UAC of Nigeria Plc Investor Presentation September 2019
Disclaimer 2 This presentation contains forward-looking statements which reflect management's expectations regarding UAC of Nigeria Plc's (“UAC”, the “Company” or “HoldCo”) future growth, results of operations, performance, business prospects, operating markets and opportunities. Wherever possible, words such as "anticipate", "believe", "expects", "intend" "estimate", "project", "target", "risks", "goals" and similar terms and phrases have been used to identify forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to management. Certain material factors or assumptions have been applied in drawing the conclusions contained in forward-looking statements. These factors or assumptions are subject to inherent risks and uncertainties surrounding future expectations generally. UAC cautions readers that a number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in forward-looking statements. These factors should be considered carefully and undue reliance should not be placed on forward-looking statements. For additional information with respect to UAC’s financial performance, reference should be made to the Company’s periodic filings with the Nigerian Securities and Exchange Commission and The Nigerian Stock Exchange. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Contents 3 Overview and Strategic Focus 4 Governance and People 11 Operating Segments 16 H1 2019 Performance 57 Risks to Outlook 64 Conclusion 67 Appendix 69
Overview and Strategic Focus
Introduction 5 UAC of Nigeria PLC (“UAC”, the “Company” or “HoldCo”) is a holding company that owns businesses with • some of Nigeria’s strongest brands and widest distribution Our businesses are largely consumer facing and positioned to benefit from Nigeria’s demographics • Large, young and growing population • Urbanization • Through disciplined capital allocation and focus on operational improvements, we position our businesses for • meaningful earnings growth even during challenging macro-economic conditions We prioritise sound corporate governance practices and compliance in building well run companies. We are • growing our ESG capabilities and aim to weave this into the fabric of our businesses We anchor investment and operational decisions on improving return on invested capital (ROIC) with a • portfolio-wide target of 25% Our immediate priority remains implementing our announced solution to the challenges relating to our real • estate business – we expect to recapitalise UPDC to significantly reduce leverage and exit the business In the long term, we aim to build some of Nigeria’s most valuable and sustainable businesses •
UAC Overview 6 Overview Strategic Partnerships Imperial Logistics is a leading logistics and mobility • UAC is a public company listed on The Nigerian Stock Exchange • company with operations across Africa and Europe The Company generated H1 2019 revenues and EBIT of ₦ 41.6bn • Acquired a 49% stake in MDS in 2013; in the process of • acquiring a further 8% to gain control ($114.7mn 1 ) and c. ₦ 3.0bn ($8.2mn 1 ) respectively, a 7.1% margin UAC is active in 6 sectors – animal feeds and other edibles, packaged • Famous Brands is Africa’s largest QSR franchisor • food and beverages, paints, logistics, quick service restaurants (“QSR”) Acquired a 49% stake in UAC Restaurants in 2013 • and real estate UAC has strategic partnerships in 3 of its operating segments – • Tiger Brands is a leading African FMCG company • logistics, QSR, and packaged food and beverages Acquired a 49% stake in UAC Foods in 2010 • H1 2019 Revenue Breakdown H1 2019 EBIT Breakdown H1 2019 Invested Capital Breakdown 0% (1%) 4% 1% 6% 14% 25% 35% 13% 38% 56% 35% 20% 27% 10% 11% 1% 5% Animal Feeds and Other Edibles Packaged Food and Beverages Paints Logistics QSR Real Estate (1) Converted at ₦ 362.32/$1 as at 23 August 2019
Core to UAC’s strengths are its brands and distribution 7 Brands Reach/Monthly Sales Packaged National distribution coverage • Food and Beverages 35 million units of snacks, water and dairy sold • Animal 5 production facilities providing national coverage • Feeds and Other Edibles 30 thousand Metric Tonnes output • 86 retail outlets • Paints 800 thousand litres of paint • 120 thousand sq.m of warehouse space across 51 locations • Logistics 370 thousand km of distribution coverage • 90 stores across Nigeria • QSR 450 thousand unique transactions •
Our strategic focus is anchored on three pillars 8 1 Boards : construct boards of directors with the right mix of skills, experience and independence to provide oversight, • establish strong internal controls and shape strategy People and Management : attract and retain the strongest possible management teams for each of our businesses. Focus on • Governance performance management, learning and development, as well as, incentives Culture : focus on performance, accountability and policy adherence. Zero tolerance for governance breaches • 2 UPDC: recapitalise UPDC and exit • Structure Paints: address inefficiency of owning two listed businesses in the paint segment • Animal Feeds: explore consolidation of ownership, production facilities, procurement and routes-to-market • 3 Capital Allocation: driven by long-term ROIC and growth potential • Growth and Efficiency: invest to improve operational efficiency and introduce technology to enhance margins and ROIC • Returns Growth: capture high ROIC growth opportunities in our paints, logistics and packaged food and beverages • segments
Strategic positioning for our operating segments 9 Based on long-term ROIC, growth potential and industry position, we adopt one of three strategic options 1 2 3 (i) Invest for growth (ii) Optimise – drive margin and asset turnover (iii) Exit H1 2019 EBIT and Invested Capital EBIT Invested Capital % % of % of Company ₦ mn ₦ mn ROIC Strategic Positioning margin total total Optimise Grand Cereals 703 3.8% 21.8% 22,256 35.3% 4.3% Animal Improve feeds margins (procurement and conversion) • Feeds and Grow higher margin edibles segment • Other Edbiles Rationalise excess capacity • Livestock Feeds 110 2.3% 3.4% 1,457 2.3% 10.2% Grow CAP 1,040 26.8% 32.2% 1,780 2.8% 79.4% Deepen colour centre/shop penetration • Paints Broaden product mix • Cater for customers seeking value • Portland Paints 88 6.5% 2.7% 1,591 2.5% 7.7% Rationalise Portland Paints excess capacity • Optimise and Grow Logistics MDS 436 15.5% 13.6% 6,151 9.8% 9.7% Asset light value added logistics, high ROIC transport • Packaged Food Optimise and Grow UAC Foods 888 10.7% 27.5% 7,041 11.2% 17.2% Invest in new, efficient plant, extend product range • and Beverages Exit Real Estate UPDC (46) (3.0%) (1.4%) 21,991 34.9% (0.3%) Recapitalise to paydown short-term obligations • Exit via an unbundling to shareholders • Under review QSR UAC 4 0.6% 0.1% 799 1.3% 0.7% Evaluating business model and ability to scale • Restaurants Note: Figures are subject to rounding differences
Key investment highlights 10 Exposure to large consumer facing segments that will benefit from Nigeria’s demographics • Animal Feeds: demand driven by population and increasing urbanization • Attractive growth Packaged Food and Beverages: disproportionately benefit from urbanization as consumers seek convenience • markets Paints: will benefit from rising housing demand and home renovations • Logistics: underpins broader economic activity; shift to third-party logistics will drive growth • UAC is a market leader in its key segments and is well positioned to capture growth • Animal Feeds: #1 player in fish feed and #2 player in poultry feed • Strong market Decorative Paints: #1 player by value; strong leadership in the premium segment • positions Packaged Food and Beverages: #1 player in the long-life sausage roll segment; #2 player in mass market ice-cream, and • leading spring water brand Logistics: Leading integrated third-party logistics provider, attractive network of warehouse assets nationwide • Management : new management teams at the Holdco and for businesses representing 82% of operating profit • Margin expansion Demonstrated ability to improve operating margins : operating margins in our packaged food and beverages business • from operational improved +344bps from improvements to procurement, conversion and route-to-market improvements Replicable Model : tool-kit applied for packaged food and beverages business can be replicated across the portfolio • Packaged Food and Beverages : expand snacks and water capacity to meet demand • Tangible near term Paints : deepen distribution and broaden product range to include value offering and industrial products • growth opportunities Logistics : recently executed high ROIC dedicated transport contracts that will drive earnings growth •
Governance and People
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