U.A.C of Nigeria Plc H1 2021 Results Conference Call Transcript

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

Presenters:

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

Moderator:

  • Mrs. Lolade Bashiru (Vice President, Investment, UAC of Nigeria PLC)

1. Presentation

Moderator: Good morning, and good afternoon, ladies and gentlemen. Welcome to the UAC of Nigeria PLC Half 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 remark 
Thanks, Lolade. Hello all and thank you for making time to participate in our results presentation. Funke and I will aim to frame our operating context and then spend time on performance in the first half of the year.

Macroeconomics review
Before we delve into the specifics regarding the operating context, the big topic in the first half of last year, which is the comparative period, was COVID-19 and the resultant restrictions on the movement of people and goods, which constrained growth. The big topic in the first half of this year is inflation and the impact on margins.

We delve into a bit more detail on these topics from Slide 5. In summary, the operating context has been tough. The economy has recovered from the COVID-19-induced recession experienced last year. However, growth rates remain low relative to historical trend and certainly below the rate of population growth, further constraining household incomes.

There has been pressure on the Naira with the exchange rate weakening as well as challenges sourcing foreign currency to fund the importation of raw materials and capital equipment. This has the dual negative impact of stoking inflation and constraining growth. We saw an uptick in inflation to approximately 18% in the first half of the year, which has likely contributed to the rising interest rates from lows recorded in Q4 2020.

Slide 6 brings this home and reflects the impact on our businesses, which have seen an escalation of key production input costs at rates far in excess of the headline inflation numbers. In the Animal Feeds segment, the prices for maize and soya have more than doubled. There have been significant price escalations for resins and titanium dioxide and other key inputs in the Paints segment and key raw materials in the food segment, including flour, vegetable oil, milk powder and sugar recorded major price increases as well. As such, our focus has been on initiatives to protect margin which entail a mix of price increases, production efficiencies and operating efficiencies.

In the next section of the presentation, Funke will spend a bit of time outlining how these initiatives impacted our results. I will now turn the discussion over to Funke, who starting on Slide 8, will take us through our performance for the first half of the year.

Funke Ijaiya-Oladipo (UAC Group Finance Director)

Financial performance highlights

Good afternoon, ladies and gentlemen. On this slide, I’ll explain the key reporting changes that should be considered when comparing the group’s year-on-year performance. Two transactions related to UAC’s associate companies are responsible for the key changes. The first is that in the first half of lastyear, we sold a controlling stake in MDS, our logistics business, and the gain was recorded in discontinued operations. The second is that UPDC Plc, our real estate business, was accounted for as a discontinued operation last year because of the proposed unbundling at the time. In this set of results for the first half of the year, following the completion of the sale of a controlling stake, UPDC is now classified as an associate company.

To be able to compare our profit on a like-for-like basis, we adjust last year’s profit by stripping out the impact of MDS from discontinued operations, which was NGN 944 million in profit, and we also reflect the impact of UPDC as an associate company. In summary, group profit when adjusted on a like-for- like basis increased by NGN 1.8 billion compared to the same period last year.

In terms of key reporting changes, it’s also important to highlight in terms of subsequent events that the merger between our Paints businesses, CAP and Portland Paints, was concluded on the 1st of July. So, the next set of results will reflect the combined entity.

Please turn to Slide 9, where I will focus on the highlights of the group’s income statement. To put the results into context, it’s important to point out that performance in the second quarter of last year was impacted by COVID-19 related disruptions as well as restrictions to the movement of people and goods. This year, our businesses have not been as affected by operational disruptions. So, there is an overall improvement in sales recorded year-on-year. However, our cost base is significantly higher year-on- year, and that has impacted performance.

I’ll spend time on the half year results in comparison with the prior period, and these are reflected on the fourth and fifth columns of this page. Revenue increased 27% to NGN 46 billion from NGN 37 billion last year, supported by sales growth across all operating segments. This represents an increase of about NGN 10 billion in absolute values. The Packaged food and beverage segment recorded an additional NGN 4 billion in sales. The Animal Feeds & other Edibles segment contributed an additional NGN 3 billion in sales, and NGN 2.5 billion was contributed from the Paints segment in addition.

Gross profit was 19% higher year-on-year at NGN 8 billion. The group’s gross margin contracted by over 100 basis points for 2 key reasons. The first was the impact of the input cost escalation across our operating segments as well as lower sales in the Paints segment in the first quarter of 2021, which was a direct result of supply chain disruptions and availability of key raw materials, which impacted production and the ability to meet demand in the first quarter of the year.

Operating profit 105% higher at NGN 1.7 billion, and this was supported by revenue growth, operational efficiency and increase in other income. We recorded a net finance cost in the first half of this year versus net finance income last year. The key difference being higher finance costs driven by short-term borrowing in the Animal Feeds segment to support deliberate efforts to build inventory.

Our associate companies, UPDC and MDS, recorded losses in the first half of the year versus the profit booked by our associate company, MDS, last year. And the plan is to work with the partners in both of these companies to improve profitability going forward.

Profit before tax is up 25% to NGN 1.3 billion. And profit after tax from continuing operations was up 3.5x to NGN 765 million. As I mentioned in the previous slide, UAC recorded NGN 944 million profit from discontinued operations in the half year last year, and that impacts year-on-year comparison. And when we adjust on a like-for-like basis, our half year profit increased by NGN 1.8 billion year-on-year. The earnings per share from our continuing operations increased by 12 kobo from a loss of 7 kobo last year to 5 kobo this year, and the annualized return on invested capital is at 5.2%.

Operating segment highlights
Please turn to Slide 10, which summarizes our financial performance by our operating segments for the first 6 months of the year. Revenue from our Animal Feeds & other Edibles segment increased by 13% year-on-year to NGN 28 billion, and this was on account of higher sales across our poultry and fish feed categories. The fish feed category recorded double-digit volume growth as the category continues to benefit from import restri