Distinguished Shareholders, Colleagues, Ladies and Gentlemen,
I am pleased to welcome you all to the 14th Annual General Meeting of our Company, UACN Property Development Company (UPDC) Plc. being held today, Tuesday May 15, 2012 at Arthur Mbanefo Hall, Golden Tulip Festac Hotel & Conference Centre, Amuwo Odofin, Lagos.
Review of Operating Environment
The turbulence in the world economic landscape continued in 2011. The sovereign debt crisis intensified in Europe as authorities struggled to avert a Greek debt default and alleviate fiscal pressures in Italy and France. US stocks experienced some of the highest volatility in recent times and the broad US market struggled to deliver a flat performance in 2011. The political turmoil in some Middle East countries especially Libya and Syria further increased global economic uncertainties. Developed markets generally logged negative returns and emerging markets had mixed performance, with most countries even underperforming the US.
The Nigerian economy remained relatively stable with mixed outcomes in 2011. The enthusiasm which followed the successful conduct of the 2011 elections was dampened as the year progressed, as growth and reform expectations were largely un-met.
Real Gross Domestic Product (GDP) grew by 7.40% compared with 7.87% recorded in the previous year. The 0.47% decrease was on account of the decrease in activities in the oil sector. The Non-Oil sector recorded 8.81% growth in real terms compared with 8.43% in 2010. The 0.38 percentage point increase was largely driven by improved activities in the agriculture, manufacturing, telecommunications, wholesale/retail trade, finance & insurance and other services sectors.
A breakdown of real GDP to oil and non-oil sectors reveals that the Nigerian economy was dominated by the non-oil sector with a contribution of 85.73% to output in 2011 compared with 14.27% contribution by the oil sector.
Average year-on year inflation fell to 10.3% by the end of 2011. Inflationary threats however remained real and pronounced during the year.
The stock market maintained a bearish trend for the better part of 2011. The NSE All-Share Index closed at 20,730.63 points, down from 24,770.52 points in December 2010, representing a depreciation of 16.31%. The Market Capitalization declined by 17.43%, to close 2011 at N6.53 trillion, compared with 2010 at N7.91 trillion.
Nigeriaís external debt stock was USD 5.67billion in December 2011 as against USD 4.58billion in 2010, representing an increase of 23.8%. The external reserves increased marginally by 1% from USD 32.34 billion in 2010 to USD 32.64 billion in 2011.
In line with the CBNís restrictive monetary policy stance, the Monetary Policy Rate (MPR) rose from 6.25% in 2010 to an unprecedented high of 12.00% during the year. The Nigerian Inter-Bank Offer Rate (NIBOR) also trended upward in 2011. The 7-day NIBOR closed at 14.63% up from 9.67% in 2010, while the 90-day NIBOR closed at 15.25%, as against 12.17% in 2010.
The value of the Naira depreciated in all the three segments of the foreign exchange market against the US Dollar in 2011. The average exchange rate was N156.70 against N149.17 in 2010.
The roadmap to resolving the acute infrastructure deficiencies in power, transport, aviation and other sectors remained uncertain, unemployment was exceptionally high at 23.9% and politically-motivated terror attacks further aggravated the difficult operating environment.
Review of Operations
The real estate industry witnessed cautious improvement in 2011. Some projects hitherto abandoned at the peak of the economic crises were completed in 2011 leading to an over-supply of houses in the high-end market segment. Monetary tightening measures adopted by the Central Bank translated to persistent scarcity and high cost of funds to developers and home buyers alike. The acute shortage of homes in major Nigerian cities and the emerging middle income neighborhoods however increased land values in Mainland Lagos and Abuja by up to 30%.
Asset Management Corporation of Nigeria (AMCON) commenced the purchase of banks assets in 2011 and in the process acquired a real estate portfolio said to be valued at N500 billion. The strategy for unlocking value in this huge real estate portfolio, without adverse consequences for the entire market, still remains largely unclear.
Increasing tariffs and taxes also affected development and sale of properties.
The partial removal of the subsidy on fuel and the attendant increase in the cost of goods and services will definitely impact the material and labour cost of construction.
Your company retained her leadership position in the premium segment of the Nigerian real estate market, with strong financial and operating fundamentals. The prestigious 15-storey Victoria Mall Plaza Office Block (Phase II) was completed to budgeted cost and time and was delivered to the lessee in October 2011. The 44-unit residential development at Gudu Abuja (Emerald Court) was also completed in the year and some of the buyers have already taken possession.
A number of new projects in the luxury and premium categories were commenced during the year including Cameron Green, Ikoyi (32 units); Grandville Ikeja GRA (18 units); Metro Gardens, Lekki (51 units) and Updc Metro City, Dutse Abuja (225 units).
UPDC Hotels Limited
UPDC Hotels Limited, managed as Golden Tulip Festac, witnessed improved rooms occupancy and revenues during the year. The hotel recorded a turnover of N1.06 billion, representing a remarkable increase of 92% over the figure of N557.2 million in 2010. Gross operating profit also increased to N140.5million, from a loss situation of N129.6million in 2010.
The on-going road infrastructure upgrade in the Festac/Mile 2 / Amuwo-Odofin axis by the Federal, State and Local government is a welcome development which will impact the hotel business positively in months to come.
Group Financial Performance
In spite of the challenges in the operating environment, your Company posted a turnover performance of N10.75 billion, showing an increase of 31% compared with N8.19billion for 2010. Profit before tax (PBT) was N2.72billion against N2.54billion in the preceding year. Profit after tax stood at N1.99billion for the year.
In the light of these results, the Board of Directors has recommended for your approval a dividend of 65 kobo per share for the year.
Outlook for 2012
2012 promises to be another challenging year for business in view of rising interest rate, inflationary pressures from the deregulation of the downstream sector of the petroleum sector, instability in the foreign exchange market and rising level of insecurity in the country.
However, the real estate business remains promising with the huge housing deficit of 17 million units, the growing population and the emerging middle class. Your company is poised to take advantage of the emerging opportunities.
I wish to express my appreciation to the management and staff for their efforts towards the sustained growth and profitability of our company. To our customers, consultants, contractors and other stakeholders, we are grateful for your unflinching support; and of course, to you our esteemed shareholders for the confidence reposed in us. Finally, I acknowledge my colleagues on the Board for their guidance.
Thank you most sincerely for your attention.
LARRY EPHRAIM ETTAH