Crown Paints struggling to keep regional units afloat

CREDIT| Crown Paints

Paints manufacturer Crown Paints, which trades as Crown Berger (BERG), appears to have run into strong headwinds in its regional expansion drive as the company has had to foot the bills for its loss-making East African subsidiaries, which is now weighing down the company’s financial results.

Crown Paints’ units in Uganda, Tanzania and Rwanda posted a combined loss of Ksh275.4 million in the financial year ended December 2018. The loss from these regional subsidiaries rose from Ksh109.7 million in 2017.

The crown is fading

With these regional units continuing to make losses, they have been unable to repay loans extended to them by the parent, resulting in Crown Paints booking a massive write-off in the 2018 financial year. The Uganda unit, known as Regal Paints, owed its parent Ksh379.8 million, the Tanzania unit owed Ksh355.7 million and the Rwanda unit owed Ksh172.6 million. Crown Paints no longer expects to recover these loans to the subsidiaries, resulting in the company writing off more than Ksh908 million in debt owed to it by the subsidiaries in 2018.

Profit dips as weak subsidiaries weigh on results

Although Crown Paints has shown commitment to continue extending financial support to its regional subsidiaries, continued loss-making at the subsidiaries threaten to hurt its financial performance and weaken its financial position. Revenue rose 13% to Ksh8.3 billion at Crown Paints in 2018, but soaring costs because of the burden of bankrolling the loss-making regional subsidiaries resulted in the company’s profit dropping to Ksh183.8 million in 2018 from Ksh223.3 million in 2017.

ARM Cement attempted an ill-fated regional expansion

But Crown Paints is not the only Kenyan corporation whose appetite for expansion in the East African region has run into challenges. ARM Cement attempted an ill-fated regional expansion, which culminated in the company being sold for only a tiny fraction of its one-time peak valuation.

From early 2000, ARM sought to expand and diversify its business, entering into Tanzania and Rwanda markets and venturing into new business areas such as manufacturing farm fertilizers and industrial materials in addition to its core cement operation. But the aggressive expansion drove ARM deep into debt and weakened its financial results. ARM was sold in May this year to National Cement Company for Ksh5 billion and at that time the company owed its creditors Ksh19 billion.