Africa Prudential’s reports 54% decline in PAT to N415m in H1 2023

Africa Prudential Plc has reported over 54 per cent decline in after-tax profit in the second quarter, which triggered a profit drop of 56 per cent in the first quarter to cut half-year profit by 55.6 per cent to N415 million at the end of June.

This is just as we indicated in our earnings outlook for the company at the end of the first quarter operations that “profit delivery capacity could weaken further in the second quarter.”

There is however an improvement in quarterly profit numbers from less than N178 million in the first quarter to over N242 million in the second despite that revenue dropped in the quarter.

The interim financial report of the share registration and investment company for the half year ended June 2023 shows a drop in earnings in the second quarter – which marks a loss of the first quarter momentum.

Revenue from contracts with customers slumped from healthy growth of 72 per cent to N770 million in the first quarter to a drop of 13 per cent to N442.6 million in the second quarter.

Also, interest income, which ended flat in the first quarter, dropped by 19 per cent in the second quarter to N488 million, beating however the first quarter figure of N462 million.

Against an increase of close to 36 per cent in gross earnings to N1.2 billion in the first quarter, the figure went down by 14.4 per cent to N952 million in the second quarter.

While earnings declined in the second quarter, costs grew generally and the profit margin fell from 47.6 per cent in the same quarter last year to 25.4 per cent in the second quarter.

The company’s ability to deliver a bigger profit in the second quarter than the first reflects a shrinking of cost of sales from an unusual swelling to N510.6 million recorded in the first quarter to less than N44 million in the second quarter. The figure still represents strong growth of 47 per cent year-on-year.

The company’s half-year position shows gross earnings of N2.2 billion, which is an increase of less than 10 per cent year-on-year.

The increase is accounted for exclusively by revenue from contracts with customers – which grew by 30.7 per cent to N1.2 billion. Digital technology services maintained its lead on both the share of earnings at N833 million and the increase in the revenue line at 68.7 per cent.

Interest earnings dropped by 10.5 per cent to N950.4 million over the period, which was led by a sharp drop in interest earned from loans and advances.

Driven by huge spending of N496 million in IT infrastructure in the first quarter, the cost of sales jumped more than three and half times year-on-year to over N554 million at the half year.

That consumed more than all the increase in revenue and lowered gross profit from N775.5 million to N658.4 million over the review period.

The drop in interest income added to the pressure from the cost of sales, leading to a drop of 12 per cent in net operating income to N1.6 billion.

We had underscored compensatory growth in interest earnings as a critical requirement in the second quarter for the company to achieve gross earnings good enough to absorb rising costs and keep margins from falling further. This failed to happen.

Rising costs, led by other operating expenses, added to the pressure on the bottom line. The expense line grew by over 61 per cent to about N533 million, followed by personnel expenses that rose by 40.6 per cent to N465 million.

With rising costs against the drop in net operating income, operating profit dropped by over 48 per cent to below N598 million at the end of June 2023. At N415 million, after-tax profit dropped by 55.6 per cent from about N936 million the company recorded in the same period in 2022.

With two-quarters of declining profit, the hopes for a turnaround for Africa Prudential continue to fade. Three years of melting profit managed to be halted last year when profit ended moderately improved at less than N1.5 billion.

The company’s profit has remained down from the 2018 high of N1.95 billion and at the current rate, the bottom line appears headed for the lowest mark in many years. The first half of last year accounted for about 62 per cent of the full year profit.   Half-year operations ended with earnings per share of 21 kobo, which is a drop from 47 kobo per share in the same period in 2022.