UAC of Nigeria Plc [UACN] is one of the listed companies with a good earnings story for shareholders for 2023 operations, and it will deliver the biggest profit in many years.
The conglomerate, which has seen profits only four times in nine years since 2014, engineered a major rebound from a loss of about N4 billion in 2022 to hit a profit of N6.7 billion in nine months of 2023.
Profit delivery stayed elevated from a net loss of N1.2 billion in the first quarter to an after-tax profit of N2.4 billion in the second, advancing further to N5.5 billion in the third.
The final quarter however is dicey: the key functions of the profit delivery so far may be altogether missing in action.
The company’s interim results for the year show that its strength in operations has come from two angles. One is a windfall of N7.6 billion from the sale of property, which blew up other operating income from N1.2 billion in the same period in 2022 to N8.6 billion at the end of the third quarter in September 2023.
The second is net finance income of N4.4 billion at the end of the third quarter, which is nearly eight times the corresponding figure of N569 million in 2022. The increase was driven by net foreign exchange gains of N3.2 billion against a net loss of about N162 million in the same period in the prior financial year.
However, an exchange loss of about N452 million for the third quarter dried up finance income for the quarter, which could repeat in the final quarter. And in the absence of robust other operating income – which is powered by the sale of property, the final quarter could easily fold back into a loss.
Some optimism is however held by improving sales, which recovered from a drop of 11 percent in the first quarter to record an increase of 16 percent in the second and over 11 percent growth in the third quarter.
Quarterly sales revenue grew from N24.6 billion for the first quarter to N28.3 billion for the second quarter and increased further to N28.7 billion in the third quarter – adding up to the company’s closing turnover figure of N81.5 billion at the end of the third quarter.
On year-on-year reading, however, sales growth has stayed quite weak at 4.8 percent, even weaker than the increase of 7.8 percent to N109 billion in 2022. Sales were slowly growing across key market segments, including the main revenue source – animal feeds and other edibles.
Production costs were kept under check at an increase of less than 3 percent to N67.4 billion at the end of the third quarter. This is however better than the half-year record when the cost of sales grew ahead of sales, leading to a decline of 3.6 per cent in gross profit to N8.6 billion.
The problem however is that production costs consume a high proportion of sales at 82.7 percent leaving an insufficient margin to absorb operating costs without any other major inflow.
Gross profit grew by 14.8 percent to N14 billion, which without the other operating income –swelled by profit from the sale of property, could not have met total operating expenses of N15.5 billion.
The resulting operating profit of over N7 billion was more than fully provided by the other operating income of N8.6 billion. This underlies a jump of more than nine times in operating profit from N758 million in the same period in 2022 and a rebound from an operating loss of N35 million at the half year.
Operating profit was reinforced by finance income that rose from N569 to N4.4 billion over the review period. Finance cost was under control at an increase of 5.5 per cent to N2.5 billion and net finance income amounted to N1.9 billion against net finance cost of N1.8 billion over the same period.
Share of associate profit remained a quickening force for the company with its outstanding growth from a loss of over N38 million to a profit of N625 million.
The company closed the third quarter operations with a pre-tax profit of N9.6 billion, reversing from a pre-tax loss of over N1 billion in the same period in 2022.
After-tax profit amounted to N6.7 billion at the end of the third quarter – a turnaround from a loss of N2 billion in the same period in 2022.
Earnings per share amounted to N2.46 at the end of the third quarter, rising from a loss per share of 47 kobo in the same period in 2022.
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