Manufacturers hard hit as earnings drop

Rakesh Rao, the chief executive officer at Crown Paints, cuts the image of a man carrying the whole world on his shoulders.

You would expect to find him bubbly and dusting his suit to attend a manufacturing industry sales party, now that the Covid-19 pandemic has taken away the cheap imports nightmare that has hurt the sector for decades.

But as we are ushered into Mr Rao’s corner office at Crown Paints head office in Nairobi’s Industrial Area, we find a worried man. He bravely wears the demeanour of a person who is carrying more bad news than he is willing to deliver.

In just two months, he has seen sales tumble by more than a third. Ironically, this would have been the best time, the dream of any manufacturer, given that the pandemic has handed them an edge that they have not had for decades.

CONTAINMENT MEASURES

He has just ended a video-conference with his office in Mombasa, having been cut off by containment measures. He is preparing to have another meeting with his Kisumu office. The subject of these meetings is sales and how to survive the sharp drop in business.
He says he has already set in motion a plan on how to deal with wage bill after revenues dropped below the 60 per cent threshold. Most of his staff already know what will happen when this happens: pay cuts.

“We were okay until March. But after the lockdowns in Uganda and Rwanda and the customers stopped orders due to the uncertainty that came with the cessation of movement, our sales dropped by about 40 per cent,” Mr Rao says.

“ Priorities of most of our customers changed to survival. Most are now focused on essentials like food and conserving cash. The social distance rules also forced many construction sites to close down,” he says.

The fortunes of the paint manufacturer are intertwined with those of the real estate sector and once it sneezes, Crown Paints, just like the rest of the paint makers, catches a cold. With construction sites shut or operating on minimal numbers, order numbers for paint and other accessories for home décor have nosedived.

A walk through its show house, where on good days would be filled by promising customers, some window-shopping, others having front row textural feel of how what they would buy would look like, shows just how bad the business is. Only a handful of customers can be spotted roaming the floor.

CAPITAL INTENSIVE

The firm’s warehouse downstairs is filling with paint faster than the orders are streaming in. It is only a matter of time before it will be too full to take any more stock. He says he has had to put on hold any capital intensive investment plans the company had for the year.

He has also cut the marketing budget as part of a cash conservation strategy, which has been adopted by most companies across all major sectors. He has further diversified to manufacturing of hand sanitisers, which has morphed into a-Sh500-million industry a month.

The picture is almost the same from one company after the other that we visit on Lunga Lunga Road, which hosts dozen of other manufactures dealing in all manner of things from maize flour, sweets, bread to plastics.

Most activity, however, appears to be in those entities making food and other food related products, whose entrances are packed by trucks waiting on the line to pick their shipment.
A visit to Kenpoly, which sales plastics, reveals some degree of normalcy. Sales representatives are busy taking orders of bulk buyers with trucks reversing into their warehouses to collect their orders.
Global lockdown

However, an attendant tells us that this is nowhere near their peak days when things were normal. He said the parking outside would be full of trucks and their shops would be busier, at least threefold.
There are also dozens of distributors in the back streets, among them the gas and oil distributors.

Truck drivers waiting on the line tell us business has reduced by more than a third, given that many of the small oil marketers are not selling as much oil as they used to since most people are no longer driving.

LOW FUEL PRICES

This should have been the best time for a motorist given the low fuel prices last witnessed more than a decade ago. But with most cars rotting away in the estate parking lots and people stopped from driving upcountry, this benefit has been lost to most.

Not too far away on Enterprise Road is Gearbox Kenya, a technology firm that markets itself as a hardware prototyping space, which allows young entrepreneurs and engineers to come up with designs and fabricate their innovations.

On a good day, their academy would have several students learning, researching, designing, making or testing their innovations before deployment to the market. But this is not that time.
Students are at home and trying to learn online, which is a nightmare for practical subjects that require physical presence in the laboratory.

The global lockdown has also made it difficult to import various gadgets from China that are used in prototyping.

“It is impossible to carry a welding station to homes and since students cannot be here, it is difficult to continue with the training. Most supplies we use to make our components such as censors are imported and Covid-19 is making this hard,” Mr Ngugi Ephantus, who heads the Gearbox academy, told the Nation in an interview.

His academy at the moment is coming up with prototypes of cheaper ventilators, oxygen concentrators, 3D printed masks and protective goggles for health workers at the frontline in line with the demands of current environment.

You would expect alcohol manufacturers to be laughing all the way to the bank now that people are at home and idle.

LOSING SALES

A drive through Ruaraka, where East African Breweries is located, shows things are not rosy. The parking lot, which is usually a beehive of activity with trucks squeezing in one after the other, is now sluggish. With most bars and social places shut, the brewer is losing sales at an unprecedented scale.
Last week, the beer manufacturer — the largest in the — gave a peek into what is really happening from a sales perspective after it issued a profit warning, which means that it expects its profits to shrink by at least one quarter in its current financial year.

The beer maker lamented that the Covid-19 global pandemic, and response measures taken across the region, had negatively affected its business.

“Consequently, the Board of Directors of the Company hereby informs its shareholders and the general public that EABL’s current performance forecast, indicates a decline in profit after tax of approximately 25 per cent for the financial year ending June 30, 2020 in comparison to the previous,” the company said in a public notice signed by its chairperson, Mr Martin Oduor-Otieno, in a press statement over the weekend.

GLOBAL SUPPLY CHAIN

One of the biggest challenges for the sector remains sourcing for inputs at a time when shutdowns continue to disrupt global supply chains.

A survey by Kenya Association of Manufacturers (KAM) in the first quarter of this year revealed that 77.97 per cent of its members source their inputs or export to China.

KAM has been at the forefront in pushing for its members to make the most out of the current situation. It has raised the alarm at delays in disbursing about Sh27 billion in Value Added Tax (VAT) refunds to help its members remain afloat. VAT refunds have always been a point of collision between manufactures and the Kenya Revenue Authority.

“The growth is slowing down in comparison to the projections. This should be a concern for all of us because manufacturing is a very large job creator and one of the sectors that link with agriculture and the transport and logistics,” KAM Chief Executive Phyllis Wakiaga said an interview with a local television station.