Category Archives: South Africa

Scangroup & Ogilvy Africa

Edit September 2018: Ogilvy Africa has opened a Nigeria office ahead of the celebration of its 70th anniversary. The opening of the 24th office in Sub-Saharan Africa comes after an out-of court-settlement that the firm reached with Prima Garnet Communications who previously represented Ogilvy in Nigeria.

July 2010: At the end of April Scangroup announced a deal to buy into the Ogilvy Africa group and has now invited its shareholders to approve the transactions.

1. The acquisition of 51% in O&M Africa and 50% in Ogilvy East Africa will be structured as

  • O&M Africa: 51% is to be acquired by payment of $238,360 (Kshs 19 million) cash and transfer of 6.2 million shares of Scangroup worth Kshs 166 million.
  • Ogilvy East Africa: 50% will be acquired by payment of Kshs 13 million to Ogilvy South Africa (paid in US$) and transfer 4.4 million shares worth Kshs 118 million, and a payment to fellow shareholder Russell Holding of one euro and payments to Koome Mwambia comprising cash of Kshs 20.6 million and transfer of 3.12 million Scangroup shares worth Kshs 82.4 million.

2. Shareholders will have to approve the creation of 14 million new shares and waive their pre-emptive rights to allow the new shares to be allotted to Ogilvy South Africa and Koome Mwambia.

Winners

  • Scangroup gains entry via minority shareholding in Ogilvy into Namibia, Cote d’Ivoire, Senegal, Burkina Faso, Cameroon, Gabon, Zimbabwe, Nigeria and non-equity affiliates in 11 other African countries to create a Pan-African agency.
  • Koome Mwambia sells out his shareholding gets cash and becomes a top 10 shareholder in Scangroup and he is to enter into a management agreement to remain MD Ogilvy East Africa.
  • MD Bharat Thakrar gains a pan African footprint and loses just 5%.

Losers

  • Local investment bankers: No transaction advisers were appointed and the IM only has an opinion from BDO East Africa that the issue price of Kshs 26.4 is fair and reasonable and that Deloitte’s calculation of this price (Scangroup now trades at Kshs 36).
  • Kenyan corporates whose choice of partners in media, PR, advertising got smaller – as Scangroup, Ogilvy, Hill & Knowlton, Blueprint, Mindshare, Millard Brown, Squad Digital, Smollan are all under one roof.
  • Scangroup if the share swaps are denied by the South African authorities, will have to pay Kshs 427 million ($5.2 million) to proceed.

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.

Transition into 2007

2006 was a great year thanks to blogging.

Looking back

  • High point: the great people I met through the KBW buffet park meet ups
  • High point # 2: getting invited to the digital citizen indaba in South Africa – my first real visit to another African country and I got an idea of what to expect at the 2010 World Cup.

Low point: getting booted from adsense by Google – which happened just as I was getting used to having blogging provide some supplemental income through advertising. Thanks to Stocktrends and Alex Gichira (Ed. Business Post) for their support of my efforts since then.

Traffic

  • Used statcounter (& still do) but it doesn’t provide much historical data so I also signed up with Google analytics in September.
  • 43% visitors of visits are from within Nairobi – which is surprising since the target audience is Kenyans in the diaspora and most of what I write should be apparent to people here in Nairobi. Still, it’s encouraging.
  • Fewest visits on Sundays – means most of you read in the office!

Top posts

  • Kenya exam results online (highest traffic [4X normal] was recorded on 28 December – not to read my banking summary for the year but to locate KCPE exams results online!)
  • No drugs at NSE
  • Where to buy shares
  • Money transfer within Kenya
  • Bank rankings June 2006

my faves  in terms of the comments and feedback I received

  • Safaricom success
  • No apologies
  • Idea exchange & barter trade
  • Training Kenyans for outsourcing
  • Where to buy shares (part ii) redux

Changes in 2007

Fewer posts: the amount of information posted by new bloggers and sites – such as nairobist, stockskenya, pesa tu, riba capital, cold tusker (now investing in Africa), hisagal, odegle nyang and others (see my blogroll) is a blessing for everyone. For me, it’s less to do, less news to bring up, and I can focus on more research and longer posts.

More techie; I owe so much to blogging so I must improve by learning more tech stuff and experimenting with more tools. I hope to have more photo posts this year and try out new templates (many people don’t like the black background). However, bankelele is not eligible for blogger beta as it may be too large to migrate.

Kioskelele: 2007 will be the year to take the plunge into the informal sector / entrepreneurship by starting a kiosk/shop/SME and continue to diversify my income. These opportunities are not there forever and we have to take them on otherwise we will regret forever why we didn’t follow our dreams. Still looking for the right location in the city that is accessible and suitable.

More savings: So far so good but a book I read recently (the “automatic millionaire”) said saving should happen automatically – i.e. money grows when you can’t see it/have no chance to intercept it & use the money. Only problem is that standing orders at Kenyan banks are so expensive – and it’s wrong to have 5 – 10% of money intended for savings be eaten up by bank charges. I found a bank which was much cheaper, but they sometimes forget to remit the money into the account!

Quit share trading: Not quite, but there will be less trading of shares this year and focus will remain on IPO’s and new issues like Safaricom. It’s not that the brokers are bad, but there are too many shareholders (since Kengen, Scangroup, and Eveready) who occupy brokers’ offices and phone lines from 9 a.m. to 3 p.m. It is too much hassle going there, trying to call in orders – that sometimes I think it may be better to cash in my gains and reinvest them in an Old Mutual fund or new investment club. (The folks at the Kenya capital investment group have posted their investment club constitution which is a good guide for those wishing to start a club)

Fun fact:

From an article in the Economist on the etiquette of bribery.

Q: “What’s the difference between a gift and a bribe?”
A: “Any gift, must be consumable in a single day – so a bottle of wine is acceptable, a case of wine is not.”

Opportunities

Head of keg business at East African breweries. Apply to hr.recruitment@eabl.com by 6/1

ICDCI Investment manager, risk manager, business analyst, investment analyst, risk analyst. Details at their site and deadline for applications to jobs@icdci.co.ke is 19/1

Procurement adviser – public sector & development at KPMG. Apply to esd@kpmg.co.ke by 12/1

Commissioner of domestic tax revenue KRA. Apply through KPMG at esd@kpmg.co.ke by 7/1

Ministry of Foreign Affairs – Principal Counselors (4), First Counselor (11), Second Counselors (22), First Secretary (28) and Third Secretary Cadet (64) Posts. Details and deadline is 12/1

Head, Communications Unit at World Agroforestry Centre (ICRAF) . Details and deadline for applications to icrafhru@cgiar.org is 19/1

Let UAP take you to the 2010 World Cup in South Africa

As the logistics and numbers of the 2010 World Cup become clearer, and after my brief trip to South Africa, it’s time to re-evaluate financial plans for the Cup and specifically take a fresh look at UAP who are the only company to so far come up with a targeted finance product.

I had looked at the UAP Insurance plan earlier and dismissed/rejected it on the basis of its marginal return. E.g. investing 5,000 shillings per month over next 42 months would give about 233,000 shillings at an assured internal rate of return of about 6%. However, of that, my own savings would be about 210,000 shillings (90%) while UAP would have chipped in only about 10%.

However it is important to note, and they state this in the 2010 product, that the package is a savings plan toward the World Cup, and not an investment plan and it is therefore wrong to compare the plan to an investment fund or unit trust.

The main benefits of saving with UAP come not from the investment return, but from their in-built package which includes discounted air tickets, discounted accommodation and a chance to (save &) travel with other Kenyans fans who could also be your friends. UAP will also bid for some of the limited numbers of tickets that will be made available here (from the quota allocated to Kenya) thus providing some assurance that the match tickets can be obtained beforehand at FIFA-recommended prices and not from scalpers at the last minute.

During my week in South Africa, in which the conference paid for hotel, air travel and some meals I still used about shillings 6,000 on upkeep, some meals, gifts, beers, newspapers etc. Accommodation at the hotel (bed and breakfast) – next to Johannesburg Airport was about 6,000 shillings and a roundtrip air ticket would probably have cost about 40,000 shillings. Food in SA was reasonable at about 300 per meal, but there were some unexpected bills like currency exchange which sometimes cost 300 or 600 shillings each.

All this makes UAP package 2010 World Cup South Africa plan look pretty attractive for a similar trip to SA four years from now. Or I could stay home and watch the games on DSTV or some local TV channel, but I’d rather be there in person.