CORPORATE BROCHURE

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O N L I N E

SAVANNATOBACCO

www.savannatobacco.com

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S a v a n n a To b a c c o

Savanna Tobacco Pvt Ltd is the leading cigarette manufacturing company in Zimbabwe, founded to claw back that large segment of the tobacco value chain that was being lost overseas. Today, it is poised to make inroads in markets well beyond southern Africa

smoky music

Sweet

People who worry about Zimbabwe’s politics and economics quickly calm down when they think about Oliver Mtukudzi. Music is the direct route to the heart of a nation, so it was a sound move for Savanna Tobacco to associate itself with Tuku and other

Zimbabwean musicians by way of sponsorship and promotion.

And the raison d’être of the company reflects as much harmony. Over a period that has been blighted by hyperinflation and general economic decline, there have still been opportunities to set up new businesses and create value in the Zimbabwean economy, and Savanna Tobacco has done its bit to reverse the leaching-out of profits to overseas companies and capture more of the value chain for Zimbabwe.

Adam Molai and his business partners acquired a Harare-based tobacco threshing plant back in 2002. In December 2003, equipment consisting of a KDF Filter maker, a Protos 80 cigarette maker and a Metro cigarette packer arrived at the company’s factory and the first brand, Pacific Blue, was launched on the market in 2004. The threshing operations were discontinued—this was to be specifically a manufacturing plant.

Now executive chairman of the company, Adam Molai express his motivation very succinctly. “When we set out, Zimbabwe’s tobacco production was at its peak, at around 220 million kilos. It was clear to me that to export the bulk of our production was to export most of the value chain from our economy. After threshing, the cut rag [shredded tobacco] business, cigarette manufacturing and distribution were all being eliminated from the value chain. That is where we thought we could take a fresh look at Zimbabwe’s competitive advantage, exploit it and leverage a new industry off it.”

The approach was disruptive: “We created a scenario where we are not exporting the tobacco or the rag: this is a much more cost-effective set up.” Of course, manufacturing cigarettes calls for raw materials other than tobacco like filters, papers and packaging material which need to be imported—not something that was easy in the foreign exchange situation. To get past this, Savanna cut a direct finance deal with key foreign retailers and distributors. “The company was started

S ava n n a To b a c c o

www.nampak.com

Savanna Tobacco

using private equity, structured finance, and debt to facilitate the capex and capital needs,” he explains. “And of course as time went on and we established a track record, we have been able to leverage on supply credit and enhance the working capital base.”

Suddenly what seems like a quixotic venture—setting up a new venture in competition to the massive dominant players in the region, notably British American Tobacco (BAT)—starts to make sense. And there are other advantages to being an indigenous cigarette manufacturer, Molai points out. Within African free trade areas, COMESA and SADC, cigarettes can be exported free of import duty. Zimbabwe is a member of both: SADC takes in neighbouring countries like South Africa, Mozambique and even Tanzania but COMESA reaches as far north as Kenya—a prosperous and expanding market.

The brand new factory created inside the old threshing sheds was conceived with an aspiration to become a centre of excellence for cigarette manufacture in Africa. The main brands, Pegasus and Pacific, are targeted at what he calls the value for money market among smokers, but the quality is not compromised. “We have to have quality in

As Africa’s leading flexible packaging company,

Nampak Flexible covers the full spectrum of flexible

packaging products and technologies, and provides

a leading offering both locally and internationally. In

South Africa, Nampak Flexible has three plants, at

which it holds ISO, HACCP and BRC certifications,

ensuring that only the highest quality packaging

is produced. Besides reel stock, Nampak Flexible

has specialised expertise in the manufacture and

supply of bag-in-box wine bags, bags, quad seal

bags, pouches, sachets, stick packs and medical

packaging. Nampak Flexible also supplies a full

range of standard and custom built filling equipment

for non-aseptic bag-in-box systems. With state-of-

the-art packaging design as well as support from

Nampak R&D—widely regarded as one of the world’s

leading packaging research and development

bodies—Nampak Flexible is perfectly positioned to

deliver MORE for its customers.

Nampak Flexiblethe product if people are going to choose them over the major brands.” And Savanna’s brands sell at between half and two thirds of brands like Kent, Dunhill and Lucky Strike that the competition markets so keenly.

Production expertise and capacity has grown rapidly since 2004. New brands were launched and production increased from 3,000 master cartons (cases of 50 cartons, where a carton is 10 packs of 20 ‘sticks’) a month to 30,000 last year. “I always say that where we are short on capital we make up for it by being long on innovation!” says Molai. “Our driving ethos has been innovation—the industry had its way of doing things and in many ways we broke the mould, and that has been key to how we have evolved as an entity.”

Overcapacity will never be a problem for Savanna, which has already captured a dominant share of the domestic market. The incumbent market leader is BAT, and while BAT is unshakeable as a global brand, it must feel threatened by Savanna’s growth. “When they lose more than 50 per cent of their share in one market in less than four years they have to be worried,” says Molai. His immediate objective is to achieve as much production as the factory can cope with. “Within the next 18 months we want to make sure we are producing to full capacity, which is 4.5 billion sticks.”

As demand for the product grows, so does the threat from bootleg production in the region. “In the last year we took delivery of one new manufacturing and packing line, which increased our capacity by 400 packs of 20 per minute. That translates into a further two billion sticks per annum in terms of manufacturing capacity. The principal reason we took that step was to secure our market: because of the proliferation of our brands and the level of demand they have generated, one of the key challenges we faced last year was counterfeiting.”

It’s a compliment really. The premium brands like Dunhill and Peter Stuyvesant are always being counterfeited but it was something of a shock when fake Peter Stuyvesant and Pacific between them filled containers seized in the Western Cape on their way into South Africa from Namibia. “When the demand is more than the supply, the gap is an opportunity for counterfeiters,” he says. “They don’t worry about paying duty, only getting caught!

Savanna Tobacco

The most effective way to address that is to close the gap by increasing your capacity and making sure you can supply the market up to its needs.”

Moving to new premises in March 2010 was the cue for a major operational efficiency drive to get the factory leaner and producing with world-class efficiency. Almost $600,000 has been invested in

an improvement programme overseen by Pragma, the international asset optimisation consultancy. “This year we are operating at 90 per cent productivity and our target for 2011 is to reach 95 per cent. We have been working on our systems too, optimising the SAP system we have in place and implementing add-ons particularly to help our sales force. Already any issues around credit control, stockholding, or the CRM system can be accessed by handheld devices—we are building a first world level of business.”

Molai is impatient with transferring European business models to an African context: African market dynamics are certainly different from European or American ones but that doesn’t mean they are less effective. On the contrary, best of breed may involve importing machinery and design but African solutions are the ones that will work in the marketplace. “I really believe the multinationals look at Africa from a Eurocentric point of view. I see opportunities for us to exploit African solutions and add value for an African market.”

Now that is something for Mtukudzi to sing about. www.savannatobacco.com

SAVANNATOBACCO

www.savannatobacco.com