Business Brief’s: May 15

S& L will provide housing finance for government civil servants: A rate of 5% over 18 years is unprecedented – but 600 million shillings means it will benefit as most 120 mid-tier admins going by the current housing prices.

Blue-chip black eyes: It must be bad for employees of blue-chip banks and companies in Nairobi like Barclays, Citi, AIG – to have to face the press and their peers while their parent companies are admitting bad sub-prime decisions, write-offs, layoffs and record losses.

Stockbroker charged: A rogue stockbroker finally arrested but given the inability to prosecute white-collar crimes here, and the legal delays that lawyers are able to get their wealthy clients, it may not bring much comfort to his former clients.

Cement shortage in Tanzania, is the 2010 World Cup to blame?

EA Aviation


(i) New A320 aircraft for Air Tanzania
(ii) Air Uganda now flies to Jo-Burg – so do any Ugandans still have to get up at 4 a.m. to route through KQ Nairobi?
(iii) What’s a KQ 737 doing in Amsterdam?
all photos from airliners.net

Also, the site get a lot of hits from people looking for jobs with Emirates thanks to a few posts over the years about the airline hiring cabin crew in Nairobi. But it’s tough to get a job with Emirates, though they get 90 new flight attendants each week and former US pilots joining, they only hire about 5% of applicants.

Pan African media race
Nation Media Group whose vision is to be the ‘media of Africa for Africans’ have launched a digital platform to satisfy subscribers (esp. in Diaspora) who want video and text online. They will combine their radio, print and video broadcasts while also welcoming citizen journalism ‘where viewers send in pictures and give an understanding of events in their neighborhoods’ – according to their annual report, this will add to their revenues.

Businessman Chris Kirubi also has ambitious plans to expand his media network, and after bringing CNBC Africa to Nairobi this year, may next try to create a Capital platform like the Nation’s.

Economic signs
You know the economy is bad when;
– Your favorite bartender steals shamelessly from you and you celebrate his firing
– Previously ‘safe’ parking spots become vandalism spots
– Anyone traveling up-country is targeted with requests to buy cheap vegetables – but there are none available
– It takes a long time to fill a matatu in rush hour as many people are opting to walk

Economic Ying Yang;
– soft drinks EABL have a run away hit with their Alvaro (pear and pineapple juice), but KETEPA should probably have educated Kenyans on what ‘iced tea’ is before launching their new safari
– Money transferImperial Bank signed up with Moneygram, while Family bank and Housing Finance have just signed to become agents Safaricom’ M-Pesa.
Petrol prices finally hit 100 shillings ($1.62) a litre of K-Street, but at least you can still buy the same for 92/= in Ngara

Opportunities
– Barclays scholarships for mathematicians
– Yale Leadership Training Program seeks leaders of tomorrow
– Investment challenge for undergraduate university students to simulate NSE investments and win prizes and internships.

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.

Wanted

A breakdown on all NSE share splits from 2000, with dates and split prices

Things we don’t have in Kenya but may be nice to have at the NSE
– Short selling; there are some stocks I’d love to short
– Automatic Dividend reinvestment programs (DRIP’s), why don’t more companies push for these as they push for ESOP’s?
– Share buy back programs: someone to buy my Uchumi?

Things that should go away
– Cum dividend: It is criminal that a company can declare a dividend in January to pay in June. Declare a dividend, close the books within a month and pay the day after the AGM please.

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.

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.