University of Lagos Department of Finance MSc Finance (Part-time)

Business analysis framework

IPWA Plc as a case study
Chukwuemeka Olisamedua MSc Finance (Part-time) Matric no: 089025054

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1.0 Chapter 1: Market Overview

1.1 An Overview IPWA plc is the most diversified paint manufacturing Company in Nigeria, producing highly technological Marine , Protective, Packaging, Industrial and coil coatings in addition to Building Paints, Wood Finishes and Automotive Refinishes

IPWA plc is a major supplier of paints to service companies in oil and gas, steel plants, petrochemical and the refineries. Indeed, it controls about 30% of the total market in the marine and protective coatings in Nigeria. The revenue from oil and gas industry accounts for about 98% of Nigerias foreign exchange earnings. It is a key player in the marine and protective coatings market with superior technology which enables the Company to take full advantage of its competitive edge. Building Paints, Nigerlux (Superfine and Superior), Leader Gloss and Glamour Emulsion, have been certified by the Standards Organization of Nigeria to carry the Nigerian Industrial Standards (NIS) Certification Mark for product quality. We indeed, belong to the first generation of Nigerian paints to be so certified. We are looking ahead, by seriously planning to embark on ISO 14000 certification meant for the Environmental Management System. 1.1.1 COMPETITIVE EDGE OF IPWA PLC: IPWA produces an extensive range of products manufactured to achieve the critical properties required of Marine and Protective Coatings. These properties range from corrosion and fouling control to improved cosmetic appearance, chemical resistance. This therefore explains why we remain the leading supplier of the highly technological Marine and Protective Coatings for the Turn Around Maintenance (TAM) of the Port-Harcourt and Kaduna refineries, the multibillion Soku Gas Project being handled by Saipem Contracting Limited on behalf of Liquified Natural Gas (NLNG) and the Ajaokuta Steel Complex. The local production and supply of these coatings is a big boost to the Nigerian paint industry saving the Nigerian Government foreign exchange that would have expended on imported paints. In addition to the highly technological specialized paints, we equally produce high quality Building paints which are used on national monuments and landmark projects such as NNPC Head Office Complex, Abuja, the Central Bank Housing Complex in Abuja, the Bayero University Senior Staff Quarter in Kano, Surulere Central Mosque, Total Head Office Complex Abuja, Federal Secretariat, Ibadan, NEPA Zonal Office, Kaduna, to mention a few. 1.1.3 MANPOWER DEVELOPMENT HEALTH AND SAFETY: As at now, IPWA Staff strength stands at 200. It is the policy of the Company not to discriminate unfairly in considering applications for employment including those from disabled persons. All employees whether disabled or not are given opportunities to develop their experience and knowledge and to qualify for promotion in furtherance of their careers. IPWA takes keen interest in the health, safety and welfare of its workforce by providing free medical services, first and boxes at strategic locations, safety boots and other protective devices as appropriate, staff canteen at Ikeja and Oregun, contributory pension schemes for all staff. The company gives maximum support to its health and safety committee which monitors strict adherence to set standards on safety and cleanliness. We also observe an annual health and safety week. Employees are fully involved in determining the fortunes of the Company. This is achieved by ensuring effective communication between Management and Staff at all levels through regular discussions with representatives of the Senior Staff association and Junior Staff Union

Consequently, the Company is assured of the loyalty and support of its employees. Incentive schemes designed to meet the circumstances of certain categories of employees are in place. IPWA plc provides training and development programmes for all cadres of Staff in order to improve their knowledge and skills for improved performance on their jobs. This takes the form of in-house training and external courses with reputable consultants. In order to give opportunity to Staff to further develop themselves along their professional lines, the Company maintains a well equipped Library. In it are books on sciences, Economic/Commerce, Finance, Administration and General Management. We also have more than one thousand current journals and Magazines 1.1.4 Product Overview There is no real differentiation of products offered by the paint manufacturing industry. However, IPWA relies on its brand loyalty by customers relative to other marketers in determining prices of its products. The product offerings of IPWA can be broadly divided into the following categories: DECORATIVE: Diamond Heavy Textured Finish Diamond Fine Textured Finish Diamond Flat Finish Diamond Heavy Textured Finish Superior Emulsion Nigermite Emulsion Easy Coat Emulsion Nigertex Antifungus Finish Nigertex Textured Finish Nigertex Fine Build Finish Heavy Duty Emulsion PREMIUM QUALITY SOLVENT BASED Superfine Enamel Superfine Undercoat Superfine Matt Finish Superfine Egg Shell STANDARD QUALITY WATER BASED Glamour Emulsion - marine Right Emulsion - marine Glamourtex Textured Finish

STANDARD QUALITY SOLVENT BASED Leader Gloss WOOD FINISH

Cellulose Matching Stains Curtain Coating Matt Curtain Coating Gloss Cellulose Matt Lacquer One Pack Melamine Glossy Lacquer Two Pack Melamine Glossy Lacquer Two Pack Melamine Matt Lacquer High Solid Glossy Lacquer Sanding Sealer

1.1.5 DISTRIBUTORSHIP SCHEME The Company has three categories of dealers; viz, GROUP A (Sole Distributors) This category of Distributor will require to sign an annual distributorship agreement upon confirmation of distributorship (usually after six months of consistent performance). Expectations 1. 2. 3. 4. 5. 6. 7. Formal application letter to be written. A Companys Rep. to inspect outlet location. Filling of Distributor Form. Deposit/purchase of N10m. Immediate delivery of N10.0m worth of goods (4 weeks after payment). Subsequent purchases must be on Cash & Carry basis. Credit facilities shall be considered after 6 months of continuous achievement of target and Managements recommendation. 8. IPWA will support supply to large projects exceeding N3m with domicilation of payment to IPWA plc. 9. Sole Distributor can appoint distributors within its territory.

Target The minimum expected sales turn over is N3.5m per month. Supports Free painting of office. Sales Executive will visit monthly. Commission will be earned quarterly after cash purchase and certification by the auditors. Free training of personnel.

Discount Allowed Enjoys 17% 15% Rebate Payable every month with credit notes as follows, if the following monthly targets are met: Incentive for above target performance N3.50m - N4.50m N4.50m - N6.00m Above - N6.00m Rebates are payable on sales net of VAT. Penalty for not meeting expected sales turnover Forfeiture of additional rebate at the end of the year Non approval of credit facilities Downward review of discount allowable. % Rebate 17% 3% 5% 25% discount on Premium Product (Nigerlux, Nigertex etc) on Standard Product excluding Right Emulsion on Industrial & Wood Finishes

GROUP B (Distributors) This category of Distributor will require to sign an annual distributorship agreement upon confirmation of distributorship (usually after six months of consistent performance). Expectations 1. 2. 3. 4. 5. Formal application letter to be written. A Companys Rep. to inspect outlet location. Filling of Distributor Form. Initial deposit/Purchase of N5m. Credit facilities shall be considered after 6 months of continuous achievement of target Managements recommendation. 6. IPWA will support supply to large projects exceeding N1.5m with domicilation of payment to IPWA plc. 7. Sole Distributor can appoint dealers within its territory.

Target The minimum expected sales turn over is N1,000,000 per month. Supports Free painting of office. Sales Executive will visit monthly. Commission to be earned quarterly after cash purchase and certification by the auditors. Free training of personnel.

Discount Allowed Enjoys 20% 12.5% Rebate Payable every month with credit notes as follows, if the following monthly targets are met: Incentive for above target performance N1.50m N2.00m N2.00m N3.50m Above - N3.50m 1% 2% 3% % Rebate - 15% discount on Standard Product (Excluding Right Emulsion) on Premium Product (Nigerlux, Nigertex etc.) on Industrial and Wood Finishes.

1% additional rebate will be paid if annual turnover exceeds N12m Net at the end of the year. Rebates are payable on sales net of VAT. Penalty for not meeting expected sales turnover Forfeiture of additional rebate at the end of the year Non approval of credit facilities Downward review of discount allowable

GROUP C (Distributor) This category of Distributor will require to sign an annual distributorship agreement upon confirmation of distributorship (usually after six months of consistent performance). Expectations 1. 2. 3. 4. Formal application letter to be written. A Companys Rep. to inspect outlet location. Filling of Distributor Form. Initial deposit/Purchase of N1,000,000 to hold At least two (2) weeks stock.

5. Credit facilities shall be considered after one year based on performance and Managements recommendation. 6. IPWA will support supply to large projects exceeding N1.5m with domicilation of payment to IPWA plc. Sole Distributor will be aid commission and volume passed through its account. Target The minimum expected sales turn over is N800,000 per month. Supports Free painting of office. Sales Executive will visit monthly. Commission to be earned quarterly after cash purchase and certification by the auditors. Free training of personnel.

Discount Allowed Enjoys-10% discount on Standard Product (Excluding Right Emulsion/CITEC Emulsion) 12.5% on Premium Product (Nigerlux, Nigertex etc.) 7% on Industrial and Wood Finishes. Rebate Payable every month with credit notes as follows, if the following monthly targets are met: Turnover/Month (Net) N1,000,000 N1,500,000 N1,500,000 N2,000,000 Above N2,000,000 1% 2% 3% % Rebate

1% additional rebate will be paid if annual turnover exceeds N12m Net at the end of the year. Rebates are payable on sales net of VAT. Penalty for not meeting expected sales turnover Forfeiture of additional rebate at the end of the year Non approval of credit facilities Downward review of discount allowable

1.1.6 Regulatory Environment The Nigerian paint industry is regulated by several legislations, most of which are related to environmental and safety issues. These include: Factories Act 1990 Weight and Measures Act 1990 Guidelines and Standards for Environmental Pollution Control in Nigeria 1991 National Environmental Protection (Effluent Limitation) Regulations 1991 National Environmental Protection (Pollution Abatement in Industries and Facilities Generating Wastes) Regulations 1991 National Guidelines for Environmental Audit in Nigeria 1999 National Guridelines for Environmental Impact in Nigeria 1999 State Environmental Protection Agency Edicts Local Government EHS Bye-Laws The Workmen's Compensation Act 1987 Harmful Waste (Special Criminal Provisions etc) Act 1988 International Conventions, to which Nigeria is also a signatory, applicable to the paint industry in Nigeria include: Civil Liability Convention 1969 (Principles of Strict Liability and Compulsory Insurance) Dumping of Waste and other Matters Convention 1972 To be able to operate in the Nigerian paint industrial sector, a marketer is expected to have the underlisted in place: Environmental Impact Assessment of new projects and/or modernization of existing projects (Retail Outlets, Depots, Plants, etc) Environmental Audit/Evaluation Report of existing facilities (Retail Outlets, lants, Depots, etc) Storage and Sales Licenses and Permits for Depots and Retail Outlets Plants' Operating Licenses Waste Management Plan

Emergency Preparedness and Response Plan Verification Certificate for all Measuring instruments (Scales, Metres, etc) Provision of Personal Protective Equipment (PPE) for relevant staff Provision of Fire Fighting/Protection Facilities Provision of Medical Care/First Aid Facilities for all employees Payment of Local Government EHS Charges and Rates Health permit from Local Government for operating Industrial Canteen Fire Certificate Registration/Renewal of Business Premises

The Federal Ministry of Environment and the States Environmental Protection Agencies ensure that environmental policies are complied with by industry operators.

1.1.7 Macroeconomic environment Inflation in Nigeria has led to increased costs of operations over the years. Also the Naira has depreciated significantly in the last quarter of 2008. A dollar which hitherto traded at N118 appreciated against the Naira to N130 and currently trades at N150. The free fall of the naira was as a result of the fall in the country's external reserves (which was also triggered by the tumbling prices of oil in the international market. The price of raw materials continued to rise significantly in 2006. Due to political tension in the middle East and unrest in the Niger Delta, Crude prices rose sharply in august to a yearly high of $78.4 per barrel, although it significantly dipped by year end. The rise in crude that peaked at $78.4 per barrel against $35 per barrel which was the basis for the 2006 budget resulted in a quantumrise in the external reserves to $42.6bn as at the year end. the exchange rate stabilised at N126 to $! by December 2006. Towards the end of year 2006, politicak activities had become so volatile and had resulted in so much anxiety, tension, insecurity and violence that the business situation became unpredictable. MAny businesses were at a standstill. The conflict and tussles between the President, Vice and legislature were so profound, naking it difficult to predict the final outcome of all the issues. the Federal Government, who is normally the biggest spender, was not doing again that could inject funds into the economy. It was a state of stagnation for the economy and business in general. Both MAN (Manufacturers Association of Nigeria) and OPS (Organized Private Sector) were very vehement in opposing the economic indexes and statistical postulation reeled out by the Federal Government in readiness for the electioneering campaigns. The claims by the Federal Government that the country's inflation rate had gone down from 6% to about 3%, and the improvements on the GDP were all refuted by these two organizations.

1.1.7.1 Critical Success Factors Quality Control One major critical success factor for chemical and paints operators in Nigeria is quality control. Manufacturers in Nigeria are classified into tiers on the basis of the quality of their final products. The Standards Organisation of Nigeria (SON)has made stringent efforts to maintain minimum standards for paint manufacturing. Such standardization has improved the overall quality level of paints made in recent times. It therefore bestows on the lower tier companies to improve their quality levels in order to compete effectively with their more established counterparts.

Capital Adequacy Capital adequacy is one of the determinants of success in the chemical and paint industry in Nigeria and among manufacturers generally. The bigger and more successful firms are the ones with more ready access to financial capital either through internally generated sources or via facilities from financial institutions and/or the capital market. Capital, if not readily available could lead to inability of producers to expand operating and distributive capacities as well as meet up to the ever growing demand of the buying public. Distributive Capacity An effective and efficient distribution network is a key requirement for the success of paint manufacturers in Nigeria. Since paints are in high demand in virtually all areas of the country, it is pertinent that the end product gets to the final consumer as at when needed. Distribution therefore remains a key success factor.

1.1.7.2 Challenges & Risk Factors Access to Facilities Unlike in other industries, many chemical and paint manufacturers do not have established relationships with financial institutions. This limits their ability for organic growth with many of the firms limiting their financing sources to internally generated funds. Also, many of the companies in the sector are not publicly quoted and as such cannot easily generate funds from the Nigerian capital market when needed. This is one of the reasons for the high inequality among paint manufacturers in Nigeria. Concentration Risk Many producers run the risk of concentrating on a rather limited income stream with products such as paints, adhesives, wood finishes and other allied products making up a large portion of their product portfolios. The companies are therefore not well diversified and therefore cannot take advantage of risk spreading. Many of the smaller companies that concentrate solely on paint making have either been forced out of business or face difficult financial circumstances during out-of-season periods. Neglect of the Sector Over the years, the Nigerian manufacturing industry has experienced large scale neglect. The real sector contribution to overall GDP has been declining at faster rates each year as the Federal Government has been more active in the monetary sector. Recent developments however suggest that a turnaround might be in the offing with governments increased fiscal spending on the manufacturing sector.

2.0 Chapter 2: Strategy 2.1 Goals and Objectives

Mission Statement To manufacture paints and allied products that are carefully formulated to meet international standard, using the best available technology for corporate end-user and high-end consumers, employing a team of highly experienced dedicated and customer oriented warfare through process excellence. The company would become most efficient and profitable thus ensuring outstanding returns on investments for share holders. Vision Statement To be the most efficient and profitable paint manufacturing company in Nigeria.

2.2 Corporate Governance IPWA Plc's Board of Directors has primary responsibility for corporate governance. The Board is responsible for setting direction and making strategic business decisions for the Company The CEO (who is also a member of the Company's Board) meets weekly with the heads of departments to deliberate on issues affecting IPWA Plc's business operations The Company's Internal Audit department is responsible for checking departmental compliance with established business and financial controls as well as designing appropriate policies for safeguarding the Company's assets. The Company has an Audit Committee which has authority to appraise and, where appropriate, challenge the actions and judgements of IPWA Plc's management as they relate to the financial reporting process; monitor IPWA Plc's commitment to the establishment and maintenance of a satisfactory control environment and a sound system of internal control; and consider the adequacy of arrangements for external audits. COMPANY DIRECTORS Chief (Dr) Silas Bandele Daniyan (Chairman) Engr. Sulaimon Ibikunle Tella (MD/ CEO) Chief Folorunsho Daniyan Chief Emmanuel Olatunji Adesoye Sir Michael Onwuka Okeke James Alexander Melrose Patrick Chinweike Abuka Oluwagbemiga Babatunde Adesoye Mary Abike Daniyan

3.0 Chapter 3: Value creating activities 3.1 Supply chain IPWA sources its products from the following overseas and local suppliers: Chizzy Nigeria Limited Danmayo Ventures Limited Emmyson Nigeria Limited Lonela Chemical Limited Funmice Nigeria Limited Pastec Industries Limited Nampak Plc Trisa Nigeria Limited Phobica Chemical Limited Avon crowncaps and Containers (Nig.) Plc Robinson Ventures Nigeria Limited Fluid Resources Nigeria Limited The Company is not associated with any of its local suppliers and obtain all its materials at arms length. 3.2 Brands IPWA produces an extensive range of products manufactured to achieve the critical properties required of Marine and Protective Coatings. These properties range from corrosion and fouling control to improved cosmetic appearance, chemical resistance. This therefore explains why we remain the leading supplier of the highly technological Marine and Protective Coatings for the Turn Around Maintenance (TAM) of the Port-Harcourt and Kaduna refineries, the multibillion Soku Gas Project being handled by Saipem Contracting Limited on behalf of Liquified Natural Gas (NLNG) and the Ajaokuta Steel Complex. The Company aims to maintain a credible corporate image and build customers' loyalty to its products by associating its brand name (IPWA Plc) with quality and efficient customer service. Products marketed by the company, amongst others are: Building & Industrial Paints Marine / Protective Coatings Wood Finishes / Auto refinishes Packaging Coating & Other Allied products And Provide Services That Conform To International Standards That Surpass Customers' Expectations At A Price That Represent Value

3.3 Customers The Company via its marketing arm has customers spread all over the country, with those in the Lagos area generating about 45% of the Company's revenue. For effective customer service, the Company has categorised its customers into Retail and Commercial. Marketing activities are now carried out along the customer category lines as against product lines used in prior year. The Company has placed more emphasis on customer service in recent times. To this end, it has refurbished a number of retail outlets (service stations) across the country (thereby giving them improved look) and trained service station attendants & dealers on good ethics of customer service. The company has also embarked on several promotions with a view to maintaining market share and increase turnover.

3.4 People Managers and staff possess requisite skills and experience to perform tasks assigned to them. Most of the business unit managers are young, dynamic and have the zeal to deliver the Company's goals. This is evident from various show-meetings held with them. At the beginning of each year, staff members agree their business/personal objectives with their supervisors and line managers. Performance of all staff members are assessed in line with the set objectives using the Company's standard appraisal forms. Staff turnover has been very low apparently due to competitive salaries paid in the industry as well as management style of the Company.

3.4 Social environment & ethics The Company has established policies with respect to enrironment, health and safety. These are clearly documented and communicated to all staff. The Company's EHS department has the primary responsiblity of managing the Company's EHS policies and programmes. The Company expects all its staff to comply with standard ethical behaviour documented in the Condition of Service Manual. The Company further attempts to be perceived as solid workplace by offering competitive salary, other compensation forms, and benefits. In November 2006, IPWA Plc was endorsed by the International Standards Organization for its products and service delivery by the award of the NIS ISO 9001:2000 certification. With this certification, IPWA Plc became one of the few companies in Nigeria to have its processes, products and services comprehensively audited and endorsed by ISO as meeting international services. ISO 9001:2000 is a quality management system that demonstrates through documentation, that a company is quality conscious and is able to meet the quality needs of its customers. The award of the ISO 9001:2000 certification came after a rigorous and extensive audit of the company's facilities, depots, terminals, and offices by inspectors from the Standards Organisation of Nigeria (SON).