OPERATING ENVIRONMENT
The first half of the year was characterised by political uncertainty arising from the Late President Yar'Adua's ill-health and attendant issues of power transfer to President Goodluck Jonathan. The situation was compounded by the Boko Haram insurgence in the North-East, the Jos crises and the spate of kidnapping in the South- East and some parts of the South-South zone of the country. These developments raised security concerns in the investment community. Capital market activities continued to be at low-key with the Securities and Exchange Commission taking measures to sanitise the market and position the Stock Exchange for a sustained future performance.
There was no significant improvement in infrastructure including power during the year. Despite huge resource allocation, the public power supply situation remains disappointing. The cost of self-generated power continued to rise in response to global crude oil prices and rising generator maintenance costs. Overall GDP growth of 7.85% was impressive in the face of continuing global economic crisis. However, it is instructive to note that whereas Agriculture, Wholesale and Retail Trade and Crude Oil and Gas Exports account for 75% of the GDP, Manufacturing accounts for below 4%. Inflation rose to as high as 15% during the year before declining to 11.8% by December. Manufacturing capacity utilisation, however, continues to decline.
Credit to the private sector shrank by 5% against a benchmark target of 31.54% growth. Against this negative trend in private sector lending, credit to the Federal Government, States and Local Governments rose thereby crowding out private sector borrowing.
2010 was generally a challenging year for business in Nigeria. Let me illustrate the operational challenges faced by our businesses with the case of our UAC Restaurants Division, home to Mr. Biggs, the widest network of retail food outlets in Nigeria.
Operations in the South-East, South-South and Plateau States were hampered by threats to life, general insecurity and subdued social life leading to delayed daily opening and early closing (and some days of complete shutdown) of restaurant operations. The credit crunch, insecurity and declining purchasing power led to the business failure of a number of our franchisees and a significant rise in the incidence of bad debts. Increasing power outages led to greater dependence on self-generated power. The increased costs of reduced business volumes could not be passed on to over-burdened consumers.
In the face of these challenges, your Board and Management are taking various restructuring steps to reposition the business. The impact of these measures is already being felt.
Delite Fruit Juice was introduced in the middle of the year to join the new Supreme Flavoured Milk. As these brands are entering the market at a challenging time, Management will ensure that they are adequately supported to gain market acceptance so that our investment in this area will yield appropriate returns in due course. Our Real Estate business struggled through another year of tepid demand given the associated macro-economic issues of the environment.
Our paint business, however, had a spectacular year as volumes held given the differentiated quality offering of the premium Dulux brand. Our Jos-based businesses of Grand Cereals Limited and Spring Waters Nigeria Limited suffered business disruptions on account of the insecurity situation in Plateau State.
During the year, the firm of KPMG was engaged to review the Group Internal Audit function and processes. The outcome of that exercise and implementation of the recommendations should enable Internal Audit to perform a more strategic role and strengthen corporate governance in our Company.
COMPANY PERFORMANCE
The Group achieved a Turnover of N52.3 billion (2009 N56.6 billion), a decline of 7.6% and Profit Before Taxation of N7.0 billion (2009 N8.08 billion) representing 12.2% decline. Profit after Tax and Non-Controlling Interest stood at N3.2 billion.
DIVIDEND
On the basis of these results, the Board of Directors recommends for your approval the sum of N1,760.79 million to be paid out as dividend, representing N1.10 for every 50k share held. The dividend will be subjected to the deduction of appropriate withholding tax at the time of payment.
2011 OUTLOOK
Expected global economic recovery combined with increasing government spend and local and foreign direct investment in critical sectors should lead to economic advancement going forward. Public Private Partnership (PPP) initiatives at State and Federal Government levels should improve the state of infrastructure in the country. The 140% increase in minimum wage to N18,000, rising commodity prices and other planned economic measures could lead to higher levels of inflation and interest rates.
Overall outlook is that liquidity and consumer spending should improve with positive impact on businesses. With the passage of the AMCON Act, the Central Bank of Nigeria needs to urgently resolve outstanding issues in the financial sector so that the sector can actively play its intermediation role in the economy. It is envisaged that post election, office holders in government at all levels will settle down and give adequate attention to governance and the economy going forward.
At the Extraordinary General Meeting of 17th December 2010, you approved the restructuring of our company and the alliance with Tiger Brands Limited of South Africa with respect to our businesses in Spring Waters Nigeria Limited, UAC Foods Division and UAC Dairies Division. Negotiations with Tiger Brands have been concluded and the business of UAC Foods Limited is already receiving the required support from both partners.
On your behalf, I appeal to government at all levels, community leaders, religious leaders and, indeed, all stakeholders to find a lasting solution to the lingering Jos crises. Operational performance of our significant investments in that location- Grand Cereals Limited and Spring waters Nigeria Limited along with those of our other business units - continue to be adversely affected by the sad developments in that state.
Despite the decline in 2010 operating profits, we have closed the year with a stronger cash position; we are poised to invest significantly in the restructured operations and our other business areas. We are confident that the various measures taken and the anticipated improved operating environment point to a brighter future for our company.
BOARD CHANGES
Dr Nkosana Donald Moyo and Mr. Simon Guy Harford resigned as Directors of the Company. We thank the two gentlemen and their alternate Directors, Ms Ngozi Edozien and Mr. Benson Adenuga for their contributions to your Company. We wish them well in their future endeavours.
I introduced to you, at the December 2010 Extraordinary General Meeting, two eminent Nigerians with impressive credentials who joined the Board since the last Annual General Meeting, Dr Mansur Muhtar, OFR and Dr Okechukwu Enelamah. Please join me in welcoming them to the Board and wishing them a successful tenure.
APPRECIATION
I appreciate the efforts of management and staff towards the growth and greater profitability of our company; I urge them to rededicate themselves to this task. I thank our customers, dealers, distributors, suppliers and other stakeholders for their steadfast support and interest in the Company.
I acknowledge the contributions of my colleagues on the Board and thank you, our esteemed shareholders, for your support.
Thank you.
SENATOR UDOMA UDO UDOMA
Chairman
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