Distinguished Shareholders, It is my privilege and honour to welcome you to the 14th Annual General Meeting of our Company, Associated Discount House Limited and to present to you the Annual Report and Accounts for the year ended 31st July 2007. This report is unique as it is the first time that the Company is reporting on its activities and those of its fully owned subsidiary, Associated Asset Managers Limited, as a group.
Before presenting the details of our performance for the year ended 31st July 2007, permit me to summarise the conditions under which your company operated during the last financial year.
Operating Environment
Without prejudice to the cases before the election tribunals, the transition from one democratically elected government to another represents a significant milestone in the annals of our nation. This development has further boosted international confidence in the economy and it is expected to enhance the sovereign risk rating of the country while impacting positively on the ability of the nation to attract more Foreign Direct Investment (FDI).
As the new government is settling down to the business of governance, there are clear indications that the government is poised to deepen the economy, entrench the rule of law and provide an enabling environment for businesses, especially the real sector, to thrive. We call on the Federal Government to sustain this tempo as it is a sine qua none for retaining and attracting more FDI into the economy.
On the macroeconomic front, the growth rate of the economy has continued to be impressive. In the fiscal year 2006, the economy recorded a growth of 6% in GDP. Though the growth is attributable to the sustained high prices of crude oil, significant achievements were made in other sectors of the economy. Specifically, the 8 per cent growth recorded in the agricultural sector is worthy of mention.
Distinguished ladies and gentlemen, the Federal Government has set an audacious goal for the economy. The vision 2020 agenda is to place the Nigerian economy within the top 20 in the world by the year 2020. To achieve this, the Nigerian economy is expected to grow at a rate of 13% per annum for the next 13 years. It is expected that most of the growth initiatives will be targeted towards achieving the objectives of the Millennium Development Goals (MDGs); resolution of the energy crisis; upgrade of social infrastructure; and ultimately the re-emergence of a vibrant middle income class.
Financial Industry
The reform of the financial services industry continued in the year under review. Specifically, the consolidation of the insurance industry through increased capital requirement has been concluded. A similar exercise is being embarked on by the Securities and Exchange Commission (SEC) for the Nigerian capital market operators. December 2008 has been set as the deadline for the actualisation of the recapitalization objectives of the Commission. The second phase of banking consolidation is in progress. This phase, which is self induced, is being catalysed by the incentive to participate in the management of the nation's external reserves, the need of individual institutions to enhance their competitiveness and capital base relative to international standards.
Similarly, banks that have identified business synergies amongst themselves are engaged in merger discussions as they seek to consolidate competences in their chosen niche markets to fully exploit emerging opportunities in the local economy.
The international business community is not being left out of the positive turn of events in the Nigerian financial industry. There has been an increasing number of foreign portfolio managers and foreign banks taking up equity stakes in Nigerian banks. This will no doubt strengthen the financial base of these organisations, improve their credit rating and create improvements in quality of service delivery.
In response to market challenges, value based services are fast becoming the order of the day among banks as they become innovative in taking value to customers. Notable initiatives in this regard include the aggressive deployment of ATM machines across the nation. Some operators have begun to deploy credit cards to the retail end of the market alongside other consumer lending strategies as they seek to harness the huge potentials in the consumer segment of our financial markets.
We anticipate improved sophistication of the industry with innovation and customer satisfaction being the bridge between success and failure in the industry. Operators who can anticipate the needs of the customers and identify/create niche market will continue to play dominant roles in the financial market.
Already operators within the banking industry are collaborating with a view to proffering solutions to teething problems associated with emerging markets like ours. Institutions are now pooling resources to achieve economies of scale in tackling some of these challenges. For example, the establishment of Interswitch for the deployment of Automated Teller Machines (ATMs) and the Bureau of Credit Services to enhance the asset quality of financial institutions. Convergence of technologies and sharing of other infrastructure will come to fore as a cost saving strategy that ensures optimization of investment.
In spite of the various challenges that are normally associated with new initiatives in emerging markets, the development of the Nigerian Bond market is on going as weekly traded volume is on the increase. Confirming the increasing depth of the bond market, the Debt Management Office (DMO) introduced ten-year bonds into the market in the period under review. In addition, the DMO is making concerted efforts to midwife the introduction and operation of state and local government bonds into the market. These will no doubt further enhance the depth of the bond market.
To add impetus to the economic reforms of the Executive arm of the government, the Central Bank of Nigeria continued the use of monetary policy instruments to maintain stability in the economy. For example, the Monetary Policy Committee of the apex bank jettisoned the use of Minimum Rediscount Rate (MRR) for the more robust Monetary Policy Rate (MPR) in December 2006. The MPR is expected to tackle liquidity challenges in the financial sector and stem inflationary pressures as it will serve as a benchmark for interest rates in the financial market. Since its introduction, the MPR has been adjusted twice. It was reduced in June 2007 to 8% from 10 % and later increased by 100 basis points to 9% in October 2007. The most recent increase in MPR was however accompanied by the removal of the spread between the borrowing and lending rates allowed banks in the Repo and Reverse Repo markets in order to curb inflationary pressures.
The liberalization of certain aspects of our foreign exchange market and the licensing of banks to operate Bureau de Change have assisted in strengthening the Naira, while the gap between the official and parallel markets remained less than 5%. These developments will assist operators in real sector to plan their businesses with minimal distortions.
Discount House Sub-Sector
The discount house sub-sector continued to play a leading role in the Nigerian money market. Discount houses, through the auspices of the Nigerian Discount Market Association (NDMA), continued to collaborate with the regulatory authorities in the development of the Nigerian money market and serving as a veritable avenue of liquidity management and other monetary policy transmission in the money market. Discount houses are also becoming more innovative as they exploit the asset management and financial advisory services functions prescribed in their operating guidelines.
Distinguished ladies and gentlemen, at our last meeting I informed you that your company applied for license as a Primary Dealers/Market Makers (PD/MM) in money market instruments issued by the Central Bank of Nigeria, I am happy to inform you that ADH was appointed and is now one of the financial institutions with franchises in both FGN bonds and money market instruments.
The apex bank's liberalization of financial industry has had direct impact on discount houses operations, as areas which were hitherto exclusive preserve of discount houses are now being opened up to other operators. This has had direct impact on the industry. Your company has however taken adequate steps to consolidate on its core franchise of Securities Trading and Funds Management whilst developing complementary competences in other identified areas of need to deliver superior services and returns to all stakeholders. The gain of this strategic thrust will be visible in the next financial year.
Performance
The financial year just ended was both challenging and rewarding for our organisation. In spite of the vagaries of managing the upward trend of interest rates and reduction in yields obtainable on government securities vis a vis investors' expectations, your company was able to present a good result. The Company recorded a turnover of N9.85 billion as against N4.6 billion in 2006 representing a growth of 114%. Profit from ordinary activities rose to N1.35billion from N0.528 billion during the same period. This represents a 156% increase over the figure recorded in 2006. The Group recorded a Profit Before Tax of N1.83 billion with a turnover of N10.22 billion. In view of this performance, the Board is pleased to propose a dividend of 22.5k per N1.00 share, translating to N409.5 million and a script issue of 1 bonus share for every 5 held by shareholders.
On behalf of the Board, I must commend the Managing Director/Chief Executive Officer of ADH, Mrs. Yetunde Ogunseye and her team for delivering this remarkable result.
Board Changes
During the year, there was an addition to the Board of Directors of the Company. Mr. Larry Ettah, Group Managing Director/Chief Executive of UAC Plc was appointed to the Board. Distinguished ladies and gentlemen, kindly join me in welcoming Mr. Ettah to the Board.
The Future
As a discount house with the vision of being a composite financial services provider, your Company shall continue to take advantage of various opportunities available in the economy, consolidate on her core business of securities trading through innovation and excellent service provision whilst building on other franchises.
In line with the recent developments in the financial industry, particularly the emergence of a local Bond Market, the repositioning of the money market by the Central Bank of Nigeria and the appointment of your Company as a primary dealer/market maker in the FGN Bonds and Money Market instruments, there is a need for an increase in the capital base of the Company for it to play a more significant role in the markets. We will therefore be raising additional capital from you and other new shareholders in the nearest future.
Appreciation
ADH has once again completed a great chapter in its annals. The achievements recorded by the Company would have been impossible without God and the contributions and co-operation of all stakeholders.
I therefore wish to express my heartfelt appreciation to all our customers for the faith they have reposed in ADH over the years and for their invaluable contributions to the good results we achieved in an environment as tasking as ours. I will also like to express my profound appreciation to the regulatory authorities for their support during the year.
My gratitude also goes to my colleagues on the Board, whose professional guidance and wisdom has sustained ADH as a leading operator in its chosen market. Finally, my appreciation goes to management & staff of our Company, led by the Managing Director/Chief Executive Officer, Mrs. Yetunde Ogunseye, for their tireless and fruitful efforts to create good value for the shareholders.
Above all, I give Almighty God the glory for giving us the grace to once again celebrate our Company and its achievements. May His blessings continuously be upon us all.
