UACN hopeful on rebuilding profit

UACN has raised hopes of rebuilding profit in 2016 with its third quarter earnings report that shows over 42% advance in profit. The conglomerate had suffered a 50% drop in profit in 2015, closing the year with the lowest profit figure since 2012. The company has overcome its initial earnings weakness and tightened cost controls. These steps have enabled it to strengthen growth in revenue and profit in the third quarter, raising hopes a better earnings story at the end of 2016 than it reported last year.

The company’s revenue picture has improved from declining records earlier in the year to moderate growth and it has mended its fences against rising cost and strengthened profit capacity. Last year, the company lost 15% of sales revenue, the first revenue drop in many years. At the end of the third quarter this year, turnover closed moderately higher year-on-year. The growth rate isn’t sufficiently promising to reclaim all the sales revenue it lost last year but with a firm grip on costs, it has reinforced the ability to convert revenue into profit.

The third quarter trading closed with a turnover of N57.70 billion, an increase of 4.8% year-on-year. Seasonal sales in the final quarter may step up the revenue growth rate further at full year. Sales revenue projection is revised upward from N71.8 billion to N78.7 billion for UACN at the end of 2016. This will be an increase of 7.6% from the turnover figure of N73.15 billion the company reported at the end of 2015. Its sales revenue had dropped by 15% in 2015 from the peak earning figure of N85.65 billion in 2014.

The company has strengthened its moderate growth in revenue with moderated cost behaviour. Cost of sales increased by 5.4% to N45.23 billion over the review period, only slightly ahead of sales revenue. Management was therefore able to defend gross profit margin at 21.6% at the end of the third quarter.

A 91% rise in other gains to N1.78 billion provided a major boost that lifted operating profit during the review period. A slight decline in selling/distribution expenses and a marginal increase in administrative cost also contributed to permit a growth of 16.6% in operating profit to over N6 billion at the end of September.

UACN also experienced a further favourable development on cost – which came from a drop of nearly 30% in net finance expenses to N840 million. This reflects a drop of 25.7% in long-term borrowings to N5.75 billion at the end of the third quarter. Short-term debts are only slightly up at N21.44 billion at the end of September.

The company closed the third quarter with an after tax profit of N4.34 billion of which N2.54 billion belongs to equity holders of the company. The full year after tax profit projection is revised slightly up from N5.78 billion to N5.92 billion for UACN at the end of 2016. This will be a 14.3% growth over the N5.18 billion profit the company reported at the end of 2015.

The overall earnings picture at the end of the third quarter is an improvement in income lines against a decline in costs – a complete reversal of the company’s position in the first quarter of the year. The result is a reasonable boost in profit capacity.

Net profit margin has improved from 5.5% in the same period last year to 7.5% at the end of the third quarter. This is also slightly better than the net profit margin of 7.1% at the end of last year. The 2014 financial year remains UACN’s star year when it attained a peak after tax profit of N10.73 billion with a net profit margin of 12.5%.

The company earned N1.32 per share at the end of the third quarter, improving from 82 kobo in the same period last year. Earnings per share projection of N1.80 for UACN at full year is unchanged. The company earned N1.56 per share at the end of 2015 and paid a cash dividend of N1.0 per share.