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How Eveready East Africa chose to close Nakuru plant

Jackson Mutua, Eveready EA managing director. He says the firm will introduce five new products in the market in the next three years even as they cut costs from the Egypt move. PHOTO | SALATON NJAU |
Jackson Mutua, Eveready EA managing director. He says the firm will introduce five new products in the market in the next three years even as they cut costs from the Egypt move. PHOTO | SALATON NJAU |   NATION MEDIA GROUP

The factory closure announced on Monday by Eveready East Africa did not come as a surprise to many since the firm has been on the ropes for a while.

The management has persistently blamed the woes of the Nakuru-based manufacturer on cheap imports.

In the full-year to September 2013, Eveready East Africa’s net profit fell 58.7 per cent to Sh44.1 million from Sh70 million the previous year.

Jackson Mutua, Eveready’s managing director for three years, talked to the Business Daily about the plant’s closure and the strategic plan to steer the business towards a possibly more profitable course.

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Eveready is an iconic brand. Most Kenyans remember with nostalgia the Shika Paka Power advertisements of yesteryears. How does it feel to be the person in charge when the decision to close the factory was made?

It is was a moment of mixed emotions for me. We put in a good fight to protect the factory from closure, more importantly for the 99 Kenyans whom we had to let go.

However, as a chief executive, I have to balance the interests of the shareholders and the employees and steer the company in a direction of sustainable business.

It is a decision that had to be made and, unfortunately, I was the person who had to make the call.

For how long have you seen this closure coming?

We have been discussing this with the board for the past one and a half years. We evaluated various options. A lot of effort was put to ensure the factory remains sustainable.

My predecessor continuously petitioned the government to ensure all products meet standards and all players operate fairly. If that was done, we would have been able to compete with any player.

Eveready’s management has persistently complained about cheap and illegal imports hurting business. Expound?

The D-size battery cell is the only product we used to manufacture locally, targeting low-end consumers who do not have electricity.

If you go to places like Kamukunji, the leading D-size battery product is ruling the market despite being on Kenya Bureau of Standards’ banned list (Name withheld as it is not on the most recent list of banned products).

Since they do not pay taxes, they are able to set their price at almost half that of Eveready and attract consumers who purchase purely on price and short-term needs.

How bad was the situation as far as production is concerned?

The annual production by the time of the factory’s closure was between 40 and 50 million batteries. Ten years ago, we used to manufacture about 180 million batteries every year.

However, the battery market has not gone down. Kenyans still buy about 180 million cells every year but now the market has been taken over by illicit traders.

What was the asset worth of the Nakuru manufacturing plant?

The factory sits on 18.5 acres of land, which could be worth Sh370 million.

We have another two acres in Milimani (also in Nakuru) which could be priced a bit higher than the factory land.

The equipment is worth between Sh70 million and Sh100 million while the buildings, like warehouses and offices, are all worth about Sh50 million.

You announced that Eveready will soon be making its debut in real estate. What do you have on the cards?

The board is engaging three developers to narrow down on the most ideal ventures. At the factory site, there is an opportunity to construct a shopping mall or a business park, with a hotel built in either of them.

We could build a hotel or put up a housing project on the Milimani property. Currently there is an unoccupied maisonette on the land which we will demolish and put up a housing project such as apartments.

I expect the company to reach solid agreements by mid next year, including whether we will fund the projects through debt or equity.

What other diversification plans do you have in mind?

By 2017, we plan to introduce five new products in the field of energy, household and personal care. We have already launched car batteries in the past two months and have signed a regional distribution deal with Yana Tyres.

By November, we will have launched incandescent and energy-saving bulbs in partnership with a supplier from the UK.

Next year, we will make our debut in the household and personal care segment.

Eveready will be shipping D-size batteries for the local and regional market from Energizer Egypt. Why did you settle on Egypt?

With Energizer Egypt, we have agreed on a 60-day open credit arrangement for products that are ready for the market.

This will cut our cash conversion period from six months to just a month, bringing down our financing costs by close to 70 per cent. Egypt’s government has also clamped down on cheap imports and legitimate manufacturers are still producing significant volumes and enjoying great economies of scale.

Power and labour costs in Egypt still remain way lower than in Kenya, allowing companies to produce commodities at lower costs.

Eveready is going to get products that are slightly cheaper than the cost at which we used to manufacture locally, hence increasing our margins.

Some people have accused Eveready of being slow to innovate when products like rechargeable batteries and the rural electrification plan came into the picture.

I do not think there is any company that has been more innovative in the battery business than ourselves locally. Batteries are gadget-driven and we currently have the full range of batteries for whatever gadget.

When it comes to rural electrification, if a person living upcountry and who uses one torch gets connected to power, he would buy several electronic gadgets that use remote controls.

That would mean more sales for us. If the entire country were to be connected to the power grid, Eveready would enjoy supernormal profits.

Eveready’s share price touched a near five-year high a day after announcing the closure of your factory. What’s your take on that?

The market is saying they have evaluated our model and they seem to buy into our business direction. This to me is a strong vote of confidence.

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