Natfoods records a good performance

Natfoods recorded a good performance for FY 2011, although slightly off our forecasts due to pressure on gross margins. The group sacrificed margins to maintain valuable market share. Total volume sold at 351,533mt was 17% higher than prior year levels, culminating in a $201.2 million revenue figure for the year (FY 2010: $160.8 million). The group lowered total costs by $25 per ton in order to create a more competitive value chain. EBITDA thus amounted to $8.6 million (FY 2010: $2.9 million), whilst the PBIT was $7 million. The attributable profit of $5 million was negatively by the loss from discontinued operations.

The company declared a dividend of US 0.85 cents, bringing the final dividend for the year to US 1.55 cents.

The net debt remained at manageable levels of $1.1 million, at a WACC of 10% down from 14% the prior period. The cashflow position remains strong with capex expenditure being funded from internal resources. The closing cash flow position was $3.9 million.

Operational performance improved across the group's divisions as the group continued with its consolidation drive in order to focus on core business. During the first half of the year, the company disposed of Natpak whilst the logistics division was outsourced during the second half of the year. A new service level agreement was concluded with the new owners to provide transportation for 15,000 tons of product monthly. The flour milling division registered flat flour volume sales and a 3% decline in the gross profit margin in the last quarter as the company sought to hold volumes at the remaining operating mill.

The maize milling division however recorded improved sales growth up 52%, as a result of successful initiatives to improve quality, packaging and pricing during the year. Capacity utilisation however remains low at about 35% at the Harare and Bulawayo mills whist the Gweru, Mutare and Masvingo mills remain closed. The stock feeds division also registered volume growth of 31%, as management's strategy to price competitively and distribute widely pays off. A new specialist beef and diary feed plant at Harare is set to be commissioned in October 2011. It has a production capacity of 6,000 tons per month, whilst a third pelleter was installed in June 2011 to support the expected growth in the poultry sector. The investment in Capital Foods was profitable in the first year of operation and is expected to continue.

The FMCG unit is still being re-engineered to enhance profitability, and towards the year end had already begun to regain market share. The depot network also performed well, (sales volume growth of 93% and 26% contribution to total group revenue). Efforts are being made to take advantage of the growth potential in rural communities. Management also intends to continue disposing of its non-core properties and to develop a long term strategy to enhance the ROE from the property portfolio.

Overally, the group is aggressively pursuing capex and other initiatives to ensure improved efficiencies and enhance profitability. We are confident that, its competitive advantages including its strong brands and operating scale will continue to steer the group to greater profitability. Current ratings are rather demanding, but could be justified by the impressive growth prospects.