Company Analysis

CAP losing profit for the second year

Chemical and Allied Products (CAP) closed second quarter operations with profit down year-on-year, sustaining profit drop for the second year. The paints producing company has been unable to grow sales revenue since last year and with that, profit capacity has continued to sag.

Sale of paint products constitutes the dominant revenue line for the company. It managed to keep sales revenue from falling at the end of half year but could not prevent costs from rising. That lowered profit capacity for the second year, creating prospects for profit descending to the 2014 level at full year.

Turnover amounted to N3.46 billion at the end of the second quarter, which is a flat growth on the N3.45 billion revenue figure the company posted in the same period last year. The flat growth is expected to mark the company’s sales revenue performance to full year.

Sales revenue is projected at N7 billion for CAP at the end of 2017, which will be a marginal improvement of 3% over the sales revenue figure of N6.8 billion the company reported in 2016. That was a decline of 4% from the peak sales revenue of about N7.06 billion it recorded in the preceding year.

Cost of sales failed to follow the same direction with sales revenue and grew by close to 7% to N1.88 billion year-on-year at the end of half year. That caused a 6.5% decline in gross profit, which amounted to N1.57 billion. A decline of 7.5% in selling and distribution expenses moderated the impact of cost of sales but a 23% growth in administrative expenses more than countered the decline. A drop of 39% in other income added further to the earnings pressure the company faced during the review period.

Costs weighed heavier than revenue and the result was a drop of 19% in operating profit to N883 million at the end of the second quarter. The most significant change in the income statement of the company over the period is a leap of 152% in net finance income, amounting to over N141 million at the end of June, 2017. That enabled the company to moderate the impact of rising costs on the bottom line and narrow down the rate of decline in pre-tax profit to less than 11%.

The company reported an after tax profit of N697 million at the end of half year operations, which is a decline of 10.6% year-in-year. After tax profit is projected to be in the region of N1.4 billion for CAP at full year. That will be a drop of 12.5% from the full year profit of N1.6 billion the company posted at the end of 2016. CAP had also lost 8% of the preceding year’s after tax profit last year.

The company has relatively low balance sheet debts, which amounted to a little over N122 million at the end of June. Cash flow has however come under pressure with net cash generated from operating activities dropping from N1.53 billion to a negative of N306 million over the review period. That led to a net cash decrease of N1.84 billion compared to a net increase of N461 million in the same period last year.

Earnings per share came to N1 at the end of half year, down from N1.11 in the same period last year. Earnings per share is expected to amount to N2 at full year against N2.29 at the end of 2016. The company paid a cash dividend of N2.20 per share to shareholders for its 2016 operations.

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