NAIROBI, KENYA, AUGUST 31 ―Regional paint manufacturer-Crown Paints Kenya Limited (Plc) has warned over high costs of production which are likely to eat into its full year profits.
This comes as the Nairobi Securities Exchange listed firm contemplate on how to improve its second half of the year after a dismal performance in half one, which saw profits dip 32.7 per cent.
Crown’s net profit for the year to June closed at Ksh40.7 million down from ksh60.5 million the firm reported in a similar period last year.
This is despite a 5.4 per cent increase in turnover, where revenues rose to Ksh3.9 billion up from Ksh3.7 billion in a corresponding period last year.
According to the firm’s financial statement for the period ended June 30, 2018, cash used in operating activities has already doubled what the firm spent in half year 2017.
During the period under review, net cash that went into operating activities stood at Ksh167.7 million compared to Ksh197.3 million spent in the entire 2017.
“The cost of raw material has increased over the year and is expected to affect profitability for the year,” the management said in its financial statement.
Total impairment allowance and provisions for the Crown Group increased by Ksh972 million in addition to the Ksh346 million as at December 31, 2017 as a result of the IFRS 9 Financial Instruments which came into place in Kenya in January.
The company had in January this year warned of higher paint prices as a result of high costs of production which increased from July last year.
The firm’s products were also affected by the long electioneering period witnessed in Kenya last year as key industries such as construction stalled.
The sector was one of the hardest hit realizing only seven to eight per cent growth.
Crown Paints CEO Rakesh Rao, while outlining the company’s 2018 strategy earlier in January, however exuded confidence the sector would bounce back in the next two years to register full potential and boost the firm’s earnings.
The production costs were expected to affect the prices of paints by between five and seven per cent (upwards).
The costs are mainly involved with the recent global rise in prices of titanium dioxide (TiO2), a key component (raw material) in paint manufacturing.
The hike in TiO2 prices was linked to the shutdown of large manufacturing plants globally.
According to Rao, local manufacturers used to buy titanium oxide at $2,000 per tonne but new prices pushed a tonne to $3,600.
Crown paints claims 60 per cent of market-share among the premium brands and 24 per cent of the low-end segment.