UACN Optimistic Despite Hard Times | Independent Newspapers Limited
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UACN Optimistic Despite Hard Times

Posted: Apr 18, 2016 at 3:50 am   /   by   /   comments (1)

Kirk Leigh

The United African Company of Nigeria (UAC), a conglomerate bestriding Nigeria like a colossus, is visibly shaken by the harsh economic times.
Bloodied, it lost grounds in profits and efficiency but remains determined to stem the tide by riding on government policy.
In the 2015 financial year when economic headwinds hit, slowing the Nigerian economy to 3 percent from 6.1 percent, the conglomerate lost 14.6 percent in revenues relative to the 2014 financial year, traveling south to N73.15 billion from N85.7 billion.
Besides the slowing economy, the conglomerate had to contend with the eroded purchasing power of consumers who have been knocked by a bundle of economic setbacks including rising inflation from 7.9 percent to 9.6 percent in the period under review, according to the National Bureau of Statistics (NBS).
According to the company, political instability, insecurity in the North and fuel shortages were all in stifling mix that conspired to shave up customers’ buying power. They also highlighted the high exchange rate of the naira.
There are yet more reasons for the company’s woes in the last financial year, says the company which owns Mr. Biggs, “Outbreak of Avian Influenza across two-thirds of the states of Nigeria led to significant reduction in bird population and weak poultry feeds; demand turmoil in the oil & gas industry, volatility in capital market and decline in general commercial activities led to a soft real estate and paints markets”.
But for a slower rise in the corporation’s cost of sales perhaps due to the sharp drop in sales, gross profit would have broached negative territory, falling 13.6 percent to N16.57 billion from N19.18 billion. Cost of sales improved to N56.5 billion from N66.47 billion.
Efficiency levels may have slowed in the company as operating profit fell 38.6 percent to N7.61 billion from N12.4 billion. The company’s pre-tax returns reflected this slide, tumbling 43.6 percent to N7.9 billion from N14 billion.
The maker of Gala Sausage Rolls and Supreme Ice Cream attributes the decline to poor performance in its foods segment, which was down 4 percent year-on-year.
The erosion on net profit was even bigger at 52.6 percent from N10.9 billion to N5.2 billion.
Analysts say the more than century old company would have faired worse had it not reversed a N2 billion impairment in its hotel business.
“UAC of Nigeria’s (UACN) 2015 results were weak across all business segments with full year earnings down 54% to N3.0 billion. However, earnings were ahead of our estimates primarily because UACN reversed N2 billion impairments on its hotel business, which it had taken in Q2 2015”, a recent Proshare analysis said of the company’s results.
Struggling to keep absolute figures good, the company also failed to improve the margins even if gross profit margins improved to 22.6 percent where it once did 22.4 percent. Pre-tax margin took a cut to 11 percent from 16.5 percent, meaning that where the company used to glean 16 kobo from every naira of revenue, it can now manage only 11 kobo.
Net profit margin traces the southward travel of pre-tax margin, falling to 7 percent from 12.8 percent. It shows that out of every naira invested in the company, only seven kobo is translated into profit, the situation was better in the previous year when it made 12.8 kobo.
The company’s assets, which had a negative growth, have also not delivered as expected, delivering only 4 percent, down from 8.4 percent. Assets had a southward travel to N128.66 billion from N130.4 billion. The weak return also played out in the ability of the company’s equity to release returns, falling to 7 percent from 14.46 percent even as total equity took a slight shave to N74.14 billion from N75 billion.
There are concerns that the conglomerate may not be able to navigate into positive territory in the new financial year because the economic headwinds, which nudged it into the negative zones, persist.
“Looking ahead, headwinds are likely to persist well into 2016 given the weak business environment, driven by inflationary pressures, a soft real estate market and unrelenting new avian flu incidences”, says Proshare.
The bleak outlook has caused Proshare to revise downwards its EPS outlook for UACN. “As such, we have cut our EPS estimates over the 2016-17E period by 25% on average and our price target by 17% to N28.0. Our new price target implies a potential upside of 44%.”
But the company which plays in the foods and beverage, real estate, paints and logistics sectors of the economy, believes otherwise as it plans to cash in on government policy.
In a recent presentation of its group’s 2015 report, the diversified company said it “planned government spend will be inflationary … should improve purchasing power of consumers. Forex shortages and government focus on agriculture should be supportive of our animal feed businesses. Government focus on housing development should be supportive of our real estate and paints businesses. Planned reintroduction and passage of Petroleum Industry Bill should be supportive of our marine coatings segment of the paints business. Forex shortages and exchange rate volatility will persist leading to input material shortages and rising input prices. We will achieve growth through strong execution of our strategic thrusts”.
How can such a well-crafted strategy couched on government policy be faulted? Market watchers only hope government will not pull the carpets off the company’s feet through policy summersault.