WorldStage Newsonline– UAC of Nigeria (UACN) has released its fourth quarter (Q4) 2017 results with group sales of N20.4bn, a decline of 21% as against Q4 2016, while profit before tax (PBT) fell by 88% to N202m.
The drivers behind the significant decline in PBT were an 80% rise in operating expenses to N3.5bn, a 64% decline in other income to N756m and a 130% rise in net finance charges.
UACN also posted a large loss on the income from associates line with a loss of N561m after tax of N1.1bn.
Sales for the food and beverages segment are now more important to the business. Combined, this segment accounted for 86% and 83% of group sales in Q4 2017 and FY 2017 respectively.
As such, increasing challenges within this segment, especially for the animal nutrition businesses, is likely to impact profitability going forward. On a sequential basis, while sales were flattish q/q, PBT declined 86% q/q. The decline in profitability was driven by higher operating costs, other income and significantly higher finance costs.
In 2017, Grand Cereals accounted for 54% of group sales (the highest on record). Sales were up 30% to N48.2bn, driven by both pricing and unit volume growth. However, price increases were not enough to offset rising input and finance costs which weighed on profitability and led to a -39% decline in PBT to N1.8bn. PBT margin also contracted by 433bps to 4%.
For Livestock Feeds, sales declined 8% y/y to N10.2bn in 2017 following a shrinkage in demand for poultry feeds due to the declining bird population. The bird flu epidemic has been out of control for several quarters. In addition, competition within that segment of the animal nutrition business has grown.
Livestock Feeds reported a loss before tax of N726m, citing higher finance and input costs. Besides UAC Foods and UAC Restaurants, all other UACN businesses recorded PBT margin contraction.
UAC Foods and UAC Restaurants benefited from improved working capital and controlled costs. UPDC, UACN’s real estate business, continued to be a drag on the group. The firm posted a loss before tax of N3.1bn, weighed down by lower housing sales and relatively higher finance costs. UACN proposed a dividend of 65 kobo (ahead of our forecast of 60 kobo) which works out to a dividend yield of 3.5%.
