National Foods Holdings Limited – Abridged Reviewed Group Financial Results for HYE 31 December 2022

By Published On: March 30th, 2023Categories: Corporate announcement, Earnings
National Foods Holdings Limited (NTFD.vx) HY2023 Interim Report

National Foods Holdings Limited (NTFD.vx) HY2023 Interim Report

Chairman’s Statement

Directors’ Responsibility

The Holding Company’s Directors are responsible for the preparation and fair presentation of the Group’s consolidated interim financial statements, of which this press release represents an extract. These abridged interim financial statements are presented in accordance with the disclosure requirements of the Victoria Falls Stock Exchange (“VFEX”) Listing Requirements for interim financial reporting (Preliminary Reports) and, except where stated, in accordance with the measurement and recognition principles of International Financial Reporting Standards (“IFRS”) and the manner required by the Companies and Other Business Entities Act (Chapter 24:31). The principal accounting policies applied in the preparation of these interim financial statements are consistent with those applied in the previous period’s financial statements. There is no impact arising from revised IFRS, which became effective for the reporting period commencing on or after 1 January 2022 on the Group’s interim financial statements.

Change in Functional Currency and Cautionary Advisory on reliance on Financial Statements

Commencing with the financial year ended 30 June 2020, and in line with both previous guidance issued by the Public Accountants and Auditors Board (“PAAB”) and the provisions of International Accounting Standard (“IAS”) 29 (Financial Reporting in Hyperinflationary Economies), the Directors have been presenting Group consolidated, inflation-adjusted financial statements in Zimbabwe Dollars (“ZWL”). Due to the considerable distortions in the economy, and the material and pervasive effects that these had in the application of IAS 29, the Directors have always advised users to exercise caution in the interpretation and use of those Group consolidated, inflation-adjusted financial statements; in addition the Directors also issued financial statements prepared under the historical cost convention, as supplementary information, in an effort to assist users with their interpretation of the Group’s financial performance.

Following the promulgation of Statutory Instrument (“SI”) 185 of 2020, issued on 24 July 2020, the Group has continued to see a steady increase in the use of foreign currency across the business and, in accordance with the requirements of IAS 21 (The Effects of Changes in Foreign Exchange Rates), has been through a process of assessing its functional currency. Following the completion of this process, the Group has concluded that based on the primary operating environment and the Group’s own operating activities, there has been a change in its functional currency from ZWL to United States Dollars (“US$”) with effect from the beginning of the current financial year. The change in the Group’s functional currency is further supported by the Listing Requirements of the VFEX, which require issuers to present financial statements in US$.

IAS 21 directs that entities operating in hyperinflationary economies should translate their last reported inflation-adjusted financial statements using the closing rate of exchange at the reporting date in order to derive and present comparative financial statements under a newly assessed functional currency.

The Directors are of the opinion that using the provisions of IAS 21 to convert the Group’s inflation-adjusted financial statements from previous periods, as a basis for presenting comparative and opening balance sheet information in terms of the new functional currency, will result in the material misstatement of the Group’s comparative financial statements. This has resulted in the external auditors issuing an adverse review conclusion on the Group’s consolidated interim financial statements for the current period under review.

In an endeavour to present the best possible view of the comparative financial performance and position of the Group in terms of the newly assessed functional currency, alternative procedures and techniques have been utilised in the translation of ZWL financial statements to US$ financial statements. The alternative procedures and techniques utilised for the translation of ZWL financial statements to US$ financial statements have been summarised in note 3 of the Supplementary Information section of the accompanying abridged financial statements.

While the Directors have exercised reasonable due care and applied judgments that they considered to be appropriate in the preparation and presentation of these interim financial statements, certain distortions may arise due to various specific economic factors that may affect the relevance and reliability of the information that is presented in economies that are experiencing hyperinflation, and in view of the fact that that there are certain subjectivities and technicalities involved in the translation of ZWL financial statements to US$ financial statements as highlighted above; accordingly, the Directors would like to advise users to exercise caution in their use of these interim financial statements.

External Auditor’s Review Conclusion

The abridged Group interim financial results for the six months ended 31 December 2022 have been reviewed by the Group’s external auditors, Deloitte & Touche, who have issued an adverse review conclusion. The auditor’s review conclusion is appended on the Group’s abridged interim financial statements which is available for inspection at the Company’s registered office and on the Company and VFEX websites. The engagement partner responsible for this review is Lawrence Nyajeka, PAAB practice certificate number 0598.

Sustainability Reporting

The Group continues to apply the Global Reporting Initiative (“GRI”) standards and, over the years, has aligned its sustainability reporting using GRI standards with corresponding Sustainable Development Goals (“SDGs”), demonstrating the Group’s commitment and contribution to sustainable development within the environments in which the Group operates. The Group continues to strengthen its sustainability practices and values across its operations to ensure that long-term business success is achieved sustainably.

Uncertain Tax Positions

There have been substantial changes in the currency environment in Zimbabwe in recent years, including the reintroduction of the ZWL as the country’s functional currency in February 2019 through SI 33 of 2019, followed by the promulgation of SI 185 of 2020, which reintroduced the use of foreign currency for domestic transactions.

These significant changes have created numerous uncertainties in the treatment of taxes due across the economy, and have been compounded by a lack of clear statutory and administrative guidance or practical transitional measures from the tax authorities. The wording of existing tax legislation has given rise to varying interpretations of tax law within the Country. Over time, it has become apparent that the Group’s interpretation of the law regarding the currency of settlement for taxes, as well as the methodology for tax computation, has differed from that of the authorities, and this has resulted in a number of uncertainties in the Group’s tax position. The Group continues to seek adjudication by the courts on the uncertain tax positions.

Operating Environment and Overview

The policy interventions which were introduced during May and June 2022 resulted in a reduction in inflation and improved economic stability for the period, especially during the first quarter (July-September), before a moderate increase in inflation took place in the second quarter (October-December). The dampening of inflation was largely brought about by very tight control of the ZW$ money supply and an increase of interest rates to 200% per annum. Whilst the improved economic stability was welcome, the measures did have an impact on consumer demand, exacerbated by increases in international commodity prices, largely due to the Russia-Ukraine situation. In addition, the Group also incurred significant interest costs as it moved to replace its ZW$ debt with cheaper US$ debt following the increase in interest rates.

Volumes were further impacted by the performance of the formal trade, due to a number of pricing related and other distortions. Whilst the Group does serve the informal trade, our hope is that policy changes will be enacted to correct distortions within the formal trade to ensure that all market channels can compete on fair terms.

The proportion of the Group’s transactions conducted in US$ increased during the period, allowing the Group to sustainably fund both its raw material imports and capital expenditure. The 2022 winter wheat harvest saw exceptional levels of production, a most welcome development which allowed the Group to substantially reduce its import bill.

National Foods successfully listed on the VFEX on December 23rd 2022. The Board believes that the listing on the VFEX is extremely positive for National Foods’ shareholders for a number of reasons, as articulated in the detailed circular sent to shareholders prior to the listing.

Financial Performance

From a trading perspective, the period was a challenging one for the Group, impacted mainly by global wheat price increases which significantly dampened demand in the flour and flour related categories and various market adjustments following the drastic but necessary policy interventions which occurred in May and June 2022.

Volumes saw a disappointing decline of 9% to 275,000 MT, driven largely by the Flour unit. In spite of the lower volumes, revenue increased by 8% to US$ 167 million, a reflection of higher global commodity prices, which impacted the cost of all of our major raw materials with the exception of rice. Operational expenditure disappointingly increased by 5% compared to last year, as many cost lines increased in real terms with the increased use of US$ in the economy. EBITDA at US$ 13.96 million was 16% below last year, with the result at PBT level being heavily impacted by net interest cost of US$ 3.3 million incurred on ZWL debt in the first quarter. Interest rates were increased to 200% per annum for the quarter, and the high costs were incurred as we took measures to swap our expensive ZWL debt for US$ debt.

The Group’s statement of financial position remains solid. During the period there was a significant reduction in working capital, from US$ 45.3 million at the end of June to US$ 35.5 million at the end of December. This largely contributed to the strong cash generation for the period, which enabled the on-going settlement of our capital expenditure whilst maintaining gearing at very moderate levels. At the end of the period net debt stood at US$ 0.69 million. The Group will continue to focus closely on the optimisation of working capital, with the objective of funding the on-going aggressive capital expenditure program with relatively moderate levels of debt.

Operations Review

Flour Milling

Volumes for the Flour unit decreased by 20% compared to the same period last year, driven largely by significant increases in the price of wheat on the back of the situation in Ukraine. Imported wheat prices increased to as high as US$ 600/MT during the period, well above “normal” levels of US$ 400-450/MT. During the first quarter bread prices breached the key US$ 1 per loaf price point, before reducing to US$ 1 per loaf in the second quarter as wheat prices began to decline. This led to reduced bread consumption and bread was substituted by favourably priced alternative starches such as rice.

Heading into the second half, wheat prices have declined somewhat but remain at elevated levels. Accordingly, we see a partial but not full recovery of volumes in the second half.

The installation of the new mill at our Bulawayo site remains on track for commissioning in April 2023. The new mill will increase wheat milling capacity by an additional 2,000 MT per month.

Maize Milling

Maize volumes declined by 6% versus the prior year. The performance was very much a tale of two quarters, with volumes declining by 26% in the first quarter but increasing by 13% in the second quarter when compared to last year. Volumes in the first quarter were impacted by various distortions in procuring local maize, and recovered strongly in the second quarter as the locally available maize supplies dried up and maize supplies were accessed from GMB and imports.

A range of traditional grain products has been launched to support the base maize meal proposition, to serve an increasingly health conscious market. This range uses grains such as sorghum and millet and brings the added benefit of creating a market for producers, who largely farm in more marginal areas which are unsuitable for maize production.


Stockfeed volumes decreased by 4% when compared to prior year. As with Maize, volumes recovered in the second quarter, which registered growth of 6% versus a 13% decline in the first quarter. The first quarter volumes were disappointing as market demand remained relatively robust, and were impacted by distortions in the formal distribution channels mentioned above.

The new Programmable Logic Controller (PLC) system, which will enhance and optimise operational controls, was successfully commissioned during the period and it is expected that this will improve quality control and assurance as well as plant productivity.


Volumes in the Downpacked unit, which primarily packs rice and salt saw encouraging growth of 12% versus last year. Rice volume growth continued to be largely driven by the informal sector, and likely benefited from the elevated prices in the wheat to bread value chain. Red Seal salt continued to be the market leader in its category.

The Board has approved investment to upgrade the Aspindale Harare rice plant, at an expected cost of US$ 5.3 million. The upgrade will see increases in storage and packing capacity as well as modernisation of the existing plant, in response to the opportunities which exist in the rice category.


Volumes in this Division increased by 18% against the prior period, as both the Hard Snack (Zapnax) and Soft Snacks (King and Popticorn ranges) categories saw continued growth. The Board has approved a further investment of US$ 1.5m to increase capacity in the Hard Snacks category.


Biscuit volumes declined by 15% compared to last year. The category was under pressure due to flour price increases and the challenges faced by the modern trade. As previously advised, the Board has approved the purchase of a new biscuit line, which will allow National Foods to extend its biscuit portfolio beyond the current basic loose biscuit proposition to more specialised biscuits such as creams. Work on the project has commenced and the new line is expected to be commissioned late in 2023.


Volumes in the cereals unit grew by 42% year on year. The second phase of our breakfast cereal investment was commissioned towards the end of the period, resulting in the launch of a new range of breakfast cereals including corn flakes, bran flakes, wholegrain flakes and instant cereals. Although these products were only launched towards period end and hence did not make a meaningful contribution to these results, it is pleasing to note that the feedback from consumers has been exceptionally positive and we are looking forward to seeing their progress in the future. The recently installed plant has the capability to produce a wide range of products and we are looking forward to further expanding the portfolio of products.

Traded Goods

The Traded Goods unit saw volumes decline by 44% versus prior year, largely as a result of the performance of the pasta category. The pasta category performed poorly as a result of product supply challenges following an embargo on exports of pasta from Egypt. It is envisaged that volumes will recover in the period ahead, as demand for pasta in the market remains healthy.

As previously advised, the Board has approved the purchase of a new pasta line in response to the growing demand for pasta in the country.

This investment will also see the localisation of pasta production, which traditionally has been imported as a finished product. It is expected that this project will commission late in 2023.

Contract Farming

National Foods co