UAC of Nigeria Plc [UACN] is building back to profit this year after two preceding years ended in big losses. The conglomerate closed the first quarter trading with after-tax profit jumping a clear 87 percent to N1.9 billion. The upturn reflects changes in the position of discontinued operations from a loss last year to a profit.
A net loss of over N9 billion at the end of 2019 came exclusively from a loss of N14.6 billion from discontinued operations in three subsidiaries, including UACN Property Development Company Plc. This turned a profit of over N5 billion from continuing operations into a net loss at the end of the year.
A shift from a loss of N969 million from discontinued operations in the first quarter of last year to a profit of N717 in the first quarter ended March 2020 is one of the significant developments that have improved the company’s earnings prospects this year. The last two years ended with huge losses from discontinued operations adding up to over N28 billion.
The strength the company gained last year in revenue performance was missing in the first quarter. Sales revenue was marginally down at the end of March after a 12 percent improvement to N79 billion at the end of 2019.
Also, a generally moderated cost behaviour seen last year has not been retained so far. Consequently, big improvements in gross and operating profits last year have given way for drops in those numbers. Finance expenses remained moderate but net finance income recorded a major drop over the period.
UACN closed the first quarter trading with sales revenue of N19.5 billion, which is a year-on-year decline of 3 percent. Animal feeds segment is the largest revenue provider for the company, accounting for close to 60 percent of turnover in the first quarter. The packaged food/beverages segment is the most promising in terms of sales growth this year.
Despite the improvement in sales revenue recorded in 2019, the company still closed the year below the peak sales revenue figure of over N89 billion in 2017. Revenue growth this year will be affected by the discontinued operations that were part of the income lines in the preceding year.
Costs aren’t following the generally moderated behaviour recorded from input cost to finance expenses last year. The cost of sales declined at a slightly slower pace than sales revenue to N15 billion, changing direction from growing at a slower pace than turnover in 2019. This has weakened gross profit, which declined by 4.5 percent to over N4 billion at the end of March 2020. Gross profit had grown by close to 26 percent at the end of 2019.
Three other developments reinforced the decline in gross profit and increased the margin of the drop in operating profit. These include a drop of 57 percent in other income to N85 million, an increase of 16 percent in selling/distribution expenses to N1.6 billion, and an increase of 12 percent in administrative cost to almost N1.6 billion.
The developments led to a drop of 34.5 percent in operating profit year-on-year to N1.1 billion at the end of the first quarter. This is a sharp downturn from 44.5 percent advance in operating profit to N5.7 billion at the end of 2019.
Both finance income and expenses went down in the first quarter at 25 percent to N704 million and 11 percent to N234 million respectively. That resulted in a drop of almost 31 percent in net finance income to over N469 million at the end of the first quarter.
The sharp drop in finance expenses follows an aggressive deleveraging of the company’s balance sheet in 2019. Total balance sheet borrowings have been slashed from over N24 billion at the end of 2018 to less than N7 billion at the end of March 2020.
UACN closed the first quarter operations with an after-tax profit from continuing operations of N1.1 billion, which is a drop of 44 percent year-on-year. That was boosted by a profit of N717 million from discontinued operations, which built a bottom line of N1.86 billion for shareholders at the end of the first quarter. This marks a turnaround from a net loss of N9.2 billion with which the company closed last year’s operations.
The full-year outlook for the company is positive, reflecting the strength to remain profitable in continuing operations and the shift from loss to profit from discontinued operations.
The first quarter operations ended with earnings per share of 85 kobo compared to 23 kobo per share in the same period in 2019. The company closed the 2019 operations with a loss per share of N1.83 but paid a cash dividend of 10 kobo per share from the reserve.
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