Distinguished Shareholders, Ladies and Gentlemen,
I am delighted to welcome you to the 2018 Annual General Meeting of our Company, UAC OF NIGERIA PLC, at which I would present to you the Annual Report and Financial Statements of the Company for the financial year ended 31st December 2017. Before doing so, please permit me to highlight a few aspects of the business environment that significantly affected our performance in the year under review.
ECONOMIC AND BUSINESS ENVIRONMENT
The global economic environment, as it affects Nigeria, improved in year 2017. Commodity prices began to recover in 2017 and by year end, crude oil prices were close to US$70 a barrel. Trade volumes grew 33.5% in 2017, and in 2017 Nigeria attracted US$12.2bn in capital inflows (a 179% increase over the prior year) and US$7.5bn in portfolio inflows – a 582% increase over 2016. This strengthened the
Naira and improved the level of the nation’s foreign reserves which, despite CBN interventions in the market to the tune of US$15.9billion in 2017, amounted to almost US$40 at the end of 2017.
Despite tighter monetary policy in the US, the dollar weakened in 2017, relative to other international currencies such as the Euro and Sterling. Perhaps induced by policy uncertainty from Washington and a brighter outlook in destination jurisdictions, international capital providers rediscovered their risk appetite for emerging and frontier Markets.
On the local front, domestic policy shifts in the course of the year provided tailwinds for the economy. In April, the Importers and Exporters FX window was introduced, and its transparent price discovery framework encouraged the return of portfolio investors to the Nigerian market.
The Central Bank of Nigeria (“CBN”) leveraged on the modest increases in FX reserves to supplement the market with additional FX liquidity. The decision to engage in dialogue with the militants in the Niger Delta and the consequent recovery in oil production provided the biggest boost for the recovery of growth in 2017 and, as a consequence, Oil GDP grew by 4.3% in 2017 (the first expansion in six years) while the non-Oil economy grew by a modest 0.5%. There was a 10.9% increase in non-Oil revenue collection during the year, with such revenues amounting to 44.1% of federally collectible revenues. The combined effect of all these was that Nigeria’s GDP grew by an aggregate of 0.83% in 2017.
After peaking in January 2017, inflation began to moderate, initially at a brisk pace, because of a high base in 2016. The pace of moderation slowed mid-year and was tempered, in part, by food inflation resulting from an increase in food exports to neighbouring countries.
Notwithstanding the moderation in inflation, however, the CBN did not reduce the Monetary Policy Rate (“MPR”) which stayed at 14%, as had been the case since July 2016.
Retention of the MPR at this rate reflected the CBN’s determination to curtail Naira liquidity and its effect on the demand for foreign exchange, and consolidate the strengthening of the Naira that resulted from the CBN’s pro-market foreign exchange reforms.
In another positive development, the Federal Government organised two successful Eurobond issuances in February and November 2017, as part of its medium-term debt management strategy of reconfiguring Nigeria’s deficit financing in a way that
prioritises foreign borrowings.
Regulatory policy witnessed some positive policy changes as well. The Presidency inaugurated the Presidential Enabling Business Environment Council (PEBEC) and signed a series of executive orders aimed at the Ease of Doing Business (EODB) conditions. The Secured Assets in Movable Transactions Act (2017) and Credit Registry Act (2017) were signed into law by then Acting President, Professor Yemi Osinbajo.
The Petroleum Industry Governance Bill, the first of four legs of the now unbundled Petroleum Industry Bill, was passed as well and is awaiting assent by the President.
REVIEW OF BUSINESS OPERATIONS
Notwithstanding the improvement in the overall economic climate, however, our company’s performance in 2017 was disappointing, with tepid growth, declining margins, and a resulting poor share price performance.
Our real estate segment (UAC Property Development Company PLC.) has been struggling for several years and in 2017 continued to be affected by its very high financing costs, soft demand for high-end real estate investments and rental properties, soft demand by retailers for space in malls, and continued losses from the hotel investment.
The animal feeds category on the other hand (Grand Cereals Limited and Livestock Feeds PLC) had to deal with the depletion of the poultry population, which in part was due to farms being closed as a result of the increase in feed costs. These feed costs, in turn, reflected the very high grain prices that prevailed for most of the year. The animal feeds category was also adversely affected by increased competition in the segment. Our logistics business also performed poorly, due to the reduced level of business with a number of key customers and the discontinuance of operations by others. One bright spot was the paints segment (CAP PLC. and Portland Paints
and Products Nigeria PLC.) which both performed creditably during the year.
During the course of 2017, and as we had previously informed the market, the shareholders of Warm Spring Waters Nigeria Limited resolved to wind up the affairs of the company because of its persistent weak operational performance. In order to ensure a reversal of recent poor performance, and drive future growth and profitability across the Group, the board and management of your company are conducting a detailed review of the business and strategy.
Further communication on specific value creation initiatives will be made during the year.
Against the above background, I wish to report that the Group’s revenues grew from N82.6 Billion in 2016 to N89.1 Billion in 2017 – an increase of 8%. This was below the Group’s target of achieving growth in excess of the rate of inflation. Profit After Tax declined sharply from N5.6 Billion in 2016 to N963 Million in 2017, reflecting the
compression in the margins of our operating subsidiaries.
I would like to formally acknowledge, and thank, our esteemed shareholders for the strong support you provided during our company’s recently concluded Rights Issue. You will recall that a total of 960,432,193 ordinary shares of 50 Kobo each were issued in this process, at a price of N16.00 per share, and I am pleased to report that as a result of your strong support the Rights Issue was 104.5% subscribed.
This, reflects the confidence that you still have in your Company. You have my assurance that the proceeds of the Rights Issue are already being applied for the intended purposes, and will ultimately improve shareholder value. I am also pleased to mention that some of our subsidiary companies undertook successful Rights Issues during the financial year.
The Board is recommending for your approval a dividend of N1,860,825,000.00 in respect of the 2017 financial year, that is, a dividend of 65 kobo per share.
LEADERSHIP & BOARD CHANGES
I am pleased to report that your company went through a smooth leadership succession at the end of 2017. Mr Larry Ettah, who had led the company as Group Managing Director/Chief Executive Officer since 2007, proceeded on his pre-retirement leave with effect from 1st January, 2018.
You will recall that prior to Mr. Ettah’s appointment as Group CEO he occupied other management and senior management positions in the company and during all of these periods, including the period of his appointment as Group CEO, he served the company meritoriously.
After a rigorous selection process, your Board found a worthy successor in Mr Abdul Akhor Bello, the immediate past Executive Director/Chief Financial Officer of the company. He assumed the group leadership role on 1st January, 2018. On your behalf I would like, once again, to congratulate Mr Bello on this high attainment.
He is very much aware of the task before him and that he must justify the confidence reposed in him by his fellow directors and by extension, the shareholders. I would also like to inform you that since the last Annual General Meeting Mr. Joseph Dada, the Executive Director, Corporate Services, retired after 34 years of meritorious service to the company.
It is my pleasure to welcome to this meeting Mrs. Omolara Elemide, the former Managing Director of Chemical and Allied Products PLC, who took over the role of Executive Director, Corporate Services. Mr. Folasope Aiyesimoju and Mrs. Olufunke Ighodaro recently joined the Board of Directors of your company, and Mr. Peter Mombaur serves as alternate director to them both.
I would like to welcome them all to their first Annual General Meeting. We count on your usual support to formally elect them as directors at this meeting in view of their impressive business experience and expertise which the company will greatly benefit from.
OUTLOOK FOR 2018
The 2018 financial year is a transitional year, in which your Board will begin to tackle the root causes of your company’s historical declining performance, and implement initiatives to drive future profitable growth.
Specific areas of focus will be on capital allocation and portfolio composition, human capital, operating company strategy and, most importantly, reinforcing a Group-wide culture of accountability and responsibility. We will also seek to better link employee compensation to the creation of long-term shareholder value. I am excited by the challenges as well as by the opportunities that lie ahead, and I assure you that your Board and the Management of your company are well equipped to meet those challenges and take advantage of the opportunities in the Nigerian economy generally, and in our existing businesses more specifically.
FINAL NOTE OF THANKS
Distinguished shareholders; your company was most fortunate to have had Messrs. Larry Ettah and Joseph Dada serve as Chief Executive Officer and Executive Director respectively and I would like, on your behalf, to thank these excellent gentlemen for their meritorious service to the company. I also wish to place on record our collective gratitude to the employees of our company for their hard work in 2017. I would also like to thank our valued customers for standing by us, and for staying loyal to our products and brands.
I am grateful to my colleagues on the Board for their co-operation and contributions. Finally, I would like to thank you, our loyal shareholders, for keeping faith with your company over the years and I ask that you provide our new Group CEO with your support, as he assumes the executive leadership.
Thank you for your attention.
Mr Dan Agbor