Sameer Africa is planning to abandon manufacturing of tyres at its Nairobi plant and shift the production offshore, possibly to India or China.
Sameer Africa Chief Executive Officer Allan Walmsley told The Standard yesterday that his firm, the makers of Yana tyres, could earn higher margins through contracting-manufacturing, possibly with an Indian firm that has in the recent past unsuccessfully bid to acquire Sameer. “We are thinking of moving production offshore, but I can’t tell you exactly when,” Mr Walmsley said.
The firm has been making losses for the last two years, reporting Sh15 million net loss last year compared to Sh66 million loss in 2014.
Its best performance in the last five years was in 2013 when it announced Sh401 million net profit.
He however expects that the firm will retain its major brands even after ceding manufacturing to third parties. Billionaire Naushad Merali is the majority shareholder of the tyre maker, which is fighting for survival from fierce competition from cheaper brands.
Already, the firm has since the last year been selling Summit Tyre, a much cheaper imported brand in a bid to protect its fast-shrinking market share.
Among the benefits he anticipates to accrue are lower production costs linked to friendlier taxation and cheaper energy prices in either of the two Asian economies.
At home, the gross profit margins are about 21 per cent compared to the anticipated 33 per cent with off-site manufacturers.
“In essence, we will stop being a manufacturer and become a reseller and landlord,” he adds, citing that his firm would starting July next year build a Sh7 billion mall and several warehouses on the 100-acre parcel of land around its Mombasa Road plant-cum-head offices.
After falling out with its previous strategic investor, American firm Firestone, Sameer hoped to invite an Indian manufacturer as a replacement but the deal fell through, possibly informing the imminent restructuring.
Ceasing the tyre manufacture business could have grave implications, mainly for the workers in the factory whose production has seen a steady drop over the last five years. The company had 527 employees, most of whom could lose their jobs with the shutting down of the plant.
In 2015, for instance, the firm produced tyres worth Sh2.4 billion – down from Sh3 billion in the previous year. This highlights the turmoil the firm is facing. Walmsley said the firm had been forced to take a relook at its manufacturing business in the face of dwindling sales at home and all the regional markets of Burundi, Tanzania and Uganda.
Sameer Park
On the contrary, however, sales generated from imported brands rose by a quarter last year to Sh708 million in testament of a major shift to the down market.
It is specifically the case of a shift in market needs since while vehicle registration grows by an average of 7 per cent per year; Sameer’s sales were actually on a sharp decline.
Most of the newly registered vehicles are pre-owned, meaning that increasingly, a bigger proportion of the ‘budget conscious’ population is now driving cars – whichever way, the chief executive says.
The imminent exit from the tyre manufacturing business is expected to be complemented by higher rental income from the existing Sameer Business Park, which generates about Sh180 million a year, and the planned shopping mall.
In the end, rental income should contribute about half of Sameer’s revenues, in Mr Walmsley’s projections. “I would say it will be a 50:50.”
