Wole Olajide
Chemical and Allied Products Plc (CAP), one of Nigeria’s leading paints and decorative companies. The company announced a proposed merger between CAP and Portland Paints and Products Nigeria Plc in the fourth quarter of 2020. Preliminary regulatory approvals has been received to that effect and an order from the Federal High Court to hold a Court-Ordered Meeting. Merger completion is subject to shareholder approval and final regulatory approvals. The merger is expected to be concluded in this first quarter of 2021.”
The decision to pursue the Proposed Merger is driven by the strategic objectives of the Boards of CAP and Portland Paints to drive growth and expansion within the Nigerian and African markets. CAP and Portland Paints play in distinct segments, and the enlarged CAP will have a broader portfolio covering the top-end/premium decorative segment, the mid-market decorative segments as well as the industrial segment (in particular marine and protective coatings).
The proposed merger is aimed at the following: shareholder value creation, enlarged entity, expanded decorative paint offering, entry into the marine and protective coating segment, wider retail coverage, enhanced operational efficiencies, increased profitability and increased access to capital.
Financial Review: FY 2020
CAP Plc precisely in January 28, 2021 published their financial report for the year ended 31 December 2020.
Revenue of the firm increased by 3.9% from N8.4 billion in FY 2019 to N8.7 billion in FY 2020, driven by strong volume growth despite the disruptions in April, May and October.
Gross profit declined by 5.5% to N3.8 billion, with gross margin of 43.0%. Gross profit decline is due to input cost pressures on account of currency devaluation and supply chain disruptions.
EBIT (Earnings before interest and taxes) of N1.6 billion was reported, reflecting a decline of 22.4%, with EBIT margin reducing 638 basis points from 25.2% to 18.9%. Key drivers of the reduction in EBIT are the decline in gross profit and investments in talent to strengthen the work force and drive profitable growth.
The decline in EBIT, coupled with a 41.1% decline in net finance income on account of lower investment income yields resulted in a Profit before Tax decline of 25.5% to N1.9 billion in FY 2020. Profit before Tax Margin declined 860 basis points to 21.7%.
Total profit for the year was N1.3 billion, a 26% decline from N1.7 billion reported in FY 2019. Earnings per share for the period of N1.84, down by 26% from N2.49 in FY 2019.
Free Cash Flow of N1.0 billion in FY 2020, compared to N1.5 billion in FY 2019. Free cash flow impacted by lower operating cash flows which was offset by a reduction in net capital expenditure (-58.4% decline to N113 million in FY 2020). The company continues to maintain a strong cash position (N5.8 billion) which will be deployed towards growth initiatives.
On quarterly basis, that is from October to December (Q4 2020)
- Revenue increased by 4.4% to N2.8 billion in Q4 2020, supported by strong volume growth (30.4%) across key product lines.
- Gross profit of N1.1 billion was achieved in Q4 2020 from N1.2 billion in Q4 2019, reflecting a 13.2% decline. The decline in gross profit was due to higher input costs on account of supply chain disruptions resulting in a scarcity premium on raw materials which were in short supply.
- EBIT was N475 million compared to N640 million in Q4 2019 on account of higher cost of sales. Operating expenses only increased 0.3% YoY while operating expenses/ sales improved 90 bps.
- Profit Before Tax of N532 million was achieved in Q4 2020, a 28.1% decline from N739 million on account of the combined effects of the decline in operating profit mentioned above and a 42.6% reduction in net finance income given lower treasury yields compared to prior year.
Commenting on the performance, Managing Director, David Wright, stated:
“CAP recorded modest top-line growth last year despite the COVID-19 lockdown in the second quarter of 2020 and protests in the fourth quarter of 2020, effectively losing 7 weeks of sales. We are encouraged by the growth in revenue which has been solely driven by underlying volume growth in line with our strategy. Alongside the rest of the world, we experienced supply chain disruptions which impacted our raw material sourcing and resulted in input costs pressures. We have embarked on initiatives focused on mitigating these disruptions and expect to see positive results in 2021.
We announced the proposed merger between CAP and Portland Paints and Products Nigeria Plc in the fourth quarter of 2020. We have received preliminary regulatory approvals and an order from the Federal High Court to hold a Court-Ordered Meeting. Merger completion is subject to shareholder approval and final regulatory approvals and we expect to conclude the merger in the first quarter of 2021.”
Chemical and Allied Products Plc (CAP) is a leading paints and coatings company in Nigeria with globally recognised brands such as Dulux and Caplux. CAP manufactures and sells premium and standard paints and coatings and is the sole technological licensee of Akzo Nobel Coatings International B.V. in Nigeria. CAP pioneered the colour centre concept in Nigeria in 2005, which resulted in the evolution of the Nigerian paint industry. Today, CAP has 76 colour centres and colour shops across 31 states. It is a subsidiary of UAC of Nigeria PLC which holds 51.49% of the company’s shares.