Titanium crush
Despite concessions being made between Russia and Ukraine on the supply of grain to the rest of the world, the destruction in the Ukraine continues to impact Berger Paints Jamaica Limited (BRG) which relies on titanium dioxide from the Ukraine for the production of paint.
This was revealed by the company’s chairman Adam Sagba at the virtual annual general meeting held on July 29. Sagba also serves as the sector head of construction at Trinidad-based Ansa McAl Limited which has a 54.13 per cent stake in Berger Paints.
Berger Paints has seen key raw materials rise by significant levels in the last year due to the supply chain disruptions which has been further exasperated by the war in Ukraine. According to tipure.com, “Titanium dioxide (TiO2) is the most important white pigment used in the coatings industry. It is widely used because it efficiently scatters visible light, thereby imparting whiteness, brightness and opacity when incorporated into a coating.”
“Absolutely! We continue to be challenged significantly by the global supply chain that is compounded by the war in Ukraine. The world’s largest source of titanium is in Ukraine and as you know, titanium dioxide is a major component of the manufacture of paint. At the start of the year, we were buying inventory where and when we could get it. We are intentionally carrying buffer stock. We have been impacted significantly,” said Sagba in response to questions about the challenges being faced.
Berger earned its highest revenue to date in 2021 of $3.11 billion which was a 31 per cent increase, but its raw materials and consumables cost spiked by 72 per cent to $1.88 billion. While the company was able to generate $123.34 million in net profit for 2021, its inventory balance moved up 67 per cent to $740.27 million as it navigated the supply chain challenges at the time. Although Berger had two price adjustments in 2021 to account for the rising costs, its production output moved up 29 per cent to 5.3 million litres with the company selling 5.11 million litres in the year.
“Hence, the reason we’re running quite heavily on raw material inventories. That being said, we’re seeing the supply chain regularising, but the prices continue to be extremely volatile. It is something that the team is managing on a daily basis. Now that supply has regularised, we’re trying to deplete the stock. Berger regionally has changed its colourant system to become a more environmentally friendly and a better quality of colourant,” Sagba added on the new colourant system being introduced across the region’s four paint production plants for the Ansa Group.
The company’s inventory balance rose by 31 per cent to $968.32 million since December to the end of March. This made up 54 per cent of the company’s $1.79 billion in current assets which saw $150.55 million in receivables collected during the period.
Sagba also confirmed that the double-digit growth in the construction sector during 2021 translated to improved sales during the period. The firm had been adversely impacted in 2019 by the construction occurring on Spanish Town Road in St Andrew.
“One of the key things that we did not want to do throughout from 2020 to now, is compromise our quality standard. Hence, the reason why certain raw materials were not switched for alternatives, just to ensure that we protect the quality of the product,” said General Manager Shashi Mahase during his presentation.
The company hiked prices by 10 per cent in April. Despite facing higher raw material costs, Berger Paints revenue is up 10 per cent above 2021 and 51 per cent above 2020 for the January to June period. Mahase said that the company is prioritising costs management, management of working capital, product availability and cash flow management as the key items for the current year.
“We are trying to hedge and there’s a facility we’re working on so that we can hedge and remove the risk around foreign exchange (FX),” Sagba added on the foreign exchange risk mentioned in Mahase’s presentation.
The company is currently satisfying the local market with enough demand, but they are not focused on heavily increasing exports due to the issues being faced with receiving supply and the timing of receipt. Berger Paints exported only $35.20 million in 2021.
“Whilst we are managing our cashflows as best as possible, we do have some challenges from time to time with some customers in terms of collecting in a timely manner. With our sales increasing at the pace that increased last year, we saw some further risk coming out of that period. However, we are putting things in place to mitigate against these kinds of swings in our potential impaired or aged debts going forward,” said chief financial officer and company secretary Carlington Montgomery on the company’s past due receivables balance which represented nine per cent of the $583.35 million receivables figure in 2021.
While the company’s net profit was up 106 per cent to $17.09 million and cash of $304.55 million, Mahase cautioned shareholders about dividend payments this year. Berger Paints last paid a $0.307 dividend totalling $65.80 million in May 2019. The stock price remains down 11 per cent year to date at $11.85 which is below the $16.93 high at the end of 2019.
“A dividend will be considered by the board and communicated upon the release of next quarter’s results. The reason for that has to do with the fact that the changes in the economy and supply chain challenges that we’re having, we are very closely managing our cash flows as we go into our peak period and making sure we have the relevant cash to continue to be able to capitalize on what is to come in the peak period,” Sagba explained.
While the company continues to battle the supply chain issues, Sagba believes that the Berger Paints Boldly Berger campaign is doing the company justice in revitalising the brand across the region. This comes along with the company opening more colour stores as additional channels for customers to get the paints they need for their activities.
“The Boldly Berger campaign is about showing who we are as a West Indian brand and company. We’re bold, we’re brave, love what we do and in terms of our vibrancy and colours, we wanted to make sure that we left a stamp on the region. Upon acquiring the Berger brand, it was always an extremely proud brand, but it had become quite aged. So, we wanted to re-energise the brand and bring a modern flare to it and re-engage the market and claim our seat at the top of people’s choice and hearts,” Sagba closed.