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

Thank you, Chiamaka. Good day all, and thank you for making time to participate in our results presentation. In our prepared remarks, Funke and I will aim to discuss our operating environment, provide updates on our strategic initiatives, share insight on our financial performance and discuss our outlook. We start on Slide 5. In 2021, Nigeria's economy return to growth following the COVID-19 triggered recession in 2020. Key concerns remained around inflation and foreign exchange, with foreign exchange concerns, including availability and pricing. On Slide 6, we outline the effect of base inflation combined with supply chain disruptions, which resulted in input cost escalation far in excess of reported headline inflation. In our Animal Feeds business, prices for maize and soya beans increased 50% and 100%, respectively. In our Paints business, the price for resins increased by more than 100%, and there were increases in excess of 50% for flour, milk and sugar, impacting our Packaged Food and Beverages and Quick Service Restaurants businesses. Unfortunately, the trend has continued into 2022. In a nutshell, the biggest issues we're grappling with are cost escalation and supply chain disruptions. Please turn to Slide 7. The net impact of rapid escalation in costs has been pressured on gross margins, resulted in margin compression across all businesses. We partially offset this by reducing operating expense and sales ratios across the board and continue to pay very careful attention to pricing and gross margins in light of the continued high inflationary environment. In the next section, we provide updates on strategic initiatives we implemented in the course of 2021. A recent focus for us has been on simplifying the group structure, resulting in the sale of controlling interest of 2 of our businesses, UPDC Plc and MDS Logistics. In 2021, we made further progress by successfully merging and integrating our Paints businesses CAP PLC and bottling paints. This merger is complete, and the fully integrated businesses operates seamlessly. We acquired a 49% interest in UAC Foods owned by Tiger Brands, a very supportive partner during the time of our joint ownership. Increasing our stake in UAC Foods is in line with our strategy to simplify the group, exiting noncore businesses and doubling down on core growth areas. Finally, we completed the unbundling of the UPDC REIT to UAC shareholders and you should have received REITs units and a small dividend between December and January this year. An outstanding question relating to our structure is as regards to Animal Feeds businesses. Our 2 businesses in the segment, Grand Cereals Ltd and Livestock Feeds Plc, have limited geographic overlap, which is positive in the context of a potential merger where it configured to deliver different value propositions to end customers. Resolving the question regarding long-term ownership and structure for Grand Cereals Ltd and Livestock Feeds Plc is a key focus area for us. Please turn to Page 10. We have made meaningful investments in our core IT infrastructure. Specifically, we invested just about NGN 200 million in the migration from an on-premise Microsoft Office 2016 application to the cloud-based Office 365 enterprise productivity tool. We are in the process of migrating from an on-premise physical server-based SAP, ECC, ERP system to the cloud-based S/4 Hana. This is more than NGN 2 billion investment that we expect will go live in July 2022. It is one of the most important initiatives we're embarking on as we'll get the dual benefit of improved processes by adopting SAP best practice and superior technology. On Slide 11, we outlined the initial steps we've taken as regards introducing a digital component to the holding company. We made 3 small investments in this regard in 2021. We invested in Ventures Platform, the leading venture capital fund in the region and hope to work closely with and learn from Kola Aina and his team as we seek to invest in more than 50 of the best technology-enabled businesses across Africa. We made a direct investment in Touch & Pay, a micro payments business that was recently accepted into wire competitor and also invested in Kandua, a marketplace connecting artisans with end customers. Given the shift from the industrial to the information age, we feel that these investments are important to UAC's long-term future. Finally, in Slide 12, we outline work done on employee incentives. We feel that attracting and retaining the right quality of talent is by far the biggest constraint to our growth. As such, we've implemented initiatives tailored by entity to align employee and shareholder interest. At the holding company, our view is that reward must be directly linked to shareholder experience. As such, if implemented a scheme that provides HoldCo employees with a share of total value created above an 18% return threshold. At the subsidiaries, we have designed schemes linked to operating profit. Companies that meet the operating profit targets qualify for 40% of their performance incentives, with the remaining 60% dependent on specific KPIs. For more junior employees, incentives are paid quarterly whilst the management incentives are paid annually. For UAC Restaurants, a business going through a complete business model shift from a 100% franchise model to majority corporate stores. We've put in place a management incentive tied to delivering on a 5-year business plan. I'll pause here, and Funke will take us through the 2021 financial highlights.

Thank you, Fola, and good afternoon, ladies and gentlemen. Please turn to Slide 14. UAC is a holding company, and our interests are organized around 4 key verticals, which are Animal Feeds & Edible Oils; Packaged Food and Beverages; Paints; and Quick Service Restaurants. We also have noncontrolling interest in the leading logistics services provider and a real estate development company, which can be exited over time. In 2021, there were 3 key changes to UAC's group structure. The merger of our 2 paints businesses to form an enlarged CAP PLC, the increase of our stake in UAC Foods from 51% or 100%, and the distribution of UPDC REIT units to UAC's shareholders. One of our objectives is to drive long-term profitable growth in our core platforms. And in 2021, the group recorded significant top line growth of 25%, above the historical average growth of 3% to reach NGN 101 billion. Our focus for driving growth can be categorized in 2 parts: our core operating platform, which is comprised of our subsidiary companies across our 4 key verticals; and the second part is our recent investment in technology and label businesses. In 2021, all of our 4 operating segments recorded top line growth above the historical growth rate, which is encouraging. And this was achieved by a combination of price and volume increases across each segment. Please turn to Slide 18, which provides an overview of the group's financial performance, comparing the full year results for 2021 with 2020. The results are mixed because the group recorded meaningful top line growth of 25% year-on-year to reach NGN 101 billion, as I mentioned earlier. However, the growth in operating margins of our businesses were impacted by raw material price escalation and the higher cost environment. We did achieve some operational efficiency as reflected in the improvement in our operating expenses to sales ratio by 184 basis points. The group recorded operating profit of NGN 5 billion in 2021, which is 50% higher than the NGN 3.3 billion recorded in 2020. However, when we adjust for certain one-off and nonrecurring events at the holding company, the underlying operating profit of the group is flat year-on-year, and I'll touch on that on the next slide. The group profit before tax was NGN 4.1 billion, 18.5% lower year-on-year. And profitability was impacted by higher finance costs as a result of increased short-term borrowings in the Animal Feeds & Other Edibles segment to support efforts to build inventory. Profitability was also impacted by losses recorded by our associate companies, UPDC and MDS, in 2021 versus a profit from associate companies in 2020. Group earnings per share from our continuing operations was 63 kobo, 9% lower than the 69 kobo recorded in 2020. Please turn to Slide 19. The slide aims to provide additional context on the key drivers of operating profit across the UAC Group between 2020 and 2021. The group recorded a NGN 1.5 billion increase in gross profits, driven by increased sales across all operating segments, offset by the increase in cost of raw materials. At the holding company, there was NGN 1.5 billion increase in dividend and other income, specifically attributed to the following: dividend income of NGN 245 million from UPDC REIT, which has now been distributed to UAC shareholders; there was a fair value gain of NGN 324 million recognized on the distribution of the UPDC REIT, which represents the difference in the carrying value and the market value of the REIT on the date of transfer to shareholders; there was also the increase in the fair value of the investment properties at the holding company. Our businesses were not immune to the escalating cost environment and recorded a NGN 1.5 billion increase in operating expenses. When you adjust for the events at the holding company, as mentioned earlier, the group's underlying operating profit was broadly flat year-on-year. Please turn to Slide 20, which shows a snapshot of the group's financial position as at 31st of December 2021. The group has net assets of NGN 51 billion. The year-on-year movement reflects the impact of the unbundling of the UPDC REIT units as well as the impact of the purchase of additional shares in UAC Foods on cash and noncontrolling interests. There have been price escalations in key raw materials across our businesses as well as supply chain disruptions. So over the course of the year, we deliberately increased working capital to mitigate the impact of rising input costs, especially in the Animal Feeds segment and our Paints business, to ensure sufficient raw material availability to continue production. As a result, inventory increased by NGN 16 billion and this was funded by short-term debt, which translates to a group net debt position of NGN 8.5 billion from a net cash position in the prior year. At the holding company, there is no debt. The holding company has about NGN 4.4 billion in cash and over NGN 2 billion in Eurobonds. Capital expenditure in the period was largely concentrated in the Packaged Foods segment where we continue to make investments to address inadequate capacity as well as investments in the technology infrastructure. I will now hand over to Fola to take us through the next section of the presentation. Thank you.

Thank you, Funke. And please turn to Slide 22. As Funke outlined, our thought focus is on driving growth. For UAC Foods, which has 3 segments: snacks, water and ice cream, we are recording growth across all segments, meaningfully above historical trend. In the snack segment, we are nearing capacity and are in the process of a detailed design for a new factory. A very important initiative we executed last year was the migration to NGN 100 price point from a NGN 50 price point. Prior to 2021, the NGN 100 price point accounted for about 6% of the Gala portfolio on account of initiatives we implemented last year, that NGN 100 SKU comprises more than 60% of the Gala portfolio. We rolled out 500 freezers to drive growth in the ice cream business and are deploying a further 1,000 freezers and exploring the acquisition of additional cold trucks to deepen distribution. For water, we cannot meet demand and have acquired a new line, which is going through final test in this quarter, with the expectation of installation in the third quarter. We expect to track volume capacity on account of this investment. On Slide 24, we focus on our Paints business. In this sector, the focus is on deepening distribution and broadening range. We are rolling out color centers for both the Dulux and Sandtex brands and working closely with a technical partner actually well on expanding the product range. We see additional opportunities for growth in the marine and protective space and are also trying to build a project team to sell directly to large-scale construction projects. On Page 26, we focus on our Quick Service Restaurants business where the simple objective is rapidly expanding our corporate store network. We had 5 of these stores in 2020, 11 in 2021 and plan to double again this year to 22. The most important objective for this business is rolling out attractively located stores with excellent operations and good unit economics. We feel that by achieving this, the economies of the overall business will take care of itself. Finally, on Slide 28, we touched on our Animal Feeds business where we have a broad focus on growth and optimization as we feel there is scope to improve margins and drive capacity utilization. We've done a lot of work on product formulation over the last 18 months, which we expect to deliver improved performance to farmers, and as a result, drive volume growth. We're also focused on the higher-margin segments of the business being edible oils and cereals. I'll now hand over to Funke to discuss our dividend proposal and outlook. Thank you.

Please turn to Page 30, which provides the highlights of recently announced core production. UAC's Board of Directors is recommending a dividend of 65 kobo per share, which amounts to NGN 1.9 billion and is subject to the approval of UAC shareholders at our Annual General Meeting set to vote on the 27 -- 22nd of June 2022. Qualifying shareholders may elect to receive new ordinary shares in the company instead of the dividend and cash. This election is to be made before the 14th of June, and shareholders who do not elect for the new ordinary shares will receive cash. On Slide 31, and in conclusion, we remain focused on our priorities, specifically focus on simplicity, improving our processes with technology, driving profitable growth, learning from our new digital investments as well as making progress on increasing capacity for our snacks business. We thank you once again for participating in the session today, and we will now be taking questions.

[Operator Instructions] The first question is from Mike.

Okay. Sorry, I just realized I just asked my question when I had the mute on. I apologize. And my question is the -- when the speakers had mentioned that there is no debt at the holding company level, and I wanted to know how much debt there is at the subsidiary level and associate level and how that's being consolidated or if it's not being consolidated. And also, are there any SPVs or other similar instruments that we should be aware of?

Thank you, Mike. I would provide my response, and then I think Funke will provide a bit more detail. There is no debt at the holding company. There is no long-term debt anywhere in the group. The only companies that borrow our Animal Feeds businesses. They borrow annually to fund working capital and typically cycle through this debt in each sort of buying season cycle. And there are no SPVs or any other sort of off-balance sheet, borrowed entities anywhere in the group.

Your next question is from Adewale.

Congratulations on your numbers and I see your revenues are now above NGN100 billion. Maybe we can start from there. I know you've got revenue growth growing. What do you think -- between volumes and price, where would you see more of the impetus came from in 2021? I get a sense that because of the inflationary environment, likely there are more price increases at your Animal Feeds business. Do you see that as a big driver? And if you were to sort of see maybe commentary on revenues, what will be the [indiscernible] revenues of 2021? So over the next 1 year, I mean given the inflationary environment, how do you think we should be looking at the revenues, more scope for price increases to drive revenues? That's my first question. Second question is on -- I think you mentioned quite a bit of the inflationary pressures came quite true, and these hurt your margins. What do you see -- or where do you see this over the next year -- how do you see this evolution of over the year? Secondly. My third question is, I see in your presentation, you talked about simplifying your structure, and you've done a bit around your major verticals, except your Animal Feeds vertical. So what should we be expecting from that? I suspect probably a merger, but maybe there are other things that you're going to talk about. Lastly, I see there's been some restatements. Can you provide clarity on what drove the reclassification in the prior year? Yes, just specifically there. And then on your digital business, digital approach, I'm just trying to figure out what's your strategy in that space and how do you hope to realize some of the investments in terms of cash? Just overall, what's -- how should we be looking at it going forward? And maybe what scale -- what size do you see this coming to be over the medium term in terms of your numbers?

Thank you. I have 5 questions, which is what was the bigger driver of growth price of volume. What is our outlook as regards continued input cost escalation. Thoughts around simplifying the group structure, specifically as it relates to the Animal Feeds business. The restatements on the driver for that and then our digital investments and the approach. I'll address some of them, and I think Funke is best placed to address the issue of the restatement. I think the first one, volume versus price growth last year, very simply, it was a combination of both. All of our businesses aside from Grand Cereals recorded both volume and price increases last year. For Grand Cereals, it was more price and volume. And I think if we just look at Slide 15, it's important to note that until 2019 the group was relatively flat. And these prior year charts included 2 meaningfully big businesses, UPDC and MDS, that were contributing to revenues. We have -- we no longer consolidate those businesses. So it's fewer companies that are driving the much bigger revenue grew to NGN 100 billion, and its revenue and price for all of the businesses across from Animal Feeds -- or for Grand Cereals, in particular, in the Animal Feeds segment. In terms of the outlook, it is very difficult to provide clarity. I explained that we saw prices rising in many instances, more than 100% last year. Year-to-date, we've seen 25%, 30% escalation. We're quite clear that we want profitable growth. So we would do what we need to do from a pricing perspective to protect margin. We saw price increases also 75% to 100% in certain businesses over the last sort of 12, 18 months, but it's a very fine balance. If we see that we -- if we see a meaningful softening in terms of volume, we then implement things like promotions and activations to sort of pull it back. So difficult to give you a precise answer. Our mindset remains very much in driving underlying volume growth, but we'll pay very close attention to ensure that we have the right pricing strategies to protect margin. As regards to the Feeds business, I think we've explained probably about a year ago that we have delayed sort of taking action on this particular topic because we're going through one of the most managerially time-intensive initiatives the company can embark on, which is the implementation of SAP S/4HANA, and we didn't want to overlay management with the complexity of trying to bring together 2 businesses in a -- via merger. We've touched very quickly on the pros and cons. And the biggest impediment to a potential merger is that these companies have quite different value propositions. Livestock Feeds is a value player, just sort of a lean organization that focuses on delivering value to the pharma, and Grand Cereals focused a little bit more on the mid- to premium segment. We aim to go live on SAP in July this year. And thereafter, we would free up the managerial band without these companies to begin to take through the detail of bringing them together. As regards to digital, I think it's important to note that our aggregate investment is probably 1% of our NAV, not even our assets, on the fraction of total assets. And we made investments that we felt provided us with a number of things. One is just downside protection. So we do expect to make a return on each of these investments. And for people who are conversant in the DC world from a market perspective, we're already meaningfully up. But crucially was to learn. We have businesses that we like, and these businesses are very much in what we would call the sort of traditional economy. We explored a number of ways to -- if I look at presence in the digital economy, one was making a very big acquisition, which is attempting to find and buy Unicon. And they call Unicon for a reason. Second was building one from scratch, and the third is what we call this toe-hold approach, which is by investing in the VC fund, we would see 50 of these companies and over the course of a few years learn. And the 2 businesses we meet direct investments in, we felt there was direct benefits that we could get in our core businesses should these businesses thrive. And one of the biggest headaches we have in our snacks business and for any company that does sort of low unit price sales is managing price point migrations. I mentioned that for Gala, we had to go from NGN 50 to NGN 100. If a company succeeds in digitizing micro payments, we no longer have to make these massive jumps. There's a lot more flexibility around pricing. And for Kandua, which is a sort of marketplace for artisans, one of their biggest segments is painters. And we -- and the long-term interest for us is helping -- is bringing that company to Nigeria, the South African-based company, and seeing whether we can work with them in terms of driving painter stickiness, which would help our Paints business. So there was some strategic thoughts to the direct investments that we made in digital. But like I said, probably 1% of NAV. So relatively small exposure in that regard. And we do not expect to do anything additionally meaningfully for the next few years. So we plan to just see how the investments we've made pan out. I would hand over to Funke to comment on the restatements of the prior year.

Thanks. Three major things responsible for the restatement of comparative information. The first is adjustments to withholding tax receivables. The second is provision for liability of a judgment debt at one of the subsidiary companies and also the recognition of the liability for long-term employee benefits at one of the subsidiary companies as well. So it's essentially a restatement of the comparative information. Thanks.

Your next question is from Mike.

This is Mike McGaughy from Research Alpha. I just had a question on the incentives that you're installing. When are those going to start or when have they started? And also what are they going to be based on? What are they going to be based on? Anything to do with share price? Or I guess -- and also how they're going to be rewarded through options or bonus -- cash bonuses? Just some insight into the incentive program would be helpful.

Okay. Thanks, Mike. I think we should -- it's helpful to think about the incentives in 2 components: the holding company, the listed HoldCo, and their underlying operating businesses. The listed HoldCo is effective, became effective in July last year. And quite simply, the holding company needs to deliver a minimum 18% return to shareholders. This can be dividends or share price appreciation. If that threshold is not met, there's no incentive. If it's met, then the employees or the holding company get a share of the value created in shares. It's not going to be -- it's not a cash payment. So that's for the holding company. For the underlying subsidiaries, for all of them apart from -- all the schemes are in place to answer the first question. All of them apart from UAC restaurants have a very similar framework, which is each year, we set an operating profit target for the business. Should that target be met, 40% of the incentive crystallizes for all employees. For the more junior workers, it's measured quarterly. For the management team, it's measured annually based on the audited financial statements. The remaining 60% depends on the specific initiatives we're trying to drive for that business in a particular year. And then they cascades by individual. So for CAP, our focus is very much on rolling out color centers and broadening range. So for the Head of Commercial for CAP will be the number of color centers rolled out, the performance of the new color centers and so on and so forth. Head of Supply Chain will be meeting on time and full delivery to those new color centers. So the 60% vary by company and by time frame. For UAC restaurants, because there's no operating profit, so to speak, there is a 5-year plan that the company has put forward. And if the management team hit the plan, there's an incentive that is paid out. If they don't hit the plan, there's no incentive paid out.

Sorry, if I can just get a quick follow-up question for that. When were the incentive programs started for the underlying companies for the subsidiaries?

The first one would have in UAC Foods in 2020, and the rest would have followed on last year. Our UAC Restaurants was put in place last year. UAC, the HoldCo, was also put in place last year.

The next question is from Edward.

I'm a bit interested in the Paint business. I found out -- or looking through the books, I see that dividend declined to about NGN 1.25 from [ circa ] NGN 2.10 in 2021 -- in 2020, I mean. So with that reason -- is there a reason for that? I look through a map also in the price of CAP has fallen from circa NGN 19.5 to around NGN 18. So I might need a little more guidance on that. I'm also thinking -- following the major, was that [ actually ] major drive of revenue because I significant increase in revenue. Was this just a merger or was there also price increase? I think that's basically what I will be looking at for now. And then going forward, how do you intend to drive revenue? How do you intend to drive profits? There might be little, you can do about the cost of resin. I heard it's over 80% increase year-on-year. But is there any other strategy you would think or you are working towards to drive profitability in 2022?

Clearly, I think if I just summarize the questions, one was the dividend; two was the impact of the merger on growth; and three was just sort of outlook for how do we drive growth in light of escalating raw materials.

Exactly.

Excellent. Thank you, Edward. I think for the dividend, 2021 was a sort of a tough year for CAP because the profitability fell 8%. And in the business, in terms of the dividend policy, management estimates cash needs and level of profit. And therefore, freeing the dividend in light of the reduced profit for the year. In terms of why the profit reduced, if you look at CAP's performance for the first 3 quarters and the third quarters, I think we put our hands up and say, we're a bit slow in terms of reacting to input cost escalation. But if you -- as you are interested in the business, and you follow it closely, you will see record levels of profitability from the fourth quarter, and we've seen the trend in terms of profit coming back very strongly as we aggressively take price rolling into this year. The merger was a small portion of the growth. CAP went from a sort of NGN 9 billion company to a NGN 14 billion company. Portland paint is only NGN 2 billion, so that's a NGN 5 billion increase. So more than 60% of the growth came from -- was organic. And encouragingly, it was predominantly volume growth. This was a sort of 4.5 million liter year business in 2018. Last year ended up at 9 million -- over 9 million business. So encouragingly, it was very much volume growth and not price-driven. And then when we layer on the price in the fourth quarter, we've seen meaningful growth in profitability. In terms of how we see the outlook, yes, we remain concerned about the escalating cost of resins, but we simply price accordingly. But where we draw comfort is that we sort of did a mapping of the country, and we determined that there is meaningful white space in terms of rolling out color centers to deepen distribution. And so we feel that by increasing the number of color centers, we would drive growth. And if you look at Slide 25, we overlay this, and I must admit that this, on the states, the distribution of CAP -- CAP has about 100 now retail outlets because we have Dulux color centers, Sandtex color centers, and we also have something called color shops, which are smaller retail formats that draw from the color centers. And we plan to grow our retail footprint by a minimum 20%, 25% again this year. In addition, we sell 97% of our output retail. So this is small projects and home decorations and almost nothing to large developers. And we're in the process of building a -- we call it a project business. So we feel that in spite of input cost escalations, we are reasonably confident that we'll continue to see strong growth in the Paints segment. A bit longer term and one that we are going to explore this year, but I think it'll take probably 12 or 18 months to see any meaningful impact. CAP also has licenses to supply the 5 companies around Nigeria, Chad, Niger, Cameroon, Equatorial Guinea, Sao Tome and Principe. We currently don't sell a single liter of paint into any of those markets until we're sort of going to kind of run sometime in this quarter, end of May, beginning of June to begin exploration to see how we can begin to export into those markets. So I think we're reasonably clear as to where growth from CAP is going to come for the next 3 years.

Your next question is from Samson Owolabi.

So I just want to ask the question concerning the asset of the operating profit, we can see there is significant increase in the revenue...

Sorry. You are not very clear. Can I please ask that you maybe lean a bit closer to the microphone so we can hear you clearly.

[indiscernible]

We'll try and make it out.

Okay. So I'm trying to say that the revenue increased to NGN 101 billion and the operating profit stood at NGN 4.9 billion, there is a very large margin in that particular area. So I just wanted to ask, what is the major plan concerning how to curb the cost -- operating costs based on the fact that looking at the direction of inflation and the rise in prices of products in the market, what are the major plans of the companies like [ CAP ] this particular effect? That's #1. And I would also like to ask about the aspect where you talked about the cash being NGN 4 billion and some part of it NGN 2 billion in Eurobond, what are the retail plans -- can you please break that particular slide down? So I just want to understand that what is the Company's policy on investing on this particular cash just like no copy aspects around inflation and trade made in the particular portion [indiscernible]

Samson, I just to make sure I understood the questions correctly. The first is, how do we think about sort of operating expenses in light of inflation? And second, basically, what is our approach to managing our treasury.

Yes.

Okay. So I'll tackle the first one, and then I'll hand over to Funke for the second. I think Slide 7 paints the picture. We pay attention to absolute cost increases, but we're a lot more focused on operating expenses relative to sales. If we are growing our sales faster than operating expenses, then it's positive. I mean we're investing for growth because you kind of roll out -- I mean we went from 20 to 40 color centers. You can't do that without growing your base operating expenses. But on Slide 7, you will see that in every single one of our businesses, we reduced -- we improved the operating expense to sales ratio. So this is what we're going to pay attention to. And the reason why we feel we have a good chance at maintaining this is because if you joined our calls over the last few years, we started by making meaningful investments in people process technology to create a base for each company that could drive meaningful revenue growth. And so this is what -- we're going to keep paying attention to these ratios and making sure that we keep our OpEx to sales ratios under control. And then I would hand over to Funke to sort of talk about our approach to investing our treasury.

Thanks. The way we think about the treasury at the group and at the holding company level is essentially to segment the fund based on the purpose. So we have our operating cash, operational needs as the core cash for medium-term requirements, the strategic cash flow, longer-term investments such as acquisitions. And depending on the purpose of each one of those segments, we invest accordingly. So this is a combination of either putting the strategic cash into our operating segment, supporting with working capital. We also participate in purchasing money market funds, money market investments as well as Eurobonds. So in summary, we managed the portfolio according to operating requirements, strategic requirements of the group. And it also allows us to retain investing flexibility.

Aminat Ogungbola from Stanbic IBTC has a couple of questions on the chat room, which I will read out now. I mean I would like to know what led to the higher loss reported in the QSR segment year-on-year and management's outlook for this segment in terms of profitability. In addition, what is the current capacity utilization for plants? And how does management intend to fund upcoming expansion project?

Chiamaka just to clarify, what is the capacity for -- utilization for what...

What is the current capacity utilization for plant in general?

Okay. I would attend that. I think for QSR, very simply, again, if you've been following us over the last few years, we sort of phased driving growth initiatives across each of our businesses and we went through people first and structured in growth. And in QSR, we only appointed a new management team in April of last year. So there was a meaningful step up in terms of operating expenses to have a management team that was capable of taking a company from, I guess, 0 corporate stores to 100 corporate stores we see the target in the next sort of 5 to 7 years. So there was that meaningful investment. There was also a meaningful investment in terms of sort of plant and equipment. So you see a jump in depreciation. And as we roll out corporate stores, there's a light effect. You run the store. You kick the store. You recruit the team. There are about 20 people per corporate store. You train the team, and then after a few month you open -- you wrap up operations, and then the store begins to contribute. So I think we would see a shrinking of the loss in QSR. And the pace at which that loss reduces and eventually in terms of profitability will be directly related to the speed at which the company rolls out corporate stores. But we impress on management that one of the biggest mistakes that is possible to be made is to have a poorly located corporate store. So we spend a lot of time ensuring that each store is properly located. And once we achieve this and maintain the store operations, we see the desired unit economics. What we spend a lot of time is assessing the health and performance of each individual store that we open. And once those markets are green, then we are comfortable that the strategy is heading in the right direction. In terms of your question around plants, we have very many plants. So I'll try and go through a sort of super quick run-through. In our Feeds businesses, we have 4 plants, and we sort of have -- sort of plant on a third-party site in Kano. I would say, on average, that's about 50% utilization. So we don't have any concerns for producing feed. For oil, we have capacity constraints at certain segments of the oil value chain. But right now, we rely on third-party crushes. Should we need to upgrade it, it will cost about NGN 2.5 billion. If I move over to Paints, I see the Head of Strategy and Transformation for CAP PLC, Lolade, and [ Edward ], if you want to learn a lot more about their business, you can reach out to her. And the plan there is probably about 2/3 capacity utilization. We are currently in the process of having actionable visitors sometime in the first half of this year to reconfigure that plant. At the pace of growth, we will run out of capacity in the next 2 years. However, I should have mentioned that there's a meaningful shift in strategy that we are implementing this quarter with our Paints business, moving from tinting the majority of the colors in factory to tinting them in stock. And this will -- and once we implement this, it will free up meaningful capacity for the Paints business and hopefully move back the need to invest in additional kits, but we're making that assessment about the course of this quarter. For UAC restaurants, the Central Kitchen is under 50% utilization. So we have a lot of headroom to roll out more and more corporate stores and meet demand there. And for UAC Foods, that business itself has 3 plants. The snacks plant had hit 80% capacity utilization. The move to NGN 100 price point has brought that back sort of to the high 50s because we get, I mean, twice the revenue on each unit sold. But we're already in detailed design to build a new factory because that business is growing 25% year-on-year. The dairy plant is at 60% capacity utilization, and there's not that much capital required to expand that. So we're reasonably comfortable there. The water plant has been at full utilization for the last sort of 18, 24 months. We have already purchased a new plant, and that would [ trouble ] capacity that will come on stream in the third quarter of this year. So a little bit of a long answer because when you say plants, we have very many, and each of those at different levels of utilization and different plants in place for expansion.

I see there was another -- led to the question around how we intend to fund the upcoming expansion projects by Aminat, and it's a combination of things. The cash from the holding company, cash from the operations of the specific subsidiary companies. We're also in the process of disposing of certain investment properties, which will provide additional liquidity. And last year, in 2021, the holding company registered NGN 50 billion bond program, which also provides additional financing flexibility in the event that additional funding is required.

There are no further questions. I will now hand the call back to Folasope Aiyesimoju for his closing remarks.

Thank you once again, Chiamaka. Thanks to everyone for making time to join the call, and thanks for the thought-provoking questions. I wish everyone a wonderful rest of the day. Thank you.

Thank you very much. That concludes the UAC of Nigeria PLC's Full Year 2021 Results Conference Call. You may now hang up. Thank you.