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Centum Investment's financial results commentary.

header A commentary on Centum Investment's financial results for the year ended March 31, 2019 A commentary on Centum Investment's financial results for the year ended March 31, 2019Key performance highlights class="font-size--16 MsoNormalGroup performance: Total Assets in the 12-month period have increased by eight per cent to Sh71.6 billion.Net Asset Value per share grew by eight per cent to Sh79 on the back of fair gains from both our private equity and real estate businesses.

Consolidated Profit after Tax grew by 48 per cent to S.1 billion during the period.

Real Estate Portfolio had a fair value gain of Sh7.5 billion through significant activation and sales on our current sites.Exit realization of Sh1.2 billion in the Private Equity Portfolio from the sale of GenAfrica with a holding period IRR of 29 per cent.

class="font-size--16 MsoNormalCompany performance: Flat performance in Company Total Return with a one per cent increase to S.7 billion.

Shareholder funds increased by eight per cent to Sh52.6 billion.Growth in Total Assets by eight per cent to Sh71.6 billion.

class="font-size--16 MsoNormalJames Mworia, Group CEO Centum Investment Co. Plc commented class="font-size--16 MsoNormalCentum 3.

0 Review class="font-size--16 MsoNormalIn the strategic period ended March 31, 2019, dubbed 'Centum 3.0', we set out a plan that anchored Centum as a master developer of investment-grade opportunities of scale.

class="font-size--16 MsoNormalThis was within a backdrop of economic headwinds who's impact cut across all sectors and industries. I am pleased to report that during this strategic period Centum grew its assets from Sh28.8 billion to Sh71.6 billion a compounded growth rate of 20 per cent.

class="font-size--16 MsoNormalOur NAV per share also recorded a remarkable growth of 18 per cent in the period closing at Sh79 from S4.5 at the start of the strategic period. class="font-size--16 MsoNormalThis strong asset growth was funded by internally generated funds and debt without any equity raise from our shareholders.

class="font-size--16 MsoNormalWe realised S6.3 billion in exit proceeds from our investment portfolio and gains of Sh24.3 billion over the strategic period. In addition, we raised Sh10.2 billion through two corporate bonds and a Sh7.5 billion bank term loan.

class="font-size--16 MsoNormalOf the bond raises, the first bond of S.2 billion was redeemed in September 2017 using internally generated funds.

class="font-size--16 MsoNormalOne of our key developments in Centum 3.0 was the consolidation of 3 bottlers to form Almasi Beverages Limited and the acquisition of a majority stake in 2015. class="font-size--16 MsoNormalDuring the strategy period Almasi has invested in new Returnable Glass and PET lines and optimized its operational efficiencies and distribution channels.

This has resulted in a 4X growth in EBITDA over this period. class="font-size--16 MsoNormalI am very pleased to announce that we have entered into an agreement to sell our shareholding in Almasi Beverages and Nairobi Bottlers Limited at a transaction price of Sh19.5 billion.

class="font-size--16 MsoNormalThe combined historical cost of the two assets is S.4 billion and the achieved exit valuation speaks to the success of our investment cycle and portfolio management strategy that included consolidation of 3 bottlers into Almasi Beverages and acquisition of a majority stake in the business over the Centum 3.0 period.

class="font-size--16 MsoNormalWe expect to close the transaction in FY20. The proceeds will be applied towards settling USD obligations amounting to Sh7.5 billion, resulting in savings of Sh700 million in finance costs. class="font-size--16 MsoNormalContinued activation of our RE sites and monetization events class="font-size--16 MsoNormalOur Real Estate business makes up half of our portfolio and our focus continues to be the monetisation of our landbanks through launching of in-fill development as well as sale of land and development rights.

class="font-size--16 MsoNormalWe also target to enhance our existing developments through new anchor hospitality and lifestyle developments. Across our landbanks, we are gaining significant traction with recorded strong pre-sales of residential units and sale of land at valuation multiples several times higher than our recorded carrying value.

class="font-size--16 MsoNormalThrough a phased approach we are currently constructing 1,200 out of 3,000 units as a first phase of this first phase we have attained a 51 per cent (606 units) pre-sales in a remarkable short time of 10 months. class="font-size--16 MsoNormalIn Vipingo Development, our two residential projects Awali Estate and 1255 Palm Ridge has a total of 2,079 units in the pipeline with phase 1 comprising of 402 units.

During the period we achieved pre-sales of 337 units, attracting a range of Sh1.4 1.5 billion in potential revenue.

class="font-size--16 MsoNormalWe have begun construction of Phase 1 of both 1255 Palm Ridge and of Awali Estate with an expected completion in 2020. class="font-size--16 MsoNormalIn addition to this, Vipingo has sold development rights for a retail center and industrial development (comprising of an auto service center and an oil distributor). class="font-size--16 MsoNormalThis was at a significant multiple to carrying value, supporting our investment property valuations.

Phase 1 of the water desalination plant is at testing phase and on schedule to be completed in 2019. class="font-size--16 MsoNormalIn Pearl Marina, we have 1,063 units in the pipeline with phase 1 made up of 279 units of which 204 have been pre-sold. We have so far pre-sold 204 units attracting Sh1.8 billion in potential revenue.

class="font-size--16 MsoNormalConstruction commenced in Q4 2018 for Mirabella Residences, a 22-unit development and Q2 2019 for Bella Vista Apartments, a 222-unit development. Construction completion for the two projects is expected in 2020 and 2021 respectively.

class="font-size--16 MsoNormalAt Two Rivers Development, we continue to focus on sale of development rights and engaging with development partners to launch various projects within the precinct. class="font-size--16 MsoNormalWe are also carrying out market validation of our Riverbank Apartments and Cascadia Apartments projects.

To date we have pre-sold 15 units in Riverbank Apartments and 50 units in Cascadia Apartments attracting a range of Sh1.3 1.4 billion in potential revenue.

class="font-size--16 MsoNormalTwo Rivers Mall, owned by Two Rivers Lifestyle Centre in which we have an effective stake of 29 per cent, is currently 81 per cent let on gross lettable area and is projected to close the calendar year at 90 per cent based on the pipeline of tenants we have in the tenant engagement and fit out process. class="font-size--16 MsoNormalNew tenants that have signed on include Millionaires Casino (2,500sqm), Oca Decor (2,200sqm), A1 Auto Garage (300sqm) and Vita Foam (200sqm).

class="font-size--16 MsoNormalIncreased performance of underlying assets within the PE Portfolio class="font-size--16 MsoNormalOver the financial period in review, our Private Equity business' consolidated dividend income received from portfolio companies where the Group holds minority stakes increased by 60 per cent with Sh0.89 billion recorded in consolidated operating profit on the back of the sale of GenAfrica Asset Managers earlier in the year and Sidian Bank's improved performance. class="font-size--16 MsoNormalThe sale of GenAfrica realised a gain of Sh1.2 billion and a holding period IRR of 29 per cent for the investment.

Sidian Bank's improved performance is off its trade finance income leading to a S39 million increase in non-funded income and a 12 per cent growth in gross loans in the financial period. class="font-size--16 MsoNormalThe Group's beverage business reported a flat performance in revenues, with a nominal decrease of three per cent.

class="font-size--16 MsoNormalThis performance was largely on account of weather-related distribution channel disruptions in 2018 and depressed consumer demand in the first half of the year. class="font-size--16 MsoNormalThis trend has however reversed in the quarter ended March 31, 2019, with revenues growing by 22 per cent compared to a similar period last year.

class="font-size--16 MsoNormalThe Group's banking subsidiary, Sidian Bank Limited, has seen significant improvement in its performance compared to the prior year. class="font-size--16 MsoNormalThe bank's focus on growing its non-funded income through growth in trade finance business has seen non-funded income increase by 44 per cent compared to 2018. class="font-size--16 MsoNormalNotably, non-funded income was higher than net interest income during the period while trade finance balances have grown by 77 per cent over the last 12 months, demonstrating the successful implementation of the bank's new strategic focus.

class="font-size--16 MsoNormalThe bank has also recorded a 10 per cent growth in total assets and 14 per cent in customer deposits over the twelve-month period ended March 31, 2019. class="font-size--16 MsoNormalTo support this growth, we recapitalised the bank in 2018 through a full subscription to its Sh1.2 billion rights issue. The bank also closed on a Sh1.2 billion Tier II Capital Facility from Denmark's Investment Fund for Developing Countries (IFU).

class="font-size--16 MsoNormalThe bank's strong capital base, balance sheet and trade finance book have provided it with a strong growth platform that saw it return to profitability in the quarter ended March 31, 2019. class="font-size--16 MsoNormalLonghorn Publishers Limited recorded a Sh176 million growth in profits, driven by top line growth as a result of delivery on public sector tenders. class="font-size--16 MsoNormalSignificant potential within the Development Portfolio class="font-size--16 MsoNormalOn the Development Portfolio side our investment in the education sector through Africa Crest Education (ACE) has seen the opening of the first school in the country SABIS International School Runda.

class="font-size--16 MsoNormalThe school admitted its first students in September 2018 and currently has 73 students enrolled. class="font-size--16 MsoNormalIn the power sector we continue working towards financial close for Amu Power and for Akiira Geothermal we are partnering with KenGen on further drilling of our exploration wells.

class="font-size--16 MsoNormalGreenblade Growers our Agribusiness continues to progress well producing 200 tonnes over the 12-month period. Our focus going forward will be packhouse optimization and enhancing our production volumes and quality.

class="font-size--16 MsoNormalMSP returns consistently beat NSE returns class="font-size--16 MsoNormalOur Marketable Securities Portfolio recorded a dollar return of -5.4 per cent vs primary benchmarks [FTSE NSE Kenya 25 Index -18.6 per cent and MSCI Africa ex-South Africa Index -17.6 per cent] in a challenging capital market environment. class="font-size--16 MsoNormalOver the twelve months review period, the portfolio recorded a realised cash investment income of S00m.

class="font-size--16 MsoNormalOutlook Centum 4.0 class="font-size--16 MsoNormalThere have also been key learnings that have informed our current strategic period Centum 4.

0, that commenced April 2019 and that will run to March 2024. class="font-size--16 MsoNormalWe have streamlined our operations into 3 distinct business units namely Real Estate, Private Equity and Marketable Securities. class="font-size--16 MsoNormalThe target asset allocations for the three are 30-35 per cent Real Estate, 35-45 per cent Private Equity and 20-30 per cent Marketable Securities.

class="font-size--16 MsoNormalWe target to grow our total returns at an annual rate of 20 per cent, with specific targets for cash returns. class="font-size--16 MsoNormalCentum 4.

0 has a greater focus on return and specifically on dividend payout optimization, we target to grow our total returns at an annual rate of 20 per cent a stronger liquidity base by maintaining a 12-month cash cover, optimizing our capital structure and repaying all long-term borrowing at Group level, a leaner cost structure with an operating cost-to-cash annuity income of 30 per cent, restructure of the portfolio class weightings while accelerating growth, and finally organizational excellence through optimization of our operating model to ensure effective and efficient execution of our strategy.
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Publication:Daily Nation, Kenya (Nairobi, Kenya)
Date:Jun 12, 2019
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