National Foods Holdings Limited releases its 2023 Annual Report

By Published On: November 1st, 2023Categories: Corporate announcement, Earnings
National Foods Holdings Limited 2023 Annual Report

National Foods Holdings Limited (NTFD.vx) 2023 Annual Report

Chairman’s Statement

Directors’ Responsibility

The Holding Company’s Directors are responsible for the preparation and fair presentation of the Group’s consolidated financial statements.

These Group financial statements are presented in accordance with the disclosure requirements of the Victoria Falls Stock Exchange (“VFEX”) Listing Requirements, and in accordance with the measurement and recognition principles of International Financial Reporting Standards (“IFRS”) and in the manner required by the Companies and Other Business Entities Act (Chapter 24:31), except for IAS 21 (The Effects of Changes in Foreign Exchange Rates), IAS 16 (Property, Plant and Equipment) and IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) as detailed in notes 1.4, 1.5 and 2.1.

The principal accounting policies applied in the preparation of the Group’s financial statements are consistent with those applied in the previous year’s financial statements, except for the change in measurement of property, plant and equipment, which was previously measured at historical cost and is now being measured under the revaluation model. 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 financial statements.

Change in Functional Currency

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 those 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. As a result, the Directors have not adhered to IAS 21 in accounting for the change in functional currency. This has resulted in the external auditors issuing an adverse audit report on the Group’s consolidated financial statements for the current period under review.

In an endeavour to present a true and fair comparative financial performance and position of the Group, stakeholders will recall that the Group used alternative procedures and techniques in the translation process in the preparation of its Interim Report, where it reported total opening shareholders’ equity of USD 108.076m in its comparative Statement of Financial Position.

In an effort to move towards full compliance with IFRS, and with the objective of ensuring a return to an unqualified audit opinion on the Group’s Financial Statements for the 2024 financial year, the Group further refined its conversion procedures and techniques in translating its previously reported ZWL financial statements to USD; this resulted in opening equity reducing from the USD 108.076m reported in the Interim Report, to USD 105.171m.

This reduction was largely due to the re-calculation of deferred tax provisions, taking account of the recently updated legislation in income tax provisions (reduction in equity of USD 6.633m), the effects of the changes in accounting policy on property, plant and equipment, now measured under the revaluation method (increase in equity of USD 6.816m), with other adjustments combining to reduce opening equity by a further USD 3.088m; required to bring the conversion of other assets and liabilities in line with the provisions of IAS 21. Further detail on the Group’s change in functional currency is contained in Note 1.4 to these audited Group financial statements.

The Directors have always exercised reasonable due care and applied judgments that they considered to be appropriate in the preparation and presentation of the Group’s financial statements, and whilst they believe that the alternative procedures and techniques used in the translation process, as described above, provide users with the best possible view of the financial performance and position of the Group, attention is drawn to the inherent subjectivities and technicalities involved in the translation of ZWL financial statements to USD financial statements.

Change in Accounting Policy on Property, Plant and Equipment

The Group’s property, plant and equipment (“PPE”) has always been measured at historical cost, and as the Group changed its functional currency from ZWL to USD as described in the preceding paragraph, applying the provisions of IAS 21 to convert the Group’s comparative and opening PPE values would have resulted in the material distortion of these values at the date of change in functional currency. Change In Accounting Policy on Property, Plant and Equipment (continued) Therefore, in order to ensure future compliance with IFRS, the Directors chose to revalue the Group’s PPE at 30 June 2022 to reflect the correct PPE values at this date.

Effecting the change in accounting policy for PPE from the historical cost model to the revaluation model in the prior year is contrary to the provisions of IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), which does not permit the retrospective application of a change in accounting policy to revalue PPE. The Directors are, however, of the view that effecting the change in the PPE accounting policy from the historical cost model to the revaluation model in the comparative year, will more fairly present PPE values, enhance comparability between the Group’s current and comparative statements of financial position, and additionally, will assist users with their interpretation of the Group’s financial position and performance.

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 it 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 these matters.

Operating Environment and Overview

The year was characterised by a fluid economic environment, driven largely by ZWL exchange rate volatility. Inflation was relatively moderate at the start of the year, following various difficult but necessary policy interventions, principally a reduction in ZWL liquidity and an increase of ZWL interest rates to 200% per annum. Moving into the second half of our financial year, there was rapid devaluation of the ZWL, in line with increased ZWL monetary supply. Finally, as the year drew to an end, exchange rates stabilised as ZWL liquidity reduced, and the auction system was further refined. The volatility meant that our operating plans needed to be regularly and swiftly adjusted and at times this detracted from our core focus. The stability that has prevailed into the new financial year is most welcome, and we hope that this can be maintained as we move forward.

Globally, commodity prices spiked driven by the Russia-Ukrainian war. This fed through to substantial price increases in our key raw materials, most notably wheat. Strategically, we tried wherever possible to moderate our price increases and shield the consumer. Fortunately, in the second half of the year commodity prices have steadily reduced to more typical ranges, a positive development for the Group and indeed the consumer.

Pricing distortions in certain channels, most notably in formal retail, persisted throughout the year. This situation was not beneficial to any of the players in the value chain, as the consumer saw sub-optimal pricing, and retailers and manufacturers faced lower volumes and a loss in value on capital deployed to fund the channel. We sincerely hope that all stakeholders will be able to arrive at a solution to these challenges in the year ahead, so that the channel can better serve the consumer.

As has been widely recognised, the USD became the predominant currency of trade during the year. The consequent monetary stability was welcome, as it meant our raw material imports and growth ambitions could be sustainably funded. We remain encouraged at the major economic developments occurring in our country, and especially the investment occurring in the mining sector, which should greatly assist the maintenance of a more stable exchange rate environment in the coming years.

After successfully concluding the necessary regulatory processes, the Group listed on the VFEX on December 23rd 2022. The Board believes the move is an extremely positive one for National Foods’ shareholders for a number of reasons, as articulated in the detailed circular sent to shareholders prior to the listing.

Financial Performance

Volumes for the year were 553,000 tonnes, 3% below last year, mainly due to volume losses in the Flour unit, on the back of significantly higher global grain prices which dampened consumption. Apart from some transient challenges in Maize, the volume outcome in all other units was positive. Heading into the new financial year, global grain prices have reduced from the elevated levels seen at the onset of the Russia-Ukraine war, and we see a progressive recovery in volumes in the year ahead.

Revenue increased by 21.7% to US$ 343 million. Average selling prices increased from US$ 495 per tonne to US$ 621 per tonne year on year driven by the substantially higher raw material costs. Our strategy was to minimise price increases and maintain demand and hence the full extent of raw material inflation was not passed on to the consumer, resulting in gross margin dollars being flat year on year, in spite of the much higher revenue. Operating costs increased by US$ 3.8 million compared to last year, driven in the main by salary increases at factory floor level, power costs and IMTT. The reduced power availability forced us to resort to expensive standby generators to maintain product supply, and ZESA costs also increased significantly in real terms. IMTT has become a significant cost to the business, and the recent reduction in the percentages applied to calculate IMTT will bring some welcome relief in terms of this expense line.

Operating profit before interest, equity accounted earnings and tax for the year was US$ 23.4 million, 16.5% below last year, in summary due to our strategy to moderate price increases and the higher operating costs. As with last year, there were significant losses on the ‘financial loss’ line, largely on account of translating the Group’s various ZWL monetary positions, as once again consistency of product supply was prioritised to certain market channels, even when it resulted in financial losses. With the improved economic and exchange rate stability in recent months, our objective will be to moderate and even eliminate these losses in the year ahead.

Net interest costs at US$ 4.7 million were driven by elevated costs on ZWL debt in Q1 as interest rates increased to 200% per annum, with these costs reducing materially for the rest of the year as the Group’s borrowings were converted to USD.

Profit after tax for the year at US$ 7.53 million was 39% below last year. While this was a disappointing result, our key strategic objectives of moderating the impact of commodity prices on the consumer was achieved and our products continue to hold strong positions in the market.

The Group’s statement of financial position remains in a healthy state. In a financially challenging year there were notable improvements in the management of working capital, and the release of US$ 13.1 million of working capital was the main contributor to excellent free cash flow generation of US$ 20.9 million. The free cash was largely used to fund our expansion projects, where US$ 17.9 million was deployed. The Group’s net debt position closed the year at US$ 11.0 million, a very moderate level of gearing and particularly so considering the extent of the capital investment deployed during the year.

Operations Review

Flour Milling

Volumes for the Flour unit reduced by 12.3% compared to last year, driven largely by significant increases in the price of wheat. International wheat prices were at their peak in the first half of the year, resulting in higher flour prices and a consequent reduction in volumes by 19.6% for the period. Critically, the price of bread breeched the key US$ 1 per loaf price point during the first half of the year. During the second half of the year, wheat prices reduced and this allowed a recovery in volumes during the period, which closed 3.7% below last year. Wheat prices are now at more typical historical levels, and we are hopeful of an improved volume trend in the year ahead.

The installation of the new Buhler mill at our Bulawayo site was concluded towards the end of the year. The new mill will increase wheat milling capacity by around 2,000 tonnes per month, and although it has only recently been commissioned, is so far delivering the expected operational improvements.

The local winter wheat harvest was most encouraging, and together with the carry-over surplus from last year suggests that the country will generally only need to import higher protein wheat for gristing, a very welcome development.


Stockfeed volumes were firm, increasing by 10% when compared to prior year, with the growth coming across all the major categories, with robust demand in the poultry, beef and dairy sectors.

The robust demand across the protein value chain is very encouraging, and to support the expected increased demand for stockfeed further investment into storage capacity and product handling efficiency is currently under consideration.

Maize Milling

Maize volumes were disappointing, declining by 9.4% versus the prior year. The year was characterised by various procurement related distortions which hampered consistent trade. Initially, various distortions arose in purchasing the local maize crop in the first quarter, before volumes recovered in the middle of the year as the local crop dried up, until finally later in the year volumes were impacted by the re-opening of the borders to finished product.


Volumes in the Downpacked unit, which primarily packs rice and salt saw encouraging growth of 14% 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.

Planning for the construction of the new rice packing facility is progressing, and we will be looking to construct this facility in 2024.


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