July 29, 2022/CSL Research

The escalating inflation and subdued output growth which is ravaging many businesses in the country did not leave UACN behind as its recently released unaudited H1 2022 results showed elevated cost pressures. The company reported 11.9% y/y growth in Revenue to N52.0bn in H1 2022 from N46.5bn in H1 2021. Q/q standalone, the topline declined 11.9% q/q to N24.4bn in Q2 from N27.7bn in Q1 2022. The company’s y/y Revenue growth was broad-based across its segments, supported by price increases on its products in a bid to pass on some of the increased raw material costs to consumers.

Specifically, growth in Revenue from Animal Feeds & Other Edibles (up 9.4% y/y to N29.3bn) was driven by price increases to neutralize the cost impact of rising raw material costs of maize and soya beans. Likewise, Packaged Food & Beverages Revenue segment grew by 6.0% y/y to N12.6bn on the back of price growth in snack category, improvement in production efficiency in the water category, and improved distribution in the dairies category. The Quick Service Restaurants (QSR) segment recorded 28.2% y/y Revenue growth to N1.3bn, supported by new corporate stores and improved performance of existing stores. Revenue in the Paint segment was up 30.1% y/y to N8.7bn in H1 2022 driven by volume growth from new stores opened as well as price increment.

Growth in Cost of Sales (adjusted for depreciation) grew faster than Revenue growth (+11.9% y/y), up 12.9% y/y to N42.1bn in H1 2022 from N37.3bn in H1 2021. However, on a q/q basis, Cost of Sales decreased by 9.5% q/q from N22.1bn in Q1 2022 to N20.0bn in Q2 2022. Given the y/y elevated costs, growth in Gross profit moderated, rising 7.8% y/y to N9.9bn in H1 2022, while Gross margin contracted by 72bps to 19.0% in H1 2022 on account of input cost escalation across all its businesses.

Operating Expenses (adjusted for depreciation) was up by 16.2% y/y to N7.5bn in H1 2022 from N6.5bn in H1 2021. The growth in Opex was driven by increase in Selling & Distribution Expenses (up 24.5% y/y to N3.6bn) and Administrative Expenses (up 9.3% y/y to N3.9bn. A 10.5% growth in distribution expense to N1.7bn and 142.3% y/y increase in Marketing, advertising & communication expense to N809.7m was the main driver of the growth in Selling & Distribution Expenses. Growth in Administrative Expenses was largely driven by increase in Electricity & Power (+51.1% y/y) and Information Technology Charge (+68.2% y/y). With the increased Opex and Cost of Sales, EBITDA declined 1.0% y/y to N2.99bn in H1 2022 despite the surge in Net Other Income (+90.3% y/y to N634m). Also, the 11.0% y/y growth in Depreciation & Amortisation to N1.4bn, further worsened the firm’s operating position as Operating Profit fell by 9.4% y/y to N1.6bn in H1 2022 from N1.8bn in H1 2021.

Net Finance Cost surged to N1.5bn in H1 2022 compared with N102m in H1 2021. This was driven by a spike in Finance Cost (up 166.5% y/y to N2.0bn), further elevated by a 28.8% y/y decline in Finance Income to N462.5m in H1 2022. Notably, the higher Finance Cost was due to increased short-term borrowings in the Animal Feeds & Edibles segment to support its efforts to build inventory levels to mitigate risk of supply chain disruptions. Also, N338m of the finance cost accounts for the impact of foreign exchange loss on cash and financial securities held in foreign currencies. The marked impact of the Net Finance Cost alongside N58m share of loss from associate companies in H1 2022 resulted in a 99.0% y/y decline in Pre-tax Profit to N12m in H1 2022 from N1.3bn in H1 2021. Loss from continuing operations was N642m in H1 2022 compared to a Profit of N765m from continuing operations in H1 2021. In the same vein, the company reported Loss from discontinued operations of N39m in H1 2022 compared to Loss of N2m in H1 2021. The N39m loss was expense incurred as part of its voluntary winding up process of UNICO CPFA Limited, a discontinued operation.

Consequently, Total loss for the period was N716m in H1 2022 compared with a Profit of N763m in H1 2021. Loss per share was N0.18, compared with earnings per share of N0.05 in H1 2021.

Our estimates are under review. Current Price: N11.20/s.

Source: Company data, CSL Research