Imports Force Eveready to Scale Down Production

Battling an array of cheap imports mainly from China and high zinc prices, battery maker Eveready East Africa Limited has had to shut down three production lines and shed 40 workers from its payroll in the past month, signalling reduced manufacturing business for the Nakuru-based firm.

For 2007, the company reported a profit before tax of Sh179 million, compared to Sh234 million made in 2006. This performance earned shareholders 45 cents per share. Sales rose to Sh2.3 billion in 2007 compared to Sh2 billion in 2006.

The company, which celebrated 40 years ofoperations in Kenya last year, says it is scaling down production because its products were not selling owing to competition from cheap locally assembled batteries. Its Nakuru plant, which used to produce 12 million batteries every month, will now churn out six million batteries.

High zinc prices in the international market are adding to the input cost of Eveready. Zinc accounts for 14 per cent of Eveready's costs. However, in the last 14 months, prices for the metal have risen by 67.5 per cent, to $3, 300 per metric tonne, according to Platts, the commodity news service. Platts is forecasting further Zinc price rises throughout 2007, driven by increased demand for the metal, to reach around $3, 700 a tonne by year-end.

Rising zinc prices is a real threat to the company's profitability since Zinc takes a sizable chunk of Eveready's total costs. The impact of zinc cost was an additional impact of Sh200 million to manufacturing cost in 2007.

Eveready has seen growth in manufactured products by 114 per cent and purchased products 124 per cent over the previous year. This resulted in the growth of net income after taxes of 125 per cent over prior year with good controls for expenses and manufacturing costs.

The Nairobi Stock Exchange listed firm is also swimming against the invention of alternative technology toys which use rechargeable batteries denying it growth in revenues.

Like most manufacturers in Kenya, the company is complaining of counterfeited products that hurt its product visibility and competitive edge in the market. Even though it says it is not afraid of competition, the counterfeits are said to have dented the company's profitability over a period of time.

The company's Managing Director Steven Smith says he is facing unfair competition from battery manufacturers at the Export Processing Zone (EPZ), which were dumping into the local market dry cells meant for export.

According to the Economic survey 2007, output of dry cells dropped by 1.7 per cent in 2006. The survey attributes the failure of the local industry to compete with imports and the fact that a significant number of people are now buying digital devices that do not rely on the traditional battery for power.

But all is not lost for the company. It says it will fight all the way to recapture the market by importing rechargeable batteries, flashlights and personal care products.

To cut out competition in dry cell market, the company is to start importing rechargeable batteries and start making personal care products tampons, moist tissues and breast pumps under the Playtex brand which was acquired by Eveready's parent company Energiser, USA.

Shedding 40 workers from its monthly salary bill will save the company Sh27 million every year.

Analysts say, high product quality and manufacturing efficiency and speed to market are Eveready's key areas to address to beat competition. The company has already spent Sh42 million to upgrade its equipment in readiness for an all out competition.

The company was incorporated in Kenya in 1967 and was listed at the NSE in 2006 with 210 million shares. During its 40 years stay in Kenya the company's Eveready battery brands have established themselves in the market.