Sameer Africa switching to Chinese/Indian contract manufacturing

On Wednesday 8 June, Sameer Africa CEO Allan Walmsley told local newspapers that the firm, which makes Yana brand tyres, would earn higher margins contracting-manufacturing with tyre producers in China and India. No names were overtly mentioned, but an unnamed Indian firm that bid unsuccessfully Sameer during the last year is thought to be a key suitor. No date for the closure of production and transition to contract manufacturing has been given, but judging by the nature of speculation surrounding Sameer’s ownership and business in general it is likely to be an ongoing process.

As far as brands are concerned Sameer is expected to retain its brand portfolio. Recently this expanded to include the Summit private brand. In the past Sameer has been connected to large Chinese tyre-maker Triangle as well.

The latest financial details suggest Sameer has been making losses for the last two years. However, with Sameer reporting 15 million Kenyan Shillings (£104,572) net loss in 2015 compared to Sh66 million (£460,143) loss in 2014 the losses have slowed recently. Sameer’s best performance in the in the last five years was in 2013 when the company reported Sh401 million (£2.797 million) net profit.

When you consider that, in Kenya, Sameer’s Yana gross profit margins are said to be about 21 per cent compared with 33 per cent with outsourced manufacturing, you can see the business rationale for the decision.

However, the changes don’t end there. As well as outsourcing tyre production, Sameer will also diversify its business in the direction of real estate: “In essence, we will stop being a manufacturer and become a reseller and landlord,” Allan Walmsley told local newspapers. In practice this means the construction of a Sh7 billion (£48.853 million) retail centre and several warehouses on the 100-acres of land around Sameer’s Mombasa Road.

To put this into perspective, in 2015, Sameer’s tyre turnover was Sh2.4 billion (£16.745 million). As a result, moving forward, rental income is likely to contribute about half of Sameer’s revenues, or to quote Allan Walmsley: “I would say it will be a 50:50.”