Sasini looks to profit boost with Sh1bn land sale

Agricultural firm Sasini is set to sell 513.7 acres of its leasehold land, a transaction that will earn it Sh1 billion and potentially boost earnings in the current financial year.

The land sale will be completed through the disposal of its subsidiaries Mweiga Estate and Wahenya Limited which hold 266.7 and 247 acres respectively.

Sasini said in its latest annual report that the land would be sold at 737 times its book value, but did not disclose what the proceeds would be used for.

“Subsequent to the year ended September 30, 2014, the group made the decision to sell leasehold land with a net book value of Sh1.39 million at an estimated selling price of Sh1.02 billion,” the firm said.

This means that Sasini will book a gain of Sh1 billion in the transaction, potentially boosting its profit in the current year ending September from the exceptional item.

This could in turn see the company raise its dividend in the period, having declared a payout of Sh0.25 per share for the year ended September last year.

Proceeds from the sale could also be used to fund fresh investments by the company. The large profit signals the fast appreciation of land values in the country, with Sasini taking a conservative stance in accounting of its land holdings. The firm said a revaluation of its leasehold land by Knight Frank Valuers Limited in September last year found the assets to be worth Sh3.74 billion.

Despite the verdict, Sasini carried the leasehold land in its books at Sh20 million. “The revaluation has not been adopted in the financial statements,” the company said in a statement.

The land sale is the latest sell-off seen among companies in which businessman Naushad Merali has significant or controlling interests, signalling a reorganisation of his business empire.

Mr Merali has earned billions of shillings from sale of all or part of his interests in several firms including Equatorial Commercial Bank (ECB), Airtel Kenya, Swift Global, and Kenya Data Networks (KDN).

Sasini’s land sale comes at a time when the company’s margins have suffered from high operating costs and flat sales.

READ: Merali: Tough deal-maker who rarely misses target

It made a net profit of Sh45.4 million in the year ended September, half of what it posted the year before. This came as sales dropped two per cent to Sh2.7 billion, with cost of goods sold rising 1.6 per cent to Sh2.07 billion.

The company’s net profit last peaked at Sh993.7 million in 2010 when its turnover stood at Sh2.2 billion, underlining the falling margins over the years.

Sasini has blamed the sluggish sales on a mix of reduced output and lower prices of its two key commodities –tea and coffee. The company also breeds dairy cattle, with its operations spread in Bomet, Mombasa, Nyeri and Kiambu.

The Nairobi Securities Exchange-listed firm is betting on cost-cutting and value addition to its products to grow earnings in the coming years.

“The recent poor performance of black tea in the international markets has called for fresh thinking, and as a response to this, the company has implemented a raft of cost saving measures and value propositions, which included review of loss making enterprises,” the firm’s chairman James Mcfie said in a statement.

“Value addition is an area we are currently interrogating with the view of ensuring that most of our products are sold as value added products.”