The Nigerian Exchange Group Plc (NGX Group) recently hosted a conference call for investors and analysts where participants discussed the full year (FY) 2022 audited financial results and other business developments. This follows the publication of the NGX Group’s audited full year results for the period ended December 31, 2022.
Also, during its 2022 financial year investor and analyst presentation at the conference call, the NGX Group told investors and analysts that it would generate increased growth by deepening value creation in its subsidiaries, and associate companies and expand into adjacent businesses.
Oscar N. Onyema, group Chief Executive Officer, NGX Group told investors that the company was focused on supporting its wholly owned subsidiaries and investee companies across multiple initiatives.
While responding to questions from analysts, Onyema noted that the Group doubled down on its investments in its associate company, Central Securities and Clearing System (CSCS) seeing the strong dividend-generating potential of the firm.
“As a way to delve into new strategic investments, we doubled down on investment in CSCS, moving our ownership from 29percent to about 44.18percent. The essence of taking this initiative is so that we can work with the company and its stakeholders to drive improved revenues. Excitingly, they have demonstrated the ability to pay dividends and so we are constantly exploring more business expansion initiatives like the document utilisation project with CSCS whilst growing the company,” he said.
NGX Group had announced its audited financials for full year ended December 31, 2022 which shows it achieved operating loss of N1.3 billion relative to N281.8 million operating profit recorded in FY 2021 due to the greater growth in total expenses (35.5percent YoY) relative to gross earnings growth of 10.3percent YoY.
Profit Before Income tax (PBT) declined to N823million in FY 2022 from N2.4 billion in the corresponding period in 2021 due to the growth in finance costs. Profit After Income tax (PAT) decreased by 68.9percent to N688.5million from N2.2 billion in FY 2021 resulting in a significant decline in profit after tax margin to 9.3percent from 33.1percent recorded in FY 2021.
While addressing the rise in expenses driven by increased interest and personnel expenses, Onyema said the company aimed to streamline debt to cut down on interest expenses with a keen interest in reducing operational costs for the business and optimising personnel expenses without overhead reduction in staff strength.
On the performance of the Exchange, Temi Popoola, CEO, Nigerian Exchange Limited (NGX) spoke on some of the year’s major achievements with highlights drawn from the rise of equity market capitalisation, fixed income market capitalisation and Exchange Traded Fund (ETF) market capitalisation which rose by 25.20percent, 17.58percent and 17.58percent respectively. Additionally, the value traded for the derivatives (ETF) capitalisation reached N16.49million with a market capitalisation of N3.6billion at the close of 2022.
“NGX’s strategic business goal for 2023 will include forging more partnerships with development finance institutions and international banks to further develop the market. We aim to do more with our newly forged partnership with Afreximbank through the Pan African Payments Settlement System (PAPSS) initiative to allow for flexibility in Africa’s payment integrations system,” Popoola said.
Tinuade Awe, CEO, NGX Regulation Limited (NGX RegCo), the self-regulatory organisation arm of the Group said NGX RegCo embarked on a number of thought leadership steps, one of which was regulatory consulting and policy formulation for key players in the sector, Issuers Engagement Forum for stakeholders and formidable partnership with regulators. “We will continue to enable a transparent and orderly market through investor protection, policy formulation and enforcement and compliance audit,” she said.
Gabriel Igbeka, Acting CEO, NGX Real Estate Limited (NGX RelCo) highlighted that the company has been able to actualise a cost-saving mechanism of about N26.6million in 2022, having introduced a property management solution that boosts efficiency, improves service quality and reduces cost.
Here’s why substantial shareholder sells down stake in NGX Group
At the conference call, the Nigerian Exchange Group (NGX) noted that one of its major shareholders, the Miri Strategic Emerging Markets Fund LP, has been reducing its shareholdings in the local bourse.
NGX Group noted that the decision for Miri Strategic to reduce its shareholding was made because its current holdings exceed the maximum requirement of 5percent set by the apex regulator – the Securities and Exchange Commission (SEC). By selling down its shares, Miri Strategic Emerging Markets Fund LP will be able to comply with the regulatory limit and ensure that its holdings are within the acceptable range.
NGX Group has 1,964,115,918 outstanding shares. As at week ended March 10, the share price was N28.8, nearing its 52-week high of N30.25 as against a 52-week low of N17.
Tinuade Awe, Chief Executive Officer, NGX RegCo who also stated this during the Investor and Analyst Conference Call disclosed that the substantial shareholder has sold about 2.574million units of shares worth N739.3million so far.
On the regulatory requirement, Awe noted that under SEC’s rule of demutualisation, no one entity can hold more than 5percent of the shares of NGX Group because of the peculiar nature of NGX as an entity that demutualised
“Yes, we did notice trading activities from this substantial shareholder because we have rules that require issuers including the group to disclose sales or purchases by substantial shareholders and all insiders. And so, this trade was reported to us and we looked at our rules to look whether there were any contraventions as we do when we get reports from all other companies, and we didn’t notice any contraventions”, she said.
“I should say that this particular shareholder according to our record as a regulator of the NGX market is a substantial shareholder that held at the time he started this trade above 5percent of the shares of the group – the issuer company.
“And under the SEC rule of demutualisation, no one entity can hold more than 5percent of the shares of NGX Group because of the peculiar nature of that company as an entity that is demutualised. There are specific SEC rules that apply to them. So when we noticed this, we requested that they should be sold down, we informed the issuer that there is the need for sell down so we were not surprised when we started seeing sell down.”
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In a March 10 notice, the NGX Group disclosed that its substantial shareholder, The Miri Strategic Emerging Markets Fund LP sold 150,000 units of NGX Group shares at N27.61 per share.
This transaction was done on March 8. Also, Miri Strategic Emerging Markets Fund LP had from March 6-7 sold 1,094,528 units of NGX Group shares at N25.89 per share. This transaction was disclosed on March 9 by the company.
On March 7, Somafam Global Concepts, a company related to a Statutory Audit Committee Member, Samuel Adejumo sold 20,000 units of NGX Group shares at N26.45 per share.
This transaction was communicated on March 8. On March 7, Pivot Capital Limited, a company also related to a Statutory Audit Committee Member, Samuel Adejumo sold 71,923 units of NGX Group shares at N26.40 per share. This was disclosed in a March 8 note at the NGX.
Miri Strategic Emerging Markets Fund LP had also reduced its stake in the company by selling 1.480 million units of the Holding Company shares at N26.09 per share.
The transaction valued at about N38.61million was done on March 3, according to the NGX Group in a March 7 notice of share dealing by insiders.
Miri Strategic Emerging Markets Fund LP had on September 28, sold 23.5million units of NGX Group shares at N16.77 per share. The deal which was disclosed by the NGX Group on October 17 was valued at over N394million.
On December 16, 2022, Woodland Asset Management Company Limited, a company related to a Non-Executive Director, Patrick Adebayo Ajayi sold 500,000 units of shares of NGX Group at N23.95 per share.
The NGX Group disclosed this in a December 19, 2022 notice. On December 15, 2022, Woodland Asset Management Company Limited also sold 500,000 units of shares of NGX Group at N23.50 per share. This was disclosed by the NGX on December 16, 2022.
Also, Woodland Asset Management Company Limited had on November 23, 2022 sold one million units of NGX Group shares at N22.83 per share. This was disclosed by the NGX Group in a November 24 notice.
Woodland Asset Management Company Limited had between November 3-4, 2022 sold 567,884 units of NGX Group shares at N20.36 per share. The NGX Group disclosed this in a November 7, 2022 notice.
On October 4, 2022, Woodland Asset Management Company Limited sold 240,000 units of NGX Group shares at N19.94 per share. This was disclosed on October 11, 2022.
Still on NGX Group full year financials
The group also recorded year-on-year (YoY) growth of 10.3percent in gross earnings to N7.5 billion in FY 2022 from N6.8 billion reported in FY 2021.
This double-digit growth in the top line was because of the persistent growth in revenue (82.3percent of gross earnings) and an impressive 30.1percent increase of other income.
“However, the bottom-line operating performance slipped mainly due to the interest expenses resulting from borrowing to fulfil the strategic acquisition mentioned above. Our growth will be driven by deepening value creation in subsidiaries and expansion into adjacent businesses. As an organisation, we remain committed to becoming Africa’s preeminent integrated market infrastructure group,” Onyema said.
Revenue grew by 6.8percent to N6.2 billion from N5.8 billion driven largely by the 51.2percent growth in treasury investment income to 2billion (FY 2021: N1.3 billion).
Transaction fees which accounted for 51.2percemt of revenue also increased by 9percent YoY to N3.2 billion (FY 2021: N2.9 billion).
Growth in treasury investment income (32.9percemt of revenue) to N2billion in FY 2022 relative to N1.3 billion in FY 2021 was driven largely by relatively higher yields on the Group’s treasury investment portfolio owing to improved yields on treasury bills, bonds and fixed deposit instruments.
A 9 percent growth in transaction fees (51.2percent of revenue) to N3.2 billion in FY 2022 from N2.9 billion recorded in FY 2021 was driven by improved trading activities in Nigerian Exchange Limited.
Listing fees (12.6percent of revenue) grew by 1.3percent to N774.7 million in FY 2022 from N754.9 million in FY 2021 driven primarily by a relatively higher listing of corporates on the Exchange in the year ended 2022 compared to the same period in 2021.
Rental income (1.6percent of revenue) earned from NGX Real Estate lease of office floor spaces recorded a 19.8percent increase to N99.2 million in FY 2022 from N82.8 million recorded in FY 2021.
Other fees which represent rent of trading floor, annual charges from brokers, dealing licences and membership fell by 84.2percent to N109 million from N689.9 million.
Growth recorded by the Group in other income was driven by a 47.2percent increase in market data income to N581.4 million from N395 million: Income of N93.7 million from technology accounted for 7.1percent of other income.
A 1.6percent growth in other operating income made up of sublease income and penalty fees resulted to N635.4 million (FY 2021: N625.5 million). Total expenses grew by 35.5percent to N8.8 billion from N6.5 billion in FY 2021 primarily driven by interest expense on borrowings recorded as N2.1 billion.
Personnel expenses (41.5percent of total expenses) also grew by 13.1percent to N3.7 billion (FY 2021: N3.2 billion) while operating expenses which accounted for 28.4percent of total expenses fell by 7.7percent to N2.5 billion from N2.7 billion in FY 2021.
Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) grew by 70.6percent to N1.3 billion from N775.9 million recorded in FY 2021. This emanated from the 7.8percent marginal growth in gross earnings over operating costs. EBIT for FY 2022 was N772.7 million, a 174.2percent growth from N281.8 million recorded in FY 2021.
Total assets expanded by 50.7percent to N57.1 billion from N37.9 billion as at year end 2021, driven primarily by 101.4percent growth in investment in associates to N29.7 billion from N14.8 billion in December 2021 and a 57.4percent growth in long-term investment securities to N16.3 billion from N10.4 billion in December 2021.
Total liabilities recorded a 439.5percent increase from N3.8 billion as at FY 2021 to N20.3 billion as a result of N14.1 billion increased borrowings used to facilitate the increase in investment in select associates.
