National Foods Holdings (Natfoods) posted a ZWL$41m loss in the six months to December 31,2020 from a profit of ZWL$513m in the prior period despite growth in volumes.
Volumes increased to ZWL$13.8bn from ZWL$9.2bn reported in prior comparative period.
The 50% increase in volumes, according to board chairman Todd Moyo, were due to removal of subsidies on basic commodities and improved consumer purchasing power on the back of reduced inflation.
Gross margins for the period stood at 31% illustrating a return to more normalised levels, with the impact of prepaid raw materials declining compared to prior year when inflation rates were higher.
Moyo said the period saw a significant stabilisation in the economic environment, mainly brought about by reduced inflation following the introduction of the foreign currency auction system and the promulgation of Statutory Instrument 185 of 2020.
“The stability meant that it became simpler to optimise trading models and in response our pricing strategy sought to drive volume growth and ensure that our products remained relevant to the consumer. There was a continued and progressive reduction in the extent of subsidies across most basic food categories, a policy which we fully support,” he said.
Natfoods’ operational expenditure amounted to ZWL$1.958bn, a 575% increase from the prior period.
There were price increases in many key expenditure lines such as electricity, fuel and staff costs during the period as subsidies were removed and inflationary lag moderated.
“The reduced inflation necessitated a review of the working capital models of the various units, particularly in view of the relatively high cost of local borrowings. To this end, prepaid stock pipelines were reduced and customer credit was increased to drive revenue,” Moyo said.
The company’s total assets for the period were at ZWL$9.3bn while total liabilities were sitting at ZWL$5.9bn.
Volumes for the flour unit increased 56% compared to the prior period, with solid growth in both the baker’s and prepack flour segments.
The increased consumer demand was driven by pricing stability on the back of support from the foreign currency auction and competitively priced local wheat.
The board approved the purchase of a new 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$5m.
“This significant project has been carefully planned to ensure continuity of flour supply to the southern region during the installation phase, and is expected to be completed by the end of 2022,” the company said.
Stockfeed volumes improved 34% in the reviewed period driven by the poultry category, where volumes increased 56% relative to prior period.
Volumes in the groceries division increased significantly by 98% compared to prior period while volumes in the snacks and treats division increased by 57% against the prior period.
On cereals, “Pearlenta Nutri-Active” instant maize porridge continued to make steady progress in the market and together with “Better Buy Soya Delights”, a soya based meat substitute, has been well received by the market, Moyo said.
Volumes in Pure Oil increased 64% compared to the prior period. There was strong volume growth for cooking oil, soap and margarine.
However, maize meal volumes, were disappointing, declined 23% relative to prior period, in spite of the fact that last season was a drought year which ordinarily results in firm demand.
The decline was due to the market adjustments that took place following the conclusion of the subsidy program, as well as intense competition from imported maize meal, notably from South Africa.
Beef feed volumes were also muted, declining 5% on the back of good early rains and a general reduction in cattle feeding.
Notwithstanding the challenging period of adjustment that took place during the period, the return to a more normal market based system in the maize category was welcomed.
Moyo noted that the group continues to look at expanding its breakfast cereal portfolio.