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The new move tightens competition in the region’s paint industry
Kampala, Uganda | ISAAC KHISA | Dutch paints and Coatings Company AkzoNobel Coatings International BV, which owns the Sadolin brand name in Uganda, has appointed the regional paint maker, Crown Paints East Africa, to manufacture and sell Sadolin Paint in East Africa.
This follows AkzoNobel’s decision to cancel the licence agreement it had with Sadolin East Africa’s new owner, Kansai Plascon, on Sept. 13 citing breach of contract.
Prior to the acquisition, Sadolin Paints East Africa Limited had the right to manufacture and sell products with Sadolin as the trade name in Kenya, Uganda, Rwanda, Tanzania, Zanzibar, Burundi, South Sudan, Ethiopia, Democratic Republic of Congo (excluding Kinshasa and Lubumbashi), Somalia and Djibouti.
Johann Smidt, the director for AkzoNobel Decorative Paints in Sub Saharan Africa, told his guests during the re-launch of Sadolin Paints Uganda at the Kampala Sheraton Hotel on Sept. 28 that the Dutch-based firm, with operations in 80 countries, is now setting up its own Shs10bn plant at the Kampala Industrial and Business Park, Namanve to produce Sadolin Paint for local and regional markets.
“Our Sadolin plant in the KIBP now under construction will be the primary site for manufacturing and distribution of Sadolin,” he said.
“Regal Paints, an 100% owned subsidiary of Crown Paints East Africa, is our new sales and distribution partner and will service Uganda and the region with excellence.”
Smidt, who remained cagey on the terms of agreement, simply said Crown Paints East Africa will be paid for the services rendered.
Before the entry of Kansai Plascon, Sadolin boasted about 60% market share of Uganda’s paint industry that has nearly 10 companies. It is on the back of this presumed large market share that AkzoNobel is struggling to outcompete its new rival- Kansai Plascon and retain its position.
This new development comes at the time the Lusaka-based Common Market for Eastern and Southern Africa (COMESA) Competition Commission is faulting the Dutch paint manufacturer of allegedly failing to notify it about their acquisition of a local paints manufacturer in the region.
But executives from the paint firms, said Sadolin is entering the region’s coat and paint industry as an independent firm and not acquiring or merging with any other existing paint firm.
Rakesh Rao, the chief executive officer for Crown Paints East Africa said their partnership signals a strong statement on AkzoNobel‘s investments and continuity of the Sadolin brand in Uganda and the region.
“Sadolin brand has been a household name for many years,” he said adding, “We embrace the level of professionalism, quality and global best practises that the brand enforces and we are thrilled to enter into this partnership and to facilitate continued supply of Sadolin in the region.”
He said the firm will sell its own Regal Paint products besides Sadolin Paints, with each product seen as premium brand based on the market share it commands on various markets.
He also added that the new partnership will help boost the Nairobi Securities Exchange-listed firm to stir its revenue growth.
Latest financial performance shows that Crown Paints East Africa registered a 51.6 % increase in the half year net profit ending June 30, 2017 to Kshs 60.4million, helped by a lower tax bill.
This came as its current tax bill dropped 18.5 % to Kshs 49.6 million, boosting the bottom-line as the pre-tax earnings expanded at a slower rate of 9.2 % to Kshs 110.1 million.
The firm’s sales rose 5.5 % to Kshs 3.7 billion, adding that the cost of raw materials increased in the review period and is expected to impact profitability in the full year.
In 2015, Crown Paints East Africa posted a combined loss in its subsidiaries –Uganda, Tanzania and Rwanda– worth $2.4 million citing depreciation of the currency.
Crown Paints Tanzania posted a loss of about $2 million; Regal Paints Uganda Industries posted a loss of $350,000; and Crown Paints Rwanda a loss of $45,000.
AkzoNobel’s move to cut ties with Kansai Palscon stemmed from over-labelling of Sadolin packs with Plascon labels and the latter’s vigorous advertisement in the media claiming that Sadolin had migrated to the Japanese firm.
This was, however, in contravention of the contractual agreement signed, in which Kansai Palscon was to manufacture, sell, market and advertise Sadolin brand until the end of January 2018.
Earlier in July, Sadolin Uganda filed an injunction in the commercial court against AkzoNobel to stop them from terminating a deal it had with Akzo Nobel saying the move could hurt their business.
But in August, AkzoNobel won the court battle against the licensee paving way for it to engage freely with the market to ensure that there’s supply of the Sadolin brand whose fate was then hanging in balance.
Similarly, Sadolin Kenya lost the right to use the Sadolin name in Kenya when Akzo Nobel cut them off and the latter firm is now planning to start manufacturing its own product using a newly formed company known as Akzo Nobel Kenya.
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