Distinguished Shareholders, Ladies and Gentlemen,
It gives me great pleasure to welcome you to the 2017 Annual General Meeting of our company, UAC OF NIGERIA PLC, and to present to you the Annual Report of the Company for the financial year ended 31st December 2016.
Before reporting on our Company’s performance, I would like to highlight some of the key issues in the business environment that affected our operations during the year.
ECONOMIC AND BUSINESS ENVIRONMENT
Flowing from the challenges of 2015, the year 2016 took the Nigerian economy into uncharted waters, with the country experiencing its first recession in two (2) decades. The recession is due, primarily, to the combined effects of:
i. The decline in crude oil prices, beginning in the middle of 2014, which led to significant reductions in the volumes of foreign exchange inflows and fiscal revenues.
ii. A decline in crude oil production, as a result of increased restiveness in the Niger Delta region.
iii. A subdued investment climate, brought about by the continued effect of the uncertainties that surrounded the outcome of the 2015 general elections.
iv. Distortions in the foreign exchange market.
v. Fuel supply shortages and erratic power supply.
These and other factors led to Nigeria’s Gross Domestic Product declining over four consecutive quarters, and to a 1.5% contraction of the economy over the course of 2016.
Accompanying this contraction in the economy was a sharp increase in price levels. Inflation rose from 9.6% to 18.6% between December 2015 and December 2016, leading to a decline in the disposable income of consumers and increases in the operating costs of businesses. Other developments such as the depreciation of the Naira, increases in the prices of refined petroleum products such as premium motor spirit (petrol) and diesel, and an increase in electricity tariffs, also contributed towards the overall increase in price levels during the year.
Despite money supply infusions into the economy, the year was also characterised by the prevalence of high interest rates. The capital market did not fare any better as Nigeria’s All Share Index declined by 6.2% in 2016 – a third, consecutive, annual decline. Market performance reflected the impact of weak macroeconomic conditions and conflicting policy signals on investor confidence, and the effect of these factors on general liquidity within the system.
While there has been a significant reduction in the activities of Boko Haram, the insurgency group still remains a threat to national security, peace and to a conducive environment for economic activity, especially in the North-East region of the country. Also contributing to the overall environment of elevated social and political risks were the recurring clashes between herdsmen and farming communities across the country, which sometimes led to deaths and displacement of such communities, and the sporadic attacks on crude oil installations in the Niger Delta.
Rising costs of raw and packaging materials have continued to crimp margins in our businesses as, despite accelerating costs, declining purchasing power and competitive pressures have allowed for only minimal retail price increases. The consumer was significantly stretched as inflationary pressures affected disposable income, which in turn affected sales volumes. The performance of our real estate segment was significantly affected by the operating environment, and by the resulting soft demand. Demand for luxury residential offerings declined as Nigerians grappled with adverse economic realities. Our real estate company faced severe challenges revolving around foreign exchange volatility and the under performance of the hospitality sector. Furthermore, as a leveraged entity, our real estate company was also adversely affected by increasing borrowing costs. The logistics and animal feeds categories, on the other hand, performed well despite the challenging operating environment and the outbreak of Avian Influenza (Bird Flu) in some parts of the Country.
In response to the challenges posed by the business environment, your Board and Management aggressively followed through on the execution of its strategic thrusts and took unnecessary costs out of operations in order to guarantee the survival of the business and sustain value creation for stakeholders
You will recall that in the Chairman’s Statement that I made at the Annual General Meeting last year, and which formed part of the 2015 Annual Report, I informed you that the Board had taken a decision to discontinue the 1 for 12 Rights Issue that was approved at the 2015 Annual General Meeting, due to the prevailing market conditions. I also informed you that the Board and Management would undertake the required investment in, and financial restructuring of, your Company’s subsidiaries using internally generated funds.
I am pleased to inform you that the Rights Issue of Portland Paints has been concluded while the Rights Issues of Livestock Feeds and UPDC are at various stages of execution, due to delayed regulatory approvals. Grand Cereals also plans to raise equity by way of a Rights Issue that your Company also intends to subscribe for.
The Board has identified an urgent need to bolster your Company’s capital position. This will ensure that your Company is able to subscribe for these Rights.
Issues and provide its subsidiaries with working capital support in a timely manner, so that the subsidiaries can quickly respond to challenges and take advantage of emerging opportunities. It is therefore intended that a resolution to enhance the capital requirements of your Company will be proposed at this meeting.
Despite the daunting challenges posed by the operating environment, your Company was able to deliver a mixed to good result in 2016 through cost optimisation initiatives, innovation in key categories and extensive retail market expansion, all of which helped to offset further deterioration of margins during the year. Consequently, I am pleased to report that your Company recorded a Group Revenue of ₦84,606,570,000 in 2016, an increase of 15% from the ₦73,771,244,000 of the previous year. Group Profit after Tax of ₦5,666,538,000 is an increase of 10% on ₦5,162,738,000 of the previous year.
In view of the Company’s performance that I have just highlighted, the Board is recommending for your approval a dividend of 100 kobo per ordinary share in respect of the 2016 financial year.
OUTLOOK FOR 2017
The outlook for 2017 will depend, largely, on the quality of policy and on the effective implementation of various reform initiatives. Critical among the considerations for 2017 will be the ability to curb, or substantially reduce, militancy in the Niger Delta thereby boosting oil production and improving foreign exchange earnings and the Government’s revenues.
Another important area of emphasis in 2017 is the diversification of the non-oil sector. The 2017 budget also seeks to encourage local production, by optimising the use of local content and empowering local businesses. Related to this are the ongoing efforts to upgrade Nigeria’s infrastructure, in order to enhance long-term growth, capital flows and development.
Also deserving of mention is the Economic Recovery and Growth Plan that was recently launched by the Government. Effective implementation of this commendable plan will help to tackle the constraints to growth and improve the overall business environment.
Ultimately, rebuilding Nigeria’s external reserves, improving the liquidity of the foreign exchange market, strengthening the Naira, managing interest rates and inflation, developing vital infrastructure and the growth of the non-oil sector will remain critical success factors for 2017.
Focusing more specifically on your Company, in 2017 we will be consolidating the initiatives that we started in 2016, support growth and working capital through equity calls, unlock value through the realisation of under-performing assets and restructuring of the route-to-market architecture across the group.
Distinguished shareholders, I wish to express the appreciation of the Board of Directors to the staff and management of our company, for their performance under extremely difficult circumstances. You have a management team, and members of staff, that are second to none.
My appreciation also goes to our valued customers for their continued patronage and unwavering loyalty to our brands and Company. I also thank my colleagues on the Board for their support and cooperation. Finally, I wish to thank you, our loyal shareholders, for keeping faith with our Company over the years.
Thank you for your attention.
Mr Dan Agbor