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National Foods optimises costs to improve profitability

National Foods Ltd (Natfoods) management is seeking to improve operating efficiencies and optimise its costs base in order to improve profitability, which took a knock in the first quarter of the company’s current financial year, a company official has said.

Taurai Mangudhla

Giving a trading update at the company’s Annual General Meeting held in the capital on Wednesday, CEO Michael Lashbrook said the company had been forced to reduce prices in order to boost revenues, putting margins under pressure.

“In terms of our outlook, I think as with all companies in this current environment, our top line is under pressure and we have managed to hold in the quarter but what will be a key area of our growth is to try and hold and grow top line,” said Lashbrook.

“Similarly, like our colleagues in the industry, we are looking at our cost base and looking to optimise and ensure we are as cost competitive as possible as we go forward.”

He said volumes at the end of the quarter to September 30 2015 stood at 131 000 tonnes, a 5% growth on the same period last year while revenues stood at US$78,3 million, 3% below the same period last year.

“The reason for the reduction in revenues is firstly a reduction in flour pricing in line with raw material pricing and secondly an issue with mix for maize and soya,” Lashbrook said.

He said the company’s planned capital expenditure for the year is US$9,9 million, partly comprising US$4,5 million to upgrade flour mills and US$2,3 million for backup generators.

“You will recall from our previous updates that we are now on year two of a three year programme to upgrade our flour mills. We are seeing increased operating efficiency and we are already realising benefits of that capital expenditure of our efficiencies,” said Lashbrook.

“With respect to generators this applies to generators for all our Harare plants, again we are all aware of the power situation and in order to mitigate risk, we decided to invest in backup generators.”

Lashbrook said the company continues to pursue its growth agenda through a number of opportunities that are already in the pipeline and at various stages of development.

“We will share with you the specific details once the necessary governance and regulatory approvals are complete,” he said.

Lashbrook said in terms of raw materials, the company was adequately stocked on wheat with most of the cereal coming from a winter wheat contract farming programme where Natfoods grew 4 200 hectares of wheat to produce around 25 000 tonnes of the crop.

“We are currently with our partners PHI planting another 5 000 hactares of contract crop for the current summer season that is 3 000 hectares of maize and 2 000 hectares of soya beans and we look forward to seeing that product coming through in May or June next year. In terms of maize we are sitting on three months cover and we are obviously working closely to manage our pipeline through to the next harvest,” he said.

In the previous full financial results for the year ended June 30 2015, Natfoods reported a US$12,7 million after tax profit, down from US$16,7 million the previous year.

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