By Dennise Williams, Staff Reporter
FOR THE year ended December 31, 2003, Berger Paints Jamaica Limited (Berger) net profit fell by 4 per cent from figures released in 2002.
The company did make a net profit after taxes in 2003 of $86 million but in 2002 the profit figure was nearly $90 million. Berger produces decorative paints, industrial products and vehicle refinishes.
In 2003, the company sold $1 billion in paints, which is a 12 per cent increase over sales of $910 million in 2002. However, Warren McDonald, managing director and CEO of Berger, states that the financial results are a bit misleading.
NEW ACCOUNTING STANDARDS
"We had to restate 2002 figures based on the new accounting standards in Jamaica," he said. "In terms of sales volume, this is the 10th year of growth for us. The overall paint market went up by 2 per cent and our market share has increased by a little over 1 per cent."
While the net profit after taxes fell, taxes paid increased by 10 per cent. Mr. Warren explains this. "In 2002, we were able to get tax relief of $8.9 million by issuing bonus shares. However, in 2003, the Government scrapped that tax break and so our taxes went up."
Nonetheless, based on the company's balance sheet, it appears that Berger is striving for efficiencies in their accounts receivables, inventory management and accounts payables. The company reduced its accounts receivables in 2003 to $13 million, a 42 per cent drop from receivables owed in 2002 of $22 million. Obviously, the company has stepped up its collections. Berger has also been meeting with success in moving inventory as the level of inventories dropped by 55 per cent from $55 million in 2002 to $25 million in 2003.
On the other hand, the company has been stretching out its payments to short term creditors. There has been a 16 per cent increase of its accounts payable and accruals from $117 million in 2002 to $136 million in 2003, and "the average trade credit period taken for trade purchases is 65 days from 44 days in 2002."
That means Berger is squeezing 48 per cent more time from their creditors. The company's assets increased marginally by 7 per cent to $660 million in 2003 from $620 million in 2002. The shareholder's capital and premium has remained the same in the two years at $107 million and $35 million respectively. However, dividends paid to shareholders increased in 2003 by 14 per cent to $45 million. Berger Paints is a 51 per cent subsidiary of Lewis Berger (Oversees Holdings) Limited which is a subsidiary of Asian Paints (India) Limited. Also, interestingly, the company has increased its cash and bank deposits held in US currency by 1,243 per cent. In 2002, they held US$400,000 while the figure grew to US$5.6 million in 2003. Mr. McDonald states, "That is simply because of foreign exchange risk. But we are definitely in the manufacturing business and so this is just funds that are in excess of our immediate needs.
For 2004, Mr. McDonald states that despite the influx of imported paints, Berger has plans to strengthen its market position. "We are already the leaders in decorative paints, and we just want to widen the gap." The innovations that consumers can look out for are:
Greater range of water-based paints.
An improved tint system where dealers will be selling the tint shades to consumers. There will be 4000 shades available.
According to Leo Williams, managing director of JMMB Securities, based on the fact that the underlying product of Berger is a strong one, his firm calls the stock a weak buy. Mr. Williams believes that there is room in the company for cost cutting and increase in its exports to earn foreign currency.