Tyre distributor Sameer Africa #ticker:FIRE has invested Sh375.2 million in its loss-making subsidiaries in Tanzania and Burundi even as it mulls exiting the troubled markets in the near future.
The new investment is equivalent to a fifth of the Nairobi Securities Exchange-listed firm’s book value.
The company invested Sh220.1 million in Sameer Africa Burundi and Sh155 million in Sameer Africa Tanzania in the year ended December, according to its latest annual report.
Sameer did not say what the new capital, which left its interests in the subsidiaries unchanged at 100 per cent in each case, would be used for.
The tyre distributor subsequently turned pessimistic, saying it could soon exit the regional markets.
“These are significant and increasing risks and in the second half of 2018, we will re-look at our business model and cost structure and review whether it is viable to continue with our operations in Tanzania, Uganda and Burundi,” the company says in the report.
The Burundi unit made a tax loss of Sh28.7 million in the review period, raising its cumulative losses to Sh127.2 million.
Burundi’s business environment has been uncertain owing to political unrest and shortage of hard currency.
The subsidiary in Tanzania posted a tax loss of Sh15.2 million in the same period, increasing its accumulated tax losses to Sh138.1 million. Sameer says its projections show the unit could turn a profit this year.
The losses incurred by its regional operations, Sameer says, have weighed down profits made in Kenya resulting in weaker consolidated earnings.
“These regions have been unprofitable over the last few years despite the group’s efforts to turn them around.
“A combination of political instability, declining purchasing power, tight liquidity and arbitrary and unwarranted tax demands have dogged these markets,” the company says.
“Due to this, profitability earned by the Kenyan market is eroded by subsidiary company losses resulting in an overall reported loss by the group.”
Sameer made a net profit of Sh13 million in the year ended December, reversing a net loss of Sh652 million the year before which was caused by one-off restructuring expenses following closure of its tyre factory.