Zambeef has announced its decision to dispose of Sinazongwe Farm for USD10 million in what it describes is part of focusing on its core business whilst shedding off low performing non-core assets.
Sinazongwe Farm now joins Zampalm in the list of “prodigal assets” that the fully integrated cold chain food processing and retailing group is offloading. The palm oil asset was sold to IDC for USD16 million (plus USD2 million performance bonus) in 2017 following the arrival of CDC who acquired a stake in the group.
The farm was acquired by Zambeef in 2003 for approximately USD2.3m, according to the SENS announcement that was published on 17th September 2019 issued by sponsoring broker, Pangaea Securities limited.
The group sees itself as a vertically integrated company and thus far, from the outside, this is the image that it has diligently portrayed. The theory of a vertically integrated company indicates that integration is a combination of technologically distinct production, distribution, selling and /or other economic processes within the confines of a single firm, according to Michael Porter in his book on Competitive Strategy.
Zambeef has already made announcements on additions and subtractions to its board. 2019 will no doubt be remembered as Francis Grogan’s final year at the helm. Therefore the disposal announcement continues with the precision management of the group that the market continues to see recent times.
Since the arrival of CDC on the board of Zambeef, we have seen decisions that speak to competitive strategy theory that indicate that that the group seeks a streamlined business that is focused. That is why distractions such as Zamplam and Sinazongwe have been on the chopping board.
Their strategy is evident in the conditions precedent of the Sinazongwe deal where all assets of the farm are being sold except for:
- Crops growing and/or stored on the Farm;
- Feedlot and Abattoir (c.20 Ha), which will separately be sub-divided and remain in the name, title, and ownership of Zambeef;
- Plant, equipment, and machinery relating to the Feedlot and Abattoir.
However, one may argue that Zambeef continuing to own the farm makes more business sense. Sadly this is not the case hence why the astute management team made the decision based on return on investment. According to their disposal announcement published on SENS, “Sinazongwe Farm is made up of three land parcels (title deeds) comprising a total land area of approximately 2,549.8 Ha. of which approximately 1,815 Ha is developed, arable land under irrigation”.
With the main crops grown on the Farm being soya beans (November to March) and wheat (April to September), for the financial year ended September 2018, the Farm only generated a negative EBITDA of USD0.3m, was valued at USD10.3m and accounting for 4 percent. of Group net asset value which only generated 1.7 per cent. of the Group revenues. This is why the farm is not a significant part of their cropping business.
Furthermore, the board has had the desires of strengthening its balance sheet by reducing overall debt. “This Transaction is in line with and a continuation of the Group’s strategic vision, which will allow Zambeef to focus on growing its core business, which is the production and retailing of cold chain meat and dairy products and stock feed, delivered through the Group’s extensive processing, distribution and retail network. Furthermore, the Transaction will allow Zambeef to continue to reduce its overall gearing, and in so doing, reduce interest costs”, read a statement issued by the group’s Board Chairman Dr. Jacob Mwanza.