UACN: Losing revenue, losing profit

UACN is losing both sales revenue and profit in the current year and the full year outlook indicates the conglomerate may slip from its peak earnings figures attained in 2014. The company’s diversified operation has enabled it to maintain stable growth in sales revenue and profit over the past five years. That record however looks likely to be broken in the current year with drops in both sales volume and profit recorded in the first quarter.

The company closed first quarter trading with sales revenue of N17.73 billion, which is a drop of 11% year-on-year at the end of March. Revenue growth is however expected to accelerate in the course of the year, as business activity picks up from the general slowdown induced by political uncertainty during the first quarter. Despite that, sales revenue is still projected to drop by 12.5% to N74.92 billion for UACN at the end of 2015. The company grew sales revenue by 8.8% to N85.65 billion in 2014 and has maintained consistent growth in turnover since 2011.

The drop in sales revenue was reinforced by drops of 28% in other income and 15% in share of profit from associates year-on-year. Less rapid decline in distribution/administrative cost and interest expenses affected profit performance as well. After tax profit went down by 15% to N1.68 billion year-on-year at the end of the first quarter.

Full year outlook is indicating a likely drop of 30.2% to N7.49 billion for UACN in 2015. This compares with an increase of 8.6% in 2014, which established a profit peak of N10.73 billion for the company at the end of the year. The company has grown profit every year since 2011 after a recovery from a drop in 2010.

Apart from the drop in sales revenue, the profit drop in the first quarter was also accounted for by two main cost elements, which are distribution/administrative cost and finance charges. Distribution/administrative expenses failed to drop as fast as revenue and therefore claimed an increased share of revenue from 12.6% in the same period last year to 13.8% at the end of the first quarter.

The company also devoted an increased proportion of sales revenue to meeting interest expenses, which failed to drop as fast as revenue. The company’s short- and long-term balance sheet debts increased slightly to N31.29 billion at the end of the first quarter from the closing figure last year.

The decline in revenue against sticky costs eroded the company’s profit margin during the review period. Net profit margin went down from 12.5% at the end of last year to 9.5% at the end of the first quarter and from 9.9% in the same period last year. Profit margin is expected to stretch out if revenue growth accelerates in the course of the year.

The company earned 50 kobo per share at the end of the first quarter, a decline from 56 kobo in the corresponding quarter last year. Earnings per share is expected to come to N2.26 for UACN at the end of 2015 based on the full year projection of net profit attributable to owners of the company. That would be a drop from earnings per share of N3.40 the company posted in 2014. Profit growth is likely to step up if revenue growth accelerates and profit margin improves in the coming interim reports.

Major developments in the balance sheet include an increase of 12% in debtors and other receivables to N17.82 billion, an increase of 16% in trade and other payables to N17.17 billion and an increase of 11% in cash and bank balances to N8.80 billion over the last year’s closing figures.

The company’s cash flow position has improved significantly with a shift from a large net cash utilisation in operating activities to a net cash generation. A net cash decrease of over N3 billion last year has thinned down to N377 million, which was easily financed from a robust cash balance of close to N6 billion.

The company has proposed a cash dividend of N1.75 per share for its 2014 operations. The register of shareholders will close on 6-10th July while payment is scheduled for 30th July, 2015.