The Nation Newspaper

Category: Business

Over 300 brokers get Fed Govt’s group life account

Nigerian Stock Exchange

About 300 brokers were appointed by the Head of Service of the Federation (HSOF) for this year’s Federal Government’s group life insurance, The Nation has learnt.
A broker, who asked not to be named, said the premium was valued at about N7 billion, adding that over 300 brokers were appointed.
Observers, who expressed misgivings over the delay in the release of the premium, called on the government to ensure the premium is released early in the year to forestall issues arising from claims settlement.

A stakeholder urged the government to pay attention to insurance development by ensuring that premiums are paid as at when due, adding that insurance is a necessity which must be considered first among other priorities.

He said: “Delay in payment of premium is not good for the development of the industry. It is an irony that the government which is supposed to encourage insurance growth is the one contravening its law thereby constraining the market. If huge premium is paid as at when due, it would go a long way in growing the industry.

“The government is not doing well; it should see insurance as a necessary expenditure that must be paid as other expenditure heads. Insurance should not be treated as an after-thought, because we live in a world of risks. Government should note that by paying premium, it is not doing underwriters a favour, but it is a necessary obligation that must be met.”
There has been anxiety in the industry over the payment of claims to government employees that died in the Dana air clash as a result of the non payment of the group life premium.

Former Chairman, Nigerian Insurers Association (NIA), Olusola Ladipo-Ajayi, who spoke on the position of insurers on the claims, said the No Premium No Cover’ clause would not deter insurers from settling the claims of the civil servants who died in the crash.

He said though the Federal Government is yet to pay the group life cover for its employees; insurers would settle the claims arising from the mishap and collect the premium later.

“On the issue of Head of Service, I know the laws says ‘No premium No cover’, but I am not aware that the law criminalises the issue of granting cover without premium. To the best of my understanding and belief, it is a gentle man’s agreement, when premiums have not been paid, that cover exists.

“It has been a serious problem because the federal government is the major insurance buyer in this country. Insurance companies have been in the habit of collecting their premium in arrears. I am sure no insurance company will raise the clause at this point in time for the civil servants that died in the air crash,” he said.

He assured that insurers and government would resolve the issue to ensure that the victims get their benefits.

September 12, 2012
CBN, Identity Commission’s partnership intact, says DG

The Identity Management Commission’s (NIMC) collaboration with the Central Bank of Nigeria (CBN) on providing a National Identity Number (NIN) for bank customers is still intact, the Director-General of the Commission, Chris Onyemenam has said.
He however, acknowledged that there are some hitches in the implementation of the project, but both parties have not jettisoned it.
He explained that what has happened was that there was medium to long-term goal by the apex bank, which is working on a closed database for bank customers.
He said regulator is entitled to have its own database because it wants to fight fraud and other social vices that come with lack of unique identity number.
“The CBN has not jettisoned the NIMC plan, what has happened is that there is medium to long term goal. Any database that is a closed database that is meant only for a particular sector is targeted at exclusion. The CBN is entitled to have its own database because it wants to fight fraud and other social vices that come with lack of unique identity card,” he said.
He said that although the apex bank has plans to introduce a closed database for the banking sector, there was need for consistency in the process so that when integration becomes necessary, it can easily adapt.
The CBN had recently unfolded plans of the Bankers’ Committee to acquire a biometric-based unique identification portal that will enable it institute a unique database for bank customers.
CBN Deputy Governor Operations, Tunde Lemo said the Committee had taken a decision on a Unique Identity and there is already a sub-committee on the matter.
Lemo said the Committee was working very hard on biometric-based unique identification portal that will be available to all banks, making it possible for them to have a unique account data base for their customers.
This, he explained, will enable the banks to have a unique identification for all bank customers across the entire industry. The apex bank had imposed fresh condition that from January 8, 2013, owning and operating a bank account in the country would require the customer to have a National Identity Number, NIN.
The apex bank in conjunction with NIMC, and the Nigeria Interbank Settlement System, NIBSS, is expected to commence a three months enrollment exercise for all existing banks’ customers to capture their biometrics and issue to them NIN as well as a General Purpose Identity Card.

September 12, 2012
Insurance penetration low in Nigeria, says FBN Life boss

Insurance penetration in Nigeria is low with Life Insurance below 0.3 per cent and non-life slightly above 0.5 per cent, Managing Director, FBN Life Assurance Company Plc, Val Ojuma, has said.

Speaking during an interview in Lagos, he said the National Insurance Commission (NAICOM)
and industry operators were working together to increase insurance education and awareness among the public. Also, the regulator is encouraging operators to redesign the various products offerings to make them more consumer friendly.

“ The challenge of distribution remains daunting with poor state of infrastructure for premium collection. Overall, most operators have become aware that the size of the uninsured public offer great potentials for premium growth and will therefore increase penetration,” he said.
He said FBN Life Assurance Company Plc, a subsidiary of FirstBank of Nigeria Plc, strategy right from inception is to offer customised products to customers at the least cost.

He listed some of the company’s retail products to include Flexi Savings Plan, Flexi Cash flow, Flexi Education Plan, Extended Family Support Plan.

Ojuma said the firm’s approach would attract more insurance consumers, build confidence, increase market penetration, enhance industry contribution to overall economy, and position the sector for global competitiveness.

“The company, which is the latest arrival in the insurance industry, having got its licence in 2010, is excited about the reception of its products by insurance consumers, stating that its impetus has awakened old and complacent players in its line of business,” he said.

He said the firm had always met and sometimes exceeded its standard in claims payment, making claims payment within 24 hours.
Ojuma said the company’s products have received very wide acceptance, much to its surprise and delight, pointing out that all have been designed with the consumers in mind, and to address specific gaps in existing product offerings in the market.

According to him, the company is taking advantage of its Financial Advisers and the extensive network of FirstBank of Nigeria to reach potential customers. “We are now able to bring insurance closer to potential customers. We have held several seminars in Lagos and are extending various educational programmes to schools and associations across Nigeria, to enhance the public understanding of insurance,” he said.

He said the company is not yet where it wants to be in terms of service delivery, as there is always need for improvement. However, he said that the firm’s service delivery will improve significantly before the end of the year.

He said the firm’s products have been well received and we have brought some new excitement into the industry. “The old operators, whom seem to have been complacent, have been awakened by our impetus. Our shareholders have shown a lot of understanding and our directors have supported our strategies,” he said.

September 12, 2012
‘Third quarter earnings will lift equities further’

Amidst concerns about the sustainability of the bullish rally at the stock market, market pundits and analysts have said expectations of good third quarter earnings by quoted companies would give fillip to market recovery through to the last quarter.
Major investment advisers and fund managers said the market was still skewed for upswing citing substantial undervaluation of several equities and good interim earnings reports by companies.
Managing director, GTI Securities, Mr Tunde Oyekunle, said third quarter earnings reports would provide impetus for a new round of strong rally as investors anticipate better returns by the year-end.
According to him, while equities have run creditably well in recent weeks on positive investors’ sentiments on returns prospects and valuations, third quarter earnings would enhance the market’s recovery.
He noted that although profit-taking transactions may weigh in later this month, early results for the nine-month period ended September 30, 2012 which are expected in middle of next month would further wet investors’ appetite.
Post-listing rules of Nigerian Stock Exchange (NSE) requires that audited annual accounts of companies should be submitted within three months after the year end while quarterly financial statements are expected to be made available 45 days after the end of the quarter.
Regulatory filing calendar made available by the NSE indicated that companies are expected to have fully submitted their third quarter earnings report by Thursday, November 15, 2012.
Managing Director, Financial Derivatives Company (FDC) Limited, Mr Bismarck Rewane, said the improving fundamentals of quoted companies should point to a higher market.
According to him, several international investors are taking tentative positions in fundamentally strong companies ahead of the earnings season.
He pointed out that banking, food and beverages, agriculture and brewery sectors hold greater prospects for returns to investors.
Rewane predicted that the market would likely gain 5.0 per cent this month to sustain its month-on-month rally in this quarter.
He advised investors to look out for three key variables of earnings growth, quality and sustainability of business model and valuation and versatility in determining the best stocks to pick.
According to him, the most important attribute of a winning stock is its earnings growth profile while the quality of a company’s products, balance sheet and management as well as comparative valuation to its peers would complement the resilience of such stock in any market situation.
He noted that in spite of the sustained rally witnessed recently which signaled the commencement of a bull rally, the Nigerian market remains the only one that has not recovered its losses as it is still some 60 per cent below its peak in 2008.
Analysts at FSDH Securities said they expected that equities market would continue to receive positive investors’ sentiment as investors seek value in fundamentally strong stocks in the face of dwindling yields in the fixed income market.
They noted that though there could be profit-taking transactions, there were still several stocks with fundamentals that can generate good returns.
Analysts said they expected average return by equities to retain some additional gains by the end of this month, in spite of accumulated gains that may tempt investors to increase shares supply.
The Nigerian stock market opened this week with average year-to-date return of 19.82 per cent.
Although most analysts were still cautious about the short-term outlook of the market, they agreed that impressive third quarter earnings would significantly enhance the attractions of low-priced equities.
According to analysts, with potential dividend yields on several stocks in double-digits, most discerning investors might find the stock market more attractive than largely single-digit offering of the fixed-income markets.

September 12, 2012
Flour Mills’ plan to reabsorb Bagco shocks investors

Investors have expressed shock over the sudden decision of Flour Mills of Nigeria Plc to reabsorb its subsidiary- Nigerian Bag Manufacturing Company (Bagco) Plc, which was spun off and listed as a separate entity on the Nigerian Stock Exchange (NSE) in 2008.
Shareholders who spoke to The Nation, said they were yet to fully grasp the rationale behind the decision, pointing out that Bagco appeared to be stable and in good stead for continued growth.
Flour Mills had last weekend indicated it would reabsorb Bagco and its subsidiary- Northern Bag Manufacturing Company Limited (Bagco-North). Flour Mills holds 70 per cent equity stake in Bagco. Bagco, a manufacturer of woven and laminated polypropylene bags, was incorporated in 1964 and had operated as a division and subsidiary of Flour Mills of Nigeria until it was spun off in 2007. It was listed on the NSE in April 2008 after a successful Initial Public Offering (IPO). Bagco Group includes two subsidiaries-Bagco Morpack Nigeria Limited and Northern Bag Manufacturing Company Limited.
A leader in one of the shareholders’ association and activist, Alhaji Gbadebo Olatokunbo, said shareholders were surprised by the decision as there were no indications to that effect.
According to him, it was more surprising because Bagco is doing well and shareholders are happy with the company’s performance.
He, however, said Flour Mills has already contacted minority shareholders and promised to discuss the rationales behind the decision with them.
Market operators who spoke under condition of anonymity, said the decision further brought to the fore the issue of attractiveness of listing on the NSE.
They noted that availability of fiscal and regulatory incentives purposely for quoted companies would have discouraged companies from thinking about delisting, even at slightest change.
According to the plan by Flour Mills, the re-absorption would entail the transfer of all assets, liabilities and undertakings of Bagco and Bagco-North to Flour Mills of Nigeria. Consequently, the entire issued share capital of Bagco and Bagco-North would be cancelled and the minority shareholders of Bagco will have an option to elect for cash or shares in Flour Mills at a price to be determined using mutually agreed valuation methods. Bagco and Bagco-North will therefore be dissolved without winding up.
Flour Mills stated that the combination would streamline operations, reduce administrative costs, improve operating efficiency and capture the full synergies arising from the merger, which, in turn will result in a significant enhancement of shareholder value.
Bagco had sold its IPO at N3.90 per share. It opened yesterday at N1.80 per share.
With 35 per cent increase in net earnings per share from 16.5 kobo in 2011 to 22.3 kobo in 2012, Bagco increased cash dividends from N808 million in 2011 to N870 million 2012. This implies a dividend per share of 14 kobo for 2012 as against 13 kobo paid for 2011. The future dividend outlook of the company remained robust with a dividend cover of 1.59 times in 2012 as against 1.29 times in 2011. Net assets per share also increased from N1.48 to N1.57. The yields of the subsidiary are better than that of Flour Mills, which had struggled with declining margins in recent years.

September 12, 2012
Brokers bid for NLNG accounts

The Nigerian Liquefied Natu-ral Gas (NLNG) has written to selected brokers to bid for its insurance stake.
A source from the Nigerian Council of Registered Insurance Brokers (NCRIB) said the firm disqualified some brokers and wrote to some others for financial bids.

He noted that successful brokers in the bidding would be appointed to handle the over N1 billion insurance business of the organisation.

President, Nigerian Council for Registered Insurance Brokers (NCRIB), Mrs Laide Osijo, said brokers have been equipped to provide all types of oil and gas risks, adding that the Local Content policy has created enormous opportunities for insurance firms, especially the brokering sector.
President, Lagos Area Council (NCRIB), Tunde Oguntade, said the NLNG business is good for brokers, adding that brokers are working to meet the 70 percent provided for them in the Nigerian Content Act.

Oguntade said the involvement of brokers in oil and gas would boost their capacity and growth, stressing that local operators would stem the outflow of premiums from the country.

“We are looking at 70 per cent as stated in the law. That means that 70 per cent premium that used to go outside the country in the past, now has to be with local underwriters and brokers. This would enable us improve on our capacity, train, source good rates and do corporate social responsibility,” he said.

September 12, 2012
UACN Group sees lower profit in 2012

•Projects N14b profit
The three quoted companies that formed the nucleus of the UAC of Nigeria (UACN) Group are expected to pool about N13.6 billion in pre-tax profit by the end of the business year ending December 31, 2012, some N3.4 billion short of combined pre-tax earnings for last year operations.
The UACN Group principally consists of three quoted companies-UACN, parent and holding company; UACN Property and Development Company (UPDC) Plc, the real estate subsidiary and CAP Plc, the paints and allied products subsidiary.
According to latest forecast by directors of the group, both UACN and UPDC are expected to witness declines in profits this year while CAP is expected to turn in a modest increase in profit. But net earnings of these companies are expected to remain substantially high to cover previous dividend payouts.
While UACN is still estimated to provide more than two-thirds of the total profit by the three companies, CAP remains the most profitable company. UACN, which aggregate returns from subsidiaries, is expected to contribute 71.7 per cent of pre-tax profit while UPDC and CAP are estimated to account for 17 per cent and 11.5 per cent respectively.
Average pre-tax profit per N100 unit of sales by UACN is estimated to drop from N20.4 in 2011 to N14.12 in 2012. With this, net earnings per share for the conglomerate could decline from N6.37 made in 2011 to N4.39 in 2012. UACN had paid a dividend per share of N1.50 for the 2011 business year.
Also, average pre-tax profit margin for UPDC is expected to drop from N25.3 on every N100 income in 2011 to N16.73 in 2012. The real estate’s net earnings per share, which had closed 2011 at N1.48, is projected to drop to N1.14 in 2012. UPDC distributed dividend per share of 65 kobo for 2011 business year.
But CAP is projected to fight off the sluggish bottom-line. Pre-tax profit margin is expected to improve marginally from N30.15 on every N100 sales in 2011 to N30.87 in 2012. Basic earnings per share could thus increase from N1.79 in 2011 to N1.90 in 2012. CAP had paid N1.50 cash dividend on every share in the immediate past year.
The forecast show that while UPDC is expected to witness increase in turnover from N10.75 billion in 2011 to N13.74 billion in 2012, rising costs may undermine the bottom-line. Profits before and after tax are estimated at N2.30 billion and N1.57 billion in 2012 respectively as against N2.72 billion and N2 billion recorded respectively in 2011.
In the same vein, UACN is expected to increase total sales from N63.59 billion in 2011 to N69.03 billion in 2012. But profit before tax is estimated to slow down to N9.75 billion this year as against N12.98 billion made in 2011. After taxes, net profit is projected to drop to N7.02 billion from N10.20 billion in previous year.
However, CAP is expected to sustain exceptional resilience with modest increase in all key performance indicators. Turnover is estimated to increase to N5.06 billion in 2012 compared with N4.31 billion in 2011. Profit before tax is projected to improve from N1.30 billion in 2011 to N1.56 billion in 2012 while net profit after tax is expected to inch up to N1.06 billion from N1.0 billion in 2011.
UACN’s profit in 2011 was boosted significantly by extra-ordinary incomes from a one-off sale of equity stake in a non-quoted subsidiary. Excluding extraordinary income, the operational profit of the conglomerate could be better.
UACN has also recently reported arrangements to acquire majority shareholdings in two quoted companies- Livestock Feeds Plc and Portland Paints and Products Plc. The moves were widely seen as strategic efforts to consolidate the conglomerate’s leadership positions in certain sectors and also tap into emerging opportunities.
At a recent general meeting with shareholders, Chairman, UAC of Nigeria (UACN) Plc, Senator Udoma Udoma, said the conglomerate would continue to grow in its sales and profitability.
According to him, the conglomerate has a positive view of future growth of the Nigerian economy and would tap into this growth potential to deliver better returns to shareholders.
He outlined that the company’s strategy was to target top-line growth that significantly exceeds Nigeria’s annual GDP growth rate as the conglomerate build on its existing businesses and make related acquisitions to deliver growth.

September 12, 2012
Company launches private health insurance exchange

Flexible Benefit Service Corporation (Flex) has launched its ‘Insure XSolutions’ private health insurance exchange. The private exchange promotes a defined contribution funding model that gives uninsured employers a way to set their own budget and assist employees with health care expenses.The Insure XSolutions web platform provides an online insurance marketplace where employees can shop, compare and apply for insurance plans that fit their personal needs.

Available in select markets, InsureXSolutions is an ideal solution for employers currently not offering employee benefits. Employers simply allocate a fixed amount of funds for each employee.

Employees can then login to the InsureXSolutions web portal for access to online quoting and comparison resources for individual and family insurance plans from various national and regional insurance companies. Once employees find the right plan, they use the InsureXSolutions online marketplace to directly apply for health insurance, Medicare, short-term insurance and/or vi
sion insurance.

September 12, 2012
RMRDC calls for use of local technology

Director-General, Raw Materials Research and Development Council (RMRDC), Prof. Peter Onwualu, has called for the use of local technology in the fabrication of machineries for processing raw materials.

Onwualu made the call in Abuja at the Third National Competition on Design of Processing Equipment and Plant organised by the organisation.

He said the absence of appropriate local technology and the challenges associated with imported machinery constituted great hindrance to raw materials processing.

Onwualu said the country was endowed with abundant natural resources, which needed to be harnessed to transform its economy. According to him, most of the available processing equipment in the country is outdated.

He pointed out that the locally fabricated ones are produced without specification. Such machineries, he noted, were often “not only partially functional but also noisy and ineffective.”

This, he said, forces the management of most processing industries to import their machines, thus leading to capital flight, export of labour, and continuous over dependence on imported technology.

He said the council had developed technologies for the processing of various raw materials to enable the country achieve value addition in processing its resources.
On the competition, Onwualu said the winners of the first prize would receive a research grant to produce designs for use by industries.

Minister of Science and Technology Prof Ita Ewa praised the RMRDC for the programme, which he said was meant to enhance the capacity of design engineers. Ewa said the programme would assist the Ward Based Cluster Project launched recently by the ministry.
He called on the private sector to key into the RMRDC’s programme to sustain the growth of the manufacturing sector.“It is my hope that this is the panacea for growing our economy toward the realisation of the objectives of Vision 20:2020 of the present administration,’’ Ewa added.

The team of engineers from the Faculty of Engineering, Obafemi Awolowo University (OAU), Ile-Ife, emerged winners of the competition. The team, which designed a solar powered groundnut dryer with geothermal heath storage, received N2 million.

Federal Institute of Industrial Research, Oshodi’s bin dryer and a solar dryer with dehumidifier won the first consolatory prize of N250, 000 and the third consolatory prize of another N250,000.

The team from the Department of Chemical and Petroleum Engineering, University of Uyo, won the second consolatory prize for designing one-ton-per-hour Rotary Dryer and also received N250,000.

Speaking on behalf of the winners, Prof. Funsho Akeredolu of OAU, praised the RMRDC for encouraging Nigerian engineers, and said such support would lead Nigeria to the true path of transformation.

September 12, 2012
African Paints vs Portland Paints: Red, green colours

African Paints (Nigeria) Plc and Portland Paints & Products Nigeria Plc represent different generation – the old generation and new generation, of paint makers. African Paints was incorporated in 1974 and later listed on the Nigerian Stock Exchange (NSE) in 1996. Portland Paints on the other hand was incorporated in 1985. It became a publicly quoted company in 2009. Portland Paints is however the bigger of the two companies.
Notwithstanding the generational gap, the two companies share several similarities including operations and products. Latest audited reports and accounts of the companies for the year ended December 31, 2011 showed dissimilarities in the operational results, even though they both engaged in manufacturing and sales of paints.
While Portland Paints appeared to be consolidating its profitability, African Paints sank deeper into the red.
Sales generation
Both companies witnessed modest growth in sales during the period, with latest report indicating above-average growth for the peers. African Paints grew total sales by 12.5 per cent in 2011 as against an increase of 2.5 per cent in 2010. Average sales growth in the past two years thus stood at 7.5 per cent. Also, Portland Paints consolidated top-line performance with an increase of 8.6 per cent in 2011 compared with 4.9 per cent in 2010. Average sales growth stood at about 6.8 per cent.
Profitability
The two companies showed different profit outlook, with Portland Paints on the positive side and African Paints on the negative side. Portland Paints grew gross profit by about 20 per cent in 2011 just as gross profit margin increased from 38.9 per cent in 2010 to 43 per cent in 2011. Average profit per unit of sales improved marginally from 10.4 per cent to 10.6 per cent, which nudged actual pre-tax profit by 11.4 per cent as against a decline of 9.4 per cent in 2010. Net profit after tax recovered with an increase of 19 per cent compared with a decrease of 28 per cent in previous year.
On the other hand, African Paints’ gross profit dropped by about 56 per cent as gross margin shrank from 18 per cent to 7.2 per cent. By the midline, the company made a worse pre-tax loss of N84.9 per N100 unit of sales in 2011 as against N26.8 in 2010.
Actual returns
African Paints’ underlying returns remained in the red. Return on total assets worsened from -4.0 per cent in 2010 to -14.5 per cent. Return on equity declined to -276 per cent in 2011 as against -21 per cent in 2010. Portland Paints increased returns generally to all stakeholders. Return on total assets nearly doubled from 8.5 per cent to 14.2 per cent. Return on equity rose above average to 15.6 per cent in 2011 as against 13.8 per cent in 2010.
The bottom-line
The paints and chemical industry thrives on the booms of public and private construction as well as industrial activities. Slowdown in the economy, especially in manufacturing, construction and real estate businesses, no doubt usually influences the performance of the sector. But the performance of each company would largely be determined by its sales strategy, cost management and balance sheet structure. Portland Paints appears to be in better stead than its peer.

September 12, 2012