Airline Services and Logistics faces another year of falling earnings

Airline Services and Logistics closed last year’s operations with a drop in profit for the second year. It has opened first quarter trading this year with another big fall in profit. The full year outlook isn’t that bad however if the company will be able to maintain the first quarter growth momentum. A moderate recovery in revenue and profit look achievable for the company at current growth rate.

Despite the dismal first quarter earnings picture, Mr. S. D. A. Sobanjo, managing director/chief executive officer of the company, has a chance to make up for the earnings disappointment in the course of the year. There was a considerable slowdown from the first quarter earnings figures last year and this will permit a moderate year-on-year growth if he is able to maintain the current growth rate.

The company recorded a net profit of N35.7 million in the first quarter, which is a drop of about 63% over the corresponding period last year. If the first quarter growth rate is maintained to full year, net profit is projected at N156 million for Airline Services and Logistics in 2014. This will amount to an improvement of 7.6% over the net profit figure of N145 million the company posted in 2013.

The company’s profit had dropped for the second year by about 66% in 2013 from N220 million in 2012. That was a further drop from the peak profit figure of N240 million the company posted in 2011. Should the profit growth rate slow down in line with the pattern of last year, the company may sustain the falling profit trend into the third year.

Turnover amounted to N805 million at the end of the first quarter, which is a decline of 7.8% over the corresponding revenue figure in 2013. Based on the first quarter growth rate, turnover is projected at N3.65 billion for Airline Services and Logistics at the end of 2014. This will be a moderate improvement of 4.3% over the full year revenue figure in 2013.

The company’s revenue declined by 2.8% to N2.50 billion in 2013. Overall revenue performance shows inability to achieve growth in the past five years. The peak revenue figure of the company is the N3.84 billion it recorded in 2010.

The optimism for a moderate full year recovery this year reflects the fact that last year’s first quarter growth rate was not sustained to full year. The slow down at the end of the year creates a room for possible improvement in turnover on a year-on-year basis. If however the end of year slowdown is a recurring patter for the company, then a worse earning year is in the making for it in 2014.

Profit margin is down from 11% in the first quarter of last year to 4.5% at the end of the first quarter. It is however a slight improvement from the net profit margin of 4.1% at which the company closed its last year’s operations. The full year profit forecast is based on the expectation that net profit margin isn’t going to come below 4.3% at the end of the year.

The drop in profit margin makes the difference between a decline of 7.8% in revenue and a fall of 62.5% in net profit in the first quarter. One major cost item claimed a lot more revenues than in the preceding year and accounted exclusively for the drop in profit margin. This is distribution/administrative cost, which rose by about 12% to N577 million against a decline of 7.8% in turnover. It claimed a significantly increased share of revenue during the review period at about 72% compared to 59% in the corresponding period last year and 67.8% at the end of last year. This prevented some cost savings from cost of sales and interest expenses from getting down into the bottom line. It equally countered an increase of 11% in other income during the period.

The company earned 6.0 kobo per share in the first quarter, down from 15 kobo in the corresponding quarter last year. Full year earnings per share is projected at 25 kobo for Airline Services and Logistics for the 2014 financial year. The company earned 23 kobo per share in 2013. It gave a dividend of 12 kobo per share to shareholders. The books of the company closed between 19th – 23rd May and payment was made on 13th June 2014. The company’s stock is presently trading at about 21% below its January opening price of N3.20 per share.

A significant change in the company’s balance sheet is an upsurge in current financial liabilities from the closing figure in 2013 by 985% to N506 million. Non-current financial liabilities dropped by 24% to N460 million during the same period. The effect of these changes on the income statement by way of increased interest expenses is expected in the course of the year.

The increased borrowing was needed to meet the cash flow shortfall created by increased investing activities. Net cash used in investing activities grew from over N20 million in 2013 to about N292 million in the first quarter. A major improvement in net cash generated from operating activities helped to improve the overall cash flow position of the company in the first quarter. Against a net cash utilisation of about N63 million in operating activities, a net cash of about N137 million was generated from operating activities in the first quarter.

For Mr. Sobanjo to achieve the projected full year profit for this year, he needs to achieve a minimum of N40 million per quarter in net profit for the remaining three quarters of the year. A step up in revenue growth will make the task easier and so will an improvement in profit margin. A slip in either will be quite devastating to the bottom line.

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