Crown Paints Kenya (BERG.ke) 2018 Annual Report

We have extracted below the Chairman’s Statement from the 2018 Annual report Crown Paints Kenya (BERG.ke), listed on the Nairobi Securities Stock Exchange:

The year 2018, has been a year with mixed results in which we recorded a growth in sales and gross profit but a decrease in profit before tax.

During the year Kenya showed a return to economic growth as its GDP grew an estimated 5.9% in 2018, from 4.9% in 2017 as the economy recovered from the effects of the prolonged electioneering period of 2017. The business environment improved as political stability and business confidence returned thus leading to a better output from the real estate and manufacturing sectors. The exchange rate during 2018 showed better stability than in 2017 which was of benefit to our company, taking into consideration that up to 65% of our raw materials are imported. However, despite the reduction in the interest rate to 9% in July 2018, the private sector especially small and medium enterprises faced a reduction in access to credit hence funding for their businesses.

Performance review

Overall the company performance for the subsidiaries Crown Paints Tanzania Ltd, Regal Paints Uganda Ltd and Crown Paints Rwanda Ltd remained depressed while the Kenyan performance though remaining profitable declined marginally due to changes in accounting for impairment losses in its financial assets. (new IFRS 9).

Our revenue grew by 13% to KShs 8.3 billion during 2018 up from KShs. 7.3 billion in 2017. At the gross profit level, the business remained positive but, due to an increase in operating costs the Company profit before tax decreased by 1% to KShs. 395 Million down from KShs. 398 in the previous year. Despite the drop-in profit before tax, the Company generated positive cash inflows of KShs. 332 Million as compared to a cash outflow of KShs. 114 Million in 2017.

Our Company is banking on the long-term business as we position our brand in the market to meet our customers changing needs. Our strategy for the region was well carried out by our dedicated team of management and staff with the support of our business partners.

Regional Market

On the regional front, the political environment has not led to a revamp in market activity in the paint sector of the construction industry. In Tanzania for example, there was slow growth because of uncertainty in the business environment and the recent reduction in foreign and domestic investment which was affected by the change in government policies. The Tanzanian market being largely an economy market, profitability remained under pressure due to cut throat competition.

Despite the enhanced regional integration through the East African Community, member States disputes and the spill-over effects of other neighboring countries conflict, continued to pose a risk to growth in the region. These challenges are constraining investment and market growth, and as a result are detrimental to the economic performance in the entire East African region.

In response to this, we continued to launch customer excellence initiatives which together with our strong brand leadership are expected to enable us to grow and remain relevant in the market.

Corporate Governance

As a Board we remained committed to the values of good corporate governance. To this end, we enhanced our risk management practices that identified and ensured that the management proactively dealt with any risks that may have occurred during the year.

2019 outlook

We as a Board will continue to remain focused on the principles and values that have held high our Crown Brand and will continue to invest in our people and resources to enable us to approach the year 2019 with greater hope. For our region in 2019, we envision that the economic environment will be stable and with an increased investor confidence level where the business environment improves leading to enhanced spending by our customers.

PERFORMANCE

Our revenue grew by 13% to KShs. 8.3 billion during 2018.

We also look forward to the government investing heavily in its infrastructure projects and easing of political uncertainties to propel greater growth.

Appreciation

Finally, but most importantly, on behalf of the Board I want to extend my heartfelt gratitude to our shareholders, employees, customers and partners for their continued and inspiring support towards creating more value for all stakeholders. To my fellow directors, I thank you for your dedication, support towards our Company throughout the year.

Mhamud Charania
Chairman