- VAT Impact: Change in VAT status increased operating costs by 6%
- Record Profitability: Achieved 81.6% PAT surge and 4.6% revenue growth
- Future Initiatives: Commissioned new world-class biscuit line in August 2024, plans to invest in solar power across manufacturing sites
Harare- Rising power costs and non-claimable VAT have eroded National Foods' financial gains, highlighting the devastating impact of policy inaction on businesses and low-income households. The company vows to explore solar energy solutions across its manufacturing sites in the period ahead to reduce costs and increase production efficacy.
In the full-year to June 30, 2024, the company incurred a 17% increase in operating costs from US$49 million to US$57.7 million over the prior year, largely driven by power cost hikes and non-claimable VAT. This surge in expenses impacted sales improvements.
Zimbabwe's long-standing electricity woes have taken a turn for the worse in 2024, courtesy of plummeting water levels at Kariba Dam. This has led to a drastic reduction in electricity generation, dipping below 300 megawatts, and forcing companies to rely on costly generators for power. The dam's water levels have dropped to alarming levels, with only 7% usable storage recorded in September 2024, compared to 22.88% in the same period last year. This significant decline has resulted in widespread power outages, disrupting daily life and crippling businesses.
On the other hand, the VAT status change for basic foods, including maize meal, flour, stockfeed, and salt, from "Zero-Rated" to "Exempt" in 2024, increased National Foods' operating costs by 6%. This change meant that although VAT is not charged when selling the product, the manufacturer can no longer claim the VAT input costs incurred in production.
Reverting to the original VAT status would greatly benefit companies like National Foods. This change would reduce operating costs, increase competitiveness, encourage investment, and boost economic growth. Conversely, maintaining the current VAT status would continue to burden companies with increased costs, stifle economic growth, and limit job creation.
From the government's perspective, reverting to the original VAT status would have both short-term and long-term effects. In the short term, revenue would likely decrease. However, in the long term, economic growth and an expanded tax base could potentially increase revenue. Additionally, aligning VAT policy with regional best practices and demonstrating support for local industries would be beneficial.
Conversely, maintaining the current VAT status would generate short-term revenue but risk long-term economic stagnation. This would disproportionately affect low-income households, exacerbating poverty and inequality. Policymakers must consider the far-reaching consequences of their decisions.
Despite these challenges, National Foods' financial performance reflected resilience. Revenue rose by 4.6% to US$359.4 million, up from US$343.6 million, indicating steady growth. Profit After Tax (PAT) surged 81.6% to US$13.8 million, up from US$7.6 million, revealing improved profitability.
The company's profit margin expanded to 3.84%, a 1.63% increase from the previous year's 2.21%. Return on Equity (ROE) also improved significantly, reaching 11.78% compared to 6.49% in the previous year. National Foods' Debt-to-Equity ratio stood at 0.63, indicating a moderate level of debt relative to its equity base.
The group posted growth across segments, except biscuits and downpacking divisions. Volumes in the Downpacking division declined by 21% due to India's rice export ban and VAT imposition. Biscuit volumes decreased by 23%. However, the company's new world-class biscuit line, commissioned in August 2024, presents an exciting growth opportunity.
Chairperson Edwin Manikai urged authorities to reconsider VAT status, citing its disproportionate impact on low-income households.
"The Group remains hopeful that the authorities will review and reconsider their position on the VAT status of basic products across the market."
National Foods' experience highlights the need for policymakers to consider the effects of their decisions on businesses and vulnerable populations.
Equity Axis News
