Introduction

Our analysis of Zenith Bank’s 2023 recent annual report shows that the year was quite a profitable one for the bank. Not only did the bank record a commendable growth in its turnover, it was also able to maintain such momentum to its profit.

As a direct fallout, the bank’s profitability ratios (such as profit margin, return on assets, return on equity, net interest margin and pre-tax profit per employee) remained high enough for the bank to remain relevant. It is important to note that the bank is also doing very well in its core banking operations.

Growth indices

For its 2023 financial year, the bank recorded a very commendable 125.4 percent growth in its turnover (inclusive of interest and discount income, and income from non-banking operations). Such turnover rose to an all-time high of N2.13 trillion from N945.6 billion in the preceding year.

It is worthy of note that while the bulk of the bank’s turnover was contributed via interest and discount income, it also stepped up the tempo of its non-core banking operations during the course of the year and earned significantly more money from there.

Pre-tax profit growth rate followed an even more commendable pattern, growing much more steeply as compared to the growth recorded in the prior year. Profit before tax obligations for 2023 stood at N795.9 billion, up from N284.7 billion in the erstwhile year, and translating into a 179.6 percent growth rate. After-tax profit followed the same pattern as pre-tax profit did, growing commendably by 202.3 percent over the preceding year’s level.

Total assets deployed by the bank for the 2023 year improved to a higher level of N20.4 trillion, about 65.8 percent higher than the N12.3 trillion assets deployed in December 2022, while shareholders’ funds advanced to N2.3 trillion from N1.4 trillion.

Profitability ratios

In all ways, the 2023 financial year was a profitable one for Zenith, as it recorded a marked improvement in almost all of its profitability ratios.

First, the bank did well in the execution of core banking operations, as shown by its net interest margin. Zenith recorded a net interest margin of 64.3 per cent. This interest margin, although lower than what the bank recorded in the preceding year, was on par with the industry average for 2023. This lower 64.3 percent net interest margin happened despite the increasing gap between the bank’s lending rate (which grew to 17.5 percent in 2023 from 13.5 percent in December 2022) and its deposit rate (which grew to 2.7 percent from 1.9 percent).

Profit margin also grew to 37.3 percent in 2023 from 30.1 percent in December 2022. What this means is that for every N100 earned by the bank in the course of the year, N37.30 made it to the profit position. This is as compared to N30.10 for the year preceding 2023.

Return on assets (ROA) also recorded an improvement. ROA grew to 3.9 percent in 2023 from 2.3 percent in December 2022. Analysis shows that every N100 worth of Zenith’s assets contributed N3.90 to its pre-tax profit in 2023, up from N2.30 in 2022.

For every N100 equity deployed, the bank made an after-tax profit of N29.10, up from N16.20 in the preceding year. Thus, return on equity for the year was also better than that of the prior year.

Asset quality

The proportion of Zenith’s gross loan stock that became classified in 2023 declined by increasing to 7.6 per cent from 5.8 per cent in 2022. Meanwhile, loan loss reserves for 2023 could cover only 20.4 percent of Zenith’s classified loans.

For 2023, the bank was not as careful to limit the portion of its equity stock that would be wiped out were its classified loans to become totally irrecoverable. Classified loans as a portion of shareholders funds stood at 23.4 percent in 2023, higher than 17.2 percent in 2022.

Staff matters

The bank did very well in matters regarding its employees for the year ended December 31 2023. Pre-tax profit per employee grew to N97.47 million on the average, better than the N35.25 million employees contributed on the average to the bank’s pre-tax profit in 2022.

The bank was, however, generous enough to compensate its employees more in 2023 than it did in December 2022. Average staff cost rose to N15.23 million from N10.69 million within the course of 12 months. This means that there was a N4.54 million addition to what an employee earned (on the average) between December 2023 and December 2022.

Despite the fact that it upped its staff costs, Zenith succeeded in deflating such staff costs as a proportion of income earned. Staff costs as a portion of turnover decreased to 5.8 percent in 2023 from 9.1 percent in December 2022.

Other ratios

Zenith’s equity (a company’s primary and cheapest source of funding) could finance 32.9 percent of the loans and advances it gave out to borrowers, down from 33.4 percent recorded in the erstwhile year.

Also, at 0.6 times, the current ratio was not on par with the industry average for 2023. What this means is that for every N1.00 of short-term obligations, the bank had only 60 kobo in short-term assets, and was not completely able to meet short term debts from short term assets.

Having a debt to equity ratio of 7.8 shows that the bank is using N7.80 of liabilities in addition to each N1.00 of stockholders’ equity. In other words, the bank is using N8.80 of total capital for every N1.00 of equity capital.

Return on equity

Another performance ratio in which Zenith did well was in its return on equity (ROE) of 29.9 percent. Zenith’s ROE for 2023 stood at 29.1 percent.

Return on assets

This was one of the ratios in which Zenith outperformed its peers. Its ROA was 3.9 per cent, higher and better.

Pre-tax profit margin

Although Zenith Bank was not able to grow its gross earnings and pre-tax profit as fast as its peers, it was however better able to translate its turnover into profit. For the 2023 financial year, pre-tax profit margin (which measures a company’s ability to squeeze as much profit as is possible from turnover) for Zenith Bank was 37.3 percent.

Conclusion

On its own, in a stand-alone analysis, Zenith Bank is doing quite well and this should be commended. It remains to be seen, however, if Zenith and UBA will be star performers in the banking industry for 2023, or if 2023 was a generally good year for all Nigerian banks.

Story behindthe figure

By Folakemi Emem-Akpan

Introduction

Honeywell Flour Mills Plc went the way of most other Nigerian companies in 2023, recording lower turnover. It went one step further and recorded downright end of the year losses. Because of the losses, the company did not have good profitability ratios and seems to be floundering. All in all, it was a tough year for the company.

Growth indices

Honeywell followed the general rule of earning more income in 2023 than it did in 2022. The growth in gross earnings, at 8.0 percent, was however lower than most other companies recorded. Gross earnings stood at N147.3 billion, a little higher than N136.4 billion in the prior year. Even though the company was careful to curtail cost of sales, it couldn’t quite do the same for operating expenses (inclusive of advertising and promotion, distribution, administrative and interest expenses). These grew much faster collectively in 2023 than in 2022.

For the second year in a row, Honeywell recorded a loss rather than a pre-tax profit. Loss before tax obligations for 2023 stood at a staggering N8.9 billion, a deeper loss than the N170 million pre-tax loss recorded in the prior year. After-tax loss was N260 million for the 2023 financial year, still a loss, but better than the N980 million loss recorded in 2022.

Total assets deployed by the company for the 2023 year grew to N165 billion, 11 per cent more than the N148.7 billion assets deployed in 2022. Meanwhile, shareholders’ funds declined by 27.5 per cent to N32.0 billion in the review year.

Profitability ratios

Not only did Honeywell record losses instead of profitability on a stand-alone analysis basis for the 2023 financial year, all parameters also showed a regression when compared to its preceding years’ result. First to achieve a regression was the profit margin of the company. Instead of a profit margin, there was a loss margin of 6.0 percent, meaning that for every N100 earned by the company in the course of the year, N6.00 of it translated to loss. This is as compared to a loss of 10 kobo in 2022.

Also to record a decline was return on assets (ROA). Loss on assets was 5.4 percent, as compared to a loss on assets of 0.1 percent in the erstwhile year. For the 2023 financial year, Honeywell deployed equity valued at N32.9 billion and for every N100 equity deployed, the company made an after-tax loss of 78 kobo.

The operating margin (which measures what proportion of turnover a company spends on operations and which must be kept as low as possible without compromising standards) was one of the reasons for the company’s bad results for the year. This is because such operating margin was 6.9 percent, higher and worse than the 5.2 percent recorded in the prior year.

Staff matters

As regards staff matters, pre-tax loss per employee stood at N10.9 million on the average. This is as compared to the N204 million pre-tax loss employees contributed on the average to the company’s pre-tax loss in 2022.

Average staff cost then increased significantly to N8.84 million from N5.99 million within the course of 12 months. This means that there was a N2.85 million addition to what an employee earned (on the average) between 2023 and 2022.

Perhaps, because it increased its staff costs, Honeywell did not succeed in deflating its staff costs as a proportion of income earned. Staff costs as a portion of turnover grew to 4.4 per cent in 2023, higher than 3.6 percent in 2022.

Other ratios

At 0.9 times, Honeywell’s current ratio was a little lower than the industry average for 2023. What this means is that for every N1.00 of short-term obligations, the company had 90 kobo in short-term assets, and was not fully able to meet short term debts from short term assets.

Having a debt-to-equity ratio of 4.0 shows that the company is using N4 of liabilities in addition to each N1.00 of stockholders’ equity. In other words, the company is using N5.00 of total capital for every N1.00 of equity capital, higher than it did in 2022.

Honeywell Vs Flour Mills: Still a loss

We have established that Honeywell did not improve its lot when its results are compared on a year on year basis. We can also establish that Honeywell did not compete favourably against other companies in the flour milling business for the 2023 FY. A comparison against Flour Mills buttresses this point.

While Flour Mills is easily the bigger of the two companies (in fact, it is the parent company of Honeywell), a bigger size does not automatically translate into better profitability. For the 2023 review year, Flour Mills was also the clear leader in terms of performance. Of six profitability ratios examined, Flour Mills led in all.

Turnover growth rate

For the 2023 financial year, Flour Mills had a turnover growth rate of 32.8 percent, as compared to Honeywell’s turnover growth rate of 8 per cent for the same period under review. Analysis shows that Flour Mills was the winner in this respect.

Pre-tax profit growth rate

For the year, Flour Mills’ profit before tax grew by a mere 1.5 percent. Yet, this was much better than the 5,074 percent decline Honeywell recorded. However, it is also important to note that while Flour Mills witnessed an actual growth, Honeywell had a pre-tax loss of N8.9 million.

Between turnover and profit

For the 2023 financial year, pre-tax profit margin (which measures a company’s ability to squeeze as much profit as is possible from turnover) for Honeywell was actually a pre-tax loss margin of (6.1) percent. Flour Mills, on the other hand, had a better pre-tax profit margin of 2.6 percent.

Return on equity

Flour Mills led its peers in terms of return on equity (ROE), recording an ROE of 13.1 per cent. Analysis shows that while every N100 worth of equity deployed by Flour Mills earned it N13.10 in after-tax profit, such N100 equity deployed earned Honeywell 78 kobo as after-tax loss.

Return on assets

ROA for Flour Mills was 3.7 percent, down from 5.9 percent in the prior year. This means that of every N100 worth of assets deployed by Flour Mills, N3.70 accrued to it as pre-tax profit while Honeywell recorded a N5.40 pre-tax loss from every N100 worth of assets employed.

Pre-tax profit per employee

For the 2023 financial year, Flour Mills recorded a pre-tax profit per employee of N6.72 million, much better than Honeywell’s N10.9 million pre-tax loss per employee.

Conclusion

Honeywell’s loss for its 2023 financial year shows how events beyond a company’s control can have an effect, either negative or positive, on its bottom line. It is clear that the economic recession Nigeria has been experiencing had a severely limiting effect on Honeywell’s revenues and performance. It remains to be seen what the 2024 FY will hold for the company.

Introduction

University Press’ result for the 2023 financial year was not as great as that of 2022, both in absolute growth terms and in terms of profitability ratios. The company’s sales generation ability slowed down a bit, as did its profit retention capabilities.

Also, profitability ratios were not as sterling as those of the preceding year’s, even though these ratios were in and of themselves applaudable. This slowed profitability is keeping in trend with what most other Nigerian companies experienced for the 2023 FY.

Growth indices

Growth indices for the 2023 financial year were not very impressive. For instance, there was a six percent decline rather than a growth in the company’s ability to generate sales. Gross earnings for the year stood at N2.17 billion in 2023, less than N2.3 billion in the erstwhile year. This is as compared to a 62.5 percent increase in sales revenue the year before.

The company also recorded a lower level of pre-tax profit for the year under review than it did in the prior year. Pre-tax profit was N222 million, about 38.5 percent less than the N361 million profit recorded in 2022. After-tax profit followed the same pattern, dipping by 31.4 percent to N142 million.

Despite these lower growth rates, the company paid its shareholders dividend for the year, showing consistency in dividend payouts. Also, the dividend declared was higher than the dividend declared in the preceding year.

Total assets deployed by the company for the 2023 year (N4.24 billion) was also lower in size than in 2022 (N4.28 billion), although the percentage decrease was very low (1.2 percent). Total liabilities the year were also collectively lower than that of 2022, while shareholders’ funds grew by 3.1 percent to N3.27 billion.

Profitability ratios

The company recorded profitability in 2023 but at a lower rate than it did in 2022. For instance, while the company still retained its ability to effectively translate revenue into profit, it was at a slower rate. As per profit margin, the company made a pre-tax profit of N10.20 from every N100 sales made, high enough in its own right but lower than the N15.70 made in the preceding year.

When it comes to return on assets, every N100 worth of assets employed by the company for the 2023 financial year yielded N5.20 in pre tax profit, high enough, but lower than the N8.40 in the prior year.

This trend was repeated in return on equity. Each N100 block of shareholders’ funds yielded N4.30 in after tax profit, lower than N6.50 in the prior year.

The company spent a relatively higher portion of total revenue on operating expenses in 2023 than it did in 2022, which could be a contributing reason for its lower profitability ratios. Proportion of operating expenses to total revenue for the year was a whopping 52.4 percent, higher than the already high 43.3 percent in 2022.

Staff matters

The company did not do as well when it comes to employee productivity for 2023. Pre-tax profit per employee stood at N0.936 million on the average. This is as compared to the N1.467 million employees contributed on the average to the company’s pre-tax profit in 2022.

Meanwhile, the company expended more on its employees in 2023. Average staff cost rose to N2.346 million from N1.764 million during the year, translating into an additional N0.582 million to what an employee earned on the average. As such, University Press incurred a higher proportion of staff costs as a proportion of income earned. Staff costs as a portion of turnover was 25.6 percent in 2023, much higher than the 18.8 percent spent in 2022.

Other ratios

University Press had an impressive current ratio in 2023, just like it had in 2022 and 2021. Its current ratio stood at 2.9, which means that for every N1.00 of short-term obligations, the company had N2.90 in short-term assets, and was more than able to meet short term debts from short term assets.

Its debt-to-equity ratio was however a little low. At 0.3, the company used 30 kobo of liabilities in addition to each N1.00 of stockholders’ equity. In other words, the company had access to N1.30 of total capital for every N1.00 of equity capital it had.

University Press Vs Learn Africa: No comparison

Ask any Nigerian to mention well known press companies in the country and they are likely to mention University Press and Learn Africa.

In terms of size, Learn Africa is the bigger of the two, and while the 2023 FY was not entirely one of growth for Learn Africa as well, it fared better than University Press in many respects.

Turnover growth rate

University Press had a turnover decline rate of 6.0 percent. Learn Africa also recorded a lower level of turnover, such turnover declining by 6.1 percent as well. Both companies are rated equally in terms of turnover growth rate because they recorded comparative decline rates instead of growth rates.

Pre-tax profit growth rate

For the year, University Press’ profit before tax declined by as much as 38.5 percent. This is way worse than the 5.6 percent growth rate Learn Africa recorded. While University Press’ profit before tax shrunk, that of Learn Africa expanded.

Profit margin

When it comes to profit margin, Learn Africa also outperformed University Press. Its profit  margin stood at 17.5 percent, higher than and better than University Press’, which stood at 10.2 percent.

Returns on equity and assets (ROE and ROA)

Learn Africa was also the clear winner when it comes to return on equity and return on assets. Its return on equity was 11.3 percent, meaning that every N100 worth of equity contributed N11.30 to the after-tax profit. This was much higher than University Press’ N4.30 contribution.

Learn Africa’s return on assets was also much higher than University Press’. Learn Africa recorded an ROA of 11.3 percent, much higher than University Press’ 5.2 percent.

Employee contribution to profit

For the 2023 financial year, Learn Africa was also the leader in terms of employee contribution to profit. Its employees contributed N3.348 million each on the average to its pre tax profit, higher and better than the N0.936 million University Press’ employees did.

Conclusion

University Press’ slow paced profitability ratios is not reason enough to classify it as not performing. While the company did indeed slow down when it came to profitability, this was to be expected, as this was the case with many other manufacturing companies in Nigeria.