Tiger Brands unit invests $8.3m capex in Zim

Harare – Zimbabwe's National Foods, which is 37% controlled by Tiger Brands [JSE:TBS], is to sink US$8.3m in capital expenditure for 2015 largely to expand its flour milling unit, whose contribution to a 6% jump in first-quarter revenues has made it a significant cash generator for the company.

Zimbabwe and sub-Saharan Africa-focused fast food and retail operator Innscor Africa is the other major shareholder in National Foods. Shareholders attending National Foods' annual general meeting (AGM) in Harare on Tuesday heard the company's sales volumes had remained resilient, mainly as a result of growing demand for its milled products.

Analysts at IH Securities said on Monday that "National Food maintains defensive qualities in a difficult consumer environment” because of its product placement in the lower end of the market.

“Furthermore, the Group is well placed to invest in new categories that can leverage off an existing admin and distribution network to positively impact earnings in the short to medium term,” said Dzikamai Danha, head of research at IH Securities.

Most companies in Zimbabwe are rolling back production in the light of working capital constraints and growing competition from imports, a situation that has led to high imports and a struggling export sector. Traditionally resilient companies such as brewer Delta Corporation and telco giant Econet Wireless have seen declining profits for the first-half period.

Economic woes mean shift to flour

However, National Foods Zimbabwe's economic difficulties have spurred the country to shift to basic commodities such as flour meals, with bread sales volumes reportedly going down. Executives at National Foods are hoping to capitalise on this by investing more money into the flour milling unit to raise its capacity and volumes.

“We (are) spending just over $4m on fixing of (our) flour platform. (Overall), we are planning to spend $8.3m in the coming year in capex, in which the bulk of it will be in our flour business unit,” CEO Michael Lashbrook – who is heading the company in an acting capacity – told the AGM on Tuesday.

Volumes for the company’s first-quarter period to the end of September had withstood consumer spending pressures in the Zimbabwean economy after growing by 6%. Apart from a spike in flour division volumes, the maize segment also pushed volumes.

National Foods has adopted a prudent supply chain management which has seen it contract nearly 5 000 wheat farmers. Zimbabwe’s agricultural sector, which is battling to shake off the farm seizures of 2000, has not yet fully stabilised. Production of wheat, maize and other grain crops is still low, forcing the country to import from neighbours South Africa and Zambia.  
 
“To date we have bought 20 000 tonnes of maize. I just want to reassure all our stakeholders that we have plenty of wheat,” added Lashbrook.

He added that his company has “supported local farmers to the tune of 5 000 hectares,” hence it was expecting to get “25 000 tonnes of local wheat (wheat supplies) from that scheme”. The company complements this with imports.
 
 - Fin24