National Foods records 26 percent increase in profit after tax

National Foods recorded a profit after tax of $3,6 million for the half-year ended 31 December 2011. This was a growth of 26 percent over the corresponding prior period.

The Group delivered a turnover growth of 24 percent and an overall volume growth of 18 percent over the same period.

The balance sheet grew by seven percent to $46,6 million. Working capital increased as a result of increased cash requirements to fund sales during the peak December 2011 trading period. The net debt position ended at $2,9m representing a debt to equity ratio of 6,3 percent for the group.

The group remains positive about its capacity to support both its short and long-term funding needs.

Capacity utilisation increased to 40 percent. As a result, the cost per unit of manufactured product dropped by 14 percent compared to the prior year.

Group chairman Todd Moyo, in his report accompanying the financial statements, said the group had redirected these savings into more competitive pricing and re-investment in major maintenance projects.

Mr Moyo said the macro-economic and socio-political environment had remained favourable for normal trading.

The reinstatement of import duties aimed at protecting the local industry had afforded the business time to enhance its competitiveness within the region. The widening of individual tax bands had contributed to an improvement in household disposable incomes.

He said The Group had continued to invest in its core manufacturing platform in order to enhance both efficiencies and capacity for future growth. It invested $1,9 million on capital expenditure and spent $1,1 million on repairs and maintenance.

Mr Moyo called for government policy to continue to support the local primary agriculture sector as well as the secondary agro-processing industry for the country’s macroeconomic recovery.

“In this regard, the group commends government’s policy to reinstate tariff measures that were instituted to afford the local agro-processing industry an opportunity to re-tool its manufacturing base and improve its competitiveness against under-priced imports,” he said.

He said the group planned to continue to grow volumes through increased penetration and consumption.

The increases in some costs at above current inflation figures, particularly utility costs, remained a concern for the group, as it tried to provide products at affordable and competitive prices.

Notwithstanding such challenges the Group managed to restrain price increases over the period under review. The average selling price was little changed.

Most categories of goods showed growth, with some pleasing improvements compared to the first half of the year. Overall volumes sold amounted to 194 212 million tonnes, generating turnover of $116,1 million.

The benefits of improved efficiencies and a better product mix led to a 5 percent improvement in gross profit. The gross profit margin stabilised at an acceptable 23 percent.

Total operating cost per tonne reduced by 13 percent on the back of increased sales volumes, improved operational efficiencies and benefits arising from the restructuring of the group’s operating model.

The group managed to successfully commission the Mutare plant in August last year and re-open the Bulawayo flour mill in October. By the end of December 2011, six out of 13 factories were operating.

At the company’s stockfeeds plant in Harare, a reverse osmosis water treatment plant, which provides better quality water, and a 6000 metric tonnes per month roughage plant went on stream. This, Mr Moyo said, will provide the group with substantial beef and dairy feed production capacity.

The company implemented an enterprise-wide plan to dispose of non-core or non-performing assets, so that it could reallocate the balance sheet to core competencies that can provide the targeted returns to shareholders. To date the Group had generated about $5,7 million from disposal of non-core assets, which had been used mostly for capital expenditure projects.

Work on improving the quality, consistency and pricing of flour milling had been successful. National Foods was the market leader for both baker’s flour and pre-packed flour, Mr Moyo said.

Sales were 33 percent above the prior period but the gross profit percentage was down to 18 percent as the group sacrificed margin to preserve market share.

A five percent import duty was introduced in January 2012 on imported flour, which the group hoped would be enough to stimulate an increase in flour sale volumes in the same way that maize meal volumes had increased.

“The group has sufficient stocks of the correct wheats to produce the desired grist and to meet any increase in demand. Our flour is now at an internationally acceptable quality,” Mr Moyo said.

As part of the group’s strategy to support local primary agriculture, the Group had purchased, he said, 80 percent of the locally produced wheat. It was satisfied with the quality of the wheat that was received.

In maize milling volumes grew by 75 percent compared to the prior year. Revenue increased by 82 percent. There was a slightly improved mix between Pearlenta and roller meal.

Stockfeeds volumes decreased compared to the prior period primarily as a result of the closure of the Bulawayo plant. However, following the reopening of the Bulawayo flour mill the Bulawayo stock feeds plant would also be reopened.

Total stockfeeds revenue grew by 12 percent on the back of an increase in the average selling price per tonne, while overall profitability dropped by 55 percent due to increased raw material prices and increased utility costs, which squeezed margins. Capital foods and Safco remained profitable albeit on stagnant volumes.

In the fast moving consumer goods sector volumes sold were 16 percent below the prior year, primarily because the group had discontinued the snack, biscuit and kapenta categories, with turnover amounting to $22,7 million.

The group continues to seek opportunities for expanding the business’s product portfolio into adjacent consumer packaged goods categories.

“Our strategy remains that of striving to achieve number one or two market share position in all the categories in which we choose to compete.

The introduction of import duties on pre-packed rice and salt should assist the business in competing with imported packaged rice. However, a similar intervention on pasta was likely to slow down growth prospects as there was no local manufacturer of pasta and prices were likely to rise beyond consumer affordability, Mr Moyo said.

He said the group had experienced good progress in stabilising the operating platform during the period under review. The improvement in return on shareholders’ equity was also satisfactory.

Management would continue to focus on initiatives to further optimise the current operating platform as well as capitalise on identified growth opportunities.

“Linked to that thrust is the need to re-invest behind the key enablers of our capability platform such as the information technology infrastructure,” he said.

“Growth opportunities have been identified across the existing categories as well as into adjacent categories.

“The Group’s future growth will be supported by increased investment levels behind our facilities, our people’s competence levels as well as our brands,” said Mr Moyo.

“Fiscal discipline remains a core element of our future success, more especially during this period of liquidity constraints,” he added.

The Board declared an interim dividend of 1,2 US cents per share.

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