Safaricom featured on businessweek…kudos

 

Visitors to the headquarters of Safaricom in Nairobi must first face the scrutiny of a pair of imposing uniformed guards who peer sternly at vehicle occupants before lowering a hydraulically operated metal roadblock that looks strong enough to stop a speeding truck. The tight security is a reminder that Kenya, though relatively prosperous and stable by African standards, is still a difficult place to run a mobile-phone company.

Safaricom, a 60-40 joint venture of the Kenyan government and London-based Vodafone (VOD), wrecks an average of one maintenance vehicle a month on the country’s abysmal rural roads. Even in urban areas, cellular base stations require diesel-powered generators to compensate for unreliable or nonexistent electrical power. And Safaricom must surround the base stations with electrified fences and alarm systems to discourage theft of fuel, as well as the generators themselves.

Yet despite challenges like those, not to mention a customer base that is still largely poor, Safaricom is a huge success story. It commands 70% market share in Kenya and booked sales growth last year of 36%—a rate its London co-parent can only dream of—plus solid 25% profit margins. From just 17,000 subscribers in 2000, Safaricom now has 7.4 million, exceeding even the most optimistic forecasts. Profit in the fiscal year ended Mar. 31 was $188 million on sales of $741 million. “Nobody understood the pent-up demand,” says Safaricom CEO Michael Joseph, a Vodafone veteran originally from South Africa.

Going Public in Nairobi

Now Safaricom is planning an initial public offering on the Nairobi Stock Exchange, an event that will help call attention to the potential of Africa as a market for mobile phones—and other products. The November IPO of a 25% stake is expected to value the company at $2 billion, and possibly much more.

Safaricom is one of a host of lesser-known mobile-phone companies that are proving there is money to be made in the African mobile market for operators who tailor their offering to local needs. Other leading carriers include South Africa’s MTN (MTNJ.DE), Netherlands-based Celtel (which competes with Safaricom in Kenya), and Luxembourg-based Millicom (MICC), which operates in seven African countries from Chad to Mauritius. “There are many years of growth ahead of us in Africa,” says Marc Beuls, CEO of Millicom. He notes that his company has learned how to manage in places like the Democratic Republic of the Congo, which is still recovering from years of civil war.

Safaricom, which Joseph boasts is the most profitable company in East Africa, is an industry showcase for how to make money in a low-income market. The key is to align services with customers’ limited means. Unlike European or U.S. operators, for example, Safaricom and most other operators in developing markets don’t subsidize the purchase price of handsets. Customers buy their own, either new or for $10 or less in the thriving gray market.

Prepaid Airtime

The system encourages handset makers to offer cheaper handsets, while allowing operators to make money on customers who don’t talk on their phones very much. In addition, almost all customers buy prepaid airtime, meaning Safaricom doesn’t have to worry about billing or creditworthiness. (The shift to such entry-level markets is one reason Nokia [NOK] is doing so much better than Motorola these days.) (See BusinessWeek.com, 07/19/07, “Why Nokia is Leaving Moto in the Dust.”)

The average Safaricom customer spends less than $10 per month on phone calls, a sum that would be considered disastrous in a developed market but doesn’t faze CEO Joseph. “We can make good money on that,” he says.

Even in a low-wage country like Kenya, Safaricom pays close attention to labor costs and is outsourcing some of its IT to India rather than trying to develop expertise in-house. And to help solve the power problem, the company is experimenting with wind generation for remote base stations. (Solar power is not practical because the panels are a tempting target for thieves, and many regions of Kenya endure periods of heavy rain and little sunlight.)

‘Bottom of the Pyramid’

Joseph also is pushing to make service even cheaper for Kenyan customers. Customers can already buy airtime in denominations of as little as 50 Kenyan shillings, or about 77 cents. Joseph says that, despite resistance from his own finance people, he wants to push the minimum even lower, in recognition of the fact that many Kenyans rarely have more than a few dollars in their pockets. In the past, lowering the minimum airtime purchase has boosted usage. “This is classic marketing to the bottom of the pyramid,” he says.

And he’s urging handset makers to offer even cheaper phones. Safaricom is about to launch a $20 handset made by China’s ZTE (ZTCOF.PK). That move is a tacit challenge to Nokia, the market leader in handsets, whose cheapest phone costs about $40. Piotr Labuszewski, Nokia’s Nairobi-based area manager for East Africa, says Kenyan buyers are willing to pay more for reliability and service. But Joseph would like to see phone prices fall even more. “The market is demanding a cheap handset,” he says.

Despite Safaricom’s dominant market share, competition is growing. The only other licensed operator is Celtel, but a third, Zimbabwe-based Econet, has announced plans to enter the market in early 2008. With mobile growth continuing to surprise forecasters, there seems to be plenty of room for everybody. “Every year we seem to be growing faster than the last. You wonder, when is it going to end?” muses Joseph. No time soon, as far as anyone can tell.

Ewing is BusinessWeek‘s European regional editor.

Building a great African Beer company…the SABMiller way

 

SABMiller the brewers of Castle have just increased thier presence in China, the world’s most populous country. I think EABL should think of more acquisitions to grow their presence in East and Central Africa coz in another 5 years they wont be able to maintain their local monopoly.

 

 

SABMiller buys China beer firms

Beijing waitress serving Snow beer

SABMiller is beating local brewer Tsingtao in China

SABMiller is increasing its stake in China’s fast-growing beer market by agreeing to buy four brewers in the country for $79m (£39.3m). The firm behind Peroni and Hansa Pilsner said it was making the mainly cash purchases through its 49% stake in China Resources Snow Breweries.

CR Snow will invest in two breweries in Liaoning province, one in Anhui and one in Hunan province.

SABMiller said it became the biggest Chinese brewer by sales last year.

‘Commitment’

In November last year, the company said CR Snow’s market share of the Chinese beer market had grown to 14.9%, overtaking local leader Tsingtao, which had a market share of 13.8%.

Snow is China’s best-selling beer. But until now, CR Snow has not had a presence in the country’s north-eastern Hunan province.

“‘The acquisitions reflect our commitment to accelerate the national presence of Snow,” said Andre Parker, managing director of SABMiller Africa & Asia.

He added that the purchases would add about five million hectolitres to CR Snow’s current production capacity of close to 90 million hectolitres.

China’s annual beer consumption is about 300 million hectolitres.

http://www.bbc.co.uk/business

Capital FM pairs up with MTV Base…

Kenya’s Capital FM and entertainment network MTV have teamed up to create an exciting new radio property for the Kenyan youth/young adult market.

The first radio programme, TRL Radio, a weekly two-hour radio show, debuted on Capital FM http://www.capitalfm.co.ke on 3 August 2007 and is a unique blend of chart-topping hip-hop and R&B, highlighting the hottest African and international music hits. In addition, it features international and African entertainment news, artist interviews and competitions, utilising MTV’s http://www.mtvbase.comaccess to its global entertainment network to deliver exclusive content to Kenyan listeners. Additional one-minute entertainment news clips, branded MTV TRL All Access, are already featuring on Capital FM, airing three times a day, seven days a week.

TRL Radio is broadcast every Friday on Capital FM between 19:00pm-21:00 pm, and is hosted by Kenyan radio presenter Chao, with additional clips and inserts voiced by MTV base presenters Sizwe Dhlomo and Fikile Moeti.

The TRL Radio concept will subsequently be rolled out to other markets in sub-Saharan Africa.

Says Alex Okosi, senior vice president and managing director, MTV Networks Africa, ‘This is a natural evolution for the MTV brand in this market: we’re very committed to delivering our branded content to young people via whatever medium is most relevant to them. Radio is a very powerful medium for young adults and one which complements our existing TV distribution in the Kenyan market.’

Cyrus Kamau, general manager of Capital FM Kenya, added, ‘Capital FM has provided high quality entertainment for the past 10 years and we continue to remain innovative and evolve with the times to bring quality entertainment to Kenya and the Diaspora. The partnership with the MTV brand is an attest to this as we come together to offer the first ever MTV TRL radio show in Kenya.’

Coca-Cola sponsors TRL Radio on Capital FM.

Finally they start thinking out of the box…i wonder what took them so long. Now if only all the other stations would start getting creative.

Kenya Re share allocation ends in favour of insurers

The real impact of the massive oversubscription of the Kenya Reinsurance Corporation’s Initial Public Offering has emerged with insurance firms poised to be the major beneficiaries of  ongoing share allocation.

The underwriters, who are currently bound by law to pay compulsory cessions to Kenya Re, were on course to getting 60 per cent of what they applied for compared to retail investors’ 15 per cent and qualified institutional investors (QII) 20 per cent, according to a formula agreed on last week.

This level of allocation is a win of sorts for the reinsurance company, which had cut the sharing criteria to position insurers as key stakeholders in the company as a way of guaranteeing a steady inflow of revenue when the rule on compulsory cessions it has been getting from the underwriters expires in four years.

Under this method of allocation, retail investors will get a total of Sh1.1 billion worth of shares, the QIIs Sh800 million while insurers will get Sh360 million.

The Kenya Re IPO returns show that retail investors applied for shares worth over Sh6 billion against the Sh1.07 billion that had been reserved for the category, while qualified institution investors applied for shares worth Sh5 billion against a reservation of Sh684 million.

Insurers for who shares worth Sh456 million had been reserved oversubscribed the offer to the tune of Sh600 million, bringing the total value of applications to more than Sh11.6 billion.

Analysts were however quick to point out that some affirmative action appears to have been brought to bear in the allocations in favour of the qualified institutional investors.

This, they reckon, is because going by the level of oversubscriptions in the respective categories, insurance companies would have walked away with 76 per cent of what they applied for, retail investors 17.8 per cent and QIIs 13.6 per cent.

If effected, this change in allocations to investors in the various categories may turn out to be Kenya Re IPO’s greatest puzzle since a notice on the amendment of the allocation criteria that the company published at the end of last week did not include a reduction in the number of shares reserved for allotment to each category.

The allocation  however affords Kenya Re some ammunition to take on private insurer East African Re where some of its new shareholders already have a stake.

With insurance companies having a major stake in the firm, Kenya Re is expected to find the battle for premiums a lot easier.

“The company should be able to protect its turf so long as the board and management maintains the growth momentum and the quality of leadership in the organization,” said an analyst who did not want to be named because of his involvement in the matter.

“It will be upon the Kenya Re management to show leadership now that the insurers will be on their side as key stakeholders in the firm. If the management doesn’t perform then it will be to blame,” said the source.

Last week, the massive oversubscription has prompted a slight amendment of the allocation criteria set out in the prospectus. Initially, applicants were to be allocated 100 offer shares in the first instance and thereafter in multiples of 100 on a pro rata basis, rounded down to the nearest 100 shares.

An amendment approved by the Capital Markets Authority said the initial criteria had become impractical due to the massive oversubscription.

Any allocations after the initial 100 will now be rounded off to the nearest whole number until all shares in the category are fully allocated. QIIs may be a bit disappointed that they cannot get a higher allocation but this is related to the fact that the oversubscription for shares in their category was by the largest margin.

Like KenGen, ScanGroup and Eveready floated in 2006, Kenya Re  received applications worth five times the value of shares on sale. KenGen had wanted to raise only Sh7.8 billion but ended up receiving Sh26 billion, forcing it to return Sh18 billion to investors.

ImageFor Kenya Re, Treasury is surrendering its 40 per cent stake or 240 million shares to the public in the offer that kicked off in mid July.

The flotation had been preceded by a period of waiting as the IPO faced a litany of hurdles. It had earlier been fixed for April but did not kick off until July as the transaction managers dealt with an alleged corruption scandal involving the company’s executives.

The insurers were seen as critical to the success not so much of the offer but of its subsequent operations in the fight for the limited reinsurance premiums market.

Treasury decided to sweeten the offer for insurers, a decision that triggered more interest from the underwriters.
Reinsurance underwriting market in Kenya was worth just about $360 million (Sh24 billion) in terms of net premiums as at the end of 2005, having grown from $324 million (Sh22 billion) in 2004.

Africa Re controlled the highest net premiums of about $296 million as at the end of 2005, followed by Kenya Re with $31 million, PTA Re with $19 million and East Africa Re at $14 million.

Kenya Re however experienced the highest growth of 30.6 per cent compared to East Africa Re which grew by a margin of 17.3 per cent.

This level of growth makes East African Re Kenya Re’s biggest challenge in terms of market share growth. This is particularly so because East Africa Re has recorded this level of growth although  it does not enjoy compulsory reinsurance premiums from local underwriters and is therefore somehow disadvantaged when it comes to competing in the marketplace.

Kenya Re’s premiums will however end in four years or when the company is fully privatized and therefore the state is keen to ensure that it protects Kenya Re future market. Significantly, mistakes by the management or board (or even perception of the same) can cost the reinsurer a lot.

The situation is revealed to be tenuous if you consider that though Kenya Re has 18 per cent compulsory reinsurance, it managed only 21 per cent total premiums in the industry. Thus it had only three percentage points above the compulsory cessions.

The question is whether the company would survive in a situation where the compulsory cessions are not in place. It has to keep insurers  close for it to be assured of a portion of the market when it is no longer protected by the law.

The prospectus for the shares said: “This [end of compulsory cessions] may expose Kenya Re to a reduction of the premium it collects since insurance firms will no longer be obligated to reinsure with Kenya Re.”

However it adds that this may not necessarily be the case if it was to maintain the 21 per cent market share that it has including the 18 per cent compulsory cessions.

Other firms could arise to operate locally. Munich Re, one of the world’s largest reinsurance firms, has a liaison office in Nairobi but it is not known whether it might choose to operate as a full subsidiary in future and compete with existing reinsurance firms.

A key strength of Kenya Re, however, after the sale of the shares to the public is that it will be seen to be more transparently managed and shareholders expect greater accountability and disclosure. This alone may positively affect its ability to net premiums from the local market and abroad.

Written by Geoffery Irungu, Business Daily. 

Stocks to buy

Investors are finding their decisions reeling from the effects the half-year results that are streaming in from various listed companies. And with every company registering an increase in profits, one is left pondering about which stocks to pick. NIC Bank has hit an all time high of Kshs159 after it nudged investors with a bonus issue to sweeten its rights issue. The stock now is as good as well priced. However, it’s a good long-term buy as the bank diversifies its non-funded revenue streams by rejuvenating its investment-banking arm, NIC Capital. This is given backing by a rights issue that’s is in the offing, in which it plans to raise Kshs1.2 billion to power its expansion.

You might consider acquiring a piece of Diamond Trust Bank (Kenya), which has just rebranded, as it’s set to hit the psychologically important Kshs1 billion profit threshold at the end of the financial year. Currently retailing at Kshs96 per share, its liquidity is average.

With a forward Price Earnings ratio of (P/E) is 22.20 times, an indicator of when investors expect to recoup their investments, it’s a quality stock. But with the market completely distorted by a large number of retail investors, be wise by keeping your options open. DTB (K) has strong fundamentals as it is already making inroads into asset financing and personal loans business

The fact that it has a regional presence in Uganda and Tanzania should guarantee investors much upside in terms of returns. Barclays Bank is no longer a darling for those wanting to get a piece of the dividends after the former high dividend paying blue-chip revised its dividend policy downwards to fund its expansion.

Scangroup has an acquisition-savvy managing director in the name of Bharat Thakrar. The firm is spreading its tentacles not just in East and Central Africa but also in West Africa, with a target of entering Nigeria in the last quarter of this year. It will surely benefit from the benign economic outlook in these regions as corporations shore up their advertising budgets.

Things are getting better for it after it reported an increase of 30 percent in its half-year ending June 30, 2007 results to Kshs116.6 million. Billings by the advertising and public relations firm grew 54 percent. The company is lowly leveraged i.e. its level of debts are low hence its debt servicing obligations, which might tie it down are few.


A view on the achievemnets of the present goverment

NO POLITICS. JUST FACTS. NOTHING PERSONAL.

 

 

 

 

 

 

 

1. The past IPO’s (and hopefully the future ones) have been the most transparent priviatsations ever undertaken by an African country- easiest money any Kenyan has ever made.

2. Fat cats are no longer able to import maize, wheat on a whim and spoil market prices for crops and thus running down whole districts’ economies.

3. Cops will never tell you that they don’t have fuel “toa pesa ya mafuta”

4. Nairobi CBD is cleaner right now than it had been in the past decade.

5. Most of us got our jobs coz of growing opportunities- unlike pre-2000 when you had to wait for the incumbent to die or retire after eating to her/is fill. And the resulting opportunity is only available to the next of Kin.

6. You can now sell nearly all cash crops for a better price

7. interest rates are at their lowest ever.

8. banks are more willing to lend to the common mwananchi.

9 credit is more accessible now

10. the following were loss-making, Wananchi-owned entities that are making money and paying dividend to the ex-chequer

      – KPLC

      – National Bank

      – KCB (A true success story)

      – KBC

      – KPA

      – KPL

      – Kenye Re

      Kenya …………………etc

-On the way to recovery and catching the eye of all pastoralists …………..KMC.

11. we all paid school fees in primary, now our sibling are schooling for free.

12. Malarial treatment is free.

13 ARVs are being given in hosps.

14. we are sitting 14 pple in a matatu.

15. there has never been any (official) power rationing since 2003. though we have copped with the intermittent power black outs.

16. the best ever corporate profits were announced this year.

17. the tax man has spread his catchment to include unscrupulous business men flying under the radar.

 

The list is endless……………………………….. It is not the Railas Kiraitus that have made the 6% economic growth, it is the ever self conscious KENYANS.          Kibaki a baki.

 

Scangroup set to open agency in Nigeria

16-August-2007: Media services firm ScanGroup is set to enter the Nigerian market by end of the year as growth in the industry peaks, raising investor expectations for better performance in future.

The Nigerian initiative is not expected to show any contribution to the bottom line because of set-up costs, but should contribute to the topline due to what the company sees as an untapped market there.

The company has registered a 31 per cent growth in pre-tax profit on the back of 54 per cent growth in billings or turnover for the first half of 2007 compared to a similar half of 2006.

The company has been creating opportunities for future growth with recent acquisitions and plans for expansion in Africa.

ScanGroup plans to roll out its Pan African growth strategy which includes setting up operations in West Africa by opening up a fully fledged agency in Nigeria.

Company CEO Bharat Thakrar believes that West Africa, and Nigeria in particular, will be the next big advertising market after the South and East African.

In May this year, Lowe Scanad Uganda, a wholly owned subsidiary of ScanGroup, acquired certain business and assets of Redsky Uganda, in a deal that was to see  the company take over among others, the advertising contract of Uganda Telecom Limited.

At the time Mr Thakrar said the acquisition fitted within plans to consolidate business in the East African region and particularly having a foothold in the telecommunications sector in Uganda. He said that one of the company’s key objectives was to enter the lucrative telecommunication business in East Africa.

ScanGroup has also a controlling interests in FCB Tanzania which handles advertising for Vodafone in Tanzania through its subsidiary, Lowe Scanad Tanzania in addition to a 50 per cent stake in Redsky Ltd in Kenya which handles advertising for Safaricom.

In order to finance further expansion, the group is to create five million new shares which will be used for share swaps in future acquisitions. During an AGM in May this year, shareholders approved the creation of one million new shares to be used in purchasing a further 15 per cent stake of Redsky Kenya.

In July 2006, the company became the first marketing services business to be listed at the Nairobi Stock Exchange.

The billings for the first half of 2007 were Sh2.1 billion compared to Sh1.4 billion for the first half of 2006 while profit before tax stood at Sh117 million from Sh89 million in a similar period of the previous year. After tax profit was Sh79 million compared to Sh62 million in the previous year.

In 2006, the company’s billings were up 29 per cent to Sh3 billion while profit after tax grow by 39 per cent to Sh279 million compared to Sh201 million recorded in 2005.

Clearly, the company must make more money in the second half of 2007 in order to come anywhere close to what it achieved in 2006 given that Sh117 million is not even half of the Sh279 million it made in the whole of 2006.

“As in the past, we expect the second half of the year to be stronger than the first half enabling us to achieve our targets for the year,” said company secretary Ramesh Vora in a press advertisement. “However, on a consolidated basis, there is cautious optimism for a continued good year-end results,” said the company secretary.

For first half of 2007, the earnings per share only improved by six cents to hit 47 cents from 41 cents the previous year given that, after 2006 initial public offer, the total number of shares increased to 159 million compared to 150 million before the company went public.

The price per share was Sh10.45, but it has since been trading up between Sh12 and Sh37 in recent weeks it has hovered around Sh25.

ScanGroup is the holding company for media buying firm, Media Initiative, advertising giant Lowe Scanad, which is in Kenya, Uganda and Tanzania), Thompson Kenya, McCann Kenya, Scanad Public Relations and Draft Worldwide East Africa.

In a market with over 40 listed agencies and a totally different marketing culture it would be interesting to see how ScanGroup settles in the market

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