Big players in Paints and Coatings industry suffer 52% profit loss in the first 6 months of 2020
The economic challenges triggered by the COVID-19 pandemic and accompanying issues from foreign exchange illiquidity coupled with the existing structural and regulatory imbalances in the economy constrained the operations of the big players in the paints and coatings industry in the first half of the year.
The knock-on effect of the COVID-19 induced lockdown on the global and domestic value chain like other sectors in the economy took a huge toll on the activities of the producers in the paint and coating industry, as the pandemic disrupted their operations and also their trade segments, and this in extension led to a fall in demand, sales volume, revenue and underlying profits of the players.
The paints and coatings industry is highly fragmented, with small producers accounting for more than half of the total revenues generated in the paints and coatings industry. The big players who have elaborate dominance in the industry include CAP plc, Berger Paints Nigeria Plc, Portland Paints and Products Nigeria Plc and Meyer Plc.
According to the half-year financial results of CAP plc, Berger Paints Nigeria Plc, Portland Paints and Products Nigeria Plc and Meyer Plc, the sales of these companies were severely affected by the pandemic with the cumulative revenues of these companies declining by 12.8% from N7.4 billion to N6.5 billion owing to disruption to the trade segment and the operations of the companies.
On the flip side, Berger paints was the only company that reported a growth in revenue in the first half of this year, with the company’s revenue growing by 16.77%. While the revenue of CAP plc, Portland paint and Meyer declined markedly by 10.71%, 43.27% and 34.82% from N3.91 billion, N1.36 billion and N604 million reported in H1 2019 to N3.5 billion, N771 million and N393 million respectively in the first 6 months of 2020.
Extensively, the raw materials such as resins, pigments and additives used in the industry have to be imported and these materials are subjected to import levies, exchange rate volatility and haulage costs.
Given the current business reality of the paints and coatings industry which is coloured by foreign exchange illiquidity as well as logistics and regulatory rigidities in importing raw materials, the margins of these companies were affected directly, as profitability was suppressed by the hike in input prices.
Although Berger paints reported a 16.77% growth in revenue, the cost impact of the raw materials it used in its operation along with the increase in administrative expenses led to the fall in profit after tax by approx. 72%, with the company spending N812 million on raw materials from N664 million last year it expended last year.
In like manners, the bottom line of Chemical Allied Products Plc and Portland paints Nigeria Plc fell by 30% and 217% respectively. While Meyer’s loss rose by 105% to post a N60.7 million loss from N29.5 million last year.
Survival strategy deployed
With revenue constrained, it is noteworthy that in the quest to make more sales, CAP Plc and Berger paints relaxed their credit policies, this development made trade and other receivables increase by 121% and 30% respectively, this indicates that the top producers of paints relaxed their credit policies in a bid to generate more sales with their buyers cash strapped.