The manufacturing industry has continued to struggle with operational challenges and Berger Paints is not insulated. The harsh environment has weighed down on earnings of the paints maker writes CHRIS UGWU
Notwithstanding the challenges manufacturers have continued to face, the low disposable income of consumers remained a major challenge facing paint manufacturers in Nigeria.
Consequently, many paint companies listed on the Nigerian Stock Exchange (NSE) contend with low consumer demand, as consumers do not consider their products as priority because of low disposable incomes.
Though raw materials import with its attendant foreign exchange burden has remained a militating factor, it is not the only factor responsible for the less than sterling performance of paints manufacturers.
Other challenges facing the industry include dearth of infrastructure, especially stable electricity supply, poor road network, multiple taxation and high import duties and tariff, among others.
For instance, almost three years after the privatisation of the power sector, manufacturers are yet to see any appreciable improvement in electricity supply, forcing them to rely heavily on in-house power supply at huge cost.
Yet, power constitutes the single critical infrastructure to boost the manufacturing sector and create jobs. According to market watchers, these factors contribute to the high cost of production, which is said to be responsible for the high cost of goods produced locally compared to imported ones.
The cheaper price of imported goods is being blamed for the penchant of Nigerians to patronise imported goods to the detriment of locally produced ones.
This is why many local industries, including paints manufacturers that could not stand the heat of the competition in the same market with imported goods, are fast disappearing from the industrial landscape.
Given headwinds such as weak demand on the back of a squeeze on household wallets, most paint companies in Nigeria have continued to find it difficult to weather the storm.
One of the companies adversely affected is Berger Paints Nigeria Plc, which has witnessed continuous decline since the beginning of the 2016 financial year.
The company, which ended the year 2015 on a positive trend, began the year on an unimpressive note, as the situation seems to be gradually slipping from decline in profit margin into a loss position, which market analysts majorly attributed to weak consumer demands, stiffer competition and lack of accessibility to key markets in the Northern part of the country.
In addition to this is the increased financing costs, which have resulted in slow growth of many fast moving consumer goods companies. Market sentiments for the shares of Berger Paints, one of the Nigeria’s leading paint manufacturing companies listed on the floor of the Nigeria Stock Exchange (NSE), has also dwindled relatively due to challenging environment, just like other quoted firms in Nigeria facing depression in share prices.
The share price, which closed at N10.00 per share in December, 2015, has recorded a dip in growth. At the close of business last Friday, the company’s share price stood at N6.89, a decline of N3.11 or 31.1 per cent yearto- date.
Berger Paints ended the year 2015 on an impressive note, recording 122 per cent growth in net earnings for the financial year ended December 31, 2015.
The firm posted a profit after tax of N330.316 million as against N148.808 million recorded during the comparable period of 2014, representing a growth of 122 per cent.
Similarly, profit before tax grew from N249.258 million posted the previous year to N565.212 million during the year under review, accounting for an increase of 127 per cent.
The company’s revenue, however, dropped marginally by two per cent to N3.022 billion in the review period of 2015 from N3.082 billion in the corresponding period of 2014.
However, the dwindling fortunes of the company began during the first quarter of 2016, as it commenced the year on a negative territory, recording 66 per cent drop in net earnings for the first quarter ended March 31, 2016.
The firm posted a profit after tax of N23.805 million as against N70.025 million recorded during the comparable period of 2015, depicting a fall of 66 per cent.
Profit before tax equally slipped from N35.008 million posted the previous year to N102.978 million during the year under review, accounting for a decrease of 66 per cent.
The company’s revenue, however, firmed up by eight per cent to N760.068 million in the review period of 2016 from N705.930 million in the corresponding period of 2015. Berger Paints continued on the downswing with a 63 per cent drop in net earnings for the half year ended June 30, 2016.
The company posted a profit after tax of N59.759 million as against N161.375 million recorded during the comparable period of 2015, depicting a drop of 63 per cent.
Equally, profit before tax fell from N237.316 million posted the previous year to N87.885 million during the year under review, translating to a de-crease of 63 per cent.
The company’s revenue, however, firmed up marginally by one per cent to N1.424 billion in the review period of 2016 from N1.412 billion in the corresponding period of 2015.
In what seems to be no respite for investors, Berger Paints moved further on the downward trend, recording 83 per cent drop in net earnings for the third quarter ended September 30, 2016.
In a filing with the Exchange, the firm posted a profit after tax of N34.234 million as against N206.299 million recorded during the comparable period of 2015, representing a dip of 83 per cent.
Similarly, profit before tax declined from N303.381 million posted the previous year to N50.344 million during the year under review, accounting for a decrease of 83 per cent.
The company’s revenue dropped marginally by 9 per cent to N1.952 billion in the review period of 2016 from N2.152 billion in the corresponding period of 2015.
Addressing stockbrokers at the Facts behind Figures on the Exchange, the managing director of the paint manufacturing firm, Mr. Peter Folikwe, said the company undertook a major strategic scheme to outsource its existing depots in order to achieve operational efficiency, reduce cost and improve revenue.
“We have successfully outsourced 16 of these depots to operators and are on track to complete the outsourcing of the last depot. Our focus is to rollout the outlets franchising scheme across all states in Nigeria, gaining visibility, coverage, availability and sales in 2016.
“We recently completed the full upgrade of the solvent-based section of our factory. This revamp would improve product quantity and quality and operational efficiency, which would enhance our footprint as a leading brand in the industry,” Folikwe said.
He noted that the company is also working on delivering the first automated paint manufacturing plant in sub-Saharan Africa, adding that efforts are being made to ensure that the plant is commissioned this year.
When fully operational, he said the new plant would reduce cost of production for the company, reduce response time, as well as improve the product quality to enable it compete favourably with improved brands.
He said the company had revamped its route-to-market initiatives to drive aggressive sales, adding that the outsourced partners are being provided massive sales and marketing support to a desirable change in trade.
Though high cost of operations have remarkably weighed down on the manufacturing sector, especially the paints subsector, it is important for the company to continue to manage its cost base tightly to deliver moderate operating margins improvement for growth and profitability.