CHRIS UGWU writes 
Despite weak macroeconomic environment and rising operating costs, Meyer Paints Plc is beginning to show signs of recovery. CHRIS UGWU writes
The marketing environment has continued to be more turbulent in Nigeria, especially for the manufacturing sector, due largely to the effect of international oil price fluctuation and yet to be resolved infrastructural challenges, multiple taxation and high cost of operation arising from adverse fiscal and monetary policy, inflation and high cost of funds and the ravaging COVID-19.
Again, the security landscape remains a major concern in some parts of the country, thereby 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 weigh heavily on purchasing power leading to a drag on volume of sales. The cheaper price of imported goods is also blamed for the penchant of Nigerians to patronise imported goods to the detriment of locally produced alternatives.
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 hydra headed monsters 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. Meyer Plc, one of the leading paint manufacturing firms in the country, 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. The company’s share price stood at 33 kobo at the close of trading last Friday.
Financials
Investors’ hope of profit sustainability has been a mirage as the group began the 2019 financial year ended March 31 with a loss of N292,000 as against a loss of N61.288 million reported in 2018. Revenue grew by 33.99 per cent to N327.629 million from N244.501 million in 2018. However the cost of sales equally grew by 22.36 per cent in 2019 to N212.157 million as against N173.378 million posted in 2018.
Meyer Paints sustained loss position with a report of a loss after tax of N29.581 million for the six months ended June 2019 as against loss of N93.720 million recorded a year earlier. Loss before tax stood at N27.314 million in 2019 from N93.920 reported in 2018.
While revenue grew by 17.83 per cent to N604.454 million in 2019 from N512.990 million in 2018, cost of sales equally grew by 13.38 per cent from N345.086 million in 2018 as against N391.259 million in 2019. The paint manufacturer posted a loss after tax of N34.065 million for the third quarter ended September 30, 2019, as against a profit of N186.107 reported in 2018.
The group’s loss before tax stood at N30.846 million as against profit after tax of N186.107 million in 2018. Revenue for the period grew by 14.06 per cent to N858.318 million from N752.461 million in 2018. Cost of sales stood at N562.514 million in 2019 from N491.983 million posted in 2018 representing 14.33 per cent growth.
Meyer Paint closed the 2019 financial year ended December 31, 2019, with a loss after tax of N13.598 million from a profit of N319.187 million in 2019. Revenue grew by 14 per cent to N1.106 billion from N970.134 million posted in 2019.
Cost of sales dropped by 21.15 per cent from N584.589 million to N708.240 million in 2020. Meyer began 2020 financial year with a loss after tax of N24.991 million for the first quarter ended March 31, 2020 as against a loss of N292,000 reported in 2019.
Loss before tax stood at N24 million from equally a loss of N292.000 in 2019. Revenue dropped by 19.29 per cent from N327.629 million in 2019 to N264.405 million in 2020 while cost of sales grew by 21.46 per cent to N166.623 million from N212.156 million in 2019. For the second quarter ended June 2020, the group reported a loss after tax of N60.732 million from a loss of N29.581 million in 2019.
Loss before tax stood at N59.255 million from loss of N27.314 million in 2019. Revenue declined by 34.8 per cent from N604.454 million to N393.964 million in 2020. Cost of sales dropped by 35.37 per cent from N391.259 million to N252.860 million in 2020.
Meyer recorded a loss after tax of N100.528 million for the nine months ended September 30, 2020 from a loss of N34.065 million in 2019. Loss before tax was N98.233 million from a loss N30.847 million in 2019.
Revenue dropped by 33.99 per cent to N566.511 million in 2020 from N858.318 million in 2019 while cost of sales grew by 35.92 per cent to N360.414 million in Q3 2020 as against N562.514 million in 2019.
Following N1.781 billion profits realised from the disposal of the company’s building, the paint firm ended the 2020 financial year with a profit after tax of N1.118 billion from a loss after tax of N13.598 billion in 2019. The group’s profit before tax stood at N1.638 billion from a loss before tax of N7.176 billion in 2019.
However, the group’s revenue declined by 25 per cent to N827.599 million in 2020 from N1.106 billion in 2019. The paint manufacturer returned to profitability during the first quarter ended March 31, 2021, with a profit after tax of N5.677 million as against a loss after tax of N24.988 million in 2020.
Profit before tax stood at N8.110 million from a loss of N23.998 million in 2020. The group’s revenue dropped by 1.80 per cent to N223.473 million from N264.406 million in 2020 while cost of sales stood at N145.155 million from N166.623 million a year earlier.
Hope by market watchers that the firm would sustain profitability was dashed as Meyer again slipped into loss position with a loss after tax of N9.3326 million for the half year ended June 30, 2021 as against a loss after tax of N60.731 million in 2020.
However, revenue for the period grew by 23,22 per cent to N485.461 million from n393.965 million in 2020. Cost of sales stood at N331.462 million in 2021 from N252.860 million recorded the previous year representing a growth of 31.08 per cent.
Meyer Paints however reverted to profitability during the nine months ended September 30, 2021 as the profit after tax stood at N9.474 million as against a loss after tax of N100.528 million posted in 2020. Profit before tax was N13.534 million from a loss before tax of N98.404 million recorded the corresponding period of 2020. Revenue grew by 34 per cent to N759.157 million in 2021 as against N566.511 million posted
n 2020. But cost of sales rose by 40 per cent to N504.702 million in 2021 from N360.414 million in 2020.
Challenges
Speaking at an Annual General Meeting (AGM), Chairman of the company, Mr. Kayode Falowo, had said that the year was indeed a very tough year for the group as a business.
“Although the year started on a bright note, leveraging the good performance of the previous year by half-year, the business started to record a downturn that lingered till end of the year.
The challenges the business faced were both external and internal in nature and these significantly impacted our performance as a business. “We struggled to gather some momentum in the last two months of the year, but, obviously, that was not good enough to bring about the desired change in the fortune of the business.
“The forex impact in terms of availability, accessibility and exchange rate was huge and significantly affected our business, as almost 90 per cent of our raw materials are imported.
This further weakened our working capital base and management had to devise some ingenious ways to stay afloat. You will recall that several manufacturing companies stopped doing business in the heat of the crisis. We however managed to keep the factory opened, although our capacity utilisation dropped significantly,” he said.
Future outlook
Falowo, on the future horizon of the company, said the future for Meyer was very bright despite the current challenges faced by the business.
“We are reinventing and repositioning our business to become a major key player in the paints business in Nigeria. We have plans to deploy our model of color pavilions in key cities in the country to further make our products available to our numerous customers.
This will increase our footprints across Nigeria and bring our products closer to the customers. “In this 21st Century, we realise that doing more will not be enough, but being different holds the key to success.
“Hence, we are strategically positioned to revolutionise the paint industry through novel initiatives and also our background of Sigma international and Dunlop extractions have positioned us as a multi-product company that offers world class quality and services,” he noted He said that Meyer had expanded into complimentary and allied areas of the paint industry.
He said: “Our recent heavy investment into the R&D of road lining Paints has made us the preferred local supplier of road lining paints with tremendous application capacity.”
Last line
Following challenges in operating environment, the management of Meyer Paints should proactively continue to work towards cost reduction and optimisation in all areas of its operations to ensure the survival of the business and sustained value creation for stakeholders.