Airline services: Another outstanding profit growth likely

Airline Services and Logistics achieved a strong recovery in profit in 2014 by cutting cost as revenue has been failing to grow since 2010. Another outstanding growth in profit looks likely for the company in 2015 the result of which is expected. Profit prospects have been brightened by accelerating revenue and a gain in profit margin. The company looks likely to achieve the first major growth in turnover in five years in the 2015 fiscal year based on the third quarter performance.  

At the end of the third quarter, revenue advanced by about 30% year-on-year, which is expected to be maintained to full year. Improving revenue is reinforced by a strong gain in profit margin, both of which have boosted profit capacity.  After tax profit rose by over 227% to N167 million year-on-year in the third quarter- one of the most outstanding profit advances seen in the market in the year. Profit is expected to climb to a four-year peak from the 2015 operations.

The company closed third quarter trading with a turnover of N3.32 billion, which is only a little below the full year revenue of N3.55 billion the company posted at the end of 2014. Based on the third quarter growth rate, turnover is estimated at N4.5 billion for Airline Services and Logistics for the 2015 full year. This will be an outstanding growth of 27% for the year compared with a flat growth of 1.4% in 2014. This will be a new peak in turnover for the company since 2010 – when the company grossed N3.84 billion. Since 2011, its earnings records have shown a rise and fall pattern.

The new strength in revenue has also improved profit capacity for the company and further strength has also come from cost saving that has improved profit margin. The company posted an after tax profit of N167 million at the end of the third quarter, which is a rise of 277.5% year-on-year. With that, profit was only marginally below the 2014 full year figure of N172 million by the end of the third quarter.

Based on the growth rate in the third quarter, after tax profit is estimated at N240 million for Airline Services and Logistics for the 2015 operations. This will be another outstanding growth of about 40% in the year after lifting profit by over 91% in the preceding year. It will be a recovery for the second year for the company and is expected to match the peak profit it posted in 2011. The company’s profit dropped rapidly over the following two years before the strong recovery happened in 2014.

Except finance charges, the company achieved cost moderation in other key expense lines in the course of 2015 operations. Cost of sales claimed a reduced proportion of turnover at the end of the third quarter from 37% in the same period in the prior year to 34% in September 2015. That improved gross profit margin from 63% to 68% over the review period. Distribution and administrative expenses also moderated relative to revenue from 70.8% of turnover to 66.4% over the same period.

Despite the cost moderation, cost of sales and distribution/administrative expenses claimed all the revenue from the core business. Other income, which amounted to about N287 million at the end of the third quarter, provided the strength to meet an exceptional rise of 375% in finance charges and yet accounted fully for the big advance recorded in the bottom line during the period.

The company’s balance sheet at the end of September shows an increase of 21% in current financial liabilities to over N15 million; a growth of 30% in short-term loans to N367 million and a flat growth in long-term loans to over N1.0 billion.

Changes in the company’s balance sheet improved the cash flow position with an increase of 39% in the net cash generated from operating activities. Cash utilisation for investing activities dropped by 69% while net cash used for financing activities was relatively low. The company therefore closed the period with a net cash increase of over N117 million, up on a beginning cash balance of N486 million.

The company earned 35 kobo per share at the end of the third quarter, up from 11 kobo in the same period in the preceding year. Earnings per share is expected to amount to 46 kobo at full year for Airline Services and Logistics in 2015. The company earned N28 kobo per share at the end of 2014 operations and paid a cash dividend of 15 kobo per share.