Large Operating Costs Eclipse Paint Manufacturer Meyer Plc.’s Earnings
Greenwich Capital-backed paint manufacturer, Meyer Plc, returned to profitability after a sizeable loss reported 12-months ago. However, its return to profitability was driven by a record increase in finance income rather than through its core operating activities.
The figure from the financial statement shows that the paint manufacturer was negative in terms of net cash from operating activities, meaning it expends more than it generated.
But it is also observed that the company’s receivables reduce, which means stocks were not really locked down, cash position remains strong though. Positive cash position was driven by sales of assets in 2020, according to the company’s financial statement. The amount was reduced by dividend payments to shareholders in 2021.
The problem appears to be somewhere else. Meyer’s costs profile was stronger than its sales and it appears that a higher percentage of the costs were fixed.
A look at the company’s cash flow shows that net cash generated from operating activities was N277.288 million negative, a strong decline when compared with N2.506 billion negative cash generated in 2020.
The company sold off its property, plant and equipment for N3.318 billion last year, thus generating an overall sum of N3.384 billion from investing activities.
In 9-months of 2021, Meyer sold assets worth N12.675 million to keep net cash from investing activities positive with N67.048 million generated from investment activities and acquisition of assets worth N16.029 million.
From N2.88 billion cash equivalent brought forward into 2021, Meyer paid a dividend in the sum of N746.591 million to its shareholders, leaving the cash equivalent at the end of the period to N1.41 billion.
Pressure Points: Costs driven by Administrative Expenses
As of 9-month of 2020, Meyer’s administrative costs accounted for about 62% of sales apart from sales costs. However, the company’s administrative overhead moderated to about 43% at the end of 9-months, 2021 as sales improved.
This signal the fixed nature of the company’s expenses, the risk being sales movement amidst a tough operating environment driven by increased rivalry. Unbranded paints manufacturers have encroached into the market.
With lower prices and averagely okay products, organised manufacturers market shares have declined as households keep tabs on cheap substitutes. Meyer turned the corner after 12-month, from losing 20 kobo on each share outstanding to gaining 2 kobo as the economy sees gradual recovery.
The growth in the metrics was driven majorly by increased earnings from income from investment activities outside the company’s core operation.
Sales:
The paint manufacturer witnessed an improvement in sales income apart from the application of paints which appears to slow down. The strong top-line achieved post-lockdown moderated pressure on earnings, as loss position reduced, though operating costs remain high. With steep inflation conditions, rising costs could be excused without any form of inefficiency.
According to its scorecard for the period, the local paint manufacturer recorded N9.74 million profit at the end of 9-months of the financial year 2021, from loss after tax of N100.528 million a year ago.
The company’s book shows that revenue jumped to N759.157 million at the end of 9-month in the financial year 2021 from N566.551 million in the comparable period.
Revenue breakdown shows that demand for Meyer’s paint increased to N755.290 million as against N551.986 million last year. A sum of N3.867 million was earned as revenue from the application of paints in the year, a drastic slowdown, when compared with N14.425 million, reported a year earlier.
The company has minimal exposure to credit risk. The majority of its sales activities were cash-driven, according to its unaudited financial statement.
Costs:
Meyer reported an increase in the cost of sales, driven by a boost in activity level in 2021. Cost of sales jumped to N504.702 million at the end of 9-months in the 2021 financial year, from N360.414 million last year.
Cost of sales applied to its application of paints decline N2.764 million from N7.206 million in the comparable period in 2020. Operating profit was largely negative, though it slowed down from N133.51 million to N51.694 million at the end of 9-months, 2021 results.
The runoff on gross profit that led to a loss in operating income was caused by the paint manufacturers’ bogus administrative expenses. Finance income jumped to N67.048 million at the end of the period, from N42.307 billion in the comparable period in 2020.
Meanwhile, finance costs moderated to N1.82 million from N7.201 million amidst a low-interest rate environment with a slowdown in fixed income securities yields in the financial markets.
It was noted that stronger net finance income keep pressures on the company’s bottom line lower in the period except for the 100% growth in tax provision. Profit before tax settled at N13.534 million, from N98.404 million loss before tax in the comparable period in 2020.
However, the company’s tax provision increased about two folds to N4.060 million at the end of 9-months from N2.124 million in the comparable period. This left profit after tax N9.4.74 million from a steep loss position of N100.528 million. #Large Operating Costs Eclipse Paint Manufacturer Meyer Plc.’s Earnings
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