2008 was one year Kenyans and the rest of the world would remember for mostly the bad reasons. The year opened on a violent note for Kenyans after a botched general election that left the country divided on tribal and political affiliations. Once the political impasse was ‘resolved’, the year opened up to several global calamities from rising oil and food prices to the global financial crisis that is threatening to turn into a full blown global recession. The effect of the financial crisis on the Kenyan economy is not very clear but it will be prudent to assume that it will eventually affect Kenya adversely.

The Nairobi Stock Exchange (NSE) had it fare share of mishaps. The post election violence ripple effects on the bourse lead to an early exodus of investors, especially foreign investors, and some listed firms businesses were negatively affected. Several companies gave profit warnings citing disruption in their raw materials/products distribution systems, loss of lucrative market and even direct loss of assets in violence related incidences.

Compared to the few past years, 2008 was the year that the NSE went to the dogs. With subdued activity the bourse had a few IPO’s and rights issues but nothing good came out of them.

At the end of April the biggest ever public offer in sub-Saharan Africa from Safaricom was opened to all. The IPO ended up being massively over subscribed by 582%, but on hitting the trading floor the result to date are more than disappointing. Despite rosy reviews from market players and high expectations from most investors (who borrowed huge loans from banks to invest) Safaricom shares initially raised to peak at Ksh.8.15 per share from the IPO price of Ksh.5, then dropped consistently to the current level of about Ksh.3.50.

The disappointment from the Safaricom listing affected the market so badly and left many retail investors counting huge paper losses on their portfolios. Coupled by the adverse economic environment with the financial crisis starting to hit, most foreign investor were wise to sell their holdings as soon as the shares listed. The following public listing of Cooperative Bank of Kenya only managed an 81% subscription even after scaling down the target amount from ksh.10 billion to Ksh.6.7 billion. This was the first under subscription on the NSE in the recent times.

KCB Group and Housing Finance Corporation of Kenya had their rights issues to raise Ksh.5 billion and Ksh.3 billion respectively. As a norm they were both oversubscribed mainly due to the correct timing of the two issues. Unga Group and little known City Trust dished out bonus issues of 1:5 and 1:10 respectively, while Uniliver closed the year by officially delisting from the NSE after being taken over fully by Broke Bond Plc.

The gloomy year saw many listed firms reporting reduced profit with a few firms (such as Eveready, Marshalls and Eaagads) reporting losses or very huge declines in profit. Similarly, some firm (Pan Africa insurance and Unga Group) reported abnormally huge profits. The general market trend was largely bearish with the NSE 20 share index dropping 37% from 5,445 at the end of December 2007 to 3,416 as at the end of December 2008 (After a couple of market halts and claims of share prices manipulation)

Reduced market activities affected market player negatively due to reduced commissions from transactions. Stockbrokers who had over the recent Bull Run over expanded had to cut back on their extra costs by closing up some of their outlets and scaling down on personnel. Nyaga stockbrokers went into receivership and Discount Securities was put under KPMG (statutory) management after experiencing what was called “corporate governance challenges”. Jostling by Banks to enter the securities market saw troubled Solid securities limited being acquired by NIC bank and renamed to NIC Capital Securities Ltd.

What to Expect in 2009:

- A number of government privatizations to fill the Ksh.25 billion budget deficit
- Other private companies IPO’s – Nakumatt, K-rep, Resolution Health
- CMA tightening the rules of the market to weed out rogue players

Eveready East Africa Ltd., the regions largest maker of dry cell batteries, pre-tax profit for their financial year ended 30th September 2008 dropped 85% from Ksh.179 million in the same period last year to stand at a dismal Ksh.27.8 million. This was mainly attributed to increased foreign competition, disruption to business caused by post-election violence and depreciation of the Kenya Shilling against world major currencies.

Net income for the company declined 86% to Ksh.17.84 million from Ksh.126.41 million a year earlier. Turnover fell by 22% from Ksh.2.2 billion to Ksh1.7 billion; while earnings per share dropped by the same margin as the net income to stand at Ksh.0.085 from Ksh.0.60.

To counter the harsh market conditions facing the battery manufacturer, the company plans to undertake a ‘personnel restructuring’ program (retrenchments) and several other cost cutting measures. Either way, the future of Eveready looks quite bleak and one can be pardoned for not considering it to be a cheap buy in a bear run ridden NSE, even with the low share price.

Management Commentary on results

Eveready has registered a Ksh.457m decline in revenue for the year ended 30th September 2008, compared to the same period last year. The company was faced with various challenges in 2007; the authorities allowed Chinese companies to import complete raw cells into the country duty free and there was dumping of low cost sub-standard batteries into the Kenyan market over the last one year. These actions cost the company close to Ksh.100m in income. The situation was further compounded by the disruption of business following the post election violence which negatively affected key market segments of Nyanza, Coast, Western and Rift Valley. This together with the subsequent depreciation of the local currency cost the business Ksh.50m. other challenges included port congestion which led to stock outs of some of the imported products.

To mitigate the effects of these challenges, the management undertook various cost cutting measures together with a redundancy exercise geared towards aligning the internal capacity to the prevailing business situation. The redundancy exercise cost the Company Ksh.36.5m which was absorbed in the year. Significant improvements were also achieved in stocks control and management leading to a reduction in stock holding and a reduction in the level of borrowing. Benefits of some of these measures are expected to be fully realized in the next financial year. With the challenges highlighted above together with the mitigating measures put in place, the Company realized a profit before tax of Ksh.27.9m.

Outlook

While the shilling is depreciating, the price of zinc has dropped about 70% and this has helped to mitigate the cost increase. The Company has also reliable been informed that in June 2008, KRA revoked the zero duty access granted to the Chinese Companies and came up with minimum duty value for imported dry cells while KEBS has acquired the necessary equipment to determine the performance qualities of dry cell products, which is expected to be operational during December 2008. The Company will continue to adjust personnel requirements to reflect market conditions and the improved performance it is obtaining from the factory refurbishment program started in 2005. The Company is well positioned to take advantage of these measures to regain its share of the market, while at the same time continuing to venture into other markets and to diversify its products to guard against over reliance on the ‘D’ battery.

Dividend payout

The Directors do not recommend payment of a dividend

By Order of the Board
I.A. Timamy
5th December 2008

Income Statement review

Centum Investment Company Ltd last week announced a 12% decline in its pre-tax profit for the six months to September 30. The Investment Company’s pretax profit fell from Ksh.462 million in their H1 2007 to Ksh.406 million this year. This was mainly due to a decline in local and global capital markets and the resultant downward adjustment of investment values that has drove Centum to hold onto existing investment positions and to selectively take advantage of investment opportunities. Investment income dropped 14.6% to stand at Ksh.281 million this period compared to Ksh.329 million last year.

Balance sheet review

Total asset grew marginally by 2.9% to Ksh.8.38 billion this period from Ksh.8.14 billion as at the end of March 31, 2008. The Company’s current assets and Investment portfolio increased by 18% and 4.5% respectively to stand at Ksh.358 million and Ksh.7.96 billion. Current liabilities increased a massive 279% from Ksh.67 million to Ksh.245 million.

Cashflow & Dividend payout

The company recorded a negative cash flow of Ksh.119.8 million compared to Ksh.490.6 million cash it had at the end of 2007. This cash shortage clearly indicates why the company decided not to pay its shareholders a Ksh.0.45 interim dividend for the financial year ended March 31, but postponed payment of the final dividend to January 15, 2009. if the company would gone on with the dividend payment then it would been forced to borrow to finance it.

Investment Outlook

Centum is projecting increased opportunities in the downturn in the capital markets. This is because foreign capital is diminishing, foreign competition is easing and the valuations of equities both in listed and unlisted asset classes are increasingly becoming attractive. The firm has decided to take advantage of these and other opportunities to invest and establish an African footprint with the view to becoming a leading investment company in the continent.

Management changes

The results, the first since Centum changed its name from ICDCI and financial reporting cycle from July-June to April-March, comes in the wake of the recent resignation and replacement of Mr. Peter Mwangi with Mr. James Mworia as the company’s CEO and managing director. Mr. Mwangi was recently appointed as the Nairobi Stock Exchange (NSE) CEO.

Investment Strategy & Portfolio

Centum’s Investment Strategy over the years has been to invest 5% to 49% in public and private equities, alongside credible partners to minimize risk. This has manly been concentrated in Kenya due its strong and stable economy compared to its neighboring countries. But the violence witnessed in Kenya early in the year has made Centum’s management to rethink this investment strategy and diversify more in the region.

The company recently acquired a 35% stake in a publishing firm, Longhorn Kenya Limited, and sold its stake in Mather and Platt Limited and sold two building in Nairobi. Other investments held by Centum include Coco-Cola bottlers– Nairobi Bottlers (28%), Mount Kenya Bottlers (29%), Rift Valley Bottlers (46.3%), and Kisii Bottlers (17.6%), KWAL (25%), General Motors East Africa, Rift Valley Railways, Aon Minet Insurance Brokers, UAP Provincial Insurance, K-rep Bank and Nairobi Airport Services.

Management Commentary on the Results

Review of perfomance

Centum Investment Company Limited reported satisfactory results for the first half of the current financial year ending March 30, 2009. This was against a backdrop of declining capital markets both locally and globally. The results to September 2008 are also the first since the Company changed its financial reporting cycle from July-June to April-March. During the period, the Nairobi Stock Exchange (NSE) experienced a consistent downward rally with the NSE 20-share index declining by 24% from a high of 5,478 points in June 2008 to close at 4,180 points in September 2008.

Despite the difficult operating environment the Company registered an impressive improvement in dividend income which increased by 270% to Kshs 131 million from Kshs 35 million for the six month period to December 2007.However the decline in local and global capital markets, and the resulting downward adjustment of investment values drove the company’s strategic decision to hold on to existing investment positions and to selectively take advantage of investment opportunities. The company therefore cut back substantially on disposals of existing assets and realized lower gains on disposals. As a result, total investment income for the six month period to September 2008 stood at Kshs 281 million, compared to Kshs 452 million reported to December 2007.

Share of associate profits stood at Kshs 183 million relative to Kshs213 million reported last year. The decline resulted from the impact of the post election violence on the first quarter performance of most of the associate companies.

Total expenses were relatively stable despite a higher inflationary environment and stood at Kshs 57 million, compared to Kshs 58 million incurred during the first half of the previous financial year.

Overall, with the Company currently taking a conservative hold and selective growth strategy, as opposed to a more aggressive profit-taking stance appropriate in the prior years, profit before tax stood at Kshs 407 million compared to Kshs 606 million reported during the comparable period last year. Profit after tax stood at Kshs 357 million compared to Kshs 563 million reported in the half year to December 2007.

The Company’s strategy is reflected in the growth of its investment portfolio, up by 4.5% to Kshs 8.1 billion, despite the decline in market values.

Outlook

The Company is seeing increasing opportunities in the downturn in capital markets. Foreign capital is diminishing, foreign competition is easing, and the valuations of equities both in listed and unlisted asset classes are becoming increasingly attractive. The Company will take advantage of these and other opportunities to invest and establish an African footprint with the view to becoming a leading investment company in the continent.

Dividends

The directors maintain the Company policy to pay dividends on a first and final basis and, therefore, they do not recommend an interim dividend for the six months ended September 30,2008.

BY ORDER OF THE BOARD

DAVID OWINO
COMPANY SECRETARY

Related Financial Statements:
Balance Sheet and Income Statement

Total Kenya recorded commendable results in the 9 months ending September 30th 2008 compared to the same period in 2007. Net turnover was up 33%, buoyed by increased sales volumes in Network and General Trade channels.

Operating profit went up by 98% as compared to the same period in 2007. A significant contribution of this is attributable to tax refunds by KRA of long-outstanding claims that were received in the first half. Increased sales volumes in the Network channel and sustained focus o profitable business in General Trade also accounted ort this good performance. Consequently, net profit went up by 104%

Logistical constraints in our industry were still present in the quarter, although it is anticipated that the increased pumping capacity of the pipeline will son be commissioned. This would greatly improve the availability of products inland. The upfront payment for products and taxes has a significant impact on our financial costs and remains a challenge to management.

The management is confident in the measures put in place in the management of the Working Capital Require and focus on profitable business among others will help mitigate any negative impact on the industry.

Related Financial Statements:
Balance Sheet and Income Statement

Diamond Trust Bank Kenya Ltd (NSE Listed), reported net income of KES724 million, for the nine months ended September 30, 2008 as compared to KES549 million for the same period in 2007.
• Customer deposits were KES38 billion at 30 September 2008 compared with KES27 billion at 30 September 2007.
• Interest income from Loans and Advances increased by 48%
• Interest income from government securities increased by 42%
• Balance sheet – Cash balances increased by 58%

Operating Profit
The Bank's operating profit before tax of KES1.14 billion for the nine months to 30 September 2008 was 40 per cent higher than the KES817 million earned in the first nine months of September 2007. Operating profit after tax for the September 2008 nine month period was also KES775 million. This represents a 34 per cent increase on the September 2007 nine-month result of KES575 million.

Total Interest Income
Total interest income for the nine months to 30 September 2008 increased by 50 per cent from KES 2.135 million for the September 2007 nine-month period to KES3.192 million. Net interest income was KES1.67 million or 40 per cent over the previous corresponding period.

Other operating income for the nine-month period increased by 95 per cent to KES850 million compared with KES436 million in the nine months to 30 September 2007.

Related Financial Statements:
Balance Sheet, Income Statement & Cash Flow Statement


Marshalls E.A released their half year financial results for the 2008 financial year. Marshalls reported a 42% drop in sales and 36% drop in gross profit. According to the results, administrative expenses decreased by 6.9% while other operating income increased by 71.6%.

Discontinuation of Peugeot Franchise:
Marshalls E.A discontinued the Peugeot franchise in the 2007 financial year, this contributed a loss of KES 19 million in the period (Profit: KES 5 million in 2007). The company has also discontinued the sale of new vehicle brands but will continue to service and sell Peugeot parts in the market. Sales and cost of sales from the discontinued operations were disclosed in the nine-month financial report on the face of the profit and loss account. Only the sale of the vehicles has been discontinued. All other services related to the Peugeot business will continue in the future. The revenues and contribution from the entire Peugeot division were shown in the report.

Results released by the cooperative bank lead transaction advisor indicate that the IPO was only able to net 70% or Ksh.4.7 billion of the targeted Ksh.6.7 billion. This was mainly attributed to subdued interest by investors in the Kenyan securities market, after a string of brokers' collapse and allegation of share price manipulation. The latest being the resignation of the NSE chief executive officer, Mr. Chris Mwebesa (a month ago), only four months after he was reappointed. The bank’s total capital base has now increased to Ksh.13.5 billion.

The bank will be forced to cover the anticipated Ksh.2 billion shortfall from its retained earnings due to absence of an underwriter for the IPO. This would have a negative impact on the bank’s balance sheet- affecting the capital base and ability to payout future dividends.

It’s expected that all the applicant of the offer will be allocated their full applications and for the first time since the year 2005 avoid the annoying refund process. In 2005, the KenGen IPO opened a trend of oversubscription after it was oversubscribed by 337%. Other subsequent IPO have been oversubscribed as follows; ScanGroup – 400%, Kenya Re – 334%, AccessKenya – 300% and Safaricom - 382%.

What the under subscription mean

- With less shares sold in the IPO (495 million shares) the bank’s EPS (expected EPS) would be slightly higher at Ksh.0.45 (Ksh.0.70) instead of Ksh.0.43 (Ksh.0.66) in the case of a full subscription.
- The bank’s Dividend per share will similarly be higher for the new shareholders, depending on the profitability
- The share price could simply spiral to a lower price than the listing price.

Standard Chartered Bank (K)

Click Here for Related Q3-08 Financial Statements

Standard Chartered bank (k) ltd. has announced a marginal 1.59% growth in its profit after tax for the 9 months ending September 30 2008, which rose to Ksh.2.5 billion from Ksh.2.4 billion the same period in 2007. The marginally growth was mainly attributed to 62.6% increasing in earnings from foreign exchange trading. The volatile Kenya shilling depreciation has created a new avenue for most banks to earn more income. Net interest income increased 5.26% to Ksh.4.2 billion, from Ksh.4.2 billion last year. The bank recorded a 10.6% increase in interest income from loans and advances to customers to stand at Ksh3.4 billion.

The banks total assets grew by 5.8%, from Ksh89 billion as at the end of September 2007 to Ksh.94 billion at the end of this September. The bank loan book grew by 3.3% to Ksh.41 billion from Ksh.39 billion as at September 30, 2007. Customers’ deposits to the bank increased 5.75% to stand at Ksh.76 billion.

The bank’s board of directors recommended a second Interim divided of Ksh.2.50 for each ordinary share payable on or after 19th December 2008. The dividend will be paid to Shareholders registered on the Company Register at the close of business on 3rd December 2008. The register will remain closed on 4th December 2008 to facilitate preparation of the warrants.

Standard Chartered Kenya is the East African nation's second-biggest lender, after Barclays Bank of Kenya Ltd.

Barclays Bank (K)

Click Here for Related Q3-08 Financial Statements


Barclays Bank of Kenya Ltd., the largest bank in terms of assets (not for long), the biggest lender in the East Africa region and also the most profitable bank in Kenya, announced a 12.5% growth in its pre-profit tax for the 9 months ending September 30 2008, which rose to Ksh.6.3 billion from Ksh.5.6 billion the same period last year. The banks profit after tax rose 11% to Ksh.4.3 billion from Ksh.3.9 billion posted in September 2007.

The bank’s profit only increased marginally compared to the growth it registered in the same period last year, mainly due to a payoff on its branch expansion strategy that saw it open 52 new branches, mostly in the middle and lower-end of the market. Net interest income, the money earned from loans and investments, increased 28.2% to Ksh.10.4 billion, from Ksh.8.1 billion last year.

Barclays recorded a 53.4% increase in interest income from loans and advances to customers to Ksh10.6 billion against Ksh6.9 billion recorded in 2007. Income from foreign exchange grew by 85% to over Ksh2 billion, mainly due to an increased in the Kenya shilling volatility that has weakened against the dollar and other major currencies in the world.

The banks total assets grew by Ksh.26 billion, a 17.25% increase from Ksh146 billion at the end of September 2007 to Ksh.172 billion at the end of this September. The bank loan book grew by 15.5% to Ksh.106.6 billion as at September 30 up from Ksh.92.3 billion as at September 30, 2007. Customers’ deposits to the bank increased 23.4% to Ksh.132 billion.

The bank’s board of directors did not recommend an interim dividend for the period.

Safaricom's share price fell 19.4% to Ksh.3.60 from Ksh.4.30, after the mobile phone service provider announced marginal growth in its 2008 first-half pretax profits. Safaricom’s CEO, Michael Joseph, announced that the firm’s pretax profits for the half year to September 2008 had raised a mere 2.2% to stand at Ksh.8.976 billion from Ksh.8.781 billion the same period last year. Net income dropped by 15% to Ksh.6.22 billion from Ksh.7.29 billion shillings a year ago.

The dismal results busted several speculators bubbles who had high expectations of the firm’s H1 announcement. Despite the firm customer base increasing a massive 50% to 11.96 million subscribers (active?) from 7.96 million and sales revenue increasing by 20% to Ksh.34.5 billion, it seems the pricing wars (mostly from the Kuwait giant – Zain and the revived Telkom) witnessed during the period took its toll on Safaricom’s bottom line. The profitability growth drop was also caused by an increase in interest costs, foreign- exchange related charges and a 26% surge in the cost of sales.

In light of these challenging times, Safaricom is now shifting its focus on expanding its data services (it recently acquired and is planning to expand Onecom ltd) and its M-Pesa mobile-payment system whose subscribers rose six folds to 4.14 million. The firm holds Kenya's sole third-generation data license. However, their close competitor – Zain, seek to obtain the same license and replace the ‘dead’ Sokotele service by a regional money transfer service known as ‘Zap’.

Share Activity on the NSE

Safaricom share price on the NSE has fallen as much as 63% since peeking at Ksh.8.30 soon after listing and dropping to as low as Ksh.3.05 a fortnight ago. The share is currently trading at Ksh.4.30, giving the company a market value of Ksh.172 billion. The firm’s Directors have not recommended payment of an interim dividend for its shareholders.

Management Commentary on the Results

The Board of Directors of Safaricom Limited are pleased to announce the unaudited results for the financial period ended 30 September 2008. Against a background of increasing competition, high inflation and a volatile foreign exchange rates, Safaricom has delivered a strong first half financial performance, an increased market share and increased shareholder value.

During the first half Safaricom continued to embark on a growth strategy which increased the subscriber base considerably and once again produced good improved results in revenue and profit. This growth necessitated a continuing high level of capital expenditure and increased costs of acquiring these customers but has continued to produce a solid base for the future.

Key Highlights of the Six Months Ended 30 September 2008

Overall Safaricom performed well against the performance of the prior year.

• The subscriber base increased by 50.3% over prior year position of 7.956m to 11.956m
• Market share now stands at 81%
• Turnover increased by 20% compared to September 2007 to KES34.5bn
• EBITDA increased to KES15.0bn, a growth of 15.5% over prior year
• Profit Before Tax increased by 2% to KES8.98bn after excluding one off items in the previous period.
• Strong growth in the M-PESA service with over 4.1m registered users as at 30 September 2008
• Capital expenditure in the year to date is KES10.0bn against KES12.8bn in prior year
• Increased geographical footprint of the Safaricom network across the country
• Extensive roll out of the 3G service in Nairobi, Mombasa and Magadi
• Acquisition of 51% of One Communication Limited, a Wimax service provider for USD 2.6m.

It has been another successful first half, with subscriber numbers increasing by 50.3% to 11.956m from 7.956m at the end of September 2008. The market share over the same period increased from 74% to 81%.

Revenues for the period grew strongly by 20.4% to KES34.508bn from KES28.650bn as we continued to expand the network throughout the country and introduced new and innovative products. The Average Revenue Per User (ARPU), as expected, reduced in the year as more consumers with lower spending power were acquired in the expansion especially into the rural areas, coupled with reduced tariffs during the year. Blended ARPU for prepaid and post paid reduced to KES503 from KES665 in the previous year. This reduction in ARPU is consistent with a significant increase in the number of subscribers and with the mobile industry in general.

The increased revenues contributed to an increase of 15.5% in EBITDA to KES15.005bn from KES12.985bn realised in the previous year. The EBITDA margin however reduced to 43.5% of revenue from 45.3% for September 2007 as a result of the combined increase in cost of running the network, the planned effect of the aggressive customer acquisition strategy and the cost of customer retention initiatives.

Major Initiatives During the Period

During the first half Safaricom continued an aggressive growth campaign both to increase its subscriber base, by launching a series of promotions and investing heavily in subscriber acquisition, and to increase the core network capacity and coverage in rural areas. In order to support this growth capital expenditure for the first half was KES10.0bn, bringing the total expenditure since launch to KES106bn.

The aggressive acquisition campaign saw both the subscriber base and the market share increase considerably, further consolidating Safaricom’s position as clear market leader, with a year on year growth in the subscriber base of 50%, and an increase in the market share of 10 percentage points to 81%. This growth was driven by the introduction of more innovative products, further expansion of its world class money transfer product M-PESA and a continuing expansion of the geographical coverage. With a network coverage of 81% of the population and 24% of the land mass, Safaricom now covers more of Kenya and its people than any other network.

In April Safaricom launched the first and only 3G network in Kenya to further extend its product offering to its customers. The network has now been expanded to cover Nairobi, Mombasa and Magadi. To complement this service a 51% stake in One Communication Limited, a WiMax company, was completed during the first half. This innovative service will enable Kenyans to benefit from the first broadband mobile service in Kenya with the associated speeds and value for money service that it provides. Further enhancement of the data service will come with the introduction of the TEAMS undersea fibre optic cable in which we will have a 20% shareholding.

Safaricom is proud to be the market leader in offering innovative products to the Kenyan people to enhance their lifestyle and their way of efficiently doing business. During the last six months we have introduced our Hot Spot range of products, including 3G routers for our business customers and prepay modems, both utilising our exclusive 3G network, enabling all our customers to have high speed access to their email and the internet.

In order to ensure that all our customers benefit from our services, we have launched several promotions, including Bonga Ushinde which allowed our customers to not only win Nissan pick ups but also to double their points on our highly successful Bonga awards scheme. Our innovative tariffs allowed our customers to benefit from lower calling rates to ensure that all Kenyans can become connected and enjoy the benefits of mobile communication.

The highly successful and innovative M-PESA money transfer service continued to show impressive growth with registered subscribers increasing to 4.14 million at 30 September 2008 which represented a doubling of the base in the six month period and a year on year growth rate of 650%. New subscribers continued to sign up for this service at a rate of 13,800 per day during September, reflecting the importance of this service to our customers. Person to person transfers grew significantly and during September 2008 exceeding KES9.6bn in the month. This represents a ten fold increase over the same period last year. Total transaction value during September 2008 was KES28.6bn compared to a value of KES3.1 bn in the previous year. Cumulatively the service has now transferred over KES50bn since its introduction in 2007, further consolidating its position as one of the most innovative services ever introduced into the mobile market. With the introduction of additional functionality including ATM integration with Pesa Point, Pay Bill and merchant payments, M-PESA continues to give millions of unbanked Kenyans an efficient and very cost effective means of transferring money around the country.

Awards

In recognition of its continued innovation and success in M-PESA, Safaricom was awarded the following awards:

* Global Mobile Awards 2008 - Winner in the Best Broadcast Commercial Category for the entry of the M-PESA ‘Send Money Home’ television commercial;
* World Business and Development award 2008. Safaricom was among 10 private companies recognised globally for its contribution in the achievement of millennium goals through M-PESA;
* Winner in the product innovation category (M-PESA) - Kenyan Banking Awards; and
* Winner Economic development category ( M-PESA) - Stockholm Challenge 2008.


Detailed Operating Results for the Six Month Period Ended 30 September 2008

As of 30 September 2008, the Company had 11.956 million subscribers consisting of 11.824 million prepaid and 132.3 thousand post-paid subscribers. This compared to 7.956 million subscribers, as of 30 September 2007 consisting of 7.853 million prepaid and 103.4 thousand post-paid subscribers, representing an overall growth of 50.3%.

The strong growth in subscribers has been driven by our aggressive subscriber acquisition strategies such as availability and affordability of lower denominated top up vouchers, increased rural network coverage, strong retail availability, low cost handsets offerings and affordable tariff structures.

During the period, blended ARPU decreased to KES503, compared to KES665 for the period ending September 2007. Pre-paid and post-paid ARPU decreased to KES456 and KES3,677, respectively, compared to KES594 and KES4,076, respectively in the previous year. This reflects the marginal effect of additional subscribers with lower spending profiles as the network is rolled out to more rural areas, higher inflation eroding consumer disposable income in the period and reduced calling tariffs, as we continue to offer cost effective and quality communications for our customers.

In the period overall churn increased to 25.1%, compared to 23.5% in the previous period. Pre-paid and post-paid churn moved to 25.4% and 0.1%, respectively, compared to 23.7% and 4.3%, respectively, in the previous period. The increase in prepay churn is largely due to connections made in the time leading up to the elections which were subsequently disconnected and also due to the effect of inflation and reduced spending power during the period. M-PESA and the Bonga loyalty program are key initiatives and services offered to our customers, which would assist with mitigating increased levels of churn in the future.

In the half year ended 30 September 2007 there was a one off interest receivable amount of KES1.202bn representing interest charges to TKL under the interconnect agreement, and a one off un-realised foreign currency gain of KES553m due to the revaluation of dollar denominated shareholder loans, both impacting positively on Financing costs during the period. Financing costs in the period ended 30 September 2008 arose from interest payable on the syndicated loan as well as trading exchange differences arising due to the devaluation of the Kenya shilling against major currencies over the period.

Financial Results – Profit & Loss Account (Excluding One-Off Items in Prior Period)

Revenue increased to KES34.508bn in the period compared to KES28.650bn during the same period in 2007. The increase was driven predominantly by voice revenue as the customer base increased during the year. Voice revenue increased by 17.1% between 2007 and 2008 whilst SMS and data increased by 76.1% accounting for 10.8% of Revenues from 7.4% in the prior year. Acquisition increased by 7% and others dropped by 50.9% between 2007 and 2008.

Operating expenses increased to KES15.309bn or 44.4% of revenue in the period to 30 September 2008, compared to KES12.128bn or 42.3% of revenue during the same period in 2007. The relative increase in costs in the period reflects the combined increase in cost of running the network (in particular energy consumption), the planned effect of the aggressive customer acquisition strategy and the cost of customer retention initiatives.

Selling, general and administrative expenses increased to KES4.194bn representing 12.2% of revenue in the period compared to KES3.541bn, 12.4% of revenue, during the same period in 2007. The increase cost was mainly driven by higher headcount, increased cost of running additional retail outlets and higher publicity costs to drive customer acquisition.

EBITDA increased to KES15.005bn in the period compared to KES12.985bn in the previous period, reflecting an EBITDA margin of 43.5%. The EBITDA margin decline from the previous period was due to the planned strategy of subscriber growth, with the associated additional expenditure on network running costs, publicity and acquisition costs.

Depreciation and amortisation increased to KES5.432bn in the period compared to KES4.024bn during the same period in 2007. The charges have increased in line with the continued high capital investments incurred over the past few years.

Profit Before tax increased to KES8.976bn in the period, compared to KES8.781bn during the same period in 2007. The company’s tax charge was KES2.759bn compared to KES2.921bn in the prior period.
Excluding one off items Profit After Tax grew to KES6.216bn, an increase of 5.5% over the previous year’s profit of KES5.895bn.

Financial Results – Profit & Loss Account (Including One-Off Items in Prior Period)
Profit Before Tax decreased to KES8.976bn in the period, compared to Kshs10.536bn during the same period in 2007. The company’s tax charge was KES2.759bn compared to KES3.247bn in the prior period, a reduction of 15.0%. The higher tax charge in the prior period is attributable to the taxation impact on the net positive one off adjustments above of KES1.755bn in Financing costs.

The effective tax rate was 30.7%, a drop from 30.8% in the previous year. The total overall direct and indirect taxes paid to the Treasury for the period was KES11.697bn compared to KES12.517bn paid in the previous year. In the years 2007 and 2008, Safaricom received an award for the Highest Taxpayer in the country and therefore continues to significantly support the economy.

Including one off items, Profit After Tax reduced to KES6.217bn, a decrease of 14.7% over the previous year’s profit of KES7.289bn

Financial Results – Cashflow

Operating cash flow remained strong during the period enabling the company to expand the network coverage further and ensure that the core network systems were enhanced to manage the increased subscriber base. During the period a final dividend, relating to the previous financial year, of KES2.0bn was paid as well as a payment on the principal of the syndicated loan of KES294m. Net cash provided by operating activities was KES9.648bn in the period, compared to KES10.827bn during the same period in 2007. In the half year ended 30 September 2007 there was a one off interest receivable amount of KES1.202bn representing interconnect interest charges to TKL, which increased the operating cashflow in the prior period.

Net cash used in investing activities was KES10.044bn in the period compared to KES12.797bn during the same period in 2007. This spend was mainly on capital expenditure of KES10.048bn in the period compared to KES12.803bn during the same period in 2007.The major items of capital expenditure related to the expansion of the core network, in order to meet the expected increase in the subscriber base over the next 12 months, and continuing rollout of new sites, particularly in the rural areas. The balance of cash on investing activities was cash generated from disposal of fixed assets.

Financial Results – Balance Sheet

Shareholder funds continued to increase over the period and grew to KES46.859bn an increase of 29.9% over the previous year. Total borrowings reduced by 9.9% to KES8.905bn from KES9.882bn. As of 30 September 2008, the Company had total cash and cash equivalents of KES2.844bn and total borrowings of KES8.905bn, compared to KES3.918bn and KES9.882bn respectively in the previous period.

Of the outstanding amount of KES9.882bn from the prior year, there was repayment of shareholder loans of KES3.68bn over the twelve months and a further draw down of the syndicated loan facility of KES3.0bn. A repayment of KES0.294bn was made on the syndicated loan principal during the period ending September 2008.

Non current assets increased due to payment of KES1.675bn equivalent of USD 25M for the 3G license and due to investment in tangible capital expenditure.

Capital expenditure remained high in the period and net tangible fixed assets increased by 18.8% to KES61.385bn. Net intangible assets increased by 50.6% to KES3.322bn with the movement representing the payment for the 3G licence of KES1.675bn equivalent of USD25m. The balance of the increase in Non current assets relates to the increase in Deferred Taxation as a result of the increased capital investment during the period.

The Directors do not approve the payment of an interim dividend.

Outlook

The first half has seen the entry of Telkom Orange into the mobile market. Econet is expected to launch its service in November 2008. Also expected is the introduction of a unified license regime. Mobile penetration, which is currently around 39%, is expected to increase over the next four years to a level of around 60%. This implies that there is high potential for further industry subscriber expansion over the next few years.

The introduction of new players and a changing regulatory landscape will bring new challenges to Safaricom and the industry as a whole. A more competitive industry landscape is expected to place downward pressure on Safaricom’s market share of gross additions in the medium term.

Increased competition and competitive environment going forward may result in additional tariff pressure, however this should stimulate and increase usage accordingly. There could therefore be a potential future impact on ARPU going forward.

This is already evident with the “Jibambie” promotion where prepay subscribers can chose the rate per minute to pay based on the denomination of scratch card topped up. Postpay subscribers promotion rate per minute has been reduced from KES10 per minute to KES4 per minute. This is expected to put further pressure on ARPU for both prepay and post-pay subscribers for the industry as a whole.

Safaricom’s capital expenditure is expected to remain relatively high over the next few years, which is consistent with the strategy of expanding the GSM coverage footprint in rural areas and capacity levels in key urban areas. In addition the rollout of Kenya’s first 3G network will continue to incur significant capital expenditure over the next few years. These capital investments will enhance Safaricom’s ability to protect its market share of gross subscriber additions, offer higher quality network coverage as well as to capitalise on the high growth potential of the data market.

Over the next 12 months the arrival of up to 3 undersea fibre optic cables will significantly change international connectivity, particularly for data. Safaricom will have a 20% shareholding in the TEAMS cable at a total cost of approximately USD21m. The cable will enable our data customers to experience higher speeds and increased bandwidth coupled with advantageous pricing. The expansion of the WiMax and 3G networks will further enhance the service provided to our subscribers, one that no other network is currently able to offer.

RELATED FINANCIAL STATEMENTS
|2003 - 2008 INCOME STATEMENTS|
|2003 - 2008 BALANCE SHEET|
|2003 - 2008 CASH FLOW STATEMENTS
|2003 - 2008 OTHER FINANCIALS|

Cooperative Bank IPO: Comparative Analysis with Listed Peers The cooperative Bank IPO will soon be coming to an end on November 13th and many investors (applicants) would like to know how the new bank at the NSE compares with others listed banks. After comparing the financial statements of five banks – Cooperative Bank, Barclays Bank of Kenya, Kenya Commercial Bank, Equity Bank and Standard Chartered Bank (Kenya) - analysts at Nairobist.com have come to the following conclusion regarding the financial comparability of Cooperative Bank with its listed peers on their 2007 end year audited results.   Profitability In 2007 Barclays recorded the highest profit after tax of ksh.4.9 billion followed by Standard chartered with Ksh.3.47 billion, KCB with Ksh.2.97 billion, Equity with Ksh.1.89 and trailing the list is Cooperative with Ksh.1.55. however Equity and Cooperative registered the biggest growths in their profit before tax (PBT) by 114.5% and 84.6% respectively. Cooperative Bank expects a 50% growth in 2008. KCB and Standard Chartered also reported impressive growth levels of 33% and 29% in PBT compared to Barclays mere 9%.   Balance sheet reviews Compared to other four banks, Standard chartered has a healthy balance sheet and recorded the lowest cost to income ratio of 46% followed by Equity at 53%, Barclays at 59% , Cooperative at 60% and KCB at 65%.This means that Standard chartered is able to generate more income at the lowest cost. Cooperative bank has one of the highest cost to income ratio after KCB.   Lending Capacity In regards to the lending capacity of these banks, Standard chartered is able to lend more as its gross loans and advances to deposits ratio stood at 53% compared to Barclays whooping 96%,Cooperative – 70%, Equity – 69% and KCB - 68% .In essence Barclays has lend out most of the customer deposits. The lending capacity of Cooperative Bank also doe not look good with only 30% of their customer deposit available for lending.   Loan Interest Rates Cooperative bank still has the highest loan interest rate at 19% while the other banks around 18%. Barclays has the lowest lending rates at 16%.   Comparison of Cooperative Bank 2007 financials with its Listed Peers     Cooperative Barclays KCB Equity Stan Chart   Ksh.'000' Ksh.'000' Ksh.'000' Ksh.'000' Ksh.'000' Net Income 1,549,606 4,910,494 2,974,572 1,890,283 3,469,877 Interest Income 5,519,826 13,634,325 9,373,389 3,254,638 7,122,651 Interest Expense 1,000,432 2,252,642 921,822 494,525 1,527,460 Net Interest Income 4,519,394 11,381,683 8,451,567 2,760,113 5,595,191 Non-Interest Income 3,756,462 7,478,752 6,392,567 3,062,488 3,998,438 Operating Income 8,275,856 18,860,435 14,844,134 5,822,601 9,593,629 Operating Expenses 5,257,440 11,781,635 10,618,152 3,458,783 4,983,441 Customer Deposits 54,775,390 109,096,951 94,392,361 31,535,515 73,840,563 Loans and Advances 38,074,772 105,345,597 64,278,123 21,836,435 39,468,522 Total Assets 65,354,205 157,655,668 120,479,553 53,129,246 91,121,942 Cash 2,405,929 3,699,195 3,217,132 3,015,005 3,214,132 Total Liabilities 58,893,924 140,092,014 107,274,893 38,212,578 80,205,934 Total Shareholder Funds 6,460,281 17,563,654 13,204,660 14,916,668 10,916,008 Loan Loss Provisions 699,891 686,690 1,213,653 25,341 250,249   Opinion on Cooperative Bank Financial Strength Comparatively, apart from having one of the highest growth rate, Cooperative Bank does not bring anything new to the table. Some of the figures displayed by this bank are not fairing well compared to its listed industry peers. But its listing price is a big discount compared to the others and may, as anticipated, rise of about Ksh.15 when it start trading on the NSE. Analysts at Nairobist still hold a medium to long term buy on this IPO.

Over the last four years, the Standard Group limited has pursued a turnaround strategy that has resulted in growth of both market share and profitability. As a result, the Group now boasts of a strong financial base, reengineered business operation and an enhanced corporate profile.

The group has now embarked on the next phase of transformation and diversification growth strategy, radio and online business being priority areas of focus. Towards this end the Group has made substantial investments in infrastructure as critical growth support pillar for both print and TV broadcast business. The Group has also made significant investment in development of our valued Human Capital. A robust and scalable state of the art printing solution is already operational at our customized development at The Standard Group Centre. The impact of this information is epitomized by the quality of the Bold new look Standard newspaper in terms of colour and print quality. The Bold new Standard has been well received in the market as demonstrated by sustained growth in readership and advertising.

Investment on TV broadcast has seen the acquisition of cutting-edge broadcast technology with respect to a virtual studio and Satellite Mobile News Gathering facilities. This has assured sustained market leadership of our KTN Brand.

The construction development at the Standard Group Centre on Mombasa Road is on schedule and progressing well within a record one and half years. The full operations of the business shall shift to the Centre at the beginning of next year.

As part of growth diversification strategies and transformation into leading multi media house, the Board of the Standard Group has decided on investment in radio broadcast.

The Group has the necessary licenses to operate radio broadcast but was inhibited by the lack of frequencies. In compliance with necessary regulatory disclosure requirements, The Standard Group wishes to announce that it is at advanced stages of concluding negotiations that would lead to the acquisition of an entire interest of a company that holds radio frequencies covering most of the country. The modalities of these transactions are being worked out and the timing of commencement of operations and related details will be announced at a later stage. The Standard Group plans to invest within the next one and half years an estimated of Kenya Shillings Two Hundred and fifty Million only (Kshs 250,000) inclusive of the acquisition cost and in the development of a robust infrastructure.

This investment will not only spur business growth and profitability but also exploit synergies across our existing business spectrum.

Paul Melly
Deputy Chairman/Strategy Advisor
The Standard Group
November 3, 2008

(Most of the information detailed below is from the Cooperative Bank IPO prospectus, while other information is our own opinion and should only be taken as our investment opinion. We strongly advice for investors to read the entire PROSPECTUS before making any investment decision)

Important Dates

- Opening of the Offer: 30th October 2008
- Closing of the Offer: 13th November 2008
- Announcement of Allocation Results: 15th December 2008
- Electronic crediting of CDS Accounts: 16th December 2008 to Friday, 19th December 2008
- Payment of refunds by EFT: 18th December 2008
- Dispatch of Refund cheques to Brokers: 19th December 2008
- Listing on the NSE: 22nd December 2008

Amount to be raised:

Ksh.6.7 billion (this has been scaled down from Ksh.10 billion after it became clear that the four months bear run has taken its toll on investors)

Number of shares on offer:

701.3 million Shares (19.3% of the bank’s issued ordinary share capital) – 462.8 million (66%) for the retail investors; 210.3 million (30%) for Qualified Institutional Investors (QII’s); and 28 million (4%) for the bank’s employees.

Offer share price:

Ksh.9.50 per share (this was discounted by 21% from Ksh.11.50 after taking into consideration the bearish sentiment in the market). Par value of the shares is Ksh.1.00 per ordinary share.

Minimum Application:

- 1,000 shares or Ksh.9,500 for each retail investor and employees and a multiple of 100 there after. (Employees have a maximum allocation of 12,100 shares in case of an oversubscription)
- The minimum application for QII’s is set at 10,000 shares or Ksh.95,000 and a multiple of 10,000 shares there after
(Foreign investors – have not been allocated any portion but incase of an oversubscription they will be entitled to the unapplied amount)

Reasons for listing:

a) To facilitate the banks growth and expansion program
b) To enable it’s existing over 57,000 shareholders to freely trade in their holding on the NSE

Numbers & values:

- Cooperative Bank is now valued at about Ksh.17.5 billion as per the share value.
- The bank expects a 50% jump in its full year profit to Ksh.3.4 billion

Other key statistics

- Offer Price per share: Ksh. 9.50
- Par value per share: Kshs. 1.00
- Authorized share capital: Kshs. 3,700,000,000
- No. of issued shares: 2,935,127,600
- No. of ‘New’ Shares on offer: 701,300,000
- Gross proceeds of the Offer Kshs. 6,662,350,000
- Net profits for the year.2007: Kshs. 1.55 Billion
- EPS for 2007: Kshs. 0.54 / share (54 cents per share)
- DPS for 2007: Kshs. 0.08/ share (8 cents per share)
- Implied dividend yield for 2007: 0.84%
- Implied PE (historical) for 2007: 17.59
- Projected net profits for 2008: Kshs. 2.42 Billion
- Forecast EPS for 2008 (based on existing issued shares): Kshs. 0.82 / share** (82 cents per share)
- Implied Forecast EPS for 2008: Kshs. 0.66/ share** (66 cents per share)
- Forecast DPS for 2008 Kshs. 0.10 / share
- Implied Forecast PE for 2008: 11.54
- Implied Forecast Dividend Yield for 2008: 1.0%

IPO Transaction Advisors:

Lead Transaction Advisor - Dyer & Blair Investment Bank
Lead Sponsoring Broker - SIBFIB Consortium
Co-sponsoring Brokers - CFC Financial Services, Discount Securities, Sterling and African Alliance
Reporting Accountants - Ernst & Young
Legal Advisors - Mboya & Wangong’u Advocates
PR Consultants - Gina Din Corporate Communications
Marketing & Advertising Consultants - AY & R
Asset Valuers - Mancleam Valuers

Other main features of the IPO

- Despite investors burning their fingers in the Safaricom IPO over loans, the coop IPO allows for banks to advance loans for financing investors’ applications. But this time I’m sure both parties, the applicants’ and the bank, will trade with caution.

- Until their last AGM, the share capital structure of Coop bank was unlimited. This was changed to a public limited liability company under the name ‘The Co-operative Bank of Kenya Limited.

- Coop bank has four wholly owned subsidiaries (two of which are dormant**) namely:
a) Co-opTrust Investment Services Limited
b) Co-operative Consultancy Services Kenya Limited
c) Co-operative Merchant Limited**
d) Co-operative House Limited**

- As much as the offer gives existing shareholders an opportunity to immobilize their shares and trade them on the NSE Co-opholdings, which currently holds 76.8% of the existing ordinary shares in the bank, is bound not to dispose of any part of its stake for a period of five years from the date of the Offer. Similarly the bank’s directors (who own a 4.04% stake) and senior employees (grade 8 and above) are bound not to dispose of any part of their stake for two years from the date of the Offer. This is likely work well for investors in this IPO as the lock in will reduce the number of shares on the market thus creating considerable demand effect.

- Despite being faced with stiff competition in the banking industry, the industry penetration is still very low at only 19%. This leaves a large room for expansion for cooperative bank, especially in the rural areas of Kenya.

- Since the year 2001, the cooperative bank has managed to turn around from Ksh.2.07 billion loss to an expected pretax profit of Ksh.3.4 billion by the end of 2008. All aspects of the bank have been growing at exceptional rates. However, I’m skeptic on their projected branch and network growth which is estimated to jump by 29 branches to 77 country wide and 63 ATM to 200 country wide by the end of the year.

- Coop bank has been consistent and progressive in dishing out dividend to its shareholder since 2003 (based on par value: 2003 - 3%, 2004 - 4%, 2005 - 5%, 2006 - 5% and 2007 - 8%). This is set to continue into the foreseeable profitable future. Successive applicants of