Berger Paints' profit drops on higher costs, foreign exchange loss

Despite higher sales, Berger Paints' profit dropped 1 per cent year-on-year to Tk 962 million in April-June this year, as higher operating costs and foreign exchange loss ate up a big chunk of the earnings.
Berger, which follows the April-March financial year, made a profit of Tk 972 million in April-June last year, according to its un-audited financial statements published on Thursday.
Subsequently, the consolidated earnings per share (EPS) stood at Tk 20.74 in the quarter, down from Tk 20.96 in the same quarter a year before.
Berger, the market leader in the paints industry in Bangladesh, posted a 1 per cent growth in sales to Tk 6.98 billion in the first quarter this year, while costs of sales declined 4 per cent to Tk 4.61 billion.
However, the company's selling and distribution expenses jumped 22 per cent year-on-year to Tk 911 million while administrative costs rose 16 per cent to Tk 207 million during the quarter amid high inflation, which hit the bottom-line growth.
Despite the prevailing forex crisis and high inflation, the company maintained its sales growth by adjusting product prices, said company secretary Khandker Abu Jafar Sadique.
Moreover, cooling of raw materials' prices in the global market helped offset some of the costs, he added.
The cost of sales, which represents all associated costs to produce paints, stood at Tk 4.61 billion in the April-June quarter this year. It was nearly 66 per cent of total sales revenue in the quarter, down from 69 per cent in the same quarter a year ago.
The net operating cash flow per share, a measure of a company's ability to generate cash from its operations, turned Tk 17.81 in the negative in June, as opposed to a positive value -- Tk 47.08 a year earlier, mainly due to the deferred settlement of letters of credit (LCs).
The net asset value, which refers to the excess of total assets over total liabilities, reached Tk 330.27 per share as of June this year, up from Tk 309.53 in March this year.
Annual performance
The paint maker reported a consolidated profit of Tk 3.24 billion in the financial year through March this year, up 7.64 per cent from the year before.
Bolstered by the high profit, the board of directors declared 500 per cent cash dividends for shareholders for the year, the highest in six years.
Berger will distribute nearly 72 per cent of the profits earned as shareholders will get Tk 50 for each share of their holdings. The record date for availing of cash dividends is August 18 while the company will hold its annual general meeting (AGM) on October 2 this year.
To overcome the forex crisis, Berger secured a $60 million loan from its parent company, J&N Investments (Asia) in June last year.
Berger to issue rights shares
Berger is in the process of issuing more than 2.72 million rights shares, aiming to increase its free float to at least 10 per cent of the outstanding shares, to meet the regulatory requirement.
Currently, the company's publicly tradable shares constitute only 5 per cent of its total shares.
Berger had offered one rights share against 17 existing shares to all shareholders at Tk 1,376 each. Ideally, the owning company J&N Investments (Asia) should be getting 95 per cent of more than 2.72 million rights shares to be issued. But the owning company said it was in favour of distribution of the rights issues to Berger employees and general investors so that Berger could meet the regulatory requirement of at least 10 per cent free float.
So, now investors will ultimately be receiving 1 rights issue against each existing share.
In September 2021, the securities regulator asked Berger Paints to ensure at least 10 per cent of its shares as free float within three years.
Berger to set up third factory
Berger has been investing for capacity expansion as well as the diversification of products and businesses, particularly those with a low environmental impact.
It announced in January this year that it will construct a third factory at Bangabandhu Sheikh Mujib Shilpa Nagar at an estimated cost of Tk 8.13 billion.
The construction of the plant, which is expected to start production in April 2026, will be partially funded by the rights proceeds, the company secretary said earlier. The money coming from rights shares will reduce the cost of investment, which in turn will boost profit, said the company secretary earlier.
"Once the third factory goes into production, it will have a positive impact on both revenue and profit."

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