Tyre manufacturer Sameer Africa is set to launch a real estate division to develop commercial property in an effort to diversify from its core business, which has recorded a sharp decline.
The Nairobi Securities Exchange-listed firm has seen a major drop in sales and profitability in recent years after losing a large market share to cheaper tyre imports from China and India.
Sameer said it will use its land holdings to build several real estate projects, predicting that its tyre business is likely to suffer further in coming years.
“To cushion the group’s profitability against the volatility of its tyre business, the board is pursuing strategies of unlocking the group’s property potential and diversifying the revenue base,” the firm said in its latest annual report.
Among the planned projects are a modern office block in Nairobi’s Westlands and a shopping mall and hotel on Mombasa Road.
The company also plans to build more warehouses for leasing. It is finalising plans for the construction of the 15,000 square metre mall on Enterprise Road at its factory premises in Nairobi’s Industrial Area.
Sameer chief executive Allan Walmsley said the mall and warehouses are priority projects expected to be build from next year.
“We will form a joint venture to build the mall where our contribution will be land,” said Mr Walmsley in an interview. “We will build the warehouses ourselves using borrowed funds,” he said, adding that the cost of the projects will emerge after final studies have been adopted.
The company is betting on the booming property market to offer stable and relatively higher returns compared with the shrinking and less profitable tyre business.
Sameer values its land at Sh2.3 billion, noting that land prices in prime locations in Nairobi have more than quintupled over the past seven years.
“The group’s land holdings are valued at over Sh2.3 billion and investment properties valued at Sh1.6 billion are available for re-development. The fair value gains of Sh3.7 billion have not been factored in the company balance sheet,” the firm said.
The tyre business, which has posted losses, accounts for 96 per cent of Sameer’s total revenue while rentals bring in the remaining four per cent.
The increased focus on real estate comes as the company finds it difficult to adapt to a more competitive market that has seen the market share of its flagship Yana/Firestone brand fall from 57 per cent in 2000 to an all-time low of 15 per cent last year.