TheCable

UACN has grown profit every year in the past five years but the company looks set to fall from its profit peak this year. The second quarter operations of the conglomerate ended in a loss, which has lowered its first quarter profit figure. The company was already headed for a profit drop even by its first quarter growth rate and the second quarter loss has accelerated its pace towards the lowest profit figure in many years.

There is operating pressure from both sides of sales revenue and profit and the company’s diversified operation is no longer able to guarantee stable growth in revenue and profit. Declining revenue against rapidly rising operating expenses explains the company’s loss of considerable profit capacity in the current year.

Revenue growth failed to accelerate in the second quarter, as business activity remains generally subdued. The company closed second quarter trading with sales revenue of 37.37 billion, which is a drop of 7% year-on-year at the end of June. The full year outlook indicates that sales revenue could drop by a wider margin of 12% to N75.5 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 worsening performance of other income. The drop in other income increased from 28% in the first quarter to 37% in the second. Share of profit from associates follows the same pattern, which dropped further from 15% year-on-year in the first quarter to 18% to N1.2 billion at the end of the second quarter.

The critical factor that undermined the company’s profit capacity in the second quarter is distribution/administrative cost, which rose by 35% against the 7% decline in sales revenue during the review period. The company devoted 19.4% of sales revenue to this expenditure line in the second quarter compared to 13.4% in the same period last year.

The moderating factor is interest cost surprisingly, which dropped by 31% to N708 million year-on-year in the second quarter. This is despite increasing debt profile of the company. Long-term borrowings grew by 17% to N9.28 billion and short-term financial liabilities went up by 5% to over N24 billion against the closing figures in 2014.

After tax profit fell by 70% to N1.04 billion year-on-year at the end of the second quarter, which is below the N1.68 billion it posted in the first quarter. A loss of N638 million occurred in the second quarter, as cost of sales and distribution/administrative expenses grew well ahead of sales revenue.

Based on the growth rate seen at the end of the second quarter, after tax profit is projected at N2.4 billion for UACN at full year. This will be a sharp drop of about 78% from the peak profit of N10.73 billion the company reported at the end of 2014. This will be a lower profit figure than the company has reported any time in the past five years. The company grew after tax profit by 8.6% in 2014 and has grown profit every year since 2011 after a recovery from a drop in 2010.

The decline in revenue against increased costs eroded the company’s profit margin during the review period. Net profit margin continues to go down from 12.5% at the end of last year to 9.5% in the first quarter and further to 2.8% at the end of the second quarter.

The company earned 40 kobo per share at the end of the second quarter, a decline from 50 kobo in the first quarter and from N1.03 in the corresponding quarter last year. Earnings per share is expected to come to 91 kobo 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.

Major developments in the balance sheet include an increase of 19% in trade debtors and other receivables to about N19 billion, an increase of 12% in trade and other payables to N16.53 billion and an increase of 21% in cash and bank balances to N9.65 billion over the last year’s closing figures.

The company’s cash flow position remains critical with a sharp drop in net cash generated from in operating activities – which could not cover the financing activities of the company. The company paid a cash dividend of N1.75 per share to shareholders last week for its 2014 operations.