United Capital Plc has recorded an increase of 26 per cent in its profit despite the headwinds that characterised the financial services industry where the company operates, writes Goddy Egene
The earnings started season last week as quoted companies began to release their unaudited results for the nine months ended September. Before now, there have been apprehensions among stakeholders who are wondering what the results would look like considering the challenging operating environment since March 2020.
The COVID-19 pandemic that led to the lockdown of the economy by the federal government to stop the spread of the virus, is expected to have negative impact on companies. And as companies begin to release their results, it has been a bag.
Some of the results showed improved profits, while some posted lower profits and others ended with losses. However, one early surprise performance is that recorded by United Capital Plc, which posted improved revenue and profits despite the difficult operating environment.
United Capital Plc is a leading financial services group in Africa, focused on leveraging technology to empower businesses, individuals and governments with excellent financial services in investment banking, asset management, trusteeship, securities trading, wealth management and consumer finance.
Despite the fact that the financial system, where it operates, was equally impacted negatively by the COVID-19 pandemic, United Capital Plc ended the nine months with a revenue of N7.07 billion and profit after tax (PAT) of N3.46 billion.
An analysis of the results showed that total revenue rose 33 per cent from N5.32 billion in 2019 to N7.07 billion in 2020. The significant increase was on the back of a strong increase of 55 per cent in investment income, 62 per cent increase in fees and commission income, and 61 per cent growth in net trading income. However, cost-to-income ratio rose 3.1 per cent due to the sharp 270 per cent increase in impairment allowance. According to the company, the increased cost complies with IFRS 9 that requires financial assets be tested for impairment and using the expected credit loss model.
Profit before tax (PBT) grew by 26 per cent to N4.1 billion, from N3.27 billion, while PAT grew by same margin from N2.75 billion to N3.46 billion.
In terms of profit margin, United Capital’s PBT margin declined by 3.11 percentage points, due to the increase in operating expenses arising from significant increase in impairment charges during the period under review due to impact of COVID-19.
Commenting on the results, Group Chief Executive Officer of United Capital Plc, Mr. Peter Ashade, said their operating environment remained tough amid the lingering COVID-19 situation and negative macroeconomic impacts as seen in the continued depreciation of the exchange rate, consistent uptick in headline inflation rate among other macroeconomic indicators.
“As stated during the release of our half year (H1)-2020 results, our business has not been immune to these challenges. Notwithstanding, the Group has remained nimble. We continued to implement our business growth and continuity plans premised on a solid risk assessment framework to ensure we remained focused on providing best-in-class solutions to all client segments.
“These contributed to the impressive growth across our businesses leading to 33 per cent growth in revenue and 26 per cent increase in both PBT and PAT during the nine-month period,” he said.
According to him, in the second quarter (Q2),the group successfully issued N10 billion Series 1 bond under the N30 billion Medium-Term Debt Programme, the first to be issued by an investment banking firm in Nigeria and was oversubscribed by about 24 per cent.
“We have begun yielding the fruit of that strategic decision. Going into the last quarter of the year, we are encouraged by the increasing market confidence in our brand even in the wake of the most globally devastating pandemic of the last century. We know the operating environment is turbulent, but we are committed to deliver superior returns to our shareholders, as we drive growth and profitability across all our businesses,” he said.
Ashade explained that in line with their initial strategy for the 2020 business year, they shall continue to push further their market diversification and cost-optimisation initiatives as well as implement phased automation of our business processes whilst upholding their commitment to ensuring a significant improvement in our value delivery to all our stakeholders.
It is obvious that the one of the strategies that worked very well for United Capital was the issuance of a commercial paper(CP) to provide innovative financing solutions to its corporate, institutional and government (parastatals, sovereign and sub-sovereigns) clients.
“The CP will enable us provide a wider range of wholesale financing solutions to our clients. It will also further complement our stable funding base and support the growth of our overall business. The Series 1 & 2 issuances, with tenors of 182 days and 270 days, were largely subscribed to by individual and institutional investors, with interest significantly tilted towards the 270-day offering,” Ashade had said.
That CP issuance was followed in May by raising of N10 billion in its Series 1 Bond issuance under a-N30billion Medium-Term Debt Programme. The bond issuance was oversubscribed in investor commitments by 24 per cent, making United Capital the first non-bank issuing house to issue a corporate bond in the history of the Nigerian capital market.
According to the GCEO, “The bond issuance, which signifies the first by any investment bank in the history of the Nigerian capital market solidifies our performance track record as a formidable ally in the investment banking industry. With an oversubscription by 24 per cent investor orders, we believe this milestone accentuates the confidence in our Institution, and its ability to diversify our corporate funding sources, provide innovative financial solutions and our unwavering commitment to our esteemed clients.”
Also commenting on bond issuance, Managing Director, Investment Banking, United Capital Plc, Babatunde Obaniyi, said:“The bond issuance adds to the impressive portfolio of innovative and landmark transactions we have structured, and once again highlights our capabilities in the successful execution of novel debt capital market transactions. As a joint issuing house/book runner on the deal, United Capital advised on the transaction structure, securing regulatory approvals and marketing strategy for the bonds including market timing, investor road show and crafting an appropriate and compelling business case for the issuance.”
“The Series 1 bonds, which have a tenor of 5years,recorded a 124 per cent subscription, with commitments received from Pension Funds (comprising 64 per cent of the issue), other financial institutions as well as high net worth individuals. This very strong outcome further affirms buy-side investors’ confidence in United Capital Plc, and a testament to the leading role the organization continues to play in the financial services space,” he added.
There is no doubt that the COVID-19 pandemic has greatly affected the operations of many companies but United Capital was able to endure the challenges.
“Thanks to the well-articulated and diligent implementation of our plans set out last year. With our well-articulated plans, business continuity plan in economic crisis and solid risk assessment framework,” he said.
He explained that the COVID-19 pandemic has dealt a devastating blow to businesses and economies globally including our domestic operating environment.
“But as a responsible organisation, our primary focus is on the safety of our staff while helping our clients to navigate these challenging times towards meeting their respective goals amid lockdown pronouncements by the government. We commenced virtual operations without significant impact on our service delivery to clients. Our digital platforms (InvestNow – mobile and web) continued to serve our clients globally from the comfort of their homes. In addition, we increased client engagements across digital platforms such as streaming investment clinics and other advisory services. All internal and external workplace interactions were seamless in a virtual environment due to our improved technology capabilities,” the GCEO stated.
While some firms saw the pandemic as a setback, United Capital said it developed new competencies to exploit the opportunities created.
“We developed new competencies including propositions to exploit emerging opportunities identified while also creating buffers such as income earnings on long term investments,” he said.
According to Ashade, as a diversified group serving various client segments with bespoke solutions that address respective financial and investment needs, the company prepared very well for 2020.
“In preparing for 2020, we began prospecting key market segments that will present the greatest opportunities across all our businesses and devised action plans for exploiting those opportunities especially in terms of growth strategies within the domestic market. We also restructured our business to be more responsive to our clients.
Therefore, our performance is as a result of earnings growth across all our business lines and validates the effectiveness of the planning process and strengthened execution capabilities across group. The operating environment has quite been challenging but we have been focused on creating value for all our clients. Our focus is always on the customer,” he explained.
He has assured stakeholders, saying “We are unwavering in our commitment to stakeholders and expect to remain profitable and competitive in the near term. Going into the remaining part of the year, we remain assiduously committed to deliver greater returns to our shareholders, by constantly reviewing our strategy in the light of global and domestic happenings, ensuring that we provide value to all our stakeholders from time to time.”
“We shall continue to push further our market diversification and cost-optimisation initiatives as well as implement phased automation of our business processes whilst upholding our commitment to ensuring a significant improvement in our value delivery to all our stakeholders,” Ashade declared.