Bb - FMDQ OTC Securities Exchange

Transcription

2016 Commercial Paper Rating Report
UACN Property Development Company (UPDC)
₦16,799,893,000.00 183 Days Series 1 Commercial Paper under the ₦24 billion Programme
CP Rating
*This CP rating is equivalent to “A-“ for a long term rating
S3*
Issuer Rating: BbOutlook: Stable
Issue Date: 21 April 2016
Expiry Date: 31 December 2016
The rating is valid throughout the life of
the instrument and will be subject to
periodic monitoring and review.
INSIDE THIS REPORT
Rating Rationale
Company Profile
Financial Condition
Commercial Paper Structure
Ownership, Mgt & Staff
Outlook
Financial Summary
Rating Definitions
1
3
6
9
10
12
14
18
Analysts:
Olusegun Owadokun
[email protected]
Isaac Babatunde
[email protected]
Agusto & Co. Limited
UBA House (5th Floor)
57, Marina
Lagos
Nigeria
www.agusto.com
RATING RATIONALE
UACN Property Development Company Plc (“UPDC”, “the Issuer”, or “the
Company”) is a major player in the Nigerian Real Estate Industry. The Company,
which is a subsidiary of UAC of Nigeria Plc (“UACN”), is primarily focused on the
acquisition, development, sale, management and leasing of both residential
and commercial properties in Nigeria. UACN Property Development Company
Plc plans to issue a ₦16,799,893,000.00 (₦16.8 billion) 183 days unsecured
commercial paper (“series 1”), being the first tranche under its ₦24 billion
Commercial Paper Issuance Programme in 2016. The Series 1 (“the Commercial
Paper”, “the CP”, “the Notes” or “the Issue”) would be used exclusively to
refinance the Company’s short-term borrowings.
The rating assigned to the Issuer reflects its satisfactory cash flow and good
track record in the Real Estate Industry as well as stable management team.
However, UPDC’s performance is tempered by declining revenue, weak
profitability, inadequate working capital and high leverage. The rating assigned
to the Commercial Paper has been elevated from the Issuer rating on account
of the partial corporate guarantee issued by UAC of Nigeria Plc capped at 46%
of the CP programme in the unlikely event of default as well as the ₦10 billion
Revolving Liquidity Support Facility to be jointly arranged by FBN Merchant
Bank Limited and Coronation Merchant Bank Limited (the lenders) for the
Series 1 issue.
The Series 1 CP is a senior unsecured obligation of the Issuer and the Notes
will rank pari passu with other present and future senior unsecured obligations
of the Company outstanding from time to time. Consequently, the Company
will be primarily responsible for meeting the obligations of the Issue from its
operating cash flow.
In our opinion, the Issue has moderate credit risk on account of the financial
condition of the Issuer and largely on the additional credit enhancements
provided by the parent company (UACN) and the Lenders
The copyright of this document is reserved by Agusto & Co. Limited. No matter contained herein may be reproduced, duplicated or copied by any means whatsoever
without the prior written consent of Agusto & Co. Limited. Action will be taken against companies or individuals who ignore this warning. The information contained in
this document has been obtained from published financial statements and other sources which we consider to be reliable but do not guarantee as such. The opinions
expressed in this document do not represent investment or other advice and should therefore not be construed as such. The circulation of this document is restricted to
whom it has been addressed. Any unauthorized disclosure or use of the information contained herein is prohibited.
UPDC’s ₦16.8 Billion 183 days Series 1 Commercial Paper
Agusto & Co. therefore assigns a ‘Bb-’ rating to UACN Property Development
Plc and ‘S3’ to the Series 1 Commercial Paper.
Figure 1: Strengths, Weaknesses, Challenges & Opportunities
Strengths
•Strong franchise value in the Nigerian Real Estate Market
•Stable & experienced management team
Weaknesses
•Weak profitability
•Inadequate working capital
•High leverage
Challenges
•Increased business risk given the current challenging macroeconomic environment
•Security challenges in the Northern region of the country
•Weak purchasing power and its adverse impact on residential real
estate
•High inflation & volatile FX which pushes up construction costs
Opportunities
•Nigeria's huge housing deficit (estimated to be about 17 million
units)
•Rising middle class
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COMPANY PROFILE
UAC Property Development Company Plc was carved out of the real estate division of UAC of Nigeria Plc in 1997
and was incorporated as a public limited liability company. UPDC became listed on the Nigerian Stock Exchange
on 19 November 1998. The Company’s principal activities are the acquisition, development, sale, management
and leasing of commercial and residential properties.
UPDC’s real estate portfolio mainly comprises properties in upscale locations within Lagos, Port-Harcourt, Abuja,
Asaba, Ibadan and Calabar. The Company broadly classifies its properties into Property Stock and Investment
Properties. Property Stock are the properties built for sale, while Investment Properties are commercial and
residential properties developed and held for capital appreciation and rental income. Residential properties are
further sub-divided into classic homes, premium homes and luxury apartments. The Company also produces
residential houses targeted at middle-class salary earners with access to mortgage finance, known as Comfort
Homes, which are priced between ₦20 million and ₦25 million.
In 2013, UPDC issued a Real Estate Investment Trust (REIT) and transferred some notable properties to the REIT
including Victoria Mall Plaza (VMP) Phase 1 - a 42 unit luxury apartment block located in Victoria Island, Lagos;
VMP 2 – a 15-level, purpose-built office complex with 7,454m rentable space also located in Victoria Island,
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Lagos; and Abebe Court - a luxury estate comprising 32 units of 3-bedroom and 4-bedroom flats located in Ikoyi,
Lagos. The Company currently acts as property manager for all the REIT assets and receives fees for this service.
The REIT has consistently been paying cash distributions since 2014 and Table 1 shows the performance history
of the REIT over the period:
Table 1: REIT Performance History
S/N DESCRIPTION
PAYMENT DATE
VALUE
DIVIDEND YIELD
EARNINGS
YIELD
1
Distribution #1
56 Kobo
5.6%
15.2%
2
Distribution #2
December 4, 2014, 13 -month
period ended June 2014
April 28, 2015 , 19 - month
period ended December 2014
PROJECTED
EARNINGS
YIELD
8.79%
31 kobo
18.2%
12.02%
3
Distribution #3
December 21, 2015, 6 -month
period ended June 2015
43 Kobo
8.7%
(Cumulative
for the period ended
December 2014)
4.3%
5.9%
4.83%
UPDC has 61.5% stake in the REIT, while the remaining is held by other investors. As part of strategy to inject
fresh capital into the business, the Company plans to reduce its shareholding in the REIT to 40% by offering for
sale 21.5% of its stake to the public. The sale, which is projected to be concluded by mid-2017, will generate an
estimated ₦6.5 billion.
Table 2 shows a summary of notable assets in UPDC’s portfolio including recently completed and on-going
projects.
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Table 2: UPDC’s List of Completed and On-going Projects
S/
N
PROJECT NAME /
LOCATION
CATEGORY
1
Metro City, Apo
Dutse Abuja
Residential
(Premium)
2
Festival Mall,
Festac Amuwo,
Lagos
3
STRUCTURE
NO. OF
UNITS
VALUE
ESTIMATED
COMPLETION
TIME
COMMENTS
JV with African
Capital Alliance
104
11.1b
Phase 1
Completed
Phase 1 Completed.
Retail
JV with African
Capital Alliance
and REIT
N/A
7.9b
Completed
Completed in
December 2015
Pinnacle
Apartments,
Maitama, Abuja
Residential
(Luxury)
JV with Imani &
Sons
27
3.4b
April 2016
To be completed in
April 2016
4
Olive Court,
Agodi GRA,
Ibadan
Residential
(Premium)
JV with Oyo State
Government
50
2.0b
June 2016
Phase 1 comprising
15 units completed.
Phase 2-Work in
progress; to be
completed in June
2016
5
Pineville, GRA
Asaba
Residential
(Premium)
UPDC
20
1.1b
April 2016
Phase 1 comprising
9 units to be
completed in April
2016
6
Golf Estate,
Summit Hills,
Calabar.
Residential
(Premium)
JV with Cross River
State Government
200
3.2b
March 2016
7 typologies In
progress
7
James Pinnock
Place, Lekki
Lagos
Residential
(Premium)
JV with the REIT
82
4.1b
June 2017
A mix of Shell and
finished buildings.
8
The Residences,
Festac Amuwo
Odofin, Lagos
Residential
UPDC
196
4.5b
March 2016
Project is at 95%
Completion
9
Alexander Miller
Apartments, Lekki
Lagos
Residential
(Premium)
UPDC
38
1.9b
December 2016
Work is in progress.
10
Galaxy Mall and
Galleria, GRA
Kaduna
Retail
JV with Kaduna
State Govt.
N/A
4.9b
January 2018
Ground breaking
done and
Contractors to be
mobilised
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VMP 3 Car Park
and Event Centre
Mixed use
JV Partner is still
being sourced
N/A
7.6b
July 2017
Contractors
mobilized, pilling
works on-going
(N ’M)
(Premium)
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UPDC has two subsidiaries, UPDC Hotels Ltd and Manor Gardens Property Development Company. UPDC Hotels
Ltd oversees the operations of Golden Tulip Festac Hotel - the former Festac ’77 Hotel, which was purchased
from the Federal Government in 2002. The hotel has 471 rooms, restaurants, conference & banquet facilities,
sporting facilities, offices and shops. Manor Gardens Property Development Company (MGPDC) was incorporated
in 2002 and is jointly owned by UPDC Plc (67.5%) and Top Services Limited (32.5%).
UPDC’s head office is located at UAC House, 1-5 Odunlami Street, Lagos Island, Lagos. The Company’s major
shareholders are UAC of Nigeria Plc (46%) and First Trustees Nigeria Ltd (9%). Individuals and other corporate
bodies hold the balance of the Company’s equity (45%).
UPDC is governed by a seven-member Board of Directors, comprising two executive directors and five nonexecutive directors. Mr. Larry Ephraim Ettah leads the Board as Chairman, while Mr. Hakeem Ogunniran is the
Managing Director. In the year under review, there were no changes to the Board. In 2015, UPDC employed an
average of 126 persons (2014: 131 persons).
As at 31 December 2015, UPDC’s total assets stood at ₦70.8 billion, while shareholders’ funds amounted to
₦35.3 billion. During the same period, the Company generated ₦3.7 billion revenue, but recorded a loss after tax
of ₦1.4 billion.
Table 3: Current Board of Directors
CURRENT DIRECTORS
Mr. Larry Ephraim Ettah
Mr. Hakeem Ogunniran
Mrs. Folasade O. Ogunde
Mrs. Halima Tayo Alao
Mr. Abdul Akhor Bello
Mr. Adekunle Awojobi
Prof. Okon Ansa
Chairman
Managing Director
Finance Director
Non-executive Director
Table 4: Shareholders’ Composition
SHAREHOLDERS
UAC of Nigeria Plc
First Trustees Nig Ltd
Others
EQUITY STAKE (%)
46
9
45
100
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FINANCIAL CONDITION
ANALYSTS’ COMMENTS
The proposed ₦16.8 billion Series 1 Commercial Paper under the N24 billion Commercial Paper Issuance Programme is
repayable primarily from the operating cash flow of UPDC; hence we have analysed the financial condition of the Company
for the year ended 31 December 2015.
PROFITABILITY
UACN Property Development Company Plc generates revenue primarily from the acquisition, development, sale,
leasing and management of residential, retail and commercial properties in the luxury, premium and classic
segments of the Nigerian real estate market. During the year ended 31 December 2015, the Company’s revenue
amounted to ₦3.7 billion, representing a 63% decline from prior year. The reduction in revenue was largely
attributed to the non-recognition of some properties pre-sold which did not meet the revenue recognition criteria
as well as the James Pinnock Development which could not be recognised as income due to the fact that the
project is now being executed under a joint venture arrangement. The challenging macroeconomic environment,
insecurity in the North-East and the uncertainty regarding the 2015 General Elections also contributed to a
slowdown in sales during the review period.
Sale of property stock was the largest contributor to revenue at 75% in 2015. Rental income and project
management fees contributed 14% and 11% respectively during the period under review.
Figure 2: Breakdown of Sales
Project
Management
Fees
11%
Rental
Income
14%
Figure 3: Operating profit & PBT margins
85%
69%
65%
45%
Property
Stock
75%
25%
47%
12% 23%
21%
8%
5%
2015
2014
Operating profit margin
2013
Profit before tax margin
The Company’s costs of sales to turnover ratio improved to 67%, compared to prior year (84%). This resulted in a
higher gross profit margin of 33% in 2015 as against 16% recorded in the prior year. Although UPDC’ operating
expenses dropped by 8.6% to ₦784.3 million, the Company’s operating expenses-to-sales ratio rose from 8.5% in
2014 to 21% in 2015 due to declining sales.
In the year under review, UPDC recorded an operating profit of ₦434.1 million, representing a drop of 45% over
previous year. In addition, the Company’s profit before interest & tax declined considerably by 81% to ₦874.5
million (2014: ₦4.7 billion) mainly due to a ₦2.1 billion impairment charge. This charge was as a result of
erosion in value of the Company’s equity investment in UPDC Hotels Limited which accounted for the 89% drop
in other income during the year. The Golden Tulip Festac Hotel has been struggling of late with average
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occupancy rate of 28% in 2015 (2014: 37%) due to the traffic and security concerns in the Festac area.
Consequently, UPDC posted a loss before tax of ₦1.8 billion in 2015 (2014: profit before tax of ₦2 billion).
However, the loss after tax dropped marginally to ₦1.5 billion on account of the tax benefits claimed in the year.
Due to the loss recorded during the year under review, the Company’s profitability indices were generally poor
with a pre-tax return on assets (ROA) of 0.07% and a negative pre-tax return on equity (ROE) of 5% in 2015.
Looking ahead, UPDC intends to recognize its pre-sold properties from prior year and also increase sales of
commercial real estate units. In addition, the one-off impairment charge of ₦2.1 billion which eroded profit in
2015 is not expected to reoccur in the current year. Consequently, we expect UPDC’s profitability to improve in
the short to medium term.
In our opinion, the Company’s profitability is weak and requires improvement.
CASH FLOW
UPDC generates cash from outright and off-plan sale of properties, rental income and management fees on
investment properties as well as from distribution by UPDC REIT.
During the year ended 31 December 2015, UPDC’s operating cash flow (OCF) rose by 6% to ₦4 billion over prior
year. The improvement in OCF was driven principally by significant increases in amounts due to related parties
and trade creditors. Although the OCF was sufficient to pay returns to providers of financing as well as estimated
mandatory capital expenditure during the period, it was not adequate to cover amortised estimated principal.
Figure 4: Operating cash flow ratios
Over the last three years, the Company recorded cumulative
280%
239%
230%
providers of financing amounting to ₦10.1 billion during the
180%
130%
OCF of ₦15 billion and this was sufficient to pay returns to
109%
116%
80%
106%
76%
38%
cover estimated loan principal of ₦7.6 billion during the period.
30%
2015
2014
period. However, the net cumulative OCF was not adequate to
2013
Operating Cash Flow/Sales
Operating Cash Flow/Providers of financing
UPDC’s three-year weighted averages for operating profit
margin (12%) and OCF as a percentage to providers of financing
(148%) are both in line with our benchmark. In the same vein,
the Company’s OCF to sales ratio of 109%, largely on account of pre-sales of properties, surpassed our
expectation. However, we note the declining trend in OCF/providers of financing ratio in the last three years due
to the drop in sales amidst rising financing costs.
Overall, UPDC’s cash flow position is satisfactory.
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FINANCING STRUCTURE AND ADEQUACY OF WORKING CAPITAL
As at 31 December 2015, UACN Property Development Company Plc had working assets of ₦35.1 billion,
consisting largely of amounts due from related parties (58%), stocks (35%) and trade debtors (5%). Related
parties dues comprised receivables from the parent company, UACN and other associated companies. As at the
same date, the Company’s spontaneous financing which comprised mainly amounts due to related parties (55%),
trade creditors (22%) and other creditors & accruals (11%) stood at ₦12.7 billion. UPDC’s spontaneous financing
was inadequate to fund the working assets, leaving a working capital need of ₦22.4 billion.
Figure 5: Working capital surplus/ (deficiency)
In billions of
Naira
As at 31 December 2015, the Company’s long term assets
0
stood at ₦35.6 billion, while long term funding which
(5)
consisted of equity (85%) and long term borrowings (15%)
(10)
amounted to ₦41.6 billion. UPDC’s long term funds were
(15)
16
(16)
(19)
2015
2014
2013
(20)
therefore sufficient to cover the long term assets leading to a
working capital balance of ₦6 billion. However, the available
working capital was not enough to cover the short term
capital need, leaving an overall working capital deficiency of ₦16.4 billion. We note negatively that the Company
has been running working capital deficiencies over the last three years.
In our view, the Company’s working capital is inadequate.
LEVERAGE
As at 31 December 2015, UPDC’s total liabilities, comprising interest bearing (64%) and non-interest bearing
liabilities (36%), amounted to ₦35.5 billion. The interest bearing liabilities were made up of short term and long
term borrowings of 67% and 33% respectively. Trade creditors, other creditors & accruals and a portion of
amounts due to related parties largely accounted for the 36% non-interest bearing liabilities.
Figure 6: Leverage ratios
The Company’s interest bearing debt as a percentage of
equity (65%) and net debt as a percentage of total assets
(51%) are both within our threshold. UPDC’s interest
expense as a percentage of sales in 2015 was very high at
71%, which leaves little room for financial flexibility. The
Company’s three-year cumulative interest cover ratio of
205% was also below our benchmark.
70%
60%
50%
40%
2015
2014
2013
Total interest bearing liabilities/equity
In our opinion, UPDC has a high leverage.
Net debt/total assets
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COMMERCIAL PAPER STRUCTURE
UACN Property Development Company Plc plans to issue a ₦16.8 billion 183 days unsecured commercial paper
(“Series 1”) in 2016, representing the first tranche under its ₦24 billion Commercial Paper Issuance Programme.
The net proceeds of the first tranche, which will be issued at a market-reflective rate, will be used solely to
refinance existing short term borrowings of the Company, which were priced at an average interest rate of 16.6%
as at 31 December 2015.
The Commercial Paper Programme is supported by a partial corporate guarantee of the parent company, UAC of
Nigeria Plc, subject to a limit of 46% of the CP Programme. The Programme is equally backed by a ₦10 billion
Liquidity Support Facility which will be jointly provided by FBN Merchant Bank Limited and Coronation Merchant
Bank Limited with each lender contributing ₦5 billion each. The purpose of the Facility is to provide liquidity
back stop for the ₦16.8 billion Series 1 Commercial Paper. The total value of these enhancements for the Series
1 CP is estimated to be ₦17.7 billion, representing a coverage ratio of 105%.
Table 5: Schedule of Credit Enhancements for the CP Issuance Programme
S/N Description
Rating
Support Type
Value
('N'million)
Guarantee -46% of the
CP Programme
Liquidity Support
Facility
11,040
Guaranteed
value-Series
1('N'Million)
7,728
5,000
5,000
Liquidity Support
Facility
5,000
5,000
21,040
17,728
1
UAC OF Nigeria Plc
A-
2
FBN Merchant Bank
3
Coronation Merchant Bank
*No
current
rating
A-
Total Credit Support
*Subsequent to the acquisition of Kakawa Discount House Limited by FBN Holdings in November 2014, Kakawa Discount was
upgraded to a merchant bank to form the new FBN Merchant Bank Limited in 2015. Kakawa Discount was rated ‘A-‘ by Agusto & Co.
shortly before the acquisition. However, the rating is no longer valid following acquisition and rebranding.
The CP issued under the Programme will be zero-coupon notes denominated in Naira and as such, will be offered
and sold at a discount to face value. The Issue will thus not bear interest, and the Issuer will not be required to
withhold or deduct tax from payments in respect of the Notes to the Noteholders. However, the discount on the
Notes may be taxed in accordance with applicable Nigerian tax laws. The Note will be issued through book-entry
deposit by crediting the Central Securities Clearing System (CSCS) account of applicants and a Register of
Noteholders shall be maintained by the CSCS
The Series 1 CP will be issued at a market-reflective discounted price redeemable only at maturity at a par value
of ₦16.8 billion. Each Note constitutes a senior unsecured obligation of the Issuer and the Notes rank pari passu
with other present and future senior unsecured obligations of the Issuer outstanding from time to time. The
nominal amount per note is ₦1,000 with a tenor of 183 days.
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In accordance with the Deed of Covenant, a Register of Noteholders shall be maintained by the Central Securities
Clearing System. The Register shall reflect the number of Notes issued and shall contain the name, address, and
bank account details of the registered Noteholders as well as the aggregate principal amount of the Notes issued
to such Noteholder and the date of issue. The payments of outstanding obligations in respect of the Noteholders
shall be by electronic transfer.
OWNERSHIP, MANAGEMENT & STAFF
As at 31 December 2015, UACN Property Development Company Plc had 1,718,750,000 ordinary shares of 50
kobo each issued and fully paid, with UAC of Nigeria Plc (UACN) holding the largest stake of 46%. FBN Trustees
Nigeria Limited held 9% shareholding, while the balance of 45% was held by other individuals & corporate
bodies as at that date.
The Company has a seven-member Board of Directors comprising two executive directors and five non-executive
directors. The Board is led by its chairman Mr. Larry Ephraim Ettah, while the Managing Director is Mr. Hakeem
Ogunniran.
UPDC’s management team led by the Managing Director is made up of nine members, with each bringing on
board cumulative years of diversified and relevant cognate experience. We note that majority of the management
team have been with the Company or related companies within the Group for over ten years. In our opinion,
UPDC’s management is stable and has requisite experience in the management of real estate development
business.
As at 31 December 2015, UPDC had 126 employees compared to 131 employees in the prior year. In the year
under review, the Company’s average cost per employee rose by 13% to ₦4.2 million. However, the revenue per
staff dropped by 58% to ₦32 million due to the decline in sales in 2015. The revenue per staff was able to cover
average cost per employee 7.6 times in the year under review (2014: 20.6 times), which we consider to be
satisfactory.
Management Team
Mr. Hakeem Ogunniran is the Managing Director of UPDC. He holds LL.B, LL.M and MBA degrees from the
University of Lagos. Between 1986 and 1992, he lectured at the University of Ilorin and the University of Lagos.
Subsequently, Mr Ogunniran worked at Goldlink Insurance Company Ltd as the Group Secretary/Legal
Adviser. He joined UACN as Manager, Legal Services in 1995 and was later appointed Western Area Manager
and Marketing Manager of GBO/MDS Division of UACN. He was appointed Divisional Managing Director of
MDS Logistics, a division of UACN in April 2000. Mr Ogunniran was appointed the Managing Director of UPDC
in January 2010.
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A former Fulbright Scholar, he has attended various senior management and leadership programmes at
Ashridge Management College, UK; Cranfield University, UK; Harvard Business School; and London Business
School. Mr. Ogunniran is a Fellow of the Institute of Chartered Secretaries and Administrators, London and
Nigeria. He is also a Fellow of the Chartered Institute of Arbitrators, United Kingdom.
Mrs. Folasade Ogunde is UPDC’s Finance Director. She holds a Bachelor’s degree in Economics from the
University of Ife (now Obafemi Awolowo University), Ile-Ife. Mrs. Ogunde is a Fellow of the Institute of
Chartered Accountants of Nigeria (ICAN) and holds the FMP certification from the International Facility
Management Association (IFMA). She started her career with the firm of Deloitte Haskins & Sells before
joining UACN in 1997. She has held various positions within the Group including Management Accountant,
UAC Foods; Divisional Commercial Director, Mr. Biggs’s (now UAC Restaurants); and Group Treasurer, UACN.
She was appointed the Finance Director of UPDC in 2005. Mrs. Ogunde has attended senior management and
leadership programmes at Ashridge Management College, UK; Cranfield University, UK; and Harvard Business
School, USA.
Other members of UPDC Plc.’s management team include:
Mr. Yemi E. Ejidiran
Director, Business Development
Mr. Brian Greenaway
Director, Technical Operations
Ms. Titilayo Gbadamosi
Mr. Abolade Ajolopo
Mr. Charles Enahonna
Ms. Folake Kalaro
Ms. Emem Essien
GM, Sales & Marketing
Manager, Estates
GM, Procurement & Supplies
Manager, Legal Services
Human Resource & Change Manager
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OUTLOOK
The anxiety surrounding the 2015 general elections, combined with the plunge in oil prices and the fragile
security situation in the North Eastern part of the country, made 2015 a very challenging year for businesses in
general and the Real Estate Industry in particular. The depreciation and volatility of the Naira compounded the
woes for businesses last year. This was reflected in the drop in GDP growth rate from 6.23% in 2014 to 2.8%1 in
2015. Agusto & Co expects the slowdown in GDP growth to persist in 2016 with growth rate projected to be
around 2%2. Nevertheless, with the Federal Government of Nigeria’s proposed ambitious expansionary 2016
budget of ₦6.1 trillion with special attention on investments in key infrastructure such as power, works and
housing to reflate the economy, we anticipate that growth will pick up in the medium to long term.
In spite of the challenging macroeconomic environment, the Company’s performance in terms of units of
properties sold remained almost at par at 137 units in 2015 relative to prior year’s (2014: 140 units). However, in
the year ended 31 December 2015, the fall in UPDC’s revenue was attributed mainly to the non-recognition of
some properties pre-sold as well as the James Pinnock Development which could not be recognised as income
due to the fact the project is now being executed under a joint venture arrangement. Consequently, Agusto & Co
expects an improvement in the Company’s revenue in 2016 when these sales are accounted for in UPDC’s books.
However, this will only translate to improvement in profitability in the short term contingent upon the Company’s
ability to efficiently manage operational and financing costs.
Given the Issuer’s five-year strategic plan to have a strong footprint in the commercial real estate market, the
Company plans to rebalance its portfolio from the current 80:20 ratio (residential vs. commercial) to a balanced
ratio of 50:50 in the medium term. This is already evidenced in the successful completion of the Festival Mall in
Festac in the last quarter of 2015, the planned development of a shopping mall in Kaduna and three additional
malls being proposed for the Lagos market in the near term. In addition, UPDC is committed to remaining an
active player in the residential segment with projects such as the Pinnacle Apartments (Abuja), Olive Court
(Ibadan), Pineville (Asaba), Golf Estate Summit Hills (Calabar), James Pinnock Place, The Residences and
Alexander Miller (all in Lagos) at various stages of development.
To further boost the working capital position, the Company plans to recapitalise by way of rights issue which is
estimated to realise about ₦5.6 billion. The rights issue is expected to be finalised in the second quarter of 2016.
In addition, UPDC has decided to offer some of the assets currently being held as investment properties for sale
in the second quarter of 2016 and this is projected to generate approximately ₦2.7 billion. In the medium term,
the Company intends to sell off an additional 21.5% stake in the REIT to bring its holdings in the REIT to 40%.
This is expected to generate additional ₦6.5 billion in cash. UPDC has also taken the strategic decision to
position the Golden Tulip Festac Hotel to be a notable destination of choice for conferencing and banqueting
events with the eventual plan to exit the investment (the hotel business) in 2017.
1
2
National Bureau of Statistics
Agusto & Co Research
12
In our opinion, the Company’s working capital and leverage would improve in the event of the successful
consummation of the aforementioned initiatives particularly the proposed additional equity injection through the
rights issue.
The Company intends to issue Series 1 CP amounting to ₦16.8 billion as the first tranche under the ₦24 Billion
Commercial Paper Programme in 2016 to refinance existing short term borrowings. The 183 days CP, which will
be issued at a market-reflective discounted price, is redeemable at maturity at a par value of ₦16.8 billion. In our
opinion, the Issuer has the capacity to meet the obligations on the Commercial Paper from its operating cash
flow in a timely manner. The Issue is further enhanced by the 46% partial corporate guarantee from UAC of
Nigeria Plc as well as the ₦10 billion Liquidity Support Facility which is to be jointly provided by both FBN
Merchant Bank Limited and Coronation Merchant Bank Limited.
Based on the aforementioned, we attach a stable outlook to the Issue.
13
FINANCIAL SUMMARY
STATEMENT OF FINANCIAL POSITION AS AT
ASSETS
IDLE CASH
MARKETABLE SECURITIES & TIME DEPOSITS
CASH & EQUIVALENTS
FX PURCHASED FOR IMPORTS
ADVANCE PAYMENTS AND DEPOSITS TO SUPPLIERS
STOCKS
TRADE DEBTORS
DUE FROM RELATED PARTIES
OTHER DEBTORS & PREPAYMENTS
TOTAL TRADING ASSETS
INVESTMENT PROPERTIES
OTHER NON-CURRENT INVESTMENTS
PROPERTY, PLANT & EQUIPMENT
SPARE PARTS, RETURNABLE CONTAINERS, ETC
GOODWILL, INTANGIBLES & OTHER L T ASSETS
TOTAL LONG TERM ASSETS
TOTAL ASSETS
Growth
LIABILITIES & EQUITY
SHORT TERM BORROWINGS
CURRENT PORTION OF LONG TERM BORROWINGS
LONG-TERM BORROWINGS
TOTAL INTEREST BEARING LIABILITIES (TIBL)
TRADE CREDITORS
DUE TO RELATED PARTIES
ADVANCE PAYMENTS AND DEPOSITS FROM CUSTOMERS
OTHER CREDITORS AND ACCRUALS
TAXATION PAYABLE
DIVIDEND PAYABLE
DEFERRED TAXATION
RETIREMENT BENEFIT OBLIGATIONS
MINORITY INTEREST
REDEEMABLE PREFERENCE SHARES
TOTAL NON-INTEREST BEARING LIABILITIES
TOTAL LIABILITIES
SHARE CAPITAL
SHARE PREMIUM
IRREDEEMABLE DEBENTURES
REVALUATION SURPLUS
OTHER NON-DISTRIBUTABLE RESERVES
REVENUE RESERVE
SHAREHOLDERS' EQUITY
TOTAL LIABILITIES & EQUITY
31-Dec-15
₦'000
54,170
54,170
12,195,263
1,686,560
20,467,712
733,064
35,082,599
16,867,015
18,577,221
104,606
17,896
62,508
35,629,246
70,766,015
1.9%
16,407,121
6,399,240
22,806,361
2,775,256
6,967,167
257,121
1,459,050
786,762
483,228
12,728,585
35,534,946
859,375
3,943,273
30,428,421
35,231,069
70,766,015
14
31-Dec-14
₦'000
0.1%
0.1%
17.2%
2.4%
28.9%
1.0%
49.6%
23.8%
26.3%
0.1%
0.0%
0.1%
50.3%
100.0%
23.2%
58,858
58,858
9,742,222
2,097,462
20,180,329
1,523,371
33,543,385
16,542,109
19,133,856
126,881
15,401
20,807
35,839,054
69,441,297
0.1%
18.0%
50.2%
1.2%
5.6%
16,025,500
7,501,530
23,527,030
1,143,359
2,490,404
258,686
2,707,214
712,928
1,040,023
8,352,614
31,879,644
859,375
3,943,273
43.0%
49.8%
100.0%
32,759,005
37,561,653
69,441,297
9.0%
32.2%
3.9%
9.8%
0.4%
2.1%
1.1%
0.7%
31-Dec-13
₦'000
0.1%
0.1%
14.0%
3.0%
29.1%
2.2%
48.3%
23.8%
27.6%
0.2%
0.0%
0.0%
51.6%
100.0%
23.1%
10.8%
33.9%
1.6%
3.6%
0.4%
3.9%
1.0%
1.5%
18,081
18,081
12,707,099
998,065
19,337,465
610,170
33,652,799
15,328,895
20,127,550
224,481
16,619
35,697,545
69,368,425
-5.7%
19,012,693
4,441,331
23,454,024
3,411,318
1,260,776
271,931
2,428,920
368,976
0.0%
0.0%
18.3%
1.4%
27.9%
0.9%
48.5%
22.1%
29.0%
0.3%
0.0%
51.5%
100.0%
27.4%
6.4%
33.8%
4.9%
1.8%
0.4%
3.5%
0.5%
12.0%
45.9%
1.2%
5.7%
1,732,957
9,474,878
32,928,902
687,500
4,115,148
2.5%
13.7%
47.5%
1.0%
5.9%
47.2%
54.1%
100.0%
31,636,875
36,439,523
69,368,425
45.6%
52.5%
100.0%
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED
TURNOVER
COST OF SALES
GROSS PROFIT
OTHER OPERATING EXPENSES
OPERATING PROFIT
OTHER INCOME/(EXPENSES)
PROFIT BEFORE INTEREST & TAXATION
INTEREST EXPENSE
PROFIT BEFORE TAXATION
TAX (EXPENSE) BENEFIT
PROFIT AFTER TAXATION
NON-RECURRING ITEMS (NET OF TAX)
MINORITY INTERESTS IN GROUP PAT
PROFIT AFTER TAX & MINORITY INTERESTS
DIVIDEND
PROFIT RETAINED FOR THE YEAR
SCRIP ISSUES
OTHER APPROPRIATIONS/ ADJUSTMENTS
PROFIT RETAINED B/FWD
PROFIT RETAINED C/FWD
Proof
ADDITIONAL INFORMATION
Staff costs (₦'000)
Average number of staff
Staff costs per employee (₦'000)
Staff costs/Turnover
Capital expenditure (₦'000)
Depreciation expense - current year (₦'000)
(Profit)/Loss on sale of assets (₦'000)
Number of 50 kobo shares in issue at year end ('000)
Market value per share of 50 kobo (year end)
Market capitalisation (₦'000)
Market/Book value multiple
Non-operating assets at balance sheet date (₦'000)
Market value of tradeable assets (₦'000)
Revaluation date - Investment properties
Revaluation date - Other properties
Average age of depreciable assets (years)
Sales at constant prices - base year 1985 (₦'000)
Auditors
Opinion
31-Dec-15
₦'000
3,738,326
(2,519,952)
1,218,374
(784,304)
434,070
440,419
874,489
(2,670,625)
(1,796,136)
324,914
(1,471,222)
(1,471,222)
(859,375)
(2,330,597)
100.0%
-67.4%
32.6%
-21.0%
11.6%
11.8%
23.4%
-71.4%
-48.0%
8.7%
-39.4%
-39.4%
-23.0%
-62.3%
₦'000
10,081,316
(8,434,341)
1,646,975
(858,940)
788,035
3,905,415
4,693,450
(2,657,289)
2,036,161
48,552
2,084,713
2,084,713
(962,583)
1,122,130
31-Dec-13
100.0%
-83.7%
16.3%
-8.5%
7.8%
38.7%
46.6%
-26.4%
20.2%
0.5%
20.7%
20.7%
-9.5%
11.1%
₦'000
9,328,425
(6,309,127)
3,019,298
(1,016,775)
2,002,523
4,390,706
6,393,229
(2,014,157)
4,379,072
(552,112)
3,826,960
3,826,960
(962,500)
2,864,460
32,759,005
30,428,408
1
31,636,875
32,759,005
0
28,772,415
31,636,875
-
31-Dec-15
532,031
126
4,222
14.2%
23,517
44,813
1,718,750
609
10,467,188
0
18,577,221
31-Dec-14
489,190
131
3,734
4.9%
58,432
117,332
1,718,750
950
16,328,125
0
19,133,856
31-Dec-13
550,534
124
4,440
5.9%
103,800
51,028
1,375,000
1,900
26,125,000
1
20,127,550
3
17,472
EY
CLEAN
5
51,633
PWC
CLEAN
4
51,573
PWC
CLEAN
15
31-Dec-14
100.0%
-67.6%
32.4%
-10.9%
21.5%
47.1%
68.5%
-21.6%
46.9%
-5.9%
41.0%
41.0%
-10.3%
30.7%
CASH FLOW STATEMENT FOR Y/E
31-Dec-15
=N='000
31-Dec-14
=N='000
31-Dec-13
=N='000
(1,471,222)
2,084,713
3,826,960
2,670,625
44,813
1,244,216
2,657,289
117,332
3
4,859,337
2,014,157
51,028
(1)
5,892,144
1,631,897
4,476,763
(1,565)
(1,248,164)
73,847
(556,795)
4,375,983
(2,267,959)
1,229,628
(13,245)
278,294
343,952
(692,934)
(1,122,264)
(2,429,289)
835,857
(2,593,714)
946,662
(381,692)
6,624
(168,703)
(3,784,255)
(2,453,041)
410,902
(287,383)
790,307
(1,539,214)
4,080,985
2,964,877
(1,099,397)
(842,864)
(913,201)
109,414
3,846,487
3,669,186
1,021,621
(1,606,859)
1,912,634
4,996,582
7,104,471
(2,670,625)
(859,375)
(3,530,000)
(2,657,289)
(962,583)
(3,619,872)
(2,014,157)
(962,500)
(2,976,657)
550,985
226,615
4,127,814
-
-
-
(23,517)
979
187,533
164,995
(58,432)
38,697
(239,109)
(258,844)
(103,800)
41,304
(770,961)
(833,457)
FINANCING ACTIVITIES
Increase/(Decrease) in short term borrowings
Increase/(Decrease) in long term borrowings
Proceeds of shares issued
CASH FROM (USED IN) FINANCING ACTIVITIES
381,621
(1,102,290)
(720,669)
(2,987,193)
3,060,199
(0)
73,006
3,142,551
(6,444,913)
(3,302,362)
CHANGE IN CASH INC/(DEC)
OPENING CASH & MARKETABLE SECURITIES
CLOSING CASH & MARKETABLE SECURITIES
(4,689)
58,858
54,169
40,777
18,081
58,858
(8,005)
26,086
18,081
OPERATING ACTIVITIES
Profit after tax
ADJUSTMENTS
Interest expense
Minority interests in Group PAT
Depreciation
(Profit)/Loss on sale of assets
Other non-cash items
Potential operating cash flow
INCREASE/(DECREASE) IN SPONTANEOUS FINANCING:
Trade creditors
Due to related parties
Advance payments and deposits from customers
Other creditors & accruals
Taxation payable
Deferred taxation
Obligations under unfunded pension schemes
Minority interest
Cash from (used by) spontaneous financing
(INCREASE)/DECREASE IN WORKING ASSETS:
FX purchased for imports
Advance payments and deposits to suppliers
Stocks
Trade debtors
Due from related parties
Other debtors & prepayments
Cash from (used by) working assets
CASH FROM (USED IN) OPERATING ACTIVITIES
RETURNS TO PROVIDERS OF FINANCING
Interest paid
Dividend paid
CASH USED IN PROVIDING RETURNS ON FINANCING
OPERATING CASH FLOW AFTER PAYMENTS TO
PROVIDERS OF FINANCING
NON-RECURRING ACTIVITIES
Non-recurring items (net of tax)
CASH FROM (USED IN) NON-RECURRING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditure
Sale of assets
Purchase of other long term assets (net)
Sale of other long term assets (net)
CASH FROM (USED IN) INVESTING ACTIVITIES
16
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED
Operating cash flow (OCF)
Less: Returns to providers of finance
OCF after returns to providers of finance
Non-recurring items
Free cash flow
Investing activities
Financing activities
Change in cash
PROFITABILITY
PBT as % of Turnover
Return on average equity (pre-tax)
Real sales growth
CASH FLOW
Interest cover (times)
Principal payback (years)
WORKING CAPITAL
Working capital need (days)
Working capital deficiency (days)
LEVERAGE
Interest bearing debt to Equity
Total debt to Equity
17
31-Dec-15
₦'000
4,080,985
(3,530,000)
550,985
550,985
164,995
(720,669)
(4,689)
31-Dec-14
₦'000
3,846,487
(3,619,872)
226,615
226,615
(258,844)
73,006
40,777
31-Dec-13
₦'000
7,104,471
(2,976,657)
4,127,814
4,127,814
(833,457)
(3,302,362)
(8,005)
-48%
-5%
-66.2%
20%
6%
0.1%
47%
13%
-20.4%
1.5
56.8
1.4
164.5
3.5
5.9
2,353
1,597
1,000
578
1,133
743
65%
101%
63%
85%
64%
90%
COMMERCIAL PAPER RATING DEFINITIONS
Commercial Paper rated `S1' are judged to offer HIGHEST safety of timely payment
of interest and principal.
S2
Commercial Paper rated 'S2' are judged to offer VERY HIGH safety of timely
payment of interest and principal.
S3
Investment Grade
S1
Commercial Paper rated `S4' are judged to offer ADEQUATE safety of timely
payment of interest and principal for the present; however, changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay principal
than for instruments in higher rated categories.
S4
D
Speculative Grade
SP5
SP6
Commercial Paper rated `S3' are judged to offer HIGH safety of timely payment of
interest and principal; however, changes in circumstances can adversely affect such
issues more than those in the higher rated categories.
Commercial Paper rated `SP5' are judged to carry INADEQUATE safety of timely
payment of interest and principal; while they are less susceptible to default than
other speculative grade instruments in the immediate future, the uncertainties that
the issuer faces could lead to inadequate capacity to make timely interest and
principal payments.
Commercial Paper rated `SP6' are judged to be SUSCEPTIBLE to default; while
currently interest and principal payments are met, adverse business or economic
conditions would lead to lack of ability or willingness to pay interest or principal.
Commercial Paper rated `D' are in PAYMENT DEFAULT and in arrears of interest or
principal payments or are expected to default on maturity. Such instruments are
extremely speculative and returns from these CP may be realized only on
reorganisation or liquidation.
18
ISSUER RATING DEFINITIONS
Aaa
Aa
This is the highest rating category. It indicates a company with impeccable financial
condition and overwhelming ability to meet obligations as and when they fall due.
This is a company that possesses very strong financial condition and very strong
capacity to meet obligations as and when they fall due. However, the risk factors are
somewhat higher than for Aaa obligors.
A
This is a company with good financial condition and strong capacity to repay
obligations on a timely basis.
Bbb
This refers to companies with satisfactory financial condition and adequate capacity to
meet obligations as and when they fall due.
Bb
This refers to companies with satisfactory financial condition but capacity to meet
obligations as and when they fall due may be contingent upon refinancing. The
company may have one or more major weakness (es).
B
This refers to a company that has weak financial condition and capacity to meet
obligations in a timely manner is contingent on refinancing.
C
This refers to an obligor with very weak financial condition and weak capacity to meet
obligations in a timely manner.
D
In default.
Rating Category Modifiers
A "+" (plus) or "-" (minus) sign may be assigned to ratings from ‘Aa’ to ‘C’ to reflect comparative position within the rating category.
Therefore, a rating with + (plus) attached to it is a notch higher than a rating without the + (plus) sign and two notches higher than a rating
with the - (minus) sign.
19
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
20
21

Bb - FMDQ OTC Securities Exchange

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