Natfoods banks on improved consumer demand

NATIONAL Foods Limited says economic stability and improved productivity is steadily translating into improved consumer demand, which saw the group achieving volume growth across its operating units during the year ended June 30, 2021.

Mr Todd Moyo, the group’s chairman, said improved demand has largely bolstered the successful 2020/21 summer harvest and gains achieved in the fight against Covid-19 pandemic.

“The period saw a significant improvement in the business environment, largely due to rapidly declining inflation and improved productivity in many sectors of the economy as well as increased confidence, which led to the approval of a number of investments for National Foods,” he said in a statement of financials.

According to the financials, volumes for the period increased by 15 percent to 525 000 tonnes compared to the prior period.

Mr Moyo noted that this was achieved in spite of the disappointing result from the maize unit, where volumes declined by 32 percent largely on the back of intense competition from imported maize meal and the discontinuation of the subsidy programme.

“Excluding maize, the year-on-year volume growth across all categories was 48 percent driven by improved consumer demand and a steadily improving market presence across the portfolio,” he said.

Revenue for the period increased to $28,07 billion, a 343 percent increase from $6,3 billion in the prior period on the back of the volume growth as well as the impact of inflation.

Mr Moyo noted that the maize unit had a disappointing year, with performance being impacted by the normalisation of the market post, the removal of the subsidy scheme as well as a proliferation of cheap imported maize meal, notably from South Africa.

According to the financials, the group’s balance sheet remains in a healthy position with moderate levels of gearing and net debt of only $591 million as at year-end.

“Although gearing is moderate, the increase in interest rates and lower inflation has meant that working capital models and cash flow management once again become key priorities.

“Deposits were paid for both the new Bulawayo flour mill and the new cereal project in the latter part of the year and the company is well positioned to continue to fund its pipeline of new projects,” he said.

In terms of other divisional performance, the flour milling unit volumes increased by 43 percent compared to the prior year on the back of strengthening consumer demand.

“While growth occurred in both the baker’s and prepack flour segments, it was especially strong in prepacks as consumers resorted to home baking with the Covid-19 induced lockdowns and movement restrictions in place,” Mr Moyo noted.

He said the group’s Board has approved the purchase of a new state-of-the art flour mill, which will be installed as a replacement for the existing mill at the Bulawayo Basch Street site, at an estimated cost of US$5 million and the project is now underway and progressing on schedule with commissioning scheduled for late 2022.

Within the maize milling division, volumes decreased by 32 percent compared to the prior year, in spite of the fact that last season was a drought year which ordinarily results in firm demand.

Mr Moyo said local maize production has shown a significant recovery this year, a most welcome development for the country.

He said the harvest will, however, impact demand for maize meal as consumers utilise their own harvested maize.

“In response, the business model for the maize unit has been remodelled, with a view to ensuring that it continues to make a sustainable contribution to the Group,” he said.

The stock feeds division volumes improved by 33 percent when compared to prior year, driven by the poultry category, where volumes increased by 53 percent relative to last year.

Beef feed volumes were subdued, declining by 14 percent on the back of good early rains and a general reduction in cattle feeding.

“The positive progress in this unit, driven largely by firmer demand for protein products and especially an increase in small scale poultry production is most encouraging.

“The board has approved the implementation of various plant upgrades in the coming year to the Aspindale plant as part of a 3-year phased upgrade which will significantly modernise the existing plant which was installed in the early 1990s,” said Mr Moyo.

The groceries division saw increased volumes by 74 percent and the solid growth was achieved across the category portfolio on the back of competitive pricing.

The snacks and treats division increased by 57 percent compared to the prior year and Mr Moyo noted that new products continue to be launched across the portfolio to broaden and enhance the offering.

“Additional manufacturing equipment for the snacks unit has been ordered and will be installed early in the coming financial year.”

According to the chairman, Pure Oil had a challenging year, largely due to the significant increases in international crude oil prices which could not be fully recovered in product pricing.

He said while volume performance was firm, having increased by 75 percent from the prior year, the overall contribution from Pure Oil declined from the previous year. However, solid volume growth was recorded in the recently introduced green bar soap and margarine categories.

Mr Moyo highlighted that National Foods continues to keenly support contract farming of maize, soya beans, wheat, sugar beans and popcorn.

He said during the current summer season just over 9 000 hectares were planted with the tonnage harvested amounting to 55 000 tons, mainly of maize.

“In addition, 5 800 hectares of wheat have been sown in the current winter crop and this programme is now making a meaningful contribution to the Group’s raw material requirements,” he said.

Meanwhile, the company said it has resolved matters over non-compliance with the Statutory Instrument 127 as well as the auction system with the Reserve Bank of Zimbabwe (RBZ) after the group was named among violators of the SI.

National Foods and 17 other entities were accused of abusing the foreign exchange auction system, following investigations by the Financial Intelligence Unit and the RBZ’s Exchange Control Division.

“National Foods held a number of constructive engagements with the RBZ in the aftermath of the publication and the matter was resolved in the immediate post year end period,” Mr Moyo said. – Sunday Mail