Lucky Fiakpa
17 November 2008
The bank's promise to grow its profit to N28.03 billion by 2010 could be realized before then if only it could sustain the impressive growth rate it recorded this year.
Fidelity Bank came to the market last year to raise N45.32 billion net after deducting the total cost of the offer, which was estimated at N2.68 billion or 5.58 percent of the offer proceeds. The board made a promised to investors to maintain a leading role in generating good returns for its shareholders.
The bank's dividend forecast for the financial year that would end on June 30, 2010, three years from the period of the public offer, was put at N0.51 per share. This is despite the fact that shareholders' base of the bank would have increased tremendously in the period ending June 30, 2010. This was a pointer to the fact that the bank would increase its ability to earn more income to meet the ever increasing demand of shareholders for returns.
The bank would pay 40.88 per cent of the net profit in the year on target to achieve its aspirations for its shareholders (both existing and potential). Forecast for profit after tax (PAT) by 2010 was put at N28.03 billion out of which about N11.46 billion would be paid as dividend. Meanwhile earning per share (EPS) is expected to have grown from the projected 49 kobo in 2008 to 124.8 kobo in 2010, three years away.
However, with two years to the target year of 2010, the bank's profit is now N14.67 shy of the expected PAT. Given the impressive growth of 183 per cent in PAT this year, there is strong optimism that the bank could surpass the target of N28.03 billion in 2010.
OPERATING PERFORMANCE
The slow down in global financial market and the knock-on effect of the credit crises that started in the US negatively impacted the household disposable income of most western economies. But in spite of all the vulnerabilities associated with the year, Fidelity Bank was still able to post impressive result.
Gross earnings increased by N17.8 billion, from N24.86 billion in the year ending March 31, 2007, to N42.66 billion in the year under review, representing an increase of 72 per cent. On this basis, profit before tax in the review period stood at N16.31 billion, an increase of 219 per cent on the N5.11 billion recorded in the corresponding period of the previous year.
The bank posted an after tax profit of N13.36 billion during the year as against N4.71 billion recorded the previous year, an increase of 183 per cent. The bank's total assets closed at N535.48 billion, representing an increase of 145 per cent over N218.33 billion posted in the corresponding period of the previous year. Total deposit rose by N202.12.02 billion, up 115 per cent from N176.42 billion in the year ended March 2007 to N378.54 billion in the review period. The improvement seen in the topline equally reflected in the overall positive performance of the bank.
FINANCIAL RATIOS
Except for return on shareholders' funds that dipped from 16.98 per cent in 2007 to 11.96 per cent and the total assets/gross earnings ratio which came down from 11.39 per cent to 7.97 per cent in the year under review, the bank's financial ratios headed in positive direction in the 2008 financial year as shown in the table.
The drop in these ratios is understandable. The new shareholders' funds of N136.37 billion as against the previous figure of N30.10 billion was realized only last year after the bank's successful public offer which recorded substantial over subscription. From the look of things, the bank is yet to fully deploy the money to realize its full potential.
Financial ratios or efficiency ratios are the actual test of performance of any company in a given year. It measures how well assets were deployed in a given year as well as returns on investment. Are returns this year better than those of the previous year? These are made known from the financial ratios and from the table given below, 2008 performance was better outing than the previous year for Fidelity Bank.
The profit margin, which measures how much of the gross earnings was retained as net profit moved up impressively from 18.95 per cent the previous year to 31.32 per cent. This means that as against 19 kobo retained as net profit from every N1.00 earned as gross earnings the previous year, the margin moved up to 31 kobo for every N1.00 earned this year, an increase of one kobo.
This is encouraging.
Costs were well managed this year as evident from the overheads/gross earning ratio. Whereas overheads expenditure ate up 37.77 per cent of gross earnings the previous year, 39.03 per cent of gross earnings were taken up by overheads this year. This shows that despite crowded year when it raised fresh funds from the market, costs never shot up the roofs.
Returns on assets show a slight increase from 2.34 per cent in 2007 to 3.04 per cent during the year. Return on assets measures how efficient assets were deployed in a given year. Total asset/gross earning ratio which measures how many times assets were turned over in the cause of the year dipped from 11.39 per cent to 7.97 per cent.
One ratio that was quite impressive was that of interest earnings/expenses. At a ratio of 1:3.80, it shows that for every N1 the bank expended in generating deposits, it realized almost N4 in return.
The good outing of the bank this year notwithstanding, the efficiency ratios still leave much room for improvement.
STRATEGIES
In order to realize the goals the bank set for itself during the year as a lead service provider in the nation's financial services industry, its branch expansion activities continued apace during the year across the country. A total of 80 branches are expected to be built by the bank between 2008 and 2009 with 40 apiece.
The bank also earmarked 21.8 per cent or N9.9 billion of the net proceeds of the offer for the purpose of uplifting the standard of the bank and 9.9 percent or N4.5 billion to improving the IT infrastructure.
The bank has also resolved to fortify its business capacity both within and outside Nigeria.
To this effect, it is spending N9.9 billion for the purpose of making its presence in the country more prominent through expansion of branch network. This will definitely bring the bank closer to achieving its ambition of becoming one of the leading banks in terms of branch network in the country.
As a mark of value to shareholders, Fidelity Bank has consistently for the five years, either paid a cash dividend or given bonus issue of shares or done both to the shareholders.
The market value of the bank has also grown from a mere N3.8 billion in July 2004 to nearly N200 billion by July 2007. Profit before tax has grown by over 300 per cent in the three years between 2005 and 2007. In the same manner, total assets of the bank have grown over 540 per cent from 2005 to 2007.
Awards
According to Agusto (Nigeria's foremost rating company) Report for the year ended December 31, 2006, Fidelity ranked No.6 Best Bank in delivering return on equity on profit before tax to shareholders. It is also No.3 most efficient bank in utilizing assets and No.6 in managing costs.
At a colourful ceremony at Willard Intercontinental Hotel in Washington DC, United States, on October 10, 2008, Fidelity Bank was declared Africa's Most Socially Responsible Bank by the African Banker Magazine. The bank beat a Nigerian bank and three other nominated banks from South Africa, Egypt, and Cameroon to emerge winner in the category.
Fidelity has remained one of Nigeria's strategically managed institutions, with a record of integrity and professionalism. Marching with very measured but definite steps, Fidelity now has become a notable financial services supermarket, with subsidiaries in investment banking as well as pension management. According to the managing director and chief executive of the bank, Mr. Reginald Ihejiahi, the performance is merely an indication of the possibilities in the bank.
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