Category Archives: ESOP

Scangroup AGM

Excerpts from the 2008 Scangroup AGM, Q & A session held today at KICC.

top issues were dividend cheques and bonus shares

Misplaced shareholder cheques: The question was posed by Mr. Shah, who’s probably the second most famous public shareholder after Mr. A W Chami and who had waited for nine months for a dividend cheque error to be corrected, and was faced with bank charges of several hundred shillings for his efforts.

In response, the company said they were working to sort out shareholder cheque and unclaimed dividends issues: 

  • Said the figure was now down to 3.2 million shillings. (which if unclaimed after a few years, will go to CMA)
  • Passed some blame on to stockbrokers who have not reconciled some accounts since the IPO
  • On cheques, they have an arrangement with their bankers (CFC), so customers could cash their cheques for free can (at the CFC upper hill branch)
  • Said electronic (EFT) payments had not been successful because a lot of information provided by shareholders was wrong.

Bonus shares: Several shareholders argued for bonus shares. Chairman replied times that – it was not the right time, they will cross that bridge when they get there, when they need to they will adjust their capital, will look at fund-raising at that time (shares were not the only avenue available)

CSR: Company is weak; Chairman replied they are doing more this year including some work with IDP’s.

A marketing company that does not market! Can the company do some advertising so it becomes well known?; CEO replied that they pitch to corporates and there’s not a marketing person in East Africa who is not aware of the company or its affiliates.

ESOP: It was good to have discussions at this AGM on the company’s employee share ownership plans (ESOP) – as CEO Bharat Thakrar explained that the board had approved for 6 million shares a per year to be availed through the ESOP to key revenue drivers and to ensure that senior managers were very well incentivized. All managers get targets, which entitles them to some options at the end of the year. The Chairman added that the shares were not free, were paid for by managers to the company and were priced on the date of acceptance i.e. market price. The report 2007 report noted that was ESOP set up under a trust deed in February 2008 but that no options have been granted so far, though shareholders have approved 15 million shares.

African ambition: Different shareholders challenged the board their ambition to be the biggest media buyer in Africa by 2010 when they (i) didn’t have the capital (ii) had dormant offices in Malawi, Mozambique, Zambia and Nigeria. The first shareholder was actually asking the company to give bonus shares/increase float (from the current 160 million shares to at least 250 million) while the CEO answered to the second – that all the offices were active, (except Nigeria) and were used for billing companies in those countries.

Cross-listing: One shareholder asked them to cross-list as their market was also Uganda and Tanzania. Chairman said it would make sense at the right time, but it was also very expensive to do.

Super sleuth: One eagle-eyed shareholder pointed out, and the company confirmed the error; that the top ten shareholders (printed in the annual report) had 66, not 50% of the company shares.

Goodies: Lunch offered, at KICC grounds, but no details.

Next CMA minefield

Employee share ownership plans (ESOP’s) are define by the CMA as unit trusts. They are ideal for high tech small companies, but when establish companies roll them out without clear rules, it’s a cause for legal concern, but more so for shareholders of these companies.

They make sense in high tech small companies who need to retain key employees (Access Kenya, Scangroup), but what does a large company like KCB, NMG and HFCK (who have all applied to set up ESOP’s) need them for? Equity Bank has had one for three years and when they listed in 2006 said they’d get CMA approval as soon as possible (yet to happen). If the company does well is it a collective effort and managers and staff should be rewarded with increases and bonuses from their existing contracts.

ESOP votes should not be pressed on unsuspecting shareholders without certain disclosures such as; whether shares will be bought from the public or allocated from the company, vesting rules and participation requirements, whether they are for company executives or non executives (which may be more palatable to shareholders) and trustee/management information of the ESOP?

As at April 2007, CMA licensed ESOP’s were 6: EABL, Kenol, Athi River Mining, Access Kenya, Scangroup and Safaricom.

Access Kenya AGM

Access Kenya (AK) held its first AGM since listing on the Nairobi stock exchange (NSE). Here in alphabetical order is a brief recap.

Most of the questions were answered by Chairman Michael Somen and Executive director David Somen

Accounts: there were two balance sheets and P&L’s in the accounts which caused some confusion, but it was explained that one set was audited while the other was included to guide shareholders on the position of the company taking into account recent consolidations (Openview was acquired).

Blogger moment; as I was finishing my lunch, executive director David Somen was greeting shareholders and charring so I asked him about the company’s prospects: He said it’s a good for investors and that AK was the second best performing share on the NSE after Equity Bank. On acquisitions he added that Kenya was not easy as most of the ISP’s of significance were not local entities, so they may look regionally for growth.

Collapsed brokers: two shareholders raised the matter of shares being sold without owners consent at different times – but each time, the chairman deferred them since they did not relate to AK shares

Computing industry one shareholder complained that the AK report was scanty on the industry (computing, ISP, technology etc.) and that the company should in future incorporate a management report on their performance in the industry. The chairman said that would be done.

Directors’ fees: while one shareholder considered it quite large, directors replied that they had actually reduced the fees 20 million from 50 million shillings before to be in line with other listed companies.

Dividend one shareholder complained that it was not enough and the company had undertaken too many corporate social responsibility (CSR) activities, diluting the dividend. The question got a lot of applause and the Chairman said they would take that into consideration in future (heavy CSR was also an issue at Standard Chartered AGM a few years ago). Another shareholder noted a dividend current liability amount, which the directors indicated was a payment owed to the directors of the company they acquired after the year end (Openview?)

Extraordinary votes
Increase share capital: from 250 million to 500 million this would give the company room to maneuver in terms of acquisitions, bonus, share splits. In answer to another shareholder, D. Somen clarified the CMA/NSE approval was not required to increase the share sin a company, but only at the time of listing
Acquire companies: up to 200 million shillings. Directors clarified that the companies falling under this clause were rather small, none larger than 5% of AK’s worth, and it would not be prudent to call an EGM (costing 1 million to 3 million shillings and several weeks time) each time this happened. Following other questions about due diligence, target companies and costs, the directors assured shareholders that all decisions would be made with a view to maximizing shareholder value and they would inform shareholders fully about acquisitions. The increased share capital would enable them to take on new shareholders whose companies they acquired. They have talked to several, but not ready to sign any deals yet
ESOP; vote to allocate new shares (about 1.35%) to the employee share ownership plans (ESOP). directors explained that it would enable them to maintain their unparalleled staff retention in the industry and that all 250 employees were shareholders which improved their commitment to the company. D. Somen explained a bit about the scheme which options were exercised over several years and ensured employees stayed on to reap the maximum from AK. This week the Nation Media Group announce plans to create an ESOP – that would be about the 3rd largest shareholder in the company, its time more oversight was given to the professional investment management of ESOP’s

Goodies: tote bag with cap, notepad and access Kenya pen. Lunch box from the Stanley hotel (beef sandwich, apple, orange, piece of chicken, Keringet bottle, soda)

Post election violence directors reiterated that they did not expected the early 2008 events to have an impact on the company’s outlook for the year which the anticipated to be 50% – 60% growth

Venue: was the Nairobi Arboretum and I heard many shareholders complain about its (i) inaccessibility – not public transport/or shuttle organized by company (ii) no directions – once they found the ‘park’, it was vast forest with no indication as to which corner the event was being held

Verdict: apart from the location, was a nice first outing for a newly listed company. It pays to have a strong chairman, able company secretary (Fiona Fox who is leaving the company after the AGM) and directors who can readily and confidently answer questions put to them by shareholders – 70% of which are mundane and/or repeated at every other AGM.

New media stocks at the NSE

Until Safaricom gets listed later this year, take a glance at Access Kenya and Scangroup – two recently listed, new media companies at the NSE. They both say they are market leaders (none of their competitors are listed), both set out to increase market share organically and by acquisitions, and their shares cost about 30 shillings ($0.48) each, three times their IPO prices.

This month, Access Kenya are gearing up for their first AGM since their 2007 listing, while Scangroup will be having their second; and while Scangroup (SG) will have a vanilla AGM (no special business), Access Kenya (AK) have a lot more going on as they will seek approval from their shareholders to;

– double their authorized share capital from 250 million to 500 million shillings (500m shares) [giving them the capacity to acquire companies, split shares, or raise capital in future]
– allow the board of directors to acquire companies up to 200 million shillings (~$3 million) without having to call for an expensive extraordinary general meeting of shareholders
– allocate more shares for the company’s ESOP (employee share ownership plan)

How else do the two companies stack up?

vision:
SG vision – to be the leading marketing services company in Africa by 2010
AK vision – be the premier provider of high -quality internet and other technology services to corporate and high-end residential customers

shareholders : SG 44,193 ; AK 29,434 shareholders

2007 performance
SG: turnover of 4.7 billion, profit of 353 million, cash generated 165 million, assets of 900 million. EPS 1.48 and a dividend of 0.90.
AK: turnover of 882 million, profit of 171m (dividend of 0.30), cash generated of 133m, assets of 748 million (had 600m in cash, much of it unutilized from the IPO). They also have separate consolidated accounts that include the financials of Openview business systems which was acquired after the IPO.

Employee Retention key for new media companies:
SG: ESOP approval of 15m of the company’s 160m ordinary shares. Staff costs were 561m including 7m to directors and key managers.
AK: ESOP that had 7.25m shares of 203m ordinary shares has been exhausted and another 2.75 to be added this year. Staff costs of 131m including 53m to key managers and directors,

Other
SG: Has a lot of subsidiaries, from acquiring customers and competitors which is part of their strategy. 64% of their revenue was from Kenya with the rest from Uganda and Tanzania. Their CEO was on CNBC Africa TV last month saying their focus the year would be expansions to Zambia, Ghana, Mozambique, and Angola – probably by securing contracts with mobile phone companies in those countries.

AK: was charged a management fee of 52 million shillings by subsidiary companies (shades of Sameer group companies?).
Also, Access Kenya’s annual report is heavy on the marketing side with a special offer for shareholders to apply for Access Home – the fastest guaranteed residential broadband(Nairobi and Mombasa) for Kshs. 6,000 + VAT per month – a 20% discount for shareholders. One time costs include 8,500 installation and equipment of 25,000 (and VAT, though I thought all computers equipment was VAT free). An added extra for shareholders is that the package which (including 1st month) costs a total of Kshs. 45,820 (~$725) can be financed with an Equity Bank 1-year loan (but monthly repayments of 4,391 work the loan out to cost about 25%) – the offer runs till the end of May, and installation to be done in June & July.

NSE Briefs

Scangroup: It was a pleasant surprise to pick up the newspaper this morning and see results from Scangroup (company earnings usually break at theNSE site) for the year ended in December 2007.

Turnover was up from 3 billion to 4.7 shillings billion, and profit after tax was up from 279m to 353 million shillings (27%) as were EPS (1.48) and dividend per share of Kshs. 0.90 – which is not bad for a share that was oversubscribed 3X just 16 months ago.

KCB: Good and not so good news form the notice of their upcoming AGM (May 9). The company will be cross-listing it shares in Uganda and Tanzania but also proposes to carve out an employee share ownership scheme (ESOP) from the creation of new shares in a proposed rights issue (reserving 150 million of the 400 million new shares). ESOP shares are controversial unless they are bought from the pool of existing, issued, shares.