Distinguished Shareholders, Colleagues,
It is a pleasure to welcome you all to the 21st Annual General Meeting (AGM) of our Company, UACN Property Development Company (UPDC) Plc. holding today July 3, 2019, at the Arthur Mbanefo Hall, Golden Tulip Festac Hotel, Amuwo Odofin, Lagos.
I present to you a review of the operating environment and our company’s Annual Report and Financial Statements for the year ended 31 December 2018.
Review of Global Operating Environment
Globally, 2018 started on an upbeat note, prompted by a pickup in global manufacturing and trade. Investors’ confidence in the global economic outlook however reduced as the upswing in the economy did not last. Major economies such as the United States and China implemented tariffs, which contributed to the loss in momentum. 2018 also witnessed higher uncertainty about trade policy, which had an adverse impact on investment decisions.
At the end of 2018, crude oil prices were lower than at the beginning of the year. Brent crude oil averaged $72 per barrel in 2018, while West Texas Intermediate (WTI) averaged $65 per barrel. Some of the factors that contributed to lower oil prices include the waivers given to some countries against Iranian sanctions, disputes between the U.S. and China over tariffs, ambiguity around compliance with quota reductions, as well as uncertainties around global demand.
Global Real Estate
In the global real estate market, there was significant increase in investment and corporate occupier demand, which surpassed 2017 performance. However, in the last quarter of 2018, demand reduced. Investment and leasing volumes were also lower than 2017 numbers in the last quarter. We envisage that this trend may continue into 2019.
The most liquid and transparent market in the global real estate market still remains the London real estate market. Despite the uncertainties around Brexit, London is still an attractive investment destination. This will remain an attractive feature for global and domestic investors.
The Nigerian Economy
The Nigerian economy continued to experience double-digit inflation in 2018. In the fourth quarter of 2018, Nigeria’s recovery accelerated. According to the National Bureau of Statistics (NBS), GDP increased by 2.4% in Q4, well above Q3’s 1.8% increase. This acceleration was driven by the non-oil segment of the economy. Growth in the non-oil sector of the economy came mainly from agricultural, services and information and communication sectors. However the growth in Agriculture sector was lower than previous years as a result of clashes between farmers and herders. Continued insurgency in the northeast as well as flooding in key middle-belt regions also impacted negatively on the sector. Recovery in other sectors, such as mining, quarrying, and manufacturing resulted in a real GDP growth estimated at 1.9% in 2018. This recovery was fueled by availability of foreign exchange.
The oil sector continued to contract in the fourth quarter, although at a weaker pace than in Q3. Oil production declined from 1.94 million barrels per day (mbpd) in Q3 to 1.91 mbpd in Q4.
Approval of the 2018 budget was delayed, thus delaying implementation and also resulting in increased fiscal uncertainty by pushing the bulk of spending to the second half of the year. On a positive note, fiscal deficit narrowed in 2018.
The stock of public debt stood at $73.2 billion by the middle of 2018, up from $71.0 billion in 2017, representing 17.5% of GDP. Nigeria however remained at moderate risk of debt distress. The government issued a Eurobond of $2.9 billion in November 2018, reflecting the new debt management strategy, which is focused on mitigating high financing costs of domestic borrowing by prioritizing foreign debt.
The Nigerian Real Estate Industry
The National Bureau of Statistics’ GDP report has showed a further shrinking in the real estate sector. The real estate sector in Nigeria has now been in the negative territory for at least 12 consecutive quarters.
Although Nigeria started recovering from recession in Q2 of 2017, the sector is still lagging behind in economic performance. The real estate sector has continued to contract in 2018. Growth in this sector has been hampered by high borrowing costs, defaults in payment of rent service charge, low demand for properties, and reduced construction activities.
However in Q4 of 2018, the real estate sector’s contribution to GDP increased slightly to 6.6%.from 6.5% in quarter 3 of 2018.
Review of Operations
The Company’s borrowing cost reduced from an average of 23.5% in 2017 to 18.2% in 2018. However this still translated to high finance costs for the business. The management team has continued to work tirelessly on our deleveraging strategy and making efforts to reduce our debt portfolio, leading to substantial progress in our debt recovery efforts.
As we made efforts to pay down on interest bearing loans, the business made a decision not to commence any new projects during the year. On the retail side, Festival Mall continued to initiate efforts to increase tenancy and footfall. The hospitality sub-sector is still not very buoyant and as such our hospitality operations remain challenged as evidenced by the weak performance of the business.
The Company posted revenue of N2.3bn (same as Group due to reclassification of UPDC Hotels Ltd as “held for sale”) as against 2017 revenue of N3.9bn (same as Group). Loss before taxation (LBT) for the Group was N15.2bn as against N3.1bn in 2017. Losses for the year were largely on account of non-cash mark to market losses on our portfolio of assets, as well as, losses on sale of assets below carrying value.
The Company was successful in reducing overall levels of interest bearing debt from N19.2bn as at December 2017 to N18.5bn as at December 2018. Lower debt levels together with obtaining borrowing on more favourable terms resulted in a decline in Finance Cost from N5.5bn in 2017 to N4.8bn in 2018.
Outlook for 2019
Nigeria’s Economic Recovery and Growth Plan will play a key part in the economy in 2019. This plan anchors the country’s industrialization by establishing industrial clusters and staple crop processing zones to give firms a competitive edge. It is projected that the implementation of the Economic Recovery and Growth Plan will result in 2.3% growth in real GDP in 2019 and 2.4% in 2020. However, a downside to the economic outlook is the slide in oil prices from late 2018 coupled with an output cut imposed by the Organization of the Petroleum Exporting Countries.
It is stipulated that other sector specific reforms and programs, such as the Power Sector Reform Program, if effectively implemented, may attract private investment, thereby improving the economy’s competitiveness and stimulating growth.
There are speculations that there may be marginal growth in the real estate sector in 2019, especially in the residential sub-sector. Although levels of activity in the sector were generally low in 2018 we are hopeful that the sector will experience better performance this year because of signs of improvement in the economy. It is also expected that the successful conclusion of the elections across various tiers of government will foster political and economic stability and lead to increased government spending.
Leadership & Board Changes
I will like to inform you that since the last Annual General Meeting, there had been some changes on the Board of Directors of the Company. Following his retirement from UAC of Nigeria Plc as Group MD/CEO, Mr Abdul Bello resigned as a director of the Company. Please join me to thank Mr Bello for his valuable contribution and services to the Company. I wish him well in his retirement. Also, Mrs Adeniun Folasade Taiwo, the former Chief Operating Officer has been appointed as the Executive Director in charge of the Facilities Management arm of the Company.
I am pleased to inform you that a new Chief Financial Officer with requisite skill and experience in the person of Mrs Folakemi Fadahunsi has also joined the Board. On your behalf, I warmly welcome her to the Board.
Appreciation I sincerely thank you our esteemed Shareholders for your unalloyed interest in our Company in what have been very difficult conditions. I also thank all our customers, consultants, contractors, staff and other stakeholders for your continuing support. The Board and Management of the Company remain focused on identifying solutions to address its present challenges.
I thank you all for your attention.