Volatility, uncertainty trouble Natfoods

LIVINGSTONE MARUFU

Leading agro-processing firm, National Foods Limited (Natfoods) says volatility and uncertainty in the operating environment could lead to default or collapse of the company’s key counterparties resulting in the shrinking of the group’s financial position and operations in future periods.

The development comes at a time when the economy is facing various headwinds which include foreign currency shortages, crippling power outages, inflation and volatile currency and the company fears that this may catch up with the entity resulting in a dwindling of the balance sheet.

In a 2022 annual report, Natfoods chairman Todd Moyo said the management of risk is at the heart of business planning processes and is core to achieving strategic goals as it ensures that the company continues to protect its stakeholders and the business from collapsing.

“Volatility and uncertainty in the operating environment could lead to default or collapse of our key counterparties resulting in contagion risk.

“The group extends secured and unsecured credit to our customers and deals with the bank and financial institutions,” Moyo said.

“These are not the only risks facing the Group and there may be additional risks not currently known to us or that we deem to be immaterial which may adversely affect business, financial position and operations in future periods.

“The regulatory environment remains unpredictable, impacting our short to medium-term planning. Key matters relating to taxation, currency management, exchange control and bank policies,” he said.

Natfoods has a risk management framework that provides a common benchmark to identify, prioritise, and manage risks while leveraging opportunities across our business.

The board has the ultimate responsibility for risk management and internal controls at National Foods.

It provides guidance on tolerable risks, risk appetite and the adequacy of prevailing controls in managing risks while the executive management is responsible for the implementation of the risk management framework.

“We use a cyclical approach to risk management within our operations, and it consists of four key stages: identification, prioritisation, responding and reviewing.

“The significance of these risks is assessed as the product of the likelihood of occurrence and impact on the business should the risk event occur. The group responds with risk treatment measures that achieve an appropriate balance between cost and benefits.

“The same risk treatment process is applied in exploitation of opportunities identified in the risk management process. The precautionary principle is also a significant element of the risk management system for the group, guiding us in assessing environmental and social risks. We continuously review our risk profile to ensure it is up to date and preserve company value for the benefit of all stakeholders,” Moyo said.

Revenue for the group in the 12 months to June 30, 2022, grew by 33% to ZWL$128.4bn from ZWL$96.7bn in the previous year, driven by both volume growth and inflation-driven price increases.

Sales volume for the period under review increased by 8% to 569 000 tonnes compared to the prior year.

However, operational expenditure grew by 37% during the period under review.

Operating profit increased by 301% from the prior year to ZWL$14.74bn.

This was driven by significantly increased interest costs in line with higher interest rates; as well as a decline in equity-accounted earnings of 41%, which was largely attributed to the disposal of Pure Oil during the period.

The company’s financial position remained strong, with adequate resources to fund the expansion phase that the group has embarked on.

Volumes have recovered early in the new financial year with the adjustment in the pricing of competing “on the go” food products.

The board has approved the purchase of a new biscuit line, which will allow National Foods to extend its biscuit portfolio beyond the current basic loose biscuit proposition to more specialised biscuits such as creams.

Work on the project is underway and the new line is expected to be commissioned late in 2023.