November 27, 2008 2870 VIEWS
Proshare

DN Meyer to raise N2.4 billion fresh funds

-To be key player in Nigeria’s emerging economy

“DN MEYER PLC is one of the most vibrant among the seven equities quoted in the Chemicals and Paints sub-sector of the Nigerian Stock Exchange and has been consistent in recording continuous growth in earnings. The company is committed to the vision of being the undisputed and dominant leader in the finishing business of construction sector through quality and reliable products, excellent customer service and market presence. A ten-year visioning process confirms that with the right growth strategy and adequate capitalization, DNM should deliver a turnover of N25 billion and PBT of 15% to her shareholders in 2016” (Source: Official website of DN Meyer Plc)

Proshare NI sought to find out more about DN Meyer Plc and the paint industry in Nigeria.

 

In this interview with PETER OBIORA of Proshare NI, Bola Olayinka, Managing Director/Chief Executive Officer (MD/CEO) of company discusses issues relating to the company’s proposed N2.4 billion funding and plans for the usage of proceeds of the exercise, the Nigerian Paint Industry and, the Meyer Brand.

 

Other issues discussed include reactions on the current Market Meltdown, the future of the company and how it tends to make itself relevant in the Nigerian economy and dominate the Paint Industry, the Products of DN Meyer and its planned growth. Excerpts:

 

 

DN Meyer and 10 Kobo dividend payout in 2007 FYE

 

Paying 10 Kobo dividend to investors was a communication to our loyal shareholders. If you check the trend of our performance, we have been consistent over the years in terms of rewarding and ensuring a very reasonable Return on Investment (ROI) to our shareholders.

 

Again, we believe that it is a tradition that we would not like to break no matter the difficulties. In year 2005, we made a huge loss and that was a wake up call. However, we turned things around following this call; because the following year, we recorded profit.

 

The shareholders were impressed with us based on this, we wanted to give them sometime and DN Meyer ended up giving Script Issues to our investors in year 2006.

 

Like I said earlier, for year 2007, not minding our liquidity problems, we gave a dividend of 10 Kobo. We also need to appreciate the fact that the shares of our company has performed creditably well on the Nation’s Capital Market. We had a ground breaking performance in year 2007 and it continued until the first quarter (Q1) of year 2008.

 

I wouldn’t say that the 10 Kobo dividend was adequate, but in terms of communication, I am confirming that we have done the things we ought to do and we have received positive feedback from our shareholders.

 

My expectation is that subsequent dividend payout of the company would be better than the current one.

 

 

DN Meyer and fresh funds

 

We have received approval from the Quotations Committee of the Nigerian Stock Exchange (NSE) to raise funds through a hybrid offer. We are also processing other regulatory approval; this is the stage at which we are at the moment.

 

However, we are confident at DN Meyer that all the documentation requirements would be done and subsequently we would go ahead to raise the funds.

 

DN Meyer believes that the hybrid offer has multiple purposes. First and foremost, over the years, our shareholders has told us that they expect the company to do what is needed by substituting short term funds for equity, because they are quite prepared to give support to a company that has a wonderful relationship between an institution and its shareholders over the years.

 

Also, DN Meyer has potential shareholders, who believe so strongly in the brand. The Meyer brand is very attractive and we believe we should give them an opportunity to invest in the Paint Company; which is the reason we are coming out with a hybrid offer.

 

At the last Annual General Meeting (AGM), we received an approval from our shareholders and Board of Directors (BODs) to raise sfunds; we have done everything to ensure a hitch free fund raising.

 

Following the advice of our consortium of Advisers, we should be able to hit the market for the fresh funds.  It is a matter of documentation, and we are very confidence like I affirmed earlier, we would cross the hurdle and get back to our shareholders.

 

Amount to be raised

 

Based on the specific feasibility study carried out, we are seeking to raise about N2.4 billion, which we believe is adequate for the things we are focusing on specifically.

 

DN Meyer is moving into the market, all these have been outlined in the hybrid offer document, we believe with this, we have an opportunity to dominate the Paint Industry.

 

Number of units to be issued and price

 

There is adequate compensation for the hybrid offer; considering the price at which our shares have been suspended on the Floors of the NSE.

 

The pricing of the Rights and Public Offer (PO) has been fixed in an attractive way, there is no way investors would resist these offer prices. They are attractive like I affirmed earlier relative to the price the stock was suspended.

 

There is a huge forecast of outstanding returns for those who would take part in the fund raising.

 

Again, for the fact that DN Meyer has performed creditably well over the years, we have been amongst the top three in the industry in Nigeria for so many years.

 

In a short-while, we would also let members of the public have an insight into some of the exclusive projects that has made the difference.

All these, would sustain the confidence that we have received over the years from our shareholders.

 

EDITORS NOTE:  As at the time of filling in this CEO Q & A Proshare NI could not confirm the number of units to be offered to investors and the price per Ordinary Share to be sold.

 

Opening date to the DN Meyer hybrid offer

 

I was advised by our Lead Issuing House that within the shortest time, we would be able to get the approval of the Securities & Exchange Commission (SEC); which would really sort out any delay in our opening the fund raising.

 

DN Meyer hybrid offer and current Market Meltdown

 

We may come out before the end of year 2008, like I affirmed earlier; DN Meyer is a focused company. However, the current Capital Market Meltdown is also an issue that is being considered.

 

We have a long list of Advisers, our business is basically into paints and core coatings, but we have assembled experts on the Capital Market in respect of the offer. DN Meyer would listen to them on any advice they give; because it will be to our best interest.

 

Of course the issue of timing is also critical following the recent development in the Nation’s Stock Market. But we believe we would still come to the Market and succeed.

 

Adequacy of N2.4 billion fresh funds/Purpose of the hybrid offer

 

As a matter of fact, given the outlined projects of DN Meyer which has gone through due diligence, the N2.4 billion is quite adequate for us in our operations.

 

DN Meyer notwithstanding may come out to raise additional funds; if we have basis for that.

 

The most important thing is the business you want to use the funds; we are not raising funds to invest in short term Money Market or to take to the Capital Market. We are raising funds first and foremost to expand our growth.

 

We are funding our growth of the shares of the Market; which is very critical and that entails upgrading and equipping our factory, in order to have a modernised factory that is of high technology.

 

Apart from the above, it also requires looking at our brand and rearranging it in such a way that we would able to command a good presence in the industry.

 

We also believe that in terms of liquidity, we need to rearrange our capital structure; so that it is our shareholders who take the benefit of value creation in DN Meyer. These are some of the reasons for the offer.

 

The DN Meyer brand

 

We have a few brands globally that I would refer to as model brands; we have brands like Coca-Cola, Nestle and so on.

 

Day in day out, there is a holistic approach towards sustaining the leadership of such brands.

 

However, the benefit is tremendous; we are also a Marketing Company, and we believe very strongly that if it has to do with brand, then we can take it to a level far higher than where it is.

 

This is going to form the basis for the dominance of the Market DN Meyer is talking about. Once your brand has been accepted, it remains so; the only thing you do is to ensure the sustainability of the acceptance of the brand in the market.

 

DN Meyer is doing well, but we believe we can do great and that is what we are gearing up to.

 

The Paint Industry in Nigeria

 

From historical perspective, the industry does contribute strongly to the Gross Domestic Product (GDP) and the second largest employer of labour next to the Textile Industry.

 

However, in the last five to seven years, this has changed dramatically starting with the fact that poor attention is paid to the Real Sector of the economy and many policies are actually working against the interest of Manufacturers.

 

Apart from the above, the quality of infrastructure has been a serious source of concern; because it increased our cost of doing business by as much as 40 percent and this has rendered the Paint Industry uncompetitive.

 

Also the issue of looking at a suitable structure to truly beautify Nigeria is not in place in this country from the painting perspective.

 

The Paint Industry is a matured one, with quality players, but at the same time, we have overwhelming presence of fake paint manufacturers and third grade producers; whose goals and objectives is to pillage successful brands like Meyer in order to make money.

 

Second, to engage in adulteration or become commissioned agents who are taking advantage of some policy inconsistency or gaps in the Manufacturing Sector; all these have been identified and dealing with these are very vital.

 

First and foremost, the regulators should rise to the occasion and ensure that we have an adequate regulation governing the activities of the Paint Industry; which is a standard based one. If you don’t attain a standard, it shows in the quality of your products.

 

But the unfortunate thing is that majority of the consumers are taking advantage; because they don’t know the quality until it has been used.

 

These are key issues which Standard Organisation of Nigeria (SON) as a Regulator of the industry is looking at. This is equally supported by the activities of the Paint Manufacturers Association of Nigeria (PMAN); which I am privileged to be the Chairman at the moment.

 

The Association is set up to create awareness about the culture of painting which is strange in our environment.

 

Again, to alert the public that when they need to buy paint, they must insist on value for their money.

 

If this would happen, it is a lot cheaper to buy premium paints like the Meyer brand; because it is not only cheaper, but durable, better value and worthy investment on your property. If we follow the trend consistently for sometime, then we would witness a revolution that will make a difference to the industry in Nigeria.

 

Beyond these, I would like to affirm that the potentials are there for the industry to do well. The opportunity for turnaround lies in the housing gap of about 20 million units.

 

Again, we also have the opportunities in the Upstream Oil and Gas; with the assistance of the local content initiative been championed by the government as well as the major international Oil Companies.

 

The Paint Industry in Nigeria has not had the benefit of entering into that sector, it is a high value and high margin sector; of course it comes with highly specialised products, heavy protective coatings, Marine products that can withstand the weather and rigours of water.

 

These are opportunities that with the quality upgrading of our factories, sufficient technical knowledge, DN Meyer would be able to take advantage of the Paint Industry. Like I said earlier on, the opportunities for growth and the potentials are still there in the industry. Of course, we have not spoken about the rehabilitation of existing properties both in the public and private sectors.

 

I want to believe that with improvement in the purchasing power of members of the public, better understanding of the government and promotion of the Nigerian National Building Code just promulgated by the Nigerian institute of Architect (NIA), there are potentials for the industry.

 

Products of DN Meyer

 

We have the Meyer Wall Satin, which is locally formulated; it is a product that has earned the Gold Award of Nigerian Industrial Standards (NIS).

 

This product has performed creditably well over the years and has been on top of the market as a Market Leader. It gives the kind of quality that people would like to have in terms of durability, value for money and coverage.

 

There is the Meyer Longlife manufactured for high rise buildings and those that are within very dangerous environment like where the salt water can create some unnecessary growth on the walls of building.

 

It attacks the fungal and gets out any destructive element on the wall; it can last as long as between 15 and 25 years of the wall.

 

Reaction on the current Market development

 

First of all, we saw that the NSE outperformed many emerging economies until the early second quarter (Q2) of this year 2008, before the market started experiencing the bearish trend; which persisted until some few weeks back; before we experienced some measure of recovery.

 

As at now, we are not sure if this recovery would be long lasting or if it is the usual hustling and bustling of the Christmas season that has commenced in the Nation’s Capital Market.

 

However, from my opinion, the Market has not been what is used to be and when we look globally; we discovered that Nigeria is not an isolated case.

 

As a matter of fact the situation started from the United States (US) and spread to the rest of the world. This is an issue that has affected our Capital Market tremendously.

 

We have experienced similar cycles at the NSE; sometimes in 1997/1998 and in year 2003. People would say that we have not experienced such Market Meltdown before in the history of the NSE.

 

I wish to advise that life is ups and downs, the Nigerian Capital Market is down at the moment; but I have no doubt in my mind that it would come up again.

 

Over the years, a lot sensitisation has been done to wake up the interest of the public to become key players in the Market. Last week a new Exchange was opened at Ogun Nigeria. With this sensitisation, we now have quite a lot of interest in the Market.

 

Also, with the very strong performance of corporate Nigeria, we have seen them performing very well. The Telecom sector which does not consider the Market initially is also coming on board; we are hoping strongly that the exploration companies in the Upstream Oil and Gas would also seize the opportunity so that the Market can be better.

 

One of the key lessons from this downturn is the fact that we have Market Makers, we have not had that before, I want to believe that we are progressing.

 

Future outlook

 

DN Meyer is on a trajectory of 10 years at the moment and it is our hope that very soon, we shall become a key player in the Nigerian Economy; because we would dominate the Paint Industry.

 

Analyst Comment:

We understand that plans are afoot to recapitalise the company and the discussions are still on-going but the feelers coming out of the company appears positive. We understand that there is enthusiasn from private equity funds in the funding option under consideration. We however would like to know more about the relationship with Dunlop Plc perhaps if only to seperate the firm from Dunlop Plc\'s projected N2bn loss (against the backdrop of a N7bn new funds brought in this year). To encourage optimisim, DN Meyer would do well to address subjects that encourage this perception. 

 

 

 

End

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