Diamond’s Atlas Mara Plans Job Cuts as Expenses Erode Income

  • Net income was $1.2 million from $4.1 million a year earlier
  • Headcount in shared services unit to be reduced by up to 35%

Atlas Mara Ltd., the African banking group co-founded by former Barclays Plc Chief Executive Officer Bob Diamond, said it will cut jobs and costs after first-half expenses outpaced revenue growth and profit declined 71 percent.

“We have executed a group-wide cost-reduction program to align our cost base with the current revenue environment,” Atlas Mara, which buys banking assets in Africa to try benefit from the region’s growth levels, said in a statement on Wednesday. Headcount in its shared services unit will be reduced by as much as 35 percent, which may cut operating expenses by $8 million from next year, according to the company.

Atlas Mara is seeking to trim a cost-to-income ratio that climbed to 102 percent in the six months through June from 95 percent a year earlier as expenses accelerated at a faster pace than revenue. With banks in seven African countries -- including Nigeria, Zambia, Zimbabwe and Rwanda -- the company is struggling to convince investors of its strategy of building a bank spanning the continent as growth across the region slows to a 15-year low.

“Atlas Mara can survive, but it needs to start owning some real assets,” Kato Mukuru, head of equity research at Exotix Partners LLP, said by phone before the results were released. “Buying tiny little assets in Zambia, Rwanda, Zimbabwe just doesn’t cut the mustard. And it needs more of its management on this continent managing those assets.”

The stock slid 3.5 percent to a record low $3 as of 4:31 p.m. in London, extending declines since its initial public offering in December 2013 to 72 percent. That values the company at $209 million, compared with the more than $600 million it has spent buying African assets.

Market Valuation

“Our current market valuation does not reflect the economic value we expect to deliver to shareholders from our businesses over time,” CEO John Vitalo said in the statement. “We also recognize that the market capitalization of the company is below what we paid for our investment and subsequent capital injection into our principal operating entity BancABC or what we paid for our associate interest in Union Bank of Nigeria Plc.”

The landscape across Africa has shifted under Diamond’s feet since the company went on an acquisition spree to gather banking operations, after a drop in commodities from copper to oil hit the economies in which the company owns assets. The company’s biggest investment is a 30 percent stake in Union Bank in Nigeria, where a currency devaluation has hit earnings when translated back into dollars, and the country is teetering on the brink of a recession.

Still, Atlas, which consolidated newly-bought operations in Rwanda and Zambia in the first half, will consider more takeovers, according to Diamond.

“We will definitely look at more acquisitions,” he said on a conference call with investors. “We will definitely increase our presence in Nigeria.”

Atlas will also set up a markets business in Dubai for offshore transactions related to Africa, Vitalo said on the call.

Net income fell to $1.2 million in the first half from $4.1 million a year earlier, while impairments rose to $9.1 million from $6.1 million, Atlas Mara said. The company’s reported equity declined 7.8 percent from December to $577 million, mostly because of $83 million of foreign-exchange translation losses driven by the depreciation of Nigeria’s naira.

“We expect a better operational performance from our businesses during the second half of the year as the cost and revenue initiatives that we have implemented begin to deliver results,” Atlas Mara said. “Our medium-term financial targets and strategic goals remain unchanged and we remain optimistic about our ability to achieve them, but recognize that further acquisitions and a supportive economic environment are central to achieving this.”

The company said it will “strive” to match last year’s earnings of $11.3 million though restructuring costs, weaker currencies and integration expenses “provide challenging headwinds in this regard.”

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