Sameer Africa spent Sh293 million in staff redundancy costs, working out at a simple average payoff of just over Sh1 million per retrenched employee.
The tyre manufacturer shut down the Nairobi plant in September last year, citing increased competition from cheaper Chinese imports.
The company is now importing tyres from India and China through contract manufacturing.
Tyre manufacturer Sameer Africa #ticker:FIRE has laid off 277 employees following the closure of its Yana factory in Nairobi, marking a downturn for the firm majority-owned by billionaire businessman Naushad Merali.
The Nairobi Securities Exchange-listed firm spent Sh293 million in staff redundancy costs, working out at a simple average payoff of just over Sh1 million per retrenched employee.
Sameer shut down the Nairobi plant in September last year, citing increased competition from cheaper Chinese imports.
It is now importing tyres from India and China through contract manufacturing.
“The implication was a significant reduction in a number of positions/roles which translated to a reduction of 277 staff,” said Sameer chief executive officer Allan Walmsley in the company’s latest annual report.
“Factory closure costs totalled Sh877 million, comprising of Sh179 million in fixed asset impairment charges, Sh405 million in impairment charges for raw materials and engineering spares, and Sh293 million in staff redundancy costs.”
The redundancies saw the company’s employees’ headcount fall to 232 by the end of the year.
In addition to the retrenched staff, Sameer sacked 16 employees due to disciplinary issues last year, while there were 23 normal staff exits. Sameer is 72.15 per cent owned by Mr Merali.
The factory closure came as the firm reported a sharp decline in sales both in Kenya and elsewhere in the region. The firm recorded a 20 per cent decline last year in tyre sales, moving 229,929 units compared to 280,519 units in 2015.
“Export sales collapsed following continued political instability in the key export markets of South Sudan and Congo, and forex shortages across the region,” says the firm in the annual report.
The firm’s net profit for 2016 stood at Sh652.1 million compared to a loss of Sh15.6 million in 2015 following the factory closure expenditure.
To fund the closure, Sameer drew down on its cash reserves, supplemented by short-term borrowings.
Cash and cash equivalents thus decreased by Sh654 million, leaving the company overdrawn by Sh693 million. Sameer had recorded a cash increase of Sh206 million in 2015.
Net debt rose to Sh697 million from Sh37 million in 2015, with the company also using debt to build up inventory to cover the period between closure of the factory and the delivery of offshore manufactured tyres.
The retrenchment of Sameer staff was one of several such layoffs effected by Kenyan firms recently, as they turn to cost cutting to protect margins in a tough economic climate.
Toyota Kenya is laying off more than 100 of its nearly 600 employees through an early retirement scheme.
Banks have led the way in staff cuts in the past year, having retrenched more than 1,000 employees in the wake of the interest rate cap law last year.
Kenya Airways #ticker:KQ has recently cut its headcount by 1,800, East Africa Portland Cement #ticker:PORT by 1,000 and Coca-Cola East Africa by 40.
Manufacturing firms such as Eveready East Africa #ticker:EVRD, chocolate maker Cadbury, Procter and Gamble and Reckitt Benckiser have closed factories in Kenya in recent years.
They mainly cited high cost of doing business which has rendered their products uncompetitive compared to imports.
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