reading the Olympia Capital Tea Leaves

Holding company – Olympia Capital’s annual report is one of the most jumbled I have seen in a while – it has contradictory statements, dates overlap, and profit/loss amounts that may have led to some regulatory trouble in Botswana where the company was also listed.


recap
Performance: their accounts were qualified accounts by the audit firm DCDM who noted that the company did not comply with IFRS – where they should have consolidated a subsidiary (Plush – to be liquidated) in their accounts; the auditors however added that this omission did not have a material effect on the performance numbers since Olympia wrote off all related amounts

Disastrous SA investments
capping a disastrous foray into South Africa – whose dismal results the directors blame on the recession in that country
– owned 74% of Plush products limited which ceased business and will be liquidated as their bankers (Nedbank) moved in – the SA equivalent of a receivership?. Olympia wrote off Kshs. 103 million from Plush – 86 million investment and 17 million in loans
– With another company, Natural wooden products, they expected to buy (and who they lent money), but this will not materialize; they don’t expect to recover monies and have provided for it in full
– another one Natwood owes 63 million
– The report notes that Olympia provided a total of Kshs. 115 million for SA investments that have not contributed to profits since investment while the elsewhere is a note that discontinued SA operations will cost Kshs. 200 million

Investment/subsidiaries
– own 12.5% Heri investments (valued at 71.6) million and mentioned they got a good dividend, thought its unclear how much was received
– A subsidiary, Dunlop, bought a tile making plant at a cost of 54 million – but it has not been installed – and the company may have to get a third party to install or operate it – or may even have sell the plant!
– Owned 7 million worth of Safaricom shares at year end

Other
– Some directors & top shareholders have reduced their shareholding
– There are so many internal deals /within-the group based on valuations or estimated of directors
– There are no director profiles in report
– Corporate governance: Olympia created two board committees audit & nomination, and investments committee – but these did not meet during the year (this company needs a competent independent investments committee after its SA foray!)

Upcoming AGM
should be interesting to attend
– The AGM will be held on 25th September
– Auditors signed accounts on July 31, but the reports have been sent to (2,685) shareholders just two weeks before meeting
– Shareholders will be asked to approve a dividend at a critical time for the company (Olympia will pay out Kshs 4 million)
– Bad timing for the directors to ask shareholders to approve creation of an employee share option plan (ESOP), fund it, appoint trustees, issue shares etc.
– Increase share capital from 40 million to 50 million by creating 10 million new shares of 5/= each – this adds up to an additional 50, not 10 million!
– DCDM will continue as auditors.