Four years of continuous losses, declining sales and huge indebtedness, UACN Property Development Company (UPDC) Plc appeared to have hit the bottom, but a far-reaching restructuring of the businesses and balance sheet of the real estate company appeared to offer a glimpse of hope.
Audited report and accounts of UPDC for the year ended December 31, 2019 showed a net loss of N15.9 billion with net assets per share depreciating to a low of 80 kobo per share. The external auditors, Ernst & Young, noted the precarious position and the high degree of uncertainty around the company in its latest audit report. But UPDC is pulling down the structure and recasting its foundation. From equity recapitalisation to planned divestment from unprofitable non-core hospitality business and sale of majority equity stake to a new core investor, UPDC has taken major measures to restore its balance.
UACN Property Development Company
Total assets dropped by 37.7 per cent from N46.5 billion in 2018 to N28.9 billion in 2019. Total liabilities, however, dropped marginally by 5.8 per cent from N28.4 billion to N26.8 billion. While the paid up share capital remained unchanged at N1.30 billion, total equity funds declined by 88 per cent from N18.1 billion to N2.17 billion. Bank loans increased 35.3 per cent from N14.3 billion to N16.5 billion.
Current liabilities continued to override current assets. Current assets stood at N11.14 billion against current liabilities of N21.6 billion in 2019 compared with N13.8 billion and N23.3 billion respectively in 2018. The underlying financing structure showed a highly geared company with less financing capacity to meet its obligations without its creditors.
The proportion of equity funds to total assets dropped from 39 per cent in 2018 to 7.5 per cent in 2019. Debt-to-equity ratio spiraled to 761.6 per cent in 2019 as against 79.2 per cent in 2018. Current liabilities amounted to three-quarters of total assets in 2019 compared with two-quarters the previous month.
Total staff costs reduced to N345.53 million in 2019 as against N395.83 million in 2018. Average number of employees had dropped from 299 persons to 258 persons. Average staff cost per employee thus stood at N1.34 million in 2019 as against N1.32 million in 2018. The reduction in number of employees was mainly due to 41 per cent decrease in management staff.
Fees and emoluments of directors dropped from N130.06 million to N57.63 million. Average staff productivity declined considerably during the period with pre-tax loss per employee rising from N44.3 million in 2018 to N62.8 million in 2019.Total cost of business-excluding financing charges in relation to sales improved, driven mainly by significant reduction in administrative expenses.
Total turnover dropped by 6.3 per cent from N2.30 billion to N2.16 billion, the third consecutive decline in top-line. The decline was driven largely by reduction in property sales and rental income and management. Cost of sales outstripped turnover, leaving gross loss higher at N878 million in 2019 as against N862 million in 2018. This set the stage for the fourth consecutive negative bottom-line. While operating expenses and interest expenses reduced considerably, the sluggish top-line saw pre-tax loss rising by 22.3 per cent from N13.24 billion to N16.20 billion. After taxes, net loss rose marginally by 5.5 per cent from N15.06 million to N15.88 million. Loss per share stood at N6.12 in 2019 as against N5.79 in 2018. Net assets per share slumped to 80 kobo in 2019 as against N6.90 in 2018. Underlying profitability ratios worsened during the period.
Gross profit margin compressed further from -37.4 per cent in 2018 to -40.7 per cent in 2019. Pre-tax profit margin stood at negative -750.4 per cent in 2019 as against -575.1 per cent in 2018.
Expectedly, returns were negative, showing continuing erosion of shareholders’ value. Return on total assets stood at -56.0 per cent in 2019 as against -28.5 per cent in 2018. Return on equity worsened from -83.4 per cent to -731.3 per cent.
UACN Property Development Company
The liquidity position of the real estate company weakened further during the period. Current ratio, which broadly indicates ability of the company to meet emerging financing needs, dropped to 0.5 times in 2019 as against 0.6 times in 2018. The proportion of working capital to total sales remained negative, rising from -414.2 per cent in 2018 to -485.7 per cent in 2019. Debtors/creditors ratio stood at 51.9 per cent in 2019 as against 76.5 per cent in 2018.
Governance and structures
UPDC, the flagship real estate development company quoted on the Nigerian Stock Exchange (NSE), was spun off from UAC of Nigeria in 1997 and subsequently listed on the NSE. UACN holds 64.16 per cent majority equity stake while FBN Quest Trustees Limited holds the second single largest stake of 5.72 per cent.
Other corporate bodies hold some 15.86 per cent while individual shareholders hold remaining 14.25 per cent equity stakes.
Meanwhile, as part of the restructuring of the company, UACN has commenced the sale of 51 per cent majority equity stake in UPDC to Custodian Investment Plc, an insurance-led investment group quoted on the NSE. UPDC has also commenced the process to sell its hospitality business, in its bid to focus mainly on real estate development and facilities management.
Group Managing Director of UACN, Mr Fola Aiyesimoju, also presides over UPDC as Chief Executive Officer. Mr Babatunde Kasali remains the chairman of the eight-man board of directors.
The overall outlook remains uncertain, although extensive and focused restructuring initiatives by the board and management raise optimism. By the first quarter of the year, turnover had dropped from N507.75 million in first quarter 2019 to N239.74 million in first quarter 2020.
Loss before tax however reduced from N967.72 million in first quarter 2019 to N780.68 million in first quarter 2020. In its latest report and accounts, for the half year ended June 30, 2020, turnover slumped to N346.54 million in first half 2020 as against N1.49 billion in first half 2019. Loss before tax doubled from N1.03 billion in 2019 to N2.04 billion in 2020.
The board of directors is implementing a four-point corporate strategy to restructure and redevelop the company. These strategic initiatives include growing operating income, capital structure and cash flow management, cost optimisation and development of new projects. UPDC last week announced the transfer of its facility management business to a new stand-alone subsidiary. The overall outlook for the real estate industry is a bitter-sweet scenario, with large housing gap encumbered by declining purchasing power, poor mortgage system and unsustainable financial structure. The linchpin in UPDC’s strategy appears to be amenable finance, suitable long-term capital that allows the company to scale up in both the exquisite and mass market, while providing affordable options for customers.