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NEM Insurance Nigeria Plc recently released its 2015 Q1 results showing pre-tax profits of N2.7 billion up 68 percent from the N1.6 billion reported a year earlier. For most investors of NEM this was a blow out results.
But for more discerning investors who are by now accustomed to NEM’s knack for reporting good interim results, only to declare a whopping loss in the final quarter of the year, this result left more to be desired. Most investors don’t mind as NEM typically makes the shortfall in expectation by declaring dividends that eventually prop up their share price. After all, seeking alpha is all we look forward to except there is something else we haven’t yet seen.
NEM’s current results takes financial reporting to a new dimension that we still can’t comprehend at Nairametrics. At a first quarter profit of N2 billion, NEM is basically telling investors that it made more money in the first quarter of 2016 that it did in 2015 and 2014 combined. This was hard to stomach and we could not defer this clarification to the end of the financial year, when it typically (as we suspect) correct all misrepresentation associated with the results. NEM, we feel may have taken this to whole new level.
Whilst discerning the results, our analysts revealed that the company was able to post this monster profit in the first quarter for a singular reason. Claims and Expenses for the year was reported as N1.3 billion but rather than classify it as an expense the company reported it as an income. Strangely, they did the same thing back in Q1 2015 reporting “claims and expenses” of N240.5 million as an income and in 2014 reporting claims and expenses of N18 million as an income . We sought to inquire if these were claims refunded in the notes to the account but got no clear-cut explanation. The closest we saw was a note that explained claims and expenses as “consist of claims paid during the financial year together with the movement of provision for outstanding claims”.
Some analysts inform us this could mean that claims that they had thought they would expense probably did not occur as such it was reported back as an income. For all intent and purposes, this should be disclosed more appropriately assuming this was the case. The exact movement schedule should also have been disclosed. Nevertheless, we doubt this was the case. Some other analysts explain to us that even if these claims were to be income, the word “expenses should have been exchanged for ” net claims received”. This makes us conclude (rightly or wrongly) that something must be terribly wrong with this result,
If our suspicion is corrected then by writing back the claims, NEM may have overstated underwriting profit to the tune of N3.24 billion instead of disclosing it as N607.56 million. In fact, Q1 results may have resulted in a pre-tax profit of about N72 million and loss after tax of N342 million (See below).
We are bewildered by this result and sincerely hope that our analysis is wrong. Emails sent to the NSE and NAICOM on this issue and did not get a reply.
We hope our good friends at NEM are reading this article and will be magnanimous enough to explain to us what those claims and expenses actually are. And if you are a NM reader with connections to NEM, kindly pass the message across. Investors are waiting anxiously.
NEM Results as reported
Source: Company Financials
NEM Results adjusted by Nairametrics.
The post above and its ensuing comments, if any, is purely the opinion of the writer(s). It therefore should never be considered as an investment advise of any sort. If required, readers should please consult a competent professional financial adviser for any investment decision.