Again, credit losses keep United Capital’s profit flat at N2.4bn, increase cost in Q1

Credit losses are on an upward surge for United Capital Plc for the second year, which lowered margins and left after-tax profit only moderately improved at N2.4 billion in the first quarter (Q1).

The Q1 interim financial report of the financial and investment services group for the three months ended March 2023, shows more than four times jump in net impairment for credit losses year-on-year from N97.4 million to N407.6 million.

This is a sustaining pressure from credit loss expenses, which soared from N453 million in 2021 to N6.2 billion at the close of the 2022 operations.

A write back of N2.2 billion provided a strong support for the company in Q1 but loss allowance of almost N2.5 billion on trade receivables during the period more than countered the favourable development.

As happened last year, the pressure from credit losses led to a rapid increase in total operating expenses — which consumed virtually all the increase in gross earnings.

Rising cost was further reinforced by inflation-driven other operating expenses, which grew by 70.4 percent year-on-year to almost N1.6 billion at the end of the quarter.

The two critical cost elements pressured the company’s cost-income position out of balance, as costs grew well ahead of earnings.

Total operating expenses rose by 62 percent over the review period to about N2.7 billion compared to an increase of 26.9 percent in total revenue to N5.3 billion.

Investment income is the company’s major revenue line as well as one of the growth drivers — which rose by 65.9 percent year-on-year to N2.7 billion at the end of Q1. This is followed in significance by fee and commission income that grew by 4.4 percent to N1.8 billion over the same period.

Revenue growth was, however, led by less significant income lines, including net trading income that advanced by 130.9 percent year-on-year to N396 million and net gain on financial assets that jumped by 125.8 percent to roughly N333 million over the same period.

The rising cost prevented an increase of N1.1 billion in revenue from getting down into profit.

Operating profit margin got the squeeze from 61 percent in the same period in 2022 to 50.2 percent in the first quarter ended March 2023. At less than N2.7 billion, operating profit inched up from about N2.6 billion over the review period.

Share of associate profit of N136 million stepped up pre-tax profit for the quarter to N2.8 billion while a slight decline in tax expenses to about N376 million enabled an improvement of 5.7 percent in after-tax profit to close at N2.4 billion for the first quarter.

Net profit margin went down from 54.8 percent in the same quarter last year to 45.7 percent at the end of the first quarter ended March 2023. It is better, however, than the closing profit margin of 35.9 percent for the 2022 financial year.

United Capital had closed the 2022 operations with after-tax profit down by 14.3 percent from N11.3 billion in 2021 to N9.65 billion. The profit drop was caused directly by close to six times jump in tax expenses to N3.8 billion at the end of the year.

The company paid a cash dividend of N1.50 per share to shareholders for the 2022 operations.