Roto water tanks maker profit rise five times to Sh55.3 million

Flame Tree Group makes Roto and Jojo water tanks. The firm also makes and distributes cosmetics, snacks, spices and playground equipment. Covid-19 gave the firm new business ideas.

The firm’s profit after tax for the first six months of the year increased five times from Sh9.5 million in June 2019 to Sh55.3 million in June 2020.

The reduction in cost of making and selling its products sharply pushed up profit after tax. The cost of sales fell by 18.3 per cent from Sh856.1 million in 2019 to Sh699.3 million this year.

With reduced cost of sales, the firm was able to grow its gross profit by 19 per cent to Sh476.3 million. The fall in cost of sales covered for the drop in revenue.

Revenue fell by 8 per cent to Sh1.1 billion.

The firm said that its priority is to find new revenue avenues to cover potential sales decrease caused by Covid-19.  It seeks to decrease expenses as much as possible while keeping employees.

“Protection of cash flow has been a main objective these months to ensure a quick resumption of business as soon as lockdowns were eased,” the firm said in a statement. “All new investments were halted until we could see the progress.”

How is the group structured?

The group has two divisions, manufacturing and trading. Manufacturing consists of plastics and fast-moving consumer goods.

Plastics side covers water tanks. It gives the group the highest revenue. Plastics is the first business of the group.

The firm is entering new plastic fields. It is expanding its blow moulding and injection moulding capacity for small products due to increase demand. Last year, it installed a new equipment for PET blowing. It reports this as successful.

In addition, the group has expanded its HDPE pipe lines in Rwanda.

Ms Beatriz Meijide, group chief Financial officer, Flame Tree Group, said plastics continue to be an integral part of the group’s business.

READ – Roto water tanks maker profit rise to Sh44.9 million

How is the firm dealing with Covid-19?

A complete lockdown in Rwanda severely affected the firm’s business in the country. Its businesses are in Kenya, Rwanda, Ethiopia, Mauritius, Mozambique and United Arab Emirates.

The firm is grateful that Kenya was one of its markets without complete lockdown. Kenya is the firm’s oldest and biggest market.

Ms Meijide said that without total lockdown in Kenya it allowed the firm to carry on its business.

“We also managed to innovate in various new products like sanitisers and hand washing stations which helped our business in Kenya,” she told The Water Tower.

The firm’s playground equipment line saw drastic drop in sales as schools and hotels remained closed. It says that its make-up outlets were also affected by a drop in customers.

What products are the firm making for Covid-19?

The firm created a number of new products – hand sanitisers, hand washing soap, sanitising booth RotoTIZER and Roto testing booths.

Ms Meijide said that the firm had to come up with new ways to reduce risk of possible revenue loss because of Covid-19.

“Sanitisers helped improve sales at the FMCG [fast-moving consumer goods] side and hand wash stations on the plastics side,” she said. “However, the effect on the overall revenue will be less than 5 per cent.”

Kenya’s Health ministry has said sanitising booths are “not recommended under any circumstance.” The firm’s new product RotoTIZER is a sanitising booth.

Ms Meijide said that the group continues to be a good citizen in all countries it operates and adheres to government regulations.

“Our position on this matter would be that we follow guidelines set by the Ministry of Health,” she said.

READ – Covid-19: Government bans sanitising booths

INTERVIEW

Ms Beatriz Meijide, group chief Financial officer, Flame Tree Group, answered our questions.

The Water Tower: Which country accounted for the highest part of revenue?

Ms Beatriz Meijide: Kenya being our oldest businesses continues to contribute the largest share of revenue. We continue to see growth in Kenya.

Kenya was also one of the countries where we operate which did not have a complete lock down during the Coronavirus epidemic allowing us to carry on business.

We also managed to innovate in various new products like sanitisers and hand washing stations which helped our business in Kenya.

What was the contribution of water tanks to the group’s revenue? 

As a group we segregate our business into two divisions, manufacturing and trading. Manufacturing is made up of plastics and FMCG [fast-moving consumer goods]. Within the plastics we have water tanks, which constitutes a larger percentage of revenue since as you are well aware it was the founding business of the group.

However, some of our newer plastics fields seem to be giving us promising results. For example, we are looking at expanding our blow moulding and injection moulding capacity for small products due to increase demand.

Last year, we installed new equipment for PET blowing which has also done well. We have also expanded our HDPE pipe lines in Rwanda. Plastics continue to be an integral part of our business.

Investment

In the financial statement [June 2020], the group said it was considering purchasing machines and other assets. What kind of machines and assets is the group planning to buy? 

This has been part of our five-year Strategic Plan, which has been on going. However, earlier this year as the pandemic [Covid-19] hit we found it prudent to conserve cash and restrict investments.

There has however been need to invest in some sectors so as to keep up with our targets. We are mainly looking at machines and assets that will help us increase capacity both in plastics and FMCG [fast-moving consumer goods].

Covid-19

The company launched a number of products specific to prevention of Covid-19. How much have these products contributed to the group’s revenue?

Innovation is an integral part of Flame Tree Group. With the Covid-19 situation, as a company, we needed to come up with new ways to reduce risk of possible loss of revenue.

Sanitisers helped improve sales at the FMCG [fast-moving consumer goods] side and hand wash stations on the plastics side.

However, the effect on the overall revenue will be less the 5 per cent. We are quite proud of the team at the speed of innovation during this trying times.

Among the products you launched in response to Covid-19 was RotoTIZER. Kenya’s Health ministry has said sanitising booths are “not recommended under any circumstance.” What is your response?

Flame Tree Group continues to be a good citizen in whichever country we operate in and adhere to the rules set by the relevant authorities.

We are also proud to say that all products sold by FTGH [Flame Tree Group Holdings] are in line with government guidelines and all regulations, and have passed strict quality controls.

As we mentioned earlier, as part our internal innovation we came up with a number of products to help the country flatten the curve for the pandemic including the RotoTIZER where similar products have been used in other countries in the world.

Our position on this matter would be that we follow guidelines set by the Ministry of Health.