2011 | World Finance

‘Ratio between quality and price’

Posted on February 18, 2011 by

Mercator started 61 years ago as a Slovenian FMCG retailer. Today Mercator Group operates in seven markets in southeast Europe and has a long tradition in its core business – retail and wholesale of fast-moving consumer goods, as well as apparel, sportswear, hardware and electronics. It operates everything from large hypermarkets of more than 10,000sq m to supermarkets, convenience stores and small shops down to 100sq m, depending on the relative characteristics and needs of each local market, even on micro-location level. Currently Mercator operates more than 1,400 shops, has more than 23,000 employees, and expects revenues of €2.8bn for 2010.

Mercator Group started to plan as early as in mid-2008 its response to the changes in economic conditions brought about by the global financial and economic crisis, by devising two sets of measures: measures for adjusting its offer to consumers and measures for business rationalisation. In 2009 the company added another set of measures aimed at increasing business flexibility, in which framework it commenced and completed the reorganisation of the entire Mercator Group, with the goal of increasing the focus and efficiency of operations, enabling improved responsiveness to local customer demands, and adjusting the organisation to the growing complexity of international operations.

Pursuing its strategy, Mercator Group will conduct activities within their two fundamental programmes, i.e. fast-moving consumer goods and home products. In addition, non-core activities that include retail of sportswear through the Intersport licence, textiles, and manufacturing will continue.

As well as being one of the largest retailers in Slovenia, Croatia, Serbia and Montenegro, Mercator Group is the biggest real estate company in the region. More than €1.7bn worth of unencumbered property and over €800m of share capital ensure financial strength and stability to all company stakeholders in terms of both financing and operations. Undisturbed financial operations which further enabled unhindered execution of development activities were largely a result of mutual trust and partnership with banking partners and other financial institutions – an aspect even more crucial in times of severe and harsh economic conditions.

Even though the group, in the framework of its anti-crisis measures, limited the scope of investment activities to a level that could be financed with in-house sources, development activities continued in a well thought-out way. In 2009 Mercator invested over €150m in the development of retail network and acquired through own investments or operating and financial lease more than 100,000sq m of sales area. Thus, it operated more than one million square metres of gross sales area at the end of year. Furthermore, over a third of total revenues were generated in foreign markets.

In the medium-term period 2011-2015, Mercator Group is planning to monetise some of its real estate. The proceeds from sale-and-leaseback transactions will be used to reduce the debt. The group’s investment activities will take place in all existing markets of Mercator’s operations, with investment into new retail capacity planned at €125m-€155m per year. In the following five years, the group will invest more than €700m. After completing the planned investments – which also include acquiring trade facilities through operating lease – the group will add more than 700,000sq m to its gross retail space in five years. The funds required for the planned investment will be secured from internal sources, and partly by borrowings. As of 2013, Mercator is planning to launch operations in the markets of Kosovo and Macedonia.

Consistently with the expected growth of consumption and anticipated escalation of competition in particular markets, Mercator Group is planning sales revenues at €2.95bn in 2011, which is 5.9 percent above the estimated figure for 2010 (€2.78bn). In Slovenia, revenues from sales of goods are expected to rise by 2.1 percent in 2011, while in foreign markets they are expected to soar by 16.2 percent. The planned growth is a result of the launches of new retail units and full-year operation of the units opened in 2010.

Given the investment activities, scheduled for the period 2011-2015, Mercator Group is planning an average nominal annual increase in sales revenues of 8.7 percent. At this rate, annual net sales revenues will have reached €4,21bn by the end of 2015.

Mercator currently offers more than 2,300 private label products in Slovenia and more than 2,200 in Croatia. These products generally retail up to 30 percent cheaper than their branded equivalents. Sales of some Mercator private label products in Slovenian market rose by up to 48 percent since 2007. Mercator private labels now represent 15 percent of the Group’s total FMCG sales in Slovenia and five percent in Croatia. The goal is to reach more than 20 percent in Slovenia by 2015.

A significant purchasing incentive is the Mercator Pika customer loyalty system. There are more than 1.5 million Mercator Pika card holders in four markets. In Slovenia, the share of total retail revenues generated by purchases completed with Mercator Pika card amounted to 55 percent in 2009 (51 percent in 2008). In all markets of Mercator operations combined, this share amounted to 44 percent (41 percent in 2008).

In the next five-year period, Mercator’s key marketing activities will be focused on developing the ‘economy’ format and commitment to the customers. Particular attention will be paid to stressing the favourable ratio between quality and price. The assortment will be optimised according to location-specific characteristics – particularly in stores of smaller formats – and competitive pricing strategy will be pursued for key products and categories.

In addition to all basic advantages, Mercator continues to implement measures for simplification of procedures, cost rationalisation, higher levels of service, and new possibilities for customer loyalty system upgrades which would allow adjusting the offer to the target segments.

Sustainable development is also an increasingly important part of Mercator’s business strategy. It includes activities related to environmental responsibility in the broader sense: environmentally friendly supply chain and transport, marketing activities focused on local offer, responsible attitude towards the environment and nature, business responsibility with implementation of innovation at the point of purchase, establishing partnership relations with suppliers, and activities of corporate social responsibility which include human resources capital, and philanthropy. Mercator was one of the Ruban d’Honneur recipients in the category of corporate sustainability.

Mercator principles:
– Being the consumers’ first choice for everyday and home product shopping
– Creating the best value for consumers
– Offering quality service and pleasant shopping environment
– Enhancing the quality of life in the local environment

Ziga Debeljak, CEO
We possess the knowledge, skills and experience for managing a broad portfolio of retail outlets, and we believe that this is an important advantage for the region in which we operate. We are very familiar with consumers’ needs and the markets in our line of business in the region. Our philosophy is to offer a broad assortment of high-quality products at highly competitive prices. As an important part of our strategy, we source the majority of goods from local suppliers in all markets. We adapt our offer to the local needs and characteristics of our consumers to the highest possible extent, and offer a high level of retail service. Basically, we want to be the consumer’s first choice for everyday and home product shopping. In 2015, I see Mercator as the leading retailer in nine markets of the region, with revenues over €4bn and 33,000 employees.

Syria charts new economic terrain

Posted on February 18, 2011 by

Tucked away along the eastern Mediterranean coastline, nestled at the crossroads of three continents, Syria has steadily covered ground on its ambitious development journey. Over the last decade or so, economic reforms have begun to pay dividends and the country has demonstrated that it can nurture natural growth, relying less on its dwindling oil revenues and more on the actual substance of an economy that was far behind on its own people’s needs.

Economic initiatives were implemented that carved out enclaves of liberalisation and created room for private sector development after decades of central planning and stagnation. In the early stages, there were very few Syrian institutional players and the majority of businesses were more casual operations than structured corporations. For the most part, families created informal structures that performed the functions of whatever business endeavour was at hand and morphed effortlessly depending on the requirements of the economic landscape.

Within such a molten framework, it is quite the challenge to both adapt to a changing legal environment as well as to understand how to best capture the opportunities presented by a country’s liberalisation process. By actively pursuing new ventures as the supporting regulatory foundations are laid, local companies facilitate the very development process such new laws aim to achieve; different sectors and industries begin to evolve and grow as they are targeted by reforms from one end and brought to life by actual brick and mortar businesses from the other.

The Khwanda Group has thrived in this respect, consistently negotiating the changing economic terrain of Syria and seeking voids to fill with investment and creativity. As the name suggests, this family-operated venture has grown to become a group of companies with diverse interests spread over differing levels of the economy.

Despite its agrarian roots of working the lands of the Syrian coast and pressing olive oil in a traditional mule-driven mortar, the Khwanda Group made its name as the exclusive distributors of Mazda automobiles in Syria under the patronage of its founder, Mehran Khwanda.

Once Investment Law number 10 was passed in the early 1990s, the one-office operation transformed into a trans-national presence affecting the lives of thousands of Syrian families. The law, allowing foreign co-ownership of companies and providing tremendous tax-breaks, paved the way for the Kadmous Transport company to be formed. Today, this passenger transportation business has evolved into a cargo, freight, and money transfer service that employs more than 2,500 staff.

From that critical point of Syria’s economic history, the Khwanda Group ventured into a wide array of activities ranging from agricultural farms to phosphate mining, from private banking to restaurant management, even investing in one of Syria’s first holding companies. Importing everything from air conditions to heavy construction machinery, this company began to compliment its import activities with forays into Syria’s emerging private sector. As Syria’s economy began to change, the makeup of the companies that the group managed also began to change. Where the economy and the nation’s reforms allowed the private sector to satisfy a certain demand, Mr Khwanda would often see possibilities and opportunities to positively affect the company’s bottom line as well as the relevant stakeholders of Syria’s population.

The fundamental idea was to pursue activities that enable the business community and the people it serves to move hand in hand towards a better standard of living. Oftentimes, companies in emerging markets may lead economic growth on a macroeconomic level but do not speed up the process in which an increase in gross domestic product eventually leads to an amelioration of a country’s lower class economic and living situation.

“Our focus is on businesses that have a development angle to them; we try to target opportunities that benefit and provide a service to the country and hopefully improve the average Syrian’s standard of living,” Mr Khwanda’s son Ahmad explains. He offers the transportation and money transfer company as an example of this. “The margins are lower but Syria’s large lower economic class benefits. We offer our clients services that they would otherwise not be able to afford.” Kadmous Transport’s services are significantly cheaper and considerably less bureaucratic than the alternatives. Compared to formal financial institutions, transfers are made virtually instantaneously with no account setup necessary and for a fraction of the cost.

By being a low-cost leader while remaining competitive on the products and services offered, Khwanda Group has demonstrated how a company can directly affect positive change in the economy in which it operates. Providing harvest refrigeration and low-cost automated olive oil pressing services for rural farmers are but two examples that may seem miniscule compared to other investment opportunities but do in fact make a significant difference to the clients whose livelihood is directly hinged to such affordable options.

On a larger scale, the group has made every effort to maintain its own expansion pace at the level at which the Syrian economy is mutating. With banking reforms being implemented, substantial investments in the private financial sector were made alongside investors whose aim was to establish the monetary backbone that would support Syria’s development.

The group’s dedication to development does not stop with the goal of job creation and operating within the Syrian economy. Its support extends to cultural and educational endeavours in the community as well as other charitable causes. As part of its socially responsible ethos, the Khwanda Group has supported local emerging musicians, the Syrian National Children’s Orchestra, and an annual Syrian Jazz Festival. The group works closely with the Syrian Trust for Development in identifying and tackling important social and cultural issues that need the support of the local community in order to progress. In the past, the group has provided the financial backing necessary for local schools to stay open in the summer in an effort to provide additional learning opportunities for rural residents, and even implemented a programme that offered the necessary materials and assistance for coastal villagers to dig their own water wells.

As firm proponents of various civil society efforts within the country, the group continuously supports organisations that aim to connect expatriates with their local counterparts. In this capacity, the group is a recurring sponsor of the British Syrian Society’s conferences and activities and has contributed positively to the message the outside world receives about Syria.

The Khwanda Group is a prime example of how one can achieve their own business objectives while extending a hand to others around them as part of an intentional effort for everyone involved to benefit and progress. Its successful participation in multiple sectors of the economy as well as its positive effect on Syria’s social and cultural landscapes are undeniable and demonstrate how local efforts can become catalysts for nationwide development. It is these initiatives that effectively take economic development reforms from regulatory theory to real-world practice and translate them into an actual positive difference in the everyday lives of the average citizen.

Peru: Capital goods sector looks to CG

Posted on February 18, 2011June 12, 2013 by itsupport

Ferreyros is a Peruvian company founded in 1922 and has been a Caterpillar dealer in Peru since 1942, being today the leading distributor of capital goods in the country. It serves key economic sectors such as mining and construction, and along with the country, has grown significantly in recent years, tripling its size in revenues in the last four years to show revenues of $1bn in 2010.

During 2010 Ferreyros acquired the Caterpillar dealerships in Guatemala, El Salvador and Belize after receiving an invitation from Caterpillar to service its brand in new territory.

In the last few years the corporation’s activities have been related to the development of important mining, construction and hydroelectric projects. It employs more than 4,000 people, including Ferreyros and its subsidiaries in Peru and subsidiaries in Central America, all of them linked to the capital goods business, which consists not only of selling machinery but also providing value added services to its customers.

After registering its stocks in the Lima Stock Exchange (BVL) in 1971, the shareholders decided to attract new investors committed to the company’s future and growth. Therefore the company changed its nature, going from a family owned company to a public company. Today there are more than 1,500 shareholders.

In 1994 Ferreyros decided that the capital market should become one of its key funding sources and placed its first issuance of corporate bonds for $5m with a two year maturity. Today, after 25 years it has placed more than $250m in corporate bonds. Responding to the growth experienced, in 1997 the company successfully placed shares locally and abroad, increasing its net worth by $22m.

Today, after the issuance of corporate bonds, securitisation bonds, commercial papers and new shares Ferreyros is recognised as an important player in the Peruvian stock exchange and is well known by investors.

Ferreyros understood the value of good corporate governance practices implementation from the beginning.

Although at that time the company did not use the term ‘corporate governance,’ its performance had always been lead by ethical principles gathered today in the corporate governance concept. In order to attract investors and differentiate itself from other companies participating in the capital markets, it was important to constantly adopt changes that ensure transparency, equitable treatment of shareholders and efficiency in its operations.

This ongoing commitment to continuous improvement was possible because members of the board and top management have always been clear on the role of corporate governance.

In 2001, Ferreyros joined an association with other firms interested in good corporate governance practice. Each company in the group was asked to complete a governance self-assessment questionnaire looking at several areas: transparency of ownership, financial transparency, board structure and procedures and shareholder relations. The company scored well on the assessment and the leaders used the results as a starting point to implement improvements in some of its governance processes.

In 2006 Ferreyros participated in a corporate governance contest organised by Procapitales (a private association of key players in local capital markets that actively promotes best corporate governance practices) and Universidad Peruana de Ciencias Aplicadas. This contest required the presentation of information related to shareholder treatment, board practices including independent directors, board committees, transparency of information, management structure and risk administration, and finally relations with internal and external stakeholders.

The completion of the required information helped the company to again assess its current status and determine more positive changes to be implemented in the future. Ferreyros participated in the contest with both the desire to be recognised as a leader in the field, considering that at the end investors will pay back for good corporate governance practices, and secondly to receive a feedback from the organisers on its practices.

Ferreyros obtained different awards in every edition of this contest: in 2006 the Shareholder Rights prize, in 2007 the award for Best Annual Progress in Corporate Governance, in 2008 the awards for Shareholder Rights and Best Board of Directors Practices and in 2010 it again received the prize for Shareholder Rights (there was no 2009 contest).

However, Ferreyros was aware that its endeavours in good corporate governance matters should continue and even go beyond the frontiers of Peru. That is why in 2006 it joined the Companies Circle of the Latin American Corporate Governance Roundtable. The Companies Circle was launched in 2005 by the Organisation for Economic Cooperation and Development (OECD) and the International Finance Corporation (IFC) along with eight founder members. Composed of 20 Latin American companies that lead in good corporate governance practice, the circle seeks to: (i) be a forum for the discussion of the challenges and achievements reached in the improvement of corporate governance, (ii) share practical solutions to corporate governance challenges to the Latin American business community, and (iii) contribute to the work of the Latin American Corporate Governance Roundtable by offering the vision and experience of companies that have already undergone a number of reforms.

Ferreyros has been part of the Corporate Governance Index of the Lima Stock Exchange since the index was established in 2008. Just 10 Peruvian companies are listed in this index, after the validation of the questionnaire of the 26 corporate governance principles that each company published in its annual report.

Among other subjects, these principles include protecting shareholders’ rights (including equitable treatment of minority and foreign investors), providing appropriate disclosure of the company’s outstanding concerns (including the financial situation, performance, risks and shareholding), and the responsibilities of the board of directors to the shareholders.

According to literature on the subject, the improvement in corporate governance can be driven by the following motivating factors:
1. Ensuring company sustainability and commercial strategy
2. Improving institutionalisation process to ensure less dependence on specific people to run the business
3. Increasing market value and attracting new investors
4. Increasing share liquidity
5. Achieving better operational results and improving business processes
6. Confidence in carrying out mergers and acquisitions because of standards of transparency
Ferreyros’ efforts to maintain good corporate governance have brought many benefits, including better investor confidence and recognition from stakeholders, including local and international institutions.

Brunei Bank collects ‘firsts’

Posted on February 18, 2011 by

Baiduri means ‘emerald,’ the green precious stone that has been much admired and loved by many throughout history. Associated with grandeur, faithfulness and friendship, the stone has had a history as far back as 3000 BC, when they were the established gemstones in India, Egypt and Rome. It is no wonder, therefore, that the founders of Baiduri Bank felt an affinity with the stone which symbolises the Bank’s mission to provide innovative and comprehensive financial products and services to the Brunei community.

Established in 1994, Baiduri Bank is a member of the Baiduri Bank Group, one of the largest providers of financial products and services in Brunei Darussalam. Baiduri Finance, a wholly-owned subsidiary of Baiduri Bank which came into existence in 1996, has already captured a significant part of the automobile finance business; it is now the country’s leading automobile finance company.

The bank’s shareholders include Baiduri Holdings, Royal Brunei Airlines, Royal Brunei Technical Services and BNP Paribas. With a strong combination of local commitment and global expertise, the group is acknowledged as one of the leading banks in the country, with a track record of financial innovations and pioneering services. Its core business includes banking services to institutions and corporations, retail banking, consumer financing and wealth management.

Wide choice in product and delivery
Baiduri Bank’s payment card business has the largest card member and merchant base in the country. It is the first and only bank in Brunei to hold franchise to four major card brands, namely American Express, Visa, MasterCard and UnionPay, offering the widest range of payment cards to meet the needs of different customer segments.

Baiduri Bank Group’s network consists of 12 bank branches, a finance arm with two branches, and 28 ATM locations, all of which are strategically located in order to serve the Brunei population of 400,000. ATMs are equipped with cash and cheque deposit functions in addition to cash withdrawal, bill payment and fund transfer functions. Furthermore, enhanced internet banking services and a mobile authentication and transaction platform for payment and value-added services give customers extra convenience to meet the needs of specific customer segments.

Close cooperation and strong synergy developed between businesses has contributed to significant growth in business volumes and activities, with solid performance recorded across the entire spectrum of the group, resulting in continuous growth.

Baiduri Bank’s operating profit has grown steadily each year over the last 10 years, earning it numerous international awards – the latest being Company of the Decade for Brunei, awarded by World Finance. Total assets of the group at the end of 2010 stood at BND2.7bn ($2.1bn), ranking the group among the top financial institutions in Brunei.

Leadership and innovation
Renowned in the Brunei market for its strength, commitment and innovation, Baiduri Bank has many ‘firsts’ to its name. Some major innovations of the last decade are:
– the first to offer in-store and in-mall banking seven days a week,
– the first to offer internet banking,
– the first and only bank in Brunei to hold franchise to four major payment cards: Visa, MasterCard, American Express and UnionPay,
– the first to offer co-brand cards with American Express and national carrier Royal Brunei Airlines,
– the first and only bank to provide money remittance facilities under the Western Union agency,
– the first and only bank to introduce the next generation mobile suite of services which provides 24-7 banking services via mobile phone,
– the first and only bank to introduce multi-currency ATMs dispensing US dollars, Singapore dollars, Brunei dollars and euros.

Customer-centric
Baiduri Bank’s strong desire and ability to develop its client relationships, streamline processes to improve customer services and respond to market changes have definitely contributed to its success thus far.
Embracing international best practice, Baiduri Bank’s Credit Administration Department and subsidiary Baiduri Finance are certified to ISO9001, the hallmark of operating excellence. They remain the only two units in the Brunei financial industry to have obtained this internationally recognised seal of quality.

All these, together with its complete and diversified range of products and services catering to individuals, companies, government and the public under one roof create a winning combination for continued success.

Today, Baiduri Bank is acknowledged as an award-winning local bank, using local resources, market intelligence and adopting international best practices to deliver world-class innovative financial services to the people of Brunei Darussalam, the ‘Abode of Peace.’

For more information Tel: (673) 226 8300; Email: bank@baiduri.com; www.baiduri.com

A trading revolution

Posted on February 18, 2011 by

Spread betting has revolutionised the way that UK private investors trade financial markets. Originating more than three decades ago as a niche pastime mainly of city professionals, it has enjoyed dramatic growth in recent years, drawing in people from all walks of life. This trading revolution is well placed to continue in the years ahead thanks to improving technology and financial awareness among the public.

How spread betting works
Despite its name, spread betting is very much a form of financial trading, rather than gambling. A spread bet is essentially a miniaturised version of a futures contract or a contract-for-difference (CFD). The bets on offer cover a huge range of individual shares from the UK and abroad, entire stock-market indices, government bonds, commodities, and exchange rates. A simple example will illustrate how they work.

A spread bettor wishing to speculate that the price of gold will rise could open a “buy” bet on gold at a price of $1300. Say he is willing to stake £1 per point, his total position value is therefore £1300. He profits by £1 for each $1 that gold rises above $1300 and loses £1 for each point it falls below it. With a “sell” bet, he gains as the price falls and vice versa.

The spread betting firm will typically only require a customer to deposit a small percentage of the total value of his positions in his account. For example, it would easily be possible to have positions worth £1000 with as little as a tenth of that in one’s spread betting account. Profits and losses are therefore multiplied by an equivalent amount: a 10 per cent change in the price becomes a 100 per cent gain or loss.

Although they function almost identically to investment products, spread bets are classified as wagers in British law. As such, any profits from spread betting are tax-free under present rules. This is a key attraction of spread bets, especially in today’s environment of generally rising taxes. The UK’s new government raised the rate of capital gains tax from 18 to 28 per cent in 2010, increasing the appeal of spread bets over taxable products like CFDs and futures.

Spread betting providers make money by charging clients a spread. That is to say, they charge a different price according to whether a client is buying or selling, always in the provider’s favour. They also generate income from the interest they charge on the value of their clients’ positions. In some cases, the provider will also take the opposite side of a trade, thus standing to benefit should the client lose.

Spreading far and wide
Attracted by the possibility of tax-free profits and the ability to trade with very small amounts of money, new customers have embraced spread betting in large numbers over the past few years. In 2008, researchers estimated that there were some 430,000 spread betting accounts in existence in the UK, and although the number of active traders could be as low as a quarter of that, it still represents a huge increase over the last decade, with numbers increasing by more than 25 percent a year on average.

In response to these terrific growth rates, more and more firms have entered the industry, either in their own right or via a “white label” arrangement, under which their service is run by another firm, but under a different brand.

As a result, competition among firms has intensified, much to the benefit of the spread betting public. The pricing of bets has become very keen, while interest charges have fallen. Spread betting firms’ trading platforms have improved constantly, and today freely provide customers with live price charts, research, news-feeds, and other resources that previously were only available to deep-pocketed professionals.

While the industry’s growth has slowed somewhat in the last couple of years, the prospects for further expansion are good. “The number of spread bettors in the UK should continue to grow thanks to the advantages that the product offers,” says Chris Murphy, head of retail partnerships at Tradefair, a leading spread betting provider and recently voted Spread Betting Company of the Year 2011 by readers of World Finance. “The growth is more likely to be in single digits, however. One likely source of new customers is people who are currently involved in online gaming, such as poker or sports betting.”

The financial and economic environment could well play to the industry’s advantage too. Low interest rates have reduced the appeal of holding money in savings accounts, while making it cheaper to finance spread betting positions. At the same time, volatility in financial markets has graphically taught investors the value of being able to speculate on a wide range of different assets, and that of being able to profit from market falls as well as rises.

Deeper involvement in one’s own investments is another trend that could benefit the spread betting industry. The British government is to introduce a new type of pension account from 2012, which will allow and encourage individuals to play more of a role in building their own pension. The new skills people learn in doing so could make them natural new customers for financial spread betting in time.

Spread betting’s new frontiers
While the backdrop is clearly favourable for the spread betting industry to continue its expansion, the ultimate driver of further progress lies within the industry itself. Enhancing trading technology and raising awareness of spread betting offer the most likely ways forward for the business.

The arrival of smart phones is already transforming the way the way that spread betting customers play the markets. Dealing from a mobile handset has gone from something of a gimmick to being a serious way for people to trade on the move. It is now possible to operate as a spread bettor almost as effectively from a smart phone as from a computer. Customers are not only using their phones to exit existing positions, as was predominantly the case before, but also to research and enter new positions.

“The spread betting industry has always been at the forefront of developing simpler and more effective trading platforms,” says Tradefair’s Mr Murphy. “For example, we offer a tool on our platform whereby users can automatically scan price charts for potential trading opportunities. Providers will need to continue innovating in this way in order to maintain and grow their customer base.”

With spread betting in the UK shifting from rapid to steadier growth, the structure of the industry is also set to change. “It seems likely there will be some consolidation among providers,” says Mr Murphy. “There are too many firms involved at present, and those that remain may also become more focused in their offering.”

He also believes that spread betting firms may look outside the UK to build their business. “There is a case for taking spread betting into overseas markets, even though the same tax advantages may not apply elsewhere,” he says. “Spread betting is an easy way for customers to trade, particularly those who are just starting out and who have fairly limited capital.”

Beyond spread betting
Although in one sense a rival to CFDs and futures, spread bets are ultimately of benefit to these other instruments. Spread betting is typically used as an entry-level product. If a trader has success with spread bets, he may well subsequently want or find it advantageous to graduate to CFDs or futures. While they do not offer the same tax benefits, they are easier to trade rapidly and in larger amounts, which are important considerations to more serious traders.

One of the most interesting opportunities for spread bettors as they become more sophisticated is that of Direct Market Access (DMA). DMA is a way of trading CFDs directly in the marketplace, instead of having to go through a middle man. Rather than having to accept whatever prices a provider offers them, DMA traders specify the prices at which they wish to trade directly to other traders. Orders are matched directly with one another, eliminating the delays that can occur when dealing via a middleman.

Previously the preserve of a select few, DMA trading is now opening up to a much wider audience. The critical development in the UK was the launch of LMAX in autumn 2010, an online exchange in which retail traders can deal directly in stock indices, bonds, commodities and currencies. “LMAX brings transparent pricing to the retail mass market for the first time,” says Tradefair’s Mr Murphy. “The exchange has no vested interest in traders losing, unlike some traditional spread betting and CFD providers. Instead, it simply makes money from the amount of business being done. This means traders can have much greater confidence when they trade this way.”

The ability to trade without delay and to set one’s own prices opens up a whole new world of possibilities for retail traders. “Automated trading is set to be the next big thing here,” says Mr Murphy. “Without having to know how to write computer code, ordinary members of the public will be able to create their own strategies to identify and even execute opportunities, just like hedge funds do.”

Poland’s bankers look to double-digit growth

Posted on February 18, 2011 by

When global crises bring financial strife to the doors of once-renowned institutions, investors look for a sure place to protect their assets. PKO Bank Polski – the leader of the Polish banking market and a rising star of European finance – can be considered a safe haven for such investors’ money. For more than 90 years it has been the symbol of the Polish banking sector, and its widely recognised brand is valued by specialists at over $1bn.

It has the highest asset value in the Polish banking sector, and constant initiatives to maintain good customer relationships and persistent upgrades to product quality help the bank maintain its leading position. As a result its financial results have systematically improved: net profit in 2010 exceeded $1bn, and despite continuing volatility this is expected to grow in 2011.

“Our excellent financial results are the foundation for stable business development,” says Zbigniew Jagiełło, President of the Management Board of PKO Bank Polski. “We systematically increase our market share in all main market segments. Total focus on customer needs along with constant modernisation are the main sources of our business success.”

The bank is also making very efficient use of its equity. This is accompanied by increasing employment efficiency – measured by the level of profit, liabilities and receivables per employee – and improving cost-effectiveness.

The current market strength of the bank has been built for many decades, since its founding in 1919. Its brand prestige has grown thanks to generations of effectively handling clients’ financial matters with deep understanding of their needs. The bank’s strong and stable market position is reflected in various prestigious international rankings. Goldman Sachs experts estimated the bank’s market capitalisation at €13.4bn, placing it 23rd among European banks, while according to Interlace researchers, PKO Bank Polski is the leader in Central and Eastern Europe in terms of asset value.

The position of PKO Bank Polski as a major player in Europe is confirmed by the awards granted by World Finance; the bank has been designated Corporate Broker of the Year 2011 in Eastern Europe, Online Broker of the Year 2011 in Eastern Europe and Advisory Brokers of the Year 2011 in Eastern Europe. This success has become possible by effective and fast reaction to the changing expectations of client groups and best customer service. In 2010 the investment banking arm of PKO Bank Polski participated in all major projects in Poland and thus became the leader in terms of the value of conducted IPOs.

“Last year we ran leading roles in major IPO, SPO and ABB deals in Poland – including IPO of PZU and Warsaw Stock Exchange itself, where we acted as inter alia arranger,” says Jakub Papierski, Deputy CEO for Investment Banking of PKO Bank Polski. “These plus Tauron, PGE and other deals make us visible not only in Poland but also in European league tables.”

2010 was also the year when – six years after its IPO – PKO Bank Polski debuted on the international debt markets and placed its first ever tranche of Eurobonds of €800m. This issue, listed in Luxembourg, was the best ever priced deal by a Polish non-government issuer and represents a very important attempt by the bank to supplement its traditional funding sources also by the instruments offered by international debt capital markets.

According to research by MillwardBrown SMG/KRC, PKO Bank Polski is the most trusted financial institution in Poland. Three out of four Polish people trust its financial stability. Thus, PKO Bank Polski with its prudent credit policy is perceived as the guarantor of the stabilisation of Polish financial system. The share of non-performing loans in PKO Bank Polski is kept below market average. The strength and stability of the biggest bank in Poland was also confirmed in the European stress test conducted in July 2010. PKO Bank Polski was the only Polish bank directly participating in the exercise and achieved third place out of 91 EU banks from 20 member states.

Leading market position and excellent stable financial results are appreciated by investors, on both a domestic and international level. In 2010 the price of PKO Bank Polski shares quoted on Warsaw Stock Exchange was on average 40 per cent higher than in the corresponding period a year earlier. Moreover, the Eurobonds issued in 2010 by the bank as a part of the European Medium-Term Notes programme were priced at 185 basis points over the midswap rate, which is the best price in history obtained by a Polish corporate bond issuer.

Solid foundations
The core activity of PKO Bank Polski is retail banking. Despite strong competition in the Polish market, PKO Bank Polski is a leader in Poland in terms of the number of current accounts (more than six million) and issued payment cards (more than seven million). The largest sales network in Poland allows the bank to offer tailor-made products and provide quality services for retail clients in the most effective way. At present the bank runs more than 1,200 of its own branches, almost 2,000 agencies and nearly 2,400 ATMs.

PKO Bank Polski also dynamically develops its offer for customers who prefer carrying out financial operations by themselves. Electronic banking services offered under its iPKO brand as well as under the leading internet banking logo of Inteligo allow the client to have unlimited access to his current account and other types of banking products via the internet at any time of day and night. The online brokerage service, fully integrated under both platforms, allows the bank to match the changing need of the equity investors in Poland and gain prestigious awards. The quality of the bank’s services offered through this distribution channel is confirmed in various prestigious rankings. According to the bank’s strategy for the years 2010-12 the goal for Inteligo is to gain one million clients in the next two years.

PKO Bank Polski is also an important partner for corporations, providing services for small and medium enterprises as well as for large corporations. During the economic slowdown PKO Bank Polski was the main source of capital for Polish companies. The bank did not refrain from developing its lending activities, in spite of the stagnation in the corporate loan market. The company also enjoys a substantial share in the market of LGU services offered to local government units, such as communes, counties and provinces. It is also the leading arranger of municipal bond issues.

The Polish market, which dynamically changes due to growing competition, consolidation processes and changing legal regulations, creates new challenges for PKO Bank Polski. Its 2010-12 strategy is intended to address these challenges and add additional quality to current excellent operational performance.

In 2011 the positive changes planned will mostly affect retail clients, with plans to introduce new current accounts and continue the process – started in September 2010 – of replacing the traditional technology in its debit cards with microchip and near-field communication functionality. It also plans to modernise its private banking branch to attract new wealthy customers. These changes in product offer, along with innovative solutions implemented in the internal organisation and customer service, will allow PKO Bank Polski to strengthen solid relationships with clients and meet their widely understood financial needs.

BRI maintains momentum

Posted on February 18, 2011 by

Bank Rakyat Indonesia (BRI) is a state-owned bank that went public in 2003. The ownership composition consists of the Indonesian government (56.75 percent), foreign investors (37.77 percent) and domestic investors (6.48 percent). BRI is the second largest bank in Indonesia in terms of assets, and has been most profitable bank in Indonesia since 2005. It also has the largest network and customers base in the country, with more than 6,800 outlets spread across Indonesia, 67,000 employees and more than 33 million accounts.

Sustainable business
BRI has been performing very well: total assets grew sustainably by 26.54 percent compound annual growth rate (CAGR) for the last five years and reached $35.65bn by September 2010. Earning assets dominated 90.6 percent of total assets. Loans, contributing 74.7 percent of total earning assets, grew strongly by 28.44 percent (five year CAGR), maintaining BRI’s position as the largest bank in loan disbursement in Indonesia. This growth has not been achieved by sacrificing loan quality however, as non-performing loans have continued at a manageable four percent.

On the funding side, the growth in deposits has kept up with loan growth, increasing by 27.21 percent (five year CAGR). This helps BRI achieve an optimum loan to deposit ratio between 85 and 90 percent.

To maintain high growth momentum, BRI employs organic growth, through new outlets opening, and inorganic growth, through acquisition. Last year BRI opened 1,114 outlets to accelerate business growth and plans to open 700 new outlets in 2011. The bank has also been in the process of acquiring a small agricultural bank to enhance its position in agriculture and small businesses.

Profitability, among other factors, makes BRI attractive from an investment perspective. Along with sustainable growth and manageable asset quality, high ROE level (after tax ROE 28 percent) and high ROA level (2.86 percent) are key investment thesis. These achievements are supported by high net interest margin (9.4 percent), high asset quality, growing fee-based income and improved efficiency (cost efficiency ratio decline to 41.36 percent). BRI has a unique business model through its microfinance, small and consumer loans, which contribute almost 76 percent of total loan portfolio. This portfolio composition is able to maintain high NIM.

The profitability of microfinance
The uniqueness of BRI’s microfinance business has made the bank’s position different from its competitors. BRI’s presence in every district in Indonesia – supported by more than 4,600 micro outlets – helps it provide effective and efficient microfinance services. An aggressive strategy of opening new micro outlets has helped BRI capture huge market potential, making it one of the world’s biggest and the most profitable microfinance businesses. The bank’s micro loans have been sustainably growing at a compound annual growth rate of 24.11 percent.

Since 2009 BRI has applied a new strategy to strengthen its microfinance segment, by establishing Teras BRI, a sub-micro outlet in the traditional market. Most traders in the traditional market are self-employed businessmen who have limited spare time to perform banking transactions. Instead of waiting for traders to visit Teras, BRI officers equipped with electronic data-capture devices pro-actively visit the traders to provide regular banking services. By getting closer to prospective customers in the traditional market, BRI can acquire traders both as depositors and borrowers easily.

Currently, BRI has 377 Teras and plans to open another 400 new Teras in 2011. There are still many opportunities to expand the business as there are more than 12,000 traditional markets in Indonesia. Simplicity, accessibility and sustainability are the key success factors in the microfinance business. Micro-loans represent 29 percent of BRI’s total loan portfolio.

To share its experience in the microfinance business with other institutions from all over the world, BRI founded a Microfinance International Cooperation. Since its inception, 6,000 VVIPs, including policy makers, central and commercial bankers, donor agencies and academics from 55 countries have visited BRI for microfinance training.

Developing the urban segment
In the urban segment BRI has strengthened its presence by opening conventional channels, including branches, sub branches and cash-outlets; as well as electronic channels including ATMs, electronic data capture, internet banking and mobile banking. To increase the level of services and speed up the consumer loan process, the bank has opened consumer loan centres in 14 big cities. Product and feature development, such as Brizzi (BRI’s prepaid card) and Britama Junio (a saving product for children and teenagers) also play important roles in expanding the urban segment. The bank has also established priority banking services to capture high net work individuals.

In addition to regular consumer loan products, BRI has a niche market in salary-based loans. This multi-purpose consumer loan product is designed primarily for civil servants, teachers and SOE employees.

Nationwide network distributions and service quality are some important factors to maintain and expand this niche market. The favourable economic environment – where domestic consumption dominates more than 50 percent of GDP – combined with the characteristics of government employment – such as very low turnover, annual salary increases and an increasing number of government employees – support salary-based loan expansion. Consumer loans comprise 21 percent of BRI’s total loan portfolio.

Strengthening wholesale segment
In institutional business, BRI participates in a treasury single account of government budget and acquires minimum 70 percent of money flow from the government budget. The bank has established an institutional business division dedicated to capturing the business opportunity with institutions and organisations. Low cost fund and fee-based income are the ultimate goals in this segment; services include salary crediting and cash management.

Aligned with the institutional business expansion strategy, BRI has changed its strategy in the corporate loan segment by focusing on financing SOE/government projects and corporate business that have a link with micro and small businesses. The main objectives of financing SOE/government project is to save capital due to lower risk weight of SOE exposure ranging from 0 percent to 50 percent. More importantly, financing corporate businesses that link with small businesses will create trickle down effects to BRI’s microfinance segment.

GCG implementation
BRI realises that to expand business and maintain sustainable growth it needs not only good strategies but also good corporate governance (GCG). BRI intensely applies GCG implementation embodied in the whole organisation and information disclosure in accordance with prevailing rules and regulations. Related with the GCG and information disclosure implementation, BRI was granted a 2009 Annual Report Award. The bank has internally assessed its GCG implementation, covering the matters as governed by regulations, with the qualified result of ‘Very Good.’

To ensure GCG is well implemented, BRI has established compliance, internal audit and risk management structures and committees of the board of commissioners and of the board of directors. The Audit Committee, Nomination and Remuneration Committee and Risk Management Supervisory Committee are of the board of commissioners, while the Asset and Liability Committee, Risk Management Committee, Credit Committee, Technology and Information System Steering Committee, Credit Policy Committee and Human Resources Policy Committee are of the board of directors.

In order to enhance the quality of GCG, a whistleblower system has been implemented to assist employees and stakeholders in preventing fraud and corruption. This is intended to transform a traditional culture of silence into a culture of transparency. The bank ensures the whistleblower’s identity is kept secret and provides necessary protection.

Information disclosure
In terms of information disclosure, BRI ensures that material information is promptly disclosed. BRI upholds equal treatment policy in delivering the information. Communication with investors, fund managers and analysts is conducted throughout the year via email and company visits, as well as by quarterly analyst meetings. Other activities for communicating BRI’s financial performance and business prospect include conference calls and field visits – especially to the bank’s micro outlets. BRI regularly attends road shows and conferences organised by leading securities companies in Jakarta and global financial centres in Asia, Europe and the US. In 2010 BRI communicated with 473 investors through 199 company visits, 29 field visits, 28 conference calls and nine roadshows.

BRI cares
BRI believes support from communities is one of the prerequisites of the company’s success and sustainable growth. The implementation of partnership programmes and community development programmes cannot be separated from the long-term strategy of sustainable business growth. For example the Financing for Empowerment programme is designed for micro and small enterprises, including cooperatives (which may have a feasible business but do not qualify for a commercial loan as they are not yet bankable) to enhance their productivity.

BRI Cares is a community development programme aimed at empowering communities surrounding BRI’s operational areas to have a better living. In implementing this programme BRI focuses on natural disaster relief, renovation and rebuilding of places of worship, public health, education, public facilities and environmental conservation.

For more information www.bri.co.id; www.ir-bri.com

Pension fund leader in the Czech Republic

Posted on February 17, 2011 by

Czechs and the Czech pension system are at a crossroads. The economic health of the national pension system has been on the decline in recent years and promises to worsen in years to come. Choices must be made and steps must be taken to divert serious threats looming in the future.

The root of the problem is that the population is ageing and there will not be enough funds available in the foreseeable future, as a shrinking working population supports a growing number of pensioners. The problem is compounded by the unlikelihood of future pension levels keeping pace with increased cost of living. The outgrowth in economic terms is that pension account deficits in the state budget, in recent years hovering at around one percent of GDP, are growing at an inverse ratio to the negative demographic development causing the problem. By 2050, the deficit may reach four percent of GDP and the accumulated debt of the pension system could reach up to 50 percent of GDP. By 2065, accumulated debt may well balloon to 100 percent of GDP. The upshot is that Czechs must no longer expect retirement to be as their parents and grandparents have known it – on the contrary, many could end up below the poverty level.

Most of Europe is currently grappling with pension system problems and state budget deficits, and countries are experiencing varying degrees of success in the struggle. The Czech Republic has an even tougher fight ahead of it, and not just because it is one of the only EU countries yet to carry out pension reform. Its present pension system is not diversified and 94 percent of monies are from the state PAYG system. A fundamental problem is the absence of the second pillar of the pension system: the fund pillar, present in western Europe in the form of occupational pension funds, and in most countries of central and eastern Europe in the form of mandatory pension funds.

The current government, however, has a unique chance to reform the pension system, ensuring its fiscal sustainability and increasing its diversification. Reform must take into account both the positive and negative experiences of other European countries. Preparation for pension reform is therefore a key challenge for Czech pension funds.

The importance of a supplementary pension system
Czechs must face up to the challenges of the future, make choices and act. There are at present several means of saving for retirement, foremost among them investment in voluntary defined contribution pension funds towards retirement savings – what is called the third pillar of the pension system. By the end of Q3 2010, Czech pension funds had more than 4.5 million participants, a number representing roughly 70 percent of the working population. State contribution is one of the main reasons for the high level of participation and diminishes problems posed to the system by low monthly participant contribution, which is less than two percent of monthly earnings. There exists, however, opportunity to save for the future by investing in the third pillar – an opportunity that must not be missed. By saving with pension funds such as Penzijní fond Komerční banky (PFKB), Czechs are able to take positive action towards their future.

PFKB solution
PFKB, winner of the World Finance award for Pension Fund of the Year 2011 – Czech Republic, offers modern, transparent service with an innovative and proactive approach to client care: using information technologies to allow clients to access online information and enjoy easier communication.

“It has to be said that for PFKB employees and management it was quite an honour to win the award,” says Pavel Jirák, CEO of PFKB. “We take it as a great appreciation of our work – and a future obligation. We have to keep up the good work and always keep the reasons for winning the award in mind.

“Our almost 500,000 participants have, first of all, the financial certainty that comes with investing with a strong shareholder: Komerční Banka (KB), part of the international financial group Société Générale,” he says. “Secondly, we have tradition. PFKB has been active on the market since the system was begun in 1994.

Thirdly, we have a conservative investment strategy, always followed when investing our clients’ money. We place emphasis on minimising investment risk: PFKB invests mainly in low-risk Czech government bonds, investment grade corporate bonds and term deposits.

“We apply mostly passive management to our portfolio and a minor part of the portfolio is managed actively. In doing so, we are able to provide a secure and stable source of income for participants. At the same time, we meet the legal objective of a yearly positive return and a sufficient level of capital. I should also add that we strictly control costs.”

Client care
“We have made it easier to meet client needs by processing requests faster and more effectively thanks to our distribution channels, made possible by the implementation of a new, robust and secure IT tool,” says Mr Jirák.

“Our web pages – www.pfkb.cz – have been completely restructured and they now offer a wider range of better quality information to our clients. Participants are able to both make changes to, and close contracts via the internet. Information accessible to clients will include details about portfolio investment. We are focused on increasing transparency.

“We have expanded our loyalty programme for beneficiaries of VIP cards and discount cards supplemented by accident insurance. Our clients are also able to take advantage of discounts at several health and recreation resorts. And, for the third consecutive year we offer the tax optimisation programme to our clients, allowing them make the best use of state subsidy and tax reliefs.

“We have worked with KB to raise participant contributions through a new initiative set to be put into effect in the spring of 2011: one percent of the money spent by participants with KB credit cards will be deposited into PFKB accounts. Our supplementary pension insurance will be an integral part of the long-term savings and investment packages offered by KB.”

Thanks to client trust and its business and investment strategy, PFKB was able to weather the period of financial crisis and come up shining with positive performance results. Mr Jirák speaks openly about steps taken to avert crisis in PFKB.

“In 2008 and 2009 we managed to profit and even increase the value of participants’ funds – this at a time when most pension funds were experiencing the negative effects of the crisis,” he says. “Obviously a lot of measures had to be undertaken, especially in investment. We sold, for example, our real estate portfolio and we drastically reduced the volume of shares in our portfolio before share value dropped in October 2008.

Consequently, we began to put into effect both portfolio and asset and liability risk management. I believe we acted correctly, and client trust shows that our participants believe we did, too. Trust is manifest in the growth of the volume of assets under management, which over the past six years has doubled and reached almost €1.2bn at the end of Q3 2010.”

PFKB is well-prepared to meet the challenges posed by threats to the Czech pension system, if its past record is any indication of its future potential. Each year it has proved able within its portfolio to meet its obligations towards its clients and even periods of difficult struggle have ended with success. PFKB is the only Czech pension fund to have a Moody’s rating, and its Aa1.cz rating is the highest level attainable by a pension fund in the Czech Republic. PFKB strives to offer solutions on all levels to ensure better retirement: the company is reacting to the needs of current and future clients to offer interesting and secure investment possibilities, and its employees are playing an active role in the preparation of pension reform.

The continuous integration of PFKB in Société Générale contributes to improving results in winning new clients and client care. Priority is also given to enhancing cooperation with the leading specialists of Amundi, one of the largest asset managers in Europe and the asset manager of PFKB. A vision is needed to be prepared for what tomorrow brings. At the crossroads where Czechs and the Czech pension system find themselves today, the choice is clear: PFKB offers solutions and is ready to lead the way.

For more information www.pfkb.cz

New dawn for the carbon market

Posted on February 17, 2011 by

The world has realised the importance of a low carbon economy and the need to curtail green house gas emissions. Emission caps and carbon trading have become a reality because of the Kyoto Protocol, regional programmes and voluntary commitments by conscientious corporations. In some cases, governments and private companies in developed nations have already committed billions of dollars for emission reductions.

The global carbon markets have grown significantly over the years. According to the World Bank, the monetary value of the market tripled from $10bn in 2005 to $30bn in 2006 and by the end of 2009 the market stood at $144bn. The largest segment of the carbon market is the European Union Allowance, which is the European Union’s primary tool to set emission limits for industry. The second largest segment of the carbon market consists of the Certified Emission Reductions (CERs). CERs are the largest carbon offset or carbon credit mechanism currently in place, administered by the Clean Development Mechanism executive board of the United Nations Framework Convention on Climate Change. The secondary market for CERs was in excess of $17bn in 2010.

The players in the carbon market were eager for a positive outcome from the recent global climate negotiations at Cancun. However, given the state of the financial markets and domestic challenges faced by key participants like the United States and European Union, the overall feeling within the industry is one of uncertainty.

Although Cancun did not result in the legally binding emission reduction treaty that optimists had hoped for, many still maintain their confidence in the industry and predict that carbon markets will evolve and grow. The carbon market is likely to undergo multiple transitions before a global deal is in place.

The lack of visible success in 2009 at Copenhagen and 2010 at Cancun has caused most market players to revisit their business plans. Many banks and traders had expanded their carbon teams, assuming that the emissions trading markets were here to stay. Regulatory requirements drove European industries and utilities to evaluate the cost of in-house emission reduction projects compared with buying carbon offsets (carbon credits) from projects in developing countries. However, post Copenhagen and Cancun, doubts on the future of the market had swelled and driven European industries and utilities to view their emission reduction commitments over the short term rather than consider capital-intensive long term projects. Supply of carbon finance for long terms projects has almost disappeared as most financial institutions are unclear of future regulatory requirements.

Although the concern for combating climate change is common, the constituents differ in their geographic, economic and developmental realities. Hence the path to action on combating climate change is fraught with long drawn negotiations. A new framework is required to get the world to commit to the deeper emission cuts necessary to prevent irreversible changes to the global climate. At Cancun, progress was made on developing a long term framework on the one side, while others talked about the demise of the Kyoto Protocol, which has been the driver of the carbon market so far.

Origins of General Carbon
Established in 2009, General Carbon is currently one of the fastest growing carbon market players in South Asia and Africa. Steered by founders Dr Ram Babu and Satish Kashyap, the team of 20 professionals has briskly built a portfolio of more than 100 carbon offset projects across South Asia and Africa, with a potential of 200m tonnes of carbon offsets. With operations spread across Singapore, India, Thailand, Philippines, Indonesia, South Africa, Kenya and Nigeria, General Carbon is a name to reckon with in the region.

General Carbon develops a range of carbon offset projects covering renewable energy, clean energy, energy efficiency, gas abetment, bio-fuel and forestry. Forestry is one offset development opportunity which has witnessed significant interest in recent international negotiations. The team at General Carbon developed some of the earliest forestry projects. Reduced Emissions from Deforestation and Degradation, or REDD, is a methodology for avoiding the release of carbon dioxide by using forests as carbon sinks. It is estimated that 20% of the man-made carbon emissions come from deforestation and it contributes significantly to global climate change. At the Cancun meet, there were discussions to explore financing options for implementation of forestry projects, countries were urged to support the process through multi-lateral and bilateral channels.
Carbon offset projects with strong sustainable development benefits attract much greater interest and are an area of focus. Rural household biogas plants, efficient stoves and solar lighting will have a significant impact on the sustainable development of villages, while helping to reduce carbon emissions in parallel. For instance, a few social entrepreneurs in Africa and Asia have designed and distributed efficient cook stoves in villages, leading to a reduction in carbon emissions of 30-50 percent, besides reducing indoor air pollution significantly. Replacing kerosene or fuel oil lamps with solar lamps or CFLs is another socially and economically beneficial activity that is being trialled in various locations. General Carbon works with leading financial institutions to develop such projects, which not only produce robust carbon offsets but also participate in the development of local communities. A stronger carbon market will help fund such projects on a larger scale, helping society fight the global battle against climate change.

“Our team members have participated in the creation of the carbon market and were involved in developing some of the first carbon offset projects in the world,” says Dr Ram Babu, CEO of General Carbon. “This gives us the edge to move quickly in a dynamic industry. Also, building a strong presence in South Asia is starting to pay off. We think like a small company and have the flexibility to create tailor-made solutions for our customers. While some clients look for long term sustainable development projects, others view carbon offsets as another commodity.”

Project planning
“There is very little clarity on the regulatory framework in the coming years,” Dr Babu continues. “The recent climate talks at Cancun have offered very little and the market continues to be largely bearish. In spite of this ambiguity, we are optimistic that carbon offsets will continue to be bought and sold.” The need for deeper and wider action to meet the emission targets will require active participation from private players. Dr Babu feels that emission trading markets post-2012 will be large, widespread, and different from the one we have today. He envisages a number of domestic markets, with a portion of the domestically traded carbon credits having international linkage.

“Bilateral frameworks are already on the drawing table,” says co-founder and Director, Satish Kashyap. “These will move the market from a standardised structure to one which will involve numerous qualitative parameters.

“One can surely say that we are passing through interesting times,” he says. “The volatility is a bit disconcerting, but that is precisely where the opportunities lie. We have an extremely lean operating structure, and we are tuned to move fast if the situation changes drastically. Within the team, knowledge sharing is strongly encouraged and individual experiences are leveraged so that the organisation can gain from it.”

While Dr Babu is an experienced hand in sustainability and emission reduction, Mr Kashyap brings expertise from the private equity and capital markets. The rest of the team has diverse experience, encompassing areas as diverse as not-for-profit to consumer marketing to industrial engineering.

General Carbon’s portfolio consists of over 1,500 MW of wind power projects, 500 MW of hydro power projects, 150 MW of biomass power projects apart from innovative projects in modal shift and gas abetment.

The company is enthusiastic about exploring the as yet under-tapped market in Africa. “We will continue to focus on sustainable development projects that have a strong emission reduction potential,” says Mr Kashyap: “Other environmental assets like water offsets, renewable energy certificates and energy-efficiency certificates will be focus areas for future growth.”

Malta’s comms sector continues surge

Posted on February 17, 2011 by

As Malta’s leading provider of communications and entertainment services, GO offers fixed line telephony, mobile telephony, broadband internet services and digital television, in addition to business-related services like data networking solutions, business IP services, and managed and co-location facilities.

Although the company’s major market is Malta – the smallest member state of the EU, with a population of 400,000 people – the company does business with international companies based in Malta and abroad. In fact, GO is also looking at entering into new markets overseas.

GO powers more than 500,000 customer connections and services – making it the largest communications and entertainment provider in Malta, and one of the major companies operating in the Maltese islands.

GO’s CEO David Kay has been at the helm of the company for the past four and a half years, since the state-owned incumbent was privatised. “GO has been in the business of communications for the past 36 years,” says Mr Kay. “Our major shareholder is Emirates International Telecommunications LLC (EIT), a joint venture between TECOM Investments and Dubai Investment Group – both part of Dubai Holdings. The remaining shares are traded on the Malta and London Stock Exchanges.”

GO and EIT jointly own close to 40 percent of Forthnet SA, one of the most dynamic and fastest-growing competitive telecommunications companies in Greece. In 2009, GO acquired a majority stake in the Malta-based BMIT Group which provides a variety of data centre services including co-location, managed services and the provision of IP connectivity.

Currently GO employs around 1,100 people. The company does its best to retain its employees via employee development programmes and ensuring it has the right people in the right places. The company offers ongoing training programmes to develop on-the-job, management and people skills.

Investments
GO is constantly investing in new technologies, both in terms of IT applications and tools as well as in technical, engineering and network platforms. Recently the company migrated all its billing systems to Cerillion, and it is currently migrating its mobile core network from Nortel Networks to Alcatel Lucent. GO is the only communications provider in Malta that owns and operates two submarine cable links to Europe – one via Telecom Italia, and the other via Interoute. Additional capacity is also available via a third submarine cable. Other important developments include improvements to customer relationship management and constant updates in network security.

In July 2010, GO announced it would be investing €100m over a six-year period, starting in 2011, as part of its technology roadmap. This scheme will see GO launch a plethora of next generation networks, such as fibre-to-the-home, mobile network upgrades and investments in its TV infrastructure to cover new services and applications. Over the past years, GO has invested considerably in its TV network – both at a headend level, but also in the transmission, to make sure its DTTV signal is available in all corners of Malta and Gozo. In addition, apart from deploying fibre, GO is upgrading its existing fixed network by bringing fibre closer to the households.

“Our tagline is ‘Made for You’,” says Mr Kay. “We believe that technology is an enabler that ensures our customers get the best level of service as well as the latest services at their homes and businesses. We pride ourselves in being a customer-focused organisation and we endeavour to put the customer at the centre of all that we do. The investment in the right technology means that our customers have also the peace of mind and reliability that the communication and entertainment service they require is delivered to the customers’ satisfaction and consistently.”

GO’s capex over the last 10 years amounted to €240m. The group capex since acquisition by Tecom in 2006 amounted to €85m.

GO business and other developments
GO has a sub-brand called GO business which includes all the business-facing operations under one roof. GO business serves the communication and entertainment needs of the major corporate businesses in Malta, in addition to SMEs and SOHOs.

Another important development has been GO’s active entry into the TV market and the acquisition of the exclusive rights to the English Premier League, Serie A, Formula One and a host of other content.

“It is an important part of GO’s strategy to expand in the pay-TV business,” says Mr Kay. “Such content is an important decision factor for customers to switch from one provider to another. The take-up has been very encouraging and we expect our GO sports positioning to grow further in the future.”

GO is also investing in IPTV, and as GO extends its fibre and fast internet network to other localities in Malta and Gozo, the take-up of HD and interactive TV is expected to increase. GO plans to offer other TV services over fibre, such as video on demand and other applications.

Competition
GO is the leading provider of fixed line telephony and internet in Malta. Within the mobile market, GO is the second largest operator (out of three network operators and three MVNOs) – with over 44 percent market share. In the TV business, GO is the fastest growing pay-TV provider with close to 45 percent market share. GO is the leading company when it comes to bundling all four services into one package, via the Home Pack proposition.

Business partners
GO does business with various international players such as RIM (BlackBerry), Alcatel Lucent, Cerillion, Telecom Italia, Interoute, as well as content providers like the English Premier League, Italian Serie A, Formula One Management, FOX Corp and Universal.

Business clients range from local to international customers and cover every economic sector from the government and financial services, to tourism, manufacturing and e-gaming.

On how the company manages its relationships with its customers, Mr Kay says: “We believe it’s about trust and relationship-building. It’s also about making sure you act as a reliable, flexible and value-for-money provider.”

Product launches
Over the past months, GO has successfully launched various new products and services, including a range of new smartphones and smart devices, such as the Samsung Galaxy Tab, the iPhone 4, the BlackBerry Torch and the HTC Wildfire. In addition, GO continues to provide its customers with the Laptop Connect data plan, whereby customers get a laptop, data connection and data plan all-inclusive in one tariff.

The flagship product of GO is the Home Pack, which combines all the communication and entertainment needs of a household in one convenient and affordable package at €33 a month. This includes TV, internet, a fixed phoneline and mobile minutes.

GO believes there are segments in the local market that are cost-conscious and therefore a straight-forward package like Home Pack has been very successful in this regard. Other segments of the market want bespoke and value-added services and devices – and GO makes sure it caters for these needs. This is particularly the case of business customers who require services such as co-location and managed data centre services as well as resilient IP bandwidth.

CSR
GO is actively implementing a CSR strategy that will ensure a lower carbon footprint, with the hope of achieving carbon neutrality in the future. “We have introduced various energy-efficient devices in our buildings, make sure our consumables (such as recharge vouchers) are bio-degradable, plant trees to offset our carbon dioxide emissions, launch initiatives whereby customers are incentivised not to receive a physical bill (but view their bill online) as well as top-up and pay online,” says Mr Kay.

Malta
Malta is an excellent place to do business, with a favourable tax regime and a population which communicates fluently in English. The adaptability and flexibility of the Maltese make this place unique, as well as the deep level of understanding of business dynamics, not only at a local level but also within the international context.

GO is fully supportive of the Maltese government’s 2015 Vision aimed at creating areas of excellence within the Mediterranean – ICT being one of them. GO believes it has an important role to play in this, as well as in the realisation of Malta’s Smart City project.

“Within this context, we augur that GO will continue to lead the 4P telecoms market in Malta as well as lead in the individual services we offer – thanks to our focus on the customer, our capable and dedicated employees, and our constant investment in networks,” says Mr Kay.

For more information www.go.com.mt; info@go.com.mt

Start the presses

Posted on February 17, 2011 by

Inapa’s strategy involves an increasing extension to other segments, besides paper distribution. Inapa’s presence in the visual communication and packaging segments – two businesses with good growing perspectives and better margins – is and should be more important.

The company is currently the fourth largest European distributor with sales around one million tonnes, in a sector that is led by Antalis (2.7m tonnes), followed by Paperlinx (2.1m tonnes) and Papyrus (1.7m tonnes).

It is a multinational company with a strong presence in eight European countries: Germany, France, Switzerland, Spain, Belgium, Luxembourg, Portugal and the UK. Although based in Portugal, 93 percent of its turnover is achieved elsewhere: France and Germany, the two main markets in which Inapa is active, represent around 75 percent of the group’s total sales.

The group’s main activity is focused on the sale and distribution of paper for the graphics industry, publishers and offices.

The complementary businesses – and particularly the distribution of graphic and office consumables, the distribution of packaging materials and visual communication – are Inapa’s new areas, under a policy of repositioning of the group as a global paper service provider, started in 2007.

In Portugal, Inapa is leading with values very close to 50 percent of the market share in the paper distribution segment of writing and printing. In France, the group holds the second place, while in Germany and Switzerland it is in third. In Spain, the group is currently the third largest operator in the market, following its latest acquisition.

The group employs about 1,500 people and generates approximately €1bn in sales, bringing to the market a portfolio of over 12,000 paper references. Inapa, therefore, responds to the needs of more than 70,000 customers. Inapa executes more than 5,000 deliveries per day, assured by 28 warehouses and logistics centres, with around 180,000sq m of storage area and 300 trucks.

Inapa is the only European distributor that is listed and is part of the PSI 20, the major Portuguese Stock Index. Its shareholder structure has been very stable, and the two major shareholders are Parpública with 33 percent and Banco Comercial Português with 18 percent.

Post-crisis restructuring
In 2008-9 the paper distribution sector registered a strong downturn in demand (due to the international crisis), with a strong impact on business results. The price of paper, as a reaction to the demand slump and the offer incapacity of a fast adjust, registered a heavy decrease.

In this period of crisis, Inapa had, however, the ability to achieve results in counter-loop. The consistent and continuous improvement of its results, even in a crisis period like the present one, is a consequence of the profound restructuring that the company was able to implement in the last three years, and allowed it to have a more suitable structure to meet the new reality.

In 2010, the paper distribution sector registered a slight recovery of volumes and prices in key European markets. The exception in the five core markets of the group is Portugal, which has been affected by the instability of the national economy and doubts about the quality of its sovereign debt. However, the impact of the Portuguese market in the group’s results was insignificant, given the very limited weight of this market in the group’s overall activity.

The market for paper distribution in Europe is now a mature market with moderate growth prospects, closely linked to the economic performance.

In the future, Inapa foresees a positive evolution, as Germany, France and Switzerland should continue to register sustained economic growth in the coming years.

The group’s strategy
Inapa was born in Portugal on 24 November 1965 as a paper producer, later extending its activities to distribution. During its 45 years Inapa has proved itself a model of innovation and development.

In the late 90s, Inapa sold its industrial area, focusing on its distribution side. Since then, Inapa intensified its internationalisation to other European countries, mainly through acquisitions. This geographic diversification has enabled the group to reduce its exposure to the situation of each country.

The recent entry in Angola – where it was the first company of the sector to operate – represented the group’s first step outside Europe, in an emerging market with one of the best growth prospects worldwide.

Over the past three years the group has implemented a restructuring process, with the divestiture of non-strategic assets and the optimisation of its organisation and corporate governance, which allowed the company to improve its results in a sustainable way.

For the next three years, Inapa’s strategic actions will be (i) the consolidation of positions in the paper market, (ii) the enhancement of the complementary businesses, (iii) the implementation of a second wave of operational efficiency, (iv) the rebalancing of the capital structure, and (v) the optimisation of the capital structure to achieve a 12 percent ROCE.

i) Consolidation of paper
INAPA’s main focus for the coming years in the paper business involves the consolidation of its position in the top five core markets (Germany, France, Switzerland, Spain and Portugal). The recent acquisition of Burgo’s paper distribution business in Spain, under the brand name Ebix, integrates this strategy. With this operation, Inapa rose from fifth to third largest player in the Spanish market, doubling its market share, which enabled it to overcome the line to operate profitably in this market.

In parallel, the group foresees new investment projects in close and developing markets, where there are good growth prospects, and value creation opportunities. The entry into mature markets is not considered a priority.

ii) Complementary businesses
Some 6.5 percent of revenues and 10 percent of EBITDA generated by the group are already through its complementary businesses, including the packaging materials and visual communication. It is intended that these two business areas significantly increase their weight in the group, since they have synergies with the paper business and better growth prospects and profitability.

The growth will be achieved by taking advantage of some organic growth opportunities, but also through acquisitions.

iii) Efficiency of operations
Despite the rationalisation carried out in the last three years, it is understood as essential to further improve the group’s efficiency in order to extract the maximum possible value in the paper business, so Inapa will launch a new wave of operational efficiency. The centralisation of services by creating a shared services centre and the optimisation of IT costs are the two main drivers of this new wave.

iv) Capital restructuring
Although the group has been able to significantly reduce its debt levels, it is essential that Inapa rebalance its capital structure to ensure its sustainability, reducing the burden of the interest bearing debt. It is the company’s intention to move closer to industry levels, to ensure a lower exposure of results to external factors (such as Euribor).

Among other measures, there is the commitment to use at least two thirds of the operational cash flow generated to repay debt.

v) ROCE improvement
In addition to the aforesaid measures, the reduction of the invested capital is another measure that will help to increase the profitability of capitals employed and achieve levels of 12 percent.

The implementation of this strategic plan will transform Inapa’s profile, making it less dependent on a business with lower margins, which presents more limited growth prospects, and will enhance the group’s sustainability, creating value for shareholders and other stakeholders.

The global economy: What next?

Posted on February 17, 2011 by

www.4xp.com
4XP foresees much on the financial front of 2011. The previous financial year really did witness a lot of ground-breaking events from the global economy. Oil prices rose from right under the eyes of traders, and currently threatens a global recession if they rise further past $100 a barrel. And what about the euro? The single currency seemed so promising and immune to the global economic crisis that we witnessed in recent years. This all came to a climax with the Greek and Irish debt crises in late 2010.

The US Federal Reserve under Ben Bernanke has to top this all off with the extension of the QE2 policy. On one hand helping the US economy, whilst on the other the QE2 will continue to weigh in on US and global liabilities.

2011 has already seen stocks extend their bullish run past expectations. This has been largely driven by investors dropping the euro as an investment, and throwing their money into US and Far East stocks. When translated into euros, the S&P 500 rose 23 percent in 2010. This is the highest level since the euro was established back in 1999. This is just one example of the interdependency of the global financial system.

What may be a problem as 2011 continues to unfold is that a further weakening of the euro may spur investors to invest their money elsewhere. This was seen already with the Nikkei bringing a 20 percent dividend for Europeans in 2010.

The European bailouts did scare European and other global investors, as the euro dipped by over eight percent last year. Leading investment firms have already seen huge investments in US equities in 2010-11. Despite the possible negative effects of QE2 on the US dollar, the European currency may reach as low as $1.15 per €1 by the beginning of the fourth quarter of 2011. A lot of this does depend on the pace of deterioration of the eurozone.

Threats to stability on the horizon?
Investors are already dropping Spanish, Irish and Greek stocks on a rapid scale in favour of the US markets. Leading economists at the moment even point out that the US market will be the winner this year. This is with even taking in that the US economy still hasn’t shown a clear direction to a one way economic recovery. Economists point out that despite the faults that lie in the US economy; the problems are far worse on the periphery and non-periphery of Europe.

Don’t forget about oil prices: If the dollar and US markets continue to pick up throughout 2011, there may be a reversal on the recent strength of the oil prices we have seen in the past several months. The latest global economic recession was sparked by unrealistic oil prices. Many analysts out there do always like to underestimate this thaw that constantly poses a threat to the health of the global economy. OPEC has already stated that they will not raise production this year, which reduces the likelihood of a dramatic fall in oil prices in the short term. What is a real possibility as 2011 unwinds is if the dollar strengthens primarily from investment and economic growth, investors could pull out of commodities like oil and gold, subsequently reducing the threat of high oil prices to global economic stability.

Oil, oil and oil
For the next few months at least oil will be dominant on headlines of the leading financial newspapers and magazines. Whether economies such as the US, Germany, Britain and France grow isn’t always the dominant issue at stake, because oil prices seem to overshadow everything else. This is understandable considering that oil prices are nearing $100 a barrel. The higher prices will affect the way companies work and will inevitably lead to supply-side inflation. The other concerns may be higher prices for consumers that may dampen economic growth.

If the winter season in the US continues to show much of the same cold weather, then the upward pressure on oil may continue. With US consumer confidence lower than many analysts originally anticipated, the dollar may face downward pressure. In turn, the price of oil is likely to go higher.

The pace of economic growth in India and China is forecasted at about 10 percent for 2011. This will surely weigh in on higher oil demand, as the consumer and business demands of one quarter of humanity increases.

This problem isn’t likely to go away as these two economies outpace the growth of their American and European counterparts.

On the other hand, there are influences that may bring oil prices marginally lower in the coming months. There are fears of an imminent interest rate rise in China and the euro debt crisis could dampen the pace of the global recovery.

The best of both worlds
The best case scenario is a strong dollar and euro. Both of these currencies are vital for the stability and rejuvenation of the global economy – investors know that if either crumbles, the consequences could be catastrophic. There have been many mistakes made by US and European policymakers that have put negative pressure on their currencies – 2011 is the year of a possible reversal of these fortunes.

Not only is a strong dollar and euro what most investors want, but a consumption growth powered by the US is what’s needed to bring confidence to the markets this year. Up until now, the factors driving the equity and currency markets have been speculation and to some extent weaknesses of the developed economies. But a clear economic message from the US could bring confidence to levels we haven’t seen since the first half of the last decade.

Sustained growth of the developing economies may be just what’s needed to bring business confidence to new highs, because if things do go well globally, economic growth in the main developed and developing economies will exceed expectations.

Rising borrowing costs
Rising borrowing costs in Europe is the main consequence that has come out of the eurozone debt crisis. This is already making it more expensive for banks and businesses in Europe to borrow money. After the $1trn bailout package for Europe was approved the negative consequences were inevitable. The truth is that the cracks in Europe and in Britain are already appearing. The rising government debts of the governments of the eurozone and soaring unemployment are a great burden for policymakers to handle.

In Britain, David Cameron and Nick Clegg have already come up with effective plans to curb the rising borrowing costs and government debts. But Britain is already witnessing escalating unemployment and there is a wide consensus that things will get worse before they get better.

The problem of rising borrowing costs has just recently appeared on the surface. Therefore, it will take some time for this to become a full-fledged crisis. If it does, the euro could pay the price with investors opting for the dollar.

Dollar investors may be happy, but more problems for the euro is something that no one wants to see. The consequences could be negative for economies like Japan and China, as they are very dependent on exports. Now may be too early to talk about rising borrowing costs, but it is good to know what the future may bring in the financial world. With this and other issues set to impact the global economy for the rest of 2011, a lot weighs on what the future may bring.

What lies ahead
There are other important factors that will play on the strengths and weaknesses of the dollar, euro and global economic growth going into mid-2011. President Barack Obama has to prove that he is able to show his bipartisanship in the US and abroad. In recent weeks he has done just that by extending the Bush-era tax cuts.

This has already led to more confidence in the US markets. As Obama aims to take control of the US economy and show that he is a centrist economically, there is a good chance that more private and public stimulus will be invested in the US economy.

When looking at the prospects of the eurozone, the main leaders, including German Chancellor Angela Merkel and President of the European Central Bank Jean-Claude Trichet will need to show their leadership skills.

There will be voices all around Europe with the motto that the euro is too big to falter. Trichet and Merkel do believe in this and are likely to use all the resources at their disposal to prevent a further deterioration of the euro and the eurozone. In the process, more and more investors may flee the eurozone as the debt crisis threatens Spain, Portugal, Italy and the rest of Europe’s periphery.

Danny Lake is Business Development Manager at 4XP. For more information: danny@4xp.com
www.4xp.com

CG drives healthcare sector

Posted on February 17, 2011 by

The Diagnostic and Therapeutic Centre of Athens Hygeia S.A. was established in 1970 in Greece by physicians, most of whom were professors at the University of Athens. Since 1975 it has operated in the primary and secondary healthcare services.

In January 2006, Marfin Investment Group (MIG) acquired the company, and it became MIG’s investment arm in the healthcare services sector. During the next 24 months the new administration pursued a spree of investment initiatives (acquisitions, mergers and incorporation of new companies’) transforming Hygeia into a multinational group with one vision: to create the largest private integrated healthcare services provider in Southeastern Europe.

Today, Hygeia Group is present in four south-eastern European countries and has a portfolio of 9 Hospitals in Greece, Turkey, Albania and Cyprus of a total licensed capacity of 1,663 beds with 79 operating theatres, 45 delivery rooms and 19 Intensive Care Units with 120 beds. Specifically, Hygeia Group controls Hygeia General Hospital, General Maternity Gynecologic and Pediatric Clinc Mitera, and Leto Maternity Clinic, all in Greece; Achillion Limassol and Evangelismos Paphos in Cyprus; JFK Hospital, Goztepe Safak Hospital and Instanbul Safak Hospital in Turkey; and Hygeia Hospital Tirana in Albania.

Hygeia Group is also present in the Greek primary healthcare sector through the molecular biology and cell-genetic centre Alfa Lab, the diagnostic centre Bio-Check in central Athens and the Policlinic of West Athens.

In addition, Hygeia Group is expanding to the stem cell bank sector, with the creation of a network in Europe, the Mediterranean and the Middle East – Stem-Health Hellas SA has been operating in Greece since July 2008. The company also owns commercial companies trading in consumables and implanted devices (Y-Logimed SA) and pharmaceuticals and general medical devices, which supply the group’s companies and other private hospitals with the necessary medical and pharmaceutical products.

Hygeia Group as a fast developing healthcare services organisation, offering its employees a modern and creative environment where they are able to succeed professionally and find employment in various specialties.

The group’s geographic expansion develops and broadens its executives’ exposure to international professional practices, constituting a suitable qualification for taking over posts of responsibility. Following Hygeia’s acquisition by MIG, the company’s human resources quadrupled in five years. Today more than 4,500 employees and 4,000 co-operating physicians offer their services to Hygeia Group.

The group places particular emphasis on developing its human resources, aiming at offering high level health care and hospitalisation services. The group utilises sophisticated personnel selection and training methods for staffing and personnel development, in order to continuously improve an exemplary and top scientific level diagnostic and therapeutic centre. The group, acknowledging its staff’s substantial contribution to its progress, focuses on preserving an excellent working environment and substantially training its employees to offer qualitative medical services. The group management aims to attract and maintain high performance executives, with modern professional perception, a high training level, faith in teamwork, and the ability to share Hygeia Group’s values and vision. Hygeia Group companies voluntarily grant a number of additional benefits to their personnel. Furthermore, as members of MIG, the largest business group in Greece, employees also enjoy benefits from companies under the MIG umbrella.

Hygeia’s name represents 35 years of innovative, high quality services and patient safety, and it is the first and only Greek hospital to have been accredited by Joint Commission International (JCI). JCI’s mission is to continuously improve the safety and quality of care in the international community through the provision of education and consultation services and international accreditation. JCI focuses on both managerial and clinical outcomes and places the patient at the centre of the process. This integrated approach includes medical, nursing and administrative procedures, as well as their interaction, and will help Hygeia hospital offer higher quality services.

Corporate governance roadmap
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the numerous stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, and the community.

Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organisation through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders’ welfare. There are yet other aspects to the corporate governance subject, such as stakeholder view and the corporate governance models around the world.

Due to the fact that Hygeia is listed on the Athens Stock Exchange, it operates in compliance with the applicable domestic capital market and corporate governance rules. Compliance to its homeland law is by default top priority and a requirement for the company. Greek legal requirements must be met first, and this means that Hygeia has to comply with a body of national corporate law determining the framework of operation of societes anonyme, as well as a number of regulatory acts that have been introduced over the last decade to establish a best practices corporate governance framework for all businesses.

Going one step further, however, Hygeia’s new administration set transparency as a core value. As a result, corporate governance has been set as the cornerstone of the group’s expansion.

The principles of corporate governance that Hygeia applies are not only in accordance with the domestic corporate governance laws and the best international practices, but also the Code of Medical and Scientific Ethics and Deontology.

The company believes that the proper application of the principles of corporate governance is the key not only to make its resources more efficient and enhance its development, but also to certify the confidence of investors, its customers and the medical community.

Hence, Hygeia Group has set a number of committees and councils in order to ensure the trust of investors, stakeholders and the medical community.

Among the most pronounced is its executive committee, which aims to provide a more efficient execution of the work of the board of directors by undertaking part of its responsibilities. Moreover, Hygeia has created an audit committee in order to exercise control in the overall operation of the company and supervise the internal audit department.

In order to intensify the group’s corporate governance the management proceeded with the establishment of the supplies committee which, as its main goal, controls and approves of the policies and procedures by which the company’s supplies are procured, and secondarily promotes synergies among the group’s companies.

Furthermore, in order to advise the board of directors in medical, scientific and operational matters – such as staffing, supervision of conditions under which medical work is performed and the approval of new collaborating doctors – Hygeia has a scientific committee.

Finally, in order to deepen the trust of the medical community in Hygeia, the management established an ethics and deontology committee. The purpose of this committee is to implement the regulations governing the practice of the medical profession in accordance with the contents of each legislative framework.

The social face of Hygeia
The term Corporate Social Responsibility refers to actions, transactions and activities by companies with voluntary orientation and social contribution. A company is socially responsible not only when it complies with the obligations stipulated by law, but also when it proceeds to voluntary actions and activities transcending such obligations and pertaining both to employees as well as the broader social community (Green Paper, 2001).

Hygeia Group maintains an extensive corporate social responsibility programme, offering free healthcare services to organisations and individuals who lack financial resources. During 2010, Hygeia Hospital, Mitera and Leto Maternity Hospitals and Mitera Children’s Hospital undertook the diagnosis and care of hundreds of patients free of charge. Hygeia’s CSR programme wouldn’t have been possible to implement if Hygeia didn’t have the pro bono participation of the group’s physicians, medical and paramedical personnel.

Continuing and enhancing its social action, the group is planning a number of interventions and contributions for 2011, mainly directed towards prevention strategies and early diagnosis.

At Hygeia Group we are fully conscious of how sensitive the area we cater for is, being a field where good health is directly related to the sense of humanity and responsibility towards our fellow human beings.

At Hygeia we do not simply dwell on the framework of ethical and social values which should govern a company, but we apply CSR in the practice of modern corporate governance in an ever-evolving society.

CSR begins from each one of us. In a constantly evolving and changing society, no-one can afford to remain inert.

Throughout its history, Hygeia Group has aimed at combining the provision of high quality healthcare services with respect to patients, the society and the environment.

For more information: www.hygeia.gr

China’s British gas

Posted on February 17, 2011 by

It’s hardly surprising that the share price of Green Dragon Gas has soared recently. The plan to list on the Hong Kong board in addition to the existing AIM listing has stimulated many investors: this coal-bed methane gas producer is evidently positioned for growth.

The numbers and facts are compelling, says Stephen Hill, vice president of the company’s corporate communications operation. “China will need 200bn cubic metres of natural gas in 2015, doubling the 2008 level, according to recent remarks by a senior industrial researcher at the energy research institute under the National Development and Reform Commission, Liu Xiaoli.”

And by 2020, unconventional gas may account for 30 percent of China’s total gas output. “This estimate was stated by Jie Mingxun, president of the CBM unit at PetroChina,” continues Mr Hill. “China, which is the world’s largest polluter, wants to triple the use of gas – which has significant environmental benefits – to around 10 percent of its energy consumption by 2020.”

The industry is well subsidised by the Chinese government, who have good reason (see box-out) to ensure its a success. By 2030, it is thought that cold bed methane could provide 14 percent of China’s gas domestic supply – a staggering amount.

Early mover advantage
Green Dragon Gas was one of the first foreign companies to venture into China’s coal bed methane industry in the late 1990s. The venture increasingly appears to be paying off.

Yes, naturally, there are risks. Despite the large resource base and production potential, Chinese coal bed methane reservoirs remain technically tough to produce. Chinese coals have a high gas content but are under-saturated, and have lower permeability compared to coals in well known basins in the US or eastern Australia.

So investors clearly have plenty of reason to be excited. Randeep S Grewal, CEO of Green Dragon, says “Hong Kong is increasingly becoming a home for commodity and asset backed companies which have core operations in China or are linked to the Chinese consumer.”

Big board move
Following intensive evaluation of main board listing options, Mr Grewal says “Green Dragon believes Hong Kong offers the best market potential in the long term. The greater institutional appreciation in Hong Kong of the value of the company’s unconventional gas assets and understanding of the China country risk makes it a logical step for the company.”

This decision follows the appointment of CLSA, a leading Asian independent brokerage and investment group, to advise the company on Asian capital markets strategies. The current AIM listing is expected to be maintained following the Hong Kong move.

Green Dragon Gas has asked five selected manufacturers to quote for the supply of a drilling fleet of 25 rigs, complementing its existing drilling fleet of seven rigs. “The rigs are expected to start delivery in 2011 so as to facilitate an aggressive drilling programme in the Shizhuang South block,” says Mr Grewal.

“The rigs will be relocated to other blocks [the company has five blocks other than Shizhuang South] or to third parties following the full development of Shizhuang South. Each of these rigs will be deployed to drill SIS wells and substantially increase the drilling capacity from the current two rigs that validated this commercial technique. The company intends to make its selection of supplier prior to year end.”

Reasons to be confident
There are plenty of reasons to be confident. Just look at what big players like CNOOC are doing. It recently announced it acquired a 33.3 percent interest in Chesapeake Energy’s 600,000 acre (2,400sq km) oil and gas leasehold in the Eagle Ford Shale project in South Texas. CNOOC will pay $1.08bn cash and will fund 75 percent of Chesapeake’s share of drilling and completion costs up to the same amount.

Mr Grewal says that much of this expenditure – and that of Petrochina’s investment in Australia – is aimed at understanding the technologies to apply domestically inside China. “It shows the value of our technologies and our abilities to get results from the money we have deployed to date,” he says.

Brokers UBS estimate this will add about $3.1bn to $3.6bn to CNOOC’s capital expenditure through 2012.

Rising market share
Bernstein analyst Neil Beveridge feels confident that a confluence of factors coming together will also back players like Green Dragon. “E&P companies appear to have got the technology right,” he says. “After years of trial and error it is becoming clear that horizontal wells are the right technology which will allow commercial scale gas production. Secondly, gas prices are on the rise. Coal bed methane prices are unregulated and through innovative CNG sales strategies and local industrial demand we believe wellhead netbacks can reach prices of $7/mcf.”

China’s gas market potential is enormous – but what about supply? “Over the next 10 years Chinese gas demand will increase by 200 percent at an annual compounded growth rate of 10-15 percent to reach a total annual demand of close to 300bcm (30bcf/d) by 2020,” Mr Beveridge says. “Overall we expect gas to reach about eight percent of the energy mix by then, which although is a significant increase from current levels, is still low relative to international standards such as the US, where gas accounts for 25 percent of the energy mix.”

Price and consumption pressures
Gas price increase in regions along the Sichuan-to-East gas pipeline distribution is clearly positive news. Eight areas along the Sichuan-to-East gas pipeline distribution, including Sichuan, Chongqing, Hubei, Jiangxi, Anhui, Jiangsu, Zhejiang and Shanghai have all increased gas price since June.

This was in order to compensate the downstream sector for the wellhead gas price increases set out by the National Development and Reform Commission (NDRC) on 1 June. As an example, according to the management of Sinopec, the Sichuan-to-East gas pipeline project is projected to bring RMB20bn revenue to the company, from the sales of 12bn cubic metres of natural gas with a price of $6.3/mcf and another RMB2bn from the sales of by-products (Source: gasshow.com, 2 Sep 2010).

Macquarie argued in a recent report that ‘drive’ consumption will be replaced by gas: “We analysed the supply, demand and substitution dynamics of natural gas in China, the US, Korea and Japan,” it said. “We believe that China’s natural gas price ($6.94/mmBtu at the city-gate) unleashed from regulations will trend towards Korea and Japan prices of $12-13/mmBtu rather than towards US prices of approximately $3.65/mcf and that astute policy will prevent a collapse in prices even if gas output surges for decades; welcome to China T-Boone Pickens.”

China’s National Development and Reform Commission energy research deputy head, Junfeng Li, said in a recent forum at Cheung Kong Business School that due to supply constraint, an increase in natural gas prices is inevitable.

Mr Li also indicated that in the 12th five year plan there will be more effort put towards developing gas fired power plants. Gas fired power shares more than 30 percent of total power supply in Europe and more than 20 percent in the US, while in the People’s Republic of China it is almost none.

Confident Conoco adds its support
Conoco has now contributed $42.6m towards work on Green Dragon’s GSS block programme. This cash has principally been deployed to enhance the value of existing resources.

“We appreciate Conoco’s contribution during the past 15 months,” says Mr Grewal. “However, with the collaboration having now come to an end, I am pleased to confirm that our shareholders will now retain all rights, title and interest in our unique production sharing contract and the company will continue its exponential growth. We have now demonstrated the success of the optimum SIS technology, documented a repeated stable production profile and are expanding our drilling programme with the deployment of additional rigs.”

“These decisions position Green Dragon Gas to maintain its growth trajectory into 2011 and the years beyond,” he says, “while enhancing shareholder value with a unique and low carbon business plan, which is consistent with China’s new five year economic plan on increasing domestic production and use of gas.”

The Sinoenergy connection
As part of its overall sales strategy, Green Dragon recently bought an interest in Sinoenergy, an operator of retail CNG stations and CNG equipement manufacturer in China. The reason? Such a move gives the company access to the mid and downstream sales infrastructure within certain niche locations across inner province China – precisely where the shortages are. It also significantly expands Green Dragon’s compressed natural gas (CNG) retail technology division.

“The structured transaction involves an initial investment of approximately $35m for a minimum equity interest of 33.3 percent and could be up to 59.3 percent in the operating business,” says Mr Grewal. “Upon conclusion of the current ongoing corporate reorganisation and related approvals the precise equity interest will be concluded.”

Green Dragon Gas will determine the final equity amount. Almost $20m of the total investment was to acquire convertible bonds from funds administered by Abax Global Capital. Until the transaction is completed Green Dragon Gas has a security interest over all the assets of Sinoenergy and its parent. The company was also able to fund the acquisition from its existing cash resources.

“Green Dragon Gas has a clear vision and strategy to build a significant China coal bed methane sector upstream business complimented by a substantial gas distribution network in China superimposed by proprietary technology,” says Mr Grewal. “This acquisition provides all these ingredients synergistically.”

“This acquisition also now makes Green Dragon Gas a unique one stop shop for a comprehensive solution to gas utilisation within China’s energy mix,” he says. “It allows Green Dragon to capture the highest margin business within the gas value chain, with CNG trailers taking our coal bed methane gas production to CNG retail stations that have our CNG dispensers selling gas to cars converted by our CNG conversion kits.”

Technical advantages
– Green Dragon has a 50:50 joint venture with coal bed methane drilling specialist Mitchell Drilling Corporation, with which it has a 10 year contract for the exclusive use in China of Mitchell’s Dilation surface-to-inseam technique
– It has branched into downstream city gas distribution with a 29 percent JV with Beijing Huayou (the partner is PetroChina Kunlun Gas) to supply gas to customers in the Beijing Development Area
– Help from proprietary Dymaxion SIS technology for horizontal drilling at its GSS block lead to enhanced results in drilling productivity and efficiency of operations. For example in 2009 gas production increased by more than 125 percent on a daily basis
– China has an enormous coal reserve base which should underpin a large resource base in coal bed methane, says Bernstein analyst Neil Beveridge. China’s estimated coal bed methane reserves are similar to those of the US and Australia
– It has been aggressively adding to its distribution business in refuelling stations for fleet transportation and has locations in Beijing, Henan, Anhui, Shandong and Hubei provinces.

Why coal bed methane is important to the Chinese economy
– Coal bed methane plays an increasingly vital role in China’s energy mix. It is also a resource that is being actively promoted by the Chinese government. There are only a handful of publicly traded coal bed methane companies with plentiful amounts of acreage and established reserves – Green Dragon is considerably more advanced in the exploitation of these reserves and resources than much of the competition.

– Long-term sustainability is also very important as China is reducing its dependence on coal. To do this it must ramp up the consumption of natural gas and renewables – part of its commitment to the Kyoto agreement.

That’s why the Chinese government has also issued practical policies to support the coal bed methane industry for more than 10 years. Development and utilisation of coal bed methane can not only control levels of coal mine gas, but also make full use of clean energy.

ETFs and rules-based systems

Posted on February 17, 2011 by

To us at Dorsey Wright / DIF Broker, models represent a pattern or mode of structure. Models can be viewed as simplified representations of a rules based systematic method of stock selection and management in a portfolio. Any person referring to him or herself as a money manager should have a systematic approach to portfolio management.

In today’s technologically advanced society, this systematic approach should lend itself to computerisation and thus to automatically executed and managed portfolios. These auto-managed portfolios are more efficient, less expensive to operate and take the emotional factor out of the equation with respect to the money manager himself. If he or she has a rules-based methodology for management, then let the underlying rules manage.

The most important product that has come to market in my 34 years in the investment business is the Exchange Traded Fund. I was privileged to work on the first ETF that came to market at the Philadelphia Stock Exchange. It was called the Cash Index Participation Unit. It was before its time and was ultimately shelved after a battle for control by the Futures Exchanges. A Chicago court ruling, gave possession of this first ETF to the Chicago Futures Exchange where it was immediately shelved, delaying mass marketing of a game changing concept.

What is this Exchange Traded Fund and where does it fit into the investment landscape for individual investors? In my opinion it will ultimately replace the mutual fund, as electricity replaced candle power. The ETF is a transparent index, in that any investor can look inside the ETF and see exactly what it owns and in what weights. You cannot do this with traditional mutual funds. ETFs are also much more tax efficient than mutual funds and generally have significantly lower management fees than mutual funds.

What I found very interesting from the beginning, was that the ETF allows an investor to buy an asset class in general, instead of having to buy one or a few securities. Take for instance, an investor who might only want to own Small Capitalisation Growth Stocks. He could simply buy, say, 200 shares of the Vanguard Small Capitalisation Growth ETF (Symbol VBK). This way he has avoided trying to select a stock that represented small cap growth and instead bought the whole school of fish. I look at ETFs as schools of fish. Think about it for a second: if oil stocks are your focus, why try to find the one stock in the group that will outperform, when you can buy the whole group? The ETF allows you to do exactly that.

Right now there are more than 800 ETFs that cover almost every asset class, sector, country and commodity. If you wanted to own Malaysia, then you could simply buy the EWM. This is a major change in the way professionals and individuals alike invest. In the US this product has caught on like wildfire. It is also beginning to be understood in many other parts of the world. I would say investing using ETFs is in the first foot of a 26 mile marathon.

The interesting thing about ETFs is the investor has the ability to gain great depth and diversification using them. Let’s say I have a defined investment process that is rules based. I can use this rules based system to select a wide variety of ETFs to construct a portfolio. This portfolio would then be automatically run with no human intervention. Remember I said rules-based. If you have a rules-based method of investing, it can be computerised today. Let’s say, I want to construct a portfolio that is comprised of China, India, Malaysia and the US for country representation, and further would like to own gold, commodities in general, as well as a broad international small cap ETF. If this investor wanted to equal weight the portfolio he would simply put an equal dollar amount in the following symbols: FXI, INDY, EWM, SPY, GLD, DBC, GWX. This simple portfolio gives the investor hundreds of stocks while focusing on key areas he might think are good places to invest worldwide. As relative strength changes the model will change. Say for instance, Malaysia lost enough relative strength ranking to cause it to be replaced by the next strongest country, then EWM might be replaced with, say, Egypt if that country was the next strongest in the country line-up. In essence one symbol would be sold (EWM) and one bought (EGPT). As I mentioned above, technology and the ETF have allowed investors to use rules-based systems of portfolio management and computerise the implementation of the portfolio.

Today investors are more interested in a solution to their investment problems instead of having to effect a plan themselves. Professor Theodore Levett of the Harvard Business School used to say, “People don’t want the quarter inch drill, they want the quarter inch hole.” This is exactly how investors are thinking more and more each day. Why would a doctor want to take his precious spare time to become well versed within the stock market. If he could purchase a rules-based model where he embraced the methodology underlying the management of the model, and the model would follow the rules implicitly, and he could have it for a fee; why would he not want to invest his hard earned money in this way?

Auto-managed ETF programmes can either be tactical in nature (move the assets where the relative strength suggests they should be) or strategic in nature (where modern portfolio theory automatically allocates an investor’s funds and automatically rebalances the portfolio twice a year). At Dorsey Wright/Dif Broker we recommend tactical management and only rebalance a portfolio as relative strength changes in the underlying ETFs. If you have not looked into investing in Technical Models DWA, Google it now.

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