UACN heads for lowest profit in years


Rising costs have undermined profit capacity for UACN and the conglomerate is headed for the lowest profit figure in many years at the end of 2017.  The company is sustaining growth in revenue for the second year but it is devoting an increasing share of it to operating cost. Last year, rising costs caused a subdued recovery in profit, which has intensified this year to the extent of a 55% profit fall at half year.

Food/beverages is the only one of the company’s four business lines that is growing sales revenue this year. Revenues from the other lines are either flat or declined year-on-year at the end of June, 2017. Yet revenue performance looks strong enough to push turnover up for the second year to a new high at full year.

Sales revenue amounted to N48.45 billion at the end of the half year, an increase of 32% year-on-year. Based on the current growth rate, the company is likely to see sales revenue approach the N100 billion mark at the end of 2017. That will be an anticipated growth of 18% from the sales revenue of N84.61 billion the company posted last year.

UACN is rebuilding revenue for the second year after a drop from a peak of N85.65 billion in 2014 to N73.15 billion in 2015. It recorded an increase of 14.7% in turnover in 2016.

Profit isn’t improving with revenue due to a significant loss of profit margin. The company closed half year trading with an after tax profit of N1.19 billion, a drop of 54.7% year-on-year. After tax profit is projected at N2.6 billion for UACN at the end of 2017, the lowest profit figure in several years. That would be a drop of 54% from the profit figure of N5.67 billion the company reported at the end of 2016.

Last year’s profit was a moderate recovery after the company’s profit fell from the all time peak of N10.73 billion in 2014 to N5.13 billion in 2015. Between 2014 and June 2017, the company’s profit margin has diminished from 12.5% to 2.5%.

Two major cost areas are escaping management’s control in the current year and these are cost of sales and interest expenses. Cost of sales rose well ahead of sales revenue at 42.4% year-on-year at the end of June and that caused a decline of 6.2% in gross profit, lowering gross profit margin from 22% to 16% over the review period.

Firm hold on selling/distribution expenses and administrative cost as well as a strong growth in other operating income worked to improve operating profit by over 11% to N3.7 billion at the end of June, 2017.

Interest expenses however changed the earnings story, claiming almost the entire operating profit. Net finance cost multiplied close to seven times to N2.5 billion year-on-year at the end of June 2017. The company carries balance debts of close to N30 billion.

The profit the company posted at the end of half year operations was only possible because of a finance income of over N1 billion and a share of associated profit of close to N430 million. Net profit margin is down from 7.1% in June last year to 2.5% at the end of June 2017.

Earnings per share dropped from 78 kobo in the same period last year to 52 kobo at the end of June 2017. The full year earnings per share expectation is N1.35 for UACN in 2017. The company earned N2.95 per share at the end of 2016 and paid out N1.0 per share in cash dividend.

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