U.A.C of Nigeria Plc FY2021 Results Conference Call Transcript

By Published On: May 24th, 2022Categories: Corporate announcement, Transcripts

Date: Wednesday, 6 April 2022 3:00 PM WAT

Presenters:
• Mr. Fola Aiyesimoju (Group Managing Director, UAC of Nigeria PLC)
• Mrs. Funke Ijaiya-Oladipo (Group Finance Director, UAC of Nigeria PLC)

Moderator:
• Mrs. Chiamaka Uwaegbute (Investment Associate, UAC of Nigeria PLC)

1. Presentation
Moderator: Good afternoon, ladies and gentlemen. Welcome to UAC of Nigeria PLC’s Full Year 2021 Results Conference Call. This conference call will be hosted by Fola Aiyesimoju, Group Managing Director; and Funke Ijaiya-Oladipo, Group Finance Director. Please note that this call is being recorded.

Following prepared remarks by UAC’s management team, an interactive Q&A session will start. I will now hand the call over to Fola Aiyesimoju.

Fola Aiyesimoju (UAC Group Managing Director) Introductory remarks

Good day all and thank you for making time to participate in our result presentation. In our prepared remarks, Funke and I will discuss our operating environment, provide updates on our strategic initiatives, share insights on our financial performance and discuss our outlook.

Macroeconomic review
We start on slide 5. In 2021, Nigeria’s economy returned to growth following the COVID-19 triggered recession in 2020. Key concerns remain around inflation and foreign exchange, with foreign exchange concerns including availability and pricing.

On slide 6, we outline the effect of base inflation combined with supply chain disruptions, which resulted in input cost escalation far over the reported headline inflation. In our animal feeds business, prices for maize and soya beans increased by 50% and 100% respectively. In our paints business, the price for resin increased by more than 100% and there were increases by over 50% for flour, milk, and sugar impacting our packaged food and beverages, and quick service restaurants businesses. Unfortunately, the trend has continued into 2022.

In a nutshell, the biggest issues we are grappling with are cost escalation and supply chain disruptions.

Please turn to slide 7. The net impact of rapid escalation in costs has been pressure on gross margins, resulting in margin compression across all businesses. We partially offset this by reducing operating expenses to sales ratios across board and continue to pay very careful attention to pricing and gross margins in light of the continued high inflationary environment.

In the next section, we provide updates and strategic initiatives implemented in 2021.

Strategic initiatives in 2021
A recent focus for us has been on simplifying the group structure, resulting in the sale of controlling interests of two of our businesses, UPDC PLC and MDS Logistics.

In 2021, we made further progress by successfully merging and integrating our paints businesses, CAP PLC and Portland Paints. This merger is complete and the fully integrated business operates seamlessly.

We acquired 49% interest in UAC Foods owned by Tiger Brands who were very supportive partners during the time of our joint ownership. Increasing our stake in UAC Foods is in line with our strategy to simplify the group by exiting non-core businesses and doubling down in core growth areas.

Finally, we completed the unbundling of UPDC REIT units to UAC shareholders and you should have received REIT units as well as a small dividend between December and January this year.

An outstanding question relating to our structure is as regards our animal feeds businesses. Our two businesses in this segment, Grand Cereals Limited and Livestock Feeds PLC have limited geographic overlap, which is positive in the context of a potential merger but are configured to deliver different value propositions to end customers.

Resolving the question regarding long-term ownership and structure for Grand Cereals Limited and Livestock Feeds PLC is a key focus area for us. Please turn to page 10. We have made meaningful investments in our core IT infrastructure. Specifically, we invested over NGN 200 million in the migration from an on-premise Microsoft Office 2016 application to the cloud-based Office 365 enterprise productivity tool. We are in the process of migrating from an on-premise physical server-based SAP ECC ERP system to the cloud-based S4 HANA. This is a more than NGN 2 billion investment that we expect will go live in July 2022. It is one of the most important initiatives we are embarking on as we get the dual benefit of improved processes by adopting SAP, best practices, and superior technology.

On slide 11, we outlined the initial steps we have taken as regards introducing a digital component to the holding company. We made three small investments in this regard in 2021. We invested in Ventures Platform, the leading venture capital fund in the region, and hope to work closely with and learn from Kola and his team as they seek to invest in more than 50 of the best technology-enabled businesses across Africa. We made a direct investment in Touch and Pay, a micropayments business that was recently accepted into Y Combinator, and also invested in Kandua, a marketplace connecting artisans with end customers.

Given the shift from the industrial to the information age, we feel that these investments are important to UAC’s long-term future.

Finally, on slide 12, we outline work done on employee incentives. We feel that attracting and retaining the right quality of talent is by far the biggest constraint to our growth. As such, we have implemented initiatives tailored by each entity to align employee and shareholder interests. At the holding company, our view is that reward must be directly linked to shareholder experience. As such, we have implemented a scheme that provides HoldCo employees with a share of the total value created above an 18% return threshold.

At the subsidiaries, we have designed schemes linked to operating profit. Companies that meet their operating profit targets qualify for 40% of their performance incentives, but the remaining 60% are dependent on specific KPIs. For more junior employees, incentives are paid quarterly, while management incentives are paid annually.

For UAC Restaurants, a business going through a complete business model shift from a 100% franchise model to majority corporate stores. We have put in place management incentives tied to delivering on a 5-year business plan. I will pause here and Funke will take us through the 2021 financial highlights.

Funke Ijaiya-Oladipo (UAC Group Finance Director)
Thank you Fola, and good afternoon, ladies and gentlemen. Please turn to slide 14. UAC is a holding company and our interests are organised along four key verticals which are animal feeds and edible oils, packaged food and beverages, paints, and quick-service restaurants. We also have non-controlling interests in a leading logistics services provider and a real estate development company, which can be exited over time.

In 2021, there were three key changes to UAC’s group structure. The merger of our two paints businesses to form an enlarged CAP PLC, the increase of our stake in UAC Foods from 51% to 100%, and the distribution of UPDC REIT units to UAC’s shareholders. One of our objectives is to drive long-term profitable growth in our core platforms and in 2021 the group recorded significant topline growth of 25%, above the historical average growth of 3% to reach NGN101 billion. Our focus on driving growth can be categorized into two parts: our core operating platform, comprised of our subsidiary companies across our four key verticals, and the second part is our recent investments in technology-enabled businesses.

In 2021, all of our four operating segments recorded top line growth above the historical growth rate, which is encouraging, and this was achieved by a combination of price and volume increases across each segment.

Group financial performance
Please turn to slide 18, which provides an overview of the group’s financial performance, comparing the full year results for 2021 with 2020. The results are mixed because the group recorded meaningful top line grow