Natfoods’ profit leaps

The fast moving goods manufacturer doubling of profitability came on the back of a 24 percent increase in volumes to 241 tonnes compared to the corresponding period to December 2011. Stockfeeds registered aggressive growth in volumes, with the division increasing volumes by 47,7 percent on the prior comparative period, as the Zimbabwe Stock Exchange firm maintains growth.

Maize meal volumes were relatively flat, with that division increasing volumes by a marginal 0,7 percent. Management pointed out that the Grain Marketing Board has re-emerged as a player at the lower end (and lower margin) of the market, causing some competitive pressure in that market.
National Foods flour division, which benefited significantly from the increase in imported flour tariffs from 5 percent to 20 percent during the period under review, registered volumes growth of 56 percent.

The FMCG division continues to face stiff competition in a price-driven market with low barriers to entry and saw a 4,7 percent increase in volumes for the period. Revenues kept pace with volumes on relatively flat average selling prices. Earnings before interest tax depreciation and amortisation margins increased to 8,02 percent, up from 4,99 percent as the average operating costs per tonne declined by US$112 to US$93.

The firm closed the period with an additional US$21,4 million in short-term debt as it increased its investment in working capital by US$33 million during the period. This led to an increase in interest costs to US$562 000.

The company also declared an interim dividend of US$0,03 at a dividend payout ratio of 27 percent, down from 38 percent in the first half on a US$24 million deterioration in free cash flows.
Financial analysts IH Securities said the FMCG manufacturer outperformed its expectations, due to better-than-expected volumes growth and margins in the flour and stockfeeds division.

“In addition to 47,7 percent growth in volumes, the stockfeeds division benefited from an improvement in the sales mix with the higher margin cattle feed division seeing a significant increase in demand on the back of Government and NGO orders,” said IH Securities.
The financial analysts have predicted that agro-processing firm’s stockfeeds division’s gross margins for the division, will, however also decline in the second half on higher raw material prices and decreased demand for cattle stockfeeds in a half where farmers can feed cattle through pasture.

“Demand for poultry feeds is expected to remain robust on the back of the surtax imposed on imported poultry in place since November 2012. More aggressive growth in that lower margin poultry product will dilute margins downwards in the second half. As previously asserted, we believe the flour division will see lower margins for the year on the back of higher average wheat procurement prices for the year in financial year 2012 despite the robust performance in the first half.”