Africa Prudential Plc faces a downtrend in earnings for the third straight year in 2021 after posting the lowest profit in four years at the end of 2020. The half-year interim report of the registrar and investor relations service company shows a continuing drop in revenue and profit.
The company’s challenge is that its core business of share registration is significantly underperforming. The result is sustaining revenue losses from the principal activity of the company.
Earnings from customer services dropped by 65 per cent quarter-on-quarter to N160 million in the second quarter, accelerating from a drop of 29 per cent at the end of last year. Retainership fees that used to account for over 60 per cent of the company’s gross earnings have dried up, as cost-cutting by clients takes a new turn.
With the main revenue leg of the company broken, its management is striving to stand the company on the secondary income line. This is interest income from investments – which equally faces stagnating performance.
The company generated interest earnings of N682 million in the second quarter, which is a marginal improvement quarter-on-quarter. On year-on-year reading, however, interest income declined along with fee income. This was equally the company’s earnings story last year, which reflects both low yields of financial assets as well as a declining investment portfolio.
The company’s interest generating investments are debt instruments – which have dropped from N13 billion at the end of 2020 to N10 billion at half-year 2021. This is a continuing drop in investments from over N17 billion at the end of 2018.
The year-on-year position shows gross earnings of roughly N1.7 billion for Africa Prudential at the end of June 2021. This represents a year-on-year drop of 11 per cent after dropping by 13 per cent in 2019 and 10 per cent at the end of 2020.
The company’s management took steps to keep costs down in light of the revenue losses it encountered during the period. It succeeded in cutting personnel expenses by close to 10 per cent to N287 million.
However, a 39 per cent advance in inflation-driven operating costs to N450 million countered all the cost-cutting effort and claimed an increased proportion of revenue. Loss of revenue and increase in cost made a bad combination for Africa Prudential at the end of half-year operations. That pushed after-tax profit down more than twice as fast as revenue.
This was equally the position for the company last year when a combination of loss of revenue and inability to compensate with cost savings led to the profit drop it experienced in 2020.
The company closed half-year trading with an after-tax profit of close to N828 million at the end of June 2021, which is a drop of 23.6 per cent year-on-year. Its closing profit of N1.4 billion for last year is the lowest in four years.
Profit performance is headed down from the peak figure of almost N2 billion in 2018 to N1.7 billion in 2019 and further down in 2020.
There is a major inflow of over N80 billion in customer deposits that have swelled the company’s balance sheet from N17.7 billion at the end of last year to about N89 billion at the end of half-year operations in June 2021. The inflow may prop up fee income as well as investments with interest earnings in the second half.
The company earned 41 kobo per share at the end of half-year operations, which is a decline from 54 kobo per share in the same period last year.
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