Analysis: Berger Paints’ profit growth lacks operational strength

BERGER Paints’ first quarter (Q1) 2026 results reinforce a growing concern: revenue growth is no longer translating into stronger underlying profitability, as rising costs and non-recurring gains dominate the earnings profile.

The company reported a 14 percent increase in revenue to N3.387 billion, up from N2.974 billion in the corresponding period of 2025, according to the firm’s Q1 2026 financial statement released on Wednesday. On the surface, this suggests steady demand and some pricing power. However, in Nigeria’s high-inflation environment, such growth is relatively modest, implying that real volume expansion may be weak and the company is largely keeping pace rather than outperforming.

Beneath the top line, cost pressures are becoming more pronounced. Cost of sales edged higher to N1.8 billion, limiting gross profit growth. More significantly, administrative expenses surged by over 28 percent to N871.986 million. This sharp increase, which is driven by higher spending on salaries, fuel, rent, and general overhead, signals worsening cost efficiency and reduced operating discipline. It also suggests that the company is increasingly exposed to inflationary pressures without a corresponding ability to fully pass these costs onto customers.

The most critical issue in the results is the heavy reliance on non-recurring income. Berger Paints recorded N663.210 million as other profit from impairment reversal. This accounting gain, which reflects a reduction or reversal of previously recognised losses, does not stem from core operations and does not represent sustainable earnings power. In effect, it inflated operating profit and masked the true impact of rising costs. Without this one-off boost, underlying operating performance would have been significantly weaker, raising concerns about the quality of earnings.

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Finance income provided a modest cushion, with net finance income of N29.901 million as earnings on investments outpaced finance costs. However, this contribution remains relatively small and insufficient to counterbalance the broader operational challenges facing the company.

Berger Paints’ profit before tax stood at N693.111 million, but a substantial tax expense of N236.533 million reduced profit after tax to N456.577 million. This highlights another structural issue: a large portion of reported earnings continues to be eroded by tax, limiting the translation of profit into shareholder value.

Earnings per share (EPS) rose to N158 from N107 in the prior year, but this increase is largely driven by the impairment-related gain rather than genuine operational improvement. As such, the EPS growth may not be sustainable in subsequent quarters if such one-off gains do not recur.

On the balance sheet, Berger Paints remains relatively stable, with total assets of N10.042 billion against liabilities of N4.598 billion, leaving it with positive equity. However, while this provides a degree of financial resilience, it does little to address the core issue of weakening earnings quality and rising cost pressures.

Berger Paints’ rising costs, declining efficiency, and dependence on one-off accounting gains suggest that core profitability is under strain, with current earnings levels appearing fragile and potentially unsustainable without structural improvements.

Rising operating expenses

Berger Paints directors’ emoluments rose to N55.651 million from N37.639 million in Q1 2025, as they chose to earn more despite underlying challenges.

The paint maker raised the salaries of workers or employed new staff as personnel expenses climbed to N340.821 million from N320.492 million. Training expenses rose to N13.350 million, from just N200,000 in Q1 2025, while repairs and maintenance cost jumped to N88.038 million from N71.001 million.

Office and corporate expenses more than doubled to N74.262 million from N32.210 million. But travel, transport and accommodation dropped to N129.772 million from N165.840 million – a commendable effort at cutting costs. However, distribution expenses jumped 52 times to N75.975 million from N1.473 million, as the company bore the high costs of fuel and diesel while distributing products to the final consumers.

Consultancy costs climbed to N98.007 million from N34.050 million, while advertisement and publicity expenses climbed to N91.907 million from zero cost in the corresponding period of 2025. Berger Paints incurred contract services expenses of N13.116 million in 2026 from zero cost, but the cost of utilities slowed to N15.908 million from N49.867 million.

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“I think Berger Paints should manage its costs better,” said a financial analyst, Eugene Abu. “It should re-examine non-core costs such as consultancy and contract services. Its raw materials cost rose to N1.6 billion from N57.414 million. So, tell me, why would the cost of your raw materials rise 28 times, while your revenue increase by only 14 percent? It only means one thing: you have to seek local solutions or alternatives to your inputs.”

Nigeria’s paint industry

Nigeria’s paint industry is hard hit by the influx of imported paints, mostly from China. Low local patronage is also a major problem, with federal and state governments failing to patronise local manufacturers. Paint makers say smuggling is bringing the industry to its knees, with high cost of production making competitiveness nearly impossible. Its raw materials are mostly imported, exposing the industry to foreign exchange vagaries, while products are easily counterfeited.

Berger Paints is among the few that are performing fairly well, with the likes of Premier Paints in a technically insolvent position. Its total liabilities stood at N379.649 million in 2025, far exceeding total assets of N161.737 million, putting it in familiar financial struggles.