UAC: Dividend Payout May Miss Shareholders Expectation

Kayode Tokede

UAC of Nigeria Plc might not improve on its dividend payout to shareholders in 2021 financial year. This is because analysis of its result and accounts for the year under review revealed that profit after tax and profit before tax dropped by 70.4 per cent and 44.3 per cent respectively in nine months ended September 30, 2021

The leading diversified Company, operating in the Food and Beverage, Real Estate, Paint and Logistics sectors of the economy also reported losses in its third quarter (Q3) unaudited results for period ended September 30, 2021.

In Q3 unaudited results, UAC of Nigeria reported 63.2 per cent drop in Operating Profit to N437 million, with operating profit margin contracting by 386 basis points to 1.8per cent from 5.6 per cent recorded in Q3 2020.

The Group reported loss after tax from continuing operations N199 million in Q3 2021 compared to a N1.2 billion profit in Q3 2020.

Total loss for the period was N199 million in Q3 2021 compared to a profit of N744 million in Q3 2020 as loss per share from continuing operations for Q3 2021 was 9 kobo (Q3 2020: earnings per share of 31 kobo).

The weak performance impacted negatively on its stock price on the Nigerian Exchange Limited (NGX) and Basic Earnings Per Share that dipped to a loss of N0.09 in Q3 2021 from N0.15 recorded in Q3 2020.

Over the years, UAC of Nigeria maintained mixed performance in dividend payout to shareholders.
For instance, the company reported N3.93billion profit in 2020 from a loss of N9.26billion in 2019 and paid shareholders a dividend of N1.20 (N3.46billion) as against N0.10 dividend in 2019 (N288million) paid to shareholders in 2019.

However, UAC of Nigeria in its nine months result and accounts improved on its revenue but hike in finance cost and operating expenses, two key financial parameters weaken profits in the period under review.

UAC of Nigeria reported 23 per cent increase in revenue to N71.4billion in nine months of 2021 from N57.8billion reported in nine months of 2020.

growth in revenue

The growth in revenue was driven by 13.7 per cent increase in Animal Feeds and Other Edibles segment to N41.64billion in nine months of 2021 from N36.65billion reported in nine months of 2020, amid increasing price that offset rising raw material costs.

Paints segment grew by 41.3 per cent to N10.2billion from N7.14billion on account of higher volumes compared to 2020 which was impacted by limited sales due to the restrictions in the movement of people and goods in second quarter (Q2) 2020.

Packaged Food and Beverages segment grew by 39.4 to N17.7billion, driven by volume growth in the snacks, water and dairy categories and price increases in the snacks and water categories; and the Quick Service Restaurants (QSR) segment gained 51.2 per cent to N1.6billion as additions to company-owned restaurants (corporate stores) and improved volumes and performance of existing stores.

The fish feed category in the Group’s Animal Feeds and Other Edibles continued to benefit from customers migrating from imported brands to locally produced brands.

Operating profit

Operating profit in the Animal Feeds and Other Edibles increased by 47 per cent to N1.7 billion in nine months of 2021 from N1.2billion reported in nine months of 2020 on account of price increases to offset higher raw material costs, as well as lower operating expenses.

Since the outbreak of COVID-19, Grand Cereals Limited and Livestock Feeds PLC have embarked on operational improvements in power consumption and initiatives focused on reducing distribution expenses. The segment recorded a N731 million Profit before Tax in nine months of 2021, against a N855 million Profit before Tax in nine months of 2020, on account of higher finance costs to support deliberate efforts to build inventory.

The Paints segment reported operating profit of 33.7 per cent, lower at N708 million as a result of lower gross margin and increased operating expenses and non-recurring merger restructuring costs in the period totalling N121 million. Profit before Tax was N853million in nine months of 2021, 32.1per cent lower than the N1.3 billion recorded in nine months of 2020.

The growth recorded in UAC of Nigeria Packaged Food and Beverages segment by driven by double-digit volume growth across all categories(snacks, spring water, and ice cream). Volume growth was supported by improved distribution in Southern Nigeria, improved product mix with greater contribution from the recently introduced larger 100g Gala SKU, as well as additional spring water capacity.

However, the Packaged Food and Beverages Operating profit increased by 52 per cent in nine months of 2021 to N1 billion from N663million reported in nine months of 2020 supported by revenue growth. Profit before Tax increased by 43.5 per cent to N985 million from N686million in nine months of 2020.

QSR segment recorded a N153 million operating loss in nine months of 2021 from N50million loss recorded in nine months of 202, driven by escalating raw material costs and increased operating expenses.

QSR segment

The QSR segment recorded a N183 million Loss before Tax in nine months of 2021, against a N54 million Loss before Tax in nine months of 2020.

Associate: Real Estate (UPDC – 43per cent ownership) recorded an operating loss of N512 million in nine months of 2021 as against N379million recorded in nine months of 2020 on account of increased cost of sales as gains on property disposal and reduction in administrative expenses were partially offset by a one-off credit loss expense.

The real sector of UAC of Nigeria recorded a N1billion loss before Tax for nine months of 2021, an improvement from the N2.2 billion loss before Tax recorded in nine months of2020.

In addition, the MDS Logistics’ revenue increased 11per cent to N6.5 billion in nine months of 2021 from N5.9 billion in nine months of 2020, driven by increase in pharma logistics and haulage services.

MDS Logistics’ recorded a loss before Tax of N200 million in nine months of 2021 compared to a Profit before Tax of N352 million in nine months of 2020 primarily due to higher cost of sales and operating expenses, as well as finance costs incurred on a loan to fund recent capital expenditure to support the haulage business.

key financial parameters

From the loss and profit figures, cost of sales grew by 27.2 per cent to N59billion in nine months of 2021 from N46.4billion in nine months of 2020, to position gross profit at N12.34billion, 8.45 per cent growth when compared to N11.4billion reported in nine months of 2020.

Consequently, gross profit margin declined 240 basis points to 17.3 per cent in nine months of 2021 from 19.7 per cent in nine months of 2020.

The Group’s total operating expenses grew by 9.03 per cent to N10.59billion from N9.72billion in nine months of 2020. As selling and Distribution Expenses grew by 1.8 per cent to N4.5billion in nine months of 2021 from N4.46billion in nine months of 2020, Administrative Expenses also grew by 1.8 per cent to N4.54billion as against N4.46billion reported in nine months of 2020.

The proportion of Operating Expense/ revenue dropped to 14.8 per cent in nine months of 2021 from 16.8 per cent recorded in nine months of 2020.

UAC Nigeria reported operating Profit of N2.1 billion in nine months of 2021, about six higher than the N2 billion recorded in nine months of 2020.

The group recognised higher finance costs on account of increased short-term borrowings in the Animal Feeds and Other Edibles segment to support deliberate efforts to build inventory as well as rising interest rates. Performance was negatively impacted by the loss from associate companies (UPDC and MDS) in nine months of 2021 versus a profit from associates in nine months of 2020.

As a result, Profit before tax was N1.4 billion, a decrease of 44.3per cent against N2.5 billion in nine months of 2020. Profit after Tax from continuing operations was N565 million compared to N1.45 billion in nine months 2020.

Total profit for the period was N563 million in nine months of 2021 compared to N1.9 billion reported in nine months of 2020. UAC recorded N451 million profit from discontinued operations in nine months of 2020 which impacts year on year comparison.

Loss per share from continuing operations for nine months of 2021 was N0.3 kobo, compared to the earnings per share from continuing operations of N0.24 kobo in nine months of 2020.

UAC of Nigeria cash flow in the period under review was negative N8.4 billion in nine months of 2021, compared with positive N1.4 billion in nine months of 2020.

According to the company: “Free cash flow was impacted by a deliberate strategy to increase in inventory levels in the Animal Feeds and Other Edibles segment and the Paints segments, advance payments to suppliers in the Animal Feeds and Other Edibles segment, settlement of short term obligations across all segments, and the shareholder loan disbursed to UPDC PLC to refinance its corporate bond.”

declining performance

UAC of Nigeria recorded 5.4 per cent decline in total assets to N87.19billion as at September 30, 2021 from N9217billion reported in full year ended December 31, 2020.

As UAC of Nigeria reported 8.8per cent drop in total non-current assets to N37.3 billion as at September from N40.99billion in full year ended December 31, 2020, total current assets closed September 30, 2021 at N45.99billion, about 10 per cent decline from N50.9billion reported in 2020.

From the financial position, the Group reported nearly 19 per cent decline in total equity to N49.72billion as at September 30, 2021 from N61.37billion reported in 2020. The decline in total equity was driven primarily by 14.6 per cent decline in equity attributable to equity holders of the parent to N44.9billion from N52.64billion reported in 2020 financial year.

Analyst’s View

The Group Managing Director, Fola Aiyesimoju in a statement explained that: “The Group recorded meaningful revenue growth of 23per cent year on year and a six per cent increase in operating profit.

“The operating environment remains challenging on account of rising inflation and raw material cost escalation which remains an ongoing concern and as such we are carefully assessing pricing of key products across our portfolio.

“Net income was negatively impacted by higher finance costs and losses from our associate companies UPDC PLC and MDS Logistics Limited.”