“Transcentury should without a doubt be the biggest company in Kenya in a few coming years. It has the DNA, the opportunity and it’s trading in the right sector,” Dr. Gachao Kiuna, Transcentury’s Chief Executive.
By Dinfin Mulupi
VENTURES AFRICA – Fourteen years ago a group of 29 Kenyan entrepreneurs raised Ksh24 million (approx 280,000 US dollars) to start an investment company. The entrepreneurs who had deep business and political connections were driven by the idea of pulling resources and ideas to establish an investment vehicle that would stand the test of time.
Today, that vehicle has been transformed into Transcentury Limited (TCL) Group, with heavy investments in infrastructure in ten countries across Africa. Whilst investment groups, or ‘chamas’ as they are popularly known in Swahili, are well too common in Kenya, the growth of Transcentury sets it apart from the ordinary. Transcentury boasts of an estimated Ksh11.2 billion portfolio ($134,939,759.04 USD).
In 2010, Transcentury recorded a 25 per cent rise in group revenues standing at Ksh. 6.8 billion up from Sh5.4 billion posted in the previous year. Its net profits hit Ksh.468 million up from Ksh. 234 million posted in 2009. The holding company headquartered in Nairobi, Kenya, was listed at the Nairobi Securities Exchange (NSE) on 14th July 2011 opening the door for other investors to have a piece of the pie.
Transcentury’s Chief Executive, 32 year old Dr. Gachao Kiuna, recounts how the firm acquired East Africa Cables, which was at the time a small cable company with about 100, 000 US dollars of net income and increased its output 50 times in a period of six years.
“They focused on the fundamentals which are; driving a lot of revenue in the business by focusing on the consumer, the private sector and the regional markets. They grew the company by going beyond just doing cables but also looking at other opportunities such as transformers and switch gears. This has allowed the company to grow significantly,” says Kiuna.
As of mid-2011, the cable manufacturer announced a more than 946 percent growth on its profit before tax recording a net income of Ksh172.3 million shillings ($2,075,903.61 USD) compared with Ksh. 57 million ($686,746.99 USD) recorded in the same period in 2010. Transcentury holds a 63 per cent stake in East African Cables Ltd.
Transcentury has since made other acquisitions in its three key areas of investment; power infrastructure, transport infrastructure and engineering.
“The future of Trans-century really is around focusing on infrastructure. That is where our shareholders see the big opportunity. This is where historically a lot of the value of the company has been created. The story of African infrastructure is that there isn’t enough of it. There is much more demand than availability of it… all the way from access to power and roads,” says Kiuna.
Last December, the firm acquired a majority stake in a large engineering firm Civicon Ltd, which was established in 1975 and focuses on transport infrastructure, construction, marine engineering and power infrastructure, carrying out operations across Africa and the Middle East.
This came barely months after Transcentury acquired a controlling stake in Pende Electrical based in the copper-belt region of Zambia through its Tanzanian subsidiary Tanelec Ltd (Tanelec) in May 2011. The firm also has a stake in Kewberg Cables of South Africa, Cableries du Congo based in Congo and Avery East Africa limited.
But perhaps one of the most interesting investments for Transcentury, and one that Dr. Kiuna asserts will have tremendous effects in the growth of the Kenyan and Uganda economies is its involvement in railway transport.
Transcentury owns a 34 percent stake in Rift Valley Railways (RVR), the 2,800 Km Kenya-Uganda concessionaire exclusively operating railway services. Citadel Capital, a Cairo-headquartered private equity investment company, holds the majority stake with a 51 percent shareholding through its subsidiary Ambiance Ventures.
“The railways today are only doing less than five percent of cargo that is being moved. We believe that we can at least triple that over the next five years,” says Kiuna.
Last August RVR secured a USD164 million debt-financing package, to support a USD287 million 5-year capital expenditure programme. These funds are being channeled towards the upgrading of the railway services, which currently handles cargo volumes of 1.5 million tons.
According to Aly-Khan Satchu, a Nairobi based investment analyst, some of the strengths that have propelled Transcentury to its heights of success are the skills and talents its original founders have.
“By aggregating their capital, they were able to get a seat at the table and seal the deal. The partners were all deeply embedded in the economy, talented and supremely networked. Capital and navigation skills were powerful tailwinds,’ says Satchu.
Dr. Jim McFie, the Academic and Research Director, Faculty of Commerce at the Strathmore University, Kenya, attributes the success of the investment firm to the visionary leadership of the firm’s founders and professional management of its businesses.
“Their founding Chairman (the late) James Gachui was a visionary man and very smart. He hired the right people to run the investment firm. Their current chairman (Zephania Mbugua) has also invested in talented people. The future success of Transcentury will depend on having the right people doing the right job,” Dr. McFie opined.
The listing of Transcentury at the NSE last July sparked a lot of excitement in the market. After all, it had been years since the last listing at the Alternative Investment Market Segment (AIMS) of the NSE. Stella Kilonzo, the Chief Executive of Capital Markets Authority, the market regulator, described the listing of Transcentury as ‘the true success story for the Kenyan investment industry’.
“This company which started as a small ‘chama’ has grown in leaps and bounds over the years to be one of the most recognized and respected investment vehicles in East and Central Africa,” said Kilonzo.
The listing also marked a new dawn for the company, but the poor performance of the stock market due to macroeconomic challenges occasioned by last year’s double digit inflation, high interest rates and a weakening shilling, have seen the firm’s share price depreciate from the reference price of Ksh. 50 to stand at Ksh. 20.25 (as at March 2nd2012) giving it a market valuation of Ksh. 5.5 billion ($66,265.06 USD)
“The NSE market has been difficult, not just for us but for everybody. One of the philosophies of Transcentury is that we are very long-term minded. The reason we were listing was to let people understand the company better. It is an opportunity for other people to get on board. The stock market is a very short-time minded place. Infrastructure is not a day to day game it is something you worry about long-term,” says Kiuna.
The company he insists is well on its path to success. He explains that the company has for instance tripled the capacity of some of its key-manufacturing units to meet the growing demand for its products in the market.
“What we are going to see is the tripling of capacity in our power business. The new acquisitions that we have made, including Civicon Ltd, are going to contribute to the overall growth of the portfolio. Over a five year period we are going to see the company growing as much as ten times from what it was last year,” he quips.
Transcentury and its subsidiaries recorded increased cost of doing business in 2011 by the challenging economic environment witnessed in Kenya and other Eastern Africa states. Kiuna, however, down plays this as ‘short-term shocks’ that cannot have an impact on the long-term vision the company and its founders hold.
“When running an investment company, there are two challenges that you will always face. One is capital; you can never have enough because it’s a scarce resource. For us, the challenge is how to optimize our capital structure. The second challenge is people; good people are hard to find,”
Though Transcentury has more presence in Eastern Africa, this is set to change as the company extends its tentacles across Africa.
“Our ambition is to be a Pan-African company and operate across sub-Saharan Africa. Today we are really focused on East Africa and slowly growing towards Southern Africa. East, Central and Southern Africa are really going to be the first areas of growth. Over time you will see us move towards West Africa,” he says.
The company’s expectations for 2012? One word – Bullish!
“We are seeing a lot of investments in infrastructure reason being that African is becoming the last frontier for a lot of very exciting opportunities like oil and gas and mining. These will drive African economies creating lots of projects and opportunities for us,” says Kiuna.
This, he describes as the most exciting time in Africa. Despite the debt crisis in Europe and rather slow economic growth in the US economy and other parts of the world, Africa is the home of new and exciting opportunities.
“Where is the low hanging fruit? The answer for me is obviously Africa. These opportunities in Africa will open doors for us to become the largest infrastructure company in the next ten years,” he said.
Whilst the original founders of Transcentury are well advanced in years, not all participate in the day to day running of the company and some have since died, their vision now lies in the younger generation, like Kiuna.
“The vision of the people who founded Transcentury was to build wealth over generations and create a strong African institution. The founders’ passion was also driven by the fact that in the 1980’s and 90’s not a lot of wealth was created in Kenya. They wanted to break that cycle and get on the China, India and South Asia path where long-term investments have proved meaningful…”
This vision is still on course. Professionals have always managed Transcentury since its founders from the onset did not want to handle its day-to-day operations.
“We have always had a young and dynamic team backed up by an older more experienced and entrepreneurial shareholders and directors. This is a powerful combination, bringing together two very different sets of skill which is the way to get leverage,” says Kiuna.
Professional management, he reckons, is a thing investment groups should adopt for them to attain success. Investors, he argues, should understand that effective management is key in the success of any venture. Leadership needs to be in the hands of a few people with the consent of the group to drive the agenda.
Poor management, he argues is to blame for not driving most Kenya’s ‘chamas’ to the next level. Most have stopped at the purchase of household equipment while those that have conquered heights have bought land. The investments choice a group makes is key to its overall success.
“The reason people come together in an investment company should be to do something they cannot do as an individual. If you come together to buy shares at the NSE there is no leverage, as an individual can still do that. You also have no influence on how that investment is performing. These are some of the things people miss,” he adds.
In Transcentury, investors pooled resources to buy East Africa Cables Ltd, which as individuals they would not have been able to. This gave them control of their destiny. They could run the business in way to steer it to profitability.
Investment groups, he argues, is the way to go for African investors.
“For Africa to grow like the Tiger economies it requires good leadership and domestic investment. We need to aggregate domestic capital to drive the most interesting opportunities. Foreign capital tends to follow domestic capital, I would encourage people to pool resources,” says Kiuna.
The real catalyst for wealth creation is aggregating wealth and putting it into high potential investments, like infrastructure, which in itself has a multiplier effect on the investment and the economy. This will help Kenya achieve the Vision 2030, the country’s economic blueprint- Kiuna was part of the team that worked on the project.
The young CEO hopes to build a strong African institution, pointing out that East Africa is yet to develop large global institutions.
“We don’t have an Apple of Kenya. All the big economies have created their own Apples. The question is how do we develop our own giants which will be the engines generating meaningful growth and economic prosperity for everybody.”
Kiuna who has been hailed as one of the youngest and most influential business leaders in Kenya and was last year listed among the 10 Youngest Power Men in Africa by Forbes Magazine argues that the benefit of being an older CEO is exaggerated.
Many things, he opines, are possible much more beyond the barriers people put beyond themselves.
“I see people my age managing 10 times what I manage. When I look at Transcentury’s 100 million US dollars I think this need to be a billion dollar company. It is a question of how ambitious you are. Africa’s youth should not limit themselves,” says Kiuna
The Cambridge graduate exuded optimism and confidence asked about the growth trajectory of Transcentury.
“Transcentury should without a doubt be the biggest company in Kenya in a few coming years. It has the DNA, the opportunity and it’s trading in the right sector,” he said.