Welcome to Bullish of February 2020

Ambrose Here...

This post is for Serious Investors. If you are not a serious investor, please don't bother to read further because Faith Without Action (Work) is Dead

This is the season we have been waiting for, however, from my years of experience, this is time people sell their positions in the money market to buy  into stocks for quick shorter returns  especially when dividend yields are high returns benefiting from it and it is because

1. They invested in the materials and training about the Stock Market.

2. They engage one of the best stock consultants and were ready to give it what it takes.

3. They registered into the paid community of serious for more financial education.

4. They registered for premium membership daily …
[2:35 PM, 2/4/2020] Investdata 2: Updated SEC circular on Corporate Reporting

Akintola, Dele (Stanbic IBTC)

The Securities and exchange commission amended Rule 39 which has to do with the filing of the full Year audited financial statement by Public Companies to both the SEC and the Nigerian Stock Exchange (“The NSE”). Before this amendment, Public Companies were NOT required to publish their full-year unaudited results on the floor of the stock exchange. The expectation was that Public Companies would submit their Audited Financial Statements for the prior year, on or before 31 March 2020 of the following year.

What was the Rationale?

The SEC has taken a view that there is a significant gap between when Public Companies last reported their results for a current year (31 October) to when the Audited results will be published (31 March) (about six months). Thus to reduce this gap, and keep the market informed timely of the performance of Public Companies, the SEC has directed all Public Companies to elect one of the following two options:

To file their Full Year Unaudited Results within thirty (30) days after the quarter-end and subsequently file the Audited Results within ninety (90) days after the year-end or;
Not file their Full Year Unaudited Results; however, MUST file their Audited Results within sixty (60) days after the year-end.

There is no nice way to put this - Some companies get away with murder in these markets. This has destroyed minority shareholders’ confidence especially because companies get away with blatant unethical practices and no one is being brought to book to face the music. The relatively lax regulatory environment led to the loss of personal and institutional capital across all spectrums of investors. I strongly believe the intent of the SEC in this regard with this amendment comes from a good place and it is a good starting point to look for a way to curb market malpractices. It is probably not perfect in its current form depending on who is looking at it. It is, however, a welcome development and there is room for adjustments but I would not shut it down completely. We suspect the SEC is probably taking feedback on these amended rules which we believe could be in a pilot phase, it is plausible that the rules could be adjusted in such a manner that it will still achieve the intent for which it was amended in the first place. These amendments are probably a reaction to the continued flouting of the existing rules and SEC felt a need to tighten the nose on erring companies.

There are many cases of erring companies who do not release financial accounts on time or release it after the cut off period or a blatant case where there is simply no sense of urgency from the Management of these companies.  I think the SEC needs to up significantly the fine of NGN1mn naira and also the daily rate – for most corporates, it is chicken change and would pay it comfortably. The SEC needs to send a clear and stronger message that timely corporate reporting of financial statements is paramount.  For now, we believe it obeys first, complaints later. Any corporate yet to submit their unaudited financials to the NSE by tomorrow 31st of January, 2020 is expected to have its audited accounts hitting the floor of the NSE on the last day of February, 2020. I think the SEC can go further by ensuring that any company that hasn’t reported by a certain deadline must mandatorily release its Management unaudited account on the NSE within 7 days of the end of the deadline. Failure to do that should lead to the suspension of trading on the stock. We gather from some corporates that we speak to that there have been engagements held with the SEC and this is likely a pilot scheme to see the impact then decide whether to continue the practice in the future. Some operators feel that the unaudited accounts will mislead the market especially for investors who are constantly seeking dividend payment. 

Specifically to the banks, given that they still need to get CBN approval, the deadline for banks could be 31st March of any given year. In terms of unaudited FY statement, I can also argue that where we see a major deviation of the audited account from the unaudited accounts, it raises a red flag for me in terms of the account practices of such a corporate. Given it is an audit process, we can allow for a 5-10 percent margin for adjustment, anything more than that would tell a lot. Imagine a Bank XYZ had declared NGN10bn of NPLs and at the end of the audit and CBN approval process, NPLs end up at about NGN50bn – Ladies and gentlemen, we have a problem with the internal reporting of the entity.

Happy to hear your thoughts – drop into my inbox.

What was the action?  What was amended? (Scroll to page 11 of the attached document for full details)

Amendment to Rule 39 (2):
The annual reports, prepared by the International Financial Reporting Standard (IFRS) shall be filed simultaneously with the Commission, the relevant exchanges (where applicable) and placed on the companies’ websites not later than ninety (90) days after the financial year-end.

Amendment to Rule 39 (6):
The annual report shall state the level of compliance of the public company with the Corporate Governance Guidelines for public companies as may be issued by the Commission from time to time and the Nigerian Code of Corporate Governance, 2018.

Amendment to Rule 39 (7):
Any company that fails to file its annual report with the Commission as in (1) above shall be liable to a fine of N1million and the sum of N25,000 for every day the default continues.


Amendment: Creation of Sub-Rule (8)
A public company shall not later than thirty calendar days before the due date, apply for an extension of time to file its audited financial statement/annual report. Such application shall state the reason(s) for the inability to file within time and shall be supported with relevant documentary evidence.

In granting the application for extension, the Commission may consider the following:

The occurrence of an unforeseen circumstance
National emergency
Intervention by a government regulatory agency.


Amendment: Creation of Sub-Rule (9)
A public company whose application has been granted for the extension of time to file its audited financial statements under these rules shall be required to publish a notification of its impending failure to file on the due date in a national newspaper and on the company’s website. The reason(s) for the imminent failure to file shall be disclosed in the publications.

Amendment: Creation of sub-rule (10)
Where a public company fails to file its audited financial statements on or before the due date, the Commission may direct that trading on its shares be suspended and may impose any other sanction as it deems fit. Suspension of trading may also apply where a company has been granted an extension but fails to file at the expiration of the extension period.

AMENDMENT TO RULE 41(1)- QUARTERLY REPORT

Amendment:
Public companies shall no later than thirty (30) days from the end of each quarter simultaneously file with the Commission, the relevant securities exchanges (where applicable) and post on the companies’ websites, a quarterly report prepared by the International Financial Reporting Standard (IFRS).