UAC Property Development Company (UPDC) reported a loss before tax of ₦1.78 billion for the year ended 31 December 2016, down from a ₦55.9 million profit in the preceding year. Despite a 23% increase in revenue to ₦6.34bn, rising cost of sales (+44%) and ‘Other Losses’, which added a negative blow of ₦1.7bn meant that a profit was not within reach. UPDC described Other Losses as losses from ongoing projects or losses emanating from the project accounts upon completion.
In February 2017, the company issued a profit warning outlining an expectation to report materially lower earnings because of the recognition of losses on certain projects as well as impairment of investments in a joint venture project occasioned by significant increase in finance costs. The results were further worsened by foreign exchange losses and the negative performance of Golden Tulip Hotel in Festac.
Ernst and Young, UPDC’s auditors, noted two Key Audit Matters, the first being the Valuation of Intercompany Receivables and the other – Significant Inventory Write downs. On the Valuation of Inter company Receivables, the auditors explain:
“The company has significant intercompany receivables from its related parties amounting to ₦19.9bn of which ₦14bn relates to a receivable from a subsidiary, UPDC Hotels Limited, which has been outstanding for a number of years. An impairment loss of ₦1.2bn was recognised against the intercompany receivable from related parties in the current year, of which ₦508m relates to the balance outstanding from UPDC Hotels Limited.”
On the Significant Inventory Write downs, the auditors explained:
“During the year, the company’s inventory (being the assets under construction) was written down by ₦1.7bn to its net realisable value, following the review of all ongoing projects against the expected selling price.”