Sameer Africa has taken a hit from disruption of supply of Bridgestone tyres due to the Japanese quake and nuclear crisis, worsening the outlook for the firm at a time when raw material costs have also shot up owing to the crisis in oil producing countries.
The company supplies tyres to nine African countries under a franchise license from the Japanese manufacturer, which owns 14.9 per cent shares in the Nairobi Stock Exchange listed firm.
Chief executive officer Michael Karanja said Bridgestone tyres make up a tenth of Sameer Africa’s stocks.
Bridgestone Corporation’s manufacturing plant in Japan was not destroyed by the earthquake but has suffered power rationing due to destruction of nuclear generation plants.
“We have been seeking alternative supplies from Thailand but they are also facing production pressure due to the huge demand,” said Mr Karanja.
Sameer’s rivals in the local tyre market, Kingsway Motors, stand to benefit from the crisis as they have not experienced any disruptions in their supply chain.
Motorists will be forced to dig deeper into their pockets to buy tyres.
Mr Karanja said that the company intends to aggressively protect its margin by effecting “timely price adjustments.”
The company made a three to five per cent increase in its product prices at the beginning of this month.
Kingsway imports Michelin tyres from France, Apollo from India, and Kumho from South Korea.
“The last two years have been good especially due to the increase in transit on the northern corridor with movement towards Rwanda and Uganda. The only thing we hope for is the Mombasa port to improve its efficiency,” said Mr Manoj Shah, the group managing director of Kingsway Group.
Sameer Africa announced a 63 per cent drop in after tax profits last week.
The tyre maker has taken a hit from the political instability in the Middle East and Northern Africa, which has led to an upsurge in oil prices putting pressure on its margins.
Two of the company’s raw materials are oil based, synthetic rubber and carbon black, and are directly affected by oil prices.
Distribution costs of the company, like those of other manufacturers, have also gone up as a result of higher pump prices.
Mr Karanja said at an investor briefing on Thursday that raw material costs had shot up, with natural rubber rising to 53.6 per cent, synthetic rubber going up by 86.6 per cent, textile fabric up by 22.7 per cent, and carbon black up 9.2 per cent.
Sameer Africa sought to recover the increase in production costs by passing them on to consumers but could not recover the total cost increases due to competition pressures in the industry.
The increase in prices pushed up the company’s turnover by two per cent.
Sameer is, however, lobbying for a reprieve from the Finance minister pushing that he reverses the reduction of import tax charged on Chinese tyres.
The taxes were reduced in the 2005 national budget to a flat rate of 10 per cent from between 35 per cent and 25 per cent for small car tyres and truck tyres respectively.
The tax policy was to align Kenya’s policy to that of its east Africa counterparts.
“If there is any one single policy that has affected us it is the tax policy. I have written to all offices because we believe we should work to protect our industries,” said Mr Karanja.
The established players in the market are also working to ring fence to their markets by offering retreads to their tyres.
Casing is weak
“The Chinese tyres cannot be retreaded as their casing is weak and retreading is determinant on the quality of the casing” said Mr Karanja.
Kingsway Motors has also invested Sh75 million in setting up a retread plant in Nairobi and its board has already approved spending of another Sh50 million to set up a similar plant in Mombasa.
Retreading gives the tyre a new lease of life equivalent to the initial life saving the driver up to 40 per cent of the cost.
Sameer Africa is also evaluating the options of manufacturing motorcycle tyres.
The company however says the fact that raw material consumption of the tyres is equivalent to that of a motor vehicle tyre while prices are different has slowed down its progress.
Registration of motorcycles increased to 91,151 units in 2009 from about 3,759 units in 2005, according the Economic Survey 2010 with the spare tyres of this swelling stock being imported.