Three of the biggest players in the Nigerian paint and coating industry, suffered a combined drop in profit in the first nine month period of 2020, worse than what have been recorded in the last eight years of business.
These leaders of the paint industry recorded a combined profit slump of 45.8 percent to N835 million from N1.54 billion in the same period of 2019. This was also two times worse than the decline in profit recorded in 2016 what the economy slipped into a recession.
In terms of market capitalisation, the three biggest players in the paint industry are Chemical & Allied Products (CAP) plc with a market cap of N15.6 billion, Portland paints at N2.36 billion, and lastly Berger paints at N1.94 billion.
The players also reported a combined revenue dropped to N7.2 billion from N10.2 billion for the same period of the previous year.
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The paint industry has reeled severely from the knock-on-effect of the COVID-19 pandemic as well as the measures put in place to curtail the virus.
despite the decline in profit, the combined cost of production for the paint makers increased by 3.6 percent in the first nine months of 2020 to N5.8 billion from N5.6 billion recorded in the previous year, for the same period.
“The paint industry is highly correlated with the real estate and construction sector, once these sectors are not doing well, the paint industry would be negatively affected,” said Abiola Gbemisola, Consumer goods Analyst at Chapel Hill Denham.
In the second quarter of 2020, Nigeria’s Gross Domestic Product (GDP) contracted by 6.1 percent and the growth of Nigeria’s real estate fell sharply to -21.99 percent, the lowest since the 2016 recession.
The second quarter was, therefore, a tough period for paint makers and this went on to greatly affect the combined nine months profit of the paint makers.
“The steepest decline for most paint makers was in the second quarter of 2020 as a result of the lockdown in March,” said Ayorinde Akinloye, research analyst at CSL Stockbrokers hence, we expect the third-quarter performance to be better for paint makers as the economy is more open and construction activities have continued”.
In the third quarter of 2020, the combined profit of the biggest three players in the paint industry climbed 290 percent to N333.9 million from the low of N85 million recorded in the second quarter of 2020.
The improved sales of paint as a result of the resumption of construction activities due to the eased lockdown boosted the third quarter combined revenue by 64 percent to N3.8 billion from the second quarter’s N2.3 billion.
Combined cost of production in the third quarter of 2020 however worsened by 64 percent as it rose to N2.3 billion from N1.4 billion in the second quarter of 2020.
Players in Nigeria’s property and construction industry who have been gripped by the uncertainty created by the pandemic and forced to adopt the wait-and-see option are not excited about how the sector is faring.
Remi Ademilua, CEO, Demil Realties said “the pandemic has really affected real estate in terms of construction, timeline to get documents signed, investors not showing much interest, as well as buyers who are putting their money elsewhere.”
“These issues have not allowed construction on buildings and the likes to go back to the norm, irrespective of the easing of the lockdown, and so we cannot purchase paints unless we have what to use it for,” Ademilua said.
Chemical & Allied Products (CAP) plc
Statistics for the first nine months of 2020 revealed that profit in Chemical & Allied Products (CAP) plc declined by 24.5 percent year-on-year to N927 million from N1.2 billion in the same period of 2019.
The profit decline in CAP plc rode on the back of a 22.6 percent increase in administrative expenses to N1.19 billion from N977 million in the first nine months of 2019.
Administrative expenses were fattened as a result of increases to expert consultancy fees, postage, printing & telecommunication, depreciation of property, plants, and equipment, and in particular impairment on trade receivables.
Impairment on trade receivables jumped by 1354.2 percent to N15 million from N1 million in the first nine months of 2019.
This means that the company foresaw a larger number of customers defaulting in payment of items already sold to them on credit.
The flip side nonetheless saw CAP plc increasing the number of goods sold on credit as their trade receivables jumped by 33 percent in the nine months of 2020 to N625 million from N469 million in the same period of the previous year.
The company, however, showed a positive working capital of N2.78 million, depicting more ability to cover short term liabilities as they come within the financial period.
Increasing the number of goods sold on credit could also be CAP plc’s strategy to boost revenue given the constraints on their consumers.
At the end of the first nine months of 2020, CAP plc grew revenue by 3.67 percent to N5.9 billion from N5.7 billion for the same period in 2019.
Share price of CAP plc remained flat at N18.50 for one week after the nine months report was released but has moved upwards and currently stands at N22.30.
Portland Paints & products Nigeria plc
Portland Paints suffered a loss of N115 million from a N96 million profit in the first nine months of 2019.
The loss incurred was as a result of the 38.4 percent drop in revenue to N1.2 billion from N1.9 billion in the first nine months of 2019.
