CSCS Rides on Innovation, Diversification

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The Central Securities Clearing Systems Plc rode on innovation and diversification to end 2015 with a N4.5 billion profit, notwithstanding the drop in the volume and value of transactions at the stock market, writes Goddy Egene

The Nigerian stock market has suffered significant decline in the past two years with the Nigerian Stock Exchange (NSE) All-Share Index ASI falling by about 34 per cent. Similarly, volume and value of transactions have also witnessed downward trajectory, meaning reduced business volume and income for most operators and stakeholders. One of such critical stakeholders in the market is the Central Securities Clearing Systems (CSCS) Plc. The CSCS is the clearing house of the Nigerian capital market, making sure that all activities in market are cleared, settled and investors get their value of the proceeds of transactions.

It generates its revenue from these services. The down turn in the market witnessed in 2015 was expected to have a massive impact on its operations and bottom-line for 2015 financial year. However, innovation and diversification embarked by the company paid off as it ended the year with commendable results as disclosed to the shareholders last week during the company’s annual general meeting in Lagos. CSCS ended the year with a profit after tax of N4.460 billion.

Corporate profile
The CSCS Plc was incorporated on July 29, 1992 as a financial market infrastructure (for the Nigerian capital market. It commenced operations in April 14, 1997 and became a Public Liability Company (PLC) on 16th of May 2012 by a special resolution. The company was licensed by the Securities and Exchange Commission (SEC) as an agent for Central Depository, Clearing and Settlement of transactions in the Nigerian capital market. It operates a computerised depository, clearing, settlement and delivery system for transactions in securities in the Nigerian capital market.

CSCS facilitates the delivery (transfer of securities from seller to buyer) and settlement (payment of bought shares) of securities transacted on the approved Nigerian Exchanges. It enables securities to be processed in an electronic book-entry form thereby substantially reducing the period it takes a transaction to commence and end.

Board/ownership structure
CSCS is owned by the Nigerian Stock Exchange (27.2 per cent); Access Bank Plc and Ecobank Nigeria Limited (7.5 per cent each); Sterling Bank Plc (5.6 per cent);United Bank for Africa Plc (5.4 per cent). Other investors control 46.8 per cent. The board of directors of CSCS is led by Oscar Onyema, who is chairman, while Mr. Kyari Bukar is Managing Director/Chief Executive Officer. Other directors are: Mr. Bayo Olugbemi; Mrs. Ifueko Omoigui-Okauru; Mr. Sola Adeeyo; Mr. Haruna Jalo-Waziri; Obinna Nwosu; Kennedy Uzoka; Omokayode Lawal; Mr. Emeka Madubuike and Mr. Ariyo Olushekun.
Although the company went public in 2012 the shares are yet to be listed on the NSE and are only on NASD Plc, the platform that facilitates the trading of public companies that are not listed on the exchange.

2015 Results
CSCS recorded total operating income of N7.602 billion for the year ended December 31, 2015, down by 7.8 per cent, while total operating expenses rose by 4.2 per cent from N2.482 billion to N2.586 billion. Profit before tax stood at N5.016 billion, showing a decline of 13 per cent, compared with N5.759 billion in 2014. The company ended the year with profit after tax of N4.460 billion, which is marginal 3.5 per cent fall, compared with N4.622 billion in 2014. However, shareholders’ funds grew by 14 per cent from N20.581 billion to N23.818 billion, while total assets grew by 10.1 per cent from N23.073 billion to N25.402 billion. Based on the performance, the directors recommended a N1.336 billion, which translates to 26 kobo per share.

Management’s comments
Speaking on the performance, the CEO, Bukar said the market was negatively affected by the unstable naira exchange rate which discouraged foreign investors from the bourse.
He said as a result, projected earnings from clearing and settlement services provided to capital market participants which constitute a significant part of our income lines was dashed and unmet.
“Data from the NSE at December 31, 2015 showed that the equity market dipped by 17.36 per cent compared with a decline of 16.14 per cent posted in 2014.

The equity market capitalisation, which opened for the year at N11.478 trillion, lost N1.628 trillion to close at N9.850 trillion on December 31, 2015 due to huge price losses suffered by some blue chip stocks. These outcomes were unfavourable to our financial performance and led to a decline in our income by 7.77 per cent in 2015 with total earnings of N7.6 billion as against N8.2 billion in 2014. The operating expenses stood at N2.58 billion in 2015 as against N2.48 billion in 2014. This indicates an increase of 4.19 per cent from the previous year. The year ended on a profitable note with our profit after tax at N4.46 billion, although this is a tail off by 3.50 per cent from preceding year’s figures of N4.62 billion due to huge investments made towards our new CSD infrastructure,” he said.
Bukar added that the company recorded a significant increase in the value of equities settled from N2.32 billion to N50.92 billion, indicating an increase of 2,091.5 over previous year’s statistics on the NASD OTC market.

“In the debt market, CSCS settled a total of N1.781 trillion, representing an increase of 228.71 per cent over the 2014 records. Also, the volume of transaction settled increased by 25.6 per cent from 1.48 billion units in 2014 to 1.86 billion units in 2015. Amongst other factors, the upward turn could be attributed to our recent connection to the Central Bank of Nigeria (CBN) Scripless Securities Settlement System (S4) effective October 2015. Through this connection, we have been able to update the records of retail FGN bondholders and their holdings, deliver and receive FGN Bonds on S4 for dealing member firms and clients,” he said.

Strategic plan
The chairman, Onyema also said during the year under review, the Board embarked on a study tour to STRATE in South Africa; Africa’s leading Central Securities Depository (CSD), to gain firsthand information about the CSD’s operations and its product & service offerings, so they can apply their learnings, as appropriate, to improve their business.

“CSCS and STRATE have since signed a Memorandum of Understanding (MoU) to foster cooperation in securities depository and settlement related matters to help drive the prosperity of their financial markets, promote cross-border investment, and explore opportunities for cooperation in depository, settlement and in the establishment of an operations linkage. We have used information garnered from STRATE and other CSDs with respect to trends in the depository, clearing and settlement services business to reevaluate the company’s five year strategic plan, which we operationalised in 2012, and have come up with a revised plan for the final two years (2016 to 2017). The revised plan bears three strategic pillars namely expand revenue base; increase efficiency in depository, clearing and settlement services; develop strategic alliances across businesses and regions,” he said.

Expand revenue base
The chairman said with over 17 years of successfully providing depository, clearing and settlement services, the company consider the time is ripe to chart a new course and replicate its core business successes in adjacent businesses.
“We have therefore identified new businesses, which will create value and help to further deepen the Nigerian financial markets and other business sectors. Presently, we are working with the NSE and other relevant stakeholders to establish a Central Counterparty Clearing House (CCP) that would act as the clearing infrastructure for the sale and purchase of derivatives securities and commodities in the Nigerian capital market. We have also established the framework for a repository company to enhance record keeping of insurance data and policies,” Onyema said.

Increase efficiency
According to him, the company continues to strive to ensure that its systems remain robust and highly scalable to drive its operations and deliver excellent experience to customers.
“In 2015, we began full implementation of our new clearing and settlement software (TCSBaNCS) developed by top provider of IT solutions and big data systems, TATA Consultancy Services. The project, which we have termed Project Meridian, is currently running on schedule and is expected to be completed in February 2017. The software possesses a range of unique features that enables clearing and settlement of multiple asset classes including derivative products,” he said.

Future outlook
Although the company made a lot of gains in 2015 despite the economic challenges recorded within the year, Onyema said it would build on these gains and move to stronger position within its Sector.
He said: “We will continue to pursue achievement of our strategic goals. In 2016, our aim shall be to strengthen our management team to keep it competitive and focused on executing business strategy as it relates to our core businesses, whilst implementing new business initiatives that will guarantee our sustainability as a profitable enterprise.”

According to him, the company will continue to enhance its good governance practices as reflected in the various changes made at the Board level. He added that CSCS had introduced a new Committee structure in 2015 and as “we progress, we trust the new structure will ensure increased board effectiveness and continued compliance with the requirements of the Securities and Exchange Commission (SEC) code of corporate governance for public companies.”