TheCable

Berger Paints isn’t able to grow sales and that has been the position since last year but the paints manufacturing company is incurring so much on selling expenses. Pushing sales in an unwilling market seems to be the challenge that Mr. Peter Folikwe, the company’s managing director is presently facing. Last year, he increased selling and distribution expenses by 72% but lost sales volume at the end of the year.

This year, the company is again pushing sales aggressively to the point of raising selling and distribution expenses by 189% year-on-year at the end of the first quarter.  Again, that spending isn’t yet reflecting on sales volume. A modest increase of 7.6% in turnover in the first quarter isn’t something to show for the aggressive spending to make the sale.

Perhaps this is capacity building that will roll in revenue in the months ahead but for now it is a sacrifice of profit. It is almost exclusively responsible for a drop of about 72% in operating profit in the first quarter.

Sales revenue amounted to N760 million at the end of the first quarter, a 7.6% increase year-on-year. The full year outlook indicates the revenue growth momentum would pick up in the remaining quarters.  Based on the first quarter performance, turnover is projected at N3.6 billion for Berger Paints at full year. This will be a rise of 19% to a new peak in sales revenue compared to a marginal decline last year. The company closed last year’s operations with a turnover of N3.02 billion.

After tax profit amounted to under N24 million at the end of the first quarter, representing a drop of about 66% year-on-year. If the first quarter growth rate is maintained, the company is expected to earn N115 million in after tax profit at the end of 2016. That will be a drop of 65% from the five-year profit high of N330 million the company posted at the end of 2015. The company’ profit records show a rise and fall pattern and this year is a down year with profit likely to hit the lowest figure in many years.

Profit capacity in the current year is broken by rising selling and distribution expenses, which claimed 40% of gross profit at the end of the first quarter against 15.3% in the same period last year. All other main expenditure lines showed a favourable behaviour at the end of March.  Cost of sales moderated relative to revenue at an increase of 5.4% in the first quarter. Administrative expenses declined by 4.2% and finance cost dropped by 51.3%.

The company changed to a net finance income position last year – which it has maintained so far this year. Net finance income contributed close to 17% of its pre-tax profit of N565 million at the end of last year.  The company’s financing structure indicates the net finance income position is likely to be maintained for the rest of this year. Interest bearing debts declined by 4.3% to N89 million at the end of the first quarter over the December 2015 position while cash resources grew by over 11% to N668 million.

Berger Paints is a watch candidate on the earnings track this year to see whether the high growth in selling cost would slow down in the coming quarter to improve profit capacity. Net profit margin is down from 10.9% at the end of last year to 3.2% at the end of the first quarter. A slowdown in selling expenses and an improvement in profit margin will improve the company’s full year profit outlook considerably.

The company earned 8 kobo per share at the end of the first quarter, down from 24 kobo per share in the same period last year. It is expected to earn 39 kobo per share at full year compared to N1.14 in 2015. It gave shareholders a cash dividend of 75 kobo per share for its 2015 operations.