• The company lost over US$25M to electricity associated costs
  • However, it remained profitable
  • More about National Foods

Harare- National Foods Zimbabwe Limited, a subsidiary of Innscor Africa, has incurred a significant cost of US$25.7 million during the six months leading up to December 31, 2023, according to the company's latest financial report. The increase in costs can be attributed to the surge in diesel consumption, which rose by 448% compared to the previous year.

The company used a substantial amount of diesel, both for generators and production processes, due to frequent power outages that resulted in a 41% decrease in electricity usage.

To address the rising costs and reduce reliance on diesel and grid electricity, National Foods is considering the implementation of a 2MW solar plant. This move aims to mitigate the impact of power disruptions and alleviate financial strains caused by electricity expenses.

National Foods is a prominent food brand in Zimbabwe and has been listed on the Victoria Falls Stock Exchange since December 23, 2022. The company, established in 1920, has two major shareholders: Innscor Africa Limited and Tiger Brands, each owning a 37.45% stake. Additionally, the National Foods Workers Trust, established in 1985 through donations, holds a 9.53% stake, benefiting non-managerial employees of National Foods.

The company produces a wide range of popular brands such as Gloria, MA-HAT-MA, Pearlenta, Iris, Nutri Active, Arrow, King, Betterbuy, BowWow, and Allegros Popticorn. Its product portfolio includes essential goods such as rice, maize meal, flour, biscuits, salt, snacks, pasta, beans, popticorn, and animal feed.

As of March 22, 2023, National Foods had an annual liquidity of US$526.5 thousand and a market capitalization of US$87.3 million.

The challenges posed by electricity costs, including reliance on generators and the national grid, have had a significant impact on the company's production and productivity.

Many units experienced a decline in performance, while a few managed to show slight growth. Maize volumes declined by 9.5%, while the Downpacked unit, responsible for packing rice and salt, declined by 17%, and biscuits by 27%. It is important to note that the poor volume performance was exacerbated by El Niño-induced droughts and global economic fragmentation caused by geopolitical conflicts.

On the positive side, flour milling volumes increased by 5% due to lower wheat prices, resulting in reduced flour pricing. Stockfeeds saw a 14% increase, cereals 7%, snacks 31%, and pasta 11%. However, it is worth noting that most of the units that recorded growth are miscellaneous products rather than essential goods.

As a result, the company's revenue and overall volumes grew marginally by 3% to US$172.41 million, with a slight increase in volumes. The profitability of the company nearly doubled, reaching US$7 million compared to US$4.63 million in the previous period.

This achievement can be attributed to effective cost management and proper governance, enabling the company to remain profitable despite the challenging operating environment.

The electricity shortage in Zimbabwe not only affects National Foods but also other key players in the economy, including Zimplats, BNC, OK Zimbabwe, and Econet Wireless. These prominent firms contribute significantly to the national revenue through tax payments.

In 2023, the power utility ZESA increased electricity charges three times, with the latest increase being 20% to US$13.28c.
Zimplats, facing significant revenue losses due to power disruptions in 2023, is also considering the implementation of a solar plant.

The continuous rise in costs coupled with declining production will result in reduced tax contributions from these blue-chip companies.

With the recent decline in prices of platinum group metals (PGMs), the situation is expected to worsen, further impacting tax revenue. Consequently, Zimbabwe's foreign currency challenges are likely to worsen beyond 2024 if the current electricity situation remains unchanged.

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