Sometime in May 2018, many Nigerians were shocked by the news that the Central Bank of Nigeria (CBN) had ordered the immediate removal of some key directors of eTranzact International Plc, alongside the company’s then Chief Executive Officer, Valentine Obi. This was due to an alleged N11 billion fraud which occurred on one of the company’s platforms and involved three other principal players namely: Smartmicro Systems Limited, Delta State Government, and First Bank of Nigeria Limited.
As you can expect, a scandal of this magnitude had serious negative impact on the ICT Company’s public image, which invariably affected its business operations and financials. It has been over a year since the alleged fraud and the consequent investigations, board reshuffling, and damage control measures. So, on this week’s Nairametrics company profile, we examine how the company is faring now. And as is our tradition, we shall also be examining the company’s business model, its target market, ownership structure, competitors, and most especially, its overall financial performance.
Corporate information about eTranzact International Plc
Initially incorporated as a Limited Liability Company in 2003, eTranzact International Plc is a Nigerian tech firm which provides payment solutions. It became a public company in 2019, the same year it was listed on the Nigerian Stock Exchange (NSE), specifically on August 7th eTranzact International Plc is one of Nigeria’s six listed ICT firms. With its market capitalisation of N9.9 billion, it is also the most capitalised.
The company’s business model and target audience
eTranzact International Plc is a dominant player in the Nigerian electronic payment ecosystem. Some of its services include payment processing, Point of Sale (POS), and training services. The company has tech solutions for players in various sectors of the economy including banking, education, the financial market, travel and transportation, telecommunications, and public administrations. Some of the company’s most notable products include:
- ATM Cardlex Cash
- eTranzact Strong Authentication
- Payoutlet, etc
The company does not operate in Nigeria alone, it also has operations in Ghana, Kenya, Zimbabwe, Cote d’Ivoire, and even UK. Information available on its website says that it is, “currently expanding operations to more and more countries in the world.”
The company’s ownership structure
According to information contained in eTranzact International Plc’s full-year 2018 financial result, the company is majorly owned by eTranzact Global, with 50.33% shareholdings. The rest of the shareholdings are, “held by a diverse group of shareholders, including institutional investors.”
A look at the competition
As earlier mentioned, there are six other IT companies that are listed on the Nigerian Stock Exchange, asides eTranzact International Plc. These companies are Courteville Business Solutions Plc, CHAMS Plc, CWG Plc, NCR Nigeria Plc, OMATEK Ventures Plc, and Tripple Gee and Company Plc. While each of these companies renders unique services they, their interests often conflict in terms of market audience. This creates competition.
Besides the listed companies, there are a number of other emerging payment solutions companies that also pose competitive challenge to eTranzact International Plc. Two good examples of such companies readily come to mind: Paystack and Flutterwave.
While competition understandably remains a major challenge facing the company, it is not the only problem it has faced recently. For instance, the aforementioned 2018 fraud scandal combined with other factors led the company to record a loss after tax of N3.1 billion in full-year 2018. To understand how this happened, let us go back to the story for a moment.
More on the 2018 fraud scandal
The whole scandal began on March 8th 2018 when First Bank of Nigeria Limited reported an N11.49 million fraud to the Central Bank of Nigeria. This fraud allegedly occurred on eTranzact’s Fundgate platform and involved Smart Micro Systems Limited, a merchant onboard the platform.
How it all began
Smart Micro Systems Limited approached eTranzact to help deploy a bulk purchase solution which would facilitate payments to Delta State employees. Additionally, the company allegedly configured an additional outbound fund transfer solution which required Smart Micro to maintain a pre-funded settlement account with a first-generation bank for settlement.
In March 2018, First Bank of Nigeria Limited informed eTranzact that the settlement account was in debit to the tune of N11.49 billion. That same March, the Managing Director of Smart Micro Systems Limited, Michael Obasuyi, wrote a petition to the Economic and Financial Crimes Commission (EFCC) against eTranzact. In a twist of events, eTranzact also wrote a counter-petition against Smartmicro Systems Limited. All these led to an investigation by the EFCC, which implicated Michael Obasuyi. He was then arrested for alleged cybercrime and money laundering.
Nigeria’s apex bank also ordered the removal of the company’s CEO, two directors and others. This, the company later explained in its financial report, was not because these individuals were a party to the alleged crimes. Instead, they had to go because the alleged crime happened under their watch.
How the scandal affected the company’s financials
eTranzact International Plc recorded a loss after tax of N3.1 billion for the 2018 financial year, as against N208 million profit after tax made in 2017. This was largely due to a spike in operating and administrative expenses. For instance, administrative cost for the period stood at N2.3 billion, as against N1.6 billion in 2017.
The company also had to make provision for the N11.49 billion fraud case it found itself immersed in. Below is how the company summarised how much it expended in this regard, according to information it provided on page 20 of its 2018 financial results.
“…This relates to provision for Fraud Assets in relation to a portion of the N11.49 billion fraud reported by First Bank of Nigeria Limited (FBN) on March 8th, 2018, involving Smart Micro Systems Limited (SM), a merchant on-board to the eTranzact Fungate platform as an aggregator for Micro Finance Banks. As directed by the Central Bank of Nigeria (CBN) in a letter issued on Match 13 2019 the net liability was shared equally between eTranzact International Plc and First Bank of Nigeria Ltd at N5.75 billion each. Also, the sum of N5.95 billion recovered from Smart Micro System Limited was shared equally and used to reduce the impact of the liability.”
[READ FURTHER: FAAN in recruitment scandal as politicians hijack process]
How has the company performed so far in 2019?
For its H1 2019 financial results, eTranzact International Plc reported a profit after tax of N96 million, against a loss after tax of N231.8 million during the comparable period in 2018. Revenue also jumped to N6.4 billion in H1 2019, compared to N4.2 billion in H1 2018. Administrative expenses reduced to N470.9 million, compared to N600.3 million in H1 2018. All these are indicative of the possibility that the company may record positive performance at the end of full-year 2019, compared to 2018.
However, eTranzact International Plc needs to do more to clean up its image, especially as it pertains to corporate governance lapses on its part. Its shares are currently below listing standard (BLS) with just 10.06% free float. Note that the Nigerian Stock Exchange requires companies on its main board to have a free float of 20%, while those on ASEM are required to have a 15% free float.
Dangote Cement is creating its own luck
Not only was the company able to basically eliminate Nigeria’s dependence on imported cement, but it also made Nigeria an exporter of cement to other neighbouring nations.
The year 2020 came with good tidings for Dangote Cement Plc. Beyond commissioning its Onne Export Terminal in Port Harcourt and its gas power plant in Tanzania, the group bagged over a trillion in revenue—a 16% jump from its N892 billion turnover in the year 2019. The company also successfully carried out a bond issuance and buyback programme while increasing its capacity by 3 million tonnes in Nigeria. Group sales volumes were up by 8.6% to 25.7 million tonnes across both cement and clinker lines, and finance income increased by 292% to about N30 billion, culminating in a profit before tax of N373 billion. Not bad at all for a pandemic-stricken year. Interestingly, most of these didn’t come by chance; the company appears to be creating its own luck.
It is not uncommon to see companies significantly increase their administrative or marketing costs in a bid to attain higher turnover. If it is because they believe that there is a direct correlation between how much is spent on overheads or marketing and the increase in revenue, Dangote Cement has certainly proven them wrong. Administrative costs for the year 2020 remained comparatively the same as its 2019 figure and selling and distribution expenses were even marginally lower despite its higher revenue. Hence, despite the circa 49% increase in taxes from its previous year disbursement, Dangote Cement still attained a profit of N276 billion for the year—38% higher than the previous year.
Increased investments (& Liabilities)
While it is true that you need to spend money to make money, expenses don’t do much when it comes to growth—investments are what make all the difference. Dangote Cement currently has its operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), South Africa (2.8Mta), Tanzania (3.0Mta), and Zambia (1.5Mta), amongst others. In addition to its 32.25Mta production capacity in Nigeria, it now boasts a total of 48.6Mta capacity across Africa.
Not only was the company able to basically eliminate Nigeria’s dependence on imported cement, but it also made Nigeria an exporter of cement to other neighbouring nations. Its financials reveal a 15% increase in PPE to N1.4 trillion, also leading to a proportionate increase of 16% with N2 trillion in total assets. The downside? A 34% increase in total liabilities to also over a trillion, with both current and non-current liabilities increasing from prior year figures. With the higher demand for cement following recovery infrastructure spending, demand for more concrete roads, and increasing real estate development projects, its investments and industry monopoly will, however, place it in one of the best positions it can be. Consequently, it still has some of the best long-term credit ratings globally—and expectedly so.
The Chief Executive Officer, Michel Puchercos, in his notes on the results, revealed that Dangote Cement experienced its strongest year in terms of EBITDA and volumes; he also attributed a lot of it to their increased focus in protecting their people, customers, and communities particularly from the impact of the pandemic. Earnings per share, as noted in the results, was up 36.9% to ₦16.14 and proposed dividend was maintained at ₦16.00 per share. The company has paid more dividends to shareholders in the last five years than any other company on the NSE. However, with its cement rumoured to be one of the most expensive globally, offering value to its investors is certainly the least it can do.
Ecobank: Pan African challenges weigh in on the company’s results
The group, through its Nigerian subsidiary, continued to take a hit resulting from its 2011 acquisition of Oceanic Bank.
ETI recently published its audited consolidated financial statements for the year ended 31 December, 2020.
Year-on-Year, revenues were up 4 percent to USD1,679.8 million while operating profits before impairment losses were also up 14 percent to USD625.7 million. Net interest income also increased by 21 percent on the back of a 27 percent decrease in interest expense, while customer deposits increased by 13 percent to USD18.3 billion.
However, apart from these, not so much else was great about the results. For example, profit before tax and goodwill impairment was down 17 percent to USD337.88 million, while profit for the year was down 68 percent year-on-year to USD88.32 million.
ETI faced several headwinds during the year that ultimately contributed to the performance. The group, through its Nigerian subsidiary, continued to take a hit resulting from its 2011 acquisition of Oceanic Bank. The effect on the profit after tax in 2020 was a USD163.56 million impairment charge in FY 2020.
In addition, a USD61million monetary loss was charged to the group’s profit resulting from the hyperinflationary economies of Zimbabwe and South Sudan where it operates. According to the Zimbabwe National Statistics Agency, Zimbabwe’s annual inflation eased to 348.59 percent in December 2020, compared with 401.66 percent in the previous month. To put this in perspective, South Sudan’s inflation rate on the other hand was estimated at approximately 58 percent at the end of 2020.
Perhaps further exacerbating the not-so-good results, the group effectively incurred a significant tax rate of 52.25 percent in 2020 compared to 33.3 percent for the same period by December 2019. A combination of these events caused a year-on-year decline in profit after tax by 57 percent, to USD174.32 million at the end of 2020 (2019: USD405.8 million).
The tough operating environment brought about by the global pandemic also impacted the results. While loan and advances and impairment charges were relatively flat in 2020, a significant portion of its loan book received regulatory forbearance, which meant that customer repayments of loan principals were deferred by up to 12 months.
Also, the group’s NPL ratio remained higher than the regulatory NPL limit while Ecobank Nigeria’s NPL was higher than the Group’s NPL ratio. The write-offs arising due to goodwill impairment in Ecobank Nigeria as well as hyperinflation in Ecobank operations in Zimbabwe and South Sudan affected the group’s regulatory capital ratios.
Although the group remained compliant with the minimum regulatory capital adequacy ratio requirements, its Tier 1 Capital Adequacy Ratio declined from 8.8 percent FY2019 to 8.5 percent FY2020 while Total Capital Adequacy Ratio also declined from 11.6 percent FY2019 to 11.5 percent FY2020. The minimum capital requirements were 7.25 percent Tier 1 and 9.5 percent, Total Capital, respectively.
In January 2021, Ecobank Nigeria raised N50 billion in subordinated debt from Development Bank of Nigeria with a 10-year tenor at 6.5 percent. It also in February 2021 raised USD 300 million in form of a 5-year, fixed-rate, US dollar-denominated bond. These amounts will improve the Nigerian subsidiary’s capital adequacy ratio.
ETI groups its African operations into four geographical regions. The reportable operating segments are Nigeria, Francophone West Africa (UEMOA), Anglophone West Africa (AWA), and Central, Eastern and Southern Africa (CESA). Unlike other Nigerian Deposit Money Banks with International presence that outperform their African and international subsidiaries, the reverse appears to be the case with Ecobank Nigeria within ETI. Among the four geographical regions, Ecobank Nigeria contributed the least to the operating income, operating profit, as well as profit before tax in FY2019 and FY2020. Reported RoE were also 26.9 percent, 18.6 percent, 16.1 percent and 4.2 percent in the AWA, UEMOA, CESA and Nigeria regions in 2020 (against 30.1 percent, 22.8 percent, 23.6 percent and 0.4 percent in 2019 respectively).
ETI’s overall performance depends on whether the results are reviewed from a Naira or Dollar perspective as some of the results were better in Naira than when reported in Dollars. The group lost about USD8.6 million as a result of exchange differences on foreign currency translation of foreign operations. ETI perhaps also seems to be affected by the poor performance of some of its acquisitions as well as its operations in some African countries where it has its presence.
Its earnings per share as of December 31, 2020 was 0.010 (cents) as against 0.778 (cents) for the same period in 2019.
Nairametrics | Company Earnings
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