Weak consumer spending impacts CFI Holdings margins

CFI Holdings says falling consumer spending power and new tax measures which took effect from 1 January 2024 put additional pressure on sales volumes and operating margins.

Group chairperson, Itai Pasi, said notable tax changes related to the introduction of Value Added Tax (VAT) on products that were previously either exempt or zero-rated such as maize meal and flour.

“Notwithstanding, the group welcomed certain policy measures implemented by the Government of Zimbabwe through the liberalisation of grain marketing to the benefit of millers, farmers and consumers,” she said in a comment of interim financials for the period to March 31, 2024.

Farm and City Centre (FCC) the group’s flagship business division felt the impact of a combination of falling consumer demand for agricultural inputs in the face of the El Nino-induced drought, rapid inflation and overall suppressed consumer spending power.

Pasi said the retail market also witnessed stiffening competition, mainly from the unregistered informal players, resulting in shrinking margins.

“Notwithstanding, sales volumes for the entity’s key volume drivers registered a marginal 2 percent increase over the comparative prior year period.

“Management continues to implement strategic pricing and marketing initiatives to adapt to the ever-changing trading environment,” she said.

CFI said in the short to medium term will prioritise continued investments in business entities and upscaling ongoing cost containment measures in order to underpin long-term competitiveness.

In the long term, Pasi said the company focus remains directed towards the development of low-cost housing delivery in Harare South in support of Government’s Vision 2030 development goals. “The group will therefore maintain its efforts to resolve all issues affecting its interests in its land banks to make way for progressive, orderly infrastructure deployment and service delivery to the various settlements,” she said.

For the half year period under review, group revenue increased by 44,3 percent to $1,51 trillion compared to $1,05 trillion in the comparative period prior year.

Pasi said the growth reflects on management’s ongoing efforts to grow the group’s business in a difficult operating environment.

Overall, retail operations contributed 80,42 percent, while milling operations contributed 16,41 percent, and farming operations accounted for 3,17 percent of group turnover.

In terms of operations review, Farm & City Centre (FCC) felt the impact of a combination of falling consumer demand for agricultural inputs in the face of the El Nino-induced drought, rapid inflation, and overall suppressed consumer spending power.

Pasi said the retail market also witnessed stiffening competition, mainly from the unregistered informal players, resulting in shrinking margins.

“Notwithstanding, sales volumes for the entity’s key volume drivers registered a marginal 2 percent increase over the comparative prior year period, and management continues to implement strategic pricing and marketing initiatives to adapt to the ever-changing trading environment,” she said.

At Glenara Estates, the estate established 82 hectares of table potatoes, up from 54 hectares established in the comparative prior-year period.

Pasi said although yields were 5 percent lower than prior year, average potato selling prices realised per kilogramme firmed by 17 percent above prior year as a result of shortages of the crop on the market due to the drought currently being experienced in the country.

“The estate’s cattle breeding and pen fattening operations were maintained with reasonable success,” she said.

In property development, the company said in February 2023, the Supreme Court ruled in favour of Crest Breeders International, confirming the entity’s rights in Saturday Retreat Estate.

Pasi said the company’s Board is seized with implementing its development strategy for Saturday Retreat as the group looks to enhance its synergies with the retail unit and diversify its portfolio.

At Langford Estates the legal proceedings remain pending before the relevant tribunals and Pasi said the market will be updated on further progress in due course.

In terms of the group’s milling operations, Agrifoods sales volumes increased by 8 percent from prior year on the back of improved raw material procurement management across major product lines.

Pasi said management remains focused on growing Agrifoods’ market share in the face of an increasingly competitive local stockfeeds sector.

Victoria Foods flour sales volumes performance for the half year period was flat from the same period prior year as the unit grappled with wheat shortages and continued power outages affecting production.

However, maize volumes sales improved by 55 percent due to successful marketing efforts. “The maize milling business is, however, set to be impacted by the maize shortages following the regional El-Nino induced drought resulting in increased grain prices.

“These higher prices will result in a higher cost base that may not be fully transferred to customers due to a highly competitive market, amidst depressed consumer spending power,” Pasi said.

In the poultry division, Crest Poultry group’s other units, being Crest Breeders and Suncrest Chickens, remained under care and maintenance during the period.

Pasi said joint ventures leveraging the group’s poultry infrastructure and brands are still being pursued and processes are underway to resuscitate poultry operations on the group’s Beatrice Farm, Hubbard Zimbabwe.-ebusinessweek;y