Royal Exchange Plc has successfully rebounded to profitability in 2024, recording a Profit Before Tax (PBT) of ₦123.43 million, a 161% improvement from its ₦201.99 million loss in 2023. Similarly, Profit After Tax (PAT) rose to ₦122.30 million, a 159% turnaround from the ₦206.22 million loss reported last year.
Despite this remarkable earnings recovery, the company’s earned income declined by 27% YoY to ₦562.98 million, reflecting business growth challenges.
The company’s audited financial statements for the year ended December 31, 2024, highlight improved cost management, stronger investment income, and better financial discipline as key drivers of profitability.
Key Financial Highlights (2024 vs. 2023)
- Earned Income: ₦562.98 million (2023: ₦767.40 million) ↓27%
- Profit Before Tax (PBT): ₦123.43 million (2023: -₦201.99 million) ↑161%
- Profit After Tax (PAT): ₦122.30 million (2023: -₦206.22 million) ↑159%
- Basic Earnings Per Share (EPS): 2 kobo (2023: -4 kobo) ↑150%
- Share Price (Stock Exchange Quotation): ₦0.63 (unchanged from 2023)
- Shareholders’ Fund: ₦5.32 billion (2023: ₦3.79 billion) ↑40.4%
Royal Exchange’s financial turnaround in 2024 was driven by cost efficiencies and improved investment income, despite a decline in core revenue streams.
Revenue Decline: Key Causes & Challenges
1. 27% Drop in Earned Income to ₦562.98 Million
- Lower premium collections and reduced business activity contributed to the revenue decline.
- The company faced operational challenges in expanding its revenue base.
2. Decline in Share of Profit from Associate Companies (-80%)
- Royal Exchange’s earnings from associate companies dropped to ₦117.30 million, a steep decline from ₦591.55 million in 2023.
- This significantly impacted total revenue, as associate company profits previously provided strong contributions.
3. Decrease in Loan Portfolio (-14.3%)
- Loans & advances to customers fell to ₦898.53 million (2023: ₦1.05 billion).
- This reflects a more cautious lending strategy, limiting interest income potential.
4. Need for Stronger Core Business Revenue Streams
- While investment income increased, reliance on non-core revenue sources remains high.
- The company needs to grow its core insurance and financial services revenue.
Earnings Per Share (EPS) Recovery: Key Factors
Despite the revenue decline, EPS rebounded to 2 kobo, reversing the negative EPS (-4 kobo) reported in 2023. This was achieved through strong cost control and improved investment income:
1. Cost Management Led to a 55% Reduction in Operating Expenses
- Operating expenses dropped sharply to ₦439.54 million, compared to ₦969.39 million in 2023.
- This efficiency improvement significantly boosted profitability, despite lower revenue.
2. Higher Interest Income (+25.3%)
- Interest income rose to ₦335.85 million (2023: ₦268.05 million), driven by better investment returns.
- Lower interest expense (-32.5%) also contributed to higher net interest margins.
3. Investment & Other Income Increased by 82%
- Investment and other income grew to ₦178.51 million, compared to ₦97.87 million in 2023.
- This offset some revenue losses from core operations.
4. Write-back of Impairment Allowance
- ₦81.95 million was written back in impairment allowances, compared to a ₦17.05 million impairment charge in 2023.
- This reflects better risk assessment and financial discipline.
5. Stronger Equity & Balance Sheet Position
- Total equity increased 40.4% to ₦5.32 billion, providing greater financial stability.
- Total assets grew 11.5% to ₦8.99 billion, indicating a healthier financial position.
Balance Sheet & Financial Stability
Royal Exchange improved its balance sheet strength, reinforcing long-term sustainability:
- Total Assets: ₦8.99 billion (2023: ₦8.07 billion) ↑11.5%
- Total Equity: ₦5.32 billion (2023: ₦3.79 billion) ↑40.4%
- Cash & Cash Equivalents: ₦1.25 billion (2023: ₦470.71 million) ↑165.5%
- Loans & Advances to Customers: ₦898.53 million (2023: ₦1.05 billion) ↓14.3%
- Total Liabilities: ₦3.67 billion (2023: ₦4.28 billion) ↓14.2%
The increase in total assets, lower liabilities, and higher cash reserves provide a stronger foundation for future growth.
Dividend & Shareholder Returns
Royal Exchange has yet to announce a dividend for 2024, focusing on capital reinvestment and business expansion.
- EPS recovery to 2 kobo suggests the potential for dividend payments in future years.
- The company’s stock price remained flat at ₦0.63, indicating investors are waiting for stronger revenue growth signals.
Macroeconomic & Industry Trends
1. High Inflation & Interest Rate Environment
- Nigeria’s inflation rate reached 34.8% in December 2024, impacting overall consumer spending.
- CBN’s Monetary Policy Rate (MPR) at 27.5% increased borrowing costs, affecting loan demand.
2. Insurance & Financial Services Industry Competition
- New entrants and digital financial services are intensifying competition.
- Royal Exchange must differentiate its offerings to expand market share.
3. Capital Market & Investment Growth Opportunities
- Investment in fixed-income securities and strategic partnerships can further enhance profitability.
Strategic Priorities for 2025 & Beyond
To sustain its profitability recovery and drive revenue growth, Royal Exchange Plc is focusing on:
1. Expanding Core Revenue Streams
- Enhancing insurance premium collections to grow earned income.
- Developing innovative financial products to attract more customers.
2. Strengthening Loan Portfolio Management
- Improving lending strategies to boost interest income.
- Balancing risk and return through better credit policies.
3. Investing in Digital Financial Services
- Expanding digital banking and insurance services to improve accessibility.
- Leveraging fintech partnerships for broader market reach.
4. Cost Control & Operational Efficiency
- Sustaining lower operating expenses to maintain profitability.
- Enhancing process automation for better efficiency.
Conclusion
Royal Exchange Plc’s 2024 financial turnaround reflects strong cost discipline and investment income growth, despite a decline in revenue.
- Earned income declined 27%, signaling the need for stronger revenue expansion.
- EPS rebounded to 2 kobo, reversing the negative -4 kobo EPS of 2023.
- Profit before tax surged 161%, returning the company to profitability.
- Total equity grew 40.4%, reinforcing financial stability.
Moving forward, expanding revenue streams and enhancing loan portfolio management will be key to sustained profitability growth.
