Harare Bureau

THE obtaining economic volatility had a knock on listed agri-industrial concern, National Foods Holdings Limited, which saw total volumes for the half year to December 31, 2019 decline 32 percent attributable to declines across all segments except the maize meal category.

During the period under review, inflationary pressures persisted causing erosion of disposable incomes resulting in subdued demand across segments while removal of subsidies especially in the flour segment also had a knock on effect on operations. According to the group’s financial

statements, the flour division, cooking oil, groceries, snacks and treats as well as the stock-feeds divisions experienced significant volume declines as the market battled reduced consumer spend due to rising inflation.

“The period under review was marked by numerous operational and economic challenges. The continued devaluation of the Zimbabwe dollar gave rise to a highly inflationary environment for most of the period, albeit at a reduced rate towards the end of the half year.

“From an operational perspective, there was extensive nationwide power load shedding from, which our plants were not spared, necessitating the use of back-up generators,” said chairman Mr Todd Moyo.

The removal of progressive subsidies saw the flour division record a 49 percent volume decline compared to same period in the prior year although this also led to consistent availability of bread and a generally more sustainable trading model for the wheat to bread value chain in the longer term.

Stock-feed volumes for the period eased 21 percent versus last year, a decline that was in line with the overall market performance. The effective removal of subsidies on the maize component of feed rations caused a substantial increase in the price of stock-feed relative to inflation. Together with the declining consumer disposable income this saw reduced demand for protein products, in turn impacting the stock-feed market.

The groceries division suffered 39 percent volumes decline reflective of the economic environment while snacks and treats also went down 42 percent as consumers focused on basics. At Pure Oil, where National Foods holds a 40 percent stake, total volumes went down by 13 percent while cooking oil fell 25 percent compared to same period in the prior year. There were, however, steady volume improvements in the laundry soap, baker’s fat and margarine categories.

On the positive, maize meal demand remained strong following a relatively poor harvest. The group expects very high demand in the coming period and has embarked on a significant maize importation programme. The Mutare and Masvingo maize mills have both been reopened, with the resuscitation of the Masvingo mill being especially noteworthy as it was last run in 1998. On financial performance, revenue grew 30 percent to $2 billion, which was reflective of higher selling prices following the reduction in subsidies. Gross margin dollars increased by 65 percent, driven by various strategic raw material positions the group took. Operating profit grew 93 percent to $341 million while profit for the year grew 76 percent to $228 million. Basic earnings per share jumped 76 percent to 334 cents. During the period under review, operational expenditure increased by 48 percent compared to the comparable prior year period. 

Management anticipates volumes for the near future to remain depressed as consumers remain constrained. But the maize category is expected to perform well as demand for mealie meal remains strong. The group is looking at growing the snacks, biscuits and cereals categories, which are logical forward integration opportunities from the basic milling portfolio.

“While demand in these categories is currently muted, the work on broadening the offering in these categories will continue, developing the company’s repertoire for improved economic circumstances,” said Mr Moyo.

The group has already launched maize based instant breakfast porridge under the “Pearlenta Nutri-Active” brand. Indications are that the product is being well received by the market and the group is exploring further opportunities in the breakfast cereal category. National Foods declared an interim dividend of 86,47 cents per