United Capital Plc has reported an after-tax profit of N9.6 billion at the end of its 2022 full-year operations, a drop of 14 per cent from over N11 billion in 2021.
The audited accounts of the financial and investment services group show that two major cost increases happened in the final quarter, which slashed margins and prevented profit from growing with revenue.
Net impairment for credit losses led the cost increases at the full year with a long upward jump from N453 million in 2021 to more than N6 billion at the end of 2022. That led to a rapid increase of 131 per cent in total operating expenses to N13.7 billion at the end of the year.
The second cost increase is a tax expense of N3.8 billion that jumped similarly from less than N659 million in the preceding financial year. That finally changed the company’s earnings reading from an increase of over 13 per cent in pre-tax profit to a drop of 14 per cent in after-tax profit at full year.
The effect of the cost increases on margins prevented the company from converting an outstanding growth in revenue into profit.
With an all-around increase in income lines, gross earnings grew by about 49 per cent in the year to N26.9 billion. This was led by investment income that rose by over 55 per cent to N13.8 billion.
Investment income is a yield from the company’s large investment securities portfolio of N386.5 billion at the end of the year. The company had expanded its portfolio from N363.6 billion in 2021.
Fee and commission income grew by 31.9 per cent to over N8 billion, net trading income more than doubled at N2.4 billion, and other income improved by almost 60 percent to N2.5 billion.
The increase in gross earnings represents additional revenue of close to N9 billion, which was more than consumed by the cost increases – N7.8 billion by total operating cost and N3.2 billion by tax expenses.
Net profit margin, therefore, went down from an outstanding height of 62.3 per cent in 2021 to 35.9 per cent at the end of 2022. This is also an unexpected drop in profit margin in the final quarter from 53 percent at the end of the third quarter.
There was a deviation from the preceding year’s earnings pattern in which up to 47 per cent of the full-year profit was generated in the final quarter.
While the final quarter contributed as much as N12.5 billion or 46 per cent of the gross earnings, it delivered less than N2 billion or 20 per cent to the bottom line. The less-than-expected profit delivery in the final quarter follows a major swelling of net impairment expenses from less than N1 billion at the end of the third quarter to more than N6 billion for the full year.
The increase pushed up total expenses from N5.7 billion at the end of the third quarter to N13.7 billion for the full year. With that, the operating cost margin scurried up from 39.5 per cent at the end of the third quarter and from 32.9 per cent in 2021 to 51 per cent at the end of 2022.
Also, the closing tax expenses of N3.8 billion for the year are close to two and half times the figure of N1.4 billion at the end of the third quarter.
The company closed the 2022 full-year operations with earnings per share of N1.61, which is a decline from N1.88 per share in 2021.
United Capital has announced a cash dividend of N1.50 per share for the 2022 trading, which is unchanged from the preceding year’s dividend payout. The qualification date is 14th March and the payment date is 28th March 2023, according to the company’s statement.
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