By OKEY ONYENWEAKU

Shareholders of UACN are beginning to imagine how much of a hole the disappointing performance of their company will create in their pockets at the end of its 2019 annual year end.

Though the firm has been running a clearly very tough race for some time now, indeed, the company’s third quarter results are indeed more evidently discomforting. A reflection of this is disclosed in its further slide into the deeper red zone by more than 1,182 per cent from –N994,290 million to –N12.756 billion in 2019.

Though its revenues rose 12.66 percent to N60.5billion in 2019 from the N53.7billion it had achieved in 2018, but cost of sales also rose 11.7 per cent from N43.24billion in 2018 to N48.32billion in 2019. Also, while operating profit rose 106 per cent from N3.171billion in 2018 to N6.552billion in 2019, basic earnings was however negative at -407kobo.

A critical review of the company’s nine month’s financial statement equally shows that while inventories almost reduced by half from N30.5 billion in 2018 to N16.032billion in 2019, total assets also dropped 13 per cent per cent from N131.09billion to N112.86billion in 2019.

This market watchers say is an indication that all may not be well with UACN. Whereas the former giant company posted a modest profit before tax of N2.127 billion in the last 3 months from June 2019 to September 2019, its deep and grave condition has not changed as reflected in its balance sheet which reveals a cumulative N16.232billion loss.

Explaining its situation in 2018, the long-running conglomerate had said: ‘’The Group incurred a loss before tax of ₦5.5 billion in FY 2018, compared to a ₦3.2 billion profit in FY 2017. The 2018 loss was driven by the non-cash expenses incurred by UPDC in 2018 though this was partly offset by a significant reduction in net finance costs (down 53.6% Y-o-Y). Gross finance costs decreased by 19.4% Y-o-Y, driven by debt repayments and reduction in average interest rates (from 23.5% in FY 2017 to 18.2% in FY 2018). Finance income increased by 60.1% Y-o-Y, on increased interest income on the cash proceeds from the 2017 rights issue and on higher cash generation in Paints and Packaged Foods’’,

Its management also explained further at that time:

‘’Revenue declined 11.7% Y-o-Y to ₦78.7 billion in FY 2018, mainly due to the Animal Feeds & other Edibles segment, where current market dynamics were driven by intense price-based competition. Challenging market conditions in the Nigerian real estate sector resulted in lower revenue for the Real Estate segment, due to reduced housing inventory sales from limited development activity. Although Packaged Foods (up +11.9%), Logistics (up +41.5%), Quick Service Restaurants (up +12,6%), and Paints (up +12.1%) delivered revenue growth during the year, this only partially offset the decline in the animal feeds and real estate businesses’’.

CHALLENGES

At the heart of the UACN challenge may be what some have said was the inclination of the company to seemingly expand rapidly into every sector that it could find prompting many analysts to raise  concern over the ability of the management to harness its operational potentials to return value to shareholders. Commenting on the issue, Chairman, Progressive Shareholders Association of Nigeria, (PSAN), Mr. Boniface Okezie, who has also expressed similar concerns in the past, said that the company seems to be interested in expanding into every sector instead of concentrating on a few and thereafter returning value to shareholders.

“It is bothering me that the company wants to invest in every sector. But how does it translate to shareholder value. What enters the pockets of investors? Okezie queried.

As things stand now, there is deep suspicion that stiff competition in the major sectors of the company’s supposed strength could be eating into its market. For instance, UAC’s food chain ‘Mr BIGGS’ is experiencing stiff competition from other food chains like Tantalizers, Sweet Sensation, KFC, Chicken Republic, Tasty Fried Chicken among others.

Similarly, Gala its flagship snack is competing with several others such as Beefy, Superbite and Biggy for market share. Berger paints and others are also competing strongly with CAP Plc and Portland Paints. Observers are also aware that Swan table water which is a product of UAC is also facing stiff competition from Ragolis water, PureLife table water, Eva Water among numerous others including satchet water. Indeed. Its affiliation with the Ikogosi Water plant to produce Gossy Water ended in an almost negative net return before it was rested.

These strings of poor showing may be part of the reason why the company’s profit declined in 2008, 2009 and 2010 and at other times, and even in 2017. Analysts recognize that UAC’s bumper harvest in its 2011 result was fuelled by the 49% stake it sold to Tiger Brands Limited of South Africa.

At that time, its chairman, Senator Udo Udoma recognized that “the profit on sale of shares of N5.7billion represents the disposal of N49% of our 100% stake in UAC Foods Limited to Tiger Brands Limited of South Africa.”

However, Actis, a Private equity investor which had invested 20.5% into the company in 2004 and gave it additional credibility divested in 2008. But even before then, it would be recalled that UAC lost its first credible investor in 1994 when Unilever Plc divested its 40% stake in the company. Indeed, many analysts believe that UAC’s popularity and vigour started waning  when Unilever divested in 1994.

Whereas BH had reported the shrinking market share of the company in 2009, it went on with trying to achieve economies of scale with its new acquisitions. However, not even the over N15billion it raised from a recent rights issue has calibrated its fortunes very significantly.

Underscoring the company’s non-salutary fortunes, a report had reckoned that ‘’ UACN’S slide in margins was the consequence of a sharp rise in the cost of goods sold by its major subsidiaries, a consequence of the massive decline in the external value of the naira in the last two years. But management cannot be totally absolved of blame as the unfolding economic headwinds were foreseeable and for an institution with such high pedigree analyst had expected that the company would have taken early countervailing measures to substitute imports and reduce the impact of naira devaluation on its bottom line. According to one observer, ‘the group got caught committing a silly foul in the eighteen yard box. The group needed to adopt a proactive strategy in containing foreign exchange dependency but allowed itself to get caught ball watching’’

In addition, other analysts have blamed the company’s poor performance on the weak economy and security challenges from the religious sect, Boko haram and the various assaults on farmers by Fulani Herdsmen.

Stakeholders say deep challenges emanating from a tough macro-economic environment in Nigeria have been hard on manufacturers. Analysts believe further problems faced by local manufacturers include, but are not limited to, the volatility of the forex market, and high lending rates which hover between 25 and 30 per cent. Other challenges include shrinking sales income, unemployment, high inflation which has gradually come down to slightly over 11 per cent. More worrisome to the company is the unfair competition with China whose products are much cheaper in the market.

An activist shareholder  who would not want his name mentioned in print told Business Hallmark by way of a telephone interview that the weak economy has not only affected the purchasing power of Nigerians, the company was facing the same challenges of harsh operating environment as other manufacturing firms in the country. He advised the company to watch its source of funds and borrow less.

‘’The economy is bad and the competition is becoming very high for the little money in circulation. Not many organisations can do much in such an environment’’, he added.

Lagos based analyst and Managing Director of High Cap Securities Limited, David Adonri explained that security challenges especially in the Northern part of Nigeria has posed serious problems for manufacturers to sell their products in the affected areas.

Compared to Unilever Plc, Nestle Nigeria Plc and Cadbury Nigeria and PZ Cussons, UACN however appears to be having the most challenging period following the huge losses it has posted.

Looking critically at its historic antecedents, UAC of Nigeria, for over a century, was a foremost private enterprise and a leader in the economic advancement of Nigeria. A leading food-focused company, UAC’s operations, also span the logistics, real estate and automobile sectors of the economy.

The company’s business portfolio includes majority stakes in Grand Cereals Limited, Spring Waters Nigeria Limited (SWAN) and Opticom Leasing Company Limited. UAC’s interests also span Chemical and Allied Products Plc (CAP), UAC Registrars Limited and GM Nigeria Limited, a joint venture with General Motors Corporation of Detroit, USA. Following the new pension reforms in the country, UAC obtained the licence of the National Pension Commission for UNICO CPFA limited, a subsidiary of the Company to operate as a closed Pension Fund Administrator. As a food –focused conglomerate, the company has re-aligned its food business architecture to unlock the values in the business. This has led to the merger of UAC Franchising Division with UAC Restaurants to create a new UAC Restaurants Division. UAC Restaurants operates leading Quick Service Restaurant brands including Mr Bigg’s, Village Kitchen, Chicken Inn, Pizza Inn, Creamy Inn and Dial –a-Delivery. UAC, also, operates Nando’s, the renowned Casual Dining Restaurant which has been rested.

Notwithstanding its challenges however, the company still paid a dividend of N100 to its teeming investors as its share price closed on Friday at N17.30, having gained 2.3 per cent year to date from N16.90 early in the year.

UAC was first incorporated in Lagos, Nigeria under the name Nigerian Motors Ltd on April 22, 1931, as a wholly-owned subsidiary of the United Africa Company Ltd. (a subsidiary of Unilever), which later became UAC International.

The Company’s name was changed to United Africa Company ( Nigeria ) Ltd on 23rd July 1943.

In 1994, following the divestment of 40% interest in the Company by Unilever PLC, the Company became a wholly-owned Nigerian Company.

The company is a diversified conglomerate with interest in several portfolios including Food and beverages which operates under the UAC foods limited and manufactures packaged snacks, fruit juice, ice-cream, and bottled spring water.

Other subsidiaries include MDS Logistics, and UAC Restaurants Limited.

Its brands portfolios includes leading brands such as Gala Sausage Roll, Mr. Biggs,  Funtime Coconut Chips, Supreme Ice cream, Swan Natural Spring Water, Dulux, Grand Soya Oil, Grand Groundnut Oil, Vital Feeds, and Livestock Feeds.

The new Group Managing Director/CEO of UAC, Babasola Aiyesimoju has to perform a magic if the company must survive.