BY MTHANDAZO NYONI RESEARCH firm, Inter Horizons Securities (IH) foresees a maintained volumes recovery path at National Foods Limited heading into the first half of next year on account of a relatively more enabling environment.
In its analysis of the company’s financial results for the year ended June 30, 2021, IH said increasing consumer liquidity combined with the festive season demand will positively impact volumes growth at Zimbabwe’s biggest milling operation.
“Volumes sold in the maize segment are, however, likely to remain weak in the short term due to flooding of the product on the domestic market from the bumper harvest,” IH noted.
“Government has since moved to ban imports of maize and maize products to support the local industry whilst management has since remodelled the business for the maize unit to ensure that it continues to make a sustainable contribution.”
Aggregate volumes for the group during the year ended June 30, 2021 grew 15% year-on-year to 525 430 tonnes, underpinned by recovering consumer spend on the back of a good harvest.
Volumes in the flour division increased by 43%, buoyed by a strong performance in the pre-pack segment, while maize meal volumes remained depressed at a 32% decline relative to the prior period largely. This was due to competition from an influx of cheap imports from neighbouring South Africa and market adjustments that took place following the conclusion of the subsidy programme, as well as intense competition from imported maize meal.
In the stock feeds segment, volumes were up 33% driven by uptick in the poultry feed. The groceries division reported a 74% positive shift in volumes, whilst the snacks and treats category closed 57% higher from a mix of competitive pricing and marginal recovery in consumer appetite.
Revenue grew by 343% to ZW$28,07 billion (US$312 million), whilst earnings before interests, taxes, depreciation and amortisation (EBITDA) slowed down in real terms on account of correction of the cost lag with increases in key expenditure lines such as rates, fuel and staff costs.
The National Foods board approved the purchase of a new state of the art 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$5 million.
Commissioning is scheduled for late 2022 and is set to contribute to increased efficiencies during the financial year ending June 30, 2023 going forward, IH said.
“Lowered margins for the group at full year are still above historical averages so we anticipate further correction and normalisation as we head to (financial year) FY22. We have therefore forecasted EBITDA margin to ease from 11,7% in FY21 to circa 10% in FY22,” IH researchers said.
“We however acknowledge that another run in inflation numbers will see margins surging again due to the sizable pre-payments made to secure a steady supply pipeline.
“The key focus highlighted by management going forward is improving operational efficiencies, management of working capital and cash flow models and ensuring interest costs are kept at sustainable levels,”
IH estimated that National Foods’s topline will grow 68% year-on-year to ZW$47,2 billion (US$4,25 billion) during the full year to June 2022, from $28,07 billonin 2021.
“We forecast EBITDA will close the year at $4,72 billion (US$425 million) up 43% from the previous comparable period,” the IH report noted.