N1.5bn Earnings Remedy Africa Prudential Digital Income Loss

Africa Prudential Plc is making up for a complete loss of its critical digital services income by increasing interest earnings to roughly N1.5 billion in the half-year.

The second quarter produced N905 million of interest income, representing a leap of 85.5 per cent year-on-year.

This development has changed the company’s income structure from the dominance of core revenue to dependence on interest earnings. Interest income now accounts for 72 per cent of gross earnings, up from 43.5 per cent in the same period last year.

The interim financial report of the share registration and investment company for the half year ended June 2023 shows that income from digital technology services, which had powered profit delivery in recent years, has completely dried up this year.

With the loss of digital income which accounted for as much as nearly 32 per cent of gross earnings in 2022, revenue from contracts with customers has crashed by 68.4 per cent year-on-year to less than N384 million at half-year.

The drop is however largely remedied by the rise of interest earnings in the second quarter which increased gross earnings to over N2 billion at the end of half-year operations. Support also came from other income that surged from N23 million to N195 million over the review period.

Gross earnings remained slightly down from about N2.2 billion in the same period in 2023 but much improved from the 40 per cent drop in the first quarter.

The company’s new strength in interest earnings involves reshaping its asset portfolio assets. Management has slashed cash and equivalents from N5.3 billion at the end of last year to less than N878 million at the end of June 2024.

The resources have been shifted to interest-bearing debt instruments – which have jumped by 88.7 per cent to over N18 billion over the six months.

Also, financial instruments have multiplied more than three and a half times to N3.5 billion in the same period.

The company’s alternative revenue-building efforts are supported by significant cost savings that have made it possible to turn a decline in gross earnings into a major improvement in profit.

Input cost remains a cost-saving line with a drop of 94 per cent year-on-year to less than N34 million compared to a drop of 68.4 per cent in revenue from contracts with customers.

The cost saving lowered the margin of drop in gross profit to less than 47 per cent to about N350 million at the half year.

Other cost-saving lines include personnel expenses, which dipped 22.2 per cent to N361.6 million. Other operating expenses also dropped by 11.7 per cent to N470.6 million and credit loss expenses fell from N3 million to zero over the same period.

The gains in interest and other incomes countered the drop in gross profit and lifted net operating income from N1.6 billion to over N2 billion over the review period.

The favourable mix of revenue gains and cost savings enabled the company to raise pre-tax profit by 88.9 per cent to N1.1 billion at the half year, a significant acceleration from the N286 million pre-tax profit figure at the end of the first quarter.

Profit after tax grew by 87.8 per cent to N779 million over the period, a big leap from the closing level of N197 million in the first quarter.

The company’s ability to keep profit growing that much against weak revenue performance has helped so far this year. With compensating growth in interest income, the revenue weakness may heal completely in the second half, further reinforcing profit delivery.

The prospects for Africa Prudential recovering from a drop in after-tax profit to about N963 million in 2023 – the lowest profit figure in a decade, have brightened considerably.

Half-year operations ended with earnings per share of 39 kobo up from 21 kobo per share in the same period in 2023.