UAC: Giant that lost its way

Mr. Fola Babasola Aiyesimoju, GMD, UACN

…Time out for the former giant of corporate Nigeria

The coming of a new helmsman at UACN , the youthful, non-establishment player, Mr. Fola Babasola Aiyesimoju may ordinarily signal a renewed determination by the 140-year old brand to reposition itself for the realities of doing business in the 21st Century, complete with artificial intelligence, driverless cars, millennialism and block-chain. But is the rot too far gone? Is the new CEO a revivalist or an undertaker? YUSUF MOHAMMED examines the challenges before the new CEO and the future of the organization.

At its listing 45 years ago, United African Company (Nigeria), UACN, commanded a respectable percentage of the total value of the Nigerian Stock Exchange, NSE and was singularly also one of the bourse’s most capitalized firms. But that is clearly another day now.

At the close of trading last week, the UACN stock was being offered for N6.95. This is even as the stock option of Nestle, which like UAC is similarly engaged in ‘the manufacturing and marketing of food products’ was being picked up by investors (that could dare) at a princely N1, 580.00 per share.

Share price is only one more point where the 140-year old UACN is struggling in relation to its relatively younger 60-year old rival. In its 2018 FY report for example, Nestle, which was listed at the NSE five years after UACN, posted total revenues of N266.2billion compared to UAC’s N78.74billion.

In the same year also, Nestle posted a profit after tax of N43billion compared with UAC’s loss after tax of –N9.58billion.

But in addition to areas of stock price, revenues and profits where UAC is underperforming in comparison with the likes of Nestle; in total assets also, Nestle equally has an edge with total assets of N162.33 compared with UAC’s N131.09billion

In the midst of these disparities, the two companies have popular products and brands in the market. While Nestle has products like Nescafe, Maggi, Milo, Cerelac, Golden Morn, Nido Milk and Pure Life water, UACN boasts of offerings like Gala, funtime coconut chips and Grand Pure Soya Oil. It also has its Mr. Biggs Restaurants Limited chain, and sundry other investments in Portland Paints and CAP Plc (producers of the Dulux, Caplux, Sandtex and related paints brands).

There are also MDS Logistics, the UPDC and the Animal Feed segment that is responsible for popular brands like Binngo dog food and the Vital feed range of poultry products. Surely, the old war-horse clearly remains a broad and diversified conglomerate indeed.

So why then is UACN under-performing?

Indeed, that UACN has been hemorrhaging is no longer news. Faced with the natural dynamics of life as well as the convulsions of the operating environment, the behemoth that once part-owned Nigeria, almost literally, has been forced to shed weight in successive reform initiatives.

A decade ago, it thought it had found its groove in the food, confectionaries and property sectors. Its branded eatery, Mr. Biggs was doing well with the supply of franchise licenses exceeding demand, its bread product, UAC bread, was selling in large volumes, and its snack offering, Gala, was literally the first choice for many a traffic-challenged commuter. On the property front, it pitched for and secured the iconic 1004 flats and was raving away on several other hot deals that some were beginning to hazard that the future of UAC was property. Indeed, life for the company was still relatively good at this time.  Now, that is no longer so. Increasing competition and a grave inability to presciently ‘read the tea leaves’ and adequately respond to what they were communicating have taken their toll. The result: UACN today gropes on in search of a winning market formula. The giant is compelled to learn a new dance.

Where the rain began to beat…

Analysts say that the real challenge facing the organization may be quite foundational? What is UACN? Yes, it is a business, but what really is it into? What is its core product? What is its Unique Selling Point? Broken down, where indeed is its real and easily identifiable area of core competence?

To be sure, UACN has had a chequered history no doubt. Once indeed, along with its then conjoined partner, Unilever, it literally owned Nigeria. It was within this frame that it participated in the 865,000 pounds transaction for the transfer of the charter of the new nation-space to the British Empire. Even after then, it continued to be one of the leading business lights within the Nigerian space at a time when a lot of the transactions revolved around the importation of industrially manufactured goods into the country and the export of raw materials to the metropolis.

Given this status also, it equally came with the territory that the company ranked, for many years and decades, as one of the top five organisations where young school leavers and graduates alike desired to work. It is no longer so. A survey conducted by Business Hallmark in the course of researching this piece placed UAC at the bottom of a chain of options with the likes of NNPC and Customs coming tops.

Analysts say that part of the burden of the company today may have to do with visionary regeneration and succession planning. For these commentators, the coming in of the new helmsman could be a right shot in the arm. But is it too late in the day? And would the surviving elements of the old governing class within the organisation that had been accustomed to feeding off the dainties of Egypt recognize that the path to the Promised Land is indeed an entirely different ball game? Would they allow real and thorough change to take place even at the expense of what could be described as their short term influence and benefits today?

While the company’s spokesperson would not directly respond to this line of thought, a glimpse into the mood of the organization as evidenced by the attitude of staffers show that some may have presently elected on adopting a wait-and-see attitude.

In the signed statement from UACN Chairman, Dan Agbor, announcing the new CEO, he had however not stayed off the point. According to him, the choice and appointment of the 37 year old finance professional was plainly expressive of the company’s ambitions, and the board’s determination to accelerate the process of change within the group.

But this would not be the first time that the company has reached such a critical threshold. Indeed, there is a sense in which the story of UAC may indeed be a story of a firm that has been frequently compelled to adjust and keep adjusting to changing environmental dynamics. In a sense, this is not unusual as businesses by their nature must continually keep their eye on the evolving social space to remain relevant. But then while it is true that in the history of the company, there has naturally been a series of leadership transitions that have helped to briefly refocus the organization and enable it navigate the environmental storms and changing conditions that have presently hobbled and taken out the likes of SCOA, John Holt and Leventis Stores, it may also be that some of these previous transitions may not have in themselves been comprehensively handled to the extent that even today, there are still subsisting fears over the future of UACN.

Indeed, and underscoring the leadership challenge that is at the core of the company’s challenge, in an environment where the average CEO is almost guaranteed to do 3-5 years on the job, and with others running into the 10 years and beyond mark, UACN has been led by three CEOs in two years. The new MD is replacing Mrs. Omolara Elemide who had moved up the ladder in January, albeit in an acting capacity, following the exit of Abdul Bello in December 2018. Bello had himself only assumed office in 2017.

But then there is also a sense in which UACN’s leadership challenge is more than a two-year old fray. And indeed, going over the firm’s more recent history, some questions in this regard pop up. For example, did the iconic Ernest Shonekan stay too long in the saddle? Was Albert Bassey Ndiokho the best fit as his successor? Did Udo Udoma’s elevation to a place in the Nigerian Federal Executive Council open the door for even further challenges to be revealed?

A look at the numbers

While history is a guide and social and environmental appreciation a wise tool for understanding trajectories, but at its base, all business is about numbers. Accordingly then, to get a firmer clue about the deeper state of the company’s challenges presently as well as the possible options that the new leadership at UAC could explore, we need to review its real business performance tracks.

Like many other businesses in the country, the rise in foreign exchange rates from N160 to a dollar in 2014 to N305 to a dollar in 2017 alongside the corollary inflationary spiral that saw an upward trend in the price of cereals, flour and refined sugar for example made it very tough an exercise to plainly make a buck. Within this climate, top line growth in earnings at UACN in the years 2013-2017 on a compound annual basis could not do better than -2 per cent per annum.

This indeed is the backdrop within which the 2017 leadership change that saw the coming in of Abdul Bello as Managing Director of the conglomerate was carried out.

However, less than two years later, the crippling operating challenges had not yielded, leading to the exit of the company veteran who had spent over twenty years at the organization. With the board insisting at his exit in December that his stand-in, Elemide, was only going to serve in an acting capacity, it was becoming clear to company watchers that the search was on for a deeper solution. The new CEO it has become apparent is that solution.

2018 Report: The last straw?

Underscoring the challenge that the company was faced with at this time, in Q3 2018, the UACN Group could only manage total revenues of N58.08billion, of which the profit before tax was N483.21m. Contrastingly, in the corresponding period in 2017, it had posted total revenues of N70.25billion and profit before tax of N3.11billion. Something had to be done as all indicators were pointing to the fact that the FY 2018 report would be dismal. It was clearly too late to rescue 2018 but what about the succeeding years?

As had been anticipated, if the company had been struggling and getting by before 2018, the 2018 FY report made it plain that something had to be done.

Revenue generated by the group dropped to N78.7 billion from N89.17 billion in 2017 even as it similarly recorded an operating loss of N5.3 billion compared with the operating profit of N7 billion it had garnered in the previous financial year. This development imposed on the board the imperative of seriously recalibrating the company’s fortunes.

Still on the reverse side, the company also suffered a loss before tax of N5.5 billion as against the profit before tax of N3.3 billion it had posted in 2017, while it recorded a loss after tax of N9.5 billion in contrast to the profit after tax of N1.3 billion position of a year earlier. Earnings per share closed at -N2.11k in 2018 as against the 50 kobo positive of the previous year.

As for total assets, it could only manage a marginal rise from N130.6billion in 2017 to N131billion in 2018.

Sectoral outcomes

As they say, the devil is in the details and it is on this flank that some of the deeper problems of the company begin to be unveiled.

The animal feed segment of the business which caters for the production and marketing of livestock feed and edible oil remains the leading cash centre of the UACN Group. Paradoxically however, it comes out also as the grand revenue drainer in 2018 as its numbers dropped from N58.4billion to N44.5billion year on year.

Broken down further, despite its still huge revenue figures, animal feeds contribution to the Group’s Operating Profit dropped from N2.97billion to N1.16billion.

As for the real estate sector, its specific contribution to group revenue slumped from N3.9billion in 2017 to N2.3billion in 2018.

Bucking the trend, the Packaged Food subsidiary which is responsible for the production of water, snacks, ice cream and related products saw its contribution to Group revenues grow from N14.3billion to N16.2billion year on year.

On its part, the Quick Services Restaurants, QSR (Mr. Biggs) segment basically held its own on the revenue field as it moved up marginally from N1.24billion to N1.27billion in 2018

It was also a marginal upswing for the Paints Investments which rose from N9.4billion in 2017 to N10.5billion in 2018; as well as Logistics (MDS) whose revenues also moved up slightly from N5.03billion in 2017 to N5.97billion in 2018.

Going forward

Company watchers say that it is urgent that the new helmsman undertakes a forensic review of each business within the group and set fresh targets, while also highlighting new opportunities. This would involve to a great extent, an abrogation of the aversion for change and risk which has over time limited UAC’s ability to enter new markets, grow market share, redefine old markets and dominate as much of the business space that opens itself out to it.

This is more so when the pressure of its huge and aging fixed assets, expanding depreciation costs and heavy pension liabilities would continue to draw down on its best performance scores. So the only way to go is to become increasingly and continually more profitable.

Indeed, UAC has to stridently and comprehensively reinvent itself. As the relatively more fleet-footed ‘mercantilists from the two Easts’ (of Nigeria and Asia) have demonstrated so succinctly, you don’t need the degree of size and cost outlay exposure that UACN is sitting on at the moment if you are simply going to trade!

Also to be noted is that the property division, where its new helmsman cut his teeth, is still for all practical intents and purposes, a general entry market. It therefore does not really convey any extraordinary advantages. While it is a plus that the division, under his leadership, has shown and continues to show significant signs of a turnaround, that would also not be enough to deal with the challenges of the larger organization.

Says the finance and housing expert, Roland Igbinoba:  ‘It may be that he doesn’t only have property experience. If he has good administrative skills, he could lead the company.’

Taking a cue from here then, one more in-company adjustment that could help the new CEO to fully appreciate and respond to the bigger demand of completely refocusing the organisation would be for him to consider giving up the primary leadership of the property division that he was still superintending as at press time. This would free him to more robustly and more dispassionately confront the huge challenges that are strongly embedded in the bigger picture.

Related to this also is the imperative that a new UACN that would frontally confront its present-day huge operating costs challenges would need to be inaugurated. This is because, compared with other players, this is a clear drag on its profitability and viability.

Equally, there is the urgent challenge of defining focus and entrenching a new and even more dynamic ethos of innovation and continuing change as a core fulcrum within the new UACN. To navigate today’s environment, roller-coasters, not sledges are what you need.

And this is where UACN would need to right-size more appropriately on the personnel side. This is more so when one other very clear challenge is that the firm has been largely laid back, conservative and non aggressive in the critical area of marketing. Indeed, on its worst day, UACN comes across as a tired pensioners’ corps and not really the first place of choice by young people to be employed any more. This is a huge paradox as even as late as the 70s and 80s, staff were being head hunted from the graduates’ corps of our leading tertiary institutions.

If these are not done, the verdict of history may not be too kind on the long-surviving behemoth. At that point, it may be recorded that this is one other old Nigerian business survivor, a giant of yesteryears that missed the critical moment to chart the vision of the future. And as is most evident out there on the streets, today’s Nigerian market is an increasingly brutal space where entitlement narratives are being steadily punctured: ‘…his place let another take.’ Is this what the owners of UACN want? We doubt. But then words are cheap. So they have to go ahead and walk the talk – in their own interest.

And as the lessons from several organizations in the Nigerian business space copiously testify, it takes a combination of CEO vision, a streamlined workforce and a supportive board to get the job done. We are waiting and watching