Dangote Cement Plc 9M’19 – Higher finance costs drag earnings lower

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Dangote Cement Plc 9M’19 – Higher finance costs drag earnings lower

CardinalStone Research 

Dangote Cement Plc (DANGCEM: TP N212.32 ) announced after-tax profits of N154.4 billion (-2.5% YoY) at the end of 9M’19, coxswained by average lower prices as well as higher selling & distribution costs.
In addition to the earnings publication, the board of Dangote Cement recently considered proposals to consolidate its share capital and embark on a share buyback programme. Subject to regulatory approval and required guidance, the cement giant also disclosed its intention to fully back these recommendations. If approved, the implementation of both proposals is likely to lead to a reduction in the number of DANGCEM’s shares in issue and an increase in both the nominal and market value of the shares. The details of the transaction will be communicated at a later date.
Some positives:
  • In Q3’19, DANGCEM recorded a 4.5% YoY growth in revenue, partly due to a 5.0% YoY increase in cement sales despite unprecedented levels of rainfall during the period. The topline improvement was also supported by slightly higher prices (revenue/tonne in Q3’19: N43,337 vs N43,187 in Q3’18).
Some concerns:
  • EBITDA margin contracted by 4.78 ppts in Q3’19 to 40.2%  as EBITDA/tonne printed at N23,389, a record low in at least 11 quarters. Specifically, the main pressures on EBITDA stemmed from a significant jump in advertisement and promotion expenditures (N4.9 billion vs N1.3 billion in Q3’18). The company attributed the surge to heightened end-user marketing campaigns in order to strengthen the visibility of the Dangote brand in the cement market. Management hinted that this higher marketing spend is likely to persist until the end of the year.
  • Net finance expense surged by over 3x to N18.8 billion as parent party loan clinched N89.5 billion levels at the end of 9M’19 from N56.5 billion at the beginning of the year. The company also sustained its Commercial Paper issue program in its latest series 11, 12 and 13 issues. Total active commercial papers in issue at the end of 9M’19 amounted to N131.3 billion, compared to N79.3 billion at the end of FY’18

Please click here for the full result.

Global maritime trade suffers as US-China trade tensions and uncertainty take toll – UN Report

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Global maritime trade suffers as US-China trade tensions and uncertainty take toll – UN Report

Geneva, Switzerland, (30 October 2019)

  • Maritime transport sails stormy seas against political and structural headwinds
  • Shaky outlook for seaborne trade as uncertainty over world economy remains
  • Environmental sustainability agenda steers the maritime industry towards cleaner fuel sources

World maritime trade lost momentum in 2018 as heightened uncertainty, escalating tariff tensions between the US and China and mounting concerns over other trade policy and political crosscurrents, notably a no-deal Brexit, sent waves through global markets, according to the UN Conference on Trade and Development’s (UNCTAD) Review of Maritime Transport 2019.

Volumes in the sector grew by only 2.7% last year, below the historical averages of 3% and 4.1% recorded in 2017, according to the report.

“The dip in maritime trade growth is a result of several trends including a weakening multilateral trading system and growing protectionism,” said UNCTAD Secretary-General Mukhisa Kituyi.

“It is a warning that national policies can have a negative impact on the maritime trade and development aspirations of all,” he added.

Buffeted by a global economic slowdown, in 2018, seaborne trade also navigated other difficult headwinds such as geopolitical tensions, while preparing for an expected surge in ship fuel costs arising from a new regulation requiring ships to cut their sulphur dioxide emissions.

UNCTAD expects international maritime trade to expand at an average annual growth rate of 3.4% over the 2019–2024 period, driven in particular by growth in containerized, dry bulk and gas cargoes. However, uncertainty remains an overriding theme in the current maritime transport environment, with risks tilted to the downside.

Port traffic edges down

Reflecting slower maritime trade, growth in global port traffic also edged down, with container port traffic increasing by only 4.7% in 2018, from a 6.7% growth rate in 2017.

Similarly, container trade growth weakened. In 2018 volumes only increased by 2.6%, compared with 6% in 2017. This was matched with sustained delivery of mega container ships, with container fleet supply capacity in 2018 increasing by 6% as compared to 4% in 2017. In an already overly supplied market, these developments further compressed freight rates in 2018.

Despite the setbacks, a milestone was reached, with total seaborne trade volumes amounting to 11 billion tons.

The maritime transport industry also saw a silver lining in an expanding liquefied natural gas (LNG) sector. This came as a result of intensified pressure to promote cleaner energy sources. Bulk carriers, oil tankers and container ships recorded the highest level of ship deliveries, with LNG carriers recording the highest growth rate at 7.25%.

The report warns that while global growth could swing in a positive direction, given some upside factors such as China’s Belt and Road Initiative, and the various trade deals that came into force or are in the pipeline, the balance of risks to the outlook remains poor.

The risks are particularly high for the most vulnerable economies. The report highlights a growing connectivity divide – an increasing difference between the most- and least-connected countries.

Several small islands developing states are among the countries with the lowest shipping connectivity, as they are often confronted with a vicious cycle wherein low trade volumes discourage investments in better maritime transport connectivity, and faced with low connectivity, merchandize trade becomes costly and uncompetitive.

New currents

At the same time, profound structural trends that started more than a decade ago and have taken hold are slowly transforming the maritime transport landscape. The industry is transitioning away from patterns observed before the global financial and economic downturn hit the world economy.

“Today, the maritime sector is dealing with much more than market uncertainty and short-term cyclical factors,” said Shamika N. Sirimanne, director of UNCTAD’s division on technology and logistics. “Other factors that are structural and existential, such as technological disruptions and climate change are at play and are redefining the sector.”

The report notes that the industry’s operating landscape appears to have shifted to a new paradigm contrasting with the reality of over a decade ago.

In the face of slower global economic and trade growth compared with the pre-2009 era of bullish growth rates, global maritime transport is increasingly now shaped by new demand and trade patterns, increasing regionalization of supply chains and rebalancing in China’s economy, as well as a larger role of technology and services in value chains and logistics.

The sector is also increasingly facing intensified and more frequent natural disasters and climate-related disruptions, which is making the climate-risk assessment, adaptation and resilience-building for seaports and other coastal transport infrastructure an increasingly urgent priority.

In the face of these new risks, the industry has embraced an accelerated environmental sustainability agenda, with an increased awareness of the impact of global warming, and the imperative of fast-tracking the energy transition towards cleaner fuel sources.

Important regulatory developments include the global entry into force, on 1 January 2020, of the new lower 0.50% limit (from 3.5% currently) on sulphur in ships’ fuel oil, which is expected to bring significant benefits in terms of human health and the environment, but also raises new challenges for the shipping industry.

According to the report, a “new normal” for maritime transport is in the making, with effects permeating all aspects of the industry, from demand to supply, markets, ports and regulatory frameworks.

The changing course is being felt

The effects of the paradigm shift are already being felt. Some services, such as those in container shipping and shipbuilding, are consolidating, while others are expanding their scope to include landside and logistic operations.

In addition, some are calling for more governmental support for shipbuilding activities or financing for the technology needed to develop zero-emission vessels.

While adjusting to the new normal may entail some potential challenges, the report observes, it could also open some opportunities. Supporting this process calls for improved planning, adequate response measures, as well as flexible and forward-looking transport policies that anticipate change.

BUA’s Obu Cement, CCNN set to merge as Group consolidates entire Cement business

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BUA’s Obu Cement, CCNN set to merge as Group consolidates entire Cement business
  • announces completion date for new $450million
  • Kalambaina II Plant bringing total capacity to 11million mtpa

This morning, the BUA Group announced – in a disclosure filing, that BUA is set to consolidate its entire cement business in a move that will deepen the Nigerian capital market and enhance the growing Nigerian cement industry.

Currently, BUA Group’s cement assets include the 2million metric tonnes per annum Cement Company of Northern Nigeria as well as the 6million metric tonnes per annum Obu Cement Company. BUA also announces that the US$450million (Four Hundred and Fifty Million US Dollars)

3million mtpa new Sokoto Kalambaina Cement plant for which construction began in 2018 will be completed by H2, 2020. This will effectively consolidate BUA’s position as Nigeria’s second-largest producer of cement with 11million metric tonnes per annum.

The statement cited Abdul Samad Rabiu, Founder & Executive Chairman of BUA Group, as saying that “this consolidation marks the culmination of the first phase of the BUA mid-term strategic plan for its cement businesses, which currently include four cement plants spread across Obu Cement Company and the Cement Company of Northern Nigeria.

“A new $450million SokotoKalambaina II Plant is scheduled to come on stream in the second half of 2020 alongside another 48MW power plant to complement the existing assets and take advantage of a growing cement market in Northern Nigeria and the West African region, Rabiu added. He said the consolidation would cement BUA’s position as the second-largest cement producer in Nigeria whilst also positioning it to take advantage of the combined synergies to effectively serve Northern and Southern Nigeria based on the strategic locations of its plants.

“We intend to continue creating value for the benefit of shareholders of the consolidated company by maintaining our focus on outperforming the Nigerian cement industry across key indices through a laser-like commitment to excellent products and service delivery, operational efficiency as well as maintaining our leadership position in our home markets,” Rabiu added.

The Economic Cost Of Devaluing “Women’s Work”

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The Economic Cost Of Devaluing “Women’s Work”

As much as half of the world’s work is unpaid.  And most of it is done by women.

This imbalance not only robs women of economic opportunities. It is also costly to society in the form of lower productivity and foregone economic growth. It follows that a fairer allocation of unpaid work would not only benefit women but would also lead to more efficient workforces and stronger economies.

For these reasons, reducing gender imbalances in unpaid work is part of the United Nations Sustainable Development Goals.

Examples of unpaid work include cooking, cleaning, fetching food or water, and caring for children and the elderly.  These tasks are not counted as part of economic activity because they are difficult to measure based on values in the marketplace. Yet their economic value is substantial, with estimates ranging from 10 to 60 percent of GDP.

In our new study, we find that unpaid work declines as economic development increases particularly because there is less time spent on domestic chores. Social institutions and values can constrain the redistribution of unpaid work by preventing men from sharing the burden at home.

Overworked and underpaid

It’s no secret that women disproportionately shoulder the burden of unpaid work. Less well understood is just how many more unpaid hours women put in than men on a given day. Women do 4.4 hours of unpaid work on average around the world and men only 1.7 hours.

There are large differences across countries

In Norway, the gap is small, with women doing 3.7 hours of unpaid work, while men contribute 3. On the other extreme, in Egypt, women do 5.4 hours per day of unpaid work and men only 35 minutes. In the US, women do 3.8 hours of unpaid work and men do 2.4 hours.

By not fully engaging women, the economy is misallocating resources, having women do low-productivity tasks at home instead of taking advantage of their full potential in the marketplace. It also misses exploiting the complementarity between women and men in the workplace. The result is lower productivity and economic growth. This gender gap in unpaid work is not just unfair. It is clearly inefficient.

Certainly, some unpaid work is done entirely by choice and the value to society of raising children for societies cannot be disputed. But more than 80 percent of unpaid work hours are devoted to domestic chores aside from child and eldercare.

Too often women end up shouldering those domestic chores because of constraints imposed by cultural norms, lack of public services and infrastructure, or absence of family-friendly policies.

Women may also choose to stay at home or work only part-time if the wage in the market is too low and does not represent equal pay for equal work.

Engines of liberation

Policies can help reduce and redistribute unpaid work.  In developing economies, measures to improve water supply, sanitation, electricity, and transportation are critical to free women from low-productivity tasks.

UNICEF estimates that women spend 200 million hours per day worldwide simply fetching water. In India, women spend more than an hour every day collecting firewood. Better access to electricity and water and less expensive appliances helped boost female labour force participation in Mexico and Brazil. Expanding internet access to the entire population can help women take advantage of the gig economy and flexible work arrangements.

Governments need to ensure access to education and health care for women. Without proper human capital, women’s possibilities in the labour market are very limited. According to UNESCO, 130 million school-age girls are not in school. It is not only a matter of providing the services but also guarantees their use.

Many families in Pakistan choose not to send girls to school because of security concerns. Enshrining women’s rights in law could help to reshape social institutions and values that prevent access to education and healthcare.

Efficient and flexible labour markets help redistribute unpaid work. Active labour market policies, like those in Switzerland, can facilitate job matching. We find that flexible work arrangements are associated with less female unpaid work and make for a better work-life balance.

All in the family

Family-friendly policies also help. Many Nordic countries invest heavily in early childhood education and care, which allows for high enrollment and fosters women’s ability to return to work after giving birth.

Greater parity in maternal and parental leave policies can raise female labour force participation by smoothing women’s return to work and engaging fathers in care activities early on. Iceland’s parental leave policy is a good example: it sets the length of leave at nine months and earmarks three for each parent.

Reducing and redistributing unpaid work is an economic imperative. Governments must take decisive actions, and the private sector must join in to seize on the large potential gains.

Vodafone Egypt Renews Business Support System Deal With Ericsson

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Vodafone Egypt Renews Business Support System Deal With Ericsson
  • The partnership covers Digital BSS solutions to facilitate a seamless evolution towards 5G/IoT readiness.
  • Ericsson BSS strategy designed to support a low-risk but effective step-by-step evolution to the digital world being built with 5G and IoT.

Vodafone Egypt has further extended its partnership with Ericsson to transform the service provider’s Business Support System (BSS) into an industrialized, real-time converged environment. In addition, upgrades to the latest versions of Ericsson Charging and Ericsson Mediation will facilitate a seamless evolution towards 5G/IoT readiness by helping Vodafone Egypt meet customer demands with new offers, strengthen competitiveness, enable flexibility to meet market demands, and reduce costs through streamlined operations.

In the ongoing contract, Ericsson is responsible for solution design and deployment as well as competence development. Ericsson’s BSS solution enables Vodafone Egypt to offer a wider range of unique services including real-time promotions and notifications, product and services cross bundling, real-time cost control for postpaid subscriptions, subscriber personalization, and flexible mobile wallets.

Alexandre Froment-Curtil, Vodafone Egypt CEO says: “In line with our commitment to innovate, and our strategy focusing on Digital transformation, Vodafone Egypt aims to ensure that we actively reduce time-to-market in a way that would not affect customer experience. Ericsson’s billing solution has played a role in enabling our customers to enjoy our new services more quickly and efficiently.”

The extended contract allows Vodafone Egypt to focus its efforts on product development while having clearer visibility and more control over capital and operating expense.

Fadi Pharaon, President of Ericsson Middle East & Africa, says: “As Vodafone Egypt’s long-standing digital transformation partner, we are supporting them in realizing their vision of the fully-converged business and differentiated customer experience. Our end-to-end convergent Digital BSS solutions enable our partners to meet the ever-increasing consumer demands, and secure more efficiencies through streamlined operations.”

Two billion subscribers are supported by the Ericsson’s world-class BSS offerings, helping service providers address new opportunities that demand the right offer at the right moment.

Stanbic IBTC Commends 2019 HiFL Success, As Unical Lifts Trophy

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Stanbic IBTC Commends 2019 HiFL Success, As Unical Lifts Trophy

Stanbic IBTC, a member of the Standard Bank Group, has expressed its satisfaction with the organisation and conduct of the 2019 Higher Institutions Football League (HiFL), which it partners as a major sponsor. Giving this verdict was Head, Global Markets, Stanbic IBTC Bank, Mr Sam Ocheho, who represented Stanbic IBTC at the finals of the collegiate football league, which held on Saturday (26/10/2019) at the Agege Township Stadium in Lagos. Ocheho said Stanbic IBTC is very pleased to have been part of the success.

The 2019 finals saw a repeat of last year’s matchup both for the third-place match and for the trophy. The University of Calabar, Malabites, avenged its 2018 loss to defending champions, the University of Agriculture, Makurdi, UAM Tillers, 5-4 on penalties after a score draws in regulation time to emerge champions of the league’s second edition.

UNILORIN Warriors equally exerted their pound of flesh on OAU Giants in a thrilling third-place playoff encounter, which also ended in a draw before the Warriors emerged as winners following a penalty shootout win.

L-R: Head, Global Markets, Stanbic IBTC Bank PLC, Sam Ocheho; Team Captain, UNICAL Malabites, Ikponwosa Osarumen; and CEO, Higher Institutions Sports League (HiSL),  Sola Fijabi, during the trophy presentation at finals of the Stanbic IBTC sponsored 2019 Higher Institutions Football League held at the Agege Stadium Lagos…Saturday.

Ocheho thus commended the promoters of the competition, PACE Sports and Entertainment Marketing, for once again successfully prosecuting the league virtually hitch-free, starting from the preliminary stage down to the finals. This year’s competition has seen an expanded field, with 32 universities featured in over 66 matches to decide the winner.

“Stanbic IBTC is very pleased with the successful prosecution of the second edition of the HiFL. The organisers have managed to build on the success recorded in 2018 to put on a wonderful competition,” Ocheho said. “As an organisation, we are known for delivering quality products and services to our customers and for our excellent people-oriented initiatives. So, we are always careful to work with partners who share our culture of excellence and adept management,” he added.

Stanbic IBTC said its sponsorship of the league is in line with its objective to provide genuine platforms of engagement for Nigerian youths, where they can showcase their talents and more importantly foster unity among them and contribute to youth development. The sponsorship is in tandem with the company’s determination to help grow and develop a vibrant and productive youth population. Ocheho reiterated Stanbic IBTC’s expectation that its involvement will also help in talent-moulding and character-building.

Earlier in the year, Stanbic IBTC Group had announced the renewal of its sponsorship of the HiFL following what it called “great promise” in the competition.

Speaking after the final match, President, Nigerian University Games Association (NUGA), one of the league partners, Prof Stephen Hamafyelto, said: “This edition has really proven that we are here for the long term. We have once again delivered on the promises we made regarding standards, discipline even fair-play, especially as it concerns delivering a bigger and better league season.”

L-R: Chief Financial Officer, Vista International, Binod Mohapatra; Head Marketing, PZ Cussons Nigeria, Charles Nnochiri; Chairman, Higher Institutions Sports League (HiSL), Remi Ogunpitan; CEO, Higher Institutions Sports League (HiSL),  Sola Fijabi; President Nigerian University Games Association, (NUGA), Prof. Stephen Hamafyelto;  Team Captain, UNICAL Malabites, Ikponwosa Osarumen; Board Member, Higher Institutions Sports League (HiSL) Kachi Onubogu; Executive Director, Media Investment,  Media Reach OMD, Yinka Adebayo and Head, Global Markets, Stanbic IBTC Bank PLC, Sam Ocheho, during the trophy presentation at finals of the Stanbic IBTC sponsored 2019 Higher Institutions Football League held at the Agege Stadium Lagos…Saturday.

Stanbic IBTC Holdings PLC is a full-service financial services group with a clear focus on three main business pillars – Corporate and Investment Banking, Personal and Business Banking and Wealth Management. Stanbic IBTC belongs to the Standard Bank Group, the largest African financial institution by assets and market capitalization. It is rooted in Africa with strategic representation in 20 countries on the African continent. Standard Bank has been in operation for 155 years and is focused on building first-class, on-the-ground financial services institutions in chosen countries in Africa; and connecting selected emerging markets to Africa by applying sector expertise, particularly in natural resources, power and infrastructure.

Nestlé Joined Forces With Regional Partners To Launch ‘Alliance For YOUth’ In Sub-Saharan Africa

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Nestlé Joined Forces With Regional Partners To Launch ‘Alliance For YOUth’ In Sub-Saharan Africa

Today, Nestlé and its regional partners have announced the launch of the ‘Regional Alliance for YOUth’ in sub-Saharan Africa. This joint effort is part of the company’s business-driven movement ‘Alliance for YOUth’ with a focus on creating and implementing employability programs, mentorship and training designed to equip young people with essential workplace skills.

This launch comes at a time when young people face significant challenges. Today’s youth is the largest the world has ever seen. According to the United Nations, young people aged 15-24 account for one out of every six people globally, with 20% of the total youth population living in Africa alone. This demographic trend goes along with increased unemployment rate among youth. In sub-Saharan Africa, it reached nearly 30% in 2016, as a report by the International Labour Organization shows. Without concerted action, it is expected that nearly 50% of youth in the region will be unemployed by 2025.

The ‘Regional Alliance for YOUth’ was formally introduced in Côte d’Ivoire today. It will also be launched in Angola and South Africa on October 31st and November 4th respectively. The initial ‘Alliance for YOUth’ was founded by Nestlé in Europe in 2014 and ever since rolled out over several geographical regions.

Uber Launched Uber Money

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Uber Launched Uber Money

Uber introduced Uber Money, a team within Uber working on financial products and technologies that deliver additional value for the Uber community, all at Uber speed.

We’re excited to kick things off with several new features and improvements coming this year:

Real-Time Earnings: Instead of waiting for weekly payments or cashing out through Instant Pay, drivers and couriers will have real-time access to their earnings after every trip through the Uber Debit account.

Uber Debit Account & Uber Debit Card: For drivers in the US, and expanding to more countries soon after, we are updating the no-monthly-fee Uber Debit Account, powered by Green Dot, to integrate seamlessly into the Uber Driver app. We also want to make every dollar earned on Uber go further, which is why the refreshed Uber Debit Card will launch with cashback on gas starting at 3% and up to 6% for the highest tier of Uber Pro drivers.

Uber Wallet: With Uber Wallet, earners and spenders will now be able to easily track their earning and spending history, manage and move their money, and discover new Uber financial products all in one place. The Uber Wallet will start rolling out in the Uber Driver app in the coming weeks, and will soon start rolling out in the Uber and Uber Eats apps as well.

Uber Credit Card: We are also relaunching the Uber Credit Card, our flagship consumer product, in partnership with Barclays. Cardmembers will now receive 5% back in Uber Cash from spending across the Uber platform, including Uber Rides, Uber Eats, and JUMP bikes and scooters. You’ll even get rewarded for hailing an Uber Copter from Manhattan to JFK.

IMF Publishes October 2019 Global Financial Stability Report: Lower for Longer

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IMF Publishes October 2019 Global Financial Stability Report: Lower for Longer

The October 2019 Global Financial Stability Report at a Glance

Key Vulnerabilities in the Global Financial System

  • Rising corporate debt burdens
  • Increasing holdings of riskier and more illiquid assets by institutional investors
  • Greater reliance on external borrowing by emerging and frontier market economies

What Should Policymakers Do?

  • Address corporate vulnerabilities with stricter supervisory and macroprudential oversight
  • Tackle risks among institutional investors through strengthened oversight and disclosures
  • Implement prudent sovereign debt management practices and frameworks 

Financial markets have been buffeted by the ebb and flow of trade tensions and growing concerns about the global economic outlook. Weakening economic activity and increased downside risks have prompted a shift toward a more dovish stance of monetary policy across the globe, a development that has been accompanied by sharp declines in market yields. As a result, the amount of bonds with negative yields has increased to about $15 trillion. Investors now expect interest rates to remain very low for longer than anticipated at the beginning of the year. Chapter 1 discusses how investor’ search for yield has left asset prices in some markets overstretched and fostered a further easing in financial conditions since the April 2019 Global Financial Stability Report.

Accommodative monetary policy is supporting the economy in the near term, but easy financial conditions are encouraging financial risk-taking and are fueling a further buildup of vulnerabilities in some sectors and countries. Chapter 2 shows that corporate sector vulnerabilities are already elevated in several systemically important economies as a result of rising debt burdens and weakening debt service capacity. In a material economic slowdown scenario, half as severe as the global financial crisis, corporate debt-at-risk (debt owed by firms that are unable to cover their interest expenses with their earnings) could rise to $19 trillion-or nearly 40 percent of total corporate debt in major economies-above crisis levels.

Very low rates are prompting investors to search for yield and take on riskier and more illiquid assets to generate targeted returns, as discussed in Chapter 3. Vulnerabilities among nonbank financial institutions are now elevated in 80 percent of economies with systemically important financial sectors (by GDP). This share is similar to that at the height of the global financial crisis. Vulnerabilities also remain high in the insurance sector. Institutional investors’ search for yield could lead to exposures that may amplify shocks during market stress: similarities in investment funds’ portfolios could magnify a market sell-off, pension funds’ illiquid investments could constrain their ability to play a role in stabilizing markets as they have done in the past, and cross-border investments by life insurers could facilitate spillovers across markets.

Capital flows to emerging markets have also been spurred by low-interest rates in advanced economies (see Chapter 4). These inflows of capital have supported additional borrowing: median external debt in emerging market economies has risen to 160 percent of exports from 100 percent in 2008. In some countries, this ratio has increased to more than 300 percent. In the event of a sharp tightening in global financial conditions, increased borrowing could raise rollover and debt sustainability risks. For example, some overindebted state-owned enterprises may find it harder to maintain market access and service their liabilities without sovereign support. 

Greater reliance on external borrowing in some frontier market economies could also increase the risk of future debt distress.

The regulation put in place in the wake of the global financial crisis has improved the overall resilience of the banking sector, but pockets of weaker institutions remain. Negative yields and flatter yield curves-along with a more subdued growth outlook-have reduced expectations of bank profitability, and the market capitalization of some banks has fallen to low levels. Banks are also exposed to sectors with high vulnerabilities through their lending activities, leaving them susceptible to potential losses. In China, the authorities had to intervene in three regional banks. Among non-US banks, US dollar funding fragilities-which was a cause of significant stress during the global financial crisis-remain a source of vulnerability in many economies, as discussed in Chapter 5. This dollar funding fragility could amplify the impact of a tightening in funding conditions and could create spillovers to countries that borrow in US dollars from non-US banks.

Environmental, social, and governance (ESG) principles are becoming increasingly important for borrowers and investors. ESG factors could have a material impact on corporate performance and may give rise to financial stability risks, particularly through climate-related losses. Authorities have a key role to play in developing standards for ESG investing. This role, along with the need to close data gaps and encourage more consistent reporting, is discussed in Chapter 6.

Against the backdrop of easy financial conditions, stretched valuations in some markets, and elevated vulnerabilities, medium-term risks to global growth and financial stability continue to be firmly skewed to the downside. Macroeconomic and macroprudential policies should be tailored to the particular circumstances facing each economy. In countries where economic activity remains robust but vulnerabilities are high or rising amid still easy financial conditions, policymakers should urgently tighten macroprudential policies, including broad-based macroprudential tools (such as the countercyclical capital buffer). In economies where macroeconomic policies are being eased in response to a deterioration in the economic outlook, but where vulnerabilities in particular sectors are still a concern, policymakers may have to use a more targeted approach to address specific pockets of vulnerability. For economies facing a significant slowdown, the focus should be on more accommodative policies, considering available policy space.

Policymakers urgently need to take action to tackle financial vulnerabilities that could exacerbate the next economic downturn:

  • Rising corporate debt burdens: Stringent supervision of bank credit risk assessment and lending practices should be maintained. Efforts should be made to increase disclosure and transparency in nonbank finance markets to enable a more comprehensive assessment of risks. In economies where overall corporate sector debt is deemed to be systemically high, in addition to sector-specific prudential tools for banks, policymakers may consider developing prudential tools for highly leveraged firms. Reducing the bias in tax systems that favours debt over equity financing would also help reduce incentives for excessive borrowing.
  • Increasing holdings of riskier and more illiquid securities by institutional investors: The oversight of nonbank financial entities should be strengthened. Vulnerabilities among institutional investors can be addressed through appropriate incentives (for example, to reduce the offering of guaranteed return products), minimum solvency and liquidity standards, and enhanced disclosure.
  • Increased reliance on external borrowing by emerging and frontier market economies: Indebted emerging market and frontier economies should mitigate debt sustainability risks through prudent debt management practices and strong debt management frameworks.

Global policy coordination remains critical. There is a need to resolve trade tensions, as discussed in the April 2019 World Economic Outlook. Policymakers should also complete and fully implement the global regulatory reform agenda, ensuring that there is no rollback of regulatory standards. Continued international coordination and collaboration are also needed to ensure a smooth transition from LIBOR to new reference rates for a wide range of financial contracts around the world by the end of 2021.

Download the 2019 Global Financial Stability Report

Forte Oil Plc 9M’19 – Disposal gain continues to mask weak operating performance

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Forte Oil Plc 9M’19 – Disposal gain continues to mask weak operating performance

CardinalStone Research 

Forte Oil Plc (FO: TP N22.01 ) released its 9M’19 earnings result earlier today, announcing EPS of N4.03/share during the nine-month period (FY’19E: N4.88/share). 9M’19 performance was bolstered by gains from the disposal of assets and interest proceeds from longstanding PMS subsidy receivables. The company noted that proceeds from longstanding receivables were also supported by naira devaluation

Some positives:

  • Q3’19 turnover grew by 23.6% YoY, driven by revenue increases in fuels (+23.1% YoY) and lubricants (+29.0% YoY) segments. We attribute the sharp improvement in topline to FO’s increased retail footprint (+ 5.4% YTD increase in the number of retail stations)
  • Operational efficiency improved in Q3’19, evinced by the 10.7% decline in operating expenses. The contraction in personnel expenses (-23.5% YoY), as well as a significant dip in legal costs (-52.9% YoY), supported the performance on this front
  • Net Interest expense also declined by 47.1% YoY in Q3’19, as drawdown on trade finance and overdrafts slowed during the period. In addition, the company paid off all its borrowings (loans and import finance facilities) bar a medium-term loan which matures in 2021. Consequently, a net debt contracted to N2.9 billion in 9M’19 from N6.0 billion in FY’18.

Some concerns:

  • Q3’19 gross margin declined by 2.2 ppts YoY to 6.26% in Q3’19, reflecting cost pressures in the fuels business ( cost of sales to sales ratio: 96.1% in Q3’19 vs 92.9% in Q3’18). In our view, this reflects the impact of the reported increase in PMS depot price to N117/litre from N113/litre in 2018
  • Other income also declined by 42.1% YoY in Q3’19, as the firm recorded lower proceeds from freight and fuels storage service offerings. There was also no foreign exchange gain during the period (vs N92.5 million in Q3’18)

Please click here for the full result.

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