Guide to Stellenbosch

A guest post by @AmkaKenya after a visit to Stellenbosch - a town in South Africa famous for wealth, education, and wines.

 Getting There: It cost about 8,900 Rand (~Kshs 90,000) to Cape Town on South African Airways (SAA). Ethiopia Air is about half the cost, but one would have to take a much longer trip. SAA was really lovely and the airports in SA are nice.  I only had hand luggage, but if you check in baggage, you have to collect and check it in again at Johannesburg, before continuing to Cape Town.

You also have to get a visa from the South African High Commission in Nairobi ahead of your trip and it's quite fast, with the visa being free for tourists staying less than 30 days. 

Getting Around:  A friend collected me from the airport and the drive to Stellenbosch took about 40 minutes. It seems like everyone had a car in Stellenbosch, I didn't see any buses and I hear the taxis are quite expensive. I felt secure during the day, but all houses have alarms and secured gates at night.

Communications:  I tried not to use my Safaricom roaming, as it was expensive to call and receive calls. Text messages were Kshs 10/- and I accidentally drained Kshs. 1,000 of credit because I switched my data on!

Where to Stay  I stayed at a GORGEOUS hotel based in a vineyard - Spier.  I think the average room there was about $250 per night B&B. Not sure about the others.

Food & Drink Stellenbosch is wine country and friends gather to drink several bottles of wine almost every night.  This is accompanied with billtong (cured meat) and possibly a brai (barbeque) when weather permits.  They talk about the weather and traveling out of Stellenbosch! There is also a large student population who are very intelligent and fun to talk to about current affairs, politics and social change.

Shopping & Sight Seeing: I didn't get enough time to explore, but there's are lots of lovely (if a little pricey) little artisan shops with unique gifts and knick knacks on Church Street and Andringa Street. One gift shop called Big Blue was very cool with lots of funny and not too expensive gifts like ZUMA Presidential Shower Gel.  (Eventually), I took home wine and billtong for most people. 

Getting around costs about $25 per day and  you can get by with English, but Afrikaans is also commonly heard. I didn't meet many black people, so didn't hear much Zulu.

Local legends: The town was founded in 1679 by the Governor of the Cape Colony, Simon van der Stel, who named it after himself - Stellenbosch means "(van der) Stel's Bush".  Also a few famous rugby and cricket players are from there.

Biggest surprise  It was so cold!

Author with Zapiro, the famous cartoonist

Odd Points:  On the surface, Stellenbosch is a rich town - people drink lots of wine, eat good billtong and enjoy fine cheeses.  On the weekend, they go to farmers markets, smile a lot, and have "brais" (BBQs) with friends.  However, there is an interesting racial tension, dimension, as I assume there is all over South Africa.  The Black Economic Empowerment (BEE)  policy is  a contentious method of "leveling the playing field". A black banker told me that, without BEE, he would never have the job he has in Stellenbosch. He admitted that since BEE, life has been great for him, but probably not much different for the lower class black South Africans that it was supposed to target.  There was a young white couple I spoke to, and they expressed a surprisingly hostile attitude towards BEE; The young man came from a wealthy family that owns several vineyards and he claimed some of the farms had been "snatched" (back?) from his family and given to black people who had no idea how to farm sustainably.  He claimed many of the farms are being ruined because black people, with no experience, are running them.

Note: Zapiro, is the famous cartoonist who coined the controversial Zuma shower-head cartoons.

Scangroup & Ogilvy Africa

At the end of April Scangroup announced a deal to buy into the Ogilvy Africa group and has now invited its shareholders to approve the transactions.


1. The acquisition of 51% in O&M Africa and 50% in Ogilvy East Africa will be structured as
- O&M Africa: 51% is to be acquired by payment of $238,360 (Kshs 19 million) cash and transfer of 6.2 million shares of Scangroup worth Kshs 166 million.
- Ogilvy East Africa: 50% will be acquired by payment of Kshs 13 million to Ogilvy south Africa (paid in US$) and transfer 4.4 million shares worth Kshs 118 million, and a payment to fellow shareholder Russell Holding of one euro and payments to Koome Mwambia comprising cash of Kshs 20.6 million and transfer of 3.12 million Scangroup shares worth Kshs 82.4 million
2. Shareholders will have to approve creation of 14 million new shares and waive their pre pre-emptive rights to allow the new shares to be allotted to Ogilvy South Africa and Koome Mwambia.

Winners
- Scangroup gain entry via minority shareholding in Ogilvy into Namibia, Cote d'Ivoire, Senegal, Burkina Faso, Cameroon, Gabon, Zimbabwe, Nigeria and non-equity affiliates in 11 other African countries to create a Pan-African agency
- Koome Mwambia sells out his shareholding gets cash and becomes a top 10 shareholder in Scangroup and he is to enter into a management agreement to remain MD Ogilvy East Africa
- MD Bharat Thakar gains a pan African footprint and loses just 5%

Losers
- Local investment bankers: No transaction advisers were appointed and the IM only has an opinion from BDO East Africa that issue price of Kshs 26.4 is fair and reasonable and Deloitte's calculation of these price (now trades at Kshs 36)- Kenyan corporates whose choice of partners in media, PR, advertising got smaller – as Scangroup, Ogilvy, Hill & knowlton, Blueprint, Mindshare , Millard brown, Squad digital, Smollan are all under one roof.
- Scangroup if the share swaps are denied by the South African authorities, will have to pay Kshs 427 million ($5.2 million) to proceed

Olympia Capital 2009 AGM

excerpts from the last ½ of the meeting

Q&A leading into the 2009 AGM, Olympia shareholders had many questions revolving around the companies investment strategy, governance issues, disastrous foray into South Africa and prospects of escaping an Uchumi like future as the AGM was postponed, and happened a week later than scheduled.

Governance: - the AGM was delayed, the Board said, because the annual accounts were late coming out; one shareholder urged them to do better, not aim for the minimum corporate of 21 days only to avoid being late and incurring regulator penalties. CEO (Michael Matu) said they had noted this and had improved to the extent that the ½ year accounts were released in September, just over month after completion of period.
(lacking) corporate governance (missed this part where the auditor read out a statement that the company had no corporate governance in place. The auditor apparently made a similar remark last AGM, but that was omitted from the minutes of the meeting presented today - the directors mentioned they have engaged consultants and were embarking on corporate governance measures. One shareholder noted that the board had promised the same last year and no piece meal measures have been implemented to which the directors said they were doing this now and would brief shareholder in about two months
director loans increasing each year amount to 18.3 million – who, for what, what terms? CEO said he’s the only director and he has borrowed to buy house and car. Loan interest is paid and assets are charged to the company
insider board: One shareholder complained that 5 of the 7 directors had links to the parent company, so board was not truly independent
investor briefing -one shareholder presented the directors with a list of 35 detailed questions. The chairman suggested they have an investor briefing in about two months where all these and other shareholder questions can be exhaustively answered it will not be an EGM. CEO also promised to reply to all these questions via e-mail to the shareholder and copy his replies to the Capital Markets Authority whose representatives were in attendance
- at that time, the directors all also explain what measures they have taken in the area of corporate governance

Strategy Going Forward - For SADC (southern Africa) Olympia is still keen on the building materials market which is still strong. Even plan to go back into South Africa but without a link to Builders Warehouse – who handled 75% of their sales. They hope to revive and relocate the Natwood business to Botswana (Gaborone) from South Africa from where it will be easier and cheaper to supply their core markets in the Gauteng region (transport distances will halve from 600km to 300km)
- now going into Zambia on a smaller scale, and will look at Zimbabwe since economy is more attractive after dollarization
- part of problem was they did not make the management changes that they hoped to make; hire right people

Investments - Dunlop is profitable this half year, though had not yet installed new plant they bought to replace their exiting 1970’s plant. However with what they know from the Botswana tiles operation, they know how they can multiply their products & sales in Kenya with Dunlop once new plant is installed. From Botswana they supply South Africa, Zimbabwe, Angola Nigeria and Mozambique. Answering a separate shareholder question, mentioned that factory land had been given to Dunlop to support their balance sheet, but transfer had not been effected since they were awaiting confirmation that there would be no stamp duty to be paid on deal
- Mather & Platt, they bought out centum’s shareholding, but are yet to beef up the management there
- A shareholder (who was transaction adviser on the rights issue of 2007) said he was surprised to see how share transfers were disclosed in 2009 accounts. CEO said that at the time of rights issue, shares were allocated pending investments later made. E.g. Olympia had no cash to take up Heri rights issue, but Avon advanced Olympia cash against balance sheet . In answering a similar question CEO said of their strategy – when they see opportunities, but have no cash they arrange for third party to buy shares and agree to re-sell them to Olympia at later date
- No due diligence in describing Natwood investment, CEO had mentioned that they paid ½ the funds but later their due diligence showed that there were come issues within the company and a shareholder questioned if any initial due diligence was done at all. CEO explained that if company went after blue chip companies, they would pay premium prices, but they chose to go after viable but distressed companies and in this case they had consulted advisers and lawyers before natwood deal.

Shareholder votes - One director was re-elected, but COO Mwangi Wamae opted out of re-election to the board.
- ESOP though directors said employee share options plan (ESOP) will be a key tool to attract top managers for the various companies, shareholders voiced concern that this was the wrong time to bring up an ESOP, with the board governance not in place. Directors argue that the ESOP approval was separate from the implementation noting that - they have had an ESOP in Botswana for 3 years with no shares issued, and that the CMA (Kenya) would not be discuss and approve an ESOP unless shareholders had approved it. Since this was a formality it was approved.
- A dividend of 10 cents was approved. Chairman joked that this was the same as Safaricom was paying

Summary: Olympia CEO and Board pulled it off (again) - reassuring shareholders that the company was sound, strategy & governance would improve, they had a plan to take it forward and that the worst (of the SA foray) was behind them now.

Reading the Olympia Capital Tea Leaves

Holding company - Olympia Capital’s annual report is one of the most jumbled I have seen in a while - it has contradictory statements, dates overlap, and profit/loss amounts that may have led to some regulatory trouble in Botswana where the company was also listed.


recap
Performance: their accounts were qualified accounts by the audit firm DCDM who noted that the company did not comply with IFRS – where they should have consolidated a subsidiary (Plush - to be liquidated) in their accounts; the auditors however added that this omission did not have a material effect on the performance numbers since Olympia wrote off all related amounts

Disastrous SA investments
capping a disastrous foray into South Africa – whose dismal results the directors blame on the recession in that country
- owned 74% of Plush products limited which ceased business and will be liquidated as their bankers (Nedbank) moved in – the SA equivalent of a receivership?. Olympia wrote off Kshs. 103 million from Plush – 86 million investment and 17 million in loans
- With another company, Natural wooden products, they expected to buy (and who they lent money), but this will not materialize; they don’t expect to recover monies and have provided for it in full
- another one Natwood owes 63 million
- The report notes that Olympia provided a total of Kshs. 115 million for SA investments that have not contributed to profits since investment while the elsewhere is a note that discontinued SA operations will cost Kshs. 200 million

Investment/subsidiaries
- own 12.5% Heri investments (valued at 71.6) million and mentioned they got a good dividend, thought its unclear how much was received
- A subsidiary, Dunlop, bought a tile making plant at a cost of 54 million – but it has not been installed – and the company may have to get a third party to install or operate it – or may even have sell the plant!
- Owned 7 million worth of Safaricom shares at year end

Other
- Some directors & top shareholders have reduced their shareholding
- There are so many internal deals /within-the group based on valuations or estimated of directors
- There are no director profiles in report
- Corporate governance: Olympia created two board committees audit & nomination, and investments committee – but these did not meet during the year (this company needs a competent independent investments committee after its SA foray!)

Upcoming AGM
should be interesting to attend
- The AGM will be held on 25th September
- Auditors signed accounts on July 31, but the reports have been sent to (2,685) shareholders just two weeks before meeting
- Shareholders will be asked to approve a dividend at a critical time for the company (Olympia will pay out Kshs 4 million)
- Bad timing for the directors to ask shareholders to approve creation of an employee share option plan (ESOP), fund it, appoint trustees, issue shares etc.
- Increase share capital from 40 million to 50 million by creating 10 million new shares of 5/= each – this adds up to an additional 50, not 10 million!
- DCDM will continue as auditors.

EASSY: The Masai – Zulu battle of 2006

Had nice week which started with an unplanned tour of snow capped crater on Mt. Kilimanjaro courtesy of a South African Airways pilot to a Yvonne Chaka Chaka concert , among other fun activities in South Africa.

My comfort is that if that if the Highway Africa / Digital Indaba conferences’ were held in Kenya, the delegates would be drawn from Ministers, MD’s, and other senior corporate and government officials, and not ordinary journalists or mere mortals like myself.

Kenya vs. SA
One of the sessions covered this week was the controversial EASSy project which appears to have been now reduced to a Kenyan vs. South African affair.

South Africa traces its history, not to 1994, but to 1957 when Ghana become the first African country to gain independence. South Africa identifies with that milestone and thus immerses itself as a being proudly African and wanting to take the continent forward together though NEPAD and the African Union (AU) as a way to better all African lives and be more competitive with other continents. EASSy is NEPAD’s flagship project which is intended to bring down the cost of communication for the whole of Southern, Central and Eastern Africa.

SA’s leaders are largely drawn from the freedom-struggle movement are proudly African and strive to combat Afro-pessimism in all at forms. In economic terms, they are disciples of Joseph Stiglitz, who are wary of foreign aid and other donor-championed programs such as privatization, having seen how devastating they have been to many other African countries over the last 50 years.

South Africa proudly champions African solutions to African problems e.g. through NEPAD. It also proudly champions media coverage of Africa by Africans, not western media agencies. The South African Broadcast Corporation (equivalent of KBC) has spent 8 million rand and sent a staff crew of 60 to cover the recent elections in the DRC and already has foreign bureaus in Africa, Middle East, US and Europe and soon to open new ones in the Caribbean and China. Such coverage of the continent is something Kenyans may find unsettling.

Kenyans on the other hand have seen the OAU, East African Community (EAC), Preferential Trade Area (PTA), COMESA and other regional groups come and go with little impact. They are used to having neighbouring countries who are basket cases mired in wars, famines, or other problems and are happy to offer assistance militarily, hosting peace talks, food wise, or hosting refugees. They are used to having to do things alone and the EASSy is just the latest example of this.

They view South Africa as new to the party, but eager to assume a super power role and both economically and strategically dominate the continent. Thus they revel in small victories like when Kenya Breweries defeated Castle Breweries (SA) in the beer wars of the early 2000’s, denying MTN a cell phone license, or frustrating any South African company that tries to take over Uchumi.

Likewise, ordinary South Africans see Kenyans as having a problem with them. When I told a MTN employee that South Africa's Telkom had been short listed to bid for the second national operator license in Kenya, she said Kenyans would never let a South African company win.

Also on Monday, the City Press a prominent black newspaper had two business headlines on Kenya titled Stock trading noise to end (referring to electronic trading on the NSE)and “Kenya credit rating hit by risk and corruption scandals” - an unfortunate spin on an otherwise positive assessment of Kenya by global markets.