The economic challenges triggered by the COVID-19 pandemic and accompanying issues from foreign exchange illiquidity coupled with the existing structural and regulatory imbalances in the economy constrained the operations of the big players in the paints and coatings industry in the first half of the year.
The knock-on effect of the COVID-19 induced lockdown on the global and domestic value chain like other sectors in the economy took a huge toll on the activities of the producers in the paint and coating industry, as the pandemic disrupted their operations and also their trade segments, and this in extension led to a fall in demand, sales volume, revenue and underlying profits of the players.
The paints and coatings industry is highly fragmented, with small producers accounting for more than half of the total revenues generated in the paints and coatings industry. The big players who have elaborate dominance in the industry include CAP plc, Berger Paints Nigeria Plc, Portland Paints and Products Nigeria Plc and Meyer Plc.
According to the half-year financial results of CAP plc, Berger Paints Nigeria Plc, Portland Paints and Products Nigeria Plc and Meyer Plc, the sales of these companies were severely affected by the pandemic with the cumulative revenues of these companies declining by 12.8% from N7.4 billion to N6.5 billion owing to disruption to the trade segment and the operations of the companies.
On the flip side, Berger paints was the only company that reported a growth in revenue in the first half of this year, with the company’s revenue growing by 16.77%. While the revenue of CAP plc, Portland paint and Meyer declined markedly by 10.71%, 43.27% and 34.82% from N3.91 billion, N1.36 billion and N604 million reported in H1 2019 to N3.5 billion, N771 million and N393 million respectively in the first 6 months of 2020.
Extensively, the raw materials such as resins, pigments and additives used in the industry have to be imported and these materials are subjected to import levies, exchange rate volatility and haulage costs.
Given the current business reality of the paints and coatings industry which is coloured by foreign exchange illiquidity as well as logistics and regulatory rigidities in importing raw materials, the margins of these companies were affected directly, as profitability was suppressed by the hike in input prices.
Although Berger paints reported a 16.77% growth in revenue, the cost impact of the raw materials it used in its operation along with the increase in administrative expenses led to the fall in profit after tax by approx. 72%, with the company spending N812 million on raw materials from N664 million last year it expended last year.
In like manners, the bottom line of Chemical Allied Products Plc and Portland paints Nigeria Plc fell by 30% and 217% respectively. While Meyer’s loss rose by 105% to post a N60.7 million loss from N29.5 million last year.
Survival strategy deployed
With revenue constrained, it is noteworthy that in the quest to make more sales, CAP Plc and Berger paints relaxed their credit policies, this development made trade and other receivables increase by 121% and 30% respectively, this indicates that the top producers of paints relaxed their credit policies in a bid to generate more sales with their buyers cash strapped.
Dangote Cement given approval to export through land borders
Dangote Cement the approval by the Federal Government to export cement to West African countries through Nigeria’s land borders.
The Nigerian government has given Dangote Cement the approval to export Cement to West Africa through Nigeria’s land borders, which have been closed for over a year. The cement manufacturer is the only company given such approval to export across the borders.
This was disclosed in a report by Bloomberg on Monday evening after an investor call by Michel Puchercos, Dangote Cement CEO.
What you should know
Nairametrics reported in October 2019 that the Federal Government of Nigeria ordered the complete closure of the Nigerian border, placing a ban on both legitimate and illegitimate movement of goods in and out of the country.
The Comptroller-General, Nigerian Customs Service, retired Col. Hameed Ali said all import and export of goods from the nation’s land borders are banned until there is an agreement with neighboring countries on the kind of goods that should enter and exit Nigeria.
In December 2019, RenCap, an investment and securities firm declared that the closure of Nigeria’s land borders could lead to a slow-down in Nigeria’s economic growth in 2020.
Nigeria’s trade sector is about the second largest contributor to Nigeria’s GDP but has suffered from poor economic growth since Nigeria’s economic crisis began in late 2014. “We believe the border closures contributed to the decline in wholesale and retail trade in 3Q19,” RenCap said.
Dangote Chief, Pucheros, said the cement exports were made through “authorization given by this administration,” allowing Africa’s largest cement company to export to Niger and Togo during the 3rd quarter of the year.
He added that the volumes allowed for export were restricted and the Company group plans to export through seaports.
The exemption to Dangote Cement is seen as a softening of the government’s position on a border closure that started in August last year, and could open the way for other businesses to fully resume exports across the country’s land barriers.
Why this matters
Real Estate investment and infrastructure spending drove our profits up – Dangote Cement
The 40% increase in the sales volume drove profits up by 135.1%.
Michel Pucheros, Chief Executive Officer of Dangote Cement, has disclosed that the strong appetite for real estate investment and the recovery of infrastructure spending by the government led to a 40% increase in the sales volume of the leading cement maker in Nigeria.
This statement was made by Mr Pucheros today on the Group’s website, after its third-quarter result was released today.
He reiterated that despite a challenging Q2, Dangote cement reached a record high EBITDA margin of 24% in the third quarter of 2020, and a Group net profit of N82 billion, which is 135.1% higher than the profit reported by the Group in the third quarter of 2019.
Pucheros disclosed that the impressive performance in the third quarter of 2020, despite an unimpressive second-quarter, was owed largely to the strong recovery of the cement market in Nigeria and Pan-Africa.
What they are saying
“I am delighted to report that Dangote Cement experienced its strongest quarter in terms of EBITDA and strongest third quarter in term of volumes. Despite a challenging environment, Group volumes for the nine months were up 6.6% and Group EBITDA was up 17.1%, at a 46.6% margin.”
He gave more insights into the performance of the cement maker ion the third quarter.
“This quarter has really shown the ability of Dangote Cement to meet the strong recovery of the cement market in Nigeria and Pan-Africa after a challenging Q2. In Nigeria, we have witnessed a strong appetite for real estate investment and the recovery of infrastructure spending – including more concrete roads.
“Sales volumes in Nigeria were up 40% in the quarter and Pan-Africa reached a record high EBITDA margin of 24% in the quarter. In the quarter, our Group net profit was up 135.1%,” he said.
Dangote Group’s $2 billion fertilizer plant to start operations in December 2020
Dangote Group has announced that its fertilizer plant will commence operations before the end of December.
The Dangote Group has announced that its $2 billion Granulated urea fertilizer plant which is located at Ibeju Lekki, Lagos state, will start operations before the end of December.
This disclosure was made by the Group Head, Corporate Communications, Dangote Group, Mr. Anthony Chiejina, during a chat with the News Agency of Nigeria (NAN) on Wednesday, November 4, 2020, in Lagos state.
Mr. Anthony Chiejina, in his statement, said, “The granulated Urea fertilizer plant project will be ready for take-off before the end of December. The pre-testing has already been done and the delay in starting operations was due to the COVID-19 pandemic.”
The take-off of the fertilizer plant, which is reputed to be the largest in the world, with its 3 million tonnes per annum capacity, had suffered some setbacks with the opening date leading to its postponement a few times.
Nairametrics had reported that earlier in the year, Aliko Dangote, the Chief Executive Officer of Dangote Group, had projected that the plant would begin operations in May 2020.
During the visit of the CBN Governor, Godwin Emefiele, to the facility, Dangote said that the pre-testing of the plant had already begun. He also said that the plant would make Nigeria the only Urea exporting country in Sub-Saharan Africa.
Further stressing that the fertilizer and the petrochemical plants, which are in the same vicinity could generate $2.5 billion annually, which according to him, an amount that is almost 10% of what Nigeria is getting from home remittances, which is one of the highest in the world.