Africa Prudential Plc experienced an unusual increase in input cost in the first quarter.
It rose from N20 million in the same period last year to N510.6 million and consumed its revenue and 56 percent of its after-tax profit to bring it down to N177.7 million.
The company’s interim financial report for the first quarter ended March 2023 shows quite a healthy growth in revenue from contracts with customers at close to 72 percent quarter-on-quarter to N770 million – which management failed to convert into profit.
Digital technology services accounted for both the dominant part of the earnings at N604.7 million and the increase in revenue at 82.7 percent. It was also the revenue growth driver last year with an increase of 96 percent in the income line.
Interest income closed flat for the period at N462 million, which adds up to gross earnings of N1.2 billion for the quarter. The figure represents an increase of 35.8 percent quarter-on-quarter.
The share registration service provider didn’t quite make the turnaround hoped for in 2022 but managed to head off losing profit for the fourth year running.
The company’s closing profit of roughly N1.5 billion for last year remains well below the 2018 high of N1.95 billion and a disappointing first quarter seems to dispel any hopes for a change in fortune in 2023.
The company spent N496 million on IT infrastructure in the first quarter, which is a big weight on the company’s earnings numbers for the period. The cost slashed its impressive profit margin of 44.4 percent in the same quarter last year to 14.4 percent at the end of the first quarter.
Induced by the cost increase, the cost of sales consumed over 66 percent of revenue from contracts with customers, and gross profit fell by over 39 percent to less than N260 million at the end of the first quarter.
With interest earnings of N462 million, the company realised net operating income of N723.6 million for the first quarter. The figure is, however a drop of 18.5 per cent from the corresponding figure of close to N888 million in the preceding financial year.
Two other cost increases added to the pressure on the bottom line during the quarter. These include personnel expenses that rose by more than 37 per cent to N207 million. Also, other operating costs grew by nearly one-half over the period to N244 million.
The cost increases reinforced the drop in net operating income, which raised the margin of decline in pre-tax profit to 53.7 per cent to close at N255.6 million.
The earnings outlook for the company in the second quarter points to a slowdown in revenue from contracts with customers – the core business of the company that powered overall revenue growth in the first quarter.
The indication is that profit delivery capacity could weaken further in the second quarter. Compensatory growth in interest earnings needs to happen in the second quarter for the company to achieve gross earnings good enough to absorb rising costs and keep margins from falling further.
First-quarter operations ended with earnings per share of 9 kobo, which is a drop from 20 kobo per share in the first quarter of 2022.
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