Crown Paints shelves plans to expand to region

Regional paint maker Crown Paints Kenya Ltd has shelved plans to expand to more countries in the region as its existing subsidiaries are yet to take off due to market challenges.

Crown’s operations in Kenya, Uganda, Tanzania and Rwanda are facing a cash crunch with the firm’s CEO Rakesh Rao saying it is “tough to do business in the region.”

“Things are hard across Uganda, Tanzania and Rwanda,” he said.

“The major problem we have is a cash crunch; demand has slowed down and money is not coming in.”

Two years ago, the firm embarked on an aggressive regional expansion plan to Rwanda and Tanzania to reduce its reliance on Kenya and benefit from potential growth opportunities in the new markets.

In 2014 the company announced plans to set up factories in Ethiopia and South Sudan, but has now put them on hold, saying it will only distribute to these markets from Kampala or Nairobi.

Losses in subsidiaries

Crown Paints has posted losses in its subsidiaries in the past financial year — with the units posting a combined loss of Sh240.3 million in the year ended December 2015.

Crown Paints Tanzania posted a loss of Sh199 million; Regal Paints Uganda Industries posted a loss of Sh35 million; and Crown Paints Rwanda a loss of Sh4.5 million.

The firm, which is listed on the Nairobi Securities Exchange, said it would invest $3.6 million (about Sh369.4 million) in 18 months in the Tanzanian subsidiary and $2.25 million (about Sh230.85 million) in the Rwandan branch.

READ: Auditor raises the red flag on Crown Paints units’ losses

Investors in construction are being cautious due to the upcoming elections in Kenya and Rwanda which have seen the firm struggle. Painting accounts for two to four per cent of the typical total construction cost.

Mr Rao said that the weakening shilling has also put pressure on its profit margins, as more than 70 per cent of its raw materials are imported.

The strong dollar has been a blow to manufacturers who have to import raw materials such as titanium oxide, oil, resin and other materials required to make paint.

CrownPaints is diversifying into eco-friendly paints to meet increased demand for green construction materials.

“The eco-friendly paints are popular with green buildings in the region, our main market is institutional sales, especially hotels, the organic paint is good for babies or expectant women’s rooms, as it does not produce chemicals,” said Mr Rao.