Custodian Investment Swings To Sharp Drop In 2021

80

Custodian Investment Plc experienced a highly volatile year in earnings performance in 2021 in which its impressive record of doubling profit in 2020 gave way to a sharp drop in 2021.

The investment holding company’s heightened profit of N12.7 billion in the preceding financial year dropped by 26 per cent to N9.4 billion at the end of 2021, according to the company’s unaudited financial report for the year.

The company’s full-year performance is in line with our earnings outlook at the end of the third quarter stating that the profit undermining factor was likely to sustain in the final quarter.

The critical factor is net fair value gains/losses that made a wide downward swing from spurring the profit leap in 2020 to leading the fall in 2021. Net fair value gain of N15.8 billion plunged to a net loss of almost N18 billion over the period.

Other downside developments in the final quarter that led to the profit drop include a drop in net realized gains from the height of over N6 billion in the same period in 2020 to a loss of about N832 million in 2021. The full-year position shows a drop of 55.6 per cent in net realized gains to N2.8 billion.There was also an increase of 41 per cent in op

erating expenses in the quarter, which is more than two and half times an increase of 16 per cent in gross earnings for the period. At a full year, management expenses grew by close to 45 per cent to N10 billion.

Also, a net impairment charge of N283 million occurred in place of a net reversal of N417 million quarter-on-quarter. The closing figures for the year are N734 million net charge against a reversal of N253 million in the preceding year.

The company’s profit performance was equally constrained by a drop of income from bargain purchases from N1.2 billion in the same period in the preceding year to zero in the final quarter.

With the adverse developments, the company recorded another profit drop of 36 per cent in the final quarter after the 74.5 per cent profit plunge in the third quarter. This extended the year-on-year profit drop of 17 per cent at the end of the third quarter to 26 per cent at full year.

However, the final quarter contributed the biggest quarterly profit figure at N4.3 billion or over 46 per cent of the full-year profit figure. The high points in the quarter include an increase of about 30 per cent in interest earnings to N3.2 billion.

The increase in interest earnings led to the growth of roughly 16 per cent in gross earnings quarter-on-quarter to over N20 billion. Investment income also grew by 13.6 per cent to N17 billion over the same period.

Another positive development for the company in the final quarter is a major change in provision for outstanding claims and life fund estimate from a huge negative figure of close to N11 billion to a positive reading of N742 million over the period.

The positive change in the reserve provided a turning point for the company from a negative net income of N4.9 billion to a positive figure of N4.9 billion over the review period. This strengthened the full-year position, leading to a positive figure of N4.8 billion, which is a major rebound from a negative balance of N32.8 billion in the preceding year.

Net income for the full year advanced from negative N2.5 billion in the prior fiscal year to N38 billion at the end of the 2021 operations.

An undermining factor however is the destabilising shift in net fair value gain from N15.8 billion in 2020 to a loss of almost N18 billion in 2021. This hindered the company from converting the increase in net income into profit.

The full-year position shows that Custodian Investment generated gross earnings of N85.5 billion at the end of the 2021 operations. This represents an increase of 14 per cent from the full-year figure of N75 billion in the 2020 financial year.

The company’s revenue comes from two broad lines of operating and investment income – which amounted to almost N74 billion for the year and interest income of N11.6 billion.

Major cost increases and revenue disappointments marked the company’s earnings story in 2021. Cost increases consumed more than the gains in earnings, which undermined the company’s profit capacity at the end of the financial year.

Custodian Investment ended the 2021 full year operations with earnings per share of N1.69, down from N1.96 per share in the preceding financial year. The company paid an interim cash dividend of 10 kobos per share last year. A final dividend is expected on the release of the audited financial report.

Comments are closed.