Portland Paints: Rising costs hurt bottom-line

Weak macro-economic environment and its multiplier effects on business operating  environment is taking a toll on profit margin of Portland Paints and Products Nigeria Plc. CHRIS UGWU writes


The marketing environment has continued to be more turbulent in Nigeria, especially the manufacturing sector, due largely to the effect of international oil price fluctuations and unresolved infrastructural challenges, multiple taxation, high cost of operation, inflation, high cost of funds and recent coronavirus crisis.


Again, the security landscape remains a major concern in parts of the country, making free enterprise increasingly complicated in the affected states.


Rising costs and, in many cases, scarcity of key raw materials, 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, which is 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 in volume of sales.


The cheaper prices of imported goods is also blamed for the penchant of Nigerians to patronise imported goods to the detriment of locally produced goods. This is why many local industries, including paints manufacturers that cannot 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 hydraheaded monster to the business operating environment.


Market watchers also believe that for the 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.


Portland Paints and Products Nigeria Plc, a subsidiary of UAC of Nigeria Plc, which has had good outing in the last few years, has since last year joined others to witness drop in earnings as both government and private companies struggle to meet obligations and have little to embark on infrastructure project that could utilise their products. This is on the back of rising operational costs as a result of a severe dollar shortage that forced manufacturers to buy dollars from the black market.


With the impressive showing in 2017 and 2018 as regards growth in profit, analysts expected that Portland Paints will sustain the profits margin, but the company  for the past one year, has continued to battle with rising cost of production brought on by scarcity/ high cost of raw materials and high energy cost as cost of sales and also selling and distribution expenses and, recently, CODIV-19. Reflecting on the general trend in value of shares quoted on the floor of the Nigerian stock market following low investor confidence, the share price stood at N2.93 per share at close of gong on Friday.




The company began the 2019 on an impressive note with a report of 180.75 per cent growth in profit from continuing operation.


The report obtained from the NSE showed a profit of N66.392 million for the period ended March 2019 as against N23.648 million in 2018. Profit before tax equally grew by 180.75 per cent to N97.635 million in 2019 from N34.777 million a year earlier. Revenue grew by 24.56 per cent to N777.351 million from N624.101 million in 2018 while cost of sales stood at N479.574 million from N411.590 million posted in 2018.


However, hope that the paint firm would sustain the tempo of profitability was dashed as it closed the half year ended June 30, 2019 on the decline as operating challenges began to take toll on earnings.


The firm reported a 27.85 per cent decline in profit from continuing operations to N64.272 million in June 2019 from N89.078 million in 2018. Profit before tax equally dropped by 27.85 per cent from N130.998 million in 2018 to N94.518 million in 2019. Revenue declined by 5.23 per cent from N1.433 billion a year earlier to N1.358 billion in 2019 while cost of sales stood at N853.586 million in 2019 from N901.536 million in 2018.


For the Q3 2019, Portland Paints posted a decline of 23.90 per cent in profit after tax, from N126.179 million to N96 016 million in 2019. Profit before tax equally dropped by 23.90 per cent to N141.200 million from N185.558 million in 2018.


Revenue dipped marginally by 1.11 per cent to N1.955 billion from N1.977 million in 2018 while cost of sales stood at N1.289 billion in 2019 from N1.247 million in 2018.


The company ended the 2019 financial year on the decline with profit after tax dropping by 58 per  cent to close at N86.795 million from N206.693 million posted in 2018. Profit before tax stood at N127.639 million in 2019 from N307.533 million in 2018, accounting for a drop of 58.49 per cent.


Revenue dropped by 8.48 per cent to N2.589 billion from N2.829 billion posted in 2018 whil cost of sales stood at N1.628 billion from N1.753 billion. Hopes that the company would bounce back in profitability was dashed as the firms profit after tax for the first quarter ended March 31, 2020, declined by 58.93 per cent from N206.693 million in 2019 to N84.894 million reported in Q1’20.


According to the unaudited financial report obtained from NSE, the company’s profit before tax equally decreased by 58.64 per cent to N127.195 million in 2020 from N307.533 million posted in 2019. Revenue dropped by 7,74 per cent to N2.610 billion from N2.829 billion while cost of sales stood at N1.649 billion during the Q1’20 as against N1.753 billion reported in 2019.


For the half year ended June 30, the firm slipped into loss position to post a loss after tax of N28.096 million from a loss of N75.489 million in 2019. Loss before tax stood at N27.806 million from N66.993 million in 2019. Revenue declined by 50.65 per cent from N770.774 million in 2019 to N380.381million in 2020 while cost of sale stood at N254.371 million in 2020 from N509.988 million in 2019.


For the nine months ended September 30, 2020, Portland Paints recorded a loss after tax of N115.445 million from a profit after tax of N96.015 million. Loss before tax stood at N106.576 million from a pretax profit of N141.199 million.


The company’s revenue dropped by 38.45 per cent to N1.228 billion in 2020 from N1.995 billion in 2019 while cost of sales stood at N843.354 million in 2020 from N1.289 billion in 2019. Portland Paints ended 2020 financial year in the red with a report of a loss after tax of N313.292 million for the financial year ended December 31, 2020 as against a profit after tax of N84.894 million in 2019.


According to the audited financial report obtained from NSE, the company’s loss before tax stood at N335.992 million in contrast to  N127.195 million in 2019.


Turnover dropped by 35.25 per cent to N1.690 billion from N2.610 billion in 2019. Cost of sales stood at N1.277 billion from N1.649 billion in 2019.


Forward looking


The Boards of Directors of Chemical and Allied Products Plc (CAP) and Portland Paints and Products Nigeria Plc recently took a decision to merge their respective businesses in accordance with applicable laws; with CAP emerging as the resultant entity in the proposed merger.


Following the decision, Chemical Allied Products Plc (CAP) was authorised to receive all the assets, liabilities, product offerings, and property rights of Portland Paints and Products Nigeria Plc. This was one of the resolutions passed at the court-ordered meeting of the shareholders of CAP Plc held on Thursday, February 18, 2021 in Lagos.


According to the statement, which contains the resolutions made at the court-ordered meeting issued by the Company Secretary, Ayomipo Wey, “Chemical Allied Products Plc is hereby authorised to enter into a merger and business consolidation with Portland Paints such that, upon an order of the court, all assets, liabilities of Portland Paints including but not limited to real property, intellectual property rights, permits, credits, allowances, equipment and machinery, plant, fixtures and fittings, motor vehicles and businesses as at the effective date shall be transferred to the company without further act or deed by the parties.”


In view of the merger with Portland Paints, and to give effect to the full completion of the scheme of merger, CAP Plc was authorised to pay cash consideration of N2.90 to the shareholders for each ordinary share of N0.50 held in Portland Paints as at close of business on the terminal date.


Upon the scheme becoming effective, the CAP Plc was authorised to allot up to 99,176,942 shares to shareholders of Portland Paints Plc, who elect to receive the share consideration, as the shareholders hereby waive their pre-emptive rights to any such shares.


According to a statement by the Managing Director of CAP Plc, David Wright, the post-merger entity of Chemical Allied Products Plc and Portland Paints and Products Nigeria Plc will be the largest player in the Nigerian paints market by market share.


The enlarged CAP is expected to dominate the Nigerian Market as the largest player in the paints and decorative industry, as the entity is expected to float an enlarged product portfolio with strong brands, and a rich product mix of CAP and Portland Paints in the standard, premium, industrial and marine/protective segments.


Last line


The paint industry should proactively continue to work towards cost reduction and optimisation in all areas of its operations to ensure the survival of the business and sustain value creation for stakeholders.


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