UAC’s Losses Hit N2.01bn on Sales, Finance Cost

Kayode Tokede

UAC Plc suffered a loss of N2.01billion in its nine months ended September 30, 2022 unaudited result and accounts amid growing cost of sales and increasing finance cost.

The conglomerates, thus, grew revenue but the management‘s inability to manage cost of sales and finance cost battered the company’s performance for the second consecutive quarter result and accounts.

UAC, a holding company with subsidiary and associate companies operating in the Animal Feeds and other edibles; paints; packaged food and beverages; quick service restaurants; logistics and real estate segments reported N77.8billion revenue in nine months  of 2022, representing an increase of 9.01 per cent from N71.37billion in nine months of 2021.

The breakdown of revenue showed that quick service restaurants grew by 34 per cent in revenue to N2.14billion in nine months of 2022 from N1.6billion in nine months of 2021, while Paints reported N13.06 billion revenue in nine months  of 2022, an increase of 28 per cent from N10.2 billion reported in nine months of  2021.

In addition, revenue from Animal Feeds rose by four per cent to N45.48billion in nine months of 2022, and Packaged Food and Beverages gained two per cent to N18.22 billion in nine months of 2022 from N17.82 billion reported inn nine months of 2021.

However, the group show its cost of sales moving to N65.49billion in nine months of 2022, an increase of 11 per cent from N59.01 billion in nine months of 2021.

The interplay between revenue and cost of sales dragged gross profit to N12.32billion in nine months of 2022, a decline of 0.31 per cent from N12.36billion in nine months of 2021.

Consequently, gross profit margin contracted by 309 basis points to 13.1per cent in nine months of 2022 over the impacted by input cost escalation.

UAC announced N57.94million impairment loss on financial assets in nine months of 2022 from N38.55million in nine months of 2021, while total operating expenses rose significantly by 21per cent to N12.7 billion in nine months of 2022 from N10.5 billion reported in nine months of 2021.

Operating expenses as a percentage of sales increased by 345 basis points Quarter-on-Quarter (QoQ) to 18.3per cent.

Operating loss

The Group recorded an Operating loss of N852 million in nine months of 2022, compared to an operating profit of N374 million recorded in nine months  of 2021, driven by gross profit underperformance, particularly in the Animal Feeds and Other Edibles segment, and increase in selling and distribution expenses.

The Group recorded higher net finance cost in nine months of 2022 as a result of increased short-term borrowings in the Animal Feeds and Other Edibles segment, Paints segment and Packaged Food and Beverages segment.

UAC announced N2.55billion finance cost in nine months of 2022 from N1.16billion in nine months of 2021, while finance income dropped to N730.8million in nine months of 2022 from N920.8 million in nine months of 2021.

Amid challenging performance, UAC announced N1.1billion loss before tax in nine months of 2022 from N1.38billion profit before tax in nine months of 2021. The group also announced N2.01billion loss after tax in nine months of 2022 from N563.12million in Q3 2021.

UAC’s free cash flow for the period was negative N1.5 billion in nine months of 2022, compared with negative ₦18.9 billion in December 2021, due to improved working capital management in nine months of 2022.

Leverage (net debt to EBITDA) of 4.9x compared to 1.1x in December 31, 2021 as a result of N5.8 billion net increase in third-party borrowings (+29per cent) and a lower operating profit during the period. Increase in borrowings reflective of the higher cost of inventory particularly in the Animal Feeds and other edibles segment.

Key Subsidiaries  Performance   

UAC’s animal feeds and other edibles performance in the period showed 3.9 per cent increase in revenue to N45.5 billion in nine months of 2022 from N43.8 billion reported in nine months of 2021 on account of price increases across all product categories in response to escalating costs.

The segment recorded an operating loss of N1.7 billion in nine months of 2022 as against N1.7billion operating profit in nine months of 2021 over lower sales volumes, higher raw material and conversion costs, and increased operating expenses.

The segment recorded a N3.4 billion loss before tax in nine months of 2022 impacted by higher finance costs and increased operating expenses.

For Paints, its revenue grew by 28per cent to N13.1 billion in nine months of 2022 from N10.2 billion in nine months of 2021 supported by increased sales price and retail expansion through opening of new stores.

Operating profit was 165.6per cent higher at N1.9 billion as pricing initiatives partially offset increase in raw material cost and other operating expenses. Profit before tax was N2 billion in 2022, 128.8per cent higher than N853 million recorded in 2021.

The Paint subsidy PBT margin expanded 659 basis points to 14.9per cent in nine months of 2022.

However, the Packaged Food and Beverages witnessed 2.2per cent increase in revenue growth to N18.2 billion in nine months of 2022 from N17.8 billion in nine months of 2021 as a result of price increases in the snacks, water and dairies categories.

Water revenue rose by 11 per cent and it was supported by price increases, to offset rising input costs. Investments in cold chain infrastructure to deepen distribution, refreshed branding (new logo), as well as the introduction of a new ice-cream bowl across all SKUs for Supreme ice-cream further supported dairies 29per cent revenue growth YoY. The Snacks category recorded a four per cent decline in revenue due to reduced volume.

Operating profit declined by 46.9per cent in nine months of 2022 to N535 million from N1billion in nine months of 2021, impacted by higher input costs, increased operating expenses such as increase in haulage rates and energy prices. The Packaged Food and Beverages subsidiary of UAC reported  profit before tax N477million profit before tax in nine months of 2022, representing a decline of 51.5 per cent from N985million reported in nine months of 2021.

Reasons for losses

The Group Managing Director, UAC, Fola Aiyesimoju, in a statement said, “Our performance in the third quarter was negatively affected by losses in our animal feeds segment, which recorded a loss of N1.9 billion on account of margin pressure, high levels of debt and inventory, and rising borrowing costs. We are working to reduce costs and debt levels.

“We remain committed to our growth and expansion strategy but are cognizant of the heightened levels of risk in light of challenging global and domestic macroeconomic conditions.

“Rising levels of insecurity continue to disrupt operations with the animal feeds segment most affected; recent flooding in the South East of Nigeria impacted operations; however, we were fortunate to avoid material damage to plant and inventory.

“We continue to monitor the longer-term implications of flooding on agricultural output, food security and logistics in the region.”