Category Archives: Total

Kutwa Tuesday: From Stanchart to LPG

stories found this week

Stanchart Bank:

Smaller profit – Standard Chartered is being much maligned for being the first bank to report a profit drop in 2008 of 4% to 4.7 billion shillings. ($59 million) (Increased 29% in 07). The bank which adopted a conservative approach compared to Barclays, KCB and Equity. Stanchart had asset growth of 9% to 99 billion (13% in 07), deposits up 4% to 77 billion and loans up 10% to 43 billion in 2008. Still their shareholders will get the highest dividend of any listed bank in 2008.

Here are some other performance comparisons of the main banks that have so far reported their 2008 results.

Goes for smaller customers – In a slight about turn, Stanchart has also launched a new low cost transactional account called Hifadhi, costs 2,000 to open, no ledger fees, or ‘cash handling fees’ with e-statements you only pay for transactions you incur, though its’ not as affordable as other ‘cheap’ bank accounts for small earners. Going for smaller customer has been a recurrent theme in 2008 with banks, insurance and investment companies lowering the minimum subscription amount. Examples are pepea from Barclays, Toboa from Old Mutual and even the Government of Kenya which lowered the minimum investment for GoK treasury bonds to just Kshs. 50,000 (~$625)

Bank briefs
– Stanchart get back to what they are good at – big corporate deals this one for Kengen
– Gulf African launches a shariah compliant mortgage scheme
– New bank branches: First Community bank now in Malindi, Ecobank in Kisii, while Family Bank re-opened in Githurai
– Another SMS sends Equity customers into bank panic withdrawals this time in Machakos.

From the blogs

Siasa mbaya, maisha mbaya: Global economic slump aside, Nairobi’s Stock Exchange will not see a bull run until the country’s political problems are sorted out according to MainaT

The Sunday Nation broke a story of the old Embakasi airport been handed over to an unlicensed new airline, but airport analysis comes from one Coldtusker

Following in the success of the infrastructure bond (over-subscribed by 45%), the Kenya Government is offering another bond to supplement its budget deficit; this one is for 8.5 billion ($106 million). More details from Conceptadvisoryservices and the minimum investment is just 50,000 ($625).

Kenya Rugby Effects: Kenya had a wonderful run at the IRB World Cup in Dubai, and knocked out defending champions Fiji in the quarter finals. Here’s some rugby loss reactionfrom Fiji.

Elsewhere

Employees lose & lose – it’s been a bad week for employees as the Employment Act was set aside and the government shifted more of the pension burden to civil servants to contribute towards their own retirement funds.

Madaraka finalized – Madaraka Estate houses were finally sold, apparently ending a long long running saga between homeowners, the City Council and the National Housing Corporation who should really update their website.

Laptop mania – so many offers for laptops these days, new this week were
– Safaricom selling Macbook with broadband modem for 100,000 ($1,250)
– Acer A110 laptop on sale with open office for $230 – great for Kenyans new to mini laptop market
– Even my bank/broker (CFC) hawks Acer Aspire 4710 and has loans that work out to 5,500 ($70) per month

Is Grad School a Con? – Half the Sunday Nation advertisements were for colleges aiming at the recent high school graduates whose results were announced last week. Also growing are the numbers of universities and master programs, but this article argues against going to grad school to avoid the recession with the author pointing out that;

– Grad school pointlessly delays adulthood.
– PhD programs are pyramid schemes
– Business school is not going to help 90% of the people who go.
– Most jobs are better than they seem: You can learn from any job.
– Graduate school forces you to overinvest: It’s too high risk.
(found at chris blattman)

LPG Shocker – when to buy cooking gas last night. Found the cylinder, however it appears that there is now a valve that will be mandatory on all cylinders from April 2009 – it is a universal valve, that will enable consumers to buy LPG /cooking gas from any supplier e.g. Kenol., Total, NOCK – replacing cylinders from any of them, since they will now have a common head/valve. The move is supposed to break the monopoly of established companies e.g. if you had a Kenol gas cylinder, you could only replace it at Kenol when buying new gas, whereas if you wanted to switch to Shell gas, you’d have to buy a brand new cylinder.


new gas cap

The problem was that many Total stations did not have the valve. (I checked at three stations) and they all sent me to the place that has everything in Kenya – Nakumatt. Nakumatt also say they stock valves for all companies, but only had the generic caps to sell. It’s scary to use a generic caps, since there are many fires in Kenya caused by exploding/leaking cooking gas cylinders. Hope this turns out ok when April comes around and more consumers realize they have to buy caps which cost anywhere from 500 ($6.25) to 900 shillings each, another cost to the burdened urban consumer. It would also be nice if oil companies and/or the Government conducted some consumer awareness about this matter, not leaving it to Nakumatt and untrained Petrol attendants.

Total 2008 AGM

Excerpts

Total Kenya’s Managing Director Bertrand Fontanges follows in the footsteps of previous Chairman Momar Nguer (or is it a French company thing?) to AGM to educate shareholders on the state of their company and the industry in an hour-long presentation on Wednesday.

Oil sector grew at 6.5% last year which coincided with the country’s economic growth. The market share of the companies at the end of 2007 was Kenol/Kobil 22.4%, Shell 21.8%, Total 21.2%, Chevron 13%, Oil Libya 7.3%, NOCK 2.4% and independents 11.5%.

Challenges include;

The Government; makes all oil companies tender for oil together, for which they have to pay upfront. He referred to the process as they pre-finance the government – on top of which they pay Kshs. 30 per litre of petrol (~$0.48) and 20 per diesel litre. They also pay upfront taxes for fuel they export (i.e. to other African countries) – but don’t get refunded for at least six months after the claim. As such they have reduced their export amounts as it is not viable. He’s the second CEO in a month to put the government on blast after Eveready also went after KRA and KEBS.

The Pipeline: the oil pipeline which has capacity constraints. At least expansion of the Nairobi-Mombasa pipeline expansion should be completed by year-end which should double capacity and end the constraint problem.

The Mombasa refinery; given the opportunity, none of the companies would use the refinery which is outdated, inefficient and makes products expensive – yet they have to refine about 50% of their products there. He added that independents don’t process at the refinery which gives them an ‘unfair; advantage.

LPG i.e. cooking gas. He expressed concern and they have cautioned the Government about the proliferation of illegal re-fillers in the market. These are companies who refill gas cylinders – saying there are safety issues (they can explode) and consumers cannot ascertain the quantity of gas in the tanks from these shops.

Aviation Gas margins in aviation have become so low that they have reduced their sales there and will wait till the market improves before they go back in.

Despite all, the company’s performance improved (EPS of Kshs. 2.99 from 2.7 – out of which a dividend of 2.5 will be paid) thanks to asset sales, Kengen and reduced financial costs. Of the 623KMT of sales, 21% (134KMT) are through their petrol station network while 78% (498KMT) is though bulk, general trade, big companies etc.

Finance charges: Have been an albatross at Total for years. The price of oil (Murban crude) has doubled over the last year to about $120 per barrel (even though some OPEC officials say it should be $60 – $70) and the cost of holding inventory has likewise doubled. So Total has resorted to carrying only as much inventory as is needed and requiring customers to pay upfront.

Kengen awarded a contract to Total which runs for almost another two years. It is not part of the government tender process so they are able to get supplier credit for the oil which has reduced their borrowing charges significantly. (2006 Q3 had financial costs of Kshs. 415m compared to Kshs. 287m in Q3 of 2007).

Regional diversification

Taking regional investments a step further – how are various local listed companies doing on the regional front? January 2008 showed that having a focus on Kenya alone could be an Achilles heel despite it being considered one of the strongest economies in the region. Various listed companies are making pushes in East and Central Africa – however many of these countries are all dependent on Kenyan access, hence it’s not really true diversification of political risk. In that sense, Olympia Capital, an NSE laggard may be ahead of its peers with its tangled Botswana and South African corporate moves.

here’s a recap:

  • CMC says regional sales are on target in Uganda and Tanzania (from ½ year results this week)
  • Diamond Trust has set its sights on Burundi (adding to Uganda and Tanzania) while many other banks have targeted Rwanda.
  • East Africa Cables attribute good performance to their subsidiaries in Uganda, Rwanda and Tanzania
  • KCB has subsidiaries in Uganda, Tanzania and S. Sudan (though it wrongly had the flag of Sudan on its’ annual report cover. These countries contribute less than 10% to their income and Ug had a loss of 49 million (setup costs) while Tz barely broke even with a profit of 0.2m in 2007. KCB opened in Kampala in November 07 and will open 6 more Ug branches in 2008, 4 new ones in S. Sudan in 08, and another 20 new branches in Tz over the next two years according to their annual report.
  • Kenol who after acquiring Kobil could be the first 100 billion shilling turnover company, have subsidiaries in Uganda, Tanzania, Rwanda, Zambia and Ethiopia. 80% of their sales are from Kenya, while the other countries contribute about 20%.
  • TPS East Africa acquired 8% of Serena Rwanda which includes Kigali Serena and Lake Kivu Serena. Of Serena’s 2007 sales of Kshs. 3.7 billion (~60 million), Kenya accounted for 64% and Tanzania 36%.
  • Total Oil Kenya has sister companies in Uganda, Tanzania Congo Rwanda so essentially remain a Kenyan company with 97% of their sales being local. They, however, complain in their 2007 report that other countries who should be buying from Kenya are (because of our tax regulations) buying offshore and shipping through Kenya instead.
  • Sameer Africa are looking for transporters to Somalia, DRC, Ethiopia, Rwanda, Sudan, Burundi, Mozambique, Zambia, Malawi Uganda and Tanzania for their products.

Looking Back: Annual reports

I found the annual accounts for Total East Africa (now Total Kenya) for the year 1990 and tried to compare the changes over the years. This is important as companies with over a hundred thousand shareholders (Eveready, Safaricom) will be considering cutting their costs soon until they are able to use e-mail for distribution.

comparing the 1990 and 2006 annual reports from Total

size: 1990: 20 pages, black & white, no pictures, heavy envelope paper
2006: 48 pages, glossy paper, all colour, lots of pictures

Financials: 1990 profit & loss (appears on page. 8), balance sheet (p.9), cash flow (p.10) followed by notes 11 – 15 (13 notes) – showing turnover of 3.1 billion shillings and pre tax profit of 237 million.

2006 P&L (appears on p.25), balance sheet (p.26), cash flow (p.27), followed by note page 29 – 44 (32 notes) – showing turnover or 38.0 billion shillings, and pre tax profit of 677 million.

shareholding: 13.7m ordinary shares 6/= dividend [total dividend of 84 million]
173m ordinary shares 2.50 dividend [total dividend of 435 million]

Chairman’s statement
1990 ½ page
2006 4 pages

Auditors statement: 1990 – Murdoch, McCrae & smith; they issued a 1 page statement with two paragraphs, saying they examined books, and they are true in their opinion.
2006 Deloitte & Touché: 1 page statement with 6 paragraphs; explaining directors’ responsibility, auditors’ role, audit process, and finally their opinion that the accounts are true.

Other Formatting: what’s missing from 1990, that’s found in 2006? shareholder profile (p.22) mission & ,vision (p.2), directors bios & photos (2 pages), picture of key managers (1 page), management report (5 pages), company profile (4 pages), corporate social responsibility and adverting messages.

verdict: companies like Eveready can cut back on the ‘filler’ and give an annual report with just the basics to cut the postage cost in ½. Last year they issued a small size report that was short on ‘filler’ but financial, regulatory and governance changes have also contributed to the increasing size of corporate reports and resultant shareholder costs.

Looking back on Kengen & Total

Total: In October last year, Total Oil held a cocktail party to reassure shareholders after some dismal 9 month results.

Now that the 2006 results have been finalized, here are some other things shareholders were told at the event.

  • Company experienced difficulty with the up-front payment of taxes and ineffectiveness at the oil refinery in Mombasa.
  • Total had made a provision of 100 million shillings for an oil marketing case, but that very day the high court had ruled in their favour.
  • The Chairman (Mr. Nguer) promised that the results at the end of the year would be much better than the 9-month ones
  • More comparisons to Kenol: he said that Kenol share price was 115 shillings in April and 109 on that day in October, while total had similarly changed from 44 to 37/38. He also said that while their operations were down 9%, Kenol’s were down 30%. [Today March 2007 – Kenol is 85 and Total 30]
  • Commenting on Mobil oil exit and entry of Tamoil (of Libya) to Kenya, Nguer remarked that the sector was stable but that oil marketing was unique in Kenya and some multi–nationals could not understand this.
  • On threats by Minister of Finance to fix oil prices, he said he did not see the country going back on its 1994 deregulation of the sector prices

Kengen: The surprise announcement last week that a Geothermal Development Company  (GDC) would be hived off from Kengen prompted a look back at the company’s pre-IPO prospectus. And sure enough in the future outlook for the company, the Kengen prospectus does mention the state will set up a geothermal development company to undertake high-risk activities such as exploration and drilling. It will be financed by appropriations from parliament and will take over Olkaria from Kengen.

Also that:

  • Regulator (ERB?) will be empowered to set the price of fossil fuels bought by Kengen i.e. diesel. This is likely to affect independent power producers.
  • New rural electrification authority. Any impact on KPLC?
  • Kengen to bill KPLC at 2.36, not 1.76 per kWh which has become a hot button issue in this election year.