High Finance Costs Plunge UAC Profit Before Tax by 44 Percent

United Africa Company of Nigeria reported a 44 percent decline in profit before tax to N1.4 billion for the nine months ended September 30, 2021.

Revenue grew by 23 percent to N71.4 billion when compared to the same period of 2020. Paints segment improved by 41.3 percent year-on-year on account of higher volumes compared to 2020 which was impacted by limited sales due to the restrictions in the movement of people and goods in Q2 2020.

Packaged Food and Beverages segment expanded by +39.4 percent year-on-year, largely driven by volume growth in the snacks, water and dairy categories and price increases in the snacks and water categories; and the Quick Service Restaurants segment that gained 51.2 percent due to the increase in company-owned restaurants (corporate stores) and improved volumes and performance of existing stores.

Gross profit in the nine months under review rose by 8.4 percent year-on-year to ₦12.4 billion and gross profit margin declined 240 basis points to 17.3 percent. Margin compression was largely on account of input cost escalation across all businesses.

Operating Profit was ₦2.1 billion in the first nine months of 2021, representing a 6 percent increase when compared to the ₦2 billion recorded in the first nine months of 2020. Operating expenses as a percentage of sales improved by 197 basis points to 14.8 percent. The group recognised higher finance costs on account of increased short-term borrowings in the Animal Feeds and Other Edibles segment to support deliberate efforts to build inventory as well as rising interest rates.

Therefore, performance was negatively impacted by the loss from associate companies (UPDC and MDS) in the nine months under review compared to the same period of 2020. As a result, Profit after Tax from continuing operations was ₦565 million compared to ₦1.45 billion achieved in the corresponding period of 2020.

Total profit for the period was ₦563 million, again lower than the ₦1.9 billion reported in the same period of 2020.

Commenting on the results, Group Managing Director, Fola Aiyesimoju, stated: “The Group recorded meaningful revenue growth of 23% year on year and a 6% increase in operating profit. The operating environment remains challenging on account of rising inflation and raw material cost escalation which remains an ongoing concern and as such we are carefully assessing pricing of key products across our portfolio. Net income was negatively impacted by higher finance costs and losses from our associate companies UPDC PLC and MDS Logistics Limited.”