By Chinwendu Obienyi
The Nigerian paint industry has done fairly well since its inception despite unfavourable economic conditions such as increased foreign exchange (forex), policy changes, adulteration among others.
Suffice to say the paint manufacturing companies have been existing in Nigeria as early as the 1960s as some of them operated as subsidiaries of foreign companies until indigenous companies completely bought over their shares.
Over time, these industries have grown continuously and evolved into a major player in the employment of labour and economic advancement in Nigeria. Also, the industry has witnessed technological advancements in the methods of production as a result of stiff competition within the industry as every paint producer is forced to put in their best to ensure that they remain relevant in the market.
The reason is because the paint industry operates in three different tiers which are determined by product quality, company reputation and a large customer base. With almost 30 years in the game, makers of the Dulux paint brands, Chemical and Allied Products (CAP) Plc, have come a long way since the company’s listing on the Nigerian Stock Exchange (NSE) (now known as the Nigerian Exchange Group –NGX) in 1991.
The leading brand in the manufacturing and merchandising of paints has deployed a myriad of strategies throughout its growth life cycle towards attaining its strong brand name while also keeping its head above the waters despite the volatile economic conditions and marginal revenue growth.
Over the past few years, the fight for survival has been even stronger, particularly following its choice to spend its entire 2018 profit after tax (PAT) of N2.03 billion on dividend payout.
At the time of its announcement in the middle of 2019, the company’s board of directors had expressed their optimism that an improved economy would yield increased returns in the year, while also assuring its shareholders that it would leverage emerging opportunities to improve performance in the current year.
With hopes of an improved economy dampened, the company set off on a course to redemption using a combination of strategies. Like most companies that was caught up in the unfavorable conditions owing to the COVID-19 pandemic in 2020, CAP Plc full year (FY) 2020 result was met with mixed reactions as its revenue increased by 3.9 per cent 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 while declines were recorded in its gross profit, profit before tax (PBT), profit after tax (PAT) and Earnings before Interest and Taxes (EBIT).
Hence, one of such strategies to setting the path for the next level of growth for the company was to find a suitable target given its complementary attributes to CAP’s existing product profile/portfolio and market coverage and that suitable target was Portland Paints.
CAP-Portland merger
Speaking on the merger, the Managing Director, CAP Plc, David Wright, said the firm would become the largest player in the Nigerian paints market by market share which is estimated at 14.9 per cent and this is due to the fact that the Portland Paints’ Sandtex brand provides access to the large, untapped, high volume “mid-market and value for money” segment of the decorative paint market.
Wright added that CAP would emerge as a larger company with a broader product portfolio, more corporate owned brands and diversified revenues.
“The enlarged company will have a broader decorative paint portfolio covering premium, mid-market and value for money segments to the benefit of our customers. Furthermore, CAP is also expected to benefit from enhanced distribution capabilities in addition to economies of scale and operational efficiencies.
CAP has 73 stores across 31 states, while Portland Paints has 14 stores across nine states. The combined entity will have 88 stores across 32 states. We are quite confident that Portland Paints is the right partner for CAP, and that the merger would create value for all stakeholders of the merging entities”, he said.
When asked about the dilutive effect of the merger on CAP shareholders, Wright said: “CAP Plc will pay cash consideration of N2.90 to the scheme shareholders for each ordinary share of N0.50 held in Portland Paints as at close of business on the terminal date.
CAP will then allot up to 99,176,942 shares to shareholders of Portland Paints Plc who elect to receive the Share Consideration, as the shareholders hereby waive their pre-emptive rights to any such shares. Furthermore, the merger does not have any significant impact on the company’s ability to pay dividends for FY 2020”.
Outlook
The company which is currently trading at N22.20 per share is going to be the largest player in the Nigerian paints and decorative market and is also expected to be able to operate more efficiently given the sheer economies of scale that comes from being part of a larger organization.
Encouraged by the growth in revenue which has been solely driven by underlying volume growth in line with the CAP’s strategy and despite the company’s experienced supply chain disruptions which impacted its raw material sourcing and resulted in input costs pressures, the company’s initiatives is expected to mitigate these disruptions.
According to analysts in their projection, the future of the Nigerian paints industry looks brighter and barring any defaults such as neglect from the Nigerian government which is obsessed with the oil and gas sector, CAP Plc is expected to soar above its competitors in years to come.