FBN Holdings: Corporate Deals Leverage

FBN Holdings Plc last year concluded a number of acquisitions aimed at shoring up its operations against current and future challenges in the  banking industry.
In February 2014, one of its subsidiaries, FBN Insurance Limited, acquired 100 per cent equity interest in Oasis Insurance Plc. The  acquisition will enable the insurance segment of the Group to undertake general insurance business in addition to the existing life insurance business. As a result of this acquisition, the Insurance segment of the Group will increase its market share of the insurance business. This will enhance the Group’s insurance liabilities by about 14 per cent.

Four months later,  another subsidiary, First Bank of Nigeria Limited, acquired 80 per cent equity interest in ICB Senegal. This concluded the acquisition of the West Africa operations of International Commercial Bank (ICB) from International Commercial Bank Financial Group Holdings AG (ICBFGH) which commenced in 2013 with the acquisition of equity interests in four entities (ICB Ghana, ICB Sierra Leone, ICB Guinea, ICB Gambia) in October 2013. As a result of these acquisitions, the Commercial Banking segment of the Group will consolidate its position as one of the largest corporate and retail banking ?nancial institutions in sub-Sahara Africa (excluding South Africa).
In September 2014, FBN Holdings Plc. acquired 100 per cent equity interest in Kakawa Discount House Limited (KDH) in which the Group previously held 46 per cent equity and accounted for as an associate. KDH has an approval in-principle (AIP) from the Central Bank of Nigeria (CBN) to convert to a merchant bank. As a result of this acquisition, the Other Financial Services segment of the Group will extend its business portfolio to merchant banking business and increase its share of the ?nancial services industry in Nigeria.
The synergistic impact of these business combinations has bolstered the Group’s performance for  last year and laid good foundation for the future.
Full Year 2014 Performance
FBN Holdings Plc, gross earnings rose by 21.3 per cent to N480.6 billion year-on-year from N396.2 billion in 2013. Profit after tax climbed by 17.3 per cent to N82.8 billion from N70.6 billion achieved in the previous year. Net interest income  was up 6.0 per cent to N243.9  from N230.1 billion; non-interest income, 66.1 per cent to N111.8 billion, from N67.3 billion in 2013.
The group recorded operating income of N355.1 billion, an increase of 19.8 per cent of the N296.4 billion realized  in the previous year.
Also, impairment charge for credit losses of N25.9 billion, rose by 27.7 per  cent from N20.3 billion; while operating expenses of N236.8 billion,  was up 27.5 per cent from N185.8 billion achieved in 2013.
Furthermore, the contribution of non-interest income to net revenue improved to 31.4 per cent from 22.6 per cent in the earlier year.
Operating Expenses
However, FBN Holdings improved performance was hamstrung by a number of challenges.
The high operating expenses which shot up by 32  cent to N143.2 billion from N108.2 billion registered in the previous year, should be a source of worry to the Group. Specific items in this category  require more scrutiny. Rent and Rates gulped N4.3  billion, up by 62 per cent from N2.7 billion, just as Adverts and Corporate Promotions claimed N12.7 billion, up by 53 per cent from N8.4 billion entered in 2013. The Group spent N6.2 billion on Communication, Light and Power which was over 100 per cent rise when compared to N3 billion, at a period Operational and Other Losses expenses jumped by 260 per cent to N18.4 billion from N5 billion expended during the same period. While the Group spent  N11.7 billion on Other Operating expenses, up 90 per cent from N6.2 billion, 
that at the Company level took the biscuit, skyrocketing  by more than  1,320 per cent to N123 million from N53 million recorded in 2013.
The directors must have struck gold when their emoluments (excluding certain allowances) were jacked up by 145 per cent to N751 million from N306 million, majorly swelled by Other Directors expenses which were raised by more than 312 per cent to N611 million from N148 million paid in 2013. Also, their Sitting Allowances consumed N8 million, up from N6 million in the previous year.
Segment Operation
By now, the Group Executive Committee should have found solution to the challenges in one of its segments of operations, Other Financial Services Business Group  which total revenue plummeted by  70 per cent to N22.5 billion from N76.2 billion realized in 2013. Loss before tax in this segment stood at N1.4 billion compared to N3.2 billion recorded in the previous year. Also, reduced earnings before tax were  recorded in the Investment Banking & Asset Management Group (IBAM) segment  which stood at N3.5 billion  compared to N6.7 billion, while the Insurance Group was N706 million , down from N1 billion entered in 2013.
The Group would need some breather which has not been forthcoming, from suffocating grip of repayment of principals and interests from loans.  Last year, long term borrowings stood at N369.7 billion, up from N126.3 billion in 2013.  Repayments of borrowings was up at N71.3 billion,  from N46.5 billion, while interest paid claimed N11.8 billion, as against N2.4 billion in the  previous year. Some of these facilities involve, FBN Eurobond, issued by FBN Finance Company B.V,  Netherlands; European Investment Bank; Deutsche Bank; and  on-lending facilities issued by Central Bank of Nigeria and Bank of Industry.
Half-Year 2015 Results
FBN Holding results for  the six months ended June 30, 2015 showed that gross earnings grew by 28 
per cent year-on-year (y-o-y) to N271.3 billion from  N212.0 billion, attributable to growth in interest income from loans and advances to customers.
Income from investment securities in the quarter increased 40.7 per cent due to enhanced treasury activities.
Net Interest Income grew by 41.7 per cent to N61.2 billion, up from  N43.2 billion as a result of increased credit , increased electronic banking fees  as well as foreign exchange income growth to N16.9 billion.
However, foreign exchange income declined 25.7 per cent, quarter-to-quarter in line with the slow down in velocity and liquidity of foreign exchange market activities in the country. 
The decline in fee & commission income to N33.2 billion  is largely attributable to reduction in commission on turnover (COT) by 18.9 per cent, money transfer commission (-24.4 per cent) as well as the y-o-y decline in letter of credit fees (-25.6 per cent).
The 18.9 per cent y-o-y decline in COT to N6.4 billion from N7.9 billion in first half 2014, reflects the decrease in COT charges following the CBN directive.
Due to increased turnover and enhanced monitoring of transactions, COT increased in quarter two by 33 per cent  to N3.7 billion  from N2.8 billion in first quarter of 2014
Interest expense rose 47.1 per cent y-o-y to N73.1 billion from N49.7 billion in the first half of 2014,  mainly due to increase in cost of customer deposits as well as interest payment on the Tier 2 $450 million subordinated debt issued, resulting in increased interest payments on borrowings.
Operating expenses increased by 15.2 per cent to N119.2 billion from N103.4 billion in the first half of last year.
Profit before tax increased by 7.9 per cent  y-o-y to N52.1 billion, translating into a pre-tax return on 
equity of 19.2 per cent and a post tax return on equity of 14.8 per cent.
FBN Holdings Plc is a leading diversi?ed ?nancial services group in Middle Africa, with a presence in  eight African countries and o?ces in London, Paris, Beijing and Abu Dhabi. At 2014 year end, the Group had N4.3 trillion in total assets and N522.9 billion in total equity.
FBNHoldings oversees four business groups which collaborate to deliver innovative ?nancial solutions.
The Holding Company’s principal bank subsidiary is First Bank of Nigeria
Ltd (FirstBank), a commercial bank with operations in 12 countries.
FBN Capital, a leading investment banking and asset management
The Insurance business group comprises FBN Insurance, with capacity
to underwrite both life and general insurance business, as well as FBN
Insurance Brokers.
Other Financial Services business group primarily includes, FBN Micro?nance
Bank, which o?ers micro?nance services, and Kakawa Discount House Ltd.