WPP reports 15.1% fall in net sales

Esan Bolaji
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WPP reports 15.1% fall in net sales

WPP’s Revenue in the first half was £5.6 billion, down from £6.4 billion in the first half of 2019. Revenue less pass-through costs were £4.7 billion, down from £5.2 billion in the first half of 2019.

Resilient performance in a challenging environment; market-leading new business performance; improved liquidity and on track to be towards the upper end of £700-800m cost savings target; an interim dividend of 10p declared.

WPP’s H1 and Q2 financial highlights

  • WPP H1 reported revenue -12.3%, LFL revenue -11.5% (Q2 -18.4%)
  • H1 revenue less pass-through costs -10.2%, LFL revenue less pass-through costs -9.5%
  • Q2 LFL revenue less pass-through costs -15.1%: US -9.6%, UK -23.3%, Germany -11.6%, Greater China -3.1%, India -25.1%
  • H1 headline operating margin 8.2%, down 3.7pt on the prior year as cost savings offset the majority of revenue decline
  • Cost savings of £296 million in H1, on track, to deliver towards the upper end of the £700-800 million targets. Around 25% of these savings expected to be permanent when returning to 2019 levels of revenue less pass-through costs
  • WPP reported loss before tax impacted by £2.7 billion of impairments (£2.5 billion goodwill, £0.2 billion investment and other write-downs); relating to acquisitions whose carrying values have been reassessed, triggered by the impact of COVID-19, and driven by a combination of higher discount rates, a lower profit base in 2020 and lower industry growth rates
  • WPP’s Net debt at 30 June 2020 £2.7 billion, down £1.5 billion year-on-year reflecting Kantar transaction and strong working capital management

Strategic progress, shareholder returns and outlook

  • Transformation delivering results: VMLY&R and Wunderman Thompson our two best-performing integrated agencies
  • Strong new business performance, reflecting enhanced offer and improved collaboration
  • Continued recognition of creativity and effectiveness: Effies winner for a ninth successive year; Cannes Lions Agency Holding Company of the Decade
  • 2019 final dividend cancelled to support lower leverage; share buyback still under review but the intention to restart when environment stabilises; 10p 2020 interim dividend declared
  • Current trading showing sequential improvement on Q2 but the market remains volatile: July LFL revenue less pass-through costs -9.2%. US -6.1%, UK -10.5%, Germany -7.2%, Greater China -18.6%, India -15.5%
  • Full-year 2020 LFL revenue less pass-through costs growth and headline operating margin expected to be within the range of analysts’ expectations5
  • Capital markets event to update on strategic progress, long-term efficiency savings and capital allocation planned before the 2020 year-end

Mark Read, Chief Executive Officer, WPP:

“After two months in which our strategic progress could be measured by growth outside Greater China, the second quarter saw an inevitable downturn, with like-for-like revenue less pass-through costs declining by 15%, albeit better than our expectations. Assuming there is no second wave nor major lockdowns, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of recovery.

WPP reports 15.1% fall in net sales
Mark Read

“Our strategic transformation remains on track but as COVID-19 accelerates the change in our sector, we are accelerating our plans. We continue to attract new talent, invest in technology and e-commerce, and train our people in the skills they need for the future, with more than 20,000 receiving accreditations from Adobe, Amazon, Facebook, Google and Salesforce this year.

“We are working with our clients to help them get back to business, adapt their marketing strategies at speed and reshape their operations for a new world. Brands are seeing increases in online sales of 100% and more, and we are supporting eight of our top ten clients on e-commerce strategies. Our new business record is industry-leading, at $4 billion in the first half, including wins from Intel, HSBC and Unilever, and our pipeline remains strong.

“With £4.7 billion of liquidity thanks to the Kantar transaction, and as we deliver against our cost savings targets, our financial position remains strong. As a result, we are able to return to paying our dividend, with an interim dividend of 10p for 2020.

“I would like to thank our people around the world, the vast majority of whom have been working from home and have shown great creativity, agility and collective spirit to support our clients in challenging times.”

WPP’s Market environment

The market in the first two months of 2020 progressed in line with expectations before the impact of COVID-19 began to be widely felt from March onwards.

As a result of the significant restrictions on many aspects of economic activity, GroupM now forecasts that the global advertising economy will decline by 11.8% in 2020, after a growth of 6.2% in 2019. Within this, spend on digital media is expected to increase to 54% of total spend in 2020, from 48% in 2019, as the impact of COVID-19 accelerates an underlying structural trend.

As consumers increased their time at home, we generally saw heightened levels of consumption of media and rapid expansion of e-commerce activity. As a result, businesses are looking to grow their e-commerce and multi-channel capabilities.

More specifically, TV and video consumption has grown rapidly, driven by on-demand and streaming services. Consumers have also needed to change their shopping patterns, with eCommerce surging, finding new adopters and penetrating new categories. On the other hand, media spend on outdoor, cinema and print has suffered materially.

Activity and spend trends by geography have for the most part been driven by the closing and re-opening of economies. Based on GroupM forecasts, China is expected to see only a 2.8% decline in the advertising market this year, reflecting its strong underlying economic growth and rapid and successful response to the pandemic.

Major markets in Europe, on the other hand, are forecast to decline 10-20% given the more sustained lockdowns and lower underlying growth. The USA is expected to decline by 7.5% or -12.9% excluding political spend.

In terms of sectors, marketing spend from consumer packaged goods, technology and pharmaceuticals businesses (56% of WPP’s revenue less pass-through costs in the first half) has held up relatively well as demand for their services has been less impacted or in some cases significantly enhanced.

Automotive, luxury, travel and leisure businesses (22% of revenue less pass-through costs) have been understandably the hardest hit and this, in turn, has been reflected in their marketing spend.

Q2 2020 GDP: Imminent Economic Recession as Full Impact of COVID-19 Reflects

Esan Bolaji
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Q2 2020 GDP: Imminent Economic Recession as Full Impact of COVID-19 Reflects

In the second quarter of 2020, as the local economy experienced a lockdown induced by the coronavirus pandemic, and businesses were closing, the official GDP data released earlier today confirmed what many market participants predicted. The Nigerian economy declined by 6.01% year-on-year in Q2’20, the first quarterly decline since Q1’17. Lower consumer demand and business spending, in our view, accounted for the decline.

Quarterly GDP Trend

How the Top Sectors Fared

The Gainers

Of the top 10 sectors that contributed the most to total GDP, only three sectors recorded growth namely the Crop Production sector, Telecommunications & Information services, and the Financial Institutions sector. We attribute the growth recorded in the Crop Production sector to improved production, amid rising demand for local food given the resulting effect of the border closure. However, we posit that the growth recorded was nonetheless weak, in which we partly attribute to an initial slowdown in production levels due to the movement restrictions at the initial stages of the lockdown.

The work-from-home (WFH) directive by major corporates and the lockdown impact gave rise to the usage of digital alternatives for activities. Hence, the increased usage of data services and other forms of digital services accounted for the strong double-digit growth in the Telecommunications & Information sector.

 

Meanwhile, the Financial Institutions sector sustained its strong YoY growth as reflected in the 28% YoY output growth in Q2’20. We note that the financial institutions sector grew by 24% YoY in Q1’20. We attribute the significant rise in the Financial Institutions output level to the Central Bank of Nigeria’s Loan-to-Deposit Ratio (LDR) policy, wherein Deposit Money Banks (DMBs) are to maintain a minimum of 65% LDR or risk a penalty.

 

The Losers

The sector with the biggest hit was the Trade sector which declined by 17% YoY. In our view, as expected, the closure of the air space and land borders facilitated the decline in the Trade sector. The inability for free movements of goods and services due to the land border closure had taken its tool on the Trade sector in the past few quarters. The COVID-19 pandemic further exacerbated the pressures, therefore, leading the sectors that lost the most and significantly contributed to Q2’20 GDP decline.

 

Driven by a double-digit decline in oil production from an average of 2.02 million barrels per day (mbpd) to 1.81 million barrels per day, the Crude and Natural Gas sector declined by 7% YoY. We posit that the decline in production levels was on the back of the OPEC output agreement, wherein OPEC and its allies agreed to lower production to keep global crude oil prices stable.

Oil Production

Crude Petroleum and Natural Gas GDP

Other major sectors that took a hit in Q2’20 include:

Construction Sector: Output declined by 32% YoY. The lockdown directive had an impact on the scale of construction in the economy. Due to the sit-at-home policy and the subsequent decline in economic activities, we believe that a slow demand resulted in the steep decline in the Construction sector.

READ ALSO: App Store Generated $22.2bn in Gaming Revenue in H1 2020, 52% More than Google Play

Real Estate Sector: The Real Estate sector had been struggling consistently in the past few quarters, owing to macroeconomic vulnerabilities. In our view, the lockdown and decline in economic activities worsened the sectorial decline. Specifically, the Real Estate sector declined by 22% YoY in Q2’20

Food, Beverage and Tobacco Sector: The decline in the sectorial output resulted from the double-whammy of lower demand and disruption in supply chain due to the lockdown directive and decline in economic activities.

Overall, the Non-Oil sector declined by 6.05%, while the Oil sector declined by 6.04%.

Outlook

The released Q2’20 results came as a positive surprise to us (based on the outperformance relative to developed and emerging markets). Going forward, we expect to see an improvement in economic performance due to the steady rise in economic activities. However, we yet believe that the economy might not avoid a recession in Q3’20. Overall, we revise our FY’20 GDP forecast from -2.12% to -2.02%, reflecting our expectations of improved output levels in the subsequent periods of the year.

BRAND SPUR

British American Tobacco resumes sales in South Africa

Esan Bolaji
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British American Tobacco resumes sales in South Africa

  • Government announces end to the five-month ban on legal tobacco sales

  • British American Tobacco (BAT) resumed selling in South Africa to trade partners on 17th August

The South African government has ended its near five-month ban on the sale of tobacco products. The decision was announced by the South African President on Saturday, as part of the government’s decision to move from Lockdown Level 3 to Level 2.

Luciano Comin, British American Tobacco BAT’s Regional Director Americas and Sub-Saharan Africa said:

“We are pleased with the South African government’s decision to move from Lockdown Level 3 to Level 2 and thereby end the ban on tobacco sales. We have resumed our business in South Africa while continuing to await the outcome of our recent legal case.”

British American Tobacco’s South African subsidiary, the largest tobacco manufacturer in South Africa, started shipping tobacco products to trade partners on Monday 17th August with products becoming available for smokers to buy in-store from Tuesday 18th August.

British American Tobacco resumes sales in South Africa

App Store Generated $22.2bn in Gaming Revenue in H1 2020, 52% More than Google Play

Esan Bolaji
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App Store Generated $22.2bn in Gaming Revenue in H1 2020, 52% More than Google Play

Recent years have witnessed a surge in the mobile gaming industry, with millions of people choosing gaming apps as their favourite way of entertainment on the go. However, 2020 has delivered new records in the mobile gaming revenues, driven by the boosted user engagement amid the COVID-19 lockdowns.

According to data presented by GoldenCasinoNews, App Store generated $22.2bn in gaming revenue in the first half of 2020, 52% more than Google Play.

Gaming Revenues Hit $36.8bn in H1 2020, a 26% Jump Year-on-year

In the first half of 2017, App Store and Google Play hit $22.6bn in combined mobile gaming revenues, revealed the Sensor Tower and Statista data. Statistics show that the App Store generated over 65% of that value. During the first and second quarter of the next year, the combined revenues rose to $26.2bn.

App Store Generated $22.2bn in Gaming Revenue in H1 2020, 52% More than Google Play
Photo by Sara Kurfeß

Mobile gaming revenue worldwide from 1st quarter 2016 to 2nd quarter 2020, by app store (in billion U.S. dollars)

The increasing trend continued in 2019, with mobile gaming profits of the two leading app stores reaching $30.3bn in the first half of the year. The Sensor Tower shows that the first half of 2020 delivered the highest mobile gaming profits so far, with the combined revenue of App Store and Google Play growing to $36.8bn, a 26% jump year-on-year.

Statistics indicate that iPhone users generated 60% of that value. In the first quarter of 2020, the App Store revenue amounted to $10.6bn, an 18% increase year-on-year. The increasing trend continued in the second quarter of the year, with mobile gaming earnings jumping over $11.6bn, the highest App Store quarterly profit.

Android users generated $14.6bn in mobile gaming revenue in the first half of the year. In the second quarter of 2020, Google Play Store recorded revenues of $7.7bn, up from $6.9bn generated in the previous quarter.

Google Play Leads in the Number of Downloads

Although the App Store generated more gaming revenues during the first half of the year, the Sensor Tower data revealed Google Play dominates in the number of downloads.

In the first quarter of 2020, Google Play hit 10.4bn mobile games downloads, a 39% jump year-on-year. The number of downloads continued rising and jumped to 12.4bn in the second quarter of the year. Statistics show the total number of downloads in Google Play store during the first half of 2020 amounted to 22.8bn, a 52% increase year-on-year.

The Sensor Tower data show the number of mobile game downloads in the App Store reached 5.7bn during the first half of the year, four times less than Google Play.

Zenith Bank GMD, Onyeagwu Canvasses Expansion of Non-Oil Exports

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Zenith Bank GMD, Onyeagwu Canvasses Expansion of Non-Oil Exports

The Group Managing Director/Chief Executive of Zenith Bank, Mr. Ebenezer Onyeagwu has called for a concerted effort towards diversifying the country’s export base through the promotion of non-oil exports. He made the call during a Webinar themed “Prospects of Non-Oil Export During and Post COVID-19” organized by the bank on Wednesday, August 26, 2020.

According to him, the onset of the COVID-19 pandemic which has impacted the demand for oil and, by extension, the price of crude oil in the international commodities market has further exposed Nigeria’s over-dependency on crude oil earnings and its susceptibility to oil-related shocks. He added that the events of the last couple of months have also highlighted the limited range of the country’s value-added products exported to foreign markets.

Zenith Bank GMD, Onyeagwu Canvasses Expansion of Non-Oil Exports
Group Managing Director/Chief Executive, Zenith Bank, Mr. Ebenezer Onyeagwu | www.brandspurng.com

He noted further that boosting non-oil export is imperative in view of the opportunities that exist in the broader contexts of ECOWAS Trade Liberalisation Scheme and the African Continental Free Trade Area (AfCFTA) which seeks to create a continent-wide market of 1.2 billion people with combined Gross Domestic Product (GDP) of $2.5 trillion and about $4 trillion in consumer and business spending.

Whilst commending the efforts of the government and the Central Bank of Nigeria (CBN) to deepen the non-oil export business in the country, Onyeagwu urged players in the non-oil export value-chain including exporters and financial institutions to play their part in the drive towards expanding the nation’s non-oil export base.

Delivering the keynote address, the Director of Trade & Exchange, Central Bank of Nigeria (CBN), Dr. (Mrs) Ozoemena Nnaji, who commended Zenith Bank for organizing the webinar at a time like this, observed that the impact of the COVID-19 pandemic is a wake-up call for the country, as it has once again exposed the over-dependence of the Nigerian economy on one product. She, therefore, called for a deeper policy look at the non-oil sector to find ways of genuinely improving the quality and quantity of our non-oil export goods.

Also speaking at the Webinar, the Chief Executive/Executive Director of the Nigerian Export Promotion Council (NEPC), Mr. Olusegun Awolowo commended the efforts of Zenith bank in promoting non-oil export business in Nigeria, describing the bank as ‘the Export Trade Bank of Nigeria’. Speaking on the topic “Repositioning Non-oil export as a Leading Revenue Earner: Government Plans and Programmes”, Awolowo noted that the crash in oil prices following the COVID-19 pandemic and OPEC’s price war with Russia reinforced what everyone already knows – the mono-product economy of the country is not sustainable, calling for a buy-in into the Zero oil policy of NEPC.

Zenith Bank remains committed to the promotion of the non-oil export sector in Nigeria by identifying emerging opportunities which help in stimulating non-oil exports and developing robust financial products and incentives for operators in the sector. The bank launched the Non-Oil Export Seminar in 2017 as an initiative to deepen the discourse on promoting non-oil export business in Nigeria.

The rise of the Nigerian digital economy

Esan Bolaji
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The rise of the Nigerian digital economy

Q2-2020 was a blood bath for most economies as the COVID-1 9 pandemic took the world into the great lockdown. Nigeria was not left behind; this was evidenced by the 6.1%y/y contraction in real GDP over Q2-2020.

Despite the steep contraction in economic output during the period, there were a few bright spots. Notably, the ICT sector – one of the fastest-growing sectors of the Nigerian economy, grew by c.15.1% y/y.

The rise of the Nigerian digital economy
Sources: NCC, United Capital Research

Specifically, the telecommunication, accounting for c.8 0.0% of the broader ICT output surged 1 8.1% y/y. This was unsurprising given the level of digital adoption across the system due to the lockdown. As at June-2020, there were 143.3mn mobile internet subscriber (vs 135.8mn in Mar-2020) and 196.4mn telephony subscriber in Nigeria (vs 189.3mn in Mar2020).

Accordingly, teledensity further improved to 102.8% (vs 9 9.2% in Mar-2020). This fast-paced growth is further reflected in the sharp increase in the number of activities in the digital economy across the country, ranging from massive growth in the eCommerce space, ride-hailing services, drop shipping, affiliate marketing, blogging/vlogging, social media marketing, amongst others.

No doubt, the use of digital channels has expanded in the wake of the COVID-1 9 pandemic and the acceleration is expected to continue even post-COVID. With the foundations of the digital economy being data and voice connectivity, the country seems to be on the right track in developing a functional digital economy.

Beyond, e-commerce, digital marketing and drop shipping, improved data connectivity will also boost the idea of working from home, virtual employments and redefine corporate lifestyle in the pre-COVID era. However, to fully benefit from and fast track the growth of Nigeria’s digital economy, recent development around harmonization of the right of way (RoW) charges among states, must be not only b e resolved, but also friendly.

This will further spur investment in broadband connectivity and other telecom infrastructure across the country, reduce data tariff, ease doing business, boost employment, and improve the traffic situation in cities such as Lagos.

Lagos to Deliver Sangotedo, Lekki Housing Schemes Before End of Year (Photos)

Esan Bolaji
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Lagos to Deliver Sangotedo, Lekki Housing Schemes Before End of Year (Photos)

In a bid to bridge the housing deficit in the State and increase the number of homeowners, the Lagos State Government has said that efforts are being intensified to produce additional 828 new accommodation for Lagosians under its housing initiatives before the end of the year 2020.

Addressing pressmen after a site inspection tour of Sangotedo and Lekki housing schemes on Tuesday, the Honourable Commissioner for Housing, Mr. Moruf Akinderu-Fatai, informed that the new housing schemes comprising of 744 housing units in Sangotedo Phase I and 84 housing units in Lekki, Eti-Osa Local Government, will be handed over to allottees before year-end.

Lagos to Deliver Sangotedo, Lekki Housing Schemes Before End of Year (Photos)

He reiterated the resolve of the present administration to ensure that the housing deficit in the State is addressed, hence, the quick mobilisation of contractors to site for speedy completion of the various housing projects across the State without compromising standards.

“The 744 units that will be ready before the end of the year comprised of one-bedroom, two-bedroom and three-bedroom flats in Phase I, while work has already commenced on the Phase II project with 444 units. As we speak we are already working on 19 blocks in Phase II. Another is the Lekki housing scheme comprising 84 units, which are almost due for delivery”, the Commissioner said.

Lagos to Deliver Sangotedo, Lekki Housing Schemes Before End of Year (Photos)

Akinderu-Fatai reiterated the commitment of the present administration to completing all the abandoned housing projects in the State, explaining that construction work is going on in almost all the housing schemes in the State.

On the affordability of the housing estates, Akinderu-Fatai stated that the housing schemes have been subsidised for low-income earners, stressing that subscribers can now pay through the State mortgage system, rent-to-own scheme or by outright payment.

He listed some housing schemes billed for completion before the first and the second quarter of Y2021 to include Odo Onosa /Ayandelu in Agbowa Local Council Development Area, Egan Igando Scheme, Lagoshoms Lagos State University-Main Campus and Lagoshoms Ajara in Badagry respectively.

In his words, “The following schemes have also been billed for completion before the end of the first and second quarters of the year 2021, the 660 homes at Lagoshoms Odo Onosa/Ayandelu in Agbowa Local Council Development Area, Egan Igando Scheme with 630 homes out of which 270 will be completed, Lagoshoms LASU in Lagos State University-Main Campus with 36 units and Lagoshoms Ajara in Badagry 420 homes”.

On his part, the Permanent Secretary in the Ministry, Mr. Wasiu Akewusola informed that the State Government has not appointed any estate agent for allocation of the homes, just as he called on interested residents to contact the Ministry of Housing or Lagos Mortgage Board for the purchase of available accommodation.

Jeff Bezos becomes first person ever worth $200 billion

Esan Bolaji
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Jeff Bezos becomes first person ever worth $200 billion

The world’s richest person, Jeff Bezos, is wealthier than he’s ever been. Early Wednesday he crossed a milestone previously unseen in the nearly four decades Forbes has been tracking net worths: With Amazon stock edging up 2% as of Wednesday afternoon, Bezos’ net worth is up by $4.9 billion, making the 56-year-old the world’s first-ever person to amass a $200 billion fortune, Forbes report.

Jeff Bezos
BEVERLY HILLS, CA – JANUARY 06: Amazon CEO Jeff Bezos attends the Amazon Prime Video’s Golden Globe Awards After Party at The Beverly Hilton Hotel on January 6, 2019 in Beverly Hills, California. (Photo by Emma McIntyre/Getty Images)

As of 1:50 p.m. EDT on Wednesday, the Amazon founder and CEO is worth $204.6 billion—nearly $90 billion more than the world’s second-richest person, Bill Gates, who’s currently worth $116.1 billion.

Even adjusting for inflation, Forbes believes Bezos’ fortune is the largest ever amassed. The person to come closest is Gates, who was the world’s first-ever centibillionaire. Near the height of the dot-com bubble, when Microsoft reached its then-peak in 1999, Gates’ net worth surpassed $100 billion, roughly $158 billion in today’s dollars.

Fueled by the change in consumer habits as a result of the coronavirus pandemic, Amazon stock is up nearly 80% since the beginning of the year, and Bezos’ net worth, which was roughly $115 billion on January 1, has skyrocketed in tandem. Bezos’ roughly 11% stake in Amazon makes up more than 90% of his fortune. He also owns the Washington Post, aerospace company Blue Origin and other private investments.

Bezos would be even richer had he not gone through the most expensive divorce settlement in history last year. When he split from ex-wife, MacKenzie Scott, last July, he agreed to give her 25% of his Amazon stake, a chunk of stock now worth $63 billion. Even after giving away $1.7 billion in charitable gifts earlier this year, Scott is currently the world’s 14th-richest person and second-richest woman, behind L’Oréal heiress Françoise Bettencourt Meyers

Bezos isn’t alone among tech titans with fortunes surging to massive new heights. Facebook’s Mark Zuckerberg ended Tuesday as a brand-new centibillionaire, worth $103.1 billion after adding $3.4 billion to his fortune in one day, on Facebook stock gains. That surge continued early Wednesday afternoon, with Zuckerberg up an astonishing $6 billion just on Wednesday as of publication time. He’s now worth $109.1 billion.

There are now more centibillionaires on the planet than ever. Joining Bezos, Gates and the newly crowned Zuckerberg is LVMH chair Bernard Arnault, who first joined the 12-figure ranks last year. Though his net worth slipped to about $80 billion at the height of the coronavirus pandemic in March, Arnault reclaimed the centibillionaire title in May and today is worth about $115 billion. This makes him the third-richest person on earth–$90 billion poorer than Jeff Bezos.

A regulatory filing made public late Wednesday revealed that Bezos donated 7,548 Amazon shares–worth about $26 million–to an undisclosed nonprofit organization. At market close on Wednesday, Bezos was worth $205 billion.

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You won’t find too many jokes about ‘digital transformation’. It’s a serious business. And if you ask who is doing it, every corporate will raise their hands – but there’s little agreement around exactly what it is, the implications for the organisation, how to go about it. RMB’s recent retail client webinar, featuring Wits’ Prof Brian Armstrong, provided strong direction.

Nigeria’s GDP Shrinks by 6.10% in Q2 2020 – NBS

Nigeria’s Gross Domestic Product (GDP) decreased by -6.10% year-on-year) in real terms in the second quarter of 2020, ending the 3-year trend of low but positive real growth rates recorded since the 2016/17 recession.

Market Cap of the World`s Five Largest Automobile Manufacturers Plunged by $63bn in 2020

The COVID-19 pandemic has had a severe impact on the global automotive industry, causing supply chain disruptions and factory closures. All of this placed intense pressure on the market already coping with a downshift in global demand.

Digital Ticketing Sales to Grow 150% by 2022, as Passengers Return to Travel

Hampshire, UK – 24th August 2020: A new study from Juniper Research has found that digital ticketing transaction volumes will exceed pre-COVID levels by 2022; rising from 12.7 billion in 2020 to 32 billion in 2022. It anticipates that continued easing of global travel restrictions will drive increased demand for mobile ticketing in the rail, metro and bus sectors, as commuters return to work.

IITA empowers Ogoni youth on agribusiness for sustainable livelihoods

The Federal Government of Nigeria, through the Ministry of Environment in partnership with IITA, under the Hydrocarbon Pollution Remediation Project (HYPREP), commissioned a cassava processing factory in Korokoro Community, Tai Local Government Area of Rivers State.

Aruba Research: Network as A Service Adoption to Accelerate by 38% Within the Next Two Years as Businesses Adapt to COVID-19

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FBN Holdings Plc: Impact of COVID-19 limits upside potentials

Esan Bolaji
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FBN Holdings Plc: Impact of COVID-19 limits upside potentials

FBN Holdings Plc (‘FBNH’ or ‘The Group’) reported an 8% year-on-year (YoY) net profit decline in Q2’20, driven by a significant increase in impairment charges. Interest income declined by 4% YoY from N107.23bn in Q2’19 to N102.51bn in Q2’20. Interest expense also declined, at a faster pace of 15% from N37.19bn in Q2’19 to N31.49bn in Q2’20. The decline in both interest income and interest expense was on the back of a low-yield environment. Consequent to the higher decline in interest expense relative to interest income, net interest income grew marginally by 1% YoY from N70.03bn in Q2’19 to N71.02bn in Q2’20.

However, the Group incurred a 154% YoY rise in an impairment charge for credit losses, from
N8.26bn in Q2’19 to N20.95bn in Q2’20. The relatively higher impairment charge, in our view, reflected provisioning of the Group’s loan book exposure to sectors vulnerable to the COVID-19 pandemic. Therefore, owing to the increase in an impairment charge for credit losses, net interest margin after impairment declined by 19% YoY from N61.77bn in Q2’19 to N50.08bn in Q2’20.

READ ALSO: Do you google your symptoms?

Non-interest income grew by 7% YoY from N28.25bn in Q2’19 to N30.36bn in Q2’20. The
growth in non-interest income was spurred by a 494% YoY rise in net gains on sale of
investment securities from N2.16bn in Q2’19 to N12.82bn in Q2’20. Although the Group
incurred losses on foreign exchange (-439% from a gain of N1.84bn to a loss of N6.22bn), and losses from financial instruments held at fair value through profit or loss (-143% from a gain of N2.39bn in Q2’19 to a loss of N1.03bn in Q2’20); the significant rise in gain on sale of investment securities totally offset the losses in other non-interest income line. Notably, the Group took advantage of the volatility in the financial markets in Q2’20. On the other hand, net fee and commission income grew by 25% YoY from N20.71bn in Q2’19 to N25.98bn in Q2’20.

Despite the reduction of fees by almost 50% by the Central Bank of Nigeria, the growth in net fee income was supported by higher transaction volumes recorded across the Group’s digital banking platforms.

Despite the growth in non-interest income, operating income dipped by 11% YoY from
N90.03bn in Q2’19 to N80.44bn in Q2’20. The primary driver was the high impairment charge recorded during the quarter. The Group’s cost optimisation efforts resulted in a 6% YoY decline in operating expenses from N71.56bn in Q2’19 to N67.57bn in Q2’20. However, as expected, the 11% decline in operating income (inclusive of impairment losses) was more pronounced than the 6% decline in operating expenses. Therefore, the Group’s cost-to-income ratio rose from 79% in Q2’19 to 84% in Q2’20. By extension, profit before tax declined by 31% YoY, from N18.48bn in Q2’19 to N12.74bn in Q2’20. Owing to a lower effective tax rate in Q2’20 (2% vs 27% in Q2’19), the bottom line decline moderated, as profit after tax declined by 8% YoY from N14.26bn in Q2’19 to N12.50bn in Q2’20.

Summary of Financial Performance

FBN Holdings Plc

Other Developments During the Quarter

The Group successfully divested its 65% equity stake in FBN Insurance Ltd (its insurance
subsidiary) to Sanlam of South Africa. The total value of the transaction was undisclosed, but the Group announced recently of injecting a N25bn capital into its banking subsidiary, in which raised the capital adequacy ratio of the bank to 16.50% as of H1’20 (from 15.30% as of Q1’20). The management notified that the N25bn injected capital was part of the net proceeds of the sale of its equity stake in FBN Insurance.

The Group’s non-performing loan (NPL) ratio moderated to 8.80% as of H1’20, from 9.90% as of FY’19

Outlook and Valuation

Although the Group reported a significant increase in net gains from sales of investment
securities, other trading gains line items declined, which reflected our postulation about how sustainable earnings from trading activities was. On a quarter-on-quarter basis, trading gains declined from N24.95bn in Q1’20 to N6.37bn in Q2’20. The Group’s core business operations – banking remained under pressure during the quarter, notably due to the lower yield environment. The impact of pandemic-induced lockdown on loan book is also a major downside risk to the Group.

While we expect the low-yield environment to be sustained during the subsequent quarters of the year, despite our view that the low-interest environment is not fundamentally driven, we believe that there will be a moderation in the impairment losses recorded in H2’20. Overall, we leave our FY’19 EPS forecast unchanged at N2.32. We also expect the Group to declare a dividend of N0.42, which implies an 8% dividend yield as at the most recent closing price. We arrived at a justified P/E multiple of 3.42x for the stock (previous: 1.90x), reflecting the improved risk environment relative to what was obtainable as at the time of our Q1’20 report. As a result, we estimate a fair value of N7.93 for the stock. At the most recent closing price of N5.00, the total return (price return and dividend yield) of the stock stands at 67%. Hence, we recommend a BUY

Financial Projections

FBN Holdings Plc

BRAND SPUR

Do you Google your symptoms?

Anifat Ibrahim
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Do you Google your symptoms?

What do you do when you feel some weird pains in your body? Do you head over to Google to check what might be wrong with you? If you are like most “Google Doctors” who self-diagnose, you will know that a common headache might be the symptom of some unexpected diseases.

Depending on the time you devote to checking out your symptoms on Google, you might find out that the headache is a symptom of cancer, kidney disease, or heart-related diseases.

google, symptoms

Let’s take this analogy to our everyday lives. Technology has made our lives easier in several ways. When we want to reach out to a friend, all we need to do is to chat them up on social media.

If we need to train employees or have a meeting, we have the video conferencing apps; and when we need an answer to a question, all we do is to “google it”. While these technological advancements are laudable, they should not replace our need for human interactions.

There are apparent limitations of our information technology platforms. Therefore, we should not leave out the place for real human interactions in our lives the same way we cannot accurately diagnose ourselves on google.

Anifat Ibrahim, Research Associate | Project Management Professional (PMP).

HEADLINES YOU MIGHT HAVE MISSED FROM BRAND SPUR

IITA and EAGC agree to work towards producing aflatoxin-free grains for health and trade

The International Institute of Tropical Agriculture (IITA) and the Eastern Africa Grain Council (EAGC) today signed an agreement to work together to tackle aflatoxin contamination of grains in the region to help ensure that they are safe for human and livestock consumption and meet export standards.

Olam prices additional S$100 million notes by re-opening its recent 4.00% SGD senior fixed rate notes, increasing total issuance size to S$500 million

Global food and agri-business Olam International Limited (“Olam”) announced that, on the back of additional investor demand, it has priced a S$100 million issuance (the “New Notes”) via reopening of its S$400 million 4.00% senior notes due February 2026 (the “Original Notes”) under its US$5,000,000,000 Euro Medium Term Note (EMTN) Programme.

CBN directs banks to take over electricity bills collection from DisCos

The Central Bank of Nigeria (CBN) has asked banks to take responsibility for collecting electricity bill payments.

MTV Base celebrates leading black women in music with queens of base

MTV Base has dedicated the month of August to leading black women in music with a specially curated playlist tagged ‘Queens Of Base.

Public Cloud Hosting: US accounts for 47% of all global revenue in 2020

Data presented by Buy Shares indicates that in 2020, the United States is set to account for almost half of the public cloud hosting revenue. According to the data, the US will account for 47.21% of the global revenue of $95.47 billion.

Lekoil Appoints SP Angel as its Joint Broker

LEKOIL, the oil and gas exploration and production company with a focus on Nigeria and West Africa, announces today that it has appointed SP Angel Corporate Finance LLP to act as the Company’s Joint Broker with immediate effect.

Nigeria’s GDP slumps as expected

Nigeria’s Q2 GDP performance was released this morning, with GDP down 6.10% year-on-year and non-oil GDP down 6.05% y/y. This was not a surprise (although one forecast poll predicted a 4.05% decline), given that in June the World Bank forecast a 3.2% contraction and the IMF forecast a 5.4% contraction for full-year 2020, suggesting that some poor quarters lay ahead.

Bond Yields Push Higher As GDP Weakens By 6.10% YoY

The FGN bonds market opened the week to the news of negative growth for Nigeria’s GDP (-6.10% YoY). This compounded an already weak market, still reeling from the previous week’s primary auction. We noted offers across the benchmark curve all session, but with no matching bids as investors continue to sit on the sidelines. Even offers at the long-end at 10.00% levels were not seen as enticing enough to bring client demand. Consequently, yields expanded by c.25bps on the average across the bond curve.

Nigeria Agriculture Sector GDP: Still resilient amid COVID-19?

Yesterday, the National Bureau of Statistics (NBS) released Nigeria’s GDP report for Q2-2020. According to the report, the Agriculture sector which contributes c. 25.0% to real GDP was one of the 6 of 19 sectors to record y/y growth in Q2-2020. This was as the sector’s GDP growth slowed to 1.58% y/y in Q2-2020 (vs. 1.8% and 2.2% recorded in Q2-2019 and Q1-2020, respectively).

Insider Dealing: Eterna’s CEO designate increases stake in Eternal Plc

Nnamdi Obiagwu, Executive Director/Chief Operating Officer – (CEO Designate effective 1st September 2020) of Eterna Plc, has acquired 200,000 shares (N1.90 per share) of the company in accordance with the Nigerian Stock Exchange policy on insider dealing.

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