Company Analysis

UAC Nigeria rebuilding profit from falling sales


UAC Nigeria is striving to rebuild profit after a profit collapse last year left it with a fraction of the preceding year’s figure.

The turnaround process is, however, constrained by dropping sales revenue and the consequent drop in cash generation from operations.

There is a sharp swing from net cash generated from operating activities of N1.76 billion in the same period last year to a net cash used in same of over N5 billion at the end of June. This has to be financed with new money injection by shareholders last year in rights issue.

At the close of its group operations at half-year in June 2018, profit was already well ahead of the full year figure in 2017 at N1.36 billion compared to N963 million. This was made possible by a strong growth in finance income and a sharp drop in finance expenses.

The full year performance outlook for the conglomerate is however uncertain, as it ended last year with a lower profit figure than it reported at the end of half year. UAC Nigeria is a watch candidate on the corporate earnings board this year to see whether or not it would repeat or detract from the unstable pattern of the previous year.

The company’s major drawback is an inability to push sales volume, which has been the case for the past several years. Its sales revenue figure of N89.2 billion at the end of 2017 is only moderately ahead of the 2014 figure of N85.7 billion.

Half-year trading ended with sales revenue of about N37 billion for UAC Nigeria, a year-on-year drop of 22%. Based on the performance at half-year, the falling sales revenue is likely to follow the company to full year.

Seasonal sales may, however, prop up the turnover in the final quarter. The revenue drop at the end of half year is accounted for mostly by the animal feeds segment of the group, with a 38% fall in revenue year-on-year.

The group is engaged in several lines of business activities, including the manufacture and sale of livestock feeds and edible oil, manufacture and sale of paint products and other decoratives, the manufacturing and sale of bottled water, fruit juices and ice-cream and quick service restaurants.

Other business arms are real estate, pension fund administration services and logistics/supply chain services – including warehousing, transportation and redistribution services.

Cost of sales dropped slightly ahead of sales revenue at close to 26% and that helped the company to moderate the impact of the drop in turnover on gross profit. At N7.56 billion, gross profit declined only slightly at 2.7% over the review period.

A 40% drop in other operating income and increases in selling/distribution and administrative expenses claimed more than all the cost saving from cost of sales and led to a drop of 30% in operating profit to N2.72 billion at the end of June.

A respite came from finance income, which grew by 34% to N1.33 billion. That was reinforced by a drop of 31% in finance expenses to N2.4 billion.

The result is a drop of 57% in net finance cost over the period. This provided the saving grace that turned the drop in operating profit into an increase of 15% in pre-tax profit to N2.1 billion at the end of half-year operations.

The group closed half-year trading with an after-tax profit of N1.33 billion, a 14% increase year-on-year. That is already well ahead of the full year profit figure of N963 million the group posted at the end of 2017.

Will the profit growth rate be maintained to full year or not isn’t easily predictable in the light of last year’s experience when the company closed with a lower profit figure than it reported at half-year.

The second half of the financial year is therefore dicey whether a big turnaround would happen for UAC Nigeria or the turnaround force would lose its momentum.

With a large non-controlling interest, net profit attributable to shareholders of the parent company dropped by 25% to N736 million over the period and with that, earnings per share fell from 51 kobo to 26 kobo.

The group earned 50 kobo per share at the end of last year and paid out double that figure to shareholders in cash dividend. UAC Nigeria has maintained a cash dividend pay-out of N1 per share for three years running.


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