Can UACN prevent another year of profit fall?

UACN lost one-half of its preceding year’s profit in 2015 and closed the financial year with the lowest profit figure in four years. The conglomerate is again losing revenue and profit in the current year. Whether this would be remedied along the way or whether the first quarter profit fall would run to full year is the question mark on UACN in 2016.

The company’s main challenge is that it is losing sales revenue and this has pulled down its defences against rising cost and eroded profit capacity. Last year, the company lost 15% of sales revenue, the first revenue drop in many years. This year, turnover closed marginally lower at the end of the first quarter, indicating that the momentum needed for a turnaround is still missing for now.

The runs a diversified business structure with activities in foods, logistics, real estate and paints. First quarter operations ended with a turnover of N17.52 billion, a slip of 1% year-on-year. A significant improvement from the current performance isn’t expected though sales revenue isn’t expected to come below the first quarter figure in each of the remaining quarters.

Full year revenue projection is therefore based on the annualized first quarter figure and a turnover of N71.8 billion is therefore forecast for UACN at the end of 2016. This will be a decline for the second year, slowing down however from a drop of 15% in 2015 to 2% in 2016.

Sales revenue weakness is reinforced by declines in other main revenue lines of the company. Interest income dropped by 27% in the first quarter and profit from associates also went down by 10% during the period. The company is therefore maintaining a general pattern of increasing costs against declining earnings.

Cost of sales increased slightly to N13.59 billion against the decline in sales revenue. That caused a decline of 6% in gross profit, lowering gross profit margin from 23.6% in the first quarter of last year to 22.4% at the end of the first quarter. With an increase of 12% in selling and distribution expenses and a flat growth in administrative cost, operating profit dropped by 18% to N1.67 billion at the end of the first quarter.

The drop in interest income resulted in an 18% growth in net finance cost, which amounted to N563 million at the end of the first quarter. The company’s balance sheet borrowings have increased over the first three months of the year. Long-term debts are up by 18% to N9.55 billion and short-term financial liabilities have risen by 11% to N19.54 billion.

The company closed the first quarter with an after tax profit of N1.32 billion of which N787 million belongs to equity holders of the company. The full year outlook indicates that after tax profit would stand in the region of N5.78 billion for UACN at the end of 2016. This will be a marginal improvement over the N5.18 billion profit the company reported at the end of 2015.

Profit margin has weakened considerably after the company’s peak performance in 2014 – when it posted an after tax profit of N10.73 billion. Net profit margin continues to decline from 12.5% at the end of 2014 to 7.1% in 2015 and from 9.5% in the first quarter of last year to 7.5% this year.

The company earned 41 kobo per share at the end of the first quarter, down from 51 kobo in the same period last year. Earnings per share is projected at N1.80 for UACN at full year. The company earned N1.56 per share at the end of 2015 and paid a cash dividend of N1.0 per share on 9th June 2016.