• Tuesday, May 28, 2024
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UACN: Leveraging on HoldCo structure to create value


 As shareholders expect high return-on-investment (RoI) from their companies, their expectation is not less from UAC of Nigeria (UACN) plc. No doubt, the company recognises this huge expectation, and has therefore set out on a mission to grow its top-line at twice the rate of GDP growth in Nigeria – at blended earnings before interest and taxes (EBIT) profitability of 15 percent. Currently, industry watchers are observing how it leverages on its Holding Company (HoldCo) structure as a model aimed at creating values for shareholders. In this model, its HoldCo consists of a corporate centre overseeing a portfolio of interests across four key verticals – food and beverages, real estate, paints, logistics, among others.

FY 2012 and Q1’ 2013 financials

UACN recorded revenue of N69.63 billion in 2012 against N59.63 billion in 2011, representing 17 percent growth; its gross profit rose to N19.05 billion against N15.86 billion in 2011, up 20 percent. Profit before tax (PBT) stood at N10.7 billion in 2012 against N6.99 billion in 2011, up 54 percent. Analysts observed that its gross margin was sustained at 27 percent despite increases in input costs in key categories, noting that EBIT margin at 17 percent (against FY 2011 13%) reflects improvements in operating performance. Return on Equity (RoE) and Return on Assets (RoA) grew on the back of a robust performance over the last 12 months.

Reviewing the performance of the company in 2012 and Q1’ 2013, Abdul Bello, chief financial officer, UACN, noted that the company’s turnover recorded 17 percent growth despite adoption of full franchising model in UAC Restaurants. “PBT up 54 percent, key drivers include: MDS (up 131%) and significant reduction to UAC Restaurant’s loss position. IFRS income recognition policy impacting turnover for UPDC. UAC Foods leverage on Tiger Brands partnership, improved top-line and bottom-line. Grains/oil seeds shortages and price increases as well as cost pressures from new plant impacted PBT of Grand Cereals.”

Last week, at the Nigerian Stock Exchange, UACN published its Q1 2013 results that showed revenue of N19.4 billion, up 30 percent; PBT of N1.9 billion grew faster, by 48 percent. PAT was N1.3 billion, up 41 percent. Taking a look at this result shortly after the release, FBN Capital analysts, said: “Compared with our estimates, sales were around 16 percent ahead, while PBT and PAT before minorities beat our forecasts by 35 percent and 21 percent, respectively. PAT after minorities was 70 percent higher than our forecast because the minorities contribution (or deduction) was less than we had forecast.”

Across four key verticals

For UAC Foods Limited, its sales and margin improved despite dip in Q1 2012; operational reviews of dairies segment resulted in improved margins; and Tiger Brands partnership is impacting: asset care management (production and yield), procurement savings, knowledge transfer, marketing and distribution. For Grand Cereals Limited, its turnover of N28.94 billion was up 21 percent (against N23.86 billion in December 2011), rights issue was fully subscribed, installed 6,000 MT per month Poultry Feed plant in Onitsha, and expanded capacity of Fish Feed line.

In UAC Restaurants Limited, its loss exposure reduced significantly in 2012 following successful restructuring and review of operations; there was improved compliance following regular franchise audits; and it revamped over 100 restaurants, creating new look and feel.

At UPDC plc, its turnover was N12.04 billion in 2012, up 78 percent (against N6.78bn December 2011). The company completed Grandville and Metro Gardens estates (both in Lagos); there was improvement in occupancy levels and revenues at UPDC Hotel (turnover up 10%); and Joint Venture opportunities are being exploited. MDS Logistics plc recorded turnover of N4.04 billion in 2012 up 20 percent (against N3.37bn in December 2011); recorded significant growth in off-site inventory management services; restructures Capacity Holding Framework; in addition to strategic equity investment. At CAP plc, its turnover of N5.23 billion in 2012 was up 21 percent (against N4.31bn in December 2011); opened four Dulux colour centres and eight colour shops; launched Dulux Ecosure Products, and unveiled “Tea Dance” as Dulux colour of the year 2012.

Operational challenges

Reviewing the operations of the company, Larry Ettah, group managing director/CEO, UACN, noted the security issues, especially in the Northern region that have continued to create negative socio-economic impact; increased import duty and levy on wheat, which results in price increase by flour millers and bakers, and heavy rains and flooding across the nation that last year constrained commercial activities and affected grains prices. Also, interest rates remained high on the back of high CBN MPR (at 12%t). To many analysts, the company’s top-line in full year 2012 and first-quarter 2013, is laudable considering challenges facing similar businesses in Nigeria.