Shem Oirere, Africa Correspondent03.25.15
Leading global provider of adhesives, sealants and other speciality chemical products, H.B. Fuller has acquired Kenya-based industrial adhesives firm Continental Products Limited, giving it added advantage in delivering its range of products to key customers in the East and Central African regions.
H.B. Fuller, which recently announced fiscal 2014 net revenue of $2.1 billion, said the acquisition falls within its growth strategy for emerging markets, as it will enable the company to fully leverage its broad-based technology portfolio and effectively deliver specialty adhesive products to the market, where it has enjoyed strong customer relationships and local manufacturing capabilities with Continental Products Ltd.
H.B. Fuller’s senior vice president for Europe, India, Middle East, Africa (EIMEA) region, Steve Kenny, talked to Coatings World on this exciting development in the company’s expansion plan.
Coatings World: Considering the many years H.B. Fuller has been in business and the experience attached to such longevity in the market, why did the company opt for an acquisition in East Africa rather than setting up a subsidiary from scratch?
Steve Kenny: We had a long working relationship for many years with Continental Products including licensing our technology to them and also selling our products to them for re-sale to customers in the region. What we have done with this acquisition is to continue building on what this relationship has achieved and ensuring the great service that has been offered by Continental Products is expanded.
CW: The economies of East and Central Africa have shown mixed growth signals with those in Eastern Africa likely to experience substantial expansion with sectors such as construction and packaging likely to record good progress. How does H.B. Fuller intend to take advantage of this growth to achieve its short- and long- term objectives in this market?
SK: H.B. Fuller is not currently involved in the construction industry in this region; we do have a significant presence in construction in North America. Our focus in East and Central Africa will be on what we have been doing for many years with Continental Products, which is leveraging and exploiting the value of our technology in packaging, tobacco and labeling. We will continue to sell our adhesive solutions to multinationals and large African companies such as tobacco manufacturers and beverage producers that need labelling solutions for their bottling operations, for example. By partnering with already well-branded companies that use our technology, we have the advantage of tighter control on quality.
CW: The East and Central Africa region has at times been seen to have varied regulations and compliance levels when it comes to construction and industrial material and products. How does H.B. Fuller intend to ensure the needs of each consumer is met without necessarily compromising on quality of products?
SK: Construction is not part of our core business in East and Central Africa, and because we are not working with traders, the possibility of low quality products or counterfeits of our brands will not be an issue. I know that in industries such as tobacco, there are counterfeit cigarette brands on the market. However, our products are not affected because we sell to established companies and do not deal with middlemen.
CW: Apart from East and Central Africa, where else in the continent is H.B. Fuller active and what has been the market response to its products there?
SK: In Africa, we have a manufacturing plant in Cairo that serves customers in North Africa and also the Middle East. We also sell our products to multinational companies in West and South Africa. Our strategy for the African continent is to steadily expand our physical presence in a manner that ensures we provide added value and enhanced service to our customers. We will have to overcome several challenges, such as limited logistics infrastructure in large parts of the continent as well as sustainable access to raw materials, as we seek to respond to huge market opportunities and partner with customers and meet their manufacturing needs of the region.
CW: What are some of the applications that H.B. Fuller will be targeting to grow in the East and Central Africa market?
SK: We are not able to manufacture a wide variety of water-based technologies locally in Kenya (some of the Continental Products Ltd industrial adhesives include labelling adhesive, book binding, packaging, lamination paper conversion and tobacco industry). We will be able to augment these offerings with a much broader range of imported products as well to ensure we can meet all of our customers’ adhesives needs and serviced by our outstanding team of experts in Kenya.
CW: Mergers and acquisitions have at times been a moment of uncertainty and anxiety among employees. How is H. B. Fuller addressing this issue with employees and clients of Continental Products?
SK: The staff at Continental Products is extremely excited about this new development. They number approximately 20 full time employees, who will now be part of a global team of more than 3000. They are particularly excited to have become part of a bigger family, which provides them with access to a comprehensive range of established, world leading products used in various industries ranging from book-binding to footwear, hygiene to furniture and many many more and thus they are now able to explore many more opportunities in a much more diverse collection of markets.
CW: H.B. Fuller projects a $70 million capital expenditure in 2015. How much of this will go to East and Central Africa market and what specific investments will the company be making in this region?
SK: Our capital budget was actually prepared excluding prospective acquisitions and this was before the Continental Products acquisition was completed.
CW: Local currencies in East and Central Africa have recently lost ground against hard currencies and the continued strengthening of especially the U.S. dollar against these currencies is likely to impact manufacturing operations in the region. What measures does H.B. Fuller hope to take to absorb the possible impact of this currency volatility in coming months?
SK: As is the case with many speciality chemicals businesses in Africa we are compelled to import a significant proportion of our raw material needs essentially because of the lack of well-established local sources of these materials in Africa. Most of these raw materials come from long-established sources in the Middle East, Asia and Europe. Whenever local currencies lose ground against hard currencies such as the U.S. dollar or the Euro, imports become more expensive when converted to local currency. However, in our business what is more important is not the price per kilo of our products but how their performance in manufacturing processes can enable the customer (the user) achieve productivity, performance and quality improvements in their production processes. If, for example, I can supply a high performance adhesive that will ensure the label on a bottle of premium branded beer stays in place for several hours under refrigeration or ice water conditions, typically that producer will prefer that over a lower cost product which breaks down after a only a few minutes and peels away from the bottle in the hands of a disappointed consumer. The cost impact per a bottle produced of a premium high performance adhesive versus a commodity type, low performance adhesive, is miniscule and does not materially impact total unit cost of the customer’s product. We are of course in a competition yes, and price is always a consideration but what counts most is the quality and end-use performance of our products rather than the price per kilo.
CW: Please give us you final remarks on the realization of the agreement to purchase Continental Products and your hopes for the future of the company’s growth in East and Central Africa.
SK: I am excited about establishing a physical presence in Sub-Saharan Africa and having responsibility for such a large and diverse region which extends from India to Turkey, Russia to South Africa and of course the entire European continent; a rich mix of mature economies with areas which are now experiencing phenomenal growth. It is an adventure and a bold step to expand our operations in the Sub-Saharan region and especially in Kenya, which is known for its political stability and which has a well-earned reputation for quality. The country is established as a manufacturing hub in the East African region and it works hard to sustain high standards. The continent of Africa only recently surpassed an historic milestone as the total population exceeded the one billion mark; the middle class is now growing fast and so are levels of disposable income in many economies across the African continent and they will soon rival the levels achieved by South Africa in the more prosperous countries. That means more purchasing power, ever changing consumer tastes and increasing levels of demand for more and more sophisticated, higher value consumer goods. This dynamic is attracting a lot of foreign investment to Africa and a significant number of those companies investing in Africa require high performance adhesives to manufacture their goods. We are fully committed to Africa and aspire to providing manufacturers in the region with great solutions to their manufacturing challenges and together we will create great offerings for discerning consumers in the continent.
H.B. Fuller, which recently announced fiscal 2014 net revenue of $2.1 billion, said the acquisition falls within its growth strategy for emerging markets, as it will enable the company to fully leverage its broad-based technology portfolio and effectively deliver specialty adhesive products to the market, where it has enjoyed strong customer relationships and local manufacturing capabilities with Continental Products Ltd.
H.B. Fuller’s senior vice president for Europe, India, Middle East, Africa (EIMEA) region, Steve Kenny, talked to Coatings World on this exciting development in the company’s expansion plan.
Coatings World: Considering the many years H.B. Fuller has been in business and the experience attached to such longevity in the market, why did the company opt for an acquisition in East Africa rather than setting up a subsidiary from scratch?
Steve Kenny: We had a long working relationship for many years with Continental Products including licensing our technology to them and also selling our products to them for re-sale to customers in the region. What we have done with this acquisition is to continue building on what this relationship has achieved and ensuring the great service that has been offered by Continental Products is expanded.
CW: The economies of East and Central Africa have shown mixed growth signals with those in Eastern Africa likely to experience substantial expansion with sectors such as construction and packaging likely to record good progress. How does H.B. Fuller intend to take advantage of this growth to achieve its short- and long- term objectives in this market?
SK: H.B. Fuller is not currently involved in the construction industry in this region; we do have a significant presence in construction in North America. Our focus in East and Central Africa will be on what we have been doing for many years with Continental Products, which is leveraging and exploiting the value of our technology in packaging, tobacco and labeling. We will continue to sell our adhesive solutions to multinationals and large African companies such as tobacco manufacturers and beverage producers that need labelling solutions for their bottling operations, for example. By partnering with already well-branded companies that use our technology, we have the advantage of tighter control on quality.
CW: The East and Central Africa region has at times been seen to have varied regulations and compliance levels when it comes to construction and industrial material and products. How does H.B. Fuller intend to ensure the needs of each consumer is met without necessarily compromising on quality of products?
SK: Construction is not part of our core business in East and Central Africa, and because we are not working with traders, the possibility of low quality products or counterfeits of our brands will not be an issue. I know that in industries such as tobacco, there are counterfeit cigarette brands on the market. However, our products are not affected because we sell to established companies and do not deal with middlemen.
CW: Apart from East and Central Africa, where else in the continent is H.B. Fuller active and what has been the market response to its products there?
SK: In Africa, we have a manufacturing plant in Cairo that serves customers in North Africa and also the Middle East. We also sell our products to multinational companies in West and South Africa. Our strategy for the African continent is to steadily expand our physical presence in a manner that ensures we provide added value and enhanced service to our customers. We will have to overcome several challenges, such as limited logistics infrastructure in large parts of the continent as well as sustainable access to raw materials, as we seek to respond to huge market opportunities and partner with customers and meet their manufacturing needs of the region.
CW: What are some of the applications that H.B. Fuller will be targeting to grow in the East and Central Africa market?
SK: We are not able to manufacture a wide variety of water-based technologies locally in Kenya (some of the Continental Products Ltd industrial adhesives include labelling adhesive, book binding, packaging, lamination paper conversion and tobacco industry). We will be able to augment these offerings with a much broader range of imported products as well to ensure we can meet all of our customers’ adhesives needs and serviced by our outstanding team of experts in Kenya.
CW: Mergers and acquisitions have at times been a moment of uncertainty and anxiety among employees. How is H. B. Fuller addressing this issue with employees and clients of Continental Products?
SK: The staff at Continental Products is extremely excited about this new development. They number approximately 20 full time employees, who will now be part of a global team of more than 3000. They are particularly excited to have become part of a bigger family, which provides them with access to a comprehensive range of established, world leading products used in various industries ranging from book-binding to footwear, hygiene to furniture and many many more and thus they are now able to explore many more opportunities in a much more diverse collection of markets.
CW: H.B. Fuller projects a $70 million capital expenditure in 2015. How much of this will go to East and Central Africa market and what specific investments will the company be making in this region?
SK: Our capital budget was actually prepared excluding prospective acquisitions and this was before the Continental Products acquisition was completed.
CW: Local currencies in East and Central Africa have recently lost ground against hard currencies and the continued strengthening of especially the U.S. dollar against these currencies is likely to impact manufacturing operations in the region. What measures does H.B. Fuller hope to take to absorb the possible impact of this currency volatility in coming months?
SK: As is the case with many speciality chemicals businesses in Africa we are compelled to import a significant proportion of our raw material needs essentially because of the lack of well-established local sources of these materials in Africa. Most of these raw materials come from long-established sources in the Middle East, Asia and Europe. Whenever local currencies lose ground against hard currencies such as the U.S. dollar or the Euro, imports become more expensive when converted to local currency. However, in our business what is more important is not the price per kilo of our products but how their performance in manufacturing processes can enable the customer (the user) achieve productivity, performance and quality improvements in their production processes. If, for example, I can supply a high performance adhesive that will ensure the label on a bottle of premium branded beer stays in place for several hours under refrigeration or ice water conditions, typically that producer will prefer that over a lower cost product which breaks down after a only a few minutes and peels away from the bottle in the hands of a disappointed consumer. The cost impact per a bottle produced of a premium high performance adhesive versus a commodity type, low performance adhesive, is miniscule and does not materially impact total unit cost of the customer’s product. We are of course in a competition yes, and price is always a consideration but what counts most is the quality and end-use performance of our products rather than the price per kilo.
CW: Please give us you final remarks on the realization of the agreement to purchase Continental Products and your hopes for the future of the company’s growth in East and Central Africa.
SK: I am excited about establishing a physical presence in Sub-Saharan Africa and having responsibility for such a large and diverse region which extends from India to Turkey, Russia to South Africa and of course the entire European continent; a rich mix of mature economies with areas which are now experiencing phenomenal growth. It is an adventure and a bold step to expand our operations in the Sub-Saharan region and especially in Kenya, which is known for its political stability and which has a well-earned reputation for quality. The country is established as a manufacturing hub in the East African region and it works hard to sustain high standards. The continent of Africa only recently surpassed an historic milestone as the total population exceeded the one billion mark; the middle class is now growing fast and so are levels of disposable income in many economies across the African continent and they will soon rival the levels achieved by South Africa in the more prosperous countries. That means more purchasing power, ever changing consumer tastes and increasing levels of demand for more and more sophisticated, higher value consumer goods. This dynamic is attracting a lot of foreign investment to Africa and a significant number of those companies investing in Africa require high performance adhesives to manufacture their goods. We are fully committed to Africa and aspire to providing manufacturers in the region with great solutions to their manufacturing challenges and together we will create great offerings for discerning consumers in the continent.