UACN reports N1.2bn net loss in Q1 on falling sales

UAC of Nigeria Plc (UACN)ended its first quarter (Q1) operations with a net loss of N1.2 billion, on poor sales which has worsened since last year.

The conglomerate appears to be experiencing greater operating challenges than the intense pressure that led to a loss of roughly N4 billion at the end of 2022.

The company’s unaudited first quarter accounts at the end of March 2023 show that it suffered a loss of sales across key market segments, which include its main revenue source – animal feeds and other edibles.

Other major segments such as paints and packaged foods/beverages also suffered a loss of sales in the first quarter.

Sales revenue went down by 11 per cent year-on-year to N24.6 billion at the end of the first quarter. It also incurred huge costs of sales in addition to poor sales, which consumed an increased share of sales revenue, squeezed margins, and threw the company into the red.

At N21.3 billion, the cost of sales went down by 5.5 per cent – half as fast as the drop in sales revenue. That eroded the gross profit margin and caused a drop of 35.4 per cent in gross profit to N3.3 billion at the end of the quarter.

The company’s difficulties stem mainly from the challenges faced in its animal feeds segment – the profit center turned into a loss driver in 2021.

Disrupted operations in the animal feed segment are the consequence of a high level of insecurity in the country and recent flooding on the company’s operations.

The segment generated a pre-tax loss of N1.3 billion at the end of the first quarter, jumping from a moderate pre-tax loss of less than N130 million in the same period in 2022. The adverse pressure reflects the loss of sales volume, higher raw materials and conversion costs, and increased operating expenses.

Added to these is the resulting high level of inventory that impinges on cash flow, warranting borrowings with the attaching high cost of finance. Operating activities consumed net cash of over N413 million in the first quarter, down however from N11.7 billion net cash used in operations in the same quarter last year.

The paints business is the only profitable segment of the company in the first quarter, which delivered a pre-tax profit of N576 million that helped to lower the overall loss figure.

Further pressure on the side of earnings came from a drop of almost 64 per cent in other operating income in the first quarter to stand at less than N166 million.

With increases of 13 per cent in selling and distribution costs to almost N2 billion and 13.5 per cent in administrative expenses to N2.2 billion, the company’s gross profit was more than consumed.

An operating loss of N700 million, therefore occurred in the first quarter, dropping sharply from an operating profit of nearly N1.9 billion in the first quarter of last year.

Finance income is the only income line of the company that improved over the review period at 49 per cent to almost N359 million. It was however absorbed by finance expenses of close to N591 million, creating a net finance cost of N232 million at the end of the first quarter.

The net finance cost figure is nevertheless a big slash from the N910 million the company recorded in the same quarter in 2022.

The company’s borrowings are moderately reduced from N19 billion at the close of 2022 to N17.85 billion at the end of March 2023.

Tax expense of N222 million topped a pre-tax loss of N937 million to a net loss of about N1.2 billion, down from a net profit of N639 million in the same period last year.

The company ended the first quarter operations with a loss of 29 kobo per share against earnings per share of 18 kobo in the same period last year.

UACN’s challenges are expected to sustain in the coming interim until it can fix the fundamental disruptions in its main business segment.