Banking on Other Income

It's crunch time in Kenya’s economy and many companies are feelign the pinch. While operations may be hurting, listed (and unlisted) companies still strive to report (increasing) profits to shareholders to they will look to unconventional income opportunities to deliver by year end:

some examples

East African Portland Cement: went from a profit warning issued at their ½ year to a full year profit increase thanks to a property revaluation exercise.

Mumais Sugar: full year profits were attained due to a tax credits they gained from investing in electricity co-generation.

Scangroup: profit in the ½ year was credited to income from their investment in Government bonds

Access Kenya: profit growth in the ½ year was attributed to the strengthening of the US$ against the Kenya shillings - and most of their revenue is dollar denominated

Counting on Other Income: Going forward, other companies can also employ similar measures to plug income gaps e.g.
- Tax breaks from listing - Safaricom
- Green energy – carbon credits, co-generation - Kengen, Safaricom
- Fibre cable/IT investment writebacks
- Property and investment revaluations
- Forex: a weak shilling is usualy good for Kenya Airways and tea companies

Kengen & other Nairobi Bonds

Lots of questions abound about whether its time to invest in bonds at the Nairobi stock exchange. From late last year when Mabati Rolling Mills launched a bond, 2009 has really been the year of the bond with the clincher being the successful Kenya government infrastructure bond of February 2009.

Now ongoing now is the Kengen PIBO for which Kainvestor reviews the prospectus. It offers a 12.5% and the minimum subscription is 100,000 shillings (~$1,316)

Next expected next is a Safaricom bond, a Centum bond ( 2 billion), and more tranches from CFC Stanbic and Barclays. It’s quite a turnaround from 2007 when companies like Athi River Mining, Safaricom and Celtel Kenya (now Zain) all redeemed /repaid bond investors at a time of low interest rates.

Track all the corporate bonds at the at the NSE daily bond report and these include East African development Bank, Barclays, Faulu Kenya, Mabati, PTA Bank, Athi River Mining, Sasini and CFC Stanbic

Buy bonds directly from stockbroker agents, but if still unsure of the process, consider investing through bonds funds such as those from Old Mutual Kenya and Dyer & Blair Investment Bank - Kachwanya reports that investors can even access the Kengen Bond at ½ the prescribed price – paying just Kshs 50,000 (~$650) instead of the subscription minimum of 100,000.

Stocks versus bonds? in the long run, as shown by this stockskenya thread, shares are likely to out-perform bonds – even the generous 12% Kengen bond.

EDIT also on offer is Uchumi Bond/10% convertible shareholders’ debenture is on. Press reports say it was valued at 12 shillings each by KPMG and is available at a discount of 10/= to shareholders of the company. The funds raised will be used to restructure the balance sheet, which shoudl lead to the end the receivership, and re-listing of the company’s shares at the NSE.

Uchumi Financial Results

published by Specialized Receiver Manager – September 2009

Kutwa Tuesday: Corporate Mysteries

and other Bank Twits

Twitter is a micro-blogging tool that is really nifty for doing mini-posts, forwards and other remarks that (are on any subject) and are maybe not worthy of a full blog post. Here’s a summary of my week on Twitter where there was some interesting discussions, but so far yet to unravel mysteries at Kenya airways, Safaricom and Athi river mining? and some replies

June 15: nairobbery Reading about a Nairobi scam where people actually throw themselves on the windscreens of slow moving cars and later ask for compensation
Kenya central bank study shows popularity of MPesa; users rate it cheap, fast, reliable & accessible http://tinyurl.com/nozxe3

June 16: Media mystery: what happened to the Bamburi vs. Athi story? there were many reporters there but was story buried? http://tinyurl.com/n2k5o8 replies @nakeel It’s called the power of advertising and who pays your bills..

June 17: Economist says Africa's next country South Sudan "will fail before it has even been born" http://tinyurl.com/kwlw9w
DT Dobie advertising that a Mercedes E200 kompressor is 1796cc and therefore compliant with new Kenya Government rules for Ministers cars
Anti-corruption initiatives falter around Africa http://www.nytimes.com/
Racial Discrimination at World Bank?http://bit.ly/fNXUy
CNBC TV show President Obama killed a fly during an interview. Take it away FOX
Is the Kenya rugby safari sevens tourney over-priced at 1,500 ($19) per season ticket? http://tinyurl.com/m9yhmb
Two new independent (non stockbroker) directors at Nairobi Stock Exchange - NSE Board http://tinyurl.com/n8qqvx

June18 KPLC is going to increase the birth rate in kenya if they keep failing to supply electricity.

June 19: Kenya and Uganda Catholic churches in a race to hell with simultaneous abuse scandals; media coverage in UG is NSFW http://www.redpepper.ug
Michela Wrong to visit the World Bank http://bit.ly/LpJHy

June 20 Discovering the mysterys of white cap, EABLs no.2 that survives recessions without any advertising
replies @coldtusker I didn't say it 'failed' but IMHO its core consumer base isn't GenX but my mzee's generation. What happened to WC lite? White Cap's demographics are skewed to stable, older, wealthier, 'old dogs' market. It has failed among the 'younger' drinkers. @Fintradecapital thats really true. Its drinkers r consistent.
I use nivea creams, but all their posters and adverts scream i am soooò not their target customer!
replies @uhusiano is cos they are all jungus? @coldtusker Are you thinking of doing a chaz bono? re: nivea - not their target market... LOL... @devonwhittle I'm also a Nivea customer, but their "skin whitening" products and ads worry me – @karuoro I use Nivea shower gel but prefer Vaseline lotion..find nivea lotions too..sticky (don't know if that makes sense) @Ethnicsupplies I've never liked the smell @Shiko_Msa we the target customers that is. feel welcome. Even though they dont welcome we do.
Stomping through kilelewshwa - many apartment complexes have 'to let' signs

june 21 Safaricom selling cheap internet ready phones including nokia 1680 for $38 replies @alykhansatchu I was reading that @ thinking 13m Subs converts to 2m x $1.00 a day internet
@coldtusker also former Kenya Airways director is CEO air uganda. Seems KQ is now finishing school for sub-saharan airline bosses. replies @coldtusker Hugh Fraser (ex-KQ now CEO of Air Uganda) was in the very important Commercial Director post @ coldtusker Neil Canty (former CFO-KQ) went to Gulf Air though he has left them for another gig. Africa again?

R/T @airlineroute KLM to operate MD11s on Nairobi-amsterdam for Kenya Airways from july to september! What will the 777s be doing?

Unexpected dividend cheque from stanbic uganda ~$15 in the mail today #migingo
replies @PinkM How do you cash your Stanbic UG cheques?I haven't cashed for 2 years now. Thanks.Will try that. I wish it was possible to bank at CFC Stanbic even for CFC a/c holders

Kenya retain rugby revens title, but Is that DJ CK on pitch with team at #safarisevens? He's kenya's top gate crasher replies @kenyanpundit hehehe, DJ CK was EVERYWHERE at the WEF in Capetown @kachwanya you just made me remember almost similar incident sometime back during Orange launch..yeah he somehow did that

June 22 Kenya' anti-aid author envious of @dambisamoyo http://bit.ly/mBdFg
replies @kainvestor Many African anti-aid champions see sinister agendas in the success of @dambisamoyo. She wasn't the 1st to write against aid >>>
Safaricom shares pick up after managers visit Europe & US fund investment firms http://tinyurl.com/lewfyn #safaricom #investorrelations
Family Bank 25th anniversary
President @mwaikibaki encourages banks to use mobile phones to reach beyond the 22% 'banked' kenyans
Have more twitter followers than feedburner subsribers; what does that mean?
people who vandalised the Kenya Railways Kibera railway, may also have got paid to fix it after http://tinyurl.com/c9ykra

June 23 Any well wishers to donate a PC or laptop to Mamamikes who were recently robbed? http://www.mamamikes.com/bl...
59% of small business owners rely on credit cards for working capital! scary http://preview.tinyurl.com/

Athi River Mining Board evicts Bamburi Cement as Director

Excerpts from the 2009 Athi River Mining annual general meeting (AGM)

Athi River Mining, Kenya’s 3rd largest cement company held its annual general meeting (AGM) on June 11 2009 at the Grand Laico Regency Hotel. It was mainly presided over by the Chairman Mr. Palle Rune and Managing Director Pradeep Paunrana.

After the finance director gave a review of 2008 performance – sales of 4.6 billion ($58 million) and a profit of 503 million ($6.3 million) (but had an error column labeled 2009 numbers and skipped over the net current assts position instead focusing on global credit rating A1 rating of the company)), the MD took over and outlined his plans for the company going forward along with a talk on the state of the cement business in East Africa.

ARM Outlook
- ARM had no cement growth in 2008 because they are at full capacity, and same with fertilizer. fertilizer sales rose sharply to almost 1 billion shillings, but that was because the price of fertilizer shot up in Keya. It is mainly sold o tea farmers, cheaper than fertilizer imported by KTDA and gives better yield. Silicate sold mainly export markets Mozambique, Malawi, SA
- 26% of ARM sales were from exports, but were hampered by strong shilling
- Project to haves sales of 6 billion in 2010 rising to 13.4 billion by 2012
- Currently produce 1,000 tons per day for the Kenya market that has 5,000 tones per day production capacity. With new plant in Tanzania, ARM will go to 2,000 tons per day from January 2010 - the new plant in Tanzania will be largest plant in east Africa
- improved production efficiency: now have the best margins in cement production in Kenya, ahead of Bamburi and a distant EAPC.
- improved energy efficiency in cement production - East Africa. Saved 16% (about25m) in 2008 and expect to save about 50 million in 2009 – they have achieved international benchmarks
- building their own clinker plant in Tanzania, locally produced clinker cheaper than imported clinker by about 1/3

Cement in EA
- Cement a growth business, and there’s great demand in this part of Africa for building work, and in the future for roads
- Cement grows at 2x GDP in east Africa , and has been at about 15% p.a. for last few years
- Comparing cement companies across region shows a variation in pre-tax profit margins ranging from 36% at PPC (SAfrica) and Tanga (Tanzania), while in Kenya Bamburi was 18%, ARM 17% and EAPC -13%
- Egypt became a new importer of cement in 2008

Shareholder Q&A
- borrowing costs are high and growing, why? high borrowing for expansion- they chose that route instead of the equity one. which will probably strenthen Bamburi's position
- acquired minority shares in Tanzania subsidiary, but did not get Kenya shareholder approval, why not? Chairman said they’d never get anything done if they had to bring such things to a vote
- Why not sell cement in south Sudan and Rwanda? Wont go for those markets, they are focused now on the highly profitable Tanzania market, and less profitable S. Sudan market is better served by rivals (tororo and hima)
- when will shareholders visit new Kaloleni plant as promised by the board? perhaps AGM next year will be held there, but its open year round for any shareholder to visit
- why is ARM cement and fertilizer not seen in retail shops around the country ? MD explained that virtually all their product was sold to repeat customers – e.g. contractors who took the cement at factory to building sites, and same with tea farmers

Hot Button moment: director elections
Three directors were up for re-election – Bamburi Cement, Michael Gondwe and the deputy chairman H. Paunrana, none of whom were present or reprsented.

Bamburi Cement, a rival and Kenya’s largest cement producer own almost 14% of company, and are second largest shareholder in company. Bamburi had not sent a representative, and their reserved seat at the board dais was empty
- The Chairman recommend that shareholders <vote against the re-election of Bamburi. He said it was clear that Bamburi does not want ARM to grow or produce more cement. They have been trying to sabotage ARM in international circles. I noticed in the minutes of last years meeting, for the vote to split the company management, Bamburi had requested a poll vote be taken. Chairman summed it up by saying that the board was not comfortable disusing ARM company business in the presence of a Bamburi representative
- One Shareholder queried if company had obtained legal advice to which chairman answered yes the board had even got two opinions
- Another shareholder feared that if Bamburi were voted out and then dumped their shares, it would affect other investor; the deputy MD replied that snares would be snapped up quickly and said Bamburi rights as a shareholder and director were separate unrelated matters
- Another shareholder asked about an ongoing land dispute between ARM and Bamburi for limestone deposits; CEO summed it up as follows: ARM scouted and located a deposit of limestone. Signed a least for 540 acres with Kitui town council. Bamburi tried to get this overturned, and the former Local Govt. Minister Musikari Kombo had tried to broker a sharing arrangement. Bamburi got high court injunction and ARM and Kitui council have now gone to court of appeal, a process that may take years. Courts and government tried to broker a settlement, but two companies are too far apart
- After the arguments shareholders present unanimously voted against the re-election of Bamburi as a director of the company.
- The two other directors, though absent, were re-elected unanimously. Mr. Gondwe of PTA, the company’s bankers had given his apologies as he was involved with other bank business on that day, while Mzee (old man) Paunrana, though over 70 was described by other directors as being a key guide in day to day management of company (not just a honorary deputy chair)

Goodies: T-shirt, tote-bad, keychain, lunchbox from the Laico

Safaricom @ NSE Day 6

Deals 5,624
Turnover 821 million shillings ($13 million)
Avg price 7.91
Closing price 7.90 (up 6.38%)
High 8.15
Low 7.70
Last 7.95
Shares volume 103.8 million shares

Commentary: The Bourse had a delayed start. It was a very bullish session. We are now toying with 8.00 and a break of which will project us another 10% higher- Courtesy of Rich.Co.Ke [NSE data vendor]

Lessons Learnt from Safaricom

1. Don’t invest in IPO’s! avoid the queues, time value lost, miniscule allocations, rogue broker tales, bank charges, fraudsters etc.
2. If you must invest, go for those with 'higher' minimum investments of Kshs. 50,000 or 100,000. e.g. Access Kenya a ‘relatively unknown’ (to wananchi) was priced at 50,000 and still ended up with 25,000 shareholders who got a reasonable allocation.
3. If advance payment is unfair for foreign investors and QII, it is also unfair for wananchi (retail investors)
4. Bank IPO loans should be banned.
Both of the above two factors destabilize the banking sector
5. We don’t need foreign investors. The local investors over-subscribed the entire allocation. The Renaissance Boss once talked about how it was not possible to invest $20 million without distorting the NSE. We are a retail, small corporate, local bourse and should accept that,
6. We don’t need the kind of foreign investors we appear to have got. African bourses need long term investors with three to five year horizons – not 3 to 5 day ones who cash in for 2 shillings.

ARM dust?
What happened at the Athi River Mining AGM last week? The vote results on the proposal to split the company into two subsidiaries appears to have only had the backing of the MD who accounted for almost all the votes for the move to be approved.

Business Briefs – May 24

most from the papers this week

Strathmore to train entrepreneurs: Strathmore University has launched an Enterprise Development Centre (SEDC) to train entrepreneurs in management of SME's. This will be done through a six month certificate program in entreprenual management that covers, among other aspects, taxation & law, financial recordkeeping, managing HR, business planning, risk management, diversification, capital budgeting and excellence in customer service. It will use locally developed case studies and also provide networking opportunities and access to service providers through a business club.

ARM split: Athi River Mining intends to spin off its cement, and mineral & chemical operations into two wholly owned subsidiaries;
- ARM Cement Limited – who will continue with the manufacture and sell cement and limestone – (the new Kaloleini factory will be transferred to the subsidiary)
- ARM Minerals & Chemicals Limited – who will produce minerals and sodium silicate building products – (the Athi River factory will be transferred to the subsidiary)

Invest in Uchumi: Gearing up for a revival is Uchumi Supermarkets whose Receiver Manager has places an international tender for financial firms who will assist in the for (i) pre-qualification of financial bidders and (ii) selection of winning bids to become strategic equity partners (new investors in Uchumi). D/L is 6/6

Milky at NSE?: Preparing for a possible listing at the Nairobi Stock Exchange is New KCC who published their financial accounts this week for the year ended June 2007, which showed that they had exceeded the performance over the previous 18 month period; New KCC had assets of 4.7 billion shillings (up from 4.0b in 18 months to 06/2006), turnover of 4.5 billion (compared to 4.9b) and a pre-tax profit of 284 million (compared to 350 m) – after paying over 2 billion shillings to dairy farmers. Meanwhile Sameer is making dairy waves in Uganda

Derailment?: Rift Valley Railways in trouble with the Governments of Kenya and Uganda over the performance of the railway concession. Last year it appeared they had turned the corner in terms of performance.

FYI: You can track NSE shares in real time for free at Rich.co.ke

ARM to retire bonds

Athi River Mining will convert 125 million shillings worth of corporate bonds into shares in the company as existing shareholders will be asked to approve the creation of 25 million new shares for this purpose.

The bonds were launched in October 2005. Of the 800m raised 600 was for completion of clinker plant in Kaloleni (near Mombasa) and 200 million was for repayment of bank debt.

Other corporate bonds include Faulu Kenya, PTA Bank and Mabati - with few new issues expected and little trading in them. Previous corporate bond giants - Safaricom and Celtel (who also retired their bonds early), opted to get bank financing the last time they needed expansion funds.

Friday, news, jobs

Pesa Point ATM’s
Pesa Point, an independent network of automated teller machines (ATM’s) will officially launch on Friday October 21st. In a Sunday Nation feature on the launch (PDF) , Paynet MD Bernard Mathewman said eight partners are expected to be part of the initial launch. One Bank likely to be among the first partners is Equity Bank. Also NIC, whose major shareholders own Paynet could also link up their 17 MOVE Zone ATM’s to Pesa Point.

The company says 30 are ready now and they hope to have 120 independent pesa point ATM's by year end in hotel lobbies, supermarkets, petrol stations, and other retail outlets (Caltex has already signed on). For comparison, Co-operative Bank has 58 ATM’s (31 in Nairobi) and KCB has 86, with plans to have 115 by the end of the year while another network of shared ATM’s, Kenswitch, was launch in 2003 and now has about a dozen banks whose customers use each others 30 ATM’s.

New Bond available
The Athi River Mining bond is now available to investors. The Issue is for Kshs 800 million, offered on a floating rate basis with a final maturity in 2010 and is priced at a margin of 175 basis points (1.75%) above the 91 day T-Bill.

Applications and payments must be delivered to to either Barclays Financial Services, Stanbic Bank Kenya, Dyer & Blair Investment Bank, Ashbhu Securities Limited, or Dry Associates Limited by 3.00 p.m. on Monday, 24 October 2005 with payment made out by banker’s Cheque or by bank transfer/remittance to the Athi River Mining Ltd Bond Receiving Payments Account, in the books of Cooperative Bank, Account Number 011 2030 2835 00, Branch Code 11002, Nairobi. If the offer is over-subscribed, preference will be given to investors in notes greater than 5 million shillings. The bond will then be listed on the sting on the NSE, availing a secondary trading market

KRA anniversary
Also on Friday, President Kibaki will mark the 10th anniversary of the Kenya Revenue Authority at KICC.

Nairobi marathon
The registration deadline for the Standard Chartered Nairobi Marathon has been extended to Saturday. Many City roads will be closed on Sunday morning to facilitate the marathon.

Low cost housing scheme
Superior Homes will put up 400 3- bedroom apartments bungalows (phase 1) to be known as Green Park Housing Development at Stoney Athi, along Mombasa road.

Jobs
several accounting positions: at Safaricom Details will soon be posted at their website and the deadline for applications to hr@safaricom.co.ke is 25th October. Positions are:

- senior accountant – reporting
- senior accountant – financial systems & analysis
- senior accountant – accounts receivables
- senior accountant – payables (2 positions: local and foreign)
- senior accountant – general ledger
- senior accountant – cash book
- accountant – accounts payable (2 positions: local and foreign)
- accountant – accounts receivables
- cashier

chief accountant: at Oserian Development Company (one of Kenya’s largest flower grower based in Naivasha). Job entails supervising all accounts and payroll staff, data input for preparation of monthly financial statements and audits, financial and system controls, treasury management and compliance with legislative and accounting standard. Applicants must have bachelor’s degrees (accounts or finance option) and at least 3 years work experience at senior management level preferably as chief financial accountant. Must also be a fully qualified accountant with 5 years work experience. Apply to the human resource manager, jobs@oserian.com by November 4.

loans manager: at the Kenya Tourism Development Corporation. Job entails drawing and implementing lending policies to facilitate processing award and recovery process. Also maintain records of loan applications, set performance objectives, coordinate staff and educate the public on the corporations lending policies and requirements. Applicants should have an economics degree with a bias towards development finance, postgraduate finance qualification and at least 10 years relevant working experience at a senior level. Apply to the managing director, ktdc@wananchi.co.ke by October 26