Crown Paints building on domestic strength as offshore units struggle

Crown Paints CEO Rakesh Rao                                                        CREDIT| Crown Paints

Paints manufacturer Crown Paints (BERG), also called Crown Berger (BERG), plans to set up strategic county depots across Kenya as it eyes government development projects. The Kenyan government has set aside 7,000 acres of land across the 47 counties and allocated billions of shillings for a national housing programme aimed at easing the burden of owning home for low-income households.

The government last month began inviting bids from contractors and suppliers of construction materials for the national affordable housing projects it is rolling out in the counties. More than Ksh5 billion will be spent on government-related housing development projects this year and part of next year, according to the Treasury’s 2019/2020 budget.

For the procurement of the construction materials for the affordable housing projects, the government is prioritizing sourcing from local suppliers. That is why Crown Paints wants to locate its depots close to where the government housing projects are taking place. The company has already identified spots in Nakuru and Eldoret for its strategic depots aimed to supplying government projects in these regions. Crown Paints will open more depots in other counties.

Naivasha special economic zone
Setting up a depot in Nakuru would be a much more strategic venture for Crown Paints. Besides the national housing programme, the government also has created a special economic zone in Naivasha area of Nakuru county. The government purchased 1,000 acres of land for the Naivasha Industrial Park and has struck deals with the governments of Uganda and South Sudan to construct dry ports there to ease the flow of goods from Kenya to the countries. Uganda and South Sudan use the Kenyan port of Mombasa to receive the goods they import from overseas.

The Naivasha dry ports will make it easier for the countries to collect their imports that flow through Kenya. The development of the Naivasha industrial park promises to increase demand for paints, thereby boosting sales at Crown Paints.

Kenya is Crown Paint’s economic backbone
Crown Paints’ plans to extend its footprint in Kenya through strategic county depots comes as the company increasingly counts on the Kenyan market to drive its growth. Crown Paints also has operations in Uganda, Tanzania and Rwanda, but these regional subsidiaries are struggling and have become a huge burden to their parent. In 2018, Crown Paints’ regional subsidiaries posted a combined loss of Ksh275.4 million, with the loss more than doubling from Ksh109.7 million in 2017. Crown Paints also in 2018 wrote off more than Ksh908 million in unpaid debts owed to it by its regional subsidiaries.

Strong performance in the Kenyan market more than offset the weakness in Crown Paints’ regional units in 2018, resulting in the company reporting overall profit of Ksh183.8 million for the year. But that was still lower than Ksh223.3 million profit in 2017 as the burden from the loss-making regional units was bigger in 2018.

Crown Paints shares fell 8% in the week ended July 5 to close at Ksh80.