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 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 month after they 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 complete 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The Mombasa refinery; given the opportunity, none of the companies would use the refinery which is outdated, inefficient and makes products expensive - yet they have to refine about 50% of their products there.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 up front.

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).