Good morning and good afternoon, ladies and gentlemen. Welcome to UAC of Nigeria PLC's half year 2024 results conference call. Please note that this call is being recorded. This conference call will be hosted by Fola Aiyesimoju , the Group Managing Director of UAC of Nigeria PLC, and Funke Ijaiya-Oladipo, the Group Finance Director. Following prepared remarks by UAC's management team, there will be an interactive Q&A session. I will now hand the call over to Fola Aiyesimoju. Please go ahead.
Thank you, Temitope. Good day and welcome to UAC's half year 2024 results call. The Group Finance Director, Funke, and I will go through the presentation and take questions thereafter. We will try to refer to relevant pages of the document as required. Starting on page five, UAC recorded revenue and profit before tax of NGN 83 billion and NGN 15 billion respectively in the first half of 2024. Our profit before tax is on account of a mix of operating performance and the results from our treasury operations. Over the course of today's discussion, we will cover operating conditions in the first half of the year, provide insight on our performance, and touch on the outlook for the business.
The foundations for the growth we've recorded and profitability that we've just talked about were laid over the last few years via efforts to attract talented leaders for our businesses, simplify our group structure, clarify strategy, and invest for technology. We continue to pursue initiatives today that will drive future growth. Over the course of the first half of the year, we paid particular attention to balancing volume growth with proactive pricing. We aggressively sought areas to drive efficiency and optimize cost with the objective of passing on value to the consumer. We continued to focus on strengthening controls. Our risk management and working capital efforts enhanced our balance sheet strength, which contributed to the treasury gains we've reported. We are thankful to have retained some of our most talented leaders. Please turn to page seven.
As has been widely reported, operating conditions in the first half of 2024 remain tough. Broad economic growth was muted, pressure on the naira continued, inflation reached record levels, and borrowing costs spiked. These combined to present meaningful headwinds to businesses in Nigeria. On slide eight, we outlined the experienced inflation in our businesses, and the chart on the page depicts input cost progression for key raw materials across our operating segments. You will observe that in many instances, cost for key raw materials increased far in excess of the reported headline inflation numbers. Many of these input costs have increased further between the end of the period and today.
On slide 10, we show the revenue and profit contribution by operating segment. You would note that group performance continues to be largely driven by our packaged food and beverages business, our feeds and edibles businesses, and our paints business. We are pleased with the growth trajectory of each of these segments. Slide 12 touches on initiatives we implemented to navigate operating conditions over the course of the first half. I will take us back quickly to slide 11 because it's important in terms of one of the most important things that we did over the course of the year. To protect margin in light of rapidly escalating input costs, we had to be very disciplined and proactive about pricing.
We're only able to achieve this on account of the strong market positions we have in our respective operating segments, our brand strengths, and extensive distribution network. Many of you will be familiar with the brands highlighted on slide 11 and also aware that in many of the segments, we are the market leaders. I would just like to call out two relatively new brands on this page. Being Kingsway, a sausage roll that we launched at the back end of 2023, and Gala Chin Chin, a new product in the UAC Foods portfolio, which we launched just over a month ago.
I think the brands and the distribution reach highlighted on this slide go to the core of UAC's strength and were instrumental in the most important initiative we implemented over the course of the first half, which is being able to leverage pricing power to protect margin in light of rapidly escalating input costs. Back to slide 12, please. Other things that we worked on were, we're very cognizant of the reduced consumer spending power, so we tried to expand our product portfolio to provide affordable alternatives without compromising margin. I've talked about the Kingsway Sausage Roll under the snacks portfolio. In the paint segment, we did some expansion in the mid-tier segment, again, to provide further offering to our consumers. In the feed segment, we clearly differentiated, again, a slightly cheaper option whilst protecting margin to give consumers and our customers a choice.
We spent a lot of time and we invested a lot of effort on trying to reduce conversion costs, and manage operating expenses. I would say the most impactful areas here were changing the energy mix, particularly at our feeds business, introducing biomass to reduce the cost of firing boilers. We also tweaked the distribution model, which brought down meaningfully distribution expenses. We responded to the higher cost of living by implementing salary increases across the group. We continue to monitor the impact of current headwinds on our employees. We leverage our strong credit rating and balance sheet strength to optimize finance costs by a mix of our banking relationships and accessing the capital markets. Slide 13 highlights a few more initiatives we executed. I've talked about growing our product portfolio.
We launched Kingsway, a sausage roll under the UAC Foods stable, and also Gala Chin Chin, a new snack under UAC Foods. For those who followed us for a while, you would know that we prioritize human capital, our people, we relaunched UAC Academy to equip our managers for future leadership roles. We also initiated an excellence award to celebrate outstanding employees across the group. We continue to tighten controls, building our internal audit function, and are very pleased with early results.
You would see on slide 14 that these efforts translated to meaningful revenue growth, 57% from NGN 83 billion in the first half of 2024, NGN 23 billion in the first half of this year. We recorded meaningful expansion in gross margins, 600 basis points from 16.3% to 20.5% on account of the pricing initiatives and efforts to manage conversion costs. You will also note that we recorded very meaningful expansion in our operating profit margins. I will now hand over to Funke, who will take us through a bit more detail around our financial performance in the first half.
Good afternoon, ladies and gentlemen. Please turn to slide 16, which provides an overview of the group's financial performance comparing 2024's half-year results with 2023. UAC Group recorded consolidated revenues of NGN 83 billion in the first half of 2024, which is 57% higher year-on-year than the NGN 53 billion recorded in 2023. It's important to note that the comparable period in the first quarter of 2023 was impacted by the elections and cash scarcity, which reduced trading days and constrained demand. From a segment-specific perspective, our edibles and feed segment, comprised of Grand Cereals and Livestock Feeds PLC, recorded revenue of NGN 40 billion. This increased 30% year-on-year, and growth was due to price increases implemented to offset rising raw material costs.
Our packaged food and beverages business, UAC Foods, revenue was NGN 28 billion, which is 127% higher year-on-year, and the growth in this segment was on account of strong volumes recorded in all categories, so snacks, spring water, and dairy, as well as price reviews across board. Snacks growth was supported by existing brands as well as Kingsway Sausage Roll, which was launched in August 2023. The additional capacity installed to our spring water bottling line in 2023 supported water volume growth this year. Our paints business, CAP PLC, recorded revenue of NGN 16 billion. This is 60% higher year-on-year and was achieved as a result of the positive impact of the company's growth strategy on volumes, as well as price increases. The quick service restaurant segment revenue declined 24% to NGN 1.5 billion, and the performance is reflective of two things.
The first is our strategy to rationalize unprofitable stores, the second is the impact of high inflation on the discretionary income of consumers. In terms of operating profit, UAC Group recorded NGN 6.7 billion compared to an operating loss of NGN 35 million in the first half of 2023. The improvement in operating profits is attributable to two things. The first is the strong double-digit top-line growth across all our key operating segments, the second factor is the expansion of our gross profit margin, particularly in our packaged food and beverages segment and the edibles and feed segment.
The gross profit margin improvement was a result of the dynamic approach to pricing of our products, with a focus on protecting margins in the packaged food segment and implementing production efficiency and cost-saving initiatives, such as changing the energy mix to reduce conversion costs in the edibles and feed segment. Across the group, operating expenses were NGN 13 billion for the period, this is 42% higher than the NGN 9 billion recorded in 2023. This increase reflects the impact of inflation on operating costs, as well as the effect of the naira depreciation on expenses that are pegged to foreign currency. The most significant increases were in distribution expenses, electricity and power costs, and personnel costs. Driven by higher haulage rates, electricity tariffs and diesel prices, as well as the cost of living adjustments implemented to alleviate the impact of inflation on our employees.
We also recorded meaningful increases in IT costs as a large proportion of these costs are tied to foreign currency. The group's profit before tax for the period was NGN 15 billion, compared to NGN 3.2 billion recorded in 2023. Profitability was supported by improvements in finance income, which was positively impacted by higher cash as well as gains in the treasury portfolio. Other key points to note are that UAC's share of profit from our associate companies, UPDC Plc and MDS Logistics, was broadly flat at NGN 475 million. We generated NGN 6.3 billion in free cash flow and recorded 28% return on invested capital. Please turn to page 17, which shows a snapshot of the group's financial position as at 30 June 2024.
The group has net assets of NGN 62 billion, which is NGN 8 billion higher than what we recorded at the end of 2023, the increase is a result of increased profitability of the group. Total debt across the group was NGN 25 billion and cash of NGN 33 billion, resulting in a net cash position of NGN 7.9 billion. The debt in the group is largely short-term and used to support working capital across our businesses, particularly the edibles and feed segment. We're conscious of the impact of finance costs on profitability, especially given the recent increases in the monetary policy rate, we continuously seek to optimize funding costs across our businesses.
Capital expenditure was NGN 2.2 billion across the group in the first half of 2024, this amount was spread across our operating companies and largely maintenance CapEx to replace and upgrade existing assets. The group's cash cycle improved to 71 days from 83 days recorded at the end of last year. This takes me to the end of the financial highlights. I will now hand the call back to Fola to take us through the next section of the presentation.
Thank you, Funke. I think this brings us to the conclusion of the prepared remarks. We will then take your questions. Our focus remains very much on investing to drive growth. We recorded over 100% growth in our packaged food and beverages business in the first half of the year, more than 60% growth in our paints business, and very meaningful growth in profitability in our feeds and edibles business. As a management team, we're going to keep a laser focus on trying to maintain high levels of growth going forward. We will continue to invest in talent, we spend a lot of time on this, and to drive operational improvement across the businesses, which we hope will translate into improving margins. We are also increasingly investing in technology to optimize our business processes. Thank you. We will now take questions.
It is now time for the question and answer session. To ask a question, please raise up your hand or type in the chat box. Kindly introduce yourself and the organization that you represent before asking your question. Your first question is from Uthman Yuguda. Please unmute yourself and go ahead.
Hello. Thank you so much. My name is Uthman. I'm calling from Stanbic Pensions. I just wanted to ask your management if you guys can expand a little bit about your new paint segments, especially the niche one around the maritime business. Could you just expand how much penetration you've been able to acquire through H1? How much you guys have been able to increase in terms of revenue in that paint sector as a result of entering that new niche market? Thank you.
Thank you, Uthman. I think your question is around new segments for our paint business. I will split this in two because you specifically touch on maritime. When I talked about new paint segments, what I was specifically referencing was expansion of the decorative into the mid-tier. I would say that those segments currently account for probably about a third of the revenues of the paints business now, and that's up from probably about 10% if I go back 18, 24 months. It's interesting that you touch on the maritime segment, because we see meaningful opportunity in that space. Importantly, because most of the sales are to the oil and gas industry, there's scope to, a nd dollar or dollar-linked revenues. We have only recently recruited a very senior executive to drive growth in this space.
He joined us about a quarter ago. We only expect to see the impact of this sort of investment in talent play over the next few months. I was referencing specifically the mid-tier decorative, but it's interesting that you touch on the marine and protective, because we recently focused on that and just recruited someone to drive growth in that space.
Thank you.
Your next question is from Michael Oyinleye. Please unmute yourself and go ahead.
Good afternoon, Fola and team, thanks for taking my question. My question is really around, you mentioned something about you made some tweaks to your distribution channel. If you can just provide a bit more color on what that means, just for me to understand it a bit more. Thank you very much.
Thank you very much, Michael. I would say this, we did two things or we had two objectives. One was to improve reach and drive sales, the second was to minimize distribution expenses to revenue. To increase reach, this was done largely in the packaged food and beverage business. We identified wide space, so areas that were not being covered by existing trade partners. We discovered that we had trade assets, so vans. So what we did was we began to supply directly from the factory to sub-distributors and retailers in areas where we had wide space. It has been incredibly successful, and I would say that that unit, as a unit, if that unit was a distributor, it would be the highest contributor to revenue in that business.
To minimize costs, I would say that the biggest things that we did, or to optimize costs, were we found that in engaging with customers, particularly in the feeds business, they were able to self-collect cheaper than we could deliver to them. So we engaged with these customers and then provided the option and said to them, look, we either deliver to you and here's the surcharge, or you self-collect. We found that in very many instances, to avoid the surcharge, and because the customers could manage it cheaper than we could, they self-collected, and we saw a meaningful reduction in distribution expenses to revenue in that segment. The final thing we did, which I would say is a very distant third from an impact perspective to the first two, was being very thoughtful about where to serve in the country.
We found that if you take the distribution expenses to revenue, you need to be very careful about which locations you serve from which plant. Otherwise, you could find that the cost of getting to market began to erode margins. I would say that in summary, the direct filling of white space and the giving customers options to self-collect versus company deliver were by far the two most impactful. Just being thoughtful about what regions to serve for what plant would be a distant third under that header.
Your next question is from Samuel Makinde. Please unmute yourself and go ahead.
Yeah. Good afternoon. Thank you, Fola and Funke, for your presentation. I have three questions. My first question is about how you were able to manage your FX risk. It was a popular trend in the consumer goods space. We observed them declaring FX losses, but the reverse was the case for UAC. Can you provide the color to how you were able to manage the FX risk? My second question is, if naira strengthen maybe in the next two quarters, what should we expect? The third question is, you can please provide colors to how quarter three and quarter four is going to look like. Thank you.
Okay. Thank you, Samuel. If I just recap your three questions, it's how we manage FX risk, what happens if the naira strengthens, and how Q3 and Q4 would look like. I'll start with the third question. We do not provide earnings guidance, unfortunately, I cannot comment on how quarter three and quarter four would look like. I would say you can take the broad guidance I gave, which is that as a management team, our focus is on continuing to drive growth. I think I said at the very beginning that we try to drive growth being very mindful of protecting margin. In terms of the two questions I can go into some depth on, to manage FX risk, I would comment on a few things and, Funke, please jump in if I miss any. One is avoiding foreign exchange denominated liabilities.
We don't have any dollar debt, I don't see a circumstance in which we would take that on because we were very mindful of the potential for meaningful losses in the event that a foreign currency denominated of the carrying value in naira of foreign currency denominated liability if the naira devalued, which is what we saw happen over the last sort of 12 months. We are also, I guess, partly fortunate, I guess some of it is partly by a decision to operate in industries that have a meaningful portion of domestic procurement, which I think probably supported the first point in not needing to take on foreign exchange liabilities to continue our operations. Just by nature of the industries we operate in, we have a slight benefit there.
In terms of what happens if naira strengthens, the way we think about foreign exchange is we think about it directly related to the running of our businesses. We would seek and hold foreign exchange if we need to procure capital equipment, procure spares, and for the limited direct importation we do. Because these things are linked to dollar needs, the cost in dollars is going to remain fixed. If the naira strengthens, we benefit massively because we're a naira earning business. We generate NGN 83 billion in revenues in naira, our company becomes a lot more valuable.
The dollar cost for the few things that we feel that we need to procure will remain the same in dollars. That's the way we think about currency. We don't aim to make or lose money on the currency. We manage risk in terms of not taking foreign exchange liabilities. We hold dollars to buy the things that we need to buy. Those costs are fixed in dollars, and if the naira appreciates, we'll be delighted because our earnings, which are predominantly naira, become a lot more valuable.
Your next question is from Brad Virbitsky, who wants to know how the introduction of Chin Chin and Kingsway are going and what the potential for those snacks are.
Okay. Thank you very much, Brad. I will take them one in turn. Kingsway is a bit more mature. I would say we're about a year into that launch, and it's gone very well. It's currently between 10% and 15% of the portfolio of UAC's Gala sausage roll portfolio. It's doing what it needs to do, has very good customer acceptance, and it's very well established. We're very pleased there. I would say if anything, it's gone meaningfully better than we expected because we did so with not that much expenditure in terms of marketing. We just rode on our parent brand and a distribution reach. Chin Chin is a month in. It's very early to tell. I will say that on the back of what is a very short period in which to gather any data, it's gone better than planned. We're quite pleased with that as well.
Your next question is from Somisola Ikoli from CSL Stockbrokers.
Sorry. Brad had one more question. Apologies to him. He asked what the potential for those businesses are. I would say that they're very different. Kingsway, we viewed as complementary to the sausage roll portfolio to provide the consumer choice. We think that the potential for that product is linked to what we see as the overall potential for the sausage roll segment. We still see very strong growth. That segment is up from last year, probably about actually, it's probably close to 100% growth compared to last year.
We strengthened our position in a segment in which we're already strong and in which we still see meaningful growth. For us, Chin Chin, we would be pleased if it begins to account for around 10% of the basket in the foods business. It has quite some way to go to achieve that, given how big the other segments are, the snack segment, the water segment, and the ice cream segment are. That's what we'll be pushing for for that product launch.
Your next question is from Somisola Ikoli from CSLS. What FCY assets do you currently hold?
Thank you very much, Somisola. I think as I commented on this with Michael's question, we hold foreign currency assets for two primary reasons. Well, actually one reason split into two strands. One is where we need to buy equipment, and most of the equipment we need is dollar or euro denominated. The second is where we have direct FX procurement. This is mostly in our paints segment, where we import resins, titanium dioxide. That's what we hold FX assets for, and it varies quite meaningfully from time to time. Right now we have overhauls for lines coming up. We're going to buy quite a bit of raw materials for our paints business in lead up to the peak season at Q4, and then we will rebuild or reduce depending on what our needs are.
Uthman Yuguda asked another question. On average, by how many percent have you increased product prices to protect margins?
The short answer across the board, as you know, Uthman, we have so many different products in so many different segments, would be between 75%-100% on average. It varies quite meaningfully the way you go about doing this, but I would say on average, 75%-100%.
To ask a question, please raise up your hand or type in the chat box. Kindly introduce yourself and the organization that you represent before asking your question. Your next question is from Michael Makoki. He says, can we please get a comment on Q2 2024 versus Q1 2024 results and outlook for H2 2024?
Thank you, Michael. I think the overall conditions, I think the split is on page 26 of the deck. Overall conditions Q1, Q2, I would say were similar. The headline numbers would have been worse in Q2, but the direction of travel in terms of inflation spiking, FX devaluing would have been very similar across both quarters. Q2, I would say we made marginal improvements. You will see revenue was a little bit bigger. Margins improved by 100 basis points from a gross profit perspective. I'll say similar, with the overall macro trajectory getting a little bit worse and underlying performance getting a little bit better. The specific numbers are outlined on page 26.
Your next question is from Chukwudi Ogbonwu. Do you have any plans to introduce any products using groundnut as raw material?
Chukwudi, I think the answer to that is no, but it will be a complete response. Our animal feeds businesses are quite meaningful consumers of groundnut cake. One of the things you need to produce animal feeds is a protein source, and you switch between soya meal or soya cake. I know that right now, we're meaningfully relying on groundnut cake, given what's going on in the soya industry. We already do consume quite a bit of groundnut linked products. A specific new product that is based on groundnuts, the answer is no.
Your next question is from Onome Ohovioriole. Please unmute yourself and go ahead.
Good afternoon. Am I loud and clear?
Yes, Onome, can hear you clearly.
Great. My first question is on the QSR unit. Is there an update on the expansion plans? It's still loss-making. I'm wondering, did you take any price increases during that period? Was there some price resistance? My second question is on CAP, page 23 of its financial statement, note 17. The inventory write-downs in stock slightly, not materially, but it's still significant because if I remember correctly, you probably had a NGN 7-ish billion of finished goods at inventory and about NGN 500,000,000 was written down. I'm wondering, is there a strategy to kind of bring that down, at least over time?
For latter half of note 18A, the write-offs were rather small, I'm wondering, is it because there's expectation that there'll be a write back or I'm also wondering, wouldn't it be better to have a more aggressive write-off and you know that that slate is clean. For Livestock Feeds, I see that the Onitsha segment of Livestock Feeds happens to have smallest top line and bottom line. I'm wondering why is that the case and over time, what can be done to increase both of them? Because it's way smaller compared to all the other geographical segments. Yeah. Those are my questions.
Okay. Thank you, Onome. On QSR, we have not expanded as quickly as we would have liked. We expected to have been at around 60 company-owned stores. By now, we're still at around 30. The primary reason for that is, it's a slightly different kind of business, is balancing what I call margin and growth. One of the biggest shifts in the QSR segment has been power costs. Restaurants require a decent amount of power for ovens, air conditioning, and it must be left on for most of the day. What we've seen with energy costs, and frankly now electricity costs, the business plan assumptions around energy costs increase meaningfully. I would say at least three-fold, maybe four-fold in certain instances.
We've slowed down the expansion there, to ensure we make the relevant changes so that each unit, which is each store, is profitable before we ramp up expansion. Unfortunately, the consequence of this is that until you get to scale, you don't fully cover your head office costs and the segment remains loss-making. We are laser focused on trying to fix each unit. When we get comfortable there will be the confidence to continue to deploy capital to roll out and meet the targets that we set for ourselves. It's not where we want to be, but that's the context of what slowed us down. I would also say that it is perhaps the segment of our group that has been most impacted by the stress on the consumer, because it's one of the more discretionary parts of our offering.
Obviously, those are the two things that caused us to slow down there. On CAP, very well noted around the inventory write-downs, I think our strategy there is to gradually bring down overall inventory holding levels. The degree to which you write down, which you think is getting damaged and so on and so forth, is tied to the aggregate volume of inventory that you hold. Going back two or three years to the COVID-day supply chain disruptions, the paint industry was particularly affected, we had a strategy to increase our inventory holding days, we're gradually trying to bring that down. The strategy to try to reduce write-downs is to bring down the overall levels of inventory that we have. For Livestock Feeds, I would confess to not having the specific notes that you referred to offhand.
If you reference Onitsha, and we can triple-check this after the call. Livestock Feeds has three manufacturing plants, Lagos, Kano, and Aba. Anything Livestock Feeds does in Onitsha would be outsourced manufacturing, which is why it's a much smaller contributor than any of the other three. If you reference Onitsha specifically, that's the reason why it will clearly be much smaller than the areas in which the business actually has plants.
Your next question is from Aremu Bello, who works with Iris Capital Management. He has three questions. The first one is, during the presentation, you attributed the decline in QSR business to two strategies. The decisions to maintain own stores and inflationary impact. Could you give a bit of context to the first strategy of own stores, and what is the way forward? The second question goes, there was a marked improvement in the operating margins in the animal feeds business, both in Q1 and Q2.
I understand that there were pricing initiatives done during the two quarters, so I want to clarify if it was just pricing or if there were other operational strategies that played out. What is the outlook of operating margins in the near term? Finally, what is the competition like in the animal feeds business, and how are customers responding to your products given the heightened inflationary pressures in the economy?
Thank you very much, Aremu. I think I touched very briefly on QSR in responding to Onome's question. I think for those who followed us for a while, they will understand the shift from a large franchise network of, from memory, about 165 stores to a predominantly corporate-owned store network. The reason was trying to ensure that we could deliver quality to the consumer. We found that with such a widespread and fragmented franchise network, it was very difficult to maintain standards. That was what informed the strategic shift. In terms of the stores, you are correct that we had intended to roll out many more stores than we have thus far, so we're behind our targets there. I've touched on some of the reasons why, which is trying to ensure that the unit economics of each store work.
Some of the biggest things that have impacted the unit economics thus far have been overall consumer sentiment. It's probably the most discretionary segment of our business. The second being energy costs. In terms of the margins in the feeds business, and you talk about operating margins, there are three things that inform the meaningful expansion in operating profit margin. The first being pricing, and I would say balancing volume and pricing is perhaps the most impactful. We've been very disciplined there. The second is conversion costs. I talked about being very thoughtful around the energy mix in that segment to bring down the overall energy consumed. This is also the segment where, in response to an earlier question, I talked about working with consumers to optimize distribution expenses to revenue.
Those three things are what contributed towards the improvement in operating margin that you've seen, and we expect to continue to run the business in this manner going forward and eke out improvements where we can. Competition in the animal feed segment is very intense. Consumers respond well to our products because it's a performance industry. We sell our feed to farmers who are trying to either grow birds or produce eggs. It's B2B, and they're laser focused on the yields they get on eggs and the weight and time for the birds. They punish businesses severely where performance slips and reward businesses where the product delivers performance. We're very focused on the quality of the feed we deliver to our consumers, and we're seeing the response come through with some of the improvement in performance you're seeing in that segment.
Your next question is from Fisayo Adetayo of CardinalStone. Your Q3 and Q4 appear better than Q1 and Q2 for 2023. Should we expect the same trend this year?
Fisayo, I unfortunately have to repeat that we don't give specific guidance. I will say that Q4, in particular, has historically been the strongest season for most of our businesses, and I see no reason why that would change this year.
Your next question is from Ayomide Abodunrin. Please unmute yourself and go ahead.
Yes. Hello. This is Ayomide Abodunrin from CardinalStone. I would like to appreciate the group's good performance in the first half of the year. My concern is on exchange gains still. Looking at the numbers, I would say that what was termed as exchange gain in the results is about 80% or over 80% of the net profit. This is actually a cause of concern for me. If that isn't so, the numbers we are seeing in net profits might not be as much as we are. Can you just speak to this?
Okay. Thank you, Ayomide. Ayomide, I think if we please turn to page 26 we can at least align on the numbers we're looking at. Page 26 on the far right outlines our financial performance. I would just say we should focus on two lines. One is operating profit and the second is finance income. They are the two big components. Everything to do with FX treasury sits in finance income. If you look at last year, you would see that the bulk of our profits, I'll have agreed with you, came from finance income. This year, the mix is roughly 50/50 between operating profit and finance income. We do not run the group to make finance income. We run the group to grow operating profits.
I would say that the operating profits we're delivering as of the half year are ahead of our targets for this year, and this is where we continue to focus. We have cash on our balance sheet, we earn some income. We've always done so, for those who followed us historically. The bulk of the driver, if you look at the improvement in performance, is the operating profit line versus the finance line. I'm not sure where the 80/20 mix comes from.
To ask a question, please raise up your hand or type in the chat box. Kindly introduce yourself and the organization that you represent before asking your question. Your next question is from Abdulrauf Aremu. Please unmute yourself and go ahead.
Hello, good afternoon. Please, am I audible?
Yes, you are.
Okay. All right. Thank you for the response about the care services. I got the reason for the decline. If you could please. I know you said you don't give specific guidance. Based on the circumstances you illustrated there, the high energy cost and the likes, in my opinion, I see those challenges present in the near to medium-term. As things stand, what is the management going to do? Or how do they intend to execute within that business given the current realities? Does it mean there will be a suspension in the rollout of the stores or what exactly is the management planning to do in this regard? Thank you.
Okay. I think what we're trying to do, I can simplify under two broad headers, which is increasing the revenue per store. There's a bigger revenue base to cover the high energy costs and optimizing energy mix. We are at very early stages of trialing to see what impact solar has. We are trialing between gas-fired ovens and electric-fired ovens. This is all about blend and energy mix. We're also working on a new offering to increase the overall revenue per store. Those are the things that we're working on. When we execute, we are certain that the initiatives would improve the unit economics of each store. The degree to which the improvement is, we would see once we're through with implementation, and that would inform the degree to which we continue to aggressively roll out these stores.
There are no more questions. I will now hand the call back to Fola Aiyesimoju for his closing remarks. Before you give your closing remarks, there is one more question from Fisayo Adetayo. Should we expect bumper rewards for shareholders this year, considering impressive numbers and strong cash flow?
Fisayo, I'll interpret your question to mean dividends. Is that fair when you say bumper rewards? Look, I think we have outlined our dividend policy, and that policy is to provide stability and clarity to shareholders. I think what we've said is that we would maintain a level of dividends until we decide to change it, so either we step it up or step it down, depending on two factors. Maybe three factors. One is the group's performance, our view on the outlook for the environment, and the third is the capital needs for the group. No decisions have been taken, but the policy remains the same. We maintain a level until we change.
When we change, we maintain again until factors make us change, then there are a number of things that would come into the mix, outlook for the economy, our performance, and our capital needs. We would focus on delivering performance. How that performance is allocated, no decisions have been taken at this time.
I will now hand the call back to Fola Aiyesimoju for his closing remarks.
Thank you very much, Temitope. Thank you to our investors, analysts, investing public for participating in the call and for the very thoughtful questions. I wish everyone a wonderful rest of the day.
That concludes the UAC of Nigeria PLC half year 2024 results conference call. Thank you for your participation. You may now hang up.