NPAT dwindled by 23%YoY
United Bank Limited (UBL) recently declared its financial result for 1HCY09. The 1HCY09 was quite disappointing in terms of profitability as the bank posted its NPAT of PKR 4.29 Billion compare to 5.59 Billion in 1HCY08 which translated a decline of 23%YoY and 32%QoQ; the profit before tax was PKR 6.77 Billion in result of 24%YoY decline; the EPS of the bank also shrunk by 23%YoY to PKR 3.85. UBL did not declare any interim payout for 1HCY09
However, the increase in KIBOR rates and 13% average increase in advances brought the increase in interest income of the bank by 20%YoY to PKR 15.83 Billion compare to PKR 13.22 Billion during the same period last year. The Operating revenue also increased by 17%YoY to PKR 22.61 Billion compare to PKR 19.25 Billion during the same period last.
In spite of the high inflationary pressures (average 1HCY09 CPI at 17.6%), the bank made just 11%YoY increase in its Administrative expenses compare to the same period last year.
Higher NPL significantly impacted the results
Although the Net interest income before provisions grew by 20%YoY but on the other hand the non-performing loans (NPL) made a drastic increase of 153%YoY to PKR 6.42 Billion compare to PKR 2.54 Billion during the same period last year. The advance to deposit ratio (ADR) was 72% during the period.
Net interest income after provisions decreased by 12%YoY compare to the same period last year at PKR 9.41 Billion. Provisions are up by PKR 2.5 Billion to PKR 6.4 Billion this year mainly due to elevated corporate and on-going consumer portfolio provisions. The provisioning charge also includes PKR 484 Million charged on account of impairment loss taken on the equities portfolio.
The Net interest margins (NIMs) remained strong at 6.3% owing to higher interest rates and attractive returns on the investment portfolio. However, NIMs on a year on year basis were impacted by an increase in the cost of deposits as a result of SBP regulation of 5% minimum rate of return on saving deposits which came into effect in June 2008.
Flimsy Macro-economic indicators for whole SectorThe upshots of the global financial crisis remained annoying for Pakistan’s economy which resulted in 2% GDP growth during FY09. The political instability and increased militancy in the northern areas of the country also took its toll on the economy both in terms of direct costs of the fight against extremism as well as affecting investment inflows and investor confidence in the country.
However, the IMF program played an important role to bring some strength in key economic indicators. Foreign exchange reserves which dropped to even lower than USD 7 Billion in November 2008 had now increased to USD 11.4 Billion in June 2009. Current account deficit also lowered by 23% this year at USD 8.5 Billion along with decrease in trade deficit to USD 14 Billion against USD 16.8 Billion compare to last year. Remittances again showed up trend by 21% to USD 6.4 Billion this year which also helped to stabilize the external account.
The chief challenges, however, which should have to be resolved in order to restore the economy growth and investors’ confidence in the Pakistan remain the acute energy crisis and the increased threat of militancy and extremism. Given the government’s current focus on these issues, I stay watchfully hopeful that the economic indicators will continue to improve this year for the overall banking sector.
Looking Ahead
UBL being the most attractive stock within the private commercial banks showed a slightly better incremental stock performance during the subjected period. The stock price of the bank mounted by 13% in CY09 to date compared to 31% rise in the benchmark index on KSE. However, the inclusion of a further 1% decline in the discount rate to 12% in recent monetary policy gave an obvious hope of betterment in near future and I am anticipating that its stock price will reach to PKR 65/share in FY09. I maintain the ‘buy’ stance for the bank.
Monday, August 31, 2009
Friday, August 21, 2009
National Refinery Limited (NRL) FY09 Review
NPAT dwindled by 74%YoY
On August 19, 2009, the company announced its result for FY09 ending to June 30, 2009. The company faced a sharp decline in profitability for FY09. NPAT for the year shrank by 74% to PKR 1.53 Billion from PKR 6.01 Billion compare to last year whereas the company's earnings per share were at 5-year low in FY09; it reported 74% lower to PKR 19.17 against PKR 75.10 in the same period a year back. The Sales were dropped by 15% to PKR 109.58 Billion compare to the same period last year which also returned in the shape of decline in Cost of Sales by 12%YoY to PKR 104.31 Billion compare to the same period last year. The Gross Profit Margin of the company lowered by 42%YoY to 4.8% in FY09.
Furthermore, the company paid PKR 30.533 Billion on account of trade discount, taxes, duties and levies in FY09 against PKR 16.847 billion in the same account a year back.
Global Oil Prices and PKR-USD Parity lowered the profitability
This drastic decrease in the performance of the company was mainly in result to the global plunge in oil prices of 39% followed by the decrease in PKR-USD parity by 23% during the period.
The average net realized price for the crude oil sold was USD 55.53/bbl, compared to USD 71.29/bbl during the last year whereas the average PKR-USD Parity was PKR 78.56 in FY09 compare to PKR 62.54 during the same period last year.
Lubricants served as the saving grace
The company's petroleum business experienced a throughout cutback in profit during FY09 chiefly in return to massive exchange losses as PKR-USD Parity depreciated by 23% during the period, and in return to the high inventory losses to 39% drop in global crude oil prices.
In an opposite manner, the company’s lubricant business supplied as the saving elegance for its FY09 net results, which would have been highlighted in red otherwise. The company’s margins in lubricant business were outshine in FY09 as the principal cost of production for lubricants which is furnace oil had a dropping trend along with the decrease in crude oil prices. The company has a strong presence in lubricants across the country which allowed benefiting by charging the premium in the market and offset the impact of inventory loss by fall in oil prices.
On the other hand, the average ‘gross refinery margin’ (GRM) were 60%YoY lower in comparison to the GRM of USD 9/bbl during the same period last year.
Dividend payout ratio to a six-year high of 65%
In the face of the gloomy EPS performance in FY09 compare to the same period last year, NRL did not let down its shareholders to get the lower Dividend for the year as the company has strong cash reserves which enabled it to announce the dividend of PKR 12.5/share for FY09.
This takes the company’s dividend payout ratio to a six-year high of 65%, which stayed close to 20% - 30% in the past. This, however, further asserts the view on refineries' reluctance to invest in Euro-II implementation.
Looking ForwardThere are optimistic signs for the company as the global crude oil prices in the market are expected to not to decline sharply and remain in a range of USD 65-70/bbl during 1HCY10. Therefore, on a comfort zone if NRL manages to keep its fuel business margins at 0%, the lubricant business would still be good enough for NRL to post better profits for the next period as lubricant business hedge the impact of crude oil prices on petroleum business. I include the NRL scrip in the buying list.
On August 19, 2009, the company announced its result for FY09 ending to June 30, 2009. The company faced a sharp decline in profitability for FY09. NPAT for the year shrank by 74% to PKR 1.53 Billion from PKR 6.01 Billion compare to last year whereas the company's earnings per share were at 5-year low in FY09; it reported 74% lower to PKR 19.17 against PKR 75.10 in the same period a year back. The Sales were dropped by 15% to PKR 109.58 Billion compare to the same period last year which also returned in the shape of decline in Cost of Sales by 12%YoY to PKR 104.31 Billion compare to the same period last year. The Gross Profit Margin of the company lowered by 42%YoY to 4.8% in FY09.
Furthermore, the company paid PKR 30.533 Billion on account of trade discount, taxes, duties and levies in FY09 against PKR 16.847 billion in the same account a year back.
Global Oil Prices and PKR-USD Parity lowered the profitability
This drastic decrease in the performance of the company was mainly in result to the global plunge in oil prices of 39% followed by the decrease in PKR-USD parity by 23% during the period.
The average net realized price for the crude oil sold was USD 55.53/bbl, compared to USD 71.29/bbl during the last year whereas the average PKR-USD Parity was PKR 78.56 in FY09 compare to PKR 62.54 during the same period last year.
Lubricants served as the saving grace
The company's petroleum business experienced a throughout cutback in profit during FY09 chiefly in return to massive exchange losses as PKR-USD Parity depreciated by 23% during the period, and in return to the high inventory losses to 39% drop in global crude oil prices.
In an opposite manner, the company’s lubricant business supplied as the saving elegance for its FY09 net results, which would have been highlighted in red otherwise. The company’s margins in lubricant business were outshine in FY09 as the principal cost of production for lubricants which is furnace oil had a dropping trend along with the decrease in crude oil prices. The company has a strong presence in lubricants across the country which allowed benefiting by charging the premium in the market and offset the impact of inventory loss by fall in oil prices.
On the other hand, the average ‘gross refinery margin’ (GRM) were 60%YoY lower in comparison to the GRM of USD 9/bbl during the same period last year.
Dividend payout ratio to a six-year high of 65%
In the face of the gloomy EPS performance in FY09 compare to the same period last year, NRL did not let down its shareholders to get the lower Dividend for the year as the company has strong cash reserves which enabled it to announce the dividend of PKR 12.5/share for FY09.
This takes the company’s dividend payout ratio to a six-year high of 65%, which stayed close to 20% - 30% in the past. This, however, further asserts the view on refineries' reluctance to invest in Euro-II implementation.
Looking ForwardThere are optimistic signs for the company as the global crude oil prices in the market are expected to not to decline sharply and remain in a range of USD 65-70/bbl during 1HCY10. Therefore, on a comfort zone if NRL manages to keep its fuel business margins at 0%, the lubricant business would still be good enough for NRL to post better profits for the next period as lubricant business hedge the impact of crude oil prices on petroleum business. I include the NRL scrip in the buying list.
Moody’s Rating Review
Pakistan’s outlook upgraded to ‘stable’…
Moody’s Investors Service recently upgraded Pakistan's outlook from B3 with ‘negative’ to B3 with ‘stable’. Moody’s cited greater financial assistance from the IMF and subsequent lowering of potential risks from any drop in private capital inflows as the reason for the outlook upgrade. Moody’s rating up gradation was expected due to some improvement on the economic front. However, Pakistan's credit rating is still lower than that for most other economies in the region, where long-term sovereign rating for Hungary and Turkey are Baa1 and Ba3. Considering that Pakistan's broad economic fundamentals are comparable and in some cases even better than these two economies and it is expected for further upward revision in Pakistan's outlook if political risks remain manageable.
Pakistan’s Economy rising….…
Pakistan's economy has been showing considerable signs of recovery. Inflation has declined to 11.2% in July 2009 from its peak of 25.3% in August 2008. Core inflation
has also dropped to 14.0% in July-09 from its peak of 18.9% in Feb-09.ÊCurrent Account Deficit has come down to 5.3% of GDP in FY09 compared to 8.5% in
FY08 while fiscal deficit has slipped from 7.6% of GDP to 4.3% during the same period. Furthermore, compared to FY09, exchange rate has become relatively stable while Pakistan's Forex reserves have increased to $11.8 billion from $9.9 billion in Dec 2008. All of these factors had already been pointing towards a favourable review from international credit rating agencies. Major bank outlook changed...
Moody's Investors Service has changed the outlook on the B3 long-term foreign currency deposit ratings of four Pakistani banks to stable from negative. The banks affected by the rating action include National Bank of Pakistan (B3 Stable/NP/D), Habib Bank Limited (B3 Stable/NP/D), United Bank Limited (B3 Stable/NP/D) and MCB Bank Limited (B3 Stable/NP/D).
What’s in it for us?
Well it is a major positive on the short-term. However efforts are to be made to ensure that the stable outlook is converted to positive outlook in the medium to long term basis. The country needs to focus on the fundamentals of the economy. Twin deficits of the economy have to be brought down to sustainable levels, domestic saving rate has to be increased in order to finance the needed investment, price stability has to be restored and energy shortages have to be eliminated. Investment grading rating is a reflection of country’s economic performance which is not bestowed by some outside forces but by the hard work of our own people.
Moody’s Investors Service recently upgraded Pakistan's outlook from B3 with ‘negative’ to B3 with ‘stable’. Moody’s cited greater financial assistance from the IMF and subsequent lowering of potential risks from any drop in private capital inflows as the reason for the outlook upgrade. Moody’s rating up gradation was expected due to some improvement on the economic front. However, Pakistan's credit rating is still lower than that for most other economies in the region, where long-term sovereign rating for Hungary and Turkey are Baa1 and Ba3. Considering that Pakistan's broad economic fundamentals are comparable and in some cases even better than these two economies and it is expected for further upward revision in Pakistan's outlook if political risks remain manageable.
Pakistan’s Economy rising….…
Pakistan's economy has been showing considerable signs of recovery. Inflation has declined to 11.2% in July 2009 from its peak of 25.3% in August 2008. Core inflation
has also dropped to 14.0% in July-09 from its peak of 18.9% in Feb-09.ÊCurrent Account Deficit has come down to 5.3% of GDP in FY09 compared to 8.5% in
FY08 while fiscal deficit has slipped from 7.6% of GDP to 4.3% during the same period. Furthermore, compared to FY09, exchange rate has become relatively stable while Pakistan's Forex reserves have increased to $11.8 billion from $9.9 billion in Dec 2008. All of these factors had already been pointing towards a favourable review from international credit rating agencies. Major bank outlook changed...
Moody's Investors Service has changed the outlook on the B3 long-term foreign currency deposit ratings of four Pakistani banks to stable from negative. The banks affected by the rating action include National Bank of Pakistan (B3 Stable/NP/D), Habib Bank Limited (B3 Stable/NP/D), United Bank Limited (B3 Stable/NP/D) and MCB Bank Limited (B3 Stable/NP/D).
What’s in it for us?
Well it is a major positive on the short-term. However efforts are to be made to ensure that the stable outlook is converted to positive outlook in the medium to long term basis. The country needs to focus on the fundamentals of the economy. Twin deficits of the economy have to be brought down to sustainable levels, domestic saving rate has to be increased in order to finance the needed investment, price stability has to be restored and energy shortages have to be eliminated. Investment grading rating is a reflection of country’s economic performance which is not bestowed by some outside forces but by the hard work of our own people.
Thursday, August 20, 2009
Shell Pakistan Ltd. 1HCY09 Review
Shell logs PKR 1.01 Billion profits for 1HCY09
Shell Pakistan Limited (SHELL) has announced its 1HCY09 result on August 19, 2009. The company posted its NPAT of PKR 1.01 Billion a decline of 71%YoY from PKR 3.45 Billion last year during the same period. The Sales were PKR 82 Billion in 1HCY09 compare to PKR 88.06 Billion in 1HCY08 which again represented a decline by 7%YoY compare to the corresponding year. The EPS were again low by 71% to PKR 14.80 per share compare to the same period last year. The foremost issues who impaired the company’s performance were decline in POL products volume, higher financing cost and lower inventory gains.
Better Picture in 1HCY08
The company had better outlook in 1HCY08 compare to 1HCY09. This was mainly in result of a huge inventory gain due to sharp increase in oil prices in the global market last year, the reason why we have seen a decline in Gross Profit Margin from 10.67% to 6.35% comparing to 1HCY08. The profit before tax also shrank by 82% to PKR 962 Million against the PKR 5,380 Million during the same period last year in return of the same reason.
Apart from the above mentioned reasoning, it should be pertinent to note that on a normalized basis after excluding the impact of inventory gains of 2008, the company’s performance shown improvement in terms of profitability regardless of the economic and security challenges faced by the country. Moreover, the company still has unsettled government receivables of approximately PKR 4 Billion including PDC and Sales Tax refunds which allowed the company to soar its short term financing by 65.5% to PKR 902 Million in 1HCY09 from PKR 545 Million in the corresponding period so that it should complete its business cycle. Additionally, one of the elements which supported earnings was chiefly due to the tax reversal of PKR 51.75 Million for the period under review.
Looking Forward
Since the oil prices are moving up on global basis and the Board of Directors has approved an interim dividend for the year ending December 31, 2009 at the rate of PKR 8 per share so we recommend buying its stock.
Shell Pakistan Limited (SHELL) has announced its 1HCY09 result on August 19, 2009. The company posted its NPAT of PKR 1.01 Billion a decline of 71%YoY from PKR 3.45 Billion last year during the same period. The Sales were PKR 82 Billion in 1HCY09 compare to PKR 88.06 Billion in 1HCY08 which again represented a decline by 7%YoY compare to the corresponding year. The EPS were again low by 71% to PKR 14.80 per share compare to the same period last year. The foremost issues who impaired the company’s performance were decline in POL products volume, higher financing cost and lower inventory gains.
Better Picture in 1HCY08
The company had better outlook in 1HCY08 compare to 1HCY09. This was mainly in result of a huge inventory gain due to sharp increase in oil prices in the global market last year, the reason why we have seen a decline in Gross Profit Margin from 10.67% to 6.35% comparing to 1HCY08. The profit before tax also shrank by 82% to PKR 962 Million against the PKR 5,380 Million during the same period last year in return of the same reason.
Apart from the above mentioned reasoning, it should be pertinent to note that on a normalized basis after excluding the impact of inventory gains of 2008, the company’s performance shown improvement in terms of profitability regardless of the economic and security challenges faced by the country. Moreover, the company still has unsettled government receivables of approximately PKR 4 Billion including PDC and Sales Tax refunds which allowed the company to soar its short term financing by 65.5% to PKR 902 Million in 1HCY09 from PKR 545 Million in the corresponding period so that it should complete its business cycle. Additionally, one of the elements which supported earnings was chiefly due to the tax reversal of PKR 51.75 Million for the period under review.
Looking Forward
Since the oil prices are moving up on global basis and the Board of Directors has approved an interim dividend for the year ending December 31, 2009 at the rate of PKR 8 per share so we recommend buying its stock.
HUBCO FY09 Review
Outshine performance in FY09 -- NPAT and EPS increased by 45%
Hubco disclosed its FY09 performance on August 12, 2009. The company made an outshine performance in FYO9 by increasing its NPAT with 45%YoY to PKR 3.78 Billion compare to PKR 2.6 Billion last year, the EPS of the company also increased by 45%YoY to PKR 3.27 per share. The company did better than its expectations due to the increase in PKR-USD Parity over the last 18 months as the company’s tariff is benchmarked in USD Index. The PKR-USD Parity also resulted in terms of increase in ROE of the company by 20%YoY in FY09 to 13% from 9% from the same period last year.
Circular Debt..! Still a vicious circle
The company still had a dilemma to get rid of the Circular Debt issue. This year WAPDA repositioned its dues on Hubco at the level of PKR 43 Billion and of which PKR 38 Billion was overdue in June 2009. Therefore, this situation forced Hubco to withhold payment of PKR 37 Billion to PSO, a major oil supplier to the company. The company had a strong believes that they will likely to settle the circular debt issue for ever by the end of August 2009. To continue its business cycle the company raised its Financial Expenses in the year by 7% to PKR 2 Billion under the head of short term borrowings. The company also raised a long-term loan of PKR 5 Billion for Narowal project, which was partly used to pay off short-term borrowings.
Higher Dividend than EPS exhibits company’s confidence against ReceivablesThe company made 56%YoY increase to PKR 3.35 dividend per share for the year, including the additional amount of PKR 2.0 cash dividend per share for 4QFY09 which basically is 102% against 78% payout last year. I believe that this dividend disbursement for FY09 is against the forever circular debt settlement by the end of August 2009 due to the IMF pressure on GoP.
Outlook – Driving towards further ExpansionI have optimistic attitude for HUBCO to buy. HUBCO’s 220MWs Narowal oil-fired power project successfully achieved its financial closing in March 2009 and as per companies’ expectations it will be coming online by March 31, 2010. While, hydro project i.e. Laraib Energy of 84MW is expected to be completed by September 2009. The company also signed a Power Purchase Agreement (PPA) for 25 years on November 20, 2008, with WAPDA and the estimated total project cost is USD 285 Million with a debt to equity ratio of 70:30. The entire debt has been funded locally. On the other hand, the PPA of Laraib Power plant has been initiated and the revised tariff has been approved by ECC at PKR 6.84/KWH. Hubco has 75% equity interest in this project. The company is financing the project injection through local banks and International financial institutions. Furthermore, the company also stated that O&M agreement with International Power Global Development has been renewed for further 12 years.
Hubco disclosed its FY09 performance on August 12, 2009. The company made an outshine performance in FYO9 by increasing its NPAT with 45%YoY to PKR 3.78 Billion compare to PKR 2.6 Billion last year, the EPS of the company also increased by 45%YoY to PKR 3.27 per share. The company did better than its expectations due to the increase in PKR-USD Parity over the last 18 months as the company’s tariff is benchmarked in USD Index. The PKR-USD Parity also resulted in terms of increase in ROE of the company by 20%YoY in FY09 to 13% from 9% from the same period last year.
Circular Debt..! Still a vicious circle
The company still had a dilemma to get rid of the Circular Debt issue. This year WAPDA repositioned its dues on Hubco at the level of PKR 43 Billion and of which PKR 38 Billion was overdue in June 2009. Therefore, this situation forced Hubco to withhold payment of PKR 37 Billion to PSO, a major oil supplier to the company. The company had a strong believes that they will likely to settle the circular debt issue for ever by the end of August 2009. To continue its business cycle the company raised its Financial Expenses in the year by 7% to PKR 2 Billion under the head of short term borrowings. The company also raised a long-term loan of PKR 5 Billion for Narowal project, which was partly used to pay off short-term borrowings.
Higher Dividend than EPS exhibits company’s confidence against ReceivablesThe company made 56%YoY increase to PKR 3.35 dividend per share for the year, including the additional amount of PKR 2.0 cash dividend per share for 4QFY09 which basically is 102% against 78% payout last year. I believe that this dividend disbursement for FY09 is against the forever circular debt settlement by the end of August 2009 due to the IMF pressure on GoP.
Outlook – Driving towards further ExpansionI have optimistic attitude for HUBCO to buy. HUBCO’s 220MWs Narowal oil-fired power project successfully achieved its financial closing in March 2009 and as per companies’ expectations it will be coming online by March 31, 2010. While, hydro project i.e. Laraib Energy of 84MW is expected to be completed by September 2009. The company also signed a Power Purchase Agreement (PPA) for 25 years on November 20, 2008, with WAPDA and the estimated total project cost is USD 285 Million with a debt to equity ratio of 70:30. The entire debt has been funded locally. On the other hand, the PPA of Laraib Power plant has been initiated and the revised tariff has been approved by ECC at PKR 6.84/KWH. Hubco has 75% equity interest in this project. The company is financing the project injection through local banks and International financial institutions. Furthermore, the company also stated that O&M agreement with International Power Global Development has been renewed for further 12 years.
Wednesday, August 19, 2009
Nishat Mills Ltd (NML) FY09 Review
NPAT is expected to be PKR 1.39 Billion with an EPS of PKR 5.50 per shareNishat Mills Ltd. (NISM) scheduled to announce its annual result for FY09 on August 25, 2009. I anticipate that the company will post its NPAT of PKR 1.39 Billion in FY09 compare to PKR 6.14 Billion last year; therefore a decline of 77%YoY. This will result into an EPS of PKR 5.50 in FY09 against the EPS of PKR 25.32 during last year.
Better performance in Core Operation than FY08
The outshine performance in FY08 was in result of a capital gain of PKR 5.1 Billion from the mark-to-market transaction of its ‘other investment’ in MCB after the 20% acquisition by MayBank in MCB.
Apart from this capital gain transaction, NISM actually achieved an EPS of PKR 4.45 per share in FY08 and the marked growth for FY09 would be of 33.7%YoY.
NISM’s anticipations to FY09
The company itself targeted their NPAT to reach at PKR 7.55 Billion or 22.9%YoY growth after the termination of antidumping duty on bed linen by the European Union in the beginning of 3QCY09.
The company’s revenues were also estimated to be assisted by a decrease in PKR-USD Parity over in last 18 months. The NISM anticipated that their Gross Profit will reach to 19% in FY09 compare to 15% last year as the company gained a benefit of procuring the annual cotton requirement in the months of October and December which are known as the key buying season.
Looking Forward
Based on the 12 months stock performance of the company I recommend to ‘buy’ NML scrip where the target price for FY10 is PKR 45 per share.
Better performance in Core Operation than FY08
The outshine performance in FY08 was in result of a capital gain of PKR 5.1 Billion from the mark-to-market transaction of its ‘other investment’ in MCB after the 20% acquisition by MayBank in MCB.
Apart from this capital gain transaction, NISM actually achieved an EPS of PKR 4.45 per share in FY08 and the marked growth for FY09 would be of 33.7%YoY.
NISM’s anticipations to FY09
The company itself targeted their NPAT to reach at PKR 7.55 Billion or 22.9%YoY growth after the termination of antidumping duty on bed linen by the European Union in the beginning of 3QCY09.
The company’s revenues were also estimated to be assisted by a decrease in PKR-USD Parity over in last 18 months. The NISM anticipated that their Gross Profit will reach to 19% in FY09 compare to 15% last year as the company gained a benefit of procuring the annual cotton requirement in the months of October and December which are known as the key buying season.
Looking Forward
Based on the 12 months stock performance of the company I recommend to ‘buy’ NML scrip where the target price for FY10 is PKR 45 per share.
Tuesday, August 18, 2009
OGDCL FY09 Review
Highlights of the FY09 include:
OGDCL’s net sales increased by 3.9% to Rs 130,830 million from Rs 125,908 million compared to the last year
Profit before tax increased by 3.3% to Rs 80,928 million from Rs 78,307 million compared to the last year
Net profit after tax stood at Rs 55,540 million resulting in earnings per share of Rs 12.91 as against Rs 44,338 million and earnings per share of Rs 10.31 respectively during last year.
Operating profit margin and net profit margin for the year was 59% and 42% respectively.
Payable interim dividend of Rs 2.50 per share.
Average net realized price for the natural gas sold was Rs 174.78/Mcf, compared to Rs 140.88/Mcf during the last year
Average net realized price for the crude oil sold was US$ 55.53/BBL, compared to US$ 71.29/BBL during the last year
The Company spudded 30 wells and made two discoveries during the year, (Kunnar South-1 & Pasahki West Deep-1).
Performance Review
OGDCL increased its Profitability by 25.26%YoY
OGDCL has announced its FY09 annual result on August 13, 2009. The company reported its profitability by 25.26%YoY increase to NPAT of PKR 55.54 Billion comparing to the NPAT of PKR 44.34 Billion last year. Profit before tax increased by 3.3% to PKR 80.92 Billion from PKR 78.31 Billion compared to the last year. The EPS for FY09 increased by 11.87%YoY to PKR 12.91 compare to PKR 11.54 last year. The Gross Profit Margin for the year was 69.92% comparing to 69.50% last year whereas the Operating profit margin and net profit margin for the year was 59% and 42% respectively.
Growth mainly driven by gas sales
The FY09 Sales figure was PKR 130.83 Billion with 3.91%YoY increase from PKR 125.91 Billion last year. The company experienced a drastic increase in sales for ‘Gas’ by 26.07%YoY which is a good symbol for the company that it’s actually driving its sales towards the demanding fuel of the country. OGDC contributed 24% of the country’s total natural gas production and the total sales of ‘Gas’ in FY09 was PKR 75.04 Billion compare to PKR 59.52 Billion.
On the other hand, the decrease in the sales of ‘Crude Oil’ and its bi-products i.e. ‘Naphtha’, ‘Sulphur’, ‘Gasoline’, ‘Kerosine Oil’, and ‘High Speed Diesel Oil’; and ‘LPG’ were noticed if I compare it to last year’s figures. The reason behind the decrease in their production was primarily due to decline in production from Dhodak, Thora, Lashari, Bobi, Sono, Tando Alam and Chanda fields. The company has also begun conducting offshore exploration activities which I believe has significant untapped potential.
The major contribution in FY09 Sales after ‘Gas’ was made by ‘Crude oil’ and ‘LPG’ with PKR 63.20 Billion and PKR 3.40 Billion comparing to PKR 70.63 Billion sale of ‘crude oil’, and PKR 5.30 Billion sale of ‘LPG’ by last year.
Operational Review
With a portfolio of 35 operated exploration licenses, the company has the largest exploration acreage in Pakistan, covering 30% of the total awarded acreage till FY09. The company has been able to keep the operational costs at the bare minimum by utilizing their own services and negotiating competitive service contracts for drilling and seismic operations. The company board agreed to merged with Pirkoh Gas Company (Pvt) Limited (PGCL) and the process of merger completed effectively in January 01, 2009
Net Profit margins increased by 21%The chief considerable part came from lesser corporate tax paid by the company of 31% which assisted the company to score net profit margins of 42% compare to 35% last year. This was due to the prior year tax adjustment of PKR 11.60 Billion which the company had to pay last year.
Found only 2 wet well from the exploration of 30 wells/2 Discoveries out of 30 explorationsThe exploration cost mounted by 16%, but then again the company successfully offset its effect by exploring 30 wells, drumming two new findings during FY09. OGDC made overachievement from its target for its exploration activities but failed to maintain the ratio of 3-1.
Lower Production for its major products in FY09
The company had lower production for its major products in terms of volume in FY09 compare to FY08. On average the gas prices increased by 24% to PKR 174.78/mcf along with the PKR depreciation of 23% during FY09 but this effect stoutly offset by 22% on average decline in oil prices as they linked with international price quoted in USD.
Circular Debt still an obstacle
The company owned overwhelming amount of PKR 65 Billion in receivables till March 2009. The company owned ‘circular debt’ as the key area to concern which is minimizing shareholders' return in terms of cash.
Looking Forward
I have optimistic attitude for OGDC to buy. OGDC has outperformed in the market by 97% over last 6 months in response to the exploration and growth related news. OGDC also announced couple of discoveries located in Sindh Province at Kunnar South-1 and Pasahki West Deep-1. Subsequently, on August 12, 2009 another gas discovery was made by the Company at Reti-1A in Guddu Exploration License which comes under the joint venture between OGDCL, IPRATOC, and GHPL holding pre-commercial stakes of 70%, 25%, and 5% respectively.
I estimate the findings to have a marginal annualized EPS impact of PKR 0.016/share for OGDC based on the initial flow rate. Although the above mentioned discoveries would be having a positive price performance impact but then again I am estimating the slowdown to the increase in exploration related news.
OGDCL’s net sales increased by 3.9% to Rs 130,830 million from Rs 125,908 million compared to the last year
Profit before tax increased by 3.3% to Rs 80,928 million from Rs 78,307 million compared to the last year
Net profit after tax stood at Rs 55,540 million resulting in earnings per share of Rs 12.91 as against Rs 44,338 million and earnings per share of Rs 10.31 respectively during last year.
Operating profit margin and net profit margin for the year was 59% and 42% respectively.
Payable interim dividend of Rs 2.50 per share.
Average net realized price for the natural gas sold was Rs 174.78/Mcf, compared to Rs 140.88/Mcf during the last year
Average net realized price for the crude oil sold was US$ 55.53/BBL, compared to US$ 71.29/BBL during the last year
The Company spudded 30 wells and made two discoveries during the year, (Kunnar South-1 & Pasahki West Deep-1).
Performance Review
OGDCL increased its Profitability by 25.26%YoY
OGDCL has announced its FY09 annual result on August 13, 2009. The company reported its profitability by 25.26%YoY increase to NPAT of PKR 55.54 Billion comparing to the NPAT of PKR 44.34 Billion last year. Profit before tax increased by 3.3% to PKR 80.92 Billion from PKR 78.31 Billion compared to the last year. The EPS for FY09 increased by 11.87%YoY to PKR 12.91 compare to PKR 11.54 last year. The Gross Profit Margin for the year was 69.92% comparing to 69.50% last year whereas the Operating profit margin and net profit margin for the year was 59% and 42% respectively.
Growth mainly driven by gas sales
The FY09 Sales figure was PKR 130.83 Billion with 3.91%YoY increase from PKR 125.91 Billion last year. The company experienced a drastic increase in sales for ‘Gas’ by 26.07%YoY which is a good symbol for the company that it’s actually driving its sales towards the demanding fuel of the country. OGDC contributed 24% of the country’s total natural gas production and the total sales of ‘Gas’ in FY09 was PKR 75.04 Billion compare to PKR 59.52 Billion.
On the other hand, the decrease in the sales of ‘Crude Oil’ and its bi-products i.e. ‘Naphtha’, ‘Sulphur’, ‘Gasoline’, ‘Kerosine Oil’, and ‘High Speed Diesel Oil’; and ‘LPG’ were noticed if I compare it to last year’s figures. The reason behind the decrease in their production was primarily due to decline in production from Dhodak, Thora, Lashari, Bobi, Sono, Tando Alam and Chanda fields. The company has also begun conducting offshore exploration activities which I believe has significant untapped potential.
The major contribution in FY09 Sales after ‘Gas’ was made by ‘Crude oil’ and ‘LPG’ with PKR 63.20 Billion and PKR 3.40 Billion comparing to PKR 70.63 Billion sale of ‘crude oil’, and PKR 5.30 Billion sale of ‘LPG’ by last year.
Operational Review
With a portfolio of 35 operated exploration licenses, the company has the largest exploration acreage in Pakistan, covering 30% of the total awarded acreage till FY09. The company has been able to keep the operational costs at the bare minimum by utilizing their own services and negotiating competitive service contracts for drilling and seismic operations. The company board agreed to merged with Pirkoh Gas Company (Pvt) Limited (PGCL) and the process of merger completed effectively in January 01, 2009
Net Profit margins increased by 21%The chief considerable part came from lesser corporate tax paid by the company of 31% which assisted the company to score net profit margins of 42% compare to 35% last year. This was due to the prior year tax adjustment of PKR 11.60 Billion which the company had to pay last year.
Found only 2 wet well from the exploration of 30 wells/2 Discoveries out of 30 explorationsThe exploration cost mounted by 16%, but then again the company successfully offset its effect by exploring 30 wells, drumming two new findings during FY09. OGDC made overachievement from its target for its exploration activities but failed to maintain the ratio of 3-1.
Lower Production for its major products in FY09
The company had lower production for its major products in terms of volume in FY09 compare to FY08. On average the gas prices increased by 24% to PKR 174.78/mcf along with the PKR depreciation of 23% during FY09 but this effect stoutly offset by 22% on average decline in oil prices as they linked with international price quoted in USD.
Circular Debt still an obstacle
The company owned overwhelming amount of PKR 65 Billion in receivables till March 2009. The company owned ‘circular debt’ as the key area to concern which is minimizing shareholders' return in terms of cash.
Looking Forward
I have optimistic attitude for OGDC to buy. OGDC has outperformed in the market by 97% over last 6 months in response to the exploration and growth related news. OGDC also announced couple of discoveries located in Sindh Province at Kunnar South-1 and Pasahki West Deep-1. Subsequently, on August 12, 2009 another gas discovery was made by the Company at Reti-1A in Guddu Exploration License which comes under the joint venture between OGDCL, IPRATOC, and GHPL holding pre-commercial stakes of 70%, 25%, and 5% respectively.
I estimate the findings to have a marginal annualized EPS impact of PKR 0.016/share for OGDC based on the initial flow rate. Although the above mentioned discoveries would be having a positive price performance impact but then again I am estimating the slowdown to the increase in exploration related news.
Monday, August 17, 2009
Monetary Policy Review: Cautious Optimism
100 basis point cut justfied!
A balanced and responsible policy statement was presented by the state bank governor on the 15th of August. The governor clearly stated the positives which have emerged in last six month but was quick to classify them as “nascent positives” and suggested that the economy requires structural reform for the sustainability of the positives. Amidst these positives the central bank decided to loosen its stance on monetary policy and reduces the benchmark discount rate by 100 basis points. The market consensus prior to the statement announcement was 150 to 200 basis point cut. Hence the central bank decision will not be taken as a positive development by the market, and we most likely will see a negative movement in the market in the current week. But a more circumspective view taken by the central bank will help the economy on the long run.
Good news on the Macro Economic front
The country has seen improvement in key macroeconomic indicators following continued implementation of the macroeconomic stabilization program. The CPI inflation continues to fall, the CPI has shown about 7% drop in last three months. Government borrowing from the central bank remains within quarterly limits and the SBP's foreign exchange reserves have increased. These positives in turn, reflect contraction in aggregate demand, much-needed fiscal consolidation, and an improved balance of payments position. The gradual improvement in macro fundamentals has also stabilized the local money market and the PKR and USD exchange rate has remained within a tight range.
IMF targets Achieved
The SBP met successfully, the three main end-June IMF performance criteria. Both the stock of budgetary borrowings from the SBP at Rs 1130 billion and Net Domestic Assets (NDA) of SBP at Rs 1183 billion were below their respective target ceilings of Rs 1181 billion and Rs 1321 billion. Similarly the Net Foreign Assets (NFA) of SBP at $3.98 billion was higher than the targeted floor of $2.37 billion.
Security issues and Electricity shortage: are bringing the economy to halt
Due to electricity shortages and security issues, real GDP growth has fallen to 2.0 percent in FY09, down from 4.1 percent a year earlier. Large-scale manufacturing activity has already seen a record run of 11 consecutive months decline up to May 2009. Furthermore, there has been no growth in credit to the private sector.
Implementation of new interest rate corridor system
The SBP has announced the implementation of new interest rate corridor system that will replace repo market. This was one of the requirement placed by IMF, the hope is that it will help reduce volatility in short term interest rates and bring more transparency in the implementation of monetary policy. The corridor will operate through standing overnight repo and reverse repo facilities, that is, floor and ceiling. The interest rate corridor will consist of two end-of-day standing facilities. Existing three day repo facility would be renamed as SBP overnight reverse repo facility, which would become the ‘ceiling’ and a new SBP overnight facility which absorbs excess funds from the market would serve as ‘floor’ of the corridor. The minimum amount for the overnight repo/reverse repo facility will be Rs 100 million and in multiples of Rs 50million. The newly introduced SBP overnight repo facility will be available at 10% per annum. This will serve as the ‘floor’ for the interest rate corridor. Hence, the floor and ceiling levels for the interest rate corridor are 10% and 13% per annum respectively with the width of 300bps.
MPC and increase in frequency to bring transparency
The SBP also constitutes the independent monetary policy committee (MPC) that will have external experts as members in addition to the SBP and the SBP Board representatives. The inclusion of external members is aimed to ensure that the SBP benefits from expertise and independent views concerning monetary policy and this step will bring in line with best international practices by enhancing the transparency and credibility of monetary policy formulation process. The central bank has also decided to increase the frequency of monetary policy decisions from four to six times in a year.
What’s in it for the market?
Unfortunately the policy statement will not jell well with the market participants in near term. As pointed out earlier the consensus in the market was that the central bank will go for a harder slashing on the discount rate and will cut it by 200 basis points. The bankers were also anticipating a bigger cut in discount rate as reflected in the KIBOR rates. However it is obvious that the central had to take a circumspective view and provide a balanced statement. We would expect 4 to 5% reduction in the index from current point before it consolidates again.
A balanced and responsible policy statement was presented by the state bank governor on the 15th of August. The governor clearly stated the positives which have emerged in last six month but was quick to classify them as “nascent positives” and suggested that the economy requires structural reform for the sustainability of the positives. Amidst these positives the central bank decided to loosen its stance on monetary policy and reduces the benchmark discount rate by 100 basis points. The market consensus prior to the statement announcement was 150 to 200 basis point cut. Hence the central bank decision will not be taken as a positive development by the market, and we most likely will see a negative movement in the market in the current week. But a more circumspective view taken by the central bank will help the economy on the long run.
Good news on the Macro Economic front
The country has seen improvement in key macroeconomic indicators following continued implementation of the macroeconomic stabilization program. The CPI inflation continues to fall, the CPI has shown about 7% drop in last three months. Government borrowing from the central bank remains within quarterly limits and the SBP's foreign exchange reserves have increased. These positives in turn, reflect contraction in aggregate demand, much-needed fiscal consolidation, and an improved balance of payments position. The gradual improvement in macro fundamentals has also stabilized the local money market and the PKR and USD exchange rate has remained within a tight range.
IMF targets Achieved
The SBP met successfully, the three main end-June IMF performance criteria. Both the stock of budgetary borrowings from the SBP at Rs 1130 billion and Net Domestic Assets (NDA) of SBP at Rs 1183 billion were below their respective target ceilings of Rs 1181 billion and Rs 1321 billion. Similarly the Net Foreign Assets (NFA) of SBP at $3.98 billion was higher than the targeted floor of $2.37 billion.
Security issues and Electricity shortage: are bringing the economy to halt
Due to electricity shortages and security issues, real GDP growth has fallen to 2.0 percent in FY09, down from 4.1 percent a year earlier. Large-scale manufacturing activity has already seen a record run of 11 consecutive months decline up to May 2009. Furthermore, there has been no growth in credit to the private sector.
Implementation of new interest rate corridor system
The SBP has announced the implementation of new interest rate corridor system that will replace repo market. This was one of the requirement placed by IMF, the hope is that it will help reduce volatility in short term interest rates and bring more transparency in the implementation of monetary policy. The corridor will operate through standing overnight repo and reverse repo facilities, that is, floor and ceiling. The interest rate corridor will consist of two end-of-day standing facilities. Existing three day repo facility would be renamed as SBP overnight reverse repo facility, which would become the ‘ceiling’ and a new SBP overnight facility which absorbs excess funds from the market would serve as ‘floor’ of the corridor. The minimum amount for the overnight repo/reverse repo facility will be Rs 100 million and in multiples of Rs 50million. The newly introduced SBP overnight repo facility will be available at 10% per annum. This will serve as the ‘floor’ for the interest rate corridor. Hence, the floor and ceiling levels for the interest rate corridor are 10% and 13% per annum respectively with the width of 300bps.
MPC and increase in frequency to bring transparency
The SBP also constitutes the independent monetary policy committee (MPC) that will have external experts as members in addition to the SBP and the SBP Board representatives. The inclusion of external members is aimed to ensure that the SBP benefits from expertise and independent views concerning monetary policy and this step will bring in line with best international practices by enhancing the transparency and credibility of monetary policy formulation process. The central bank has also decided to increase the frequency of monetary policy decisions from four to six times in a year.
What’s in it for the market?
Unfortunately the policy statement will not jell well with the market participants in near term. As pointed out earlier the consensus in the market was that the central bank will go for a harder slashing on the discount rate and will cut it by 200 basis points. The bankers were also anticipating a bigger cut in discount rate as reflected in the KIBOR rates. However it is obvious that the central had to take a circumspective view and provide a balanced statement. We would expect 4 to 5% reduction in the index from current point before it consolidates again.
Saturday, August 15, 2009
All suffered declining fortunes except FFC in 1HCY09
DAP packed down Urea’s SalesThe improved DAP sales of 172%YoY in 1HCY09 conveyed a reversal impact on fertilizer Sector’s sales and brought its 15.1% decrease to PKR 4.9 Billion during 1HCY09. The industry sales’ grew by 45.0%YoY to PKR 45.9 billion and gave a far-fetched performance in DAP sales by 172%YoY increase but a reversal impact in Urea sales by 7%YoY decrease. The negative sales growth in the Urea was in response to decrease in DAP prices (Economy of scale) and in reflection of reduction in Urea’s production which declined by 0.6%YoY to 2 Million tons. The DAP production drove an addition by 42%YoY to 213k tons.
Industry Performance
1HCY09 for Fertilizer sector has appeared to roll into the downward side. Fauji Fertilizer Bin Qasim (FFBL) declared the profit of PKR 497.8 million and EPS of PKR 0.53 in 1HCY09 compared to the profits of PKR 718.2 million and EPS of PkR0.77 during the same period in last year which means a decline of 30.689%YoY. Engro Chemical declared the profit of PKR 1.043 billion along with an EPS of PKR 3.95 compared to the profit of PKR 1.556 billion and EPS of PKR 3.95 in the same period a year back. Dawood Hercules has posted an after tax loss of PKR 615.284 million and Per Share Loss of PKR 5.63 in the period under review against a profit of PKR 1,213.997 million and EPS of PKR 11.10 in the same period year back. Fauji Fertilizer Company (FFC) was the only company who has increased its profitability from the same period last year. It disclosed the profit of PKR 4.547billion and EPS of PKR 6.70 as compared to PKR 3.286 billion profits and PKR 4.84 EPS previously.
Fauji Fertilizer Bin Qasim
FFBL, being the only DAP producer was the leading recipient of the said DAP Sales Growth. FFBL’s DAP sales evidenced a 207%YoY increase – highest in the sector by growth of 164.3%YoY. The company sold 279k tons of DAP having a shoot of 6.5xYoY as a result of this a PKR 15 Billion in 1HCY09 compared to PKR 5.7 Billion during the corresponding period last year. The Urea sales for the company took a dip of 20%YoY and stood at 281k tons in 1HCY09.
In 2QCY09, the company stationed NPAT of PKR 485.3 Million and the EPS of PKR 0.52 compared to NPAT of PKR 556.1 Million and the EPS of PKR0.60 in 2QCY08 which booked a decline of 12.7%YoY. Apart from the Core operation, the faced a loss from associate Pak Maroc Phosphor (PMP) due to shutdown of their operations for 3 months during the period of 16-Nov-08 – 19-Feb-09 as well as a considerable inventory jot down by the company to bring its stocks at NRV; additionally, it was largely in loss from the Joint Venture project booked mainly in resulting to NRV adjustment recorded by PMP.
Engro ChemicalEngro Chemicals had again a drastic performance in DAP sales which grew by 1.8x in 1HCY09 to plunk at 71.6k tons. The DAP sales increased by 1.7x in 2QCY09 at 28.2k tons whereas the Urea sales declined by 24.1%YoY to 419.2k tons in effect of emphasize on DAP Sales by the industry compared to last year.
In 2QCY09, Engro's Urea sales were 183.3k tons compared to 245.2k tons during the same period last year which put a decline of 25.2%YoY. The gross profit margin of the company declined to 20.3% in 2QCY09 in contrast of 40.7% in 2QCY08.
Fauji Fertilizer Company
The company made an NPAT of PKR 1.9 Billion in 2QCY09 and EPS of PKR 2.74 compared to NPAT of PKR 1.5Billion and EPS of PKR 2.28 during 2QCY08 which brought the growth of 20.5%YoY.
The chief explanation behind the enlarged profitability in the 1HCY09 was due to increase in Urea sales including the increase in Price and Quantity and the higher other income principally in 1QCY09 in the shape of higher dividend from FFBL.
Outlook
Based on my analysis the reasons for lower profitability during the year were decrease in profit margins mainly in DAP, and higher interest rates in 1HCY09. I strongly expect the profitability of fertilizer companies to progress due to continued strong DAP and Urea sales, continuously increase in dividends paid by the industry and lower financial charges which are in the reason of decreasing interest rate environment.
Industry Performance
1HCY09 for Fertilizer sector has appeared to roll into the downward side. Fauji Fertilizer Bin Qasim (FFBL) declared the profit of PKR 497.8 million and EPS of PKR 0.53 in 1HCY09 compared to the profits of PKR 718.2 million and EPS of PkR0.77 during the same period in last year which means a decline of 30.689%YoY. Engro Chemical declared the profit of PKR 1.043 billion along with an EPS of PKR 3.95 compared to the profit of PKR 1.556 billion and EPS of PKR 3.95 in the same period a year back. Dawood Hercules has posted an after tax loss of PKR 615.284 million and Per Share Loss of PKR 5.63 in the period under review against a profit of PKR 1,213.997 million and EPS of PKR 11.10 in the same period year back. Fauji Fertilizer Company (FFC) was the only company who has increased its profitability from the same period last year. It disclosed the profit of PKR 4.547billion and EPS of PKR 6.70 as compared to PKR 3.286 billion profits and PKR 4.84 EPS previously.
Fauji Fertilizer Bin Qasim
FFBL, being the only DAP producer was the leading recipient of the said DAP Sales Growth. FFBL’s DAP sales evidenced a 207%YoY increase – highest in the sector by growth of 164.3%YoY. The company sold 279k tons of DAP having a shoot of 6.5xYoY as a result of this a PKR 15 Billion in 1HCY09 compared to PKR 5.7 Billion during the corresponding period last year. The Urea sales for the company took a dip of 20%YoY and stood at 281k tons in 1HCY09.
In 2QCY09, the company stationed NPAT of PKR 485.3 Million and the EPS of PKR 0.52 compared to NPAT of PKR 556.1 Million and the EPS of PKR0.60 in 2QCY08 which booked a decline of 12.7%YoY. Apart from the Core operation, the faced a loss from associate Pak Maroc Phosphor (PMP) due to shutdown of their operations for 3 months during the period of 16-Nov-08 – 19-Feb-09 as well as a considerable inventory jot down by the company to bring its stocks at NRV; additionally, it was largely in loss from the Joint Venture project booked mainly in resulting to NRV adjustment recorded by PMP.
Engro ChemicalEngro Chemicals had again a drastic performance in DAP sales which grew by 1.8x in 1HCY09 to plunk at 71.6k tons. The DAP sales increased by 1.7x in 2QCY09 at 28.2k tons whereas the Urea sales declined by 24.1%YoY to 419.2k tons in effect of emphasize on DAP Sales by the industry compared to last year.
In 2QCY09, Engro's Urea sales were 183.3k tons compared to 245.2k tons during the same period last year which put a decline of 25.2%YoY. The gross profit margin of the company declined to 20.3% in 2QCY09 in contrast of 40.7% in 2QCY08.
Fauji Fertilizer Company
The company made an NPAT of PKR 1.9 Billion in 2QCY09 and EPS of PKR 2.74 compared to NPAT of PKR 1.5Billion and EPS of PKR 2.28 during 2QCY08 which brought the growth of 20.5%YoY.
The chief explanation behind the enlarged profitability in the 1HCY09 was due to increase in Urea sales including the increase in Price and Quantity and the higher other income principally in 1QCY09 in the shape of higher dividend from FFBL.
Outlook
Based on my analysis the reasons for lower profitability during the year were decrease in profit margins mainly in DAP, and higher interest rates in 1HCY09. I strongly expect the profitability of fertilizer companies to progress due to continued strong DAP and Urea sales, continuously increase in dividends paid by the industry and lower financial charges which are in the reason of decreasing interest rate environment.
Tuesday, August 11, 2009
Automobile Sector 1MFCY10 Review
Showed a healthy jump of 32.43%YoY
The latest sales figures of Pakistan Automotive Manufactureres Association (PAMA) for July 2009 depict that car sales are gradually picking up month on month basis; however there is still a long way to go for the auto industry. The sales figures reported for the month of July showed a healthy jump of 32.43% to 9,820units compared to the 7,415units in same month in 2008. The figures have also shown an improvement of 8.07% compared to 9,087units in June 2009.
800CC segment leading the recovery
The recovery in sales is lead by the 800CC category which has shown a healthy growth of 13.3% MoM. Honda City and Corolla in the 1300CC range have also witnessed some improvement in sales, the overall MoM growth in this segment is recorded at 9.12%, and the total number of units sold stood at 4,335. 1000CC segment made the sales growth of 5.85% having 1,555units sales in July compared to 1,469 units in previous month; SUVs and LCVs segment showed the negative sales trend by 13.41% and a sales figure of 1,330units in current period compared to 1,536 in last month. The main contributor was Pak Suzuki with 4,966 units sales followed by Indus Motors with 3,586 units while Honda Atlas Cars and Dewan Motors with 1,140 and 128 units of sales respectively.
Withdrawal of FED helped boost the sales...... but high financing cost is still a dragThe government took a decision to reduce the Federal excise duty on CKD units in the recently announced budget this has helped the car manufacturers in reducing the prices of the cars which in turn helped the sales figures. However the high consumer financial cost and the reluctance of the banking sector to push the car loans aggressively is not helping the cause of the car manufacturers.
The Cars’ Sales decline by 49.68%YoY and SUVs & LCVs’ sales decline by 27.67%YoY. The segment which conceded the biggest shock was 1000CC car category with an average downturn of 71.40% in sales. The recorded downturn was in effect of increase in automotive prices caused by 19% PKR-USD Parity (81.39 in June 2009 from 68.40 in June 2008) which increased the cost of imported completely knocked down (CKD) kits and limited financing due to increase in interest rates.
Indus Motors (Toyota).
Toyota corolla remained the highest selling car with 3,124 units sales, continuously maintaining number 1 slot since October 2008. In spite of July-2008 to June-2009 sales volume which declined by 20.45%YoY, it has improved its market share by further 2 points to 36% this month. The year which started with a sizable hit of 80%QoQ downturn in 2009 with the earlier model is gradually being reversed; it stoutly bounced back to 275%QoQ increase in 2nd Qtr of 2009 leading to a growth of 13%QoQ in next quarter, while the last Qtr depicted growth of 17%. In July 2009 Corolla has made 3% sales growth. On the reversal side of this the sales of Daihatsu Cuore, went down by 52.05%YoY in FY09, then we’ve seen sales to get back into the positive numbers with 22% jump MoM basis in June, and in July 2009 the numbers are again showing the negative sales growth of 17% by selling 331 cars compared to last month figure of 397 cars.
Pak- Suzuki
The highest sales in July 2009 were made by Pak Suzuki with 4,966 cars. The main reason for this spike is mainly due to the cut in prices of vehicles on celebration of 1 million vehicle sales by Pak Suzuki since its operations in Pakistan. With the exception of Liana and Alto all the products of Pak Suzuki has shown tremendous sales surge in the previous month, mainly due to the concerted effort on marketing by the company. The sales figures were lead by Bolan with whooping increase of 69% in MOM sales. Ravi and Mehran also witnessed healthy growth in July with MoM growth of 38% and 21% respectively. Very Surprisingly ALTO seems to be loosing its market and probably conceding to Core and foreign competition in 1000 cc category. While Liana remains weakling in Suzuki family, as it faces hard time with completion from Honda City and Corolla Xli in 1300CC range.
The latest sales figures of Pakistan Automotive Manufactureres Association (PAMA) for July 2009 depict that car sales are gradually picking up month on month basis; however there is still a long way to go for the auto industry. The sales figures reported for the month of July showed a healthy jump of 32.43% to 9,820units compared to the 7,415units in same month in 2008. The figures have also shown an improvement of 8.07% compared to 9,087units in June 2009.
800CC segment leading the recovery
The recovery in sales is lead by the 800CC category which has shown a healthy growth of 13.3% MoM. Honda City and Corolla in the 1300CC range have also witnessed some improvement in sales, the overall MoM growth in this segment is recorded at 9.12%, and the total number of units sold stood at 4,335. 1000CC segment made the sales growth of 5.85% having 1,555units sales in July compared to 1,469 units in previous month; SUVs and LCVs segment showed the negative sales trend by 13.41% and a sales figure of 1,330units in current period compared to 1,536 in last month. The main contributor was Pak Suzuki with 4,966 units sales followed by Indus Motors with 3,586 units while Honda Atlas Cars and Dewan Motors with 1,140 and 128 units of sales respectively.
Withdrawal of FED helped boost the sales...... but high financing cost is still a dragThe government took a decision to reduce the Federal excise duty on CKD units in the recently announced budget this has helped the car manufacturers in reducing the prices of the cars which in turn helped the sales figures. However the high consumer financial cost and the reluctance of the banking sector to push the car loans aggressively is not helping the cause of the car manufacturers.
The Cars’ Sales decline by 49.68%YoY and SUVs & LCVs’ sales decline by 27.67%YoY. The segment which conceded the biggest shock was 1000CC car category with an average downturn of 71.40% in sales. The recorded downturn was in effect of increase in automotive prices caused by 19% PKR-USD Parity (81.39 in June 2009 from 68.40 in June 2008) which increased the cost of imported completely knocked down (CKD) kits and limited financing due to increase in interest rates.
Indus Motors (Toyota).
Toyota corolla remained the highest selling car with 3,124 units sales, continuously maintaining number 1 slot since October 2008. In spite of July-2008 to June-2009 sales volume which declined by 20.45%YoY, it has improved its market share by further 2 points to 36% this month. The year which started with a sizable hit of 80%QoQ downturn in 2009 with the earlier model is gradually being reversed; it stoutly bounced back to 275%QoQ increase in 2nd Qtr of 2009 leading to a growth of 13%QoQ in next quarter, while the last Qtr depicted growth of 17%. In July 2009 Corolla has made 3% sales growth. On the reversal side of this the sales of Daihatsu Cuore, went down by 52.05%YoY in FY09, then we’ve seen sales to get back into the positive numbers with 22% jump MoM basis in June, and in July 2009 the numbers are again showing the negative sales growth of 17% by selling 331 cars compared to last month figure of 397 cars.
Pak- Suzuki
The highest sales in July 2009 were made by Pak Suzuki with 4,966 cars. The main reason for this spike is mainly due to the cut in prices of vehicles on celebration of 1 million vehicle sales by Pak Suzuki since its operations in Pakistan. With the exception of Liana and Alto all the products of Pak Suzuki has shown tremendous sales surge in the previous month, mainly due to the concerted effort on marketing by the company. The sales figures were lead by Bolan with whooping increase of 69% in MOM sales. Ravi and Mehran also witnessed healthy growth in July with MoM growth of 38% and 21% respectively. Very Surprisingly ALTO seems to be loosing its market and probably conceding to Core and foreign competition in 1000 cc category. While Liana remains weakling in Suzuki family, as it faces hard time with completion from Honda City and Corolla Xli in 1300CC range.
Wednesday, August 5, 2009
Global stocks, commodities slip; dollar flat
By Dominic Lau
LONDON (Reuters) - Global stocks and commodity prices pulled back on Tuesday as investors paused to assess the state of the economy after pushing them higher in the past two weeks, while the U.S. dollar was broadly flat.
BNP Paribas (BNPP.PA), France's biggest bank by market value, posted higher second-quarter profit, and expressed some optimism over prospects for financial markets, while there were signs of improvement in Swiss bank UBS's (UBSN.VX) underlying performance.
Better-than-expected second-quarter corporate earnings and improving economic data in major economies have helped push global equities, measured by MSCI, up in 13 out of the past 16 sessions.
The index hit its highest level in nearly 10 months on Monday.
"If you run up so fast and so far, it's quite natural that you have some profit taking," Luc Van Hecka, chief economist at KBC Securities, said.
"But the overall trend is certainly positive and the market is of the opinion that the worst is over. It is responding quite logically to the fact that earnings have generally been better than expected."
The MSCI world equity index was down nearly 0.2 percent. Shares in BNP Paribas advanced 1.2 percent, and those for UBS eased 0.3 percent.
Weaker commodity prices weighed on the pan-European FTSEurofirst 300 .FTEU3 index, which was down 0.4 percent.
The European benchmark, which has rallied 45 percent since its March floor, traded at 12.5 times expected earnings, the index's highest price-to-earnings ratio since August 2007, according to Thomson Reuters data.
OIL DROPS
Oil fell below $71 a barrel, paring some of the previous day's 3 percent gain, as worries about a rise in U.S. crude inventories offset optimism from Monday's positive U.S. and Chinese manufacturing data.
"The strong rally in oil prices over the past few days gave investors an opportunity to take some profits. There are also signs of increasing supplies," said Victor Shum, Singapore-based analyst at Purvin and Gertz.
"And we should remember that we are going to enter a period of slow autumn demand. With supplies rising, it will not be surprising for oil to pull back below $70."
Metal prices also eased, with copper down from a fresh 10-month high.
The U.S. dollar .DXY was flat on a trade-weighted basis against a basket of major currencies but it slipped 0.3 percent to 94.93 yen.
The Australian dollar, meanwhile, pared gains from a near 10-month high against the dollar after the Reserve Bank of Australia kept interest rates unchanged and abandoned its easing bias, supporting expectations of a rate hike by year-end.
Yields on the benchmark 10-year U.S. Treasuries were flat at 3.628 percent, while the 10-year euro zone benchmark bund yield was down 1 basis points at 3.335 percent.
(Additional reporting by Atul Prakash in London and Sambit Mohanty in Singapore, editing by Mike Peacock)
PepsiCo to buy bottlers for $7.8 billion; shares up
NEW YORK (Reuters) - PepsiCo Inc agreed to buy bottlers Pepsi Bottling Group Inc and PepsiAmericas Inc in a sweetened $7.8 billion deal, after a decade of operating as separate companies, as it seeks to cut costs and boost profits in North America.
The second-largest soft drink maker said on Tuesday it will pay $36.50 per share for Pepsi Bottling and $28.50 per share for PepsiAmericas, representing premiums of about 45 percent and 43 percent from the bottlers' closing prices the day before Pepsi launched unsolicited bids in April.
Pepsi first offered $29.50 per share for Pepsi Bottling and $23.27 per share for PepsiAmericas. Those bids, at 17 percent premiums, were worth $6 billion.
The price increase was expected since the bottlers posted better-than-expected profits, said JP Morgan analyst John Faucher. Price increases and lower costs helped offset weak demand for pricier beverages because of the recession.
Still, each bottler's shares jumped to new year-highs and were up more than 8 percent in afternoon trading, with PepsiCo up 5 percent at $59.00.
"We think getting the deal done removes a big overhang on PepsiCo," Faucher said in a research note.
The takeout price for Pepsi Bottling, the much larger bottler, is about 16 times estimated earnings, in line with the stock's average multiple over the last 10 years, said Jim Tierney, analyst and portfolio manager at W.P. Stewart, which owns Pepsi shares among its $1.5 billion in assets.
"I don't think in any way they're overpaying for this," Tierney said. "Nor do I think it's a tremendous deal."
STRATEGY
Buying the bottlers will consolidate 80 percent of Pepsi's North American beverage volume, which Pepsi said will speed decision-making and eliminate friction between the companies.
PepsiCo, whose drink brands include Mountain Dew, Tropicana and Gatorade, is the bottlers' largest shareholder and largest supplier -- a relationship that sometimes puts their interests at odds, especially when it comes to the price of the beverage concentrate they buy from PepsiCo.
Tierney said the deal aligns the companies' interests so they can focus on improving performance in North America, where sales have sagged industrywide as consumers cut back amid expanding waistlines and shrinking budgets.
"You now have one entity focused on one thing -- selling more soda, selling more water, selling more tea, selling more Gatorade," Tierney said. "That's really what's key here."
Pepsi spun off the bottlers in 1999, following a similar move from top rival Coca-Cola Co.
It is buying them back because the current model makes it difficult to achieve sustainable long-term profit growth since there is not enough profit in total to support investment in separate companies, Chief Executive Indra Nooyi said.
Coca-Cola, which has a decentralized system, declined to comment on the deal or Nooyi's assertion. Last month, Coke CEO Muhtar Kent reiterated his commitment to its model.
SAVINGS
The deal, expected to close late this year or early next year, should produce annual savings of $300 million by 2012, Pepsi said. That is above the $200 million it had expected.
Analysts and the bottlers thought that number conservative. Stifel Nicolaus analyst Mark Swartzberg estimates savings of $450 million.
Once those savings are realized, Pepsi said the deal should add about 15 cents per share to its full-year earnings. While Pepsi will incur one-time costs of about $300 million, the deal should add modestly to profit in 2010.
Although PepsiCo and Pepsi Bottling sparred over PepsiCo's initial bid, the ice apparently thawed after Nooyi met Pepsi Bottling director Ira Hall in person, a source familiar with the matter said.
Pepsi Bottling Chief Executive Eric Foss said Pepsi Bottling employees should benefit from greater career opportunities while shareholders will benefit from the deal's cash-and-stock structure, which lets them "participate in the significant upside we see in the combination."
Under the deal's terms, the bottlers' shareholders have the option to choose all cash or all stock, as long as Pepsi pays half cash and half stock in total.
PepsiCo said it will take on about $4 billion of additional debt because of the deal, but is committed to dividends and buying back shares.
Nooyi declined to say what management changes would result from the deal, leaving unspoken the fates of bottling executives Foss and PepsiAmericas CEO Bob Pohlad.
Pepsi Bottling shares jumped $2.74 to $36.36, while PepsiAmericas rose $2.28 to $28.43.
(Additional reporting by Jessica Hall in Philadelphia; editing by John Wallace and Maureen Bavdek)
GE to pay $50 mln to settle SEC fraud charges
By Scott Malone
BOSTON (Reuters) - General Electric Co will pay a $50 million civil penalty to settle charges by the U.S. Securities and Exchange Commission that it misled investors with some fraudulent accounting in 2002 and 2003.
The SEC found that the largest U.S. conglomerate had intentionally wrongly accounted for some commercial paper hedging activity and the sales of railroad locomotives, in an effort to make its financial results look better.
The world's largest maker of jet engines and electricity-producing turbines said on Tuesday it did not admit or deny wrongdoing as part of the settlement.
"GE bent the accounting rules beyond the breaking point," said Robert Khuzami, director of the SEC's Division of Enforcement. "Overly aggressive accounting can distort a company's true financial condition and mislead investors."
Two other accounting irregularities, regarding how GE accounted for swap derivatives and for how it recorded profit on sales of spare parts for jet engines were negligent, but not intentional violations, the SEC found.
The news comes a day after the SEC, which got a new head in Mary Schapiro in January, reached a multimillion-dollar settlement with another major U.S. company, Bank of America Corp. The bank said it had agreed to pay $33 million to settle SEC charges that it had made false statements to investors about bonuses when it took over Merrill Lynch & Co.
MASSAGING NUMBERS
The SEC said in court papers that GE had met or exceeded analysts' profit targets in every quarter from 1995 through 2004, but said that its top accountants signed off on improper decisions to make its numbers look better.
"On four separate occasions in 2002 and 2003 ... high-level GE accounting executives or other finance personnel approved accounting which was not in compliance with Generally Accepted Accounting Principles ("GAAP") so as to increase earnings or revenues or to avoid reporting negative financial results," the SEC said.
"In one instance, the improper accounting allowed GE to avoid missing analysts' final consensus EPS expectations," the regulator said.
KPMG, GE's auditor, was not named in the court papers.
GE shares were flat at $13.72 on the New York Stock Exchange.
The company has already restated some financial statements from 2005 through 2008 and said no further restatements would be needed.
"We have concluded that it is in the best interests of GE and its shareholders to resolve this matter and put it behind us," GE said in a statement. "The errors at issue fell short of our standards, and we have implemented numerous remedial actions and internal control enhancements to prevent such errors from recurring."
In addition to the $50 million penalty, GE said it had incurred about $200 million in related legal costs.
"It did cost them a quarter of a billion dollars over the years, so it is good to have it behind him," said Edward Jones capital goods analyst Matt Collins.
GE had a long streak of meeting or beating analysts' forecasts, dating back to its prior chief executive, Jack Welch. Its record broke in April 2008 when the company reported an unexpected drop in profit during the early days of the financial crisis.
Since then, GE has stopped giving Wall Street specific per-share profit targets, instead providing a "framework" of how it expects its individual units to perform. Collins said the era of GE's laser focus on hitting Wall Street's targets may have come to an end.
"Those days are fading," Collins said. "With the collapse at GE Capital and the global recession, you just don't have any levers left to pull. I think earnings quality should improve from here on."
(Reporting by Scott Malone, editing by Gerald E. McCormick, Maureen Bavdek, Leslie Gevirtz)
PepsiCo deals a welcome windfall for investors
By Jessica Hall and Doris Frankel
PHILADELPHIA/CHICAGO (Reuters) - PepsiCo Inc won over its two largest bottlers by raising its takeover offers more than 20 percent to $7.8 billion, giving investors a welcomed but not unexpected windfall.
PepsiCo said it will pay $36.50 per share for Pepsi Bottling Group Inc and $28.50 per share for PepsiAmericas Inc. That is up from its April bids of $29.50 per share for Pepsi Bottling and $23.27 per share for PepsiAmericas.
"The market was betting on mid-$30s price for Pepsi Bottling and a mid-to-high-$20s price for PAS, so the final offer is actually at or slightly higher than expectations," said one arbitrageur who declined to be named because he was not authorized to speak to the media.
"PepsiCo had tried to argue that its previous bids were 'full and fair' but now the offers finally are close to that," the arbitrageur said.
PepsiCo, which already owned stakes in the bottlers, said buying the remaining shares it did not already own would consolidate 80 percent of Pepsi's North American beverage volume. That would speed the decision-making process and eliminate friction between the companies, PepsiCo said.
The shares of both Pepsi Bottling Group and PepsiAmericas had been trading above the initial offer price, indicating investors expected a higher offer to emerge.
"The share prices of both Pepsi Bottling Group and PepsiAmericas since the original buyout offer in April reflected that Pepsi would come back with a higher bid," said Paul Foster, an option strategist at Web information site theflyonthewall.com.
"Large share price gains were already built in both Pepsi Bottling and PepsiAmericas after the deal was rejected in May and thus, option traders refrained from participating because the takeout valuations were already built in."
The existing option contracts held by investors in Pepsi Bottling are concentrated on the $30 and $35 call strikes granting investors the right to buy Pepsi Bottling shares at $30 and $35 apiece, respectively, by August expiration.
On the put side, the contracts outstanding lie in the strikes allowing investors to sell PBG shares at $25 and $30 a piece, mainly by September expiration.
The August calls at the higher strikes of $30 and $35 indicate the impasse between the companies, "that the current board (PBG) would not agree to a $29.50/ share price and a premium would be required," said Steve Claussen, chief investment strategist at online brokerage OptionsHouse in Chicago.
The put activity, especially in the September $25 put strikes with 12,354 outstanding contracts, represented the fear Pepsico would walk away and, "the Pepsi Bottling share price would crumple as the company has a ton of debt and its valuation without the deal would likely be much lower," Claussen said.
"Given that today's premium over the prior bid was 20 percent and the PBG stock is up only 8.3 percent on the acceptance of the increased bid, this is not a huge surprise to the market," Claussen said.
The negotiations concluded faster than some investors expected, however.
"We expected this to drag on past Labor Day, so this is a nice surprise. The deals aren't expected to close until late '09 or early 2010, so the time value of money reduces the premium a bit. But it's still a bump from what we expected," said a second arbitrageur, who declined to be named.
The deal is expected to create annual savings of $300 million by 2012 and add about 15 cents per share to its earnings when the savings are fully realized in 2012, PepsiCo said.
"The accretion and synergies are below our expectations, but that may change as they get further along with the consolidation process," the second arbitrageur said.
(Reporting by Jessica Hall and Doris Frankel; editing by Andre Grenon)
U.S. military reviews use of Twitter, other sites
By Adam Entous
WASHINGTON (Reuters) - The Pentagon has ordered a review of its use of social networking sites such as Twitter and Facebook, citing concerns that security could be compromised, officials said on Tuesday.
Many branches of the military use the popular, public-access sites in an effort to connect with young people, as well as to counter the propaganda of the Taliban and al Qaeda in Afghanistan and Iraq.
William Lynn, the deputy defense secretary, ordered the department-wide review in a memo to military commanders and service branch chiefs.
"These tools are proving valuable in areas such as recruitment, public affairs, and quality of life for our military personnel, as well as sharing information with allies, coalition partners and military families," Lynn wrote.
"However, as with any Internet-based capabilities, there are implementation challenges and operational risks that must be understood and mitigated."
Lynn asked the Pentagon's chief information officer to present a threat assessment as well as policy guidelines "to ensure the responsible and effective use of emerging Internet-based capabilities" to Defense Secretary Robert Gates by the end of August.
Lynn said a new policy would be developed by the end of September.
Pentagon spokesman Bryan Whitman said officials would try to strike a balance between benefits and risks arising from the use of social networking.
"It does highlight the tension between recognizing these as important ways to communicate ... and yet, on the other hand, the very real security concerns that the people that maintain our networks have with respect to using these sites," he said.
NO DEPARTMENT-WIDE BAN
Whitman said the risks could be offset through a combination of technology and training.
The Pentagon has not issued a department-wide ban on the use of social networking sites, but at least some services and departments have starting clamping down.
The Marine Corps, which has long prohibited its personnel from using the sites on work computers, issued a formal ban on Monday, said Lieutenant Craig Thomas, a spokesman for the Marines.
The Marines will allow waivers for "operational needs", such as for investigations, the distribution of news releases and for the recruitment of new personnel.
Marines can use the sites on their own personal computers.
Defense Secretary Robert Gates, 65, has said that he wants to utilize social networking to help the Pentagon interact with U.S. military members, many of whom are in their early 20s, and young people worldwide.
The effort has picked up pace in recent months.
When the U.S. commander in Afghanistan issued new rules for avoiding civilian casualties last month, they were published first on the Facebook page of U.S. forces in the country.
The Pentagon's Web site, www.defenselink.mil, features a link to its Facebook page and Twitter feed from its public affairs chief.
But Pentagon experts have been studying possible risks, such as whether posting to Facebook or Twitter from military computers could open a pathway for hackers.
(Additional reporting by Andrew Gray, editing by Philip Barbara)
EA results surpass Street view, shares climb
SAN FRANCISCO (Reuters) - Electronic Arts Inc (ERTS.O) reported better-than-expected results on strong sales of "The Sims 3" video game and cost-cutting, sending its shares up as high as 4 percent on Tuesday.
The results provided a measure of good news for the video game industry, which has struggled lately as the economic downturn continued to pinch consumer spending and take its toll on sales. [nN29205340]
EA also affirmed its forecast for the fiscal year.
Electronic Arts, which said it was the No. 1 video game publisher in Europe and North America in the June quarter, this year announced plans to cut about 11 percent of its workforce and close facilities, as it winnowed its product portfolio down to focus on fewer titles.
The company's restructuring effort is largely complete, Chief Financial Officer Eric Brown said in an interview.
Electronic Arts posted a net loss of $234 million, or 72 cents a share, in its fiscal first quarter ended June 30, versus a net loss of $95 million, or 30 cents a share, last year.
Excluding items, Electronic Arts reported a loss of 2 cents a share, better than the average analyst estimate of a loss of 12 cents a share, according to Reuters Estimates.
Revenue fell to $644 million, but non-GAAP revenue rose 34 percent to $816 million, ahead of Wall Street's forecast for $735.7 million.
Electronic Arts sold 3.7 million copies of "The Sims 3," and 1.8 million copies of "EA Sports Active," its best-selling title ever for Nintendo's (7974.OS) Wii, the most popular home console.
The company doubled its revenue on Wii titles in the quarter.
Electronic Arts also affirmed its fiscal 2010 forecast for earnings excluding items of $1 a share on non-GAAP revenue of $4.3 billion.
Shares of Redwood City, California-based Electronic Arts are up about 35 percent this year. Its stock closed at $21.89 on the Nasdaq and rose to $22.07 in extended trading.
(Reporting by Gabriel Madway; Editing by Robert MacMillan)
Microsoft deal will pay Yahoo more after 5 years
SAN FRANCISCO (Reuters) - Yahoo Inc will get slightly more revenue from Microsoft Corp during the second half of the companies' recently announced 10-year Internet search partnership.
The share of revenue that Microsoft pays to run search ads on Yahoo's network of sites will increase from 88 percent to 90 percent in the second five years of the partnership, according to regulatory filings by Yahoo on Tuesday.
At least 400 Yahoo employees will join Microsoft as part of the Internet search partnership, and the two companies will select an additional 150 Yahoo employees to help with the transition of powering Yahoo's search and ad search with Microsoft technology.
Yahoo and Microsoft announced the search partnership last week, ending a multiyear courtship between the two companies that at one point entailed Microsoft paying $47.5 billion, $33 a share, to acquire Yahoo outright.
Yahoo shares have declined roughly 16 percent since the deal was announced, on investor disappointment that Microsoft is not paying Yahoo an upfront payment.
Shares of Yahoo were unchanged at $14.51 in extended trading on Tuesday.
Under the terms of the deal, Microsoft will provide the technology to power the search results and the search advertising capabilities on Yahoo's sites. Both companies will maintain separate sales forces for selling display ads on their respective sites, but Yahoo's sales team will handle sales of so-called "premium" search ads that are sold to large, and highly-coveted brand advertisers.
If Microsoft opts to reclaim control of premium ad sales on its own sites after five years, it will have to pay Yahoo a 93 percent share of the search revenue on Yahoo sites. Should Yahoo in turn want to maintain its premium ad sales exclusivity in the face of Microsoft's intentions, then Yahoo's share of search revenue will decline to 83 percent.
If neither company seeks to alter the terms after five years, effectively allowing Yahoo to continue providing premium ads for both sites, Yahoo's will be entitled to a 90 percent share of the revenue.
(Reporting by Alexei Oreskovic; Editing by David Gregorio)
Tuesday, August 4, 2009
HSBC in talks to form securities JV in China
By Clare Jim
HONG KONG (Reuters) - HSBC Holding Plc (0005.HK) (HSBA.L), Europe's biggest bank, is in talks to set up an investment banking joint venture in China, a senior bank executive said, adding that acquisition prospects in Asia are too expensive and that the bank will focus on organic growth.
The bank is in talks with potential partners to set up an investment banking joint venture, said Vincent Cheng, HSBC executive director and chairman for Asia-Pacific.
The move would allow the bank to expand into China's domestic securities and debt markets.
"We have many networks in Asia, so there is no push for us to buy expensive assets in the region," Cheng told Reuters in an interview on Tuesday.
Cheng said HSBC Hong Kong has enough capital for acquisitions and had looked into some of Royal Bank of Scotland's (RBS.L) Asian assets but found, in general, that Asian assets were too expensive.
Australia and New Zealand Banking Group Ltd (ANZ.AX) said earlier on Tuesday that it had agreed to buy some Asian units from RBS for about $550 million.
On Monday, HSBC said its first-half profit halved from a year ago to $5 billion due to rising bad debts.
Still, its stock jumped 6.6 percent to HK$82.85 on Tuesday as investors reacted to news that its profit was better than an average forecast of $4.9 billion because of cost controls and lower credit charges. It beat the benchmark Hang Seng Index .HSI, which was virtually unchanged.
HSBC Asia will focus on organic growth, said Cheng, who added that business will improve in the second half and that profits from Hong Kong will increase.
The economies of many Asian markets, including Singapore, South Korea and China had bottomed out in the second quarter and should improve for the rest of the year, he said.
"Emerging markets' contribution will account for about 60 percent of the total after the U.S. market returns to profit," Cheng said. "This is our target and, of course, we would not mind if the portion from emerging markets is bigger," he added.
Asia contributed about 90 percent of the group's profit in the first half.
HSBC plans to seek a group listing in China's Shanghai market and has started the process for an IPO. The timing for such a listing will depend on China's regulators, Cheng said.
HSBC has said it aims to be the first foreign bank to be listed in China.
(Editing by Chris Lewis and Ken Wills)
Monday, August 3, 2009
The serious side of the "Funny People" aftermath
NEW YORK (Hollywood Reporter) - Let's call this weekend what it is: some cold proof that Judd Apatow's hot streak is over.
There are many metrics you can choose from after the underwhelming $23.4 million take this weekend of the writer/director/producer's "Funny People."
A few:
* This will likely be the eighth straight movie that Apatow produced that failed to top $100 million. ("Step Brothers" and "You Don't Mess With the Zohan," the latter of which he also wrote, just reached the mark but didn't surpass it.)
* Opening weekend has been a hallmark of Apatow in his robust years. But only two of these past eight films opened to at least $30 million -- after the three previous pictures all did.
* This month marks exactly two years since Apatow Prods. had a bona fide breakout along the lines of a "Talladega Nights" or "The 40-Year-Old Virgin" -- the Greg Mottola-directed "Superbad," which earned $121 million.
* After "Virgin" and "Knocked Up," Apatow was touted for his rare ability to bring overseas audiences to U.S. comedies. That was then, this is now. Outside of "Zohan," none of his previous seven pictures have topped $150 million internationally. "Funny People" isn't likely to change that.
Of course, it's worth bearing in mind that Apatow is in many ways a victim of his own success, and the high bar that success has set. A $60 million or $70 million comedy, as many have been (and "Funny People" may still be) is still good. It's just not Apatow good.
The line has been that Apatow should be judged first by what he directs, not necessarily what he produces -- after all, the writers, directors and actors Apatow Prods. has incubated are branching out, and it's harder to ensure consistent success when you're trying to establish something new. But "Funny People" puts a ding in that argument -- it's not likely to reach the $109 million of "Virgin" or the $149 million of "Knocked Up."
The weekend box office makes the recent news about Apatow's three-picture production deal at Universal so notable. It also makes you wonder how the studio will market/fare with the next Apatow Factory product, "Get Him to the Greek," which reunites "Forgetting Sarah Marshall's" Jason Segel and Nicholas Stoller behind the camera and Jonah Hill and Russell Brand in front of it.
As for Apatow himself, what he does next as a writer-director is anyone's guess. From a commercial standpoint, it's tempting, after the dramatic ambitions of "Funny People," to say he should go more broadly comedic. Except we'd argue that the dramatic elements actually are what seem fresh in this movie (it's the Apatow-ian broad stuff/d@&k jokes that are starting to feel a little old).
Besides, the character-driven material is exactly what gave juice to his first breakout, "Virgin," which was a comedy with a strongly defined person at the center and a touch of the serious (only with the theme of chastity instead of mortality). Come to think of it "Knocked Up" -- also "long," incidentally -- had some of those elements too. So this wasn't as off-brand as some would have it.
The man who wore the Apatow crown when JA was still toiling in TV actually has had a similar trajectory. Todd Philips, working at a time before the R-rated comedy was in vogue, had two breakouts in a three-year span ("Road Trip" and "Old School"). He then endured a five-year dry spell with comedies like "School for Scoundrels" before returning in a big way this year.
For Apatow, this weekend demonstrates that the party may be over. Now he may be ready for his "Hangover."
(Editing by dean.goodman at Reuters)
Germany, GM to meet Opel bidders Tuesday: government sources
BERLIN (Reuters) - German government officials and General Motors representatives will meet the remaining bidders for Opel on Tuesday to work on forging a deal on who takes over the GM unit, government sources said on Monday. Two rounds of talks are planned, one with Canadian auto parts supplier Magna and one with RHJ International, a Belgium-based financial investor that traces its origins back to U.S. private equity firm Ripplewood.
The two bidders are competing for Opel, in which GM is relinquishing control in return for state support for the local carmaker which it needed after filing for bankruptcy protection in June.
GM's new board meets later on Monday and industry sources have said Opel will likely be discussed.
German Economy Minister Karl-Theodor zu Guttenberg said in a weekend newspaper interview the two suitors must improve their bids to win government backing.
Magna wants to expand Opel's full-scale car assembly business and forecasts high growth rates, particularly in Russia, home of its bidding partner, Sberbank.
RHJ aims to shrink production to return Opel to profit and may be open to selling it back to GM at a later date.
In a blog entry posted on the GM Europe's website last Tuesday, chief negotiator John Smith said he still expected a deal to close by the end of September, although no preference had been made yet for one of the two bidders, and key points with Magna's offer still had to be resolved.
The German states that are home to Opel plants and the federal government have expressed a preference for Magna's bid.
(Reporting by Gernot Heller, writing by Paul Carrel)
Get Out the Wallets
If I were told by the economic gods that I could have the answer to one question about the fate of the global economy, I know what I would ask. "When will the American consumer start spending again?" I know that doesn't sound as sophisticated as a question about industrial production, interest-rate fluctuations, or the Chinese stimulus plan, but it's the key to understanding when we will get out of this recession—and what the recovery is likely to look like. The rise of emerging powers like China, India, and Brazil is real. But for now, there is still just one 800-pound gorilla. The American consumer is the single largest factor at play in the global economy. Our spending is currently equal to the entire economies of China and India added together and then doubled.
The gorilla is showing some signs of life. It's rare for a statistical report to make news, but in late July, the release of the Case-Shiller Price Index was reported as the lead news story by both The New York Times and The Wall Street Journal. The re-port showed that the American housing market seems to have stopped declining. That's big news because the housing collapse has been the driving force behind both the economic recession and the financial crisis. Usually, recessions end with a return to spending on housing, automobiles, and appliances, followed by other consumer durables.
But this is not a usual recession. The United States entered this downturn with the average American deeply in debt. In 2007, total household debt was $13.8 trillion. Household debt per person nearly doubled between 1997 and 2007, from about $25,000 to $46,000. That means people might spend the next few years rebuilding their personal balance sheets, spending less, saving more. In fact, they're already doing that. The savings rate has shot up to almost 7 percent, the highest rate in 15 years. But many experts think that it will have to get up to 8 or 9 percent—the historical average in the pre-credit-bubble years—before Americans start spending again. That would mean either a longer recession or a much weaker recovery than most expect. The Chinese government is spending pots of money building bridges right now, German industries are retooling, but eventually they will all need to be able to export to Americans again.
We have come to believe that Americans are genetically coded to consume. In fact, it's not about DNA. Historically, Americans were seen as puritans, thrifty and hardworking. In the early 1970s, the American savings rate was more than 10 percent. But a change in economic conditions began to get Americans spending. Credit expanded dramatically in the last three decades, especially in the last eight years. The inflation of the 1970s left people worried that their savings could be wiped out. And a series of government policies and programs subsidized debt and expenditure and did nothing to reward savings.
The biggest of these, of course, is the tax deductibility of mortgage interest, which costs the country almost $100 billion every year. Please don't tell me it creates an ownership society. Margaret Thatcher eliminated a similar program in Britain, and Canada doesn't have one either—and both have the same home-owner-ship rates as America. The policy does not encourage home-owner-ship; it encourages the accumulation of debt.
The point is that people respond to incentives. Japan had a relatively low savings rate until the 1950s and '60s, when the government put in place policies that raised the savings rate. Conversely, as Tokyo has tried to get consumers to spend over the last two decades, Japan's savings rate has plummeted. The Chinese may or may not have a propensity to save, but their current high savings rate reflects a government policy to create high savings. In addition, objective factors matter. Chinese know that they do not have a government safety net, that they will have to pay for their own health care and retirement, and so they save. The Japanese, by contrast, are aging rapidly and retirees are spending down their savings at a rapid rate.
What does this mean for America? I doubt that the country will return to historically high savings rates. The baby boomers are aging, which means that they will save less and spend more. Credit is not nearly as available as it was two years ago, but compared with the rest of the world, America remains awash in easy access to cash—and at historically low interest rates. And perhaps most important, we have decided as a society to massively favor spending over saving. All the programs and incentives to pull out the wallet remain in place. For example, the United States is the only advanced industrial country that does not have a national sales tax. The American consumer will likely start spending sooner than many imagine. That's good for the world, but is it good for America?
Zakaria Is The Host Of Fareed Zakaria GPS On Sundays At 1 P.M. Et on CNN.
Subscribe to:
Posts (Atom)