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Resort Savings & Loans PLC - Outperforming Expectations

Introduction

Resort Savings and Loans Plc is proving itself as a savings and loans company to watch. It has been exceeding industry watchers’ expectations, growing its shareholders’ funds consistently, such that it now stands at well over N5.6 billion. The savings and loans company has also over the past years stepped up the volume of its business.
For the 2008 financial year, the savings and loans company paraded outstanding performance ratios. Its profit margin competed favourably against those of its contemporaries, and so did its sustainable and actual growths.

Profit generation

For the 2008 operational year, the income statement of the savings and loans company showed immense growth and proved to be a consolidation on the preceding year’s laudable result. First the savings and loans company grew the level of its business (both core and non-core operations) to N660 million in 2008 from N183 million in the preceding year, translating into a whopping 260.7 per cent growth rate. This 260.7 per cent growth in gross earnings is very laudable when compared to the growth rate of other savings and loans companies recorded during the same period. It is worthy of note that the majority of this turnover was recorded from the company’s core operations.
For the year, the savings and loans company made a N50 million provision for bad loans, rather than the mere N1million it did in 2007. For this reason, provision for loans grew by about 4,900 per cent and ate into pre-tax profit. Operating expenses also ate into pre-tax profit perhaps because the company was not careful with its growth. Such operating expenses (inclusive of administrative, interest and advertising costs) collectively grew by 121.8 per cent to N275 million.
At an impressive growth rate of 2211.1 per cent, pre-tax profit grew to N208 million in 2008. This growth rate was much better than that of turnover.
The tax obligations of the savings and loans company grew in 2008, as the amount paid to tax authorities was N27 million, 800.0 per cent higher than the N3 million remitted in the preceding year.
Despite paying higher taxes, the savings and loans company’s after-tax profit for 2008 was much better than that of 2007, advancing by as much as 2916.7 per cent to N181 million. An extraordinary item of N35 million was taken out of the after-tax profit, thereby leaving distributable profit at N146 million.
Out of this N146million distributable profit, the savings and loans company did not pay any dividend to its shareholders, ploughing back all N146 million back into its business activities.

Click to view information on fiscal year ending

Assets use

The balance sheet position of the savings and loans company closely mirrored that of its income statement, as much improvement was made over the preceding year’s levels. For example, assets not easily disposable within a year grew by as much as 55.8 per cent to N162 million during the course of the year. Current assets also followed the same pattern growing by 804.8 per cent to N6.5 billion during the course of the year. All in all. Total assets advanced by 711.0 per cent to N6.7 billion in 2008.
Shirt term debt of the savings and loans company grew by 81.4 per cent to N1.12 billion in 2008. Analysis shows that despite this growth, the savings and loans, the savings and loans company was careful to maintain a sensible current ratio by not allowing short-term debts to overshoot its current assets.
All in all, total liabilities ( inclusive of both current and long term liabilities) grew by 66.6 per cent to N153 million as its equity. In 2008, growth in equity was 3560.8 per cent to an all time high on N5.6 billion. This is quite laudable.

Performance ratios

The savings and loans company made more turnover and more profit in 2008 than it did in 2007. The interaction of these two growths ensured that the savings and loans company’s profit margin for the year was 31.5 per cent, meaning that of every N100 income made by the savings and loans company in 2008, N31.50 accrued to it as profit , as compared to N4.90 recorded in 2007. The profit margin also compared favourably with industry standards.
In both 2007 and 2008 (the two years we reviewed), the savings and loans company did not dedicate any of its distributable profit to shareholders, retaining 100 percent of such profit in the business.
Asset turnover for the year dipped to 0.1 times, meaning that the savings and loans company has made an income of N10.00 for every N100 worth of assets employed.

Outlook

In 2008, the actual growth of the savings and loans company (growth of income) was 260.7 per cent, much higher sustainable growth (the rate at which it needed to grow to remain viable) which was at this point operating at activity point higher than its potential.

Liabilities	1128	677
Equity	5601	153

Source: Financial Standard, Monday,March 08, 2010

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