UACN Plc FY2020 Results: Profit Dips, Despite COVID-19-Induced Revenue Boost

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Saturday, April 3, 2021 / 11:05 PM / by Adesola Borokinni, Proshare Research/Header Image Credit:UAC of Nigeria Plc

 

UAC of Nigeria Plc recorded a decline in its profit before tax in 2020 by -31.37% to N5.12bn despite the rise in revenue by +2.74% to N81.37bn in 2020. The coronavirus pandemic was a major boost to the rise in its revenue in some of its major segments. 

 

Key Highlights

  • Revenue increased by +2.74% to N81.36bn in 2020.
  • Profit before tax declined by -31.37% to N5.12bn in 2020.
  • EBIT declined by -37% to N3.6bn in 2020.
  • Return on Equity (ROE) stood at 5% in 2020.
  • Shareholder's fund increased by +1.37% to N61.37bn in 2020

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Revenue-the COVID Booster

The group's revenue rose by +2.74% to N81.37bn in 2020 from N79.2bn in 2019.  The rise in its revenue could be attributed to the growth of revenue in its segments which includes animal feeds & other edibles by +4.6% to N54.22bn, packaged food & beverages +1.8% to N17.85bn, quick service restaurants +1.8% to N1.53bn. According to the company these segments were deemed essential services during the period of stringent restrictions to the movement of people and goods to curtail the spread of COVID-19, hence, increase in the revenue recorded in these segments (see Chart 1 below).

 

Chart 1: UACN Plc Revenue (N'bn)

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Source: UACN Plc Financial Statement, Proshare Research


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Profitability- Flashing the PBT Card

UAC of Nigeria Plc profit before tax dipped by -31.37% to N5.12bn in 2020 from N7.46bn in 2019. Its profit before tax declined despite a rise in revenue of +2.74%. The decline in PBT was attributed to a rise in administrative expenses by +17.35%, a dip in other operating income of -47.87%, and a decline in net finance income of -69.26%. Analysts note that the decline in its net finance income was offset by its share of profit in associate companies of N973m earned from MDS and UPDC, traced to a non-cash, market increase in the fair value of UPDC REIT, a real estate investment trust (see Chart 2 below).

 

Chart 2: UACN Plc PBT (N'bn)

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Source: UACN Plc Financial Statement, Proshare Research


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Administrative and Selling Expenses- A Tale of Mixed Messages

The conglomerate's Administrative and selling expenses moved in opposite directions in 2020. While selling and distribution expenses fell by -10.39%, administrative expenses rose by +17.35% (see Chart 3 below).

 

Chart 3: UACN Plc Selling and Distribution Expenses (N'bn)

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Source: UACN Plc Financial Statement, Proshare Research

 

Administrative expenses rose to N7.71bn in 2020 from N6.57bn in 2019, the highest rise in the last six years. On the other hand, the selling and distribution expenses tumbled to N5.78bn in 2020 from N6.45bn in 2019 (see Chart 4 below).

 

 

Chart 4: UACN Plc Administrative Expenses (N'bn)

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Source: UACN Plc Financial Statement, Proshare Research


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Equity-Lifting the Stakes

Equity increased by +1.37% in 2020 to N61.37bn from N60.54bn in 2019. The rise in its equities could be attributed to the rise in fair value reserve +831.15% and retained earnings +9.04% (Chart 5 below).

 

Chart 5: UACN Plc Equity (N'bn)

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Source: UACN Plc Financial Statement, Proshare Research


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Total Assets-  In the Spirit of Ups and Downs

Total assets of the multi-business two-and-a-half-century old giant declined by -14.34% to N92.17bn in 2020 from N107.6bn in 2019. The decline in the total assets was attributed to the fall in assets classified as held for sale/distribution to owners by -99.9% to N3.87m in 2020. On the other hand, current assets increased by +12.62% to N50.91bn while non-current assets grew by +57.52% to N40.99bn in 2020 (see Chart 6 below).

 

Chart 6: UACN Plc Total Assets (N'bn)

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Source: UACN Plc Financial Statement, Proshare Research

 

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Rummaging through Ratios

 

 Current Ratio

Its current ratio increased from 1.74 in 2019 to 2.11 in 2020. This means that UACN had liquid assets of N2.11 for every N1.00 in short-dated liabilities. The rise in the current ratio could be attributed to the rise in the current assets by +12.62% to N50.91bn and the decline in the current liabilities by -7.13% to N24.09bn in 2020. All components of the current assets increased in 2020 with the highest percentage increase of +94.07% recorded by refund assets (see Chart 7 below).

 

 

Chart 7: UACN Plc Current Ratio

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Source: UACN Plc Financial Statement, Proshare Research 

 

 

Acid-test Ratio

The conglomerate's acid-test ratio increased from 1.11 in 2019 to 1.28 in 2020 (a sign of improved liquidity). This suggests that for every N1 of current liabilities, UACN Plc had N1.28 of very liquid assets to cover its immediate obligations (see Chart 8 below).

 

 

Chart 8: UACN Plc Acid-test Ratio

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Source: UACN Plc Financial Statement, Proshare Research

 

Debt-to-Equity Ratio

Its debt-to-equity ratio declined to 6.91% in 2020 from 10.65% in 2019. The decline in the debt-to-equity ratio can be attributed to the rise in equities by +1.37% in 2020 to N61.37bn and the decline in debt to -34.26% to N4.24bn in 2020 (see Chart 9 below).

 

Chart 9: UACN Plc Debt-to-equity Ratio (%)

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Source: UACN Plc Financial Statement, Proshare Research



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Outlook- A Bet on Tomorrow

Local economy analysts have predicted that the full re-opening of the economy should pivot enterprises in the direction of stronger business outlooks, which may help to improve the profit outcome of UAC Plc in 2021.  Nevertheless, a point of caution on the outlook would be the currency exposure risk as a result of the devaluation of the local currency the Naira given the fact that the company imports raw materials, however, this could be mitigated by the group's diversified business lines.

 

In conglomerate's 2021 investor's presentation, the group's management emphasized a push towards improved value creation focused on three business levers which include;

  • Return on capital (stable dividend pay-out, liquidation of non-core assets)
  • Expansion of operating platforms (aggressive growth plans for core businesses)
  • Acquisitions (selective M&As and bolt-ons, while consolidating overlapping subsidiaries, divestment from underperforming businesses)

 

UAC Plc will find itself in a make or mar dogfight in 2021 as it repositions itself to re-establish corporate profitability, sales, and investor returns. With technology becoming an increasingly significant business driver across industries, the conglomerate would have to see how it could integrate greater technology-led efficiency across product and process lines as it pushes down costs and builds up market shares.

 

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