Africa Prudential Plc, the registrar and investor relations service company, has marked time on the operating tracks for the third straight year to 2021. The size of the company’s balance sheet has been shrinking since 2018 from the five-year peak of almost N22 billion in 2017 to less than N15.8 billion at the end of 2021.
The company’s audited financial report for the 2021 operations shows that the key earnings assets – investment securities has been leading the drop in assets. The investment portfolio is down for the third year from the five-year peak of N17.5 billion in 2018 to N11 billion at the end of 2021.
In 2021, investment securities went down by 16 per cent, which was followed by a drop of 14 per cent in cash-based resources. This led to a decline in the size of the balance sheet in the year.
At N866 million at the end of 2021, cash and cash equivalents had run down from the five-year peak of over N4 billion in 2017.
Declining earning assets have also left revenue downcast with gross earnings down from the five-year high of N4.5 billion recorded in 2018 and closing flat at N3.5 billion in 2021. Management has responded by preventing costs from rising but there hasn’t been any room found for cost savings.
The outcome is continuing downward steps in profit from the five-year best record of N1.95 billion in after-tax profit in 2018 to N1.4 billion at the end of 2021. The company however hasn’t let declining profits affect dividend pay-out to shareholders. It has maintained a cash dividend at 50 kobos per share over the years.
Mr Obong Idiong, who has headed the company since 2018 as chief executive officer, is steering it towards diversification with a promise to create sustainable value to shareholders.
His strategy is to explore innovative ways to deliver superior value and experience to clients and leverage technology to drive cost efficiency in operations. The hopes and expectations are that the management would scale through the current challenges to bring about its transformational agenda.
The drop in the company’s earning assets reflects declines in the principal liability – which is customer deposits. Last year, the deposits dropped by 28 per cent to N6 billion and there was no compensating increase in liabilities or equity capital to sustain investment assets.
The effect of that is stunted growth in revenue, indicating weakness in converting assets into earnings. Gross earnings closed flat at N3.5 billion for the 2021 operations after dropping for the second year at 13 per cent in 2019 and 10 per cent in 2020.
Interest income, the main source of revenue for the company, accounted exclusively for the drop in gross income. It went down by 12.5 per cent to N2 billion while an increase of 30 per cent in earnings from contracts with customers compensated for the drop.
Management equally kept expenses flat during the year in the face of the inability to improve revenue. The move worked to keep the profit from a possible run down. It could not however prevent a marginal decline of 2 per cent in after-tax profit to N1.4 billion at the end of 2021.
High-profit margin is a key operating strength going for the company, which enables it to convert a good part of its revenue into profit. It achieved a net profit margin of 40 per cent in 2021, a slip from 41 per cent in the prior fiscal year.
The company’s earnings weakness lies in letting the main earning assets – investment securities keep going down. Exploring new sources of financing appears quite imperative for the company for management to head off a further downswing in earnings in the current financial year.
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