IDC’s recent acquisition of Zampalm makes interesting analysis. But before we get into the mechanics of the deal, a reminder on who IDC are is required. They are the investment holding company for Zambia’s State-Owned Enterprises (SOEs). The one of the duties of IDC is to ensure all new investments that ultimately generate earnings are able to put money in the proposed Zambia Sovereign Wealth Fund. They play their role through assessment of investment risk and play party to the investment cycle as co-investors who hold hands with private sector investors.
IDC has now decided to enter the consumable oil game by purchasing 90% shares of Zampalm from Zambeef. The two entities have signed a Share Sale Agreement, a Shareholders’ Agreement and a Management Agreement (a tri-set of contracts called “The Agreements”). According to SENS ANNOUCEMENT published on 6th September 2017, the mechanics of the deal are as follows:
· Disposal of 90 per cent. of Zambeef’s shareholding in Zampalm to IDC for a total cash Consideration of USD16 million.
· USD16 million cash to be paid on completion, with a further Performance Amount of up to USD2 million dependent on performance milestones over the three years from 2018 to 2020.
· Disposal is aligned with the Group’s strategy of focusing on its core business of the production and retailing of cold chain meat and dairy products, cropping and stock feed.
· Proceeds will be used to further pay down the Group’s debt and thus reduce gearing and interest costs.
By default, this deal automatically introduces another SOE on the market. However, reviewing the Zampalm fact sheet complied from the SENS ANNOUCEMENT, IDC have their work cut out for them. The entity currently only exploits 5% of the total land they own in Northern Province. Furthermore, for the USD16 million paid for the business, current turnover of USD 12,465 will have to be grown substantially by a multiple of 962 to match the investment that has been made in terms of sales.
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Zampalm Fact Sheet |
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Land Assets |
20,238 Ha of land on title in the Northern Province of Zambia |
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Palms planted |
413,362 palms planted over an area of 2,911 Ha |
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Assets of Zampalm |
Book value of ZMW189.8 million (c.USD19 million), representing approximately 6.3 per cent. of the Group’s gross assets; |
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Revenue attributable to Zampalm |
ZMW135,000 (c.USD12,465), accounting for 0.006 per cent. of the Group’s turnover; |
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Loss after tax |
ZMW1.6 million (c.USD0.15 million) |
According to Transparency market research, “The global edible oil market is anticipated to witness a substantial growth owing to increasing popularity of unrefined, unprocessed, healthy, and organic oil. In the coming years, vegetable oils with low cholesterol, fat, and calories are likely to gain high response due to growing health awareness among people across the world”. What this means is that if the IDC rationale for the purchase is to turn around the loss after tax of USD0.15 million suffered by the entity, their focus is to go after markets that fit this genre.
Operational efficiencies will also be required. The TMR report also indicates that value will be created through good supply chain management and value addition. It indicates that “the retail segment is expected to drive the sales of edible oils on account of strong supply chain of chain of edible oil products and established chain of retail outlets.”
