UAC of Nigeria FY 2017 Earnings Mr Abdul Bello (Group CEO) Mrs - - PowerPoint PPT Presentation

5 April 2018

UAC of Nigeria – FY 2017 Earnings

Mr Abdul Bello (Group CEO) Mrs Adeniun Taiwo (CFO)

DISCLAIMER

This presentation contains forward-looking statements which reflect management's expectations regarding the Company's future growth, results of operations, performance, business prospects and opportunities. Wherever possible, words such as "anticipate", "believe", "expects", "intend" "estimate", "project", "target", "risks", "goals" and similar terms and phrases have been used to identify the forward- looking statements. These statements reflect management's current beliefs and are based on information currently available to management. Certain material factors or assumptions have been applied in drawing the conclusions contained in the forward-looking statements. These factors

• r assumptions are subject to inherent risks and uncertainties surrounding future expectations generally. UAC of Nigeria

Plc cautions readers that a number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and undue reliance should not be placed on the forward-looking statements. For additional information with respect to certain of these risks or factors, reference should be made to the Company’s disclosure materials filed from time to time with Securities & Exchange Commission in Nigeria. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

TABLE OF CONTENTS

FY 2017 Highlights 4 FY 2017 Financial Review 7 FY 2017 Operational Review 16 Outlook 23 Appendix 26

FY 2017 Highlights

Mr Abdul Bello (Group CEO)

Key Highlights for Full Year 2017

FINANCIAL HIGHLIGHTS

• Weak revenue growth, margin compression and rising finance costs resulting in a 75% decline in earnings per share
• Performance was negatively impacted primarily by Animal Feeds and the Real Estate segments
• Fierce competition in Animal Feeds driving a 261 bps gross margin compression
• Interest expense in the real estate business increased by 100% from ₦ 2.8 bn to ₦ 5.6 bn
• Successful completion of the ₦ 15.4 bn Rights Offering with a 104.5% Subscription

MANAGEMENT CHANGES

• New management team appointed effective 1 January 2018
• Abdul Bello appointed Group CEO, previously Group CFO
• Lara Elemide appointed Executive Director Corporate Services, previously Managing Director (MD), CAP Plc
• Niun Taiwo appointed CFO, previously Finance Director UPDC Plc
• Larry Ettah, UAC’s Group Managing Director from 2001 to 2017 retired on 1 January 2018 after 30 year of service with the Company
• Joe Dada, Executive Director Corporate services from 2010 to 2017, retired alongside Larry having spent 35 years with the Company
• Oluwakemi Ogunnubi appointed MD CAP Plc, previously Head Financial Services UACN Plc
• Damola Olusunmade appointed MD Portland Paints and Products Plc
• Solomon Aigbavboa appointed MD Livestock Feeds Plc, previously MD, MDS Logistics
• Mukhtar Yakasai appointed Deputy Managing Director, Grand Cereals Limited, previously MD Portland Paints
• Taiwo Ajibola appointed MD, MDS Logistics, previously GM Operations, MDS Logistics

FY 2017 Highlights 5

Disappointing Performance with Significant Decline in EPS

• Group revenue up 8.0% YoY to ₦ 89.2 billion
• Driven primarily by Animal Feeds (+19.1%) and Decorative

Paints (+8%)

• Gross profit down 5.8% to ₦ 16.0 billion
• Largely driven by Livestock feeds and inability to pass on to

customers rising input costs

• Gross profit margin down 261 bps YoY
• Administrative expenses up 5.9% to ₦ 6.9 billion
• 7.7% as a % of sales, compared to 7.9% in 2016.
• Interest expenses increased by 112% YoY to ₦ 6.2 billion
• ₦ 2.8bn, ₦ 0.4bn and ₦ 0.1bn attributable to UPDC, Grand

Cereals and Livestock Feeds respectively

• UPDC’s interest expenses attributable to rate hike and

inability to capitalise into inventory carried at estimated realisable valuation. UPDC reduced its debt to ₦ 19.3 billion in 2017, down 15% YoY.

FY 2017 Highlights 6

₦89.2b

Reported Sales growth 8.0% YoY

17.9%

Gross Profit Margin, down 261 bps YoY

7.9%

Operating Profit Margin, down 258 bps YoY

Financial Performance

50k

Earnings per share (Kobo), down 75% YoY

65k

Proposed dividend per share (kobo), down 35% YoY

Shareholder Returns

₦10.4b

FY 2017 Free Cash Flow

Cash & Capital

34%

Gearing, down 500 bps YoY

1%

Return on Invested Capital, down 535bps YoY

Free Cash Flow represents cash from operations minus capital expenditure and cash taxes

FY 2017 Financial Review

Mrs Adeniun Taiwo (CFO)

Steadily climbing oil output boosted foreign-currency reserves Increased availability of FX kept inflation at bay GDP momentum thanks to higher oil revenues Exchange-rate convergence and Naira stability

Improving Macro Economic Dynamics Through the Course of 2017

8

• 0.7%
• 1.5%
• 2.3%
• 1.7%
• 0.9%

0.7% 1.4% 1.9%

• 3%
• 2%
• 1%

0% 1% 2% 3% Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 GDP Growth (YoY) 27.5 26.6 24.8 24.53 29.5 30.28 32.49 34.8 35.2 46.6 47.6 51.2 54.7 50.6 52.0 61.4 1.667 1.485 1.209 1.431 1.388 1.485 1.592 1.595 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Gross external reserves (USDbillion) Crude oil price (USD/pb) Crude oil production (mbpd) 197.0 231.8 305.2 305.2 306.4 305.7 305.9 306.3 320.9 351.8 431.1 455.3 429.5 366.3 365.6 362.8 100 150 200 250 300 350 400 450 500 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Spot Market Parallel Market 12.8% 16.5% 17.9% 18.6% 17.3% 16.1% 16.0% 15.4% 10% 15% 20% Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Inflation Growth (YoY) Sources: OPEC, Platts, CBN, National Bureau of Statistics USD b mbpd ₦ /USD

FY 2017 Financial Review

Increase in Revenue Offset by Higher Input & Finance costs

FY 2017 Financial Review

• 8.0% revenue growth driven by price increase and

volume growth from Animal Feeds and Decorative Paints

• Gross profit reduction of 5.8% on account of inability

to pass increase in input costs to consumers as a result

• f competitive activities
• 8% Administrative expenses as a percentage of sales,

flat YOY on account of cost containment efforts

• EBIT contracted by 18.6% as a result of Gross Margin

Compression and 8% increase net operating costs

• 112% increase in group finance cost

from ₦ 2.9bn (2016) to ₦ 6.2bn (2017), caused by high interest rates from 13.6% to 18.81%.

• UPDC accounted for 80% (₦ 5bn) due to

increase in average interest from 15.2% (2016) to 23.5% (2017).

• The remaining 20% is attributable to working

capital in GCL 11% and LSF 8%

• 75% EPS decline mainly due to increase in finance cost

and margin compression

Continuing Operations 2017 2016 Var Revenue 89,178 82,572 8.0% Cost of sales (73,222) (65,640) 11.6% Gross profit 15,957 16,932 (5.8%) Selling and distribution expenses (4,596) (3,156) 45.6% Administrative expenses (6,899) (6,511) 5.9% Other gains 3,528 3,818 (7.6%) Other losses (959) (2,444) (60.7%) Operating profit 7,031 8,640 (18.6%) Net finance cost (4,324) (1,361) N/M Share of profit of equity accounted associate 539 1,090 (50.5%) Profit before taxation 3,246 8,368 (61.2%) Taxation (1,922) (2,074) (7.4%) Profit from continuing operations 1,324 6,294 (79.0%) Loss from discontinued Operations (362) (627) (42.3%) Profit for the period 963 5,666 (83.0%) Profit attributable to Parent 956 3,750 (74.5%) Profit attributable to NCI 7 1,916 (99.6%)

N/M: Not meaningful

9

N’Million 2017 2016 PPE 21,538 35,271 Investment property 13,486 19,870 Investments in associates 19,110 19,696 Trade and other receivables 16,359 15,187 Cash and short-term deposits 14,126 9,546 Inventory 30,392 36,805 Other Assets 15,606 1,855 Total Assets 130,617 138,230 Long-term borrowings 1,329 5,275 Short-term borrowings 23,780 24,521 Trade and other payables 16,239 17,919 Current income tax liabilities 5,377 4,886 Other liabilities 10,765 9,163 Total Liabilities 57,490 61,764 Equity - Parent 51,729 46,419 NCI 21,397 30,047 Total Equity 73,126 76,466

10

Statement of Financial Position Statement of Financial Position

• Steady working capital management increased by 6%

from ₦ 9.9bn (2016) to ₦ 10.5bn (2017)

• 36% increase in Cash & Short-term deposits caused by

disposal of investment property, debt recovery and refund of unclaimed dividend

• Net Borrowings reduced by 16% from ₦ 29.8bn to ₦

25bn due to concerted efforts to deleverage

FY 2017 Financial Review

N’Million 2017 2016 Net cash flow generated from/(used in) operating activities 7,319 (1,914) Net cash generated from investing activities 7,874 2,710 Net cash flow used in financing activities (8,935) (1,869) Cash & cash equivalents at the end of the period after adjusting for bank overdraft 11,141 4,896

Cash Flow Statement

• N7.3bn generated from operating cash flow mainly due to reduction in

inventory by 17% from N36.8bn (2016) to N30.4bn (2017)

• 191% increase in cash flow used from investing activities from N2.7bn

to N7.9b largely due to proceeds from disposal of investment properties by UPDC

• Cash generated from investing activities were largely used to pay down
• borrowings. Net Borrowings reduced by 16% from N29.8bn to N25bn

11 FY 2017 Financial Review

Revenue (₦m) Revenue Evolution (₦m)

• Real Estate declined by 20% mainly due to reduction in

housing inventory sales/collections

• Logistics dropped by 11% mainly due to reduction of

client volume as a result of recessionary pressure

• Paints increased by 8% mainly on account of price

increase in premium paints

• Packaged Foods tapered by 9% on account of slow

recovery of volumes due to increase in gala price point

• Animal Feeds grew by 19% on account of

volume and price increase

Breakdown of Revenue Dynamics

+ 8%

47,238 56,265 15,714 14,183 8,763 9,424 4,651 4,119 4,842 3,880

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2016 2017 Others Real Estate Quick Service Restaurants Logistics Paints Packaged Foods Animal Feeds & Oil 82,572 89,178 82,572 89,178

• 1,531

661 9,027

• 532
• 47
• 962
• 9

50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000 100,000 2016 Packaged Foods Paints Animal Feeds & Oil Logistics Quick Service Restaurants Real Estate Others 2017

12 FY 2017 Financial Review

EBIT (₦m) EBIT Evolution (₦m)

• Packaged foods increased largely due to cost efficiencies
• Paints dropped on account of input costs
• Animal feeds dropped mainly on inability to pass input cost

increase to customers as well as in hike in haulage costs

• Logistics dropped due to non-recurring items
• QSR improved on account of cost efficiencies
• Real Estate improved on account of profit on disposal of

investment properties

Breakdown of EBIT Dynamics

10%

• 258 bps
• 18.6%

4%

4,404 2,976 921 971 2,223 2,119 1,480 653 1,434

• 1,168
• 2,000

2,000 4,000 6,000 8,000 10,000 2016 2017 Others Real Estate Quick Service Restaurants Logistics Paints Packaged Foods Animal Feeds & Oil 8,640 7,031 8,640 7,031 50

• 104
• 1,428
• 827

75 1,579

• 953

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2016 Packaged Foods Paints Animal Feeds & Oil Logistics Quick Service Restaurants Real Estate Others 2017

13 FY 2017 Financial Review

PBT (₦m) PBT Evolution (₦m)

• Logistics down 50% mainly due to 2016 one-off items
• Paints performance is flat yoy
• Packaged Foods increased by 19% due to controlled costs

and improved working capital management

• Animal Feeds by 66% on account of inability to pass

increased input costs to customers, competitive activities and rise in interest rate

Breakdown of PBT Dynamics

10% 4%

• 649 bps
• 61.2%

3,227 1,107 1,135 1,354 2,300 2,302 1,678 840 (1,231) (3,057) 1,286 649

(4,000) (2,000)

• 2,000

4,000 6,000 8,000 10,000 12,000 2016 2017 Others Real Estate Quick Service Restaurants Logistics Paints Packaged Foods Animal Feeds & Oil 8,368 3,246 8,368 3,246 218 2

• 2,121
• 837

79

• 1,827
• 636

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2016 Packaged Foods Paints Animal Feeds & Oil Logistics Quick Service Restaurants Real Estate Others 2017

14 FY 2017 Financial Review

CAPEX Breakdown by Subsidiary

22% 9% 20% 3% 6% 4% 24% 3% 9%

Grand Cereals Livestock Feeds United Foods UAC Restaurants CAP Portland Paints MDS Logistics UPDC CC

59% 8% 8% 1% 6% 1% 7% 5% 5%

Grand Cereals Livestock Feeds United Foods UAC Restaurants CAP Portland Paints MDS Logistics UPDC CC

2016

(Total Capex: ₦ 3.54 billion)

2017

(Total Capex: ₦ 2.36 billion)

15 FY 2017 Financial Review

FY 2017 Operational Review - Abdul Bello

Operational Highlights Financial Highlights

• Highly competitive market; competitive intensity heighted

by aggressive new entrants

• In the near term the industry suffers from excess capacity on

account of recent investment and decline in farm activities due to margin erosion

• Long-term growth supported by low levels of protein

consumption and increasing domestic product UAC will focus on maintaining market share and aggressively driving efficiencies. The Group will seek out higher margin niches within the space

Snapshot: Animal Feed & Edible Oil

FY 2017 Operational Review 17 56,265 47,238 38,741 1,107 3,227 2,306 FY2017 FY2016 FY2015 Revenue PBT

Factories 4 Employees 599 Locations

Lagos, Jos, Kano, Aba

Products

Poultry feed, fish feed, edible soya oil ,Cereals and Concentrates

Operational Highlights Financial Highlights

• UAC will focus on maintaining market share and aggressively

driving efficiencies

• Declining purchasing power leading to market contraction
• Entry of international players heightening competition
• Downturn in the real estate sectors dampened result
• Long-term growth supported by huge housing deficit

UAC will invest behind the brands and expand distribution network

Snapshot: Paints

FY 2017 Operational Review 18

Factories 2 Employees 320 Locations

Lagos, Ewekoro

Products

Dulux, Caplux, Hempel, Sandtex, Trowel Paints

9,424 8,763 9,170 2,302 2,300 2,238 FY2017 FY2016 FY2015 Revenue PBT

Operational Highlights Financial Highlights

• Leading provider of integrated supply chain solutions to

manufacturers, importers and service providers

• Recessionary pressures impacted volume throughput from

certain clients

• Low truck availability resulting from poor road conditions

UAC will focus on expanding its position in providing niche

• utbound supply chain services and optimise operations to

grow profit

Snapshot: Logistics

FY 2017 Operational Review 19

Factories 1 Employees 482 Locations

Across Nigeria

Products

4,119 4,651 4,285 840 1,678 1,026 FY2017 FY2016 FY2015 Revenue PBT

Warehousing, Distribution and Haulage services

Operational Highlights Financial Highlights

• Highly competitive operating environment resulting from

aggressive new entrants with value-based offerings

• Resistance to price increase of Gala Sausage roll
• Long-term growth supported by demographics and urban

migration The business is focusing on driving brand building activities, entrenching its Route to Market through retail penetration and developing new products

Snapshot: Packaged Foods

FY 2017 Operational Review 20

Factories 1 Employees 489 Locations

Lagos

Products

Gala(meat rolls), Funtime (coconut chips and cupcakes), Swan Spring Water and Supreme(ice cream) 14,183 15,714 14,541 1,354 1,135 1,434 FY2017 FY2016 FY2015 Revenue PBT

Operational Highlights Financial Highlights

• Persisting harsh macro-economic headwinds
• High interest rate regime discouraging project development
• Oversupply of products leading to glut and vacancies, fuelled

by purchasing power decline

• Retail tenants enjoying retention perks from landlords
• Long-term growth supported by huge housing deficit

The business will focus on refinancing of short-term borrowings into a N20 billion Bond, reduction of debt and

• verall restructuring of the company

Snapshot: Real Estate

FY 2017 Operational Review 21

Factories Employees 320 Locations

Lagos, Abuja, Ibadan, Asaba, Calabar and Port Harcourt

Products

Residential, commercial properties and Retail

3,880 4,842 4,958 (3,057) (1,231) 56 19,291 22,608 22,806 FY2017 FY2016 FY2015 Revenue PBT Debt

Operational Highlights Financial Highlights

• Highly competitive market impacted by declining purchasing

power

• 12 stores closures as a result of non-performing franchisees
• Rising cost of operations relative to declining revenue

UAC will undertake a review of the business with a view to fixing business fundamentals in the short-term

Snapshot: Quick Service Restaurant

FY 2017 Operational Review 22

Factories 1 Employees 84 Locations

Lagos

Products

Franchised restaurants (Mr Biggs and Debonairs Pizza)

1,135 1,182 1,079 51 (28) (134) FY2017 FY2016 FY2015 Revenue PBT

Outlook

Mr Abdul Bello (Group CEO)

Gross Profit (₦m) Profit Before Tax (₦m) Revenue (₦m) Operating Profit (₦m)

Group Long-Term Trend

85,654 73,771 82,572 89,178 FY 2014 FY 2015 FY 2016 FY 2017 19,183 16,809 16,932 15,957 FY 2014 FY 2015 FY 2016 FY 2017 12,394 7,395 8,640 7,031 FY 2014 FY 2015 FY 2016 FY 2017 14,097 7,733 8,368 3,246 FY 2014 FY 2015 FY 2016 FY 2017 Outlook 24

• A rigorous review of the portfolio against

three primary metrics:

• Size – both on an absolute basis and
• n a relative basis
• Industry attractiveness (underscoring

long term fundamentals)

• Return on invested capital and cash

generation

• Focus on operating subsidiaries and de-

emphasis of conglomerate

• Cost optimisation/Efficiencies/Synergy
• Culture of disciplined execution
• Principles around what defines a “UAC”

business

• Inculcating a sense of urgency

Holistic Business Review Underway to Reposition the Group

Group Positioning Portfolio Review Human Capital & Compensation Review

• In spite of recent headwinds, UAC

remains convinced of the attractiveness of Nigeria’s market – demographics, long term growth prospects

• Talent infusion
• Enhanced incentive schemes and

compensation alignment with long term shareholder value

Operations Review UAC Culture Review

Outlook 25

Appendix

A Leading Nigerian Diversified Consumer Goods Company

Appendix 27

Listed on the Nigerian Stock Exchange since 1977 (UACN NL) Market capitalization of ₦32.5 bn* Rich history and legacy dating back to 1879 Wide portfolio of historical leading brands ₦89.2 bn in revenue in 2017, 12.4% avg. operating margin (last 5Y) Total assets of ₦130.8 bn* and low leverage

* As at 31/12/2017

With over a hundred-year history, UACN is one of the most recognized companies in Nigeria

1879 - 1889

 Began operations following merger of four companies  African Association was incorporated following the merger of 8 firms

1900 – 1930s

 Miller Brothers Limited and the African Association merged to form the African Eastern Trade Corporation  African & Eastern Trade Corporation and the Royal Niger Company signed Joint Agreements, which formed The United Africa Company Ltd

1930 – 1980s

 Incorporated in Lagos under the name Nigerian Motors Limited  Name changed to UAC of Nigeria PLC

1990s

 Acquired a 35.5% equity stake in CAP Plc from ICI UK  Unilever divested from UACN  Acquired majority stake in Grand Cereals Ltd and SWAN Ltd  Listed its real estate holding

• n the NSE as UPDC

2000 – 2016 (i) 2000 – 2016 (ii) 2000 – 2016 (iii) 2017

 Actis invested in UACN in 2004 and divested from the Company in 2009  Unbundled UAC Foods & UAC Dairies divisions, and stake in Spring Waters Nigeria Ltd into UAC Foods Ltd  Sold 49% stake in UAC Foods Ltd to Tiger Brands  Divested from Opticom Leasing Co Ltd  MDS Logistics and UAC Restaurants divisions were unbundled into MDS Logistics Ltd and UAC Restaurants Ltd respectively  Sold 49% stake in MDS Logistics to Imperial Logistics  Sold 49% stake in UAC Restaurants to Famous Brands  Acquired controlling stake in Livestock Feeds PLC  Acquired controlling stake in Portland Paints & Products Nigeria PLC  UPDC floated the UPDC REIT  Put GM Nigeria Ltd into liquidation  Divested from UACN registrars business  Concluded Rights Issues of Portland Paints and Products Nigeria PLC, Livestock Feeds PLC and UPDC PLC  New Group CEO takes over  Concludes Rights Issues of UACN and Grand Cereals

2018

Appendix 28

Grand

UAC FoodsL TD (51%) UAC Restaurants L TD(51%) Livestock FeedsPLC (73%) GrandCereals L TD (71.4%)

Paints

CAP PLC (50.18 %) PortlandPaints and Products Nigeria PLC (85.5%)

Logistics

MDS Logistics LTD (51%)

Packaged Foods QSR Animal Feed Animal Feed

Real Estate

UPDCPLC (64.2%)