On the 7th of May, 2020, UACN Property Development Company (UPDC) published its audited financial statements reporting a loss of ₦15.883 billion for the year ended 31st December, 2019. This is a 5.54% increase from the loss recorded in 2018 and the 4th consecutive year UPDC will be recording a loss.
The ₦12.638 billion impairment of assets of disposal group held for sale was the largest driver of UPDC’s loss during FY:2019. Without the impairment, however, UPDC’s performance during the period was still a loss-making one, even after the group reduced operating losses by 80% to ₦1.268 billion and net finance costs by 45% to ₦2.610 billion. The impairment of assets of the disposal group held for sale was taken on their investment in UPDC REIT.
In September 2019, there was a joint announcement by the parent company (UAC of Nigeria Plc) and UACN Property Development Company Plc (UPDC) regarding the unbundling of UPDC’s interest in its associate company, (UPDC REIT) to UPDC shareholders. This was in a bid to make UPDC REIT a free-standing entity pursuing its own growth initiatives. The unbundling will also see UAC shareholders have the opportunity to be allocated shares in both UPDC and UPDC REIT, unlike the previous structure which required UAC shareholders to own shares in UPDC first before they could own shares in UPDC REIT.
In the 2019 Full Year Financial Statement, Ernst and Young, UPDC’s auditors, reported two key significant two Key Audit Matters namely:
1. The Significant Impairment of the Investment in Associate.
2. Significant Inventory Writedown.
On the significant impairment of the Investment in Associate. The auditors explain:
“An impairment loss of ₦12.64 billion and ₦9.48 billion was recognised in the current year for the Group and the Company respectively. The Group’s carrying value includes a share of profit from the Associate over the years and this resulted in a higher diminution in value when compared with the unit price as of 31 December 2019.”
On the significant Inventory Writedown, the auditors explain:
“During the year, the Company’s inventory (assets under construction) in respect of Victoria Mall Plaza (VMP) 3A and Victoria Mall Plaza (VMP) 3B was written down by ₦1.2 billion (2018: ₦0.594 billion) to its net realisable value based on the expected selling price and other incidental costs to sell”.
The consecutive losses recorded by UPDC is telling of the hard times facing the company. In the previous year, efforts such as a new management team and the unbundling exercise were made to position the company for sustainable financial performance. According to the auditors, the results of the joint announcement were yet to be implemented as at year-end 2019. However, the new strategies prove a company ready to turn the tides in the coming year. We are indeed hopeful of a turnaround and will keep you in check as new events surface.