High operating costs hurt Crown Paints’ net profit
Crown CEO Rakesh Rao says firm spent more than Sh94.5 million in Tanzania and Uganda on advertising. PHOTO | FILE
What you need to know:
Crown Paints’ revenues jumped 17 per cent to Sh6 billion, underlining the impact of the high operating costs that saw its net margins drop to 0.3 per cent from 4.1 per cent.
The increased marketing effort is aimed at boosting sales of the regional subsidiaries.
High operating expenses, including marketing costs, pulled down Crown Paints’ net profit in the year ended December by 91 per cent to Sh19.7 million compared to Sh213.8 million the year before.
The firm’s revenues jumped 17 per cent to Sh6 billion, underlining the impact of the high operating costs that saw its net margins drop to 0.3 per cent from 4.1 per cent.
“We spent more than $1 million (Sh94.5 million) in Tanzania and Uganda on advertising, putting up billboards, running campaigns and adverts,” Rakesh Rao, the firm’s chief executive had said after announcing the profit warning in February.
The increased marketing effort is aimed at boosting sales of the regional subsidiaries which the company says experienced “very challenging market dynamics” in the period, signalling significant profit declines.
Crown is operating relatively new subsidiaries in Tanzania and Uganda and opposition from incumbent competitors has forced it into aggressive marketing to secure market share.
The company’s liquidity position has worsened as cash flows from operations last year stood at minus Sh9.82 million compared to a positive Sh110.7 million position in 2013.
Net profit for the half year to June 2014 stood at Sh109.34 million, indicating that the 91 per cent decline in full year earnings came in the second half.
The firm’s income statement does not show its total costs or a breakdown of the same, including administrative expenses and cost of goods sold.
The paint manufacturer is in the list of over 13 listed companies that have announced profit warnings for 2014 results, showing profit drops of 25 per cent or more.
