Category Archives: Uchumi

Nairobi Mall and Supermarket Moment

A research report by Knight Frank notes that Nairobi has about 470,000 square meters of shopping center space under  development underway and is one of the five largest cities in Africa (excluding South Africa) in that regard (it currently has 391,000 square meters of shop space).

Knight Frank Shop Africa Nairobi spotlight

Knight Frank Shop Africa Nairobi spotlight

Knight Frank notes that, aside from Actis (the pioneering UK investor), most of the developers and landlords of Nairobi’s shopping centres are local Kenyan property owners.

A second Buffalo Mall is to be built in Eldoret. This comes after the Pivotal Fund acquired 50% of Buffalo Mall Naivasha.

Carrefour: This week opened their first store in East Africa. a 60,000 square foot hypermarket at the Hub in Karen, one of 57 stores that have opened there. Carrefour will be the anchor tenant and are run under the franchise of Majid Al Futtaim Retail of Dubai.   EdIt – Carrefour Kenya have an app for shoppers 

(The) Game operated by Massmart. in which Walmart has a majority stake, opened at Garden City Mall as the anchor tenant. 

Khetia:  are in the midst of a Kshs 1  billion expansion in western Kenya. They plan to open up stores in Kisii, Busia and Kericho, each of which requires Kshs  200 million.

Nakumatt: Just launched their 59th branch in Kakamega – the Nakumatt Midtown Supermarket. It was remodeled after Nakumatt acquired three supermarket stores in Western Kenya (Kakamega, Bungoma, Busia) from Yako Supermarkets in a Kshs 260 million investment program. They have also added new stores like Sports Planet departmental  at the reopened Westgate mall. 

Naivas The ownership of widely admired chain is subject to an inheritance court case. 

Sarit Center: Nairobi’s first formal mall is undergoing an expansion program to add more stores.  

Society Stores: An offshoot of a Khetia family member  – Trushar Khetia, hopes to grow the store brand. He says that they had the first chance to buy out Ukwala, but it wasn’t backed by the board and the deal fell through.

Two Rivers backed by Centum and built by Avic will also house a Carrefour store at the 62,000 square meter site in Ruaka that sits on 100 acres.

Tuskys: is focusing this year on staff welfare and streamlining customer service delivery through the deployment of  digital platforms for e-commerce. Shareholders are also trying to settle issues in readiness for a listing at the NSE by 2018.

Uchumi:  Is under new management and, once again, in search of a restructuring deal that involves working with suppliers, sale of assets (such as Ngong Road and Langata branches) and a share sale to a new anchor investor for about Kshs 5 billion. This has been complicated by some suppliers who sued to wind up the company, but talks are ongoing with the government, and it  appears that majority of the  suppliers will agree to convert Kshs 1.8 billion of the debt owed to them into equity at Uchumi.

Ukwala was bought by Choppies of South Africa. The deal was completed after a tax agreement deal  was reached with the Kenya Revenue Authority who were demanding back taxes from Ukwala. Ukwala had admitted to owing the taxman Kshs 101 million but appealed the additional Kshs 845 million that KRA was demanding. 

Finally, suppliers,  have complained about delayed payments by supermarkets retail chains. This was highlighted in a letter from the Kenya Association of Manufacturers (KAM) to Tuskys, Nakumatt and Naivas.

$1 = Kshs 100

Urban Inflation Index September 2015

Tracking changes compared to five years ago

Gotten Cheaper

Utilities: An electricity in June 2015 showed that consumers incurred costs of 251(US) cents per kilowatt hour, and forex adjustment ones of 40 cents per kwh. Five years ago it was 340 cents per kwh while forex was 57 cents per kwh.

Communications: Call rates are between Kshs 2 – 4 per minute, compared to Kshs 8 five years ago, and SMS are now Kshs 1. There has also been a massive drop in the cost of mobile data. That said there’s a bit of turmoil in the industry. Safari com is diversifying into new segments like health and television, as Airtel is threatening to pull out. Meanwhile Orange is apparently for sale, and Essar folded their Yu brand just a few months ago.

About the Same

Beer/Entertainment:  A bottle of Tusker beer is Kshs 200 at the local pub compared to Kshs 170 five years ago. The competition from the introduction of several new beer and alcohol brands  (like Carlsberg) does not seem to have made prices lower.

Carlsberg Nairobi

Other food item

A 2 kg pack of (rare) Mumias sugar is now Kshs 240. Its rare because both Ucumi and Mumias are going through some transitions with financing, suppliers, and even new CEO’s  Meanwhile, there’s also the debate about whether and at what cost Kenya produces sugar compared to other countries like Zambia, Sudan and even Uganda. The same Mumias pack was Kshs 200 five years ago. Mumias troubles has resulted in other brands like Butali Chemelil Nzoia and other store and generic brands now getting space at supermarkets like Ucumi.

More Expensive

Foreign Exchange:  1 US$ equals Kshs 103 compared to 80 fiver years ago (actually today it’s 106) a steep rise that does not seem to have reached its bottom. This may be due to the strength of the dollar but other currencies have also strengthen due to the trade deficit

Staple Food:  Maize flour is used to make Ugali that is eaten by a majority of Kenyans daily. A 2 kg. Unga pack at Uchumi today costs Kshs 113 compared to Kshs 65 five years ago.

Fuel:  A litre of petrol is Kshs 102.6 petrol compared to 94.5 five years ago (but with the weaker shilling, in dollar terms it’s about $4.5 per gallon (down from $5.25 five years ago)

Shares Portfolio: November 2014

Comparing shares to last year and last quarter, the portfolio is up 7% in three months (excluding new investments), while the NSE 20 share index is up is up 0.5% since August 2014.

The Stable

snoop

Bralirwa (Rwanda) ↓
Centum  (ICDCI) ↑
Diamond Trust ↓
KCB ↓
Kenya Airways ↓
Kenya Oil ↑
Mumias Sugar
Nairobi Shares Exchange ↑
Safaricom ↑
Scangroup ↓
Stanbic (Uganda) ↑
Unga ↑
Changes
In: Mumias Sugar
Out: None
Increase: Kenya Airways, KCB, Scangroup
Decrease: None
Best performer: NSE Kenya (up 121% since IPO), Centum (16%), (Unga 14%)
Worst performer: Kenya Airways (down 22%) Bralirwa (down 19%)
Unexpected Events:
– Bralirwa share dip which has been linked to the bonus share
– KQ’s loss in the half year. Amid the arrival of a half-dozen new Boeing 787 Dreamliners and other aircraft and long serving CEO Titus Naikuni stepping down there was one more shock from the airline in the form of a half year loss of Kshs 10.45 billion ($116 million)
– Are Kenya bank stocks overvalued as a Citi report says?
– Listings by Kurwitu Ventures (at Kshs 1,500 per share, which was higher than British American Tobacco that’s at 904 now) and Flame Tree (FTG) in recent weeks in the GEMS category of the NSE.
– Both Equity and Housing Finance forming holding companies and transferring banking and mortgage business respectively to the new group parents.
– The vicious fallout between BritAm and Cytonn.
Looking forward to
– Unga’s acquisition of Ennsvalley, a bakery worth Kshs 500 million ($5.55 million)
– Uchumi’s rights issue to raise Kshs 895 million ($10 million) by offering shareholders 3 shares for every 8 held at Kshs 9 per share, with the funds to be used for expansion in East Africa and refurbishment of stores.
– Seeing how Mumias Sugar shares proceed..having gone from highs of Kshs 40 in years past, to 1.4 this month.

Unga 2013 AGM

The 2013 annual general meeting (AGM) of Unga Group took place at KICC, Nairobi on November 28.
Finance and Shareholders Q& A 
 
Milling & Distribution Issues: While wheat is now being milled at 100%, it tends to fluctuate in other months as they compete with other buyers for grain especially during the festive season. Maize is being milled at 60-65% of capacity as more and more, maize is moving to the informal sector, and small Chinese mills.
When asked about product shortages of Exe flour for mandazi and chapati, the MD said when there are shortages of product, they may decide to mill general purpose wheat flour which is 90% of their brand sales. He added that shortages at Uchumi may have been due to that company being outside their credit terms which are enforced strictly.   
 
Tax Status: What is the effect of the tax reclassification of the company’s products from exempt to zero status? Unga products are now exempt (no longer zero-rated) which means they can no longer reclaim the tax back from the government – so they have to pass it on to consumers (higher prices)
 
Uganda: The company bought the 40% balance of the business in Uganda they did not own, as the minority shareholders was not willing to put in any more money while the business was struggling.  Since the takeover, they’ve been trying to add value to products, but this is more difficult since July 1  when the Uganda government imposed a 10% duty on wheat imports (all wheat is imported), also have also imposed 18% VAT. The result is that wheat flour is informally imported to Uganda, and big millers are downsizing staff and cutting back on grain procurement. 
 
Breakdown of Other Income: Other operating income was Kshs 281 million, of which 189M was revaluation of pension assets (thanks to a good the stock market). Directors said the sale of gunny bugs (collected over time) accounted for most of the balance, they will provide a detailed breakdown from next year.
 
Finance Costs: Why increased borrowings and why the low returns on investments? A new wheat mill was commissioned on November 2 and is producing quality wheat meaning fewer stock-outs. Also, the fixed deposits which were earning 6% in 2012, are now getting 12% this year.  
Volatility: Can the company benefit from Price volatility? There are recoveries sometimes on unrealized forex losses, but since the publication of the report, the shilling has strengthened, nullifying that, until recently.
Swag: As usual, shareholders asked about an increase of dividends, but also for the company to give bales of flour as a Christmas gift to shareholders. The chairlady said that this had been done in past years when the company did not have ample cash for dividends, and the board’s current preference was to work to increase the cash dividend paid out. 
 
Customer engagement: Some shareholders lamented the company’s low marketing and absence on the web with no information available for investors. The MD lamented that several counties were charging national brands for painting on walls and vehicles in the counties and that many companies are now white-washing their vehicles of any logos. He also said their website is at an advanced stage. A previous one was ready, but scuttled by management almost at the last minute. They also have a call centre at Kencall from July 1 that death with customer questions and also coordinated their orders and distribution. 
Hot Button Issue: Shareholders were concerned that the minority shareholders are being driven out by NSE buyouts at other companies (e.g.Access Kenya, Vipingo, CMC) and wanted the main shareholder (Victus with 51%) to assure other shareholders that there were no plans to buy out minority shareholders at Unga. The chairlady said there’s no evidence from the share register, that the main shareholder is buying shares, but this did not seem to offer absolute comfort as questioner noted that takeover notices appear out of the blue in the newspapers, without any prior notice.
 
Extras Business:  The proposal to shareholders for the company to purchase Ennsvalley Bakery had been deferred a few days before. The chairlady said that an opportunity to acquire an established bakery had come up and that in view of limited investment cash available, and the high cost of borrowing, a share swap was proposed – however not approvals had been received in time of the complex transaction. She said it would be discussed at an EGM to be called in the near future but before next year’s AGM.
 
The other extra business item – the sale of the company’s stake in Bullpak Ltd (a company that provides high-quality packaging material) was approved – with the board intention to redeploy the cash in the company’s core businesses of food and animal feed.

NSE Moment: Buyouts, Vultures, Divestments

A look at recent deals at the Nairobi Securities Exchange (NSE) and other privatization and equity bids since the last update. 

Divestments

  • Essar released a bombshell from India that they would be abandoning their investment in the old Kenya Pipeline Refineries and sell their stake back to the Kenya Government for $5 million. At the same time a Receiver Manager put up (the closed) Pan African Paper Mills up for sale, but that is likely to be complicated by links the company had with vulture funds who purchased Panpaper’s debts in the international secondary debt market. These faceless entities — basically different mutations of one group (going by the names like Noon Day Asset Management Asia and Farallon Capital Institutional Partners) — and 11 such firms own 37% of the company’s debt.The Essar fallout prompted Parliament to also look into the mystery of Orange Kenya which keeps asking for more government support even as the government loses equity in the company.Since then, the government announced that a new office will advise the government on state investments: Attorney-General Githu Muigai said the Government Transaction Advisory Services Office will guide state deals with the aim of sealing opportunities where the latter has been losing its shareholding in parastatals without monetary gain.  
  • EDIT: Another divestment is Kenya Wine Agencies Limited (KWAL) finally exiting Uchumi after disposing of all its shares. It had 18% in 2004 and 4% in 2012. – via @NSEKenya 

Done Deals

Recent M&A deals approved by the Kenya Competition Authority include:

  • Agri-Business: The acquisition of Juhudi Kilimo (turnover of Kshs 30 million) by Soros Economic Development Fund.
  • Aviation: The acquisition of Lady Lori Kenya by Ian Mbuthia Mimano, Adi Vinner and Peter Nthiga Njagi.
  • Education: The  purchase of 60% of Safer World Investments by School Operators Limited (owners of Peponi School) (The two will have a combined turnover of Kshs 672 million or ~$8 million)
  • Finance & Banking: The acquisition of Francis Thuo & Partners by Equity Investment Bank.
  • Food: The acquisition of 66% of Coca-Cola Juices Kenya by the Coca-Cola Export Corporation.
  • The acquisition of Lonrho PLC by FS Africa  (as part of a $280 million deal in South Africa).
  • The acquisition of Ma Cuisine by Harper Holdings.
  • Health: The acquisition of Jampharm Chemist by Viva Afya (the two have a combined turnover of Kshs. 19.5 million).
  • The acquisition of Ascribe Group (which has a turnover of Kshs 70 million) by Emis Group.

Deals Bubbling

  • Brookside Dairies have taken over Buzeki, the makers of Molo Milk, in a Kshs 1.1 billion ($13 million) deal that increases Brookside’s share of the dairy market to 44%.  – EDIT GAZETTE NOTICE No.  15068 – THE TRANSFER OF BUSINESSES ACT: NOTICE is given that the furniture, fittings, fixtures and the assets and the stock being the business of manufacturing and selling of milk and milk products owned by Buzeki Dairy Limited (the “Transferor”) on the premises situated at Ganjoni, Mombasa have been sold and transferred by the Transferor to Brookside Dairy Limited who will carry on the said business of manufacturing and selling of manufacture of milk and milk products at the premises of Brookside Dairy Limited under the name and style of Brookside Dairy Limited (the “Transferee”) with effect from 1st November, 2013 (the “Completion Date”).The address of the Transferor is Post Office Box Number P. O. Box 85532-80100, Mombasa, Kenya. The address of the Transferee is Post Office Box Number P.O. Box 236–00232 Ruiru, Kenya. The Transferee is not assuming nor does it intend to assume any creditors or debtors of the Transferor incurred in connection with the purchase and business of the assets of the Transferor up to and including the Completion Date and the same shall be paid and discharged by the Transferor and likewise all debts and liabilities owing and due to the Transferor up to and including the Completion Date shall be received by the Transferor. Dated the 5th November, 2013. KIPKENDA & COMPANY ADVOCATES, Advocates for the Transferor. COULSON HARNEY ADVOCATES
  • Centum shareholders approved new investments in Liberty Beverages, Mvuke Power, Two Rivers Lifestyle Centre, Centum Share Services, Centum Asset Managers (who are buying Genesis Kenya)  and the acquisition of 79% of Kilele Holdings.
  • Africa Media Venture (AMVF) a Dutch-based venture capital firm has raised its stake in a Kenyan restaurant guide website, EatOut, from 25% to 32% for Kshs 17 million ($200,000) in a transaction that values the online portal at Kshs. 220 million.  
  • Lonrho is selling its entire stake (11%) in African airline Fastjet. 
  • Crystal Ventures (owned by the Rwanda Patriotic Front) plan to sell their 20% stake in MTN Rwanda, in an IPO which will make MTN Rwanda the third company listed on the Rwanda Stock Exchange – after Bralirwa and Bank of Kigali.
  • Sameer Investments is buying out 41 million shares that Bridgestone owns in Sameer Africa – after which Sameer will own 159 million shares equivalent to 72% of the company.
  • Across the border, Tanzania’s Precision Air is looking for a government investment, just a year after an IPO which raised $7 million and reduced the shareholding of Kenya Airways from 49% to 35%
  •  Unga Group will acquire Ennsvalley Bakery for Kshs 125M ($1.5 million) and also dispose of its shares in Bullpak.
  • EDIT: Kestrel Capital has arranged a $1.2 million private placement of convertible debentures in Stockport Exploration to local Kenyan qualified investors. Stockport is listed on the Toronto Stock Exchange and has mining interests in Nyanza Kenya where they are exploring along a prolific gold-hosting greenstone belt. Zeph Mbugua, the Chairman of TransCentury, became a director of Stockport in February this year. 
  • EDIT:  Swedfund, the Swedish state’s venture capital company, and The Africa Health fund through The Abraaj Group, a leading investor operating in global growth markets, made a $6.5 million investment in The Nairobi Women’s Hospital, a leading private healthcare provider for women and their families (men and children) in East Africa.

Shareholder Restructurings

  • Businessman Christopher Kirubi is acquiring an additional 32 million shares in Centum Investments (for ~$8.6 million) which will raise the stake he controls to about 30% and he has received an exemption from complying with the NSE requirement to make a takeover offer.
  • After listing at the NSE, I&M shareholders have done a swop to bring the company’s investor numbers past the 1,000 shareholder mark.
  • The WPP Group (through Cavendish) is increasing its shareholding in Scangroup from 33% to 50%.  WPP, the largest advertising group in the world, is strengthening its control of Kenya and the East African market ahead of the merger of the two other advertising firms – Omnicom the No 2. in the world  (owners of TBWA) and No. 3 – Publicis (of France)  – which, when combined, will be larger than WPP.

De-Listing’s – Companies leaving the NSE 

  • Access Kenya Group after their buyout by Dimension Data was approved by the Government
  • CMC is at the conclusion of a buyout offer from Dubai’s Al-Futtaim Group who are offering existing shareholders Kshs 13 a share, or about $90m. 
  • The Dubai-based conglomerate, which holds lucrative distribution rights for Toyota and Honda in its home market, will help the struggling Nairobi-based automotive group expand its brands beyond its existing stable, which includes Volkswagen, Ford, Mazda and Suzuki.
  • R.E.A. Trading, which owns 56% of Rea Vipingo Plantations has offered to buy out all other shareholders at a price of Kshs 40 per share, representing a 43% premium. The shares that have since been suspended from trading and will be delisted from the NSE if the deal succeeds.

Stalled Deals

  • There was a Financial Times (FT)  article on queues forming to buy up East African retailers but deal opportunities at Nakumatt and Naivas have been hampered by shareholder/family disputes that darken their buyout reputations and possibilities.