Huge net impairment loss on assets dampens Union Homes profits

Union Homes Savings and Loans plc, the flag bearer of the nation’s housing sector, was incorporated on November 6, 1992, and licensed to carry on mortgage banking business on May 30, 1994. Union Homes formally commenced business on August 2, 1994, at its current head office at 153, Ikorodu Road, Onipanu, Lagos.

The establishment of Union Homes by Union Bank was in response to government’s clarion call then, to well-meaning corporate bodies to assist under the national housing policy, in the provision of affordable housing stock for the citizenry. Since then, Union Homes has made successful, unique and progressive contributions in housing delivery, giving impetus to housing development and fresh initiatives to sector’s operators and stakeholders.

Starting with only one branch in 1994, Union Homes presently has grown 27 branches across the country, and a profitable banking connection in Ghana.

The company has 7.81 billion shares outstanding and total assets of N23.48 billion as of December 2013. Union Homes Savings and Loans ended 2013 with spike in top-line level, but was unable to translate it into bottom-line growth as huge impairment loss crimped profits.

For the year ended December 2013, its revenues surged by 21.86 percent to N7.70 billion from N6.32 billion same period of the prior years (FY12).

The company posted a loss before tax of N3.23 billion in the review period a 46.61 percent reduction in loss of N3.25 billion recorded in 2012. Profit after tax also followed the same downward trend as the company also posted a loss after tax of N3.25 billion, which represents a reduction of 41.16 percent from a loss of N6.0 billion as of FY12.

Operating profits spiked by 121.46 percent to N4.23 billion in FY13, compared with N1.91 billion as of FY12.

The stifled performance at the bottom-line level was caused largely by huge net impairment loss on financial assets, which swallowed the whole of operating profits in the review period. Net impairment loss in financial assets surged by 307.8 percent to N4.96 billion in FY13, compared with N1.21 billion as of FY12.

The company, however, was able to reduce cost through effective cost control mechanism as cost-to- sales ratio reduced to 63.82 percent in FY13, from 209.42 percent in 2012.

Similarly, operating expenses were down 32.09 percent to N2.73 billion in FY 2013, compared with N4.02 billion as of FY12. It total assets reduced by 40 percent to N23.48 billion in FY13, compared with N39.10 billion as of FY12.

The bank is less aggressive about lending as loans-to-deposit ratio declined to 32.31 percent in FY13, as against 34.63 percent as of FY12.

Loans and advances shrank by 26.10 percent to N9.71 billion in 2013, from N13.14 billion as of year end 2012. Deposits from customers reduced by 20.8 percent to N30.05 billion in FY13, from N37.94 billion as of FY12

The 17 million housing deficit in Nigeria means Union Homes have immense opportunity to tap into the growth in the real estate sector.

It recorded retained deficits of N23.56 billion as a result of the recurring loss, culminating in debit balance in the shareholders fund of N13.27 billion.

The bank’s share price closed at N0.5 June 17, 2014, on the floor of the Nigerian Stock Exchange, while market capitalisation of was N3.96 billion.

BALA AUGIE