UACN says associate companies’ loss impacts full year profitability
UAC of Nigeria Plc has announced its unaudited results for the fourth quarter (Q4) and financial year ended December 31, 2021.
The company’s revenue in 2021 increased 24.3percent year-on-year (YoY) to N101 billion supported by sales growth across all operating segments. Animal Feeds and Other Edibles segment (+15.7percent YoY) driven by price increases to offset rising raw material costs.
Paints segment (+44.4percent YoY) on account of higher volumes and price increase compared to 2020 which was impacted by limited sales due to the restrictions in the movement of people and goods in Q2 2020.
Packaged Food and Beverages segment (+33percent YoY) driven by volume growth in the snacks, water and dairy categories; and the Quick Service Restaurants segment (+44.9percent YoY) driven by additions to company-owned restaurants (corporate stores) and improved performance of existing stores.
Gross profit in 2021 increased by 9.7percent YoY to N17.5 billion and gross profit margin declined 231 basis points to 17.3percent. Margin compression was largely on account of input cost escalation across all businesses.
Operating profit was N5.8 billion in 2021, 59.9percent higher than the N3.6 billion recorded in 2020. The growth was on account of fair value gain on investment properties, dividend income from UPDC REIT, revenue growth and cost management efforts.
Operating expenses as a percentage of sales improved by 214 basis points to 14.4percent. The Group recognised higher finance costs on account of increased short-term borrowings in the Animal Feeds and Other Edibles segment to support efforts to build inventory.
Profitability was impacted by a loss from associate companies (UPDC and MDS) in 2021 versus a profit from associates in 2020. As a result, Profit before tax was N4.6 billion, a decrease of 10.3percent YoY against N5.1billion in 2020. Profit after Tax from continuing operations was N3.3 billion compared to N3.4 billion in 2020.
Total profit for the period was N3.3 billion in 2021 compared to N3.9 billion reported in 2020. UAC recorded N470million profit from discontinued operations in 2020 which impacts year on year comparison. Earnings per share from continuing operations for 2021 was 83 kobo, 18.1percent higher than the earnings per share from continuing operations of 70 kobo in 2020.
Commenting on the results, Group Managing Director, Fola Aiyesimoju, stated: “We are encouraged by strong topline growth delivered across our operating platforms and improving efficiency as evidenced by our operating expenses to sales ratio. Sustained escalation in raw material costs remains a concern and resulted in deterioration of our gross profit margin which we did not fully offset with our efficiency gains.
“A key focus going forward is on implementing pricing strategies to improve gross margin. In line with our strategy to simplify the UAC Group structure and enhance shareholder value, we completed the distribution of UPDC REIT units, attained 100percent ownership of UAC Foods Limited, merged and fully integrated CAP Plc and Portland Paints and Products Nigeria Plc.”
Free Cash Flow for the period was negative N18.7 billion in 2021, compared with negative N3billion in 2020. Free cashflow was impacted by the strategy to increase inventory levels in the Animal Feeds segment and the Paints segments. Return on Invested Capital (ROIC) was 311 basis points higher at 9.1percent (2020: 5.9percent).
Q4 2021 highlights
Revenue came 26 percent ahead of Q4 2020 at N29.7 billion, driven by sales growth across all business segments; while gross profit was 13percent higher than Q4 2020 at N5.2 billion; Gross margin 210 bps lower due to rising raw material costs and supply chain disruptions. Operating profit was 129 percent higher at N3.6billion.
Adjusting for N1.5 billion unrealised fair value gain from investment properties, as well as, N570 million representing dividend income received prior to completion of the unbundling of the UPDC Real Estate Investment Trust (UPDC REIT) and the fair value gain recognised on completion of the unbundling, UAC’s underlying operating profit is N1.5 billion compared to the N1.6 billion recorded in Q4 2020. Profit before tax was 22percent higher than Q4 2020 at N3.2billion. The company completed unbundling of 649 million units in UPDC REIT to UAC shareholders in November 2021.
UAC disposed significant interest in UPDC Plc (UPDC) in Q4 2020, consequently, UPDC, which was accounted for as a discontinued operation in the Group’s Statement of Profit or Loss (PorL) for 9 months in 2020, became an associate company in Q4 2020.
As such, the 2021 share of loss from associates represents UAC Group’s share of loss from UPDC and MDS Logistics Limited (MDS) while the 2020 share of profit from associates relates to the Group’s share of profit from MDS (for the full year) and UPDC (for Q4 only).
The merger between Chemical and Allied Products Plc (CAP) and Portland Paints and Products Nigeria Plc (PPNP) was effective on 1 July 2021. UAC’s shareholding in the enlarged, post-merger, CAP is 56.54percent. In September 2021, UAC acquired Tiger Brands Limited’s minority shareholding (49percent) in UAC Foods Limited (UFL) for a cash consideration of N3.92 billion. UFL is now a wholly-owned subsidiary of UAC. In November 2021, UAC distributed 649,392,661 UPDC REIT units to its shareholders on a pro-rata basis.
On March 31, 2021, UAC’s Board of Directors announced the decision to unbundle the Company’s 24.34percent interest in UPDC REIT, comprised of 649 million units, to UAC’s shareholders via a Scheme of Arrangement (the Scheme).
Update: The unbundling was completed on November 11, 2021. Qualifying UAC shareholders were credited with UPDC REIT units in accordance with the terms and conditions of the Scheme (Allocation ratio of 0.2254 or 226 UPDC REIT units for every 1,000 UAC shares owned). With the completion of the Scheme achieved, UAC no longer owns any UPDC REIT units.
Group Performance and Financial Review: Q4 2021
Revenue increased 26.2percent to N29.7 billion in Q4 2021. Sales growth across all operating segments supported by price increases in the Animal Feeds and Other Edibles Segment (+20.6percent), as well as price increases and volume growth in Paints (+51.2percent YoY), Packaged Food and Beverages (+17percent YoY), and Quick Service Restaurants (+30.5percent YoY).
Gross profit increased by 12.6percent YoY to N5.2billion, and gross profit margin contracted 210 basis points to 17.4percent. Margin contraction was largely on account of rising raw material costs across all the business segments.
Operating profit increased by 128.7percent to N3.6 billion in Q4 2021, with operating profit margin expanding by 545 basis points to 12.2percent.
Adjusting for N1.5 billion unrealised fair value gain from investment properties, as well as, N570 million representing dividend income received prior to completion of the unbundling of UPDC REIT and the fair value gain recognised on completion of the unbundling, UAC’s underlying operating profit is N1.5 billion compared to the N1.6billion recorded in Q4 2020.
Despite the higher cost environment, operating expenses as a percentage of sales decreased by 254 basis points to 13.4percent, a direct result of operational efficiency initiatives.
Profit after Tax from continuing operations was N2.7 billion in Q4 2021 compared to N2billion in Q4 2020. Total profit for the period was N2.7 billion in Q4 2021 compared to N2billion in Q4 2020. Earnings per share from continuing operations for Q4 2021 was 86 kobo, 86.1percent higher than earnings per share from continuing operations of 46 kobo in Q4 2020.