Zambeef loses taste for oil
Agriculture, Strategy, Zambeef Products Plc
Zambeef 2016 AR.

When the news hit our desk that Zambeef was to sell a 90% stake in Zampalm, its oil producing wing, we asked the question why? Although there were indications that the division was loss making in the recent results, looking at the capacity and potential the division had, it was surprising that the company had made the decision. Or was it? According to a statement from the company, the rationale for the Zamanita disposal was as follows:

  • The Zambeef Board wished to re-focus its strategy on its key business areas of retailing of cold chain meat and dairy products, cropping and stock feed, and therefore resolved to dispose of assets and businesses that were non-core;
  • From 2009 to 2015, the oil seed crushing industry had matured and a number of new participants had entered the market, thus making this sector highly competitive.  As a result, the board of directors of Zambeef (the “Board”) felt that that it was no longer essential for Zambeef to be involved in this industry, as the primary production of crude palm oil was not core to the Group, and there were enough other market players who now supplied high-quality soybean meal at a competitive price. Furthermore, oil seed crushing is a highly specialised and capital intensive business which is also exposed to fluctuations in foreign exchange rates and commodity prices.

This was further confirmed by a press statement attributed to Jacob Mwanza, the group’s chairman, who stated that “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, cropping and stockfeed, 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.”

The phrase that stands out is core business. It appears the firm had been priming up this pet project and when competition got bloody, a graceful exit was necessary. However, this is a decision that is driven by prudence. According to the Morningstar, for 2017, Zambeef is said to expect a reported profit that is “materially below market expectations”. The range for net pretax profit is projected to be between USD500,000 to a loss of USD2.5 million. This is a far cry from the pretax profit of USD12.4 million it recorded in 2016. The macro environment has ways of eroding value as the company has seen falling prices in soft commodities such as maize which dropped by more than USD65 per tonne over the past four months and soya beans which also dropped to USD360 per tonne in March 2017 from USD535 per tonne in March 2016 according to the company. Furthermore, the wrath of Septoria (fungal disease) affected the winter wheat crop yields which are expected to be below expectations. Therefore, Zambeef must remain focused on its core business. This move addresses the question “What business are we in?

From a resources and capabilities point of view, the sale makes logical sense. This is a company that prides itself with dominating the value chain of agriculture in Zambia. The strategies of getting their products to the plate are admirable (of micro outlets and all). We did not see that with palm oil. Hence letting go of the prodigal child is not so painful especially when you design a contract sale that has performance clauses that will ensure that you will receive a few coins from the child as they settle in with their new parents.

Sharing is caring!

(Visited 84 times, 1 visits today)
The information contained on this website is for general information purposes only. While we endeavour to keep the information as accurate as possible, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or subject companies or matters contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.