UAC of Nigeria PLC (UACN) Earnings Call Transcript & Summary

Good morning, and good afternoon, ladies and gentlemen. Welcome to UAC of Nigeria Plc's Full Year 2020 Results Conference Call. This conference call will be hosted by Fola Aiyesimoju, Group Managing Director; and Funke Ijaiya-Oladipo, Group Chief Financial Officer. Please note that this call is being recorded. Following prepared remarks by UAC's management team, there will be an interactive Q&A session. I would now like to hand the call over to Fola Aiyesimoju. Please go ahead.

Good day all, and thank you, [ Voladay ]. Management team at UAC and I thank you all for joining our 2020 results presentation. My name is Fola and with me today is Funke, our Group Chief Financial Officer. Funke and I will aim to go through prepared remarks in between 15 and 20 minutes, leaving sufficient time for questions. The presentation we will walk through has been uploaded on our website and should be visible on your screens. I will now ask you to please turn to Slide 5. At UAC, we own businesses with some of Nigeria's strongest brands across our footprint. We own the Grand, Vital, Livestock Feed and Best Mate brands in the Animal Feeds & Edible segment. Gala, Supreme and SWAN are all iconic brands in the Packaged Foods segment. In the Paints segment, we own the Sandtex and [indiscernible] brands and produce and distribute the Dulux and Hempel brands on the license. And then in the Quick Service Restaurants segment, we own the Mr. Bigg's brand and operate the Debonairs brand. We view the strength of our brands as a significant advantage that it's very difficult to replicate. Please turn to Slide 6. Today, we are organized around 4 verticals: Animal Feeds & Edible Oils, focused on poultry and fish feed, breakfast cereals and cooking oil; Packaged Food and Beverages, focused on snacks, bottled water and ice cream; Paints with good decorative and industrial offerings; and in Quick Service Restaurants business. We also own noncontrolling interests in 2 Real Estate entities, 43% of UAC and property development company, UPDC, and 23% of the UPDC REIT. Finally, we own a 43% interest in the Logistics business, MDS, which provides warehousing and distribution services to Nigerian corporates. At the holdco, we hold just under NGN 15 billion cash, NGN 2.3 billion investment property and just over NGN 5 million in Eurobonds. Slide 7 reflect our domestic manufacturing footprint with 11 factories across Nigeria, which supports the nationwide distribution platform reflected on Slide 8. On Slide 9, we include brief profiles of the holdco management team, which is comprised of executives with the skill set and experience to maximize shareholder value creation. On occasion and when appropriate, members of the holdco executive management team assumed leadership roles at our subsidiaries and operating platforms. I, for example, run UPDC until 4th of January this year; my colleague Bolarin is Managing Director for Paints; [indiscernible] was appointed Managing Director at UAC Restaurants effective today. Please turn to Slide 10. As many of you know, we spend a lot of time working to attract, retain and reward outstanding management teams for our operating platforms, and we are pleased to have chief executives well placed to deliver on our growth aspirations. The next section of the presentation focuses on highlights from 2020. Multiple strategic initiatives include the positioning of UPDC for growth and the decision by the respective Boards and management teams at CAP and Portland Paints to initiate a merger of the businesses. Slide 12 highlights the progress that was made with UPDC over the last 2 years. The business has been recapitalized, management strengthened, and it's positioned for growth. I remain a nonexecutive director on UPDC's Board, encouraged about the growth potential under the new controlling shareholder. Please turn to Slide 13. We are pleased that the respective Boards of Directors of CAP and Portland Paints have made significant progress towards merging the businesses. Commercial arrangements have been completed. Shareholder and regulatory approvals obtained and integration plans detailed. We're confident that the merger will result in long-term value creation for the respective shareholders of CAP and Portland Paints. Funke will now take us through the financial performance, starting on Slide 14.

Good afternoon, ladies and gentlemen. I will now touch on the macroeconomic review. 2020 was a tough year. There was a deterioration across key macroeconomic indicators, largely on account of COVID-19, and this negatively impacted the operating landscape for our businesses. The key takeaways are that we experienced economic contraction as Nigeria went into a recession in the third quarter of the year, although there was an unexpected early recovery in the fourth quarter. Despite lower aggregate demand, inflation trended higher month-on-month to reach 15% in December and continues to rise. The foreign exchange environment was and remained challenging. Our businesses were impacted in 2 areas: the first is that the rate which foreign exchange is procured by our businesses is higher; and the second was the availability over the course of the year. Interest rates hit an all-time low in 2020, which, on one hand, reduced financing costs for our operating platform, and on the other hand, impacted the income earned from our treasury portfolio. Overall, the impact of the macroeconomic backdrop and COVID-19 on our operating environment was constrained demand, operational disruption and a significantly higher cost environment. Please turn to Slide 15, which summarizes our financial performance. Revenue for the full year 2020 increased 3% relative to 2019 to reach NGN 81 billion. Demand and volumes across our businesses were impacted to various degrees, depending on the position of each business on what we consider the essential activity or the essential sector spectrum, and I'll provide a little bit more detail on that later. Overall, all our businesses except Portland Paints recorded revenue growth. Operating profit was NGN 3.6 billion. This is 37% lower than the prior year. However, when you adjust for nonrecurring income in 2019 of over NGN 800 million from the sale of noncore real estate assets and certain write-backs, our underlying operating profit declined 26%. The decline can be largely ascribed to the Paints segment, which was categorized as nonessential. So it was impacted by reduced sales in April and May. It can also be ascribed to higher input costs year-on-year and higher admin and personnel expenses, which were driven by initiatives to strengthen management teams across the group. Total profit for the period was NGN 4 billion, a reversal from the NGN 9.3 billion loss reported in 2019. Contributing to this amount was the profit from our associated company and the profit from discontinued operations. Earnings per share was 92 kobo, up from a loss per share of 183 kobo in 2019, and our return on invested capital was 5.9%. Please turn to Slide 16, which shows the clear inflection point in the group's underlying performance. As I mentioned, 2020 was a challenging year, but we are pleased to report that, in spite of the significant headwind, UAC returned to profitability in 2020, and we expect to build on this going forward. Please turn to Slide 17 for the segment highlights. As I mentioned earlier, the top line performance of our businesses were impacted to various degrees, depending on the position on the essential activity spectrum. Our Animal Feeds & Other Edible Oils segment is on the essential end of the spectrum. So our 2 businesses, Grand Cereals and Livestock Feeds were considered essential services and continues to operate during the most stringent restriction to the movement of people and goods in the second part of the year. Top line growth was least affected. So this segment recorded a 5% increase in revenue and an 18% increase in operating profit as price increases and volume growth offset higher input costs. Going forward, our focus for this segment is to grow the higher-margin edible category and also to rationalize excess capacity. The performance of our Packaged Food and Beverages business was mixed. Top line growth was marginal at 1.8%. Within that segment, our water category traded consistently and recorded similar levels of revenue year-on-year. However, volumes in the Snacks categories declined because of the disruptions to trading and market open hours during the lockdown. Operating profit increased by 13% to NGN 1.4 billion because of low operating costs, and profit before tax declined by 12% on account of lower finance income. Going forward, we are investing and expanding the spring water capacity and are also focused on improving our distribution. We are also in the process of implementing initiatives aimed at improving margin. The Paints segment was our most significantly affected operating platform because Paints were considered nonessential services. Our businesses, CAP and Portland Paints, lost almost 2 months of sales because factories were closed when there were restrictions in the movement of people and goods. So our Paints revenue were 5% lower year-on-year. Operating profit was 45% lower year-on-year. And key factors that influenced that performance were the 2 months of lost sales as well as rising input costs. Our focus for this segment after the completion of the merger is to deepen the retail penetration and to expand our product range. Our Quick Service Restaurants business faced restrictions to store opening hours and recorded marginal top line growth of 1.8%. Revenue growth in this segment was supported by an increase in the number of company-owned restaurants. Profitability in this segment declined year-on-year because of higher operating expenses. Over the course of the year, we piloted 5 company-owned stores, and these stores recorded annualized return on investment of 39%. So our focus now is to invest in expanding this business, and we have a plan to roll out more corporate stores from 5 to 15 over the next 5 years. We will also focus on strengthening delivery capability across the chain. In 2020, we sold controlling stakes in our Logistics business, MDS and UPDC. As a result of this, UAC now accounts for MDS and UPDC as investments in associates. Please turn to Slide 16. We remain very liquid. Across the group, we have NGN 20 billion net cash. We have significant net asset, and we increased our working capital position deliberately, and this was for 2 reasons. One is the foreign exchange availability, and the second was because of the rising input costs. And these prompted us to purchase more raw materials to reduce the pressure and ensure that we have sufficient materials to continue production. Our net capital expenditure of NGN 4.4 billion was largely on account of the investments in production capacity and cold chain distribution for the Packaged Food and Beverage segment. I will now hand over to Fola to take us through the next section.

Thank you, Funke. In this section of the presentation, starting on Slide 19, we focus on what we believe to be UAC's compelling growth story. Slide 20 reflects the market valuation for the company, which essentially ascribes negative value to our operating platforms. These are companies with market-leading brands, NGN 81 billion in revenue, NGN 4 billion in profits and NGN 10 billion in cash. This is aside from the cash that sits at the holdco. We arrived at this conclusion by stripping our holdco cash and nonoperating assets from our market capitalization, given a negative number. We believe this provides a base for significant value uplift. On Slide 21, we outline our value-creation plans. Firstly, we would aim to return capital to shareholders and will shortly discuss specific near-term plans. We have very clear growth strategies for operating platforms, which we believe will drive earnings in the near to medium term. And finally, we are actively seeking acquisitions to contribute to driving our medium- to long-term earnings growth. On Slide 23, we outlined corporate actions we intend to put before shareholders at our Annual General Meeting scheduled for the 30th of June this year. We propose an ordinary dividend of 65 kobo a share and a special dividend of 55 kobo a share. This brings the aggregate dividend to 1 naira 20 kobo a share. In addition, we will seek to unbundle our entire interest in the UPDC REIT to our shareholders. These units have a market value of NGN 3.6 billion, which will need to be unbundled in proportion to shareholders in UAC. The dividend and capital return by way of the recent bonding amount to just over NGN 7 billion, which is approximately 25% of our market capitalization. My colleague and I thank you for joining this call. We remain focused on shareholder value creation and are excited about our plans for achieving this. I will now turn it over to [ Voladay ] who will lead us through the Q&A session.

[Operator Instructions] Your first question is from [indiscernible]

Going through the results, as presented, I think I'd like to say that it's quite heartwarming, particularly looking at the Animal Feeds business contributing 63% of the group revenue and 45% of EBIT. This is a rebound, and it's quite impressive, knowing that this business had been on a decline for some years. So I'd like to appreciate management for that. I assume that new management and new systems, plus additional capital injection, a major contributory factors to that results. So it's quite encouraging to me. I will, however, love to request that in future presentations, maybe we should also have a chart that shows the return on invested capital breakdown in the group. This will help to justify the capital deployment across the businesses. On the whole, I think I'm quite happy at the direction the business is going. And I'd like to say, please keep it up, and thank you very much.

Thank you very much, [ Laura ], for those who don't know, [ Laura ] is one of our biggest well-wisher and supporter. So I really, really, really appreciate the kind words. The point about being clearer on the ROIC, return on invested capital, by segment is noted. It's in the appendix, but we take your point that this can be better highlighted. Thank you, thank you so much, and I look forward to further engagement off-line.

Your next question is from [indiscernible]

I just have one -- few questions. One is, I see there is a loss on the holdco level, what is driving that from last year? What's the big change between last year and this year at holdco level? Also, we just -- I think I want to see correlations of the results so far and the restructuring that is taking place so far. What else, in terms of maybe looking into 2021, so how UPDC shaping up across border? Are you going to provide guidance on the financial performance revenues? What do you expect? What are you seeing in 2021 in terms of [indiscernible] to shape up? Also, I just wanted to be clear that you -- with your exit from UPDC, you're no longer sharing any form of loans, providing loans to UPDC because I see there is somewhere [indiscernible] UPDC there's no link to UAC [indiscernible]. And then lastly, your inventory days went up in 2020. I suspect that's probably due to COVID. You have to hold a bit more inventory. What's the driver [indiscernible] across working capital pressures at UAC?

Thank you for the questions. If I recap, you asked about the holdco loss, UPDC debt and inventory levels. Is that correct?

Yes, and guidance for 2021.

And guidance. Thank you, thank you. Okay. I will tackle 3 of the questions, attempt accounting question, but Funke would provide a bit more color there. So on guidance, we do not give guidance, I'll say as yet, but we do not give guidance. I'm happy to speak directionally that in 2021, we expect meaningful earnings growth for the group. But we don't give guidance as to exactly where to take this, but given what we -- given the work that has been done and early indications we've seen in the absence of significant headwinds, we expect meaningful earnings growth. With debt, you see the only debt we have in the group that is consolidated as the company that we control are the Animal Feeds businesses. And these companies, as you know, borrow seasonally on short-term loans upon working capital and they pay these down over the course of the year. We have no other debt. UPDC today has aggregate debt of about NGN 5 billion just over. About -- just about one of that is to UAC, and the rest is a long-term bond. That bond could not be redeemed until this April because it was noncallable for the first 3 years of the bond. And the idea is for that bond to be refinanced and for UPDC to be debt-free going forward. And I believe I saw a question from Bernard in the chat room. UAC's only remaining exposure to UPDC is a guarantee of half of that bond, which would hopefully fall away once the bond is refinanced later this month. As regards inventory levels was a very deliberate choice, was not accidental. Going into -- casting our minds back 12 months when COVID was something we're all getting familiar with, it was clear to us that there were going to be supply chain disruptions. And one of the challenges was just been unable to produce. And so we decided to go long inventory to ensure we're able to produce to beat the demand from our customers. We didn't always get it right. Even without planning, there were certain instances where we missed sales opportunities because we just couldn't produce. The second was in a rapidly inflationary environment where the raw material costs are rising daily and where yields last year were close to 0, it was much better to lock in inventory at much cheaper than purchasing the inventory now than to invest that money with banks earning close to 0. So we didn't stumble into this inventory position. It was one that we very consciously decided to adopt. And the holdco numbers, I think, are an aggregation of the profit on the sale of the stake in MDS and a mark-to-market loss on the UPDC sale. But I would ask Funke to provide a bit more color on that number, but it was not operational, rather holdco was mark-to-market.

Okay. So I think the question was what was driving the loss at the holdco? And perhaps I'll just spend some time explaining how the holdco generates income, there are primarily 3 sources. So one is from dividend income from our subsidiaries, interest income from our treasury portfolio and also income from a property portfolio that we have. Because of the year that 2020 was, our dividend income at the holding company was actually NGN 1.95 billion lower, and our finance income was NGN 1.2 billion lower because of the trend in the direction of yields. There was also an increase in admin expenses. I think we spent quite a bit on COVID-19 donations, which contributed to that, but essentially, it was because there was a significant decline in our income over the course of the year and a slight increase in expenses.

Your next question is from [ Mike ].

Hello, can you hear me?

Yes, please go ahead.

I had 2. I had -- I actually had 2 questions. First one is, can you explain the management incentive schemes? And if they're different or similar at the holdco and at the subsidiary levels? And the second question is, with a lot of cash and low debt, what are your plans for the cash and capital allocation?

Thank you, [ Mike ]. We -- our management incentives, they are different at the holdco and subsidiaries or the operating companies. The holdco, I will come to second because it's very much work in progress. For the subsidiaries, they're driven very much by return on invested capital. And as you know, the levers, they're operating profit and the amounts of capital invested. Because we control their capital investments, we drive the management team very much on sustainably improving operating profits. What happens is each year, the operating profit target is met, and if that target is not met, then the management team does not earn the incentive for the year. If the target is met, 40% of that incentive is crystallized and the remaining 60% depends on specific KPIs. So we have -- we wanted a new brand launched or there was a technical project to be executed on time and to cost on quality and so on and so. And so that's the way it's done. So for the most senior leaders, it's measured annually. But the sort of more junior factory workers, there's a quarterly reward, if we're on track. At the holdco, we plan working and taking advice on putting in place an equity incentive scheme. We believe that the management of the holdco should only make significant financial -- get significant financial reward after we have delivered to the shareholder. And so we're putting in place a scheme that essentially create a threshold for shareholder return above which holdco shareholders -- holdco management begin to participate in an equity incentive scheme. Work is under way. We have been advised by PwC on this. And then once it's finalized, it will obviously be brought to shareholders for approval. As regards to that cash balance, we, as I mentioned, are -- we're focused on acquisitions, and we would look for -- we're looking for investments that do 2 things, one, move us closer to our return target and improve the overall risk-adjusted return of the group. So I hope those address your questions, [ Mike ].

Your next question is from [indiscernible]

I just wanted to ask a question on your UAC Restaurants business. I mean, over the years, this business has continually contributed probably 1% to revenue. And then when I just think about the management time that is probably committed to that business, it almost feels like it's one of those things where you probably should potentially exit or deploy your time and capital elsewhere. But we're trying to just sort of, obviously, given that you're just in about the business to [indiscernible] what the opportunity is? But just looking at how Quick Service Restaurants have done in Nigeria, I mean with external issue, I struggle to see what the opportunity is, but it will be nice to hear from your perspective on how you think you can unlock value there?

Thank you and very, very apt question. I think what we try to do is to be fact based. And so we went into this question about what to do with our QSR business with a completely open mind last year. And one of the options included, I mean, frankly, shortly done if you couldn't find a buyer, given how marginal it was. My colleague [indiscernible] led the work. And we view this in a number of steps. So the first is a detailed industry review. Is there -- can you make money in this industry? And we answered that question definitively yes. But we concluded that you could make money, you could make significant outcomes by a company-owned store strategy. And you know the space. So you know that those players have gone with convenience of our strategy and scale. And you may know some of the returns that have been generated. The second question, after we concluded that the industry was attractive was do we have strength to leverage and capturing economies of this industry? And the most critical question here was do our brands still resonate with the consumer? We did a lot of work and came to theoretical conclusion that they still resonate to the consumer, and we decided to test this. So we rolled out 5 corporate stores over the course of the last sort of 12, 18 months and sets very clear operating, financial and most importantly, return on invested capital targets for each store. Even in a pandemic year, every single one of them hit -- exceeded plan. And it was only after we'd walked through industry tested the -- our strengths and don't -- well, not a pilot, but 5 pilots, and we conclude that there was scope to invest behind the strategy. So the plan is very much to continue with a focus on corporate stores. As I mentioned, as a new CEO, who was appointed today -- who started today, who is going to drive this, and we're actually very excited about the potential over this business and deliver going forward, there would obviously be a period of sort of investment and ramp up. But we think that it's going to be a completely different profile to what has been repeated. You bought it historically in the medium term.

Bernard had a question in the message room, and it was -- he just wanted to know which brand will be rolling out for the QSR business, Mr. Bigg's or Debonairs?

Thank you, Bernard. The answer is both. We find that there's a considerable benefit where we have both counters in the same-store. However, speaking to [indiscernible] and the team, the plan is not a blanket, no matter the location and the demographics roll out both, we will roll out both stores, and there'll be stand-alone Debonairs, stand-alone Mr. Bigg's and where the -- where our work leads to the conclusion, you have both counters in the same location.

Your next question is from Abiola Gbemisola.

So I just have one question left to be -- to ask. So it's around the focus -- client focus of the UAC portfolio, right? Given the current focus, in terms of the acquisitions that you want to do in the future, what focus will management be focusing on realistically according to my focus or you can take on the other sectors as long as they give you returns.

I think -- thank you and very good question. One of the things that guides us is, I think simplicity or reducing complexity. So a key focus is investing behind existing sectors that we're in and we like. So we're not going to run off and attempt completely new things. Now we split -- when we think about acquisitions, we have 2 dimensions, geographic and sector. And sector-wise, we're very keen on things in the Packaged Foods space, very keen on things that complement our Paints business. We're already market leader by distance. The things that complement our Paints business from a sector perspective. From a geography perspective, we will look to expand beyond Nigeria in the Paints business, and we are actively working on that. These things are very difficult to come by, finding companies in your sweet spot that you like and have a meaningful scale that's difficult to combat, but we will work on it. Outside of our existing sectors, the one area that we're spending time on is what I call services or digital services. We are in very traditional industries. So something that brings us to sort of what I call new age economy is one that we'll spend a bit of time on. But the predominant focus is on, call, existing sectors, Paints, Packaged Foods in particular, and then anything that brings us some new economy exposure. In the QSR space, the plans are very organic. So we don't have any M&A plans there for now.

[indiscernible] has asked a question. She want you to please clarify if increased sales in Animal Feeds -- in the Animal Feeds segment was as a result of increased sales volume or price increases?

Last year, it was a combination of both price and volume. This year, we are seeing a lot more price than volume so far year-to-date this year.

Your next question is from [indiscernible]

Two quick questions. Well, a comment first leads to the question. Now I happen to be a retail investor and bought into UAC, I think it was last year or the year before last, but part of what informed that decision to increase my stake was when I got -- when I saw the news -- the information on the unbundling. And I was like this is using one stone to kill three birds and positioned to be able to ramp up one's stake, so I wanted to get benefits in both UPDC REIT and UPDC itself. And then out of the blues, I see news report of a vote phase in terms of the deal with the insurance company. And I mean, I didn't see any -- there was no prior information of any sort. I would imagine that the negotiations would have been guided by the NDA. But certainly, it also would have been useful for some information to have been made available ahead of time that their conversations that may be happening with an undisclosed possible strategic partner that may inform a reversal of what the proposal has been because, following the news item, I think arrangements for the unbundling had advanced significantly before management retrace itself -- its steps. So my question leads to be that is what would have informed some of those decisions and which then put some of us out-of-pocket in some form? Because expectations then go down to a little bit, although one is still hitting by the results, which I think may the -- dividend payments, which I think also have been informed by some of the profits you made from some of the unbundling. But the question then being to that is what is UPDC going to do differently going forward? Because, I mean, reading some of the reports, I see that is planned to get into some niche areas in the real estate sector. What difference would that make? And then secondly, I thought I saw in the agenda items for the forthcoming AGM for UPDC that is an item that has to do with considering shareholder loans, shareholder loans between UAC and the insurance company. What implication does that have for UPDC going forward?

Thank you. I'm very happy to you see happy with the results and the dividend because it makes the response to your -- the first part of your question much easier. Look, at the time, we announced the unbundling of UPDC, very much I think [indiscernible]. We were not speaking to anybody the same time announcing an unbundling. However, we, as a management team at UAC ask ourselves only 1 question because an action improved value for UAC shareholders. And then the answer is yes, no matter how far gone we are down on another path, we will change our minds. So when the facts change, we'll change our minds. After announcing the unbundling, we entered discussions -- sorry, that was the first part. The second part I think is that with the sale of UPDC to Custodian, you have 3 listed companies, both, UAC, UPDC and Custodian. And so what we can say by -- I mean by -- is extremely tightly regulated by the exchange. And so it was if we announce every time we enter into a conversation, we will start -- there will be a lot of noise in the market. So we could only come to the market when things were at a sufficiently advanced stage that we can approach the regulator until the regulator met what our plans were and see their positive outcomes. So I understand the desire from as a shareholder to want to be kept a bit [indiscernible]. As a public company, we're very tightly regulated in what we can announce and how. And so we did the work and concluded that is -- that the eventual transactions, which is the sale and the REIT's shares -- some of the REIT shares coming to UAC was in the best interest of the UAC shareholder. And as we explained today, we do plan to unbundle the list yourselves, our shareholders. So you will get some of those units, hopefully, later on this year. As regards to UPDC's plans, I should stress that I am no longer the CEO of UPDC. So any comments I passed would be as a nonexecutive on the Board of the company. I think UPDC's plans are very ambitious. I think the company plans to, in a very disciplined manner, ramp up its development and go into opportunities where there's guaranteed offtake. And I think UPDC AGM is in just about 2 weeks. So there will be time to direct questions at UPDC's management. As regards to shareholder loan, I think I mentioned that UPDC still has NGN 4.2 billion of bond outstanding. And the idea is for this to be refinanced. Now UAC alone was a guarantee. And what we're trying to do is to split this in proportion to our shareholder in UPDC with our partners. So I can understand why -- when there's a change in an announced strategy, it may be disconcerting. But I think I'll -- UAC shareholders that we ask only 1 question, does this serve in creating value for UAC shareholders? And if it does, no matter how far down we've gone on an initiative, we'll change our minds.

[Operator Instructions] So I have a couple of questions in the chat, which I will read out now. [indiscernible] asks if UAC's unbundling the REIT, what happens to the retail REIT holders? Would we have sufficient information to enable us make informed decisions?

So a retail REIT holder that is also a shareholder in UAC will simply get additional shares in the UPDC REIT. So I repeat a retail REIT unitholder that is also a shareholder in UAC will simply get additional shares in the UPDC REIT. In terms of information about the REIT, the REIT fund manager periodically put out this information. It's never come through UAC or frankly, UPDC, for that matter. That is expected to continue and would guide unitholders decisions about whether to hold, invest more or divest REIT units, but they're profitable, historically dividend paying, actually probably no.

[indiscernible] wants to -- wants you to please provide some color on competition in the Animal Feeds business. Specifically, has there been any improvement in your market share? And what is your strategy for this space?

Thank you. I think the competitive dynamics haven't changed very much over the last 12 months. The big players remain the same in the industry. Our strategy in this space is to deliver value to our customer. We find that farmers want not very many things. They want consistency. I mean I know that chicken is not fast. They want -- and if farmer is buying feed, they're buying an energy source, so they want performance. They want their birds to get the best way quickly. They want their birds to give the required yield. So our focus is on being consistent, being there for the pharma and is delivering on the promise. So that's in terms of the dynamics, and we see the play -- as the industry matures, players increasingly being more sophisticated in their commercial approach, [ focus ] versus price. Our focus versus [indiscernible] favors from returns. We focused on improving margins and rationalizing capacity because the ROIC is low, and that is going to be very much the direction in which we drive management focus [indiscernible] excess capacity, so we can begin to see ROIC head towards the levels that will be comfortable.

Our next question is from [indiscernible]

So my first point is more of a suggestion. I mean, what I've observed, taking a cue from what Fola said about still retaining the QSR business. And what I've observed is [indiscernible] outlet, I feel like you need more visibility. I mean, when you look at -- when compare to peers in the industry such as [indiscernible], you would realize that the outlets that we have are not so many. I mean, from the last time I checked, we have just about 7 compared to [indiscernible] experience, we have over 40 outlets. So I think if you're still looking at retaining that business, I mean good potential in that space, we could look to more visibility because it is the fact that according to NBS, food consumed outside home constitute the largest part also consumption at 20%. So I think we could do just more around having more brand visibility. My second point, which is a question is, given how import-dependent the Paints segment is, I mean, you see that it's [indiscernible] and also shelves to supply paints. So I just want to know how you are able to reach towards [indiscernible] that's 2020 because [indiscernible] to go top line, despite all of those. I mean, did we see any price increases last year 2020? I don't know if you could just provide guidance for that?

And thank you for the excellent suggestion. I think it's crystal clear that we are under-penetrated in the QSR space. [indiscernible] who is MD of the company [indiscernible] on the call. So he's heard your feedback directly. And I think we will -- for sure, we're going to see this change over time. The Paints space, I would say, last year began to take price increases in response to increasing cost of raw material costs and did a very good job, frankly, with volumes, what was just quite shocking year overall and for that business in particular because the factories had to be closed during the more stringent phase of restrictions. So we are seeing performance in volume and increasingly taking price to protect margin on accounts of FX-induced escalations in raw material costs.

Okay. Is it across all portfolios or just specific?

In the Paints business, across all the segments in the Paints business. I would say that, frankly, the biggest challenge we've had in that business has been less about pricing and demand, but more about being able to get the output out because it has been just -- it's globally the sector that we're in that have been most affected by supply chain disruption. So we haven't had any concerns with pricing or with demand. It's more just been can we get the raw materials into the country, into the factory to get the paint out.

Bernard would like to clarify, so he asked a question regarding the UPDC bond. His question is, if the bond is refinanced in UPDC, does that mean there will be no guarantee against UAC anymore with the exposure UAC has limited to UAC's holding in UPDC?

So Bernard, when the refinancing -- the intention is for the refinancing to be done by the shareholders in proportion. So UAC would have a loan from UPDC and no guarantee. And the thinking here was that it made little sense for UAC to have a guaranteed obligation on a bond that is paying 16% interest, whilst UAC treasuries is in at -- in the single digits. So there will be no guarantees for crystal priority, and our exposure will be the shares we own in UPDC and a loan from UPDC by what is a significant and debt-free asset base in the company.

That concludes the Q&A session of the call. I will now hand the call back to Fola Aiyesimoju for any closing remarks.

Sorry, [ Voladay ], I see questions still pinging through the comments.

No, no -- so yes, [indiscernible] just asked a question this second, and I will just take it. So he says, Slide 20 is an interesting one. It suggests UACN is a deep value play. What would it take to get us there? What level of ROIC is management targeting? Is this greater than 20% for the current businesses? Alternatively, can the current businesses get us there? Or will there be need -- or there will need to be acquisitions? If so, what sectors?

Yes, it's a complex set of questions. UAC being a deep value play we think so. We'll only try to unlock this value, I think, consistent performance by ourselves as management. What our ROIC targets? And we have above 20%, 25%. What do we do day-by-day towards this is we view every single project, every single new decision in the context of those admitted [indiscernible] ROIC, and the answer is no, we don't do it. Funke mentioned an investment in the water line. I've talked about investment in the QSR platform. So we begin to see from our existing businesses, a shift towards our target return threshold. About our new acquisitions, as I've mentioned, our focus is on simplicity. So things that are in Packaged Foods, things that complement Paints would look at and the things that we'll look at outside of our existing perimeter, those things that give us some exposure to services and in particular digital services.

There are 2 additional questions, one from [ Ada ] and another from [ Brad ]. Ada asks once you know what locations the 5 company-owned store pilots were done in? And Brad wants to confirm if NGN 3.5 billion dividend is something we should expect to continue into the future? Is this going to grow? Or is it a onetime dividend?

Okay. The 5 company-owned stores were in Lagos, and there's one that is in progress that is we opened in Abuja. And I think the company's strategy, again, in line with simplicity to be to concentrate on key cities. And when you achieve scale and saturation, maybe we begin to think about moving to other cities. So we don't plan to immediately attempt to blanket the country. So we focus [indiscernible] In terms of the dividend out, I -- the guidance I can give to shareholders is to think about the dividend in 2 components, the ordinary and the special. Our plan is to at least maintain the ordinary dividend. And what we're trying to do is to avoid volatility. We'll be trying to least maintain the dividend and moving step changes. So at a particular level and where we feel confidence of hitting a higher level, we'll move to that level and [indiscernible] to a different level. But given the way -- given that we actively manage the business, if there's a significant capital return, we will look to do special distributions to shareholders as we're doing in this particular year. I don't know if that provides clarity or sufficient clarity on the topic.

Before I take the final question in the chart, I just want to confirm I see Mike and [indiscernible] have their hands up. Can you please lower your hand, if you have already asked your question. But if you still have a question to ask, please keep your hands up and then you'll be called upon. Okay. [indiscernible] has asked this question in the meeting chat. He wants to know, in relation to the proposed exploration on digital services, would UAC be going alone? Or would this be in partnership with experts in the field? If UAC is going in alone, is there capacity -- does the current team have enough capacity to drive such new businesses?

Short answer is 100% in partnership. The strategy we are adopting is one where we learn in partnership. And then in a few years, see, depending on how quickly we've learned and how comfortable we get may look to do things alone. But very, very, very much what we -- our focus is on taking what we call a toehold in this space, and it's going to be done in partnership with people who have long-standing track records and relationships.

I see there are no further questions. And I will now hand the call back to Fola Aiyesimoju for any -- for his closing remarks.

[ Voladay ], thank you for moderating the call excellently. I thank each and every one of you for joining and for the thoughtful questions and suggestions. I wish you a wonderful Easter break. Thank you, and goodbye.

Thank you very much. That concludes the UAC of Nigeria Plc Full Year 2020 Results Conference Call. You may now hang up. Thank you.