UACN Plc.’s Earnings Bleed, Says 2022 Was Difficult Year
For UAC of Nigeria Plc, 2022 was a difficult year as the consumer goods company failed to add value to its shareholders. The company reported about N4 billion annual loss amidst tough economic conditions in Nigeria.
In the stock market, the company’s worth N25 billion over about 3 billion outstanding shares, according to data from the Nigerian Exchange. The stock year-to-date return is double-digit negative. This year, equities investors have lost more than 18%.
In its financial scorecard, UAC of Nigeria Plc recorded a net loss of ₦3.9 billion, a decline of ₦6.6 billion year on year when compared with ₦2.6 billion net profit reported in the financial year 2021.
For the consumer goods producer, it was a tug of war amidst rising inflation pressures. The company failed to surmount pressures from macroeconomic conditions with 3% GDP growth, 21% inflation, higher interest rate, and Naira devaluation
According to the management, the primary sources of underperformance were Animal Feeds and Packaged Food and Beverages businesses.
“We completed an expansion project of our spring water business (SWAN) with the installation of a state-of-the-art Krones Water Bottling line (36,000 bottles/hr)
“Our Paints business performed strongly in spite of challenging macroeconomic conditions and our Quick Service Restaurants business progressed its store rollout initiatives”.
Poor performance in animal feed and other edible segments, the company’s strategic unit that contributes 60% to group revenue filter through the bottom line.
In its animal feed segment, the company reported a decline in volumes, particularly Grand Cereals Limited, on account of operational challenges which negatively impacted customer service.
The segment generated ₦65.9 billion in revenue; 5.1% higher than ₦62.7 billion in 2021. The consumer goods company’s reported ₦4.4 billion as its operating loss in the year.
Despite pressures on operation, UACN deleverage its balance with ₦4.8 billion payment to creditors, thus reducing its debt book from N19.6 billion in 2021 to ₦14.8 billion in 2022.
UACN told analysts that its stockpiled raw materials at peak prices affected gross margins. In the period, it recorded 1.6x increase in diesel cost, which then affected distribution and production costs.
Its working capital management hit the iceberg as the company carried excess inventory with 267 inventory days outstanding. Management also noted a high level of leverage with ₦33.4 billion outstanding versus ₦14.8 billion by December 2022.
UACN battled with high-interest expense and finance costs while flooding in the South-East of Nigeria which resulted in the closure of Grand Cereals’ Onitsha plant. The company recorded a full year loss of ₦5.4 billion for Animal Feeds & Other Edibles segment.
Packaged Food and Beverages segment underperformed
Packaged Food and Beverage segment delivered ₦23.3 billion in revenue in 2022, 1.7% lower than ₦23.8 billion reported in 2021. With the bags of pressures, the segment recorded an operating loss of ₦60.9 million, as against an operating profit of ₦1.4 billion in 2021.
UACN told analysts that its Packaged Food and Beverages segment accounted for 23% of Group revenue. The segment was faced with higher input costs, and rising operating expenses, particularly energy and distribution costs.
This impacted profitability, UACN told analysts conference. The increased operating expenses came as inflation rate spiked. In reaction, UACN reported significant price increases across all product categories.
Gala price spiked by +23%, Water jumped by 21% and there was a 36% price increase for its Ice cream; a move the company said it was to partially offset rising raw material input costs.
Paints segment outperformed
Earnings results from the paints segment which accounts for 15% of the group’s revenue came impressive. The segment generated ₦19.2 billion in revenue; which was 25.1% higher than ₦15.4 billion in 2021. It closed the year with ₦3.1 billion operating profit, outperforming other segments.
At the analysts’ conference, UACN noted that deteriorated macro and inflation impacted material, conversion costs, and operating expenses in the segment.
The pressure was exacerbated by higher prices of diesel, kerosene, other key raw materials, and distribution cost, management revealed.
Also, the paint segment was impacted by the Naira devaluation as the majority of the Company’s raw materials are import dependent – either directly or through third-party agents.
To maintain industry leadership in the paint segment, UACN said it invested N500 million to revamp the colour centre network and in-store tinting aimed at increasing colour range made in-store, reducing factory complexity and improving the speed of delivery. #UACN Plc.’s Earnings Bleed, Says 2022 Was Difficult Year
