National Foods jittery over currency changes

NATIONAL Foods chairman Edwin Manikai says the extensive changes in the country’s currency environment have created uncertainties in the treatment of taxes due across the economy.

In a statement accompanying the group’s financial results for the six months ended December 31, 2023, Manikai said the wording of existing tax legislation has given rise to varying interpretations of tax law within the country.

“As advised in previous periods, there have been substantial changes in the currency environment in Zimbabwe in recent years, including the reintroduction of the Zimbabwe dollar as the country’s functional currency in February 2019 through Statutory Instrument (SI) 33 of 2019, followed by the promulgation of SI 185 of 2020, which reintroduced the use of foreign currency for domestic transactions,” he noted.

“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.”

Manikai also noted that the interpretation of the tax laws in terms of currency settlement and the methodology of tax consumption for the group now differs from that of the authorities.

“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,” he said.

“The group continues to seek adjudication by the courts on these matters.”

The group experienced a volume increase of 3,4% to 285 000 tonnes owing to the increase in stockfeeds and flour divisions volumes.

“These gains were offset by losses in rice volumes, following the banning of exports out of India, which led to a significant increase in global prices,” Manikai said.

He said that the group is keen to support contract farming of cereal crops having planted 5 200 hectares of maize and 2 400 hectares of soya under this scheme in the current season.

“National Foods continues to keenly support contract farming of various cereal crops, principally maize, soya beans, and wheat,” Manikai said.

“The group acts as the largest off-taker to the contract farming scheme, which produced 45 000 tonnes of wheat for the 2023 season, all of which was purchased by National Foods.”

Flour milling current period volumes for the flour unit increased by 5% over the comparative period, largely driven by lower wheat pricing, which in turn lowered flour pricing.

The company continues to be a key off-taker of the 2023 local wheat harvest, having purchased in excess of 60 000 tonnes to date.

Stockfeed volumes grew by 14% above the comparative period, on the back of strong performances in the poultry and beef categories.

Maize milling maize volumes were disappointing, declining by 9,5% over the comparative period, although there was some recovery toward the end of the current period under review.

The report also noted that National Foods has a substantial import programme in place for raw maize, and it is expected that supplies to the market will be consistent for the foreseeable future.

 Volumes in the Downpacked unit, which primarily packs rice and salt, declined by 17% over the comparative period as India, which is the group’s main source of value rice, banned rice exports to protect domestic supplies.

This ban led to minor supply disruptions and also caused global rice prices to increase significantly, impacting off-take.

 Cereals volumes in the cereals unit grew by 7% over the comparative period, notwithstanding the compressed trading in the modern retail channel.

Snack volumes in this division increased by 31% over the comparative period, as further capacity enhancements came online with both the “King” and “Zapnax” brands’ volumes growing.   

Biscuits volumes declined by 27% against the comparative period.

“This was a period of transition for the unit, with good progress made in the construction of the new manufacturing plant, which is expected to be commissioned in April 2024,” Manikai said.

“The new plant will result in an exciting new range of biscuits being launched into the market.”

Pasta volumes for the period increased by 11% over the comparative period.

“Similar to biscuits, the pasta unit was in a period of transition, with our new plant being commissioned in February 2024 aimed at localising productions and value-adding wheat,” he added.

Revenue increased by 3,3% to US$172 million, with the moderate increase being largely volume-related.

Gross profit dollars decreased by 2,1%, US$784 000 in absolute terms, as pricing was moderated to maintain volume momentum.

Operating costs, which continued to re-base in real terms, increased by 7,9% to US$25,7 million, driven mainly by power (both from the grid and generators), repairs and maintenance, and higher wages at the factory floor level.

 As a result, operating profit before depreciation, financial loss, interest, equity accounted earnings, and tax at US$11 million was 21% below the comparative period.

 There was also a substantial reduction in interest costs, which declined from US$3,3 million in the comparative period to US$0,9 million; the comparative period was heavily impacted by the sudden, and extreme, increase of local currency interest.

These two factors drove the group’s current period profit before tax to US$9,60 million, an increase of 56% over the comparative period.