New paint battle

Crown Paint, Sadolin, in direct attack on Plascon

Kampala, Uganda | ISAAC KHISA | The ‘paint war’ is heating up as two brands – Regal paints and Sadolin – fight the new entrant, Kansai Plascon, to gain a significant market share.

Plascon, which acquired the assets of the holders of Sadolin brand last year, is still enjoying the market dominance riding on the popularity of the former brand claiming that it has simply changed its identity.

But the status quo seems to be changing. Crown Paints, the producer of Regal Paints in partnership with AkzoNobel, the owners of Sadolin brand, will be unveiling the Shs13bn (US$3.5million) paint plant in Namamve, Kampala, to challenge Plascon’s dominance this month.

AkzoNobel appointed a competitor, Crown Paints East Africa, to manufacture and sell Sadolin Paint in East Africa including Uganda. Prior to Plascon’s entry, Sadolin enjoyed 60% of the country’s paint market.

Rakesh Rao, the Chief Executive Officer for Crown Paints East Africa told The Independent in interview that the two firms now pin their growth on the new plant.

He said the new plant will boost Regal Paints production from 1.25 million to five million litres whereas Sadolin Paint will be at 20 million litres per annum.  On the other hand, Plascon produces about 2.5million litres per annum.

“We expect that the new plant will tremendously raise our market share,” he said, adding that Crown Paints a lone command about 30% market share.

Sources familiar with the paint industry told The Independent that the demand for Sadolin Paint is on the rise due to customer loyalty and reputation.

“Most of the dealers at the moment are prefer to sell Sadolin Paint because of not only its long reputation but also the discounts the company is offering,” the source said.

“A section of them (dealers), however, are still stuck with Plascon because they had debts with the previous owners and until the debt repayments are completed, they cannot switch.”

Though the country has more than 10 paint producers only a few including Basco and Peacock, Plascon, Crown and Sadolin are influencing the trade.

This development comes as the paint demand is slowly picking up compared with the months of April and May this year due to increased construction activities, Rakesh said.

Latest data from the property agency, Knight Frank indicate an increasing stock of properties especially in Kira, Najjera, Kyanja, Namugongo, Naalya, Nakasero, Kololo, Naguru and Bugolobi.

Crown Paints and AkzoNobel’s trade deal followed the latter’s  decision to cancel the licence agreement it had with Sadolin East Africa’s new owner, Plascon, on Sept 13, 2017 citing breach of contract.

Prior to the acquisition, Sadolin Paints East Africa Limited had rights 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.

In accordance with the contractual agreement, Plascon was obliged to manufacture, sell, market and advertise Sadolin brand until the end of January this year.

The disagreement prompted AkzoNobel to partner with Crown Paints East Africa to manufacture and sell Sadolin Paint on its behalf across the region.

Registers decline in profits

This comes as Crown Paints registered 32.68 % drop in net profit for the half-year 2018 on the back of increased cost of raw materials.

The Nairobi Stock Exchange -listed paint manufacturer’s net earnings declined to Shs1.5bn in the six months period to June from Shs2.23bn million recorded last year.

Crown says adoption of new accounting standards (IFRS 9) also had an impact on its financials as the total impairment allowance and provisions for the company increased by Shs35.86bn in addition to the Shs12.76bn during the same period under review.

Last June, Crown Paints suspended its shares buy-back plan after realising that it will not create any value to the company.

In July last year during the company’s Annual General Meeting, shareholders authorised the board to purchase a maximum of 10,677,150 ordinary shares, which represented up to 15% of the issued share capital as quoted on the bourse.

This was expected to leave the company with 60.5million units issued on the NSE and was estimated to cost over Shs22.14bn.

This was seen as having potential to raise future dividend yields by reducing the market float. Crown Paints would have become the first listed firm in the country to buy back its own shares.

Prior to the share buy-back approval by shareholders, the board had assured investors the move was not after the minority shareholders’ stake and there were no future plans to delist.

The company’s share register shows that as at April 2018, 59.1 million shares were held by only three shareholders (Crown Paints & Building Products Ltd, Beaumont Property Ltd, and Barclay Holding Ltd), representing 83.11 % of the total share volume.