CAP sustains loss on rising operational costs

Weak macro-economic environment and its multiplier effects on businesses have continued to impact negatively on profit margin of CAP Plc. CHRIS UGWU writes


Rising costs and, in many cases, scarcity of key raw materia, which has also continued to affect the operations of manufacturing companies with negative effect on their profit margins, have become a thorn in the flesh of most companies operating in Nigeria.


The trend, compounded by the ravaging COVID-19 and reflective of the weak macro-economic environment, has had its multiplier effect on general liquidity within the system and investor appetite and also resulted in many companies experiencing declining purchasing power and competitive pressures leading to only minimal retail price increases, despite accelerating costs.

The consumer has been significantly stretched as inflationary pressures weighed heavily on purchasing power, a trend leading to a drag on volume of sales. The cheaper price of imported goods is also blamed for the penchant of Nigerians to patronise them to the detriment of locally produced goods.


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.


Also, domestic constraints such as depletion of fiscal buffers, dwindling foreign reserves, among others, have remain hydra-headed monster to the business operating environment.


Market watchers also believe that for paint industry to survive, more is needed to be done in order to totally curb the problem of counterfeiting. Individual companies must also be able to come up with technological innovations that will help counter the activities of counterfeiters. CAP Plc, a subsidiary of UAC of Nigeria Plc CAP Plc, like its peers, has continued to see fluctuation in profit in recent times.


The market sentiments for the shares of the company have also dropped, reflecting the general trend in value of shares quoted on the floor of the Nigerian stock market.


Due to volatility in the economy, investors had remained hopeful that the company’s innovative distribution strategies would boost revenue for the company. The company’s share price stood at N19.00 at the close of trading last Friday.


CAP began the 2020 financial year on the decline following high cost of operations, the company in a filing with the NSE revealed that profit after tax declined by nine per cent from N456.279 million in first quarter of 2019 to N498.937 million in Q1’20. Profit before tax  equally dropped by nine per cent to N670.994 million during the Q1’20 from N733.731 million in 2019.


However, revenue grew by10 per cent to N2.312 billion in 2020 from N2.095 billion a year earlier but cost of sales rose by 5.52 per cent from N1.086 billion reported during the first quarter of 2019. For the half year 2020, CAP’s revenue declined by -10.7 per cent to N3.5 billion from N3.9 billion in the previous quarter. Profit before tax declined by 30 per cent to N893 million from N1.277 billion in 2019. Profit after tax declined by 30 per cent to N607 million in 2020 from N868 million in 2019. CAP announced 24.4 per cent drop in its unaudited results for the nine months ended 30 September 2020.


The company’s unaudited results obtained from the Nigerian Exchange Limited showed a profit after tax of N928 million the nine months period as against N1.228 billion posted in 2019, representing a drop of 24.4 per cent. Profit before tax of N1.364 billion was achieved in 9M 2020 as against N1,806 billion in 2019, amounting to a drop of 24.5 per cent and reflecting a decline of 850 basis points on Profit Before Tax margin due to the decline in operating profit; and a 40.6 per cent decline in net finance income due to lower investment income yields compared to prior year.


Revenue grew by 3.7 per cent Year on Year (YoY) to N5.989 billion in 9M 2020 from N5.777 billion, on account of volume growth of 10.8 per cent YoY despite the COVID-19 related disruptions in April and May. 9M 2020 revenue improvement was driven by a strong Q3 performance, with revenue growth of 33.7 per cent Q-o-Q. Chemical and Allied Products posted a revenue of N8.4 billion for the year ended 31 December, 2020.


The audited financial statement showed the revenue increased by 3.9 per cent from N8.4 billion in FY 2019 to N8.7 billion in FY 2020, driven by strong volume growth despite the disruptions in April, May and October. Gross profit declined by 5.8 per cent to N3.7 billion, with gross margin of 42.8 per cent. Gross profit decline due to input cost pressures on account of currency devaluation and supply chain disruptions.


EBIT was lower at N1.6 billion, largely on account of the decline in gross profit, investments in talent to  strengthen the work force and fixed operating cost base despite losing seven weeks of sales. Net finance income declined by 41.3 per cent due to lower investment income yields in line with the interest rate environment.


Profit Before Tax declined by 29.1 per cent in FY 2020 on account of the combined effects of lost sales during lockdown, devaluation and supply chain disruptions. Total profit for the year was N1.2 billion, a 29.8 per cent decline from N1.7 billion reported in FY 2019.


The company declared a total dividend of 210 kobo per share. CAP began 2021 with a decline in most key performance indices.


Profit after tax declined by 55 per cent to N203.384 million for the first quarter ended March 31, 2021 from N456.708 million in 2020. Profit before tax stood at N299.094 million from N671.630 million, representing a drop of 55 per cent.



The company’s revenue declined by 9 per cent from N2.312 billion in 2020 to N2.093 billion in 2021 while cost of sales grew by 21.48 per cent to N1.391 billion in 2021 from N1.145 billion in 2020.


Looking ahead

The NGX recently said that it expect the business combination between CAP Plc and Portland Paints Plc to create value for the shareholders. CAP and Portland Paints both subsidiaries of UAC of Nigeria recently secured the approval of shareholders to merge both businesses.

By combining both companies, CAP Plc, being the resulting entity will expectedly benefit from the diversified revenue base, economies of scale and operational efficiencies that this merger presents. Speaking at the Facts Behind the Merger presentation on the floor of the exchange, the Divisional Head, Listings Business, NSE, Mr. Olumide Bolumole, stated: “At the NSE, we continue to provide a platform to support our clients in meeting their strategic business objectives and it is our delight to see listed companies take full advantage of the NSE’s products and services.


“I must, therefore, commend the Board and Management of CAP Plc and Portland Paint Plc for utilising this platform to communicate to their stakeholders and inform the market of their strategic and operational developments.


“We believe that this combina-tion presents a compelling opportunity to create significant value for the shareholders of CAP Plc and also achieve the company’s strategic growth objectives.”


On his part, the Managing Director (MD), CAP Plc, Mr. David Wright, thanked the management of the exchange and capital market stakeholders present for the opportunity to share insights on the milestone achievement for both companies.

The MD, Portland Paint Plc, Ms. Bolarin Okunowo, went ahead to commend The Exchange for its resilience in responding to the limitations occasioned by COVID-19 and embracing virtual platforms that allow Issuers to continue to engage with the market.


According to separate statements signed by Wright and Okunowo recently, the firms noted that the decision to pursue the proposed merger is driven by the strategic objectives of the Boards of CAP and Portland Paints to drive growth and expansion within the Nigerian and African markets.


CAP and Portland Paints play in distinct segments, and the enlarged CAP will have a broader portfolio covering the top-end/premium decorative segment, the mid-market decorative segments as well as the industrial segment (in particular marine and protective coatings).


“We believe that the proposed merger will provide our customers access to a broader product portfolio and a wider range of value options to meet their needs.


The combination of CAP and Portland Paints will create a formidable paints and coatings company that will be strategically positioned across segments as a result of its combined brand portfolio (Dulux, Sandtex, Caplux and Hempel); its diversified product ranges spanning decorative and industrial with widespread distribution channels and retail footprint in Nigeria.


“Subject to receipt of the relevant regulatory and corporate approvals, the Proposed Merger will be executed by way of a Scheme of Merger (the Scheme) in accordance with Section 711 of the Companies and Allied Matters Act, 2020 and other applicable laws, rules and regulations.


“The scheme will involve the transfer of all Portland Paints’ assets, liabilities and business undertakings including real property and intellectual property rights to CAP. “In consideration for the transfer, CAP is offering shareholders of Portland Paints a choice to receive N2.90 cash for every Portland Paints share held or one new ordinary share of CAP, credited as fully-paid up for every eight Portland Paints shares held.


“The proposed consideration represents a 45 per cent premium to the last traded share price of Portland Paints on October 16, 2020, being the last business day prior to the date on which CAP sent its merger proposal to the Board of Portland Paints and a 41 per cent premium on the trading price as at close of trading on October 23, 2020,” the statement said.


Last line


It is hoped by the experts that the combination of Portland Paints and CAP will yield significant benefits for all stakeholders.




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