Regional flour miller Unga Group Plc has entered into an agreement to sell its bread making business to a logistics firm, BigCold Kenya Ltd, at an estimated price of Ksh150 million ($1.38 million), rendering close to 87 jobs at risk of becoming redundant.
Unga Group’s Managing Director Nicholas Hutchinson told The EastAfrican that the sale of Ennsvalley Bakery was partly triggered by the Group’s strategic realignment of its business portfolio and that the affected employees are expected to be taken over by the buyer.
Hutchinson however declined to comment on the value of the transaction, but sources close to the deal told The EastAfrican that Ennsvalley’s assets are estimated at Ksh150 million, far below the materiality threshold of 25 percent of the assets of Unga Group estimated at Ksh12 billion, according to the Group’s integrated annual report (2020).
The subsidiary is expected to remain dormant after the sale of its assets.
“The strategic realignment of the group’s business portfolio is one of the factors behind our thinking and the sale of the bakery unit. We are unable to comment on the value at this stage since we are bound by confidentiality obligation. Please note that the transaction has some way to go to completion,” said Hutchinson.
“It is anticipated that Ennsvalley Bakery Ltd employees will be employed by the new owners,” he added.
Unga Group revealed through its integrated annual report (2020) that its bakery business has performed below expectation with volume off-take being impacted by the focus given by key retail customers to baked goods produced in-house, and by the significant reduction in sales to the pandemic-affected hospitality and airline sectors.
“While our Unga brand strength continues to hold us in good stead, this is no longer enough to protect our share of market. Ongoing efforts to further improve production efficiencies will be energised in order to reduce costs while also introducing new products,” said Isabella Ochola-Wilson, the Group’s chairperson.
“Meanwhile, the bakery business in its current form has proven to be unsustainable and efforts to identify suitable partnerships that will facilitate its growth and expansion into new markets are already underway,” she added.
The latest transaction comes after the troubled miller branded its bakery business “unsustainable” and announced a staff redundancy plan after its revenues were hit hard by a difficult operating environment occasioned by the Covid-19 pandemic, cheaper imported brands from Uganda and delayed payments from the Kenyan government.
In a cautionary statement last week, the miller said that BigCold, a logistics company providing sophisticated cold chain solutions across East Africa from its facilities in Nairobi and Dar es Salaam and Ennsvalley Bakery Ltd, an indirect subsidiary of Unga Group had entered into an asset purchase agreement on July 26. Under the agreement, Ennsvalley will sell its assets to BigCold subject to satisfaction of certain conditions.
Unga, which is listed on the Nairobi Securities Exchange, also disclosed that the staff lay-off exercise will help breathe new life into its operations as the 113-year-old milling giant struggles to regain a solid financial footing.
“The management has spent a significant amount of time planning for our ‘new normal.’ The further adoption of both plant and office automation is a high priority and will receive funding over the short to medium term,” said Ms Ochola-Wilson.