Africa Prudential Plc has completely lost its digital services income, resulting in a 40 per cent drop in gross earnings to less than N740 million in the first quarter. The critical income line, which has powered profit delivery in recent years, fell from about N605 million in the first quarter of last year to nothing in the same quarter this year.

This is a worse record than a 64 per cent drop in the income line to N468 million at the end of 2023 operations.

We had placed the income line on the watch at the end of last year whether it revived or stayed down as the critical development to watch on Africa Prudential in the short-term.

The interim financial report of the share registration and investment company for the first quarter ended March 2023 shows management’s combined response of alternative revenue building and cost-saving effort that enabled it to keep up profit despite the dry up of income from digital technology services.

With digital services income out of the company’s earnings basket in the first quarter, revenue from contracts with customers fell from N770 million to N59 million year-on-year. The company’s management pushed up interest income by 24 per cent to the region of N575 million. Other income took a long upward journey from N1.7 million to almost N106 million in the period. The revenue improvements were supported by significant cost savings that overturned the drop in gross earnings into an improvement in profit.

Cost of sales dropped a little faster than gross income at 95.8 per cent year-on-year to N21.7 million compared to 92.3 per cent. Personnel expenses dropped from N207 million to N187 million over the period and other operating expenses dropped by 12.7 percent to N213 million.

The gains in interest and other incomes built up net operating income at N718 million, still slightly down from N723 million in the same period in 2023. Adding cost savings to the revenue gains, the company raised pre-tax profit from N255.6 million in the same period last year to almost N286 million at the end of the first quarter. Profit after tax improved from less than N178 million to over N197 million year-on-year at the end of March 2024.

Maintaining profit growth against weak revenue performance will be a key point to watch out for in the company’s second-quarter interim report expected soon. The drop in digital services income last year led to a 35.5 per cent drop in after-tax profit to about N963 million at the end of the year – the lowest profit figure for the company in a decade.

Africa Prudential’s digital solutions services have been its revenue growth driver since 2020. It expanded from N421 million in that year to N1.3 billion in 2022 when it accounted for nearly 69 per cent of revenue from contracts with customers and close to 32 per cent of gross earnings.

The complete disappearance of digital services income in the first quarter presents a more fundamental challenge in the company’s revenue mix than in the preceding year.

Gross earnings are headed down for the second year and so is profit – which had dropped by 35.5 per cent to N963 million in 2023.

The first quarter operations ended with earnings per share of 10 kobo against 9 kobo per share in the same period in 2023.