Portland Paints & Products Nigeria (PPPN) Plc has improved on the underlining fundamentals of its business as emerging earnings reports showed significant increase in profit per unit of sales.
Half-year report for the period ended June 30, this year showed sustained improvement in the underlying profitability, with net profit on the double. The report showed appreciable consolidation on the back of the return to profitability last year.
The six-month report showed that while sales rose marginally by 6.3 per cent, reduction in administrative expenses and input cost management optimized net earnings. Pre-tax profit rose by 86.3 per cent while net profit after tax doubled by 113.7 per cent. Total sales rose to N1.44 billion in first half of 2014 as against N1.35 billion in comparable period of 2013. Gross profit rose from N596.65 million to N667.09 million. Profit before tax jumped from N86.56 million to N161.25 million while profit after tax increased from N58.86 million in first half 2013 to N125.77 million in first half 2014.
The latest earnings report came on the heels of the audited report and accounts that showed a major rebound in 2013. In its first report after it became a subsidiary of UAC of Nigeria (UACN) Plc, audited report and accounts of Portland Paints for the year ended December 31, 2013 showed a net profit after tax of N107 million, a major recovery from net loss of N228 million in recorded in 2012. While turnover dropped marginally, the company leveraged on improved internal efficiency and group-wide synergies to boost the bottom-line.
From a generally negative position in 2012, underlying profit and return indices were all positive in 2013, underlining the fundamental improvement in the operations of the company during the year. While gross profit margin improved from 41 per cent in 2012 to 47 per cent in 2013, pre-tax profit margin recovered from -7.0 per cent in 2012 to 4.5 per cent in 2013. Average return on total assets, which ended 2012 negative at -8.3 per cent, bounced back to 5.7 per cent while return on equity improved from -29 per cent to 12.2 per cent. The improvement in underlying value also reflected in the 14 per cent increase in the net assets value of the company.
The balance sheet position of the company also emerged stronger during the period with better financing structure, improved liquidity and working capital and less risk of financial leverage. Debt-to-equity ratios dropped by 18 points while equity coverage for assets increased by eight points.
Financing structure
Portland Paints’ paid up share capital remained unchanged at N200 million. Total equity funds meanwhile rose from N777million in 2012 to N884 million. On the back of declines in long-term and current assets, total assets dropped by 13.8 per cent from N2.39 billion to N2.18 billion. Total liabilities also simultaneously dropped by 19.4 per cent to N1.30 billion as against N1.61 billion recorded in previous year.
The financing structure was generally positive. The proportion of equity funds to total assets increased from about 32.5 per cent in 2012 to about 41 per cent in 2013. The gearing ratio of 38 per cent in 2012 dropped to 20 per cent in 2013. Current liabilities/total assets ratio improved from 56 per cent to 38 per cent while long-term liabilities/total assets ratio was relatively better at about 60 per cent in 2013 as against 68 per cent in 2012.
Efficiency
Average cost efficiency and productivity improved during the period, underlining the improved margin that boosted the bottom-line. The company undertook staff right-sizing during the period. Average number of employees dropped from 201 persons in 2012 to 168 persons. Staff costs however dropped from N509.79 million to N352.45 million. Average staff cost per employee dropped from N2.54 million in 2012 to N2.10 million in 2013. Meanwhile, average contribution of each employee to pre-tax profit improved from a loss of N0.99 million in 2012 to N0.74 million.
Average cost of sale per unit of sale declined in 2013. Total cost of business, excluding finance charges, thus dropped considerably from 106.1 per cent in 2012 to 93 per cent in 2013.
Profitability
Both outward and underlying performance indices showed impressive outlook in 2013 as Portland Paints managed marginal decline in the top-line cost with efficient midline cost management. Turnover dropped by 3.3 per cent from N2.87 billion to N2.77 per cent. Cost of sales however declined by 13 per cent from N1.68 billion in 2012 to N1.46 billion in 2013. Gross profit thus increased by 11 per cent from N1.18 billion to N1.31 billion. Total operating expenses stood at N1.11 billion in 2013, about 18 per cent below N1.36 billion in 2012. This midline efficiency cushioned increase in interest expenses from N70 million to N105 million. With these, the company returned from a loss position of N199 million in 2012 to pre-tax profit of N124 million in 2013. After taxes, net profit stood at N107 million in 2013 compared with a loss of N228 million in 2012. While the company did not declare any dividend, basic earnings per share recovered from a loss of 56 kobo in 2012 to a modest gain of 27 kobo in 2013. Net assets per share rose by about 14 per cent from N1.94 to N2.21.
Beyond the surface, underlying indices showed improvements in profitability and returns. While gross profit margin improved from 41 per cent in 2012 to 47 per cent in 2013, pre-tax profit margin recovered from -7.0 per cent in 2012 to 4.5 per cent in 2013. Average return on total assets, which ended 2012 negative at -8.3 per cent, bounced back to 5.7 per cent while return on equity improved from -29 per cent to 12.2 per cent.
Liquidity
Portland Paints’ liquidity position improved significantly during the period with positive working capital and increased financial agility. Current ratio, which measures the financial readiness of a company by relating current assets to relative liabilities, improved from 1.09 times in 2012 to 1.68 times in 2013. Working capital/turnover ratio improved from 4.2 per cent in 2012 to 20.4 per cent in 2013. Debtors/creditors ratio closed 2013 at 179.5 per cent compared with 83.2 per cent in 2012.
Governance and structures
Portland Paints- purveyor of the Sandtex brand of paints; was for several years a division of West African Portland Cement (Wapco) Plc, now Lafarge Cement Wapco Nigeria. With the division performing creditably well as a going concern, Wapco initiated the registration of the division as a limited liability company in 1985. Portland Paints became a publicly quoted company in July 2009. One of the most diversified paints manufacturing companies in Nigeria, Portland Paints manufactures and markets decorative, automotive, industrial and marine paints. It also holds sole agency for world-renowned sanitary brands including Armitage Shank, Ideal Standard and Jaquar.
In June, last year, UAC of Nigeria (UACN) Plc, Nigeria’s largest conglomerate, acquired the majority equity stake of 51 per cent in Portland Paints. Following the acquisition, the board and management of the company were reconstituted. Mr. Larry Ettah, who leads the management at UACN, became the chairman while Mr Olufemi Oguntade was appointed Managing Director.
On the basis of available information, the company has largely complied with extant codes of corporate governance and best practices.
Analyst’s opinion
The overall performance outlook of Portland Paints reassures on synergies and prospects of its new business alignment. The turnaround in 2013 evidenced successful implementation of innovation and proactive policies, which centred on enhancement of its service delivery through the restructuring of its operations and, in particular, the route to the market and focus on areas of its core competencies as well as enforcement of procedures and processes. With the large group structure of UACN, which also holds controlling equity in the major paints company – CAP Plc, Portland Paints is 22positioned to deepen its presence in existing markets, achieve scope and scale economies in procurement, production and distribution.
