Crown Paints has spent the Sh711.8 million it raised from a rights issue last year on raw materials in what it says was a strategic move to manage demand for products amid rising shipping costs.
The paints manufacturer said it had moved to stocking raw materials for six months from the previous two that had been the norm on changing supplier demands.
The company raised the funds in June last year, saying it would use the cash to reduce debt and provide additional support to its regional lossmaking subsidiaries.
“The amount raised on the rights issue has gone into raw material stocking, not on paying debts as earlier intended,” chief executive Rakesh Rao told Business Daily.
He noted demand for home improvement products had gone up by 20 percent over the past two years on Covid-19 lockdowns that had made people rethink the spaces they work and live in.
Covid-induced restrictions disrupted supply chains, pushing up warehousing fees, resulting in a rise in the cost of shipping.
He said the prices of commodities such as mineral resins, additives, pigment solvents had risen by up to 100 percent due to supply chain constraints.
The cost of importing raw materials more than doubled to Sh567,800 ($5,000) per tonne from Sh227,140 ($2,000) before the outbreak of the Covid-19 pandemic and the depreciating shilling.
“This is why we injected more on raw materials — except for April and May — because this demand was not coming down. In June and July 2021, we had super demand on the sales,” he said.
The paints manufacturer posted a 15 percent net profit dip to Sh288 million in the half year to June on high raw material costs.
It had recorded net earnings of Sh339 million the year before as sales rose 22 percent to Sh6.01 billion during the review period from Sh4.9 billion in the year before.