How Crown Paints brushed off Covid, subsidiary losses

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How Crown Paints brushed off Covid, subsidiary losses


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Rakesh Rao, Group CEO Crown Paints Kenya Plc during the interview at the Nairobi Serena Hotel on April 14, 2021. PHOTO | DIANA NGILA | NMG

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Summary

  • Mr Rao spoke to the Business Daily on how he oversaw the paint manufacturer’s recovery from losses in the Ugandan, Tanzanian and Rwandese markets, the coronavirus pandemic and his exit plan for the company.

Rakesh Rao has been at the corner office of Kenya’s biggest paint maker for 17 years now. This now makes him one of the longest-serving chief executives of a firm listed at the Nairobi Securities Exchange #ticker:NSE . But for him, this is still not long enough to call it a day.

Mr Rao spoke to the Business Daily on how he oversaw the paint manufacturer’s recovery from losses in the Ugandan, Tanzanian and Rwandese markets, the coronavirus pandemic and his exit plan for the company.

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HOW DID THE OUTBREAK OF THE CORONAVIRUS AND THE RESTRICTIONS IMPOSED AFFECT BUSINESS?

Business was greatly interrupted by the pandemic and the main hit was the cost of raw materials going up by nearly 50 percent. This had a big impact on margins last year.

Many countries reduced the production of raw materials and demand went up. Logistics became a nightmare and like for us, freight went up to $5,000 per tonne from $2,000.

This increase was monumental on our business given that we import over 95 percent of our raw materials.

HOW DID CROWN ADJUST TO THE TOUGH TIMES, AND WHAT IS THE WAY FORWARD GIVEN THAT GLOBAL ECONOMIES AND ALL SECTORS OF THE ECONOMY ARE PICKING UP?

We did not achieve our targets last year but again this was mainly due to the jump in operating costs. However, we cannot pass on an entire price increase to the market and so what we are doing is that we are increasing prices of our paints in the four countries.

The increase will be highest in Kenya at eight percent and this is because, in Kenya, premium paints account for 70 percent of our market while in Uganda, Rwanda and Tanzania they are mainly economy markets.

But we are watching the market dynamics because maybe we may need to increase the prices by up to 15 percent in the future. We wait for the right time, but what is for sure is that we have to increase prices.

IN 2020, CROWN DISCLOSED THAT IT WROTE OFF SH653 MILLION INVESTED IN ITS SUBSIDIARIES IN UGANDA AND TANZANIA. WHAT ARE THE PLANS REGARDING THESE MARKETS?

Those were 2017 and 2018 and they were some of the toughest times for Crown. From 2019 onwards, we started making profits in these subsidiaries and I can confidently say that we are in the flying mode in these countries.

There is no rethinking our plans for these three subsidiaries because we believe and see from the performance that they are headed in the right direction. We can only think of how to grow our market shares in these countries.

ARE THERE PLANS TO VENTURE OUTSIDE THE FOUR COUNTRIES IN EAST AFRICA AND IF SO, WHERE NEXT?

We have established a substantial market share in the regional markets. We are number two in Uganda, number four in Tanzania and two in Rwanda. But we want to have 20 percent share in each of the countries. There is a lot of potential in these markets and getting super control is our priority for now.

We first want to make these subsidiaries work on their own in the best way as it is happening in Kenya. Our Kenyan market is very mature and Uganda, Tanzania and Rwanda are slowly growing.

HOW DO YOU PLAN TO INCREASE THE REVENUES FROM THE KENYAN MARKET, WHICH IS YOUR BIGGEST IN THE REGION?

Kenya is our leading market in the region. People know the premium products, architects, professionals all know the premium and for us to sell economy will be like living hand-to-mouth. The premium market locally accounts for 70 percent of our sales but there is room for improvement.

SEVERAL PAINT MANUFACTURERS ARE COMING UP, HOW IS CROWN COPING WITH THE INCREASING COMPETITION?

We have showrooms in Kenya, about 50 of them, a mix of six owned by Crown and we are running others through dealerships.

At the showrooms, customers can feel and see how particular paints and mixes will look on their walls. This is one of our key concepts that we are using to maintain our market and bring new customers on board.

DOES CROWN HAVE PLANS TO DIVERSIFY ITS PRODUCT RANGE IN THE FOUR MARKETS?

For now, there are no plans to launch new products because remember we are also observing how the products we recently launched are doing. We have been doing waterproofing for the past four years and this is a key product range for any paint-making company in the world.

FOR HOW MANY YEARS DO YOU SEE YOURSELF LEADING THE COMPANY NOW THAT YOU ARE APPROACHING TWO DECADES AT ITS HELM AND NO DOUBT ONE OF THE LONGEST-SERVING CEOS OF A LISTED FIRM?

A succession plan is required and I see myself in this seat for a maximum of five years. Theories have come up and I keep reading that people should retire at 60 years because efficiency goes down as one ages, but I think this is wrong thinking.

After 60, the brain becomes sharper because you have a lot of ideas on how to last the tough times much as we need to free up opportunities for the youth.

I came here in 2005 when Crown used to do a turnover of about Sh1.2 billion in all its markets and this year we are looking at Sh10 billion.

I would be happy if in the next few years we hit a turnover of Sh14 billion. Achieving this will make me feel that I have done my bit then I can now look at exiting.

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