Lucky Fiakpa
1 December 2008
With dwindling fortune of shareholders at the nation's capital market, getting generous dividend and bonus share may just be the best way of putting some smiles on their faces.
Shareholders of Union Bank were quite excited last week Wednesday as they gathered in the arditorium of Giginya Hotel, Sokoto to receive and adopt the audited accounts for the year ended March 31, 2008.
Unlike last year when they had to listen to long stories of how an otherwise good performance ended up producing a profit before tax level of just N17.58 billion due to write off of goodwill arising from the merger of the legacy banks, the story this time around was heart warming to the shareholders.
Without much ado, the bank's chairman, Professor Musa Gella Yakubu, went ahead to announce the results and from the mood of the shareholders, his statement met theirs in terms of what they would take home as dividend and the bonus offer.
"Consistent with our outstanding tradition of rewarding our shareholders with good returns on their investment, board has proposed for your approval a dividend of N1.00 for every 50 kobo ordinary share held (representing total dividend payment of N11.58 billion),...In addition to the dividend payment, board has proposed for your approval a bonus of one share for every six shares held," the chairman announced to the shareholders.
This drew a loud applause from the shareholders and thereafter, proceedings at the meeting went quite smoothly. Virtually every one that spoke thereafter rose in appreciation of the board and management performance for the financial year 2008.
Operating Performance
Despite the challenges in the operating environment, Professor Yakubu said, the bank was still able to record impressive result for the year. Gross earnings increased by N23.75 billion, from N89.24 billion in the year ending March 31, 2007, to N112.99 billion in the year under review, representing an increase of 27 per cent. On this basis, profit before tax in the review period stood at N33.01 billion, an increase of 88 per cent on the N17.58 billion recorded in the corresponding period of the previous year.
The bank posted an after tax profit of N26.85 billion during the year as against N13.88 billion recorded the previous year, an increase of 94 per cent. It was on the basis of this that the board proposed a dividend of N1.00 per share which was approved last week by the shareholders during the AGM in Sokoto.
This represents an appropriation of N11.58 billion out of the after tax profit of the bank, showing a total dividend payout of 46.8 per cent of the profit for the year under review. And in line with the bank's commitment to grow shareholders' value, a bonus issue of one for every six ordinary shares held was also recommended by the board and was equally approved by the shareholders.
The bank's total assets and contingents closed at N1.22 trillion, representing an increase of 67 per cent over N733.79 billion posted in the corresponding period of the previous year. Total deposit rose by N250.23 billion, up 58 per cent from N432.08 billion in the year ended March 2007 to N682.31 billion in the review period. The improvement seen in the topline equally reflected in the overall positive performance of the bank.
Placements with local banks fetched Union Bank a whopping N24.84 billion during the year, an increase of 419.66 per cent over N4.78 billion it made in the 2007 financial year. This implies that the bank was very resourceful in inter-bank lending transactions during the year under review.
Financial Ratios
From the financial ratios and from the table given below, 2008 performance was indeed a good outing for Union Bank. The profit margin, which measures how much of the gross earnings was retained as net profit moved up impressively from 16 per cent the previous year to 24 per cent. This means that as against 16 kobo retained as net profit from every N1.00 earned as gross earnings the previous year, the margin moved up to 24 kobo for every N1.00 earned this year, an increase of one kobo.
This is quite encouraging.
The reason may have to do with cost management during the year. This is evident from the overheads/gross earning ratio. Whereas overheads expenditure ate up 42 per cent of gross earnings the previous year, only 38 per cent of gross earnings were taken up by overheads this year. This shows that costs were well managed this year.
Return on shareholders' funds was equally impressive. The ratio moved up from 16 per cent the previous year to 26 per cent during the year under review. From the look of things, the bank made good use of all assets at its disposal. That probably explains why it desperately wanted to raise fresh funds from the capital during the year. But due to the down turn of the financial market, it could not embark on the exercise.
Returns on assets show a slight increase from 2 percent in 2007 to 3 percent 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 however dipped from 13 per cent to 10 per cent.
The interest earnings/expenses ratio was however stable. At a ratio of 1:3, which was the same margin last year, it shows that for every N1 the bank expended in generating deposits, it realized almost N3 in return.
The good outing of the bank this year notwithstanding, the efficiency ratios generally 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, a number of strategies were mapped out. Some of the strategies were realized while some could not fly.
At the extra ordinary general meeting of shareholders in September 2007 in Kano, it was resolved that additional capital be raised and a maximum of 30 per cent of the bank's equity would be ceded to foreign banks with the skills and pedigree that would enable it develop products and penetrate markets not available locally. But the Central Bank came up with a directive limiting foreign equity holding in the banks to a maximum of 10 per cent. This therefore short-circuited that strategy and therefore failed to fly.
Another strategy of the bank that was painfully aborted was its proposed public offer. The bank had wanted to raise over N300 billion from that exercise. With that money the bank had hoped to improve on its IT infrastructure, modernise its offices across the country, embarked on big-ticket financing as well as position itself well for the global competition. The bank did commence the process of raising the money before the current market meltdown made the board to suspend all actions on it till further notice.
However, the bank's Project GEAR launched in September 2007 is very much on course. The project is an Enterprise Transformation Programme and during the year, the bank was able to complete the first phase of the programme. Some of the components of the programme like the transformation of the bank's systems, processes, and procedures in critical functional areas as human resources, information and communication technology, and credit and risk management are already being implemented.
In particular, the bank developed a new corporate strategic plan and through that was able to define the overall corporate intent and strategic objectives. It also decomposed the new strategic thrust and priorities of the bank and assigned them to the different Strategic Business Units (SBUs) and Strategic Resource Units (SRUs) as mandates.
Through the programme, the management also developed competitive, marketing and operating strategies for each SBU/SRU to enable them meet their mandates.
The management also determined the capabilities required by each SBU/SRU to execute its strategies; developed the mission and vision statement for the SBU/SRU; defined strategic objectives for each SBU/SRU covering a three-year horizon and; determined the SBUs/SRUs performance targets and goals.
Other strategies of the bank during the year include staff skill audit, centralization of all back office/transaction processing activities into the Central Operations Department, restructuring of the former 13 Area Offices into 41 Business Development Centres, recruitment of fresh graduates to rejuvenate the workforce and, institution of an objective performance-based staff compensation and reward management system.All of these strategies greatly enhanced the bank's performance and competitiveness during the year.
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