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Transcript

Understanding Centum FY 26 Results · The Mwango Capital Podcast

• 0:00
  SPEAKER_00: Welcome to FY26 Earnings Breakdown with the Centrum CEO.
• 0:04
  SPEAKER_00: Our task today is to just reiterate some of the key points from the earnings and
• 0:08
  SPEAKER_00: then take as many questions from the audience as possible.
• 0:11
  SPEAKER_00: James, maybe you can give us a bit of a broad overview on how you feel the FY26 earnings went.
• 0:16
  SPEAKER_00: Thank you very much, Eric.
• 0:18
  SPEAKER_00: Good evening, ladies and gentlemen.
• 0:19
  SPEAKER_01: It's a pleasure for me to be here again.
• 0:22
  SPEAKER_01: We met Amanda Groh and I promised I'd be back once we announced the results
• 0:28
  SPEAKER_01: which we did this morning.
• 0:29
  SPEAKER_01: I think it went well in terms of what we wanted to achieve.
• 0:33
  SPEAKER_00: As I explained when I was last year,
• 0:35
  SPEAKER_01: what is really critical for us as an investment company managing a portfolio
• 0:39
  SPEAKER_01: of assets is being able to take the actions that release free cash flow for us
• 0:44
  SPEAKER_01: to reallocate cash to new investments and to distribute that cash.
• 0:49
  SPEAKER_01: And if you look at our company performance,
• 0:52
  SPEAKER_01: it was a significant improvement from the prior year.
• 0:55
  SPEAKER_01: And we had more free cash flow this year.
• 0:58
  SPEAKER_01: And we're able to make a number of achievements,
• 1:00
  SPEAKER_01: which was to fully retire the data center level,
• 1:03
  SPEAKER_01: enhance our allocation to marketable securities,
• 1:06
  SPEAKER_01: and also increase dividend allocation.
• 1:09
  SPEAKER_01: I was pleased with the performance, or rather it's in the right direction.
• 1:12
  SPEAKER_00: So let's start with the distinction,
• 1:14
  SPEAKER_00: which is a distinction between group and company level performance.
• 1:17
  SPEAKER_00: So just for the new listeners,
• 1:19
  SPEAKER_00: maybe you can reiterate why that usually is a difference and why that reflects
• 1:23
  SPEAKER_00: on what you can control and what you can't control in terms of earnings usually.
• 1:27
  SPEAKER_01: That's good.
• 1:27
  SPEAKER_01: The distinction is the following.
• 1:29
  SPEAKER_01: We are an investment company.
• 1:30
  SPEAKER_01: So let me use an example, Eric.
• 1:32
  SPEAKER_01: If say you have invested in a portfolio of Centum,
• 1:35
  SPEAKER_01: Brewery,
• 1:35
  SPEAKER_01: Safaricom as an investor,
• 1:37
  SPEAKER_01: what is relevant for you from an earnings perspective is the dividend you get.
• 1:42
  SPEAKER_01: And if you've sold some shares, the capital gain you get.
• 1:45
  SPEAKER_01: And if you had lent this company some money,
• 1:47
  SPEAKER_01: then the shareholder loan repayments they bid to you.
• 1:50
  SPEAKER_01: Those will come through your company cash flow.
• 1:52
  SPEAKER_01: But that is equivalent of our company P&L.
• 1:55
  SPEAKER_01: That's what we...
• 1:56
  SPEAKER_01: Actually earn as an investment company.
• 1:58
  SPEAKER_01: However,
• 1:59
  SPEAKER_01: the financial reporting standards requires to prepare a consolidated set
• 2:03
  SPEAKER_01: of financial statements, which is what is called the group.
• 2:05
  SPEAKER_01: So the consolidated,
• 2:06
  SPEAKER_01: what it does is that it takes the line-by-line financial performance of each
• 2:09
  SPEAKER_01: of these individual companies.
• 2:11
  SPEAKER_01: If you own more than 50%, you take it as if you own 100.
• 2:14
  SPEAKER_01: And if you own between 50 and 20, it's treated as an associate and you constantly need it.
• 2:19
  SPEAKER_01: So these are largely done for compliance purposes,
• 2:22
  SPEAKER_01: but they don't quite reflect what we earn as an investor.
• 2:26
  SPEAKER_01: It's a quite different set of financials and the group ones also have a lot
• 2:30
  SPEAKER_01: of non-cash movements in them which go through them.
• 2:32
  SPEAKER_01: So they're not really a meaningful indicator of performance.
• 2:35
  SPEAKER_01: What we track internally in planning and budgeting and in strategy is
• 2:39
  SPEAKER_01: the company P&L and the company cash flow and also the balance sheet because
• 2:44
  SPEAKER_01: the balance sheet has the net asset value.
• 2:46
  SPEAKER_00: And from the company perspective,
• 2:48
  SPEAKER_00: could you give us a bit of the earnings happened over there on the company level?
• 2:51
  SPEAKER_00: You can also reflect a bit on some of their group performances also,
• 2:54
  SPEAKER_00: just contrasting them a little bit for someone who's new.
• 2:57
  SPEAKER_01: So the nature drivers in the companies, those are A growth on investment income.
• 3:02
  SPEAKER_01: This is largely dividend interest where we've invested in the interest earning securities.
• 3:07
  SPEAKER_01: Expenses are flat and we've tried to keep this flat for a long time so
• 3:11
  SPEAKER_01: that we have more available for distribution.
• 3:13
  SPEAKER_01: The finance costs dropped significantly and as of now they are zero
• 3:17
  SPEAKER_01: because we've now paid the debt at the centum level.
• 3:20
  SPEAKER_01: So operating profit doubled and operating profit is part of
• 3:24
  SPEAKER_01: the free cash flow we get into the business.
• 3:26
  SPEAKER_01: And then you go down to the cash flow,
• 3:28
  SPEAKER_01: then you have the additional cash that came in through shareholder loan repayments.
• 3:34
  SPEAKER_01: Because sometimes we structure the various investments are structured by way of loan advances.
• 3:40
  SPEAKER_01: So when those come through, they don't necessarily go through the P&L.
• 3:43
  SPEAKER_01: We had bought another 1.2%.
• 3:45
  SPEAKER_01: 2 billion in Shauna Loan Repairments and another 1.6 in proceeds from disposal
• 3:50
  SPEAKER_01: of securities, so about 3.8 billion.
• 3:53
  SPEAKER_01: Now, the consolidated one was different.
• 3:56
  SPEAKER_01: This is the line-by-line consolidation of all the subsidiary companies.
• 4:00
  SPEAKER_01: IFRS requires that where you are holding investment property, you revalue it every year.
• 4:05
  SPEAKER_01: And some people ask, why do you end up with
• 4:07
  SPEAKER_00: a revaluation?
• 4:07
  SPEAKER_00: You have to revalue.
• 4:08
  SPEAKER_01: It's an IFRS requirement.
• 4:10
  SPEAKER_01: You cannot complete the audit without a revaluation.
• 4:13
  SPEAKER_01: And what the auditors typically do is look at the pricing of the recent transactions
• 4:17
  SPEAKER_01: that have been done on the underlying investment property.
• 4:20
  SPEAKER_01: And in the benchmark, their fair value of the balance of your investment property at that level.
• 4:26
  SPEAKER_01: Before, these used to go through some in code and realize the revolution reserve,
• 4:30
  SPEAKER_01: but now these are required to go through P and L.
• 4:33
  SPEAKER_01: So they went through the fair value movement.
• 4:35
  SPEAKER_01: Then this year we had one of which was a deconsolidation of a subsidiary we created
• 4:40
  SPEAKER_01: during the year.
• 4:41
  SPEAKER_01: Which was the Bipingo Special Economic Zone.
• 4:44
  SPEAKER_01: We can discuss that later, but that deconsolidation resulted in a book loss of 2 billion.
• 4:49
  SPEAKER_01: So that also went through the consolidated P&A.
• 4:52
  SPEAKER_00: There's a lot you've covered there.
• 4:53
  SPEAKER_00: So I just want to start with one which stands out,
• 4:55
  SPEAKER_00: the debt, especially in company level, going to zero.
• 4:58
  SPEAKER_00: Could you tell us a bit about that and also distinguish between that debt and
• 5:01
  SPEAKER_00: the debt that sits on the companies themselves, which is on the group level?
• 5:05
  SPEAKER_00: So what has been your motive in terms of reducing that debt?
• 5:07
  SPEAKER_00: Because that's been your specific forecast these past couple of years.
• 5:10
  SPEAKER_00: And now that it's going to zero, are you happy about that?
• 5:13
  SPEAKER_00: And is that the constant going forward?
• 5:15
  SPEAKER_01: So let me explain that.
• 5:17
  SPEAKER_01: So what happened is that when we began the strategy,
• 5:20
  SPEAKER_01: the first objective was to scale the balance sheet.
• 5:23
  SPEAKER_01: So when you're making additional investments,
• 5:25
  SPEAKER_01: you have a choice between raising capital from shareholders or borrowing.
• 5:31
  SPEAKER_01: So the option we took as a company was to borrow.
• 5:33
  SPEAKER_01: So we scaled up the balance sheet from $4 billion to about $60 billion.
• 5:38
  SPEAKER_01: 100% of that scale-up was through debt.
• 5:41
  SPEAKER_01: So all these assets that we've acquired,
• 5:44
  SPEAKER_01: We acquired through debt, including some of the ones that were sold.
• 5:48
  SPEAKER_01: Now, in 2019,
• 5:50
  SPEAKER_01: we then took a view that given the economic outlook that we had at the time,
• 5:55
  SPEAKER_01: it was prudent to now begin retiring the debt so that then what you are left with
• 6:01
  SPEAKER_01: after debt retirement is the true profit of that particular investment strategy.
• 6:07
  SPEAKER_01: So what you've been retiring is acquisition debt.
• 6:10
  SPEAKER_01: The debt that was used to acquire the assets at its peak,
• 6:13
  SPEAKER_01: it was about 20 billion shillings, and that was in 2019.
• 6:18
  SPEAKER_01: So between 2019 and now, we fully retired the acquisition debt.
• 6:22
  SPEAKER_01: So the assets that remain are all profits.
• 6:25
  SPEAKER_01: So if you take where we began at 4 billion,
• 6:27
  SPEAKER_01: we have returned dividend of about 5.3 billion,
• 6:31
  SPEAKER_01: which means that the opening book value of shareholder funds has all been paid back
• 6:35
  SPEAKER_01: about 140%.
• 6:37
  SPEAKER_01: And we've retired the acquisition debt.
• 6:39
  SPEAKER_01: Now, why that was important from a capital allocation and risk perspective was
• 6:42
  SPEAKER_01: that you now want any future exits or cash flows that you get up more
• 6:47
  SPEAKER_01: to be allocated towards that provider of capital.
• 6:50
  SPEAKER_01: Those can therefore be used for investment purposes.
• 6:53
  SPEAKER_01: Or to enhance the distribution to shareholders,
• 6:56
  SPEAKER_01: which is what we've communicated was going to be the next step.
• 6:59
  SPEAKER_01: So our dividend policy has been tied to annuity income, 30% of annuity income.
• 7:04
  SPEAKER_01: And we could not allocate more of these distributions to shareholders because
• 7:09
  SPEAKER_01: the priority was first to retire the acquisition debt.
• 7:12
  SPEAKER_01: That has been retired.
• 7:13
  SPEAKER_01: That's why you see there's a special dividend.
• 7:16
  SPEAKER_01: I know there's a mouthful there, but I just want to deal first with the acquisition debt.
• 7:20
  SPEAKER_01: Later, you can interrogate about the portfolio company level debt.
• 7:24
  SPEAKER_00: We can go ahead if you want to handle that, the portfolio level debt also.
• 7:27
  SPEAKER_00: Yeah, yeah.
• 7:28
  SPEAKER_00: So the definition is, I don't know,
• 7:30
  SPEAKER_01: best in the morning.
• 7:31
  SPEAKER_01: What is the capital structure at Centum Investment Level?
• 7:36
  SPEAKER_01: And I think Fred answered it well that for the remainder of Centum 4.5.0,
• 7:40
  SPEAKER_01: because economic outlook may change.
• 7:42
  SPEAKER_01: Is that we don't intend to take in a new debt that sent them in the school level,
• 7:46
  SPEAKER_01: meaning we don't need to borrow to make acquisitions.
• 7:49
  SPEAKER_01: We have enough annuity income to cover operating expenses
• 7:53
  SPEAKER_01: and our dividend is tied also to 30% of annuity income.
• 7:56
  SPEAKER_01: So the way we structured it,
• 7:58
  SPEAKER_01: 30% of annuity income goes to dividend,
• 8:01
  SPEAKER_01: about 30-40% goes to expenses and therefore you're profitable there even
• 8:06
  SPEAKER_01: after covering your dividend and expenses.
• 8:08
  SPEAKER_01: Now we don't have any interest expense.
• 8:10
  SPEAKER_01: So we don't need to allocate any portion of the energy income to interest expense.
• 8:14
  SPEAKER_01: Now, any exit proceeds, those can then be allocated to either special dividend or reinvestment.
• 8:22
  SPEAKER_01: It's a different story when it comes to operating entities.
• 8:24
  SPEAKER_01: The companies you have invested in,
• 8:27
  SPEAKER_01: those who don't control their dividend,
• 8:29
  SPEAKER_01: their debt,
• 8:29
  SPEAKER_01: their capital structures,
• 8:31
  SPEAKER_01: those companies are free to take on whatever debt they wish to take.
• 8:34
  SPEAKER_01: And a lot of it is watching capital debt.
• 8:36
  SPEAKER_01: And it's good debt.
• 8:37
  SPEAKER_01: So if you are borrowing for working capital purposes
• 8:39
  SPEAKER_01: to accelerate your investment program,
• 8:42
  SPEAKER_01: those are actions that we encourage as investors,
• 8:44
  SPEAKER_01: because it means that particular program is not being funded by equity from Centum.
• 8:49
  SPEAKER_01: If it's all funded by equity, then it affects what is upstreamable.
• 8:53
  SPEAKER_01: So because the capital structure of portfolio companies is not controlled by Centum,
• 8:58
  SPEAKER_01: However, we have to consolidate.
• 9:00
  SPEAKER_01: So when we consolidate, we consolidate both the assets and the debt.
• 9:03
  SPEAKER_01: So if you look at our consolidated balance sheet,
• 9:05
  SPEAKER_01: for example, you've consolidated the assets of these underlying entities.
• 9:10
  SPEAKER_01: The consolidated figure is something like, I think, 79 billion.
• 9:14
  SPEAKER_01: But in there, this debt of about 17, 16 billion.
• 9:18
  SPEAKER_01: So that we are not really in control of and don't restrict what portfolio companies do.
• 9:22
  SPEAKER_01: But for us as an investor,
• 9:23
  SPEAKER_01: we have
• 9:24
  SPEAKER_01: enough cash flow now To allocate to investments that they need to take
• 9:28
  SPEAKER_01: on debt to acquire assets.
• 9:30
  SPEAKER_01: Eric, I hope that's clear.
• 9:31
  SPEAKER_00: That's clear.
• 9:32
  SPEAKER_00: And what helps us when you think about it is like you have a group and then you have
• 9:35
  SPEAKER_00: the company.
• 9:36
  SPEAKER_00: The company controls the debt structure there.
• 9:38
  SPEAKER_00: And then the group, there is also a decision makers.
• 9:41
  SPEAKER_00: Absolutely.
• 9:42
  SPEAKER_00: Let me just give you an analogy.
• 9:46
  SPEAKER_01: The same one I used.
• 9:47
  SPEAKER_01: So if you own shares in Centum,
• 9:49
  SPEAKER_01: Safaricom and Breweries, you can take debt to acquire those shares.
• 9:53
  SPEAKER_01: So meaning in your balance sheet, you'll have debt to acquire shares.
• 9:56
  SPEAKER_01: That is what you mean by acquisition level debt.
• 9:58
  SPEAKER_01: But brewery itself to buy a new line of working capital, it may have its own debt.
• 10:03
  SPEAKER_01: Now, if you increase your shareholding to 50%,
• 10:06
  SPEAKER_01: then you as Eric would need to do a consolidated state with us if you own,
• 10:09
  SPEAKER_01: do a design a percent.
• 10:11
  SPEAKER_01: That's what we call consolidated means.
• 10:13
  SPEAKER_01: And you've got it absolutely correct.
• 10:14
  SPEAKER_01: We don't really restrict those companies.
• 10:17
  SPEAKER_01: However,
• 10:17
  SPEAKER_01: they want to fund their balance sheet,
• 10:18
  SPEAKER_01: their business program that is directed by the boards of those individual companies.
• 10:22
  SPEAKER_00: And normally for these companies, then what sort of value add as an investment company?
• 10:27
  SPEAKER_00: What do you give them?
• 10:28
  SPEAKER_01: So a lot of them, we set them up as Greenfield, we set them up from scratch.
• 10:32
  SPEAKER_01: Our job is to establish the company where we've established them from scratch,
• 10:36
  SPEAKER_01: set up a board, set up a management structure.
• 10:39
  SPEAKER_01: Some of them like Centum Live, for example, we are the ones who provided the assets.
• 10:43
  SPEAKER_01: Those assets are financed by debt at Centum level, which has now been repaid.
• 10:48
  SPEAKER_01: And we provide strategic guidance.
• 10:49
  SPEAKER_01: Our ultimate parenting model is to provide strategic guidance and not
• 10:55
  SPEAKER_01: to be very highly operationally involved because our intention is always to exit at
• 10:59
  SPEAKER_01: the highest possible value.
• 11:01
  SPEAKER_01: So if you are to exit,
• 11:02
  SPEAKER_01: you must leave it as a running,
• 11:04
  SPEAKER_01: operating entity that is not dependent on the parent.
• 11:07
  SPEAKER_01: And if you look at the market,
• 11:09
  SPEAKER_01: we account for a very significant proportion of exits that have been done in
• 11:13
  SPEAKER_01: the Kenyan market in the private equity space from 2010 to now.
• 11:16
  SPEAKER_01: And I think it's largely because of that parent model.
• 11:18
  SPEAKER_01: So we try to avoid dependence on the parent as much as we can.
• 11:22
  SPEAKER_01: And each of these entities should be able to stand on their own
• 11:24
  SPEAKER_01: and attract investors on their own merit.
• 11:26
  SPEAKER_00: So you want the kids to grow up and not depend on the parent anymore?
• 11:30
  SPEAKER_01: Yeah, because if they depend on the parent,
• 11:32
  SPEAKER_01: it affects our investment program and also our dividend policies.
• 11:34
  SPEAKER_01: So you should be able as a subsidiary or as a portfolio company to go to market,
• 11:39
  SPEAKER_01: raise your capital independently, learn your own program.
• 11:42
  SPEAKER_01: And then,
• 11:43
  SPEAKER_01: if you can then distribute what you can have to send them without the need for us
• 11:47
  SPEAKER_01: to keep on injecting and providing shaola loans.
• 11:50
  SPEAKER_01: If you're able to raise your own capital in short, and that you can't restrict.
• 11:54
  SPEAKER_01: And ultimately, to be attractive enough for us to be able to exit.
• 11:58
  SPEAKER_01: Otherwise,
• 11:58
  SPEAKER_01: then you end up in an illiquid situation where you can't sell
• 12:01
  SPEAKER_01: the underlying subsidiaries.
• 12:04
  SPEAKER_00: And then in terms of annuity income and the 30% distribution that you are targeting,
• 12:08
  SPEAKER_00: what should a shareholder think about that annuity income?
• 12:11
  SPEAKER_00: It's coming in,
• 12:12
  SPEAKER_00: then you're distributing it,
• 12:13
  SPEAKER_00: part of it are dividends, part of it you're using it to pay up expenses and all.
• 12:17
  SPEAKER_00: So what's your target with the annuity income?
• 12:19
  SPEAKER_00: It's almost, I think a billion shillings as of last year.
• 12:22
  SPEAKER_01: So the annuity income is a combination of dividend, it's a combination of interest income.
• 12:27
  SPEAKER_01: In the last three years,
• 12:28
  SPEAKER_01: we've gotten about $26 billion, so a few more in exits from underlying companies.
• 12:32
  SPEAKER_01: Now, that cash into marketable securities would have had a much larger annuity income.
• 12:38
  SPEAKER_01: But also would have had a much larger debt.
• 12:41
  SPEAKER_01: But we took a view and it was not fashionable in 2019 that
• 12:44
  SPEAKER_01: the economic outlook was not too robust.
• 12:46
  SPEAKER_01: So we're better off exiting at that point when we could get higher multiples.
• 12:51
  SPEAKER_01: In hindsight, that was the right call.
• 12:53
  SPEAKER_01: You've seen at that time everyone thought that the economy would remain very robust.
• 12:56
  SPEAKER_01: That has not been the case.
• 12:57
  SPEAKER_01: It was in hindsight better to be cautious than to be progressive on that thing in that respect.
• 13:04
  SPEAKER_01: So as we exit,
• 13:05
  SPEAKER_01: we intend to reallocate more to marketable securities so that we can boost
• 13:08
  SPEAKER_01: the annuity income, which is something we had communicated.
• 13:11
  SPEAKER_01: So the capital allocation waterfall was first retired debt,
• 13:14
  SPEAKER_01: part of it went back to shareholders through share buyback and dividend.
• 13:18
  SPEAKER_01: We finished retiring the debt.
• 13:19
  SPEAKER_01: We are now loading up again on marketable securities so that you can rebalance the portfolio.
• 13:23
  SPEAKER_01: That will enhance annuity income.
• 13:25
  SPEAKER_01: And out of that, you have a consistent 30% you can continue to distribute.
• 13:30
  SPEAKER_01: And once we get to an allocation of about 20 to 25% on marketable securities,
• 13:34
  SPEAKER_01: we'll then start again reinvesting into private equity.
• 13:37
  SPEAKER_01: So because we are a closed-end investment company, we are not raising any new capital.
• 13:42
  SPEAKER_01: So you then have to reallocate the existing capital you have as you realize they exist.
• 13:47
  SPEAKER_01: And they exist, some of them, the gains have already been locked in.
• 13:50
  SPEAKER_01: So you're in that realization, that is...
• 13:53
  SPEAKER_00: Now, I want us to move to the portfolio companies a little,
• 13:55
  SPEAKER_00: because some of them did raise capital, especially successfully, the Trifix SCZ.
• 13:59
  SPEAKER_00: Could you give us a bit of a flavor on some of the portfolio companies that you own?
• 14:03
  SPEAKER_00: I know you don't always need to have your favorite babies,
• 14:06
  SPEAKER_00: but you can say, okay, this one is a good one or something like that.
• 14:09
  SPEAKER_01: Maybe I'll speak about some of the transactions that we did and when we did
• 14:13
  SPEAKER_01: the Trifix SCZ,
• 14:13
  SPEAKER_01: then we set it up in 2023,
• 14:16
  SPEAKER_01: you even invited me for Species to speak about Services Special Economic Zone.
• 14:20
  SPEAKER_01: To fact,
• 14:21
  SPEAKER_01: we created a subsidiary called Trippie KCZ,
• 14:24
  SPEAKER_01: and we raised capital internationally in the way of Mezzanine capital.
• 14:30
  SPEAKER_01: And the reason we raised Mez is because it is less dilutive than equity.
• 14:34
  SPEAKER_01: And that Mez,
• 14:35
  SPEAKER_01: we then founded the first tower,
• 14:38
  SPEAKER_01: and that tower is what was full,
• 14:40
  SPEAKER_01: and the idea was to exit through an IRAIT, an income REIT.
• 14:44
  SPEAKER_01: And once you establish that, you then have a permanent exit vehicle.
• 14:47
  SPEAKER_01: So we successfully concluded that the first transaction a month ago,
• 14:53
  SPEAKER_01: and that realized that it's $7 million.
• 14:54
  SPEAKER_01: So we exited it at 8% yield, and that was a business model.
• 15:00
  SPEAKER_01: Trifi offers a bundled solution of services to enterprises.
• 15:05
  SPEAKER_01: And now you have a model where as Trifi continues to develop new properties,
• 15:09
  SPEAKER_01: they have an exit mechanism because
• 15:12
  SPEAKER_01: the underlying enterprises there are leasing rather than buying.
• 15:15
  SPEAKER_01: So that's one transaction that we supported our portfolio companies to do.
• 15:19
  SPEAKER_01: And that's part of what you asked what we do for these companies.
• 15:23
  SPEAKER_01: That's a good example.
• 15:24
  SPEAKER_01: We got the licensing,
• 15:25
  SPEAKER_01: we set up the board,
• 15:26
  SPEAKER_01: the management team, we helped them raise capital at their level.
• 15:29
  SPEAKER_01: And we supported them to take their product to market.
• 15:32
  SPEAKER_01: And so they are running that independently.
• 15:34
  SPEAKER_01: And they should be doing a lot more as they progress with the next round of transactions.
• 15:39
  SPEAKER_01: The other transaction we concluded was the Bipingo CZ.
• 15:43
  SPEAKER_01: We've learned a lot of lessons on these fabricant intensive enterprises.
• 15:47
  SPEAKER_01: So Bipingo CZ was a conversion.
• 15:49
  SPEAKER_01: We had about 6,000 acres in Bipingo left.
• 15:51
  SPEAKER_01: We had sold 4,000 out of the original 10,000.
• 15:54
  SPEAKER_01: So we had 6,000.
• 15:56
  SPEAKER_01: 2,000 was gazetted as a special economic zone.
• 15:58
  SPEAKER_01: So to get the gazettement,
• 15:59
  SPEAKER_01: we need to move that land into a special purpose vehicle because you need the owner
• 16:04
  SPEAKER_01: of the land to have a developer license.
• 16:06
  SPEAKER_01: And that entity was called Bingo Special Economic Zone Company.
• 16:10
  SPEAKER_01: Now, Centrum had 100% of it.
• 16:13
  SPEAKER_01: Unlike Trifik,
• 16:13
  SPEAKER_01: where we brought in a mezzanine,
• 16:16
  SPEAKER_01: in visas, we brought in an equity investor called Arise.
• 16:19
  SPEAKER_01: And that's because industrial special economic zones are very specialized.
• 16:24
  SPEAKER_01: And we didn't have experience running them.
• 16:26
  SPEAKER_01: And also the ability to attract the kind of industries
• 16:29
  SPEAKER_01: that would operate there is not as expertise that we necessarily had.
• 16:34
  SPEAKER_01: And number three also is that it's very capital intensive in terms of the amount
• 16:38
  SPEAKER_01: of money that needs to go into infrastructure.
• 16:41
  SPEAKER_01: So we needed a partner with both the operating capability,
• 16:43
  SPEAKER_01: the ability to crowd in equity capital for infrastructure,
• 16:46
  SPEAKER_01: ability to bring in the equity capital that was required.
• 16:50
  SPEAKER_01: And that's why we brought in Arai.
• 16:52
  SPEAKER_01: So that's another successful transaction in a way,
• 16:54
  SPEAKER_01: because then the Vipingo Special Economic Zone becomes an anchor for the rest of
• 16:57
  SPEAKER_01: the development.
• 16:58
  SPEAKER_01: And we also realized some cash out of that transaction.
• 17:01
  SPEAKER_01: And that enabled us to pay 100% of the balance of the acquisition debt because
• 17:05
  SPEAKER_01: the Vipingo land, the 10,000 debtors had been bought using, using debt in full.
• 17:10
  SPEAKER_01: So that was another transaction that was done at that level.
• 17:13
  SPEAKER_01: We then did CDN.
• 17:15
  SPEAKER_01: We completed our exit of CDN.
• 17:17
  SPEAKER_01: This was an iteration from what we were doing before with AccessFunk.
• 17:21
  SPEAKER_01: And the reason we exited was likely because the shawling had become so small that
• 17:26
  SPEAKER_01: if we stayed on board without exiting at that point,
• 17:28
  SPEAKER_01: it would have become totally liquid.
• 17:30
  SPEAKER_01: And we would have needed to put in more capital.
• 17:31
  SPEAKER_01: So I'd explained that.
• 17:33
  SPEAKER_01: We then recently concluded,
• 17:35
  SPEAKER_01: we brought in an investor into NABO, NABO and created, it was a Greenfield entity.
• 17:39
  SPEAKER_01: Actually,
• 17:40
  SPEAKER_01: what we did,
• 17:40
  SPEAKER_01: we spun off the team that used to manage our marketable securities portfolio.
• 17:44
  SPEAKER_01: Our colleague, Payas and his department into NABO and created a company.
• 17:49
  SPEAKER_01: And seeded them with our assets initially,
• 17:51
  SPEAKER_01: and then they started bringing on board other that Pachyanthes.
• 17:53
  SPEAKER_01: So it's not a company you really put in cash.
• 17:56
  SPEAKER_01: But I think you'd agree with me and Abu as a great brand.
• 17:58
  SPEAKER_01: They're strong, but we had trouble to scale it up from an AUM perspective.
• 18:02
  SPEAKER_01: So we brought in a partner who we believe would help that team scale up from an AUM perspective.
• 18:08
  SPEAKER_01: I think those are some of the few transactions that we did in the year.
• 18:11
  SPEAKER_01: For what any you can let me know,
• 18:13
  SPEAKER_01: or if there's any other one you want us to discuss, you can let me know.
• 18:16
  SPEAKER_00: A bit of a question that they're coming in about the traffic.
• 18:19
  SPEAKER_00: How are they thinking in terms of deploying going into this FY27?
• 18:22
  SPEAKER_00: What are your targets in terms of what they should achieve themselves?
• 18:26
  SPEAKER_01: So do you think you've come up now?
• 18:28
  SPEAKER_01: What's apparently doing,
• 18:29
  SPEAKER_01: they took on board a second building,
• 18:31
  SPEAKER_01: which they have taken on a long-term lease basis within the Toriba zone.
• 18:35
  SPEAKER_01: It is now 50% full and they've started constructing their third building
• 18:40
  SPEAKER_01: and their model is to build, fill and exit into the high rate.
• 18:44
  SPEAKER_01: So the business model is where once you sell,
• 18:48
  SPEAKER_01: you make a capital gain and you recover your cost and expenses and make a profit.
• 18:53
  SPEAKER_01: So that's their model.
• 18:54
  SPEAKER_01: So it's an iterative model.
• 18:56
  SPEAKER_01: They have a huge pipeline of businesses that are looking to come in about, I think 600 or so.
• 19:01
  SPEAKER_01: They're also partnered with,
• 19:03
  SPEAKER_01: they're supporting special economic zone enterprises and now they've also signed
• 19:07
  SPEAKER_01: an MOU with NIFCA, the Nairobi International Financial Center Authority.
• 19:10
  SPEAKER_01: So they're also supporting NIFCA entities.
• 19:13
  SPEAKER_01: So that's their business model.
• 19:14
  SPEAKER_01: So what we just needed to set up for them was for it to be a continuous business.
• 19:18
  SPEAKER_01: They're able to bring on board enterprises,
• 19:21
  SPEAKER_01: on board them and ultimately exit the underlying asset into an IREIT.
• 19:26
  SPEAKER_01: So it's a continuous problem.
• 19:28
  SPEAKER_01: I think there was a question that was asked
• 19:29
  SPEAKER_01: at what point would they start distributing capital or cash to Centum?
• 19:33
  SPEAKER_01: On their next iteration of the next building,
• 19:35
  SPEAKER_01: they should be able to have enough cash to pay off the original mezzanine capital
• 19:40
  SPEAKER_01: that they got in and now start making distributions to Centum.
• 19:44
  SPEAKER_00: And then when I looked at the presentation,
• 19:46
  SPEAKER_00: you said there are the advantages of finance because during constructions are
• 19:50
  SPEAKER_00: within budget ahead of the IRA cycle.
• 19:52
  SPEAKER_00: Could you tell us a bit more about it?
• 19:53
  SPEAKER_00: And then also, are the segment loss did widen a little bit?
• 19:56
  SPEAKER_00: Or you stray from that as more investment ahead of income?
• 20:01
  SPEAKER_00: So maybe give a bit of flavor to the listeners on exactly the thinking around that.
• 20:06
  SPEAKER_01: Let me give you the second question.
• 20:08
  SPEAKER_01: Because you've raised capital using Nezaneen, So mezzanine has two elements.
• 20:12
  SPEAKER_01: It has an interest component and it has a share profit component and it ranks above equity.
• 20:19
  SPEAKER_01: So you have two options.
• 20:20
  SPEAKER_01: You can raise the capital using equity, in which case you are diluted upfront.
• 20:25
  SPEAKER_01: So the equity investor may take 30, 40, 50, 60% of the profit or you get a mezzanine instrument.
• 20:34
  SPEAKER_01: Where they get a more defined return.
• 20:36
  SPEAKER_01: So if you look at what we ended up with the MES,
• 20:39
  SPEAKER_01: they ended up with about 30% of the profit,
• 20:41
  SPEAKER_01: even though they provided about 95% of the capital.
• 20:44
  SPEAKER_01: Now, from an accounting perspective, you are not capitalizing the interest.
• 20:48
  SPEAKER_01: So you're expensing the interest.
• 20:50
  SPEAKER_01: So although you've not exited the asset, you're expensing the interest.
• 20:55
  SPEAKER_01: And because you're expensing the interest at terrific level,
• 20:57
  SPEAKER_01: when you consolidate it,
• 20:58
  SPEAKER_01: it hits our P and L.
• 21:00
  SPEAKER_01: When you look at it in aggregate and say, What was the cost of the tower?
• 21:04
  SPEAKER_01: What was the cost of fitting it up?
• 21:06
  SPEAKER_01: And what was the cost of all the interest that had been expensed over the period?
• 21:09
  SPEAKER_01: They made about, I think, 2x.
• 21:11
  SPEAKER_01: So if you look at the total cost,
• 21:13
  SPEAKER_01: all-in cost, relative to the exit value, it's about a 2x margin.
• 21:18
  SPEAKER_01: But from an accounting perspective,
• 21:20
  SPEAKER_01: you are expensing the interest as opposed to capitalizing the interest as part of
• 21:24
  SPEAKER_01: the building.
• 21:25
  SPEAKER_01: Does that explain?
• 21:26
  SPEAKER_01: Because the financials were too much, we had to expense that interest.
• 21:31
  SPEAKER_01: Now we've exited.
• 21:33
  SPEAKER_01: So the accounting just makes it quite, sometimes a bit easy to borrow.
• 21:37
  SPEAKER_01: What is happening in terms of the investment
• 21:39
  SPEAKER_01: because what would be considered capital cost elements wouldn't qualify
• 21:41
  SPEAKER_01: for capitalization.
• 21:42
  SPEAKER_01: So they have to go to the P&L.
• 21:44
  SPEAKER_01: Again, it should be much cleaner if you're capitalizing everything.
• 21:47
  SPEAKER_01: And then when you exit at the $7 billion, then you have a clean value of the capital asset.
• 21:52
  SPEAKER_01: Then you compare the total cost versus the exit value.
• 21:55
  SPEAKER_00: And then when you look at Lipingo with the rise coming in,
• 21:58
  SPEAKER_00: what value art do you expect from them going forward?
• 22:01
  SPEAKER_00: Oh, it's huge.
• 22:01
  SPEAKER_01: It's huge because this thing is one,
• 22:04
  SPEAKER_01: in fact, we had engaged them originally to come and manage it.
• 22:08
  SPEAKER_01: So one is obviously operational management.
• 22:10
  SPEAKER_01: They run about 17 zones all over the continent, large zones.
• 22:14
  SPEAKER_01: So they also have a huge net of industries that would look to set up.
• 22:19
  SPEAKER_01: Run vertical integrated operations.
• 22:22
  SPEAKER_01: So it's about value addition of raw materials.
• 22:24
  SPEAKER_01: That is a huge depth of expertise, which we obviously didn't have.
• 22:28
  SPEAKER_01: Then if you look at their shareholders, they are supporting these entities.
• 22:31
  SPEAKER_01: Their shareholders are Africa Finance Corporation, AfriExim.
• 22:34
  SPEAKER_01: There's a large vision fund from Saudi Arabia,
• 22:38
  SPEAKER_01: the management company itself,
• 22:39
  SPEAKER_01: and a couple of other very large institutional investors.
• 22:43
  SPEAKER_01: So they come in with a lot of capital.
• 22:45
  SPEAKER_01: Not just for the zone,
• 22:46
  SPEAKER_01: but also for some of the enterprises coming into the zone and a huge number
• 22:50
  SPEAKER_01: of networks.
• 22:51
  SPEAKER_01: So the ability to execute is obviously a lot stronger than our own ability to do so
• 22:55
  SPEAKER_01: on our own,
• 22:56
  SPEAKER_01: especially because it would have been a new sector for us in terms of getting into
• 22:59
  SPEAKER_01: that depth of experience.
• 23:00
  SPEAKER_01: Number two is also the equity they are bringing in.
• 23:03
  SPEAKER_01: Investing in the roads,
• 23:04
  SPEAKER_01: the power,
• 23:05
  SPEAKER_01: the water system,
• 23:06
  SPEAKER_01: those are long-term investments, which even now we had to do ourselves.
• 23:09
  SPEAKER_01: Either through equity or debt would just have been in conflict with our desire
• 23:14
  SPEAKER_01: to be able to upstream more cash flow to our investors.
• 23:18
  SPEAKER_01: The third issue is that obviously now it becomes the anchor.
• 23:21
  SPEAKER_01: Every city must have an anchor economic activity.
• 23:23
  SPEAKER_01: So when you have that economic activity, it drives value for commercial and residential.
• 23:30
  SPEAKER_01: Demanding the rest of the location.
• 23:32
  SPEAKER_01: So as far as that business is concerned, that one of you was the best partner.
• 23:36
  SPEAKER_00: And then you have a bit of land, which is not being utilized presently.
• 23:40
  SPEAKER_00: Do you have a plan in terms of monetization or do you to think you talked
• 23:43
  SPEAKER_00: about around 4,000 acres on Vipingo?
• 23:46
  SPEAKER_00: What's the strategy there in terms of business?
• 23:48
  SPEAKER_00: A lot.
• 23:49
  SPEAKER_01: Cnclael is now unencumbered.
• 23:51
  SPEAKER_01: So there's a problem and that is from Russian residential and that will be monetized
• 23:55
  SPEAKER_01: over a long period of time.
• 23:57
  SPEAKER_01: And currently some of it is being used for residential development.
• 24:01
  SPEAKER_01: Some of it has been sold to that, but it's for non-special economic zone industrial development.
• 24:06
  SPEAKER_01: So for example,
• 24:07
  SPEAKER_01: entities like gas have their LPG facilities there
• 24:12
  SPEAKER_01: because not all industrial activities are within a special economic zone.
• 24:16
  SPEAKER_01: Part of it has an EPZ, so it's a mixed-use city.
• 24:19
  SPEAKER_01: But our whole idea, Eric,
• 24:21
  SPEAKER_01: was to give the group and entities like those,
• 24:24
  SPEAKER_01: which after the leveraging,
• 24:26
  SPEAKER_01: would be a source of continued cash flow to the business.
• 24:29
  SPEAKER_01: And because the question is whether we need to borrow, that's why I said we don't need to.
• 24:32
  SPEAKER_01: Because even if you monetize 100 acres a year at 10 million, that's a billion.
• 24:38
  SPEAKER_01: So if you do 200, that's 2 billion.
• 24:40
  SPEAKER_01: And now you have 4,000.
• 24:41
  SPEAKER_01: So you can imagine you can do that for 20 years and have a continued annuity stream,
• 24:46
  SPEAKER_01: being upstream up to center.
• 24:48
  SPEAKER_01: So that would be a continuous development program and some of it you may again put
• 24:53
  SPEAKER_01: into SPVs and get into JVs with other parties.
• 24:56
  SPEAKER_01: That's the intention.
• 24:57
  SPEAKER_00: A silly question though,
• 24:58
  SPEAKER_00: could the bond ever consider bundling the land into a vehicle
• 25:01
  SPEAKER_00: and perhaps shareholders owning the land directly?
• 25:04
  SPEAKER_01: Do not be efficient because part of what means is possible is the fact that
• 25:08
  SPEAKER_01: the decision making is concentrated.
• 25:10
  SPEAKER_01: When you have a partner, these kind of partners, they don't want to deal with.
• 25:13
  SPEAKER_01: We have like 8,000 shareholders, imagine.
• 25:16
  SPEAKER_01: If our assets are now held by that 8,000, it's very hard even to get into a transaction.
• 25:21
  SPEAKER_01: So that may not be efficient.
• 25:23
  SPEAKER_01: What is more efficient is probably that concentration.
• 25:26
  SPEAKER_01: And what I think makes our model work is just the speed of decision making and just
• 25:30
  SPEAKER_01: the ability to make decisive decisions.
• 25:32
  SPEAKER_01: It would be very difficult to coordinate that 8,000 people, individuals.
• 25:36
  SPEAKER_01: Some will not subdivise.
• 25:37
  SPEAKER_01: It becomes very difficult.
• 25:38
  SPEAKER_00: Yeah, I understand.
• 25:39
  SPEAKER_00: A quick one now on the exits, NABO and CDN.
• 25:42
  SPEAKER_00: Is that a target for you to have a couple of exits at least every year going forward?
• 25:46
  SPEAKER_00: And then you talked a little bit about the dividend that you distributed this year.
• 25:49
  SPEAKER_00: You can talk a little bit about the capital allocation.
• 25:52
  SPEAKER_00: Thoughts around it.
• 25:52
  SPEAKER_00: Is that a permanent in terms of the special dividend?
• 25:55
  SPEAKER_00: Is it dependent on future exits as well also?
• 25:58
  SPEAKER_00: Give us a bit of framework to think about that.
• 26:00
  SPEAKER_00: And then also there are a lot of people,
• 26:02
  SPEAKER_00: and I think this is a constant question to keep having is,
• 26:04
  SPEAKER_00: why are you disposing of your crown jewels, so to speak?
• 26:07
  SPEAKER_00: I think that's a constant question you keep getting,
• 26:10
  SPEAKER_00: and I think you can frame it in the best way possible in terms of a response
• 26:13
  SPEAKER_00: to their listeners.
• 26:14
  SPEAKER_00: There are many questions.
• 26:16
  SPEAKER_00: Let's start slowly at the exit.
• 26:18
  SPEAKER_00: Give us a bit of a framework on what you're thinking was around the two exits.
• 26:21
  SPEAKER_00: And especially for now, NABO, we don't have control.
• 26:23
  SPEAKER_00: Let's start with NABO and CDA.
• 26:25
  SPEAKER_01: Yeah, let's start there.
• 26:26
  SPEAKER_01: Just take one by one and try to be concise in my response.
• 26:29
  SPEAKER_01: So what you're trying to do or the objective is to make sure
• 26:32
  SPEAKER_01: that every asset can generate free cash flow that can be distributed.
• 26:37
  SPEAKER_01: If an asset is unlikely to generate cash flow in the short term and you need to put
• 26:41
  SPEAKER_01: in more money into it, then that's likely a candidate for exit.
• 26:46
  SPEAKER_01: If an asset is generating free cash flow, then we don't need to bother with it for now.
• 26:50
  SPEAKER_01: So for example, people have asked me about Isuzu.
• 26:53
  SPEAKER_01: Isuzu don't need to do much.
• 26:55
  SPEAKER_01: We have limited bandwidth of time.
• 26:56
  SPEAKER_01: It's generating for us free cash flow.
• 26:58
  SPEAKER_01: It's unlikely we'll be asked to put in money, so we don't need to touch it.
• 27:01
  SPEAKER_01: For now, that was not our priority.
• 27:03
  SPEAKER_01: Our priority was on these assets, which are not generating cash, and they did cash in.
• 27:07
  SPEAKER_01: Now, either you exit or you find a way of bringing an investor in.
• 27:11
  SPEAKER_01: That is priority one.
• 27:13
  SPEAKER_01: So like this says,
• 27:14
  SPEAKER_01: the Pingo Special Economic Zone was going to generate cash and on its own was going
• 27:19
  SPEAKER_01: to require us to put in cash.
• 27:20
  SPEAKER_01: So you bring in a partner who brings in the cash and enhances the ability to generate cash.
• 27:25
  SPEAKER_01: Sidian, another example,
• 27:27
  SPEAKER_01: it was not generating cash and would have been required to put in more money.
• 27:31
  SPEAKER_01: That's another candidate.
• 27:32
  SPEAKER_01: So he said, no, we are better off getting a partner who can be able to buy us out.
• 27:37
  SPEAKER_01: Because even if it's going to pay, it's going to take some time to pay.
• 27:40
  SPEAKER_01: Then there's another category of companies which,
• 27:42
  SPEAKER_01: if you have a stronger operating partner, they can generate more money.
• 27:46
  SPEAKER_01: An example is Nabo.
• 27:48
  SPEAKER_01: And we have several other candidates.
• 27:49
  SPEAKER_01: So it's not really an exit just enhancing operational strength of that entity.
• 27:54
  SPEAKER_01: And we have a few other candidates where we are working on bringing on board operating partners.
• 27:58
  SPEAKER_01: So it's not really a disposal.
• 27:59
  SPEAKER_01: It is a way of strengthening.
• 28:02
  SPEAKER_01: And in terms of selling crown jewels, I think that's a common question that you get.
• 28:05
  SPEAKER_01: As I explained the last time, you can only own depending on your capital structure.
• 28:09
  SPEAKER_01: So when you're funded,
• 28:24
  SPEAKER_01: The Mwango Weekly, mwangocapital.
• 28:44
  SPEAKER_01: You could ask management a question because unless there's
• 28:47
  SPEAKER_01: a really compelling reason,
• 28:48
  SPEAKER_01: unless you've gotten a really strong price,
• 28:50
  SPEAKER_01: now there's not much pressure because everything we have is now funded by equity.
• 28:54
  SPEAKER_01: But the previous stage you were in where you have a debt funded,
• 28:57
  SPEAKER_01: it means that you have to have an asset liability matching,
• 29:00
  SPEAKER_01: meaning you must exit to return the capital.
• 29:03
  SPEAKER_01: So you must do as much as you can in as little time as you can.
• 29:07
  SPEAKER_00: Take us through a little bit to thinking around capital allocations.
• 29:09
  SPEAKER_00: And I think that was the question I had, a special dividend.
• 29:12
  SPEAKER_00: This is your first special dividend in a long time.
• 29:14
  SPEAKER_00: You said it yourself,
• 29:15
  SPEAKER_00: it's almost,
• 29:15
  SPEAKER_00: you've not seen a special dividend as long as you've been at Centrum yourself.
• 29:18
  SPEAKER_00: So you can give us context to the special dividend and why do you place it as
• 29:22
  SPEAKER_00: a special and not part of the just normal cycle paying dividend and so
• 29:26
  SPEAKER_00: that people can think about that.
• 29:27
  SPEAKER_00: So capital allocation and a special dividend.
• 29:30
  SPEAKER_01: We have a dividend policy of 30% of annuity income.
• 29:33
  SPEAKER_01: So that's straightforward.
• 29:34
  SPEAKER_01: So that makes it predictable.
• 29:36
  SPEAKER_01: However,
• 29:37
  SPEAKER_01: Now that we are no longer servicing debt,
• 29:38
  SPEAKER_01: it means we have a bit more room to make discretionary dividend payments depending
• 29:43
  SPEAKER_01: on how the underlying annuity cash flows are.
• 29:46
  SPEAKER_01: And for us, annuity cash flows are quite significant.
• 29:48
  SPEAKER_01: In fact,
• 29:49
  SPEAKER_01: in some instances,
• 29:50
  SPEAKER_01: in many instances,
• 29:51
  SPEAKER_01: even more than annuity income because we did the structuring of the investments
• 29:55
  SPEAKER_01: through shareholder loan as opposed to putting it in through ordinary equity.
• 30:00
  SPEAKER_01: The advantage of that is that you avoid falling into a trap because
• 30:03
  SPEAKER_01: if you structure investment as ordinary equity,
• 30:05
  SPEAKER_01: You have a restriction on distribution because you need
• 30:07
  SPEAKER_01: to have positive revenue reserves in those underlying companies.
• 30:10
  SPEAKER_01: So those cash flow upstreaming does not come in through annuity income.
• 30:14
  SPEAKER_01: It comes in through the demand of shareholder loans.
• 30:17
  SPEAKER_01: Now, that portion of our inflows is more than the annuity income.
• 30:21
  SPEAKER_01: Now, that is not captured in our dividend policy and so that is discretionary.
• 30:26
  SPEAKER_01: Up until now,
• 30:28
  SPEAKER_01: the capital allocation sort of strategy was to allocate it first to debt service,
• 30:33
  SPEAKER_01: which we've now finished.
• 30:34
  SPEAKER_01: So it means that depending on the quantum of an annuity cash flow that has come up
• 30:38
  SPEAKER_01: to center and depending on the other investment opportunities available,
• 30:42
  SPEAKER_01: They board me from time to time,
• 30:44
  SPEAKER_01: allocate an extra amount of money for special dividend.
• 30:48
  SPEAKER_01: I think what's also important to note is that the parties that sit at the board own
• 30:52
  SPEAKER_01: about 56% of the company.
• 30:53
  SPEAKER_01: So they are as aligned with the shareholders who are 44% as anybody here.
• 30:58
  SPEAKER_01: So they are also very interested in this subject.
• 31:00
  SPEAKER_01: So shareholders are very well represented among the decision makers
• 31:04
  SPEAKER_01: who make these decisions at the company level.
• 31:07
  SPEAKER_00: So should they expect some special dividends again or is that something
• 31:12
  SPEAKER_00: that you only set off to do when some cash should win?
• 31:16
  SPEAKER_01: Yeah, and it's going to be quite a bit.
• 31:17
  SPEAKER_01: So even just at this investor presentation and you go to,
• 31:22
  SPEAKER_01: I did a slide that was showing the receivable on the Mwangoing landfill.
• 31:26
  SPEAKER_01: It's about 3.8 billion.
• 31:28
  SPEAKER_01: That will not come in through the annuity income.
• 31:31
  SPEAKER_01: That would come up as a repayment of a shareholder loan to send them.
• 31:34
  SPEAKER_01: So funds like that, as they come in, just on land alone is 3.8 in terms of receivables.
• 31:40
  SPEAKER_01: So as that comes up,
• 31:41
  SPEAKER_01: because we don't have debt obligations,
• 31:43
  SPEAKER_01: that means that then you can have another special dividend or the board can make
• 31:46
  SPEAKER_01: a decision to pay the special dividend.
• 31:48
  SPEAKER_01: But then these funds ideally have been allocated more to assets that will generate
• 31:52
  SPEAKER_01: an annuity income so that the ordinary dividend increases,
• 31:56
  SPEAKER_01: which is what you saw this year.
• 31:57
  SPEAKER_01: The ordinary dividend actually increased just from the calculation of the 30%.
• 32:01
  SPEAKER_00: And then on the buybacks, you had a buyback during that financial year.
• 32:05
  SPEAKER_00: It went well, but I think you missed out on the targets.
• 32:08
  SPEAKER_00: What's some of the reflections that you have from that?
• 32:10
  SPEAKER_00: And what's your plan with the treasury shares going forward?
• 32:12
  SPEAKER_00: And then one of the revelations today was that you're also thinking
• 32:15
  SPEAKER_00: about another buyback or to re-up that buyback.
• 32:18
  SPEAKER_00: What's your thinking around that so that shareholders can be aware of?
• 32:22
  SPEAKER_01: In my view, the buyback achieved its objective.
• 32:24
  SPEAKER_01: When we did the analysis at that time,
• 32:25
  SPEAKER_01: what we found is that a very small number of shares was having
• 32:28
  SPEAKER_01: a disproportionate impact on the share price.
• 32:30
  SPEAKER_01: And the reason was that was just because of periods of illiquidity.
• 32:34
  SPEAKER_01: So somebody will go to the market with their 1,000 shares and they can't get a buyer.
• 32:38
  SPEAKER_01: So that just becomes an overhang.
• 32:41
  SPEAKER_01: But actually the quantum of the shares surprised us in just how small it was,
• 32:46
  SPEAKER_01: one that was really dragging.
• 32:47
  SPEAKER_01: So when we came, we thought it could be about 10% of total shares.
• 32:50
  SPEAKER_01: But we're only able to pick up very few shares in the market to clear that overhang.
• 32:55
  SPEAKER_01: And what happened is that the price moved way above the maximum limit set in
• 32:59
  SPEAKER_01: the regulations because the regulations is 10%.
• 33:02
  SPEAKER_01: And the price went above that and the rules don't allow you to go above that price.
• 33:06
  SPEAKER_01: 10% above the volume weighted average price.
• 33:08
  SPEAKER_01: So imagine you have an approval to do a buyback of 18 months, but you have a price cap of 10%.
• 33:13
  SPEAKER_01: Now the price moved up like 45%.
• 33:17
  SPEAKER_01: So the price, most of the country, we were above that buyback price.
• 33:20
  SPEAKER_01: So we could not come in and buy the shares.
• 33:23
  SPEAKER_01: But it served an important purpose because there was perhaps the period
• 33:26
  SPEAKER_01: when there was liquidity.
• 33:28
  SPEAKER_01: And once that overhang was cleared, the price sort of adjusted upwards.
• 33:32
  SPEAKER_01: So we are currently engaging with the regulator.
• 33:34
  SPEAKER_01: Fred was on the call this morning.
• 33:35
  SPEAKER_01: Our company sector is engaging with the regulator to see whether we can get a renewed approval.
• 33:41
  SPEAKER_01: And then that needs to come back to the shareholders and the upcoming AGM.
• 33:45
  SPEAKER_01: The 10% is in regulation,
• 33:47
  SPEAKER_01: so it's not something you can negotiate, like to have a bandwidth of 20, 30%.
• 33:51
  SPEAKER_01: But Fred is a good negotiator.
• 33:52
  SPEAKER_01: I think he'll see what room the regulator gives us so that you have
• 33:55
  SPEAKER_01: a bit more overhead rules to participate.
• 33:57
  SPEAKER_01: But you can only buy the shares that are available within the price that you're allowed to buy.
• 34:02
  SPEAKER_01: And that's why we did not buy as many shares as we had hoped to buy.
• 34:06
  SPEAKER_00: I think then that shareholders can also write to this market regulator to think
• 34:10
  SPEAKER_00: a little bit around those rules, right?
• 34:12
  SPEAKER_01: Especially when the share price is around 10 shillings.
• 34:15
  SPEAKER_01: 10% is only one shilling.
• 34:28
  SPEAKER_00: Let's talk a little bit about the portfolio,
• 34:30
  SPEAKER_00: the rest of the portfolio,
• 34:31
  SPEAKER_00: maybe with some quick thoughts,
• 34:32
  SPEAKER_00: any that stand out, I think Longhorn, Isuzu, any quick thoughts around that?
• 34:36
  SPEAKER_00: And then also the rest of the portfolio and are there any additions to the portfolio
• 34:41
  SPEAKER_00: that you're thinking about or evaluating currently?
• 34:44
  SPEAKER_01: So the goal is to optimize the operations of the portfolio by injecting as you need
• 34:49
  SPEAKER_01: to in any of the assets.
• 34:50
  SPEAKER_01: So those are the constraints.
• 34:52
  SPEAKER_01: You're not optimizing in a world of no constraints so that you can be able
• 34:55
  SPEAKER_01: to upstream as much as you can and then reallocate.
• 34:58
  SPEAKER_01: So where we see the biggest room to get cash out is in our land portfolio
• 35:03
  SPEAKER_01: because now of all the things we've done around the positioning of
• 35:06
  SPEAKER_01: the various assets.
• 35:07
  SPEAKER_01: We are seeing a lot more cash being upstreamed and that you can reallocate first
• 35:11
  SPEAKER_01: to MSP and then later to new private equity assets.
• 35:14
  SPEAKER_01: The development portfolio is about 6 billion shillings of cash realizable.
• 35:19
  SPEAKER_01: There, what we've done is we've got into arrangements for them
• 35:21
  SPEAKER_01: to get their own project finance debt so that they don't capture the cash flow from
• 35:26
  SPEAKER_01: the land since those can be funded independently through independent SDVs.
• 35:30
  SPEAKER_01: That has gone quite well, starting with the IFC line we got.
• 35:33
  SPEAKER_01: We've got a net bank coming in and a number of international lenders to come in and
• 35:36
  SPEAKER_01: that has significant cash.
• 35:38
  SPEAKER_01: That's a candidate to be spam off and just like Vises and you can bring
• 35:42
  SPEAKER_01: in another partner in there just to accelerate it as a standalone development entity
• 35:47
  SPEAKER_01: and that can probably unlock quite a bit of cash.
• 35:50
  SPEAKER_01: So Eric, the idea is just to set the portfolio as it is and see what more it can do.
• 35:55
  SPEAKER_00: So I guess you're more of at a place where you're chilling a little bit as you...
• 36:00
  SPEAKER_01: You are trying to just optimize the performance of the existing portfolio just
• 36:05
  SPEAKER_01: to see how much more cash you can get out,
• 36:07
  SPEAKER_01: how much more efficient the assets can be.
• 36:09
  SPEAKER_01: If you can bring on board partners into these assets who can help us improve
• 36:13
  SPEAKER_01: the execution capability of the different assets.
• 36:17
  SPEAKER_01: And we may see more transactions from us along those lines.
• 36:20
  SPEAKER_01: So if you stay there, just get a sense that's where we are going to.
• 36:23
  SPEAKER_01: If you see us bring on board partners,
• 36:25
  SPEAKER_01: probably because we feel combined with them, the asset can perform a lot better.
• 36:29
  SPEAKER_00: And then thinking a little bit about Longhorn and Isuzu specifically,
• 36:32
  SPEAKER_00: Longhorn are suffering a little bit from delayed payments and it's a small part
• 36:35
  SPEAKER_00: of your portfolio, but delayed payments as the situation improved there.
• 36:39
  SPEAKER_00: And also with Isuzu, what's the strategy there around EVs?
• 36:43
  SPEAKER_00: Is there a little bit of interest in electric vehicles and perhaps also challenges
• 36:48
  SPEAKER_00: from Chinese brands in the markets?
• 36:50
  SPEAKER_01: Isuzu is largely in the commercial motor vehicle segment.
• 36:54
  SPEAKER_01: So it's not in the passenger vehicles.
• 36:56
  SPEAKER_01: And Kenya new motor vehicles are largely in the commercial motor vehicle segment.
• 37:00
  SPEAKER_01: In that segment, they are a market leader far and away.
• 37:03
  SPEAKER_01: But it's true,
• 37:04
  SPEAKER_01: the Chinese competitors are coming and they are eating a bit of market share there.
• 37:09
  SPEAKER_01: Actually,
• 37:09
  SPEAKER_01: the biggest constraint we've had in Suzu is not even the Chinese,
• 37:12
  SPEAKER_01: it's more Supply chain constraints,
• 37:15
  SPEAKER_01: where the demand is sometimes so high that we're not able to fulfill on time.
• 37:19
  SPEAKER_01: That is a bigger challenge than even the Chinese Megesuzu.
• 37:22
  SPEAKER_01: It's a strong dividend bear, so that is great.
• 37:25
  SPEAKER_01: Longhorn, as you correctly say, it's a very small part of our portfolio.
• 37:28
  SPEAKER_01: It's 50 cents.
• 37:29
  SPEAKER_01: If you divide it per share, our current value is 50 cents.
• 37:32
  SPEAKER_01: So the impact on energy is limited.
• 37:35
  SPEAKER_01: There are a few things we are working on,
• 37:36
  SPEAKER_01: which if they go, they can really turn around that business.
• 37:39
  SPEAKER_01: But which I'm not agree,
• 37:40
  SPEAKER_01: but it will disclose because it's also a listed company,
• 37:43
  SPEAKER_01: but you're supporting them as a shareholder.
• 37:45
  SPEAKER_01: We want to see if that works.
• 37:46
  SPEAKER_01: And it can be a very significant part of our business.
• 37:49
  SPEAKER_01: But right now our downside risk on Long Island is very limited.
• 37:52
  SPEAKER_01: It's, as I've said,
• 37:53
  SPEAKER_01: it has a 50 cent impact on NAV and it's not currently contributing any dividend.
• 37:58
  SPEAKER_00: So a couple more questions as we finish up.
• 38:00
  SPEAKER_00: So one is on the minority stakes versus control trade-off.
• 38:04
  SPEAKER_00: How are you thinking around sometimes feeding control to some of them and
• 38:07
  SPEAKER_00: then retaining minority positions?
• 38:09
  SPEAKER_00: Do they allow you to have enough influence to be able to direct how
• 38:12
  SPEAKER_00: the company is being run in the minority positions that you have?
• 38:15
  SPEAKER_01: Good question.
• 38:16
  SPEAKER_01: This thing depends on the stake where you aim.
• 38:18
  SPEAKER_01: When you have money you need to return,
• 38:21
  SPEAKER_01: it's very important to have control because of marketability of the stake because
• 38:25
  SPEAKER_01: then you can return it through exits.
• 38:28
  SPEAKER_01: When you now don't have money to return,
• 38:30
  SPEAKER_01: what you're looking at is optimization of the asset because you don't need
• 38:34
  SPEAKER_01: to sell it anymore.
• 38:35
  SPEAKER_01: What you're looking at is it being as a long-term part of your portfolio for dividend.
• 38:41
  SPEAKER_01: Now, in that case,
• 38:43
  SPEAKER_01: you don't mind being a significant minority because exit is not in consideration.
• 38:47
  SPEAKER_01: You're driving dividend.
• 38:49
  SPEAKER_01: The face where Centum is now, exit is not a major consideration anymore.
• 38:53
  SPEAKER_01: So the main issue here is optimizing for dividend and cash flows out of their assets.
• 38:59
  SPEAKER_01: In which case, you don't necessarily have to be a control investor.
• 39:03
  SPEAKER_01: You can be a significant minority and bring on board an investor
• 39:07
  SPEAKER_01: with either operating capabilities or can bring in additional capital.
• 39:12
  SPEAKER_01: Just engage us and we'll see where we can work with any operating stuff.
• 39:38
  SPEAKER_00: That's in order.
• 39:38
  SPEAKER_00: There's a question from a shareholder.
• 39:40
  SPEAKER_00: You have a new hat you've put on.
• 39:42
  SPEAKER_00: Are you part of the board of the NIF?
• 39:44
  SPEAKER_00: Are they just wondering whether that is distracting you from your main role at 20MCE?
• 39:48
  SPEAKER_00: Should they be worried a little bit?
• 39:50
  SPEAKER_01: And obviously they shouldn't because we have to keep back to society.
• 39:53
  SPEAKER_01: The biggest constraint we face,
• 39:55
  SPEAKER_01: even for us as private sector investors, is just national infrastructure.
• 39:59
  SPEAKER_01: If you have an airport that is not functioning,
• 40:01
  SPEAKER_01: it affects all of us as private citizens, as corporate citizens.
• 40:06
  SPEAKER_01: Even when functioning airport,
• 40:08
  SPEAKER_01: investments like terrific will do well, people in tourism will do well.
• 40:12
  SPEAKER_01: And we have a part of our business that is in the export business, it will do well.
• 40:15
  SPEAKER_01: These are the sectors the NIF is focusing on.
• 40:18
  SPEAKER_01: They're focusing on five sectors,
• 40:19
  SPEAKER_01: the transport and logistic, energy, which is another sector we're in.
• 40:24
  SPEAKER_01: We've allocated quite a bit of capital into energy,
• 40:27
  SPEAKER_01: but there've been a lot of constraints in that field,
• 40:29
  SPEAKER_01: especially in juvenile power development and other areas,
• 40:31
  SPEAKER_01: which is another area where NIF is in, ICT.
• 40:35
  SPEAKER_01: Water and irrigation and agriculture.
• 40:37
  SPEAKER_01: I think it's actually an honor to be able to lend some expertise and help there
• 40:42
  SPEAKER_01: because the model of NIF is very familiar to Sentam.
• 40:44
  SPEAKER_01: It's about deploying capital, developing assets and restaking that capital back.
• 40:49
  SPEAKER_01: We have to play our role to improve the macroeconomic environment so
• 40:53
  SPEAKER_01: that we can do better in our micro situations.
• 40:57
  SPEAKER_00: Towards the tail end of the conversation,
• 40:58
  SPEAKER_00: paint a picture on where you want Centrum 5.0 to take the company as a whole and
• 41:04
  SPEAKER_00: which journey you want shareholders to be part of, especially in the next one year.
• 41:08
  SPEAKER_00: There's an election around the corner if that influences how you think about investment at all.
• 41:13
  SPEAKER_00: So just paint a picture of the next 12 months in terms of your priority items
• 41:17
  SPEAKER_00: and just the future of Centrum just after Centrum 5.0.
• 41:21
  SPEAKER_01: Let me just give us a sort of view of where we've come from and where we are.
• 41:25
  SPEAKER_01: So if you take it very simply,
• 41:26
  SPEAKER_01: Stephanie, we were a very small company, about 4 billion of assets.
• 41:29
  SPEAKER_01: With this dividend, we'll have returned 5.8 billion.
• 41:33
  SPEAKER_01: So about 140% of the capital will be back.
• 41:36
  SPEAKER_01: If you look at us,
• 41:37
  SPEAKER_01: I was looking at a chart relative to other listed companies over the same period.
• 41:41
  SPEAKER_01: If you look at capital return relative to opening capital from that period,
• 41:45
  SPEAKER_01: I think we're in the top quarter of capital return.
• 41:47
  SPEAKER_01: I think we're getting into a phase where we'll be able to return a lot more capital
• 41:51
  SPEAKER_01: because the period we've spent building assets,
• 41:53
  SPEAKER_01: the way we had funded it, that was a deliberate strategy.
• 41:56
  SPEAKER_01: So it's not going to be a short sort of a one-year thing.
• 41:59
  SPEAKER_01: It's going to be a long term.
• 42:00
  SPEAKER_01: I think it should be a company that is able to make consistent returns
• 42:04
  SPEAKER_01: to shareholders and to continue to play a role in the economy in terms
• 42:07
  SPEAKER_01: of developing new assets.
• 42:08
  SPEAKER_01: The assets we need to develop are long term in nature.
• 42:11
  SPEAKER_01: And that was why we got into this kind of portfolio where you can Realize cash for
• 42:16
  SPEAKER_01: a long period of time.
• 42:18
  SPEAKER_01: In almost an infinite asset,
• 42:19
  SPEAKER_01: particularly through Pingo,
• 42:20
  SPEAKER_01: you can realize two, three billion a year for a long time.
• 42:23
  SPEAKER_01: And that enables you to deploy into new equity investments and not be under
• 42:27
  SPEAKER_01: as much pressure because you're deploying returns.
• 42:30
  SPEAKER_01: So that's really the feature I see for Centrum and we want to keep the risk low at
• 42:34
  SPEAKER_01: the, at the investor level.
• 42:36
  SPEAKER_01: That's why we don't want to take contact and just And invent the shareholders on
• 42:39
  SPEAKER_01: the journey though.
• 42:56
  SPEAKER_01: No, they're most welcome.
• 42:57
  SPEAKER_01: In fact, the point I wanted to make, Eric, I was just looking at the shareholder rates.
• 43:01
  SPEAKER_01: The top four shareholders in two online held 40% of the company.
• 43:04
  SPEAKER_01: Today, the top four hold almost 70%.
• 43:07
  SPEAKER_01: So it has gotten more concentrated.
• 43:08
  SPEAKER_01: So we need to have more people coming on to the party.
• 43:11
  SPEAKER_01: So all shareholders are welcome.
• 43:13
  SPEAKER_01: Due to this journey, we are all in it together.
• 43:15
  SPEAKER_01: You included, Eric.
• 43:17
  SPEAKER_00: Someone is asking whether you're looking at exiting Longhorn.
• 43:20
  SPEAKER_00: Are you keen on Longhorn exits?
• 43:23
  SPEAKER_01: Depends.
• 43:24
  SPEAKER_01: Everything we have is on sale at the right price.
• 43:26
  SPEAKER_00: One quick one,
• 43:27
  SPEAKER_00: maybe as you close,
• 43:28
  SPEAKER_00: what's your maybe advice to the younger people who are starting off?
• 43:30
  SPEAKER_00: I think it's a tough market, especially for getting jobs and all.
• 43:34
  SPEAKER_00: It's just a generally tough market sometimes.
• 43:36
  SPEAKER_00: What's your advice to younger youths who are in the audience and
• 43:39
  SPEAKER_00: who are setting off their journeys in terms of investing,
• 43:43
  SPEAKER_00: in terms of looking at life and what they want to do?
• 43:45
  SPEAKER_00: Could you just share with them maybe personal experience from yourself to them
• 43:50
  SPEAKER_00: on what they can do to be better?
• 43:52
  SPEAKER_01: I think just a few things.
• 43:53
  SPEAKER_01: Just be patient with yourself.
• 43:54
  SPEAKER_01: These things take time and markets have cycles and it's always tough.
• 43:58
  SPEAKER_01: I remember when I myself started in the early 2000s,
• 44:01
  SPEAKER_01: I even knew jobs, the economy was very tough.
• 44:03
  SPEAKER_01: So it's critical.
• 44:04
  SPEAKER_01: So you just need to stay along enough.
• 44:06
  SPEAKER_01: And then just work also on your capacity.
• 44:08
  SPEAKER_01: There's a lot of ambition,
• 44:09
  SPEAKER_01: which is not matched by capacity and capacity takes persistence and resilience.
• 44:14
  SPEAKER_01: Just continue watching up what you're doing and just be patient
• 44:16
  SPEAKER_01: that you don't keep on moving from place to place
• 44:19
  SPEAKER_01: that you can build solid capability.
• 44:21
  SPEAKER_01: Indeed.
• 44:25
  SPEAKER_01: The time has
• 44:33
  SPEAKER_01: moved
• 44:36
  SPEAKER_00: quickly for us.
• 44:36
  SPEAKER_00: We're really grateful that you took the time to come and discuss with us earnings.
• 44:39
  SPEAKER_00: We hope to get you again soon and not wait until the end of the year,
• 44:42
  SPEAKER_00: maybe at some point in the year.
• 44:44
  SPEAKER_00: And perhaps at a certain point,
• 44:45
  SPEAKER_00: we'll also explore bringing some of the portfolio companies to come and discuss
• 44:48
  SPEAKER_00: with us what they're up to.
• 44:50
  SPEAKER_00: On that note, say thank you once again.
• 44:51
  SPEAKER_00: Thank you for the audience.
• 44:52
  SPEAKER_01: Thank you very much, Eric.
• 44:53
  SPEAKER_01: You do a great job.
• 44:54
  SPEAKER_01: You're excellent.
• 44:55
  SPEAKER_01: And thank you very much to everyone who has taken time to log in.
• 44:58
  SPEAKER_01: I really appreciate you.
• 44:59
  SPEAKER_01: Thanks a lot.
• 45:00
  SPEAKER_01: And thank you for my colleagues, especially the ones who did the presentation this morning.
• 45:03
  SPEAKER_01: You guys were excellent.
• 45:04
  SPEAKER_01: Well done to everybody.