Category Archives: ESOP

East African Breweries AGM

The 2006 EABL AGM was held at Safari Park Hotel on November 2 at 11:00 a.m. Registration was a breeze – with almost as many proxies as shareholders and it was a very quick AGM thereafter with the agenda– approval of accounts, dividend, directors’ election & remuneration and auditors – all done within a half-hour. The meeting was wiith a full board, led by Chairman Jeremiah Kiereini and MD Gerald Mahinda, and all directors present except for Evans Mwaniki (KQ chairman).

New finance director C. Caldwell was added to the board while Wanjiku Mugane was also re-elected. However, two directors, the Chairman and Richard Kemoli, who are both over 70 years, have to be endorsed each year to continue as directors.

I had thought of putting a shareholders vote over the matter in the interests of opening up the board to younger people and women but I felt that I would have been lynched. Needless to say, no shareholders objected on account of their age.

AOB
The Chairman had urged shareholders, many of whom who – in addition to proposing or second agenda items – also congratulated the board, made speeches or tried to ask questions, to refrain till after the agenda was done. One of the first was on the race with Safaricom and the Chairman assured shareholders that the company would strive to wrest back the top earnings crown from Safaricom. Early on it appeared that there would be very few questions, but here are some of them:

  • Increase dividend and bonus shares: is a recurring them at all AGM’s and EABL also had its share. There were many variations of the same question, some shareholders talking of previous board who had been more generous. Chairman explained that they can’t increase dividend for a few small shareholders as everyone get an increase. It was also troubling to see a graphic in the annual reports that showed shareholders receiving 20% of payments from the company earnings while 70% goes out as taxes to the government.
  • Minority interest: There’s a huge payment of profits for minority interest that doesn’t compute in the list of shareholders. MD explained that South African Breweries owned 20% of Kenya Breweries and Diageo owns 54% of UDV. KBL and UDV pay dividends to these two companies and whatever is left now goes to EABL shareholders.
  • CSR: are you meeting your commitment to devote 1% of profit to corporate social responsibility? MD said CSR last year was allocated about 45m and this year will get about 80m. However, like at the Standard Chartered meeting, CSR is not a popular topic at AGM’s. One shareholder, while commending EABL and Nation media group for helping with famine relief and other disasters, they should put shareholders first – and he went on to lament how the company has never acceded to repeated shareholder wishes for more dividends or bonus shares.
  • Are all shares fully issued re: ESOP? MD explained that shares for the ESOP are acquired from the market
  • Why have sports sponsorships declined? Chairman replied is that they still sponsor a lot of sports such as soccer and horse racing – but the funds are disbursed from HQ for better control and monitoring.
  • Missing or discontinued beer brands; MD replied that they discontinue slow-moving brands like pilsner ice and senator special to put more effort into others like white cap light and citizen. He also said they would announce such decisions to the public in future.

Hot Button: Barclays Bank It started with a misunderstood question from one shareholder who wanted dividends to paid as cash in rural areas for those who don’t have bank accounts. Chairman answered that the company had a program with Barclays bank where dividend cheques were banked without commission. One manager was there from Barclays who unsuccessfully tried to explain the issue. More questions were shouted out leading the Chairman to ask that they talk to the Barclays man after the meeting had ended. I went through this problem a few years ago – many shareholders want to cash their dividend cheques immediately – and while this is free for Barclays account holders, there’s a fee of a few hundred shillings if you don’t have a Barclays account. (also banks make some easy money when new investors choose to cash their IPO refund checks immediately – for a fee of course)

Goodies cap (pilsner), t-shirt (sengenge), lunch box (chicken, sandwich, juice, yoghurt, water, cake, apple, orange, egg)

Equity Bank Listing: A to Z

About Equity Bank, will have a secondary listing on the Nairobi Stock Exchange next month at a price of Kshs. 70 per share. I located an information memorandum (prospectus) at a thanksgiving celebration /prayer /dinner the company threw for 3,000 Nairobi customers at KICC last night – and went through it to decide on whether to buy the shares next month.

Commissions: Banking at Equity is not cheap, and this is the situation in the entire the micro-finance sector – and Equity will probably have to lower some of their bank charges. Their account opening minimums are very low, but some of their charges e.g. cheque clearing are rather high compared to other banks who are now targeting Equity’s customers.

However lowering charges may not be an easy option since these form a greater portion of the Bank’s income (52i%) than at its peers (CFC 33%) NIC (24%) and D-Trust (30%).

Employment: Despite the staff high turnover, the bank is a good, fast growing, employer that has gone from 354 employees in 2003, to 884 in 2005. It has 35 branches, (14 in Central province, 8 in Nairobi) and over half of them have opened in the last two years.

One issue I disagree with in the memorandum is that Africap agreed to sell 50% of their shareholding in the Bank to staff. But the truth is that staff were forced into buying these shares. The staff trust (unregistered staff ESOP) now owns 5.52% of the Bank’s shares, same as Africap.

Listing costs: Floatation was much cheaper than a new IPO. Equity’s listing is budgeted at 28 million compared to the Kengen IPO at 401 million and KCB rights issue at 104 million. The CMA and NSE get their fees (8.1m and 1.5m here respectively) as they did from Kengen (24m, 1.5m) and KCB (6.1m, 0.5m) and most of the savings come from not having to pay stockbrokerage and advertising costs. Equity has budgeted 11m for the financial advisers and sponsoring brokers; compare this to Kengen who paid 101m for advertising & 118m to brokers and KCB who paid 13m for advertising, 6m to brokers, 37m as agent commissions, 9m for postage, and 11.5m for printing etc.

Loans: Equity has been keen to grow their loan book ever since they became a bank to keep up with their ever-growing deposits. They have five times as many depositors as they do borrowers and while this was acceptable at a micro-finance level, it is important they grow their interest income.

They doubled their loan portfolio in 2005 from 2.9 to 5.5 billion, but NPA’s likewise doubled from 246m to 519m. Their loan to deposit ratio is now 72% (June 2006) which is comparable to CFC (76%), NIC (85% and D-Trust (785) at the beginning of the year

Management: The MD, current Chairman, and former Chairman, are among the largest shareholder in the Bank – and along with employees (in the ESOP) are barred from selling their shares for the next two years.

Marketing: Equity is now a Bank and should focus on marketing as a bank, not a micro-finance institution. The more, the MD shouts about how the Bank is not about one community, being very liquid, excellent global capital rating, not depending on government deposits etc, the more it makes one think about those very issues. Imagine if Adan Mohamed said the same thing about Barclays every time he was on TV. The focus should shift to marketing the bank’s customers, products, and convenience.

Nakumatt like: I’d compare Equity to Nakumatt in terms of their fast growth and they also own very little property (branches).

Ownership: Confusing to say the least, and it would be good to know why the management took such a convoluted route – from building society converting to a bank, converting deposits into shares, private placement to finance the bank’s share capital, and finally the issue of 4 bonus shares for each 1 held that created the 90m shares, that will be on offer in August.

Pesa Point: Equity has signed an agreement with Pesa Point to link their ATMs.

Verdict: In 2005 the Bank returned a pre-tax profit of 501 million, which translated to an EPS of 3.77, up, from 2.51 the year before. (Dividend was Kshs. 2 per share, same as in 2004). The Bank is on track for another year of record profits of 800 million before tax and could pass the billion shilling milestone next year.

The memorandum contains joint statements by Dyer & Blair and Suntra Stocks that values Equity shares (par value 5/=) using the DDM method at Kshs. 91.4 shillings per share, PBV at 64/=, and PE method 63.4 shillings per share. The advisers reckon that this compares well to CFC, Diamond Trust and NIC banks, who they consider to be Equity’s’ peers listed on the NSE

Yes, Buy Equity: But not immediately. It will take a few months for the share to settle since the current 2,800 shareholders of the bank will have to open CDS accounts and immobilize their shares before they can be traded. In 2006, 2.5 m shares have been sold in the OTC market. A share split is likely but it is also prudent to ask if the Bank is growing too fast.

HFCK ESOP

At the company’s AGM later this month, shareholders of the Housing Finance Company of Kenya (HFCK) will be asked to approve the creation of an employee share ownership plan (ESOP) unit trust. This plan will benefit from a tax incentive for ESOP’s announced in the budget speech last month and follows in the steps of Kenol and EABL as a way to motivate and retain employees.

To avoid causing friction, the ESOP shares will be bought from the stock exchange and will not dilute existing shareholdings. No mention yet if there will be a separate plan for executives.

What’s cooking?

Equity Bank last week forced its staff to buy up shares in the Bank. While they were awarded bonuses for the Bank’s good performance so far, they were then told that bonus and portions of their salaries would be channelled to a mandatory share purchase program. But employees are not being told how many shares they are buying or at what price.

The Bank will hold an extraordinary general meeting next week on August 10th with shareholders.