By Yona Banda
Financial Performance Highlights
- Listed food manufacturing group Innscor Africa Limited reported a Net Profit After Tax of ZWL$53.7 billion for its financial year ended 30 June 2022, up 350% from the previous year in inflation adjusted terms. This was after the group incurred monetary losses of ZWL$23.3 billion during the year.
- The profit growth was supported by a 49% inflation adjusted rise in Revenue to ZWL$290.8 billion.
- The group’s operations generated a net cash flow of ZWL$46.1 billion, which funded net capital investments of ZWL$12.7 billion during the financial year. The group reported the completion of its US$70 million investment programme that it implemented in 2021. It now plans to invest a further US$56 million during the next financial year.
- During the financial year the group made several disposals of interests in non-core operations. Its 15.13% interest in Pure Oil Industries netted profit of ZWL$4.1 billion. The disposal of a 50% stake in IL Integrated Agri Pvt Ltd and Skitap Pvt Ltd returned a ZWL$622 million loss and ZWL$1.2 billion profit respectively. The disposal of a 100% stake in Signs and Capri Corp Pvt Ltd earned a profit of ZWL$1.7 billion.
- At the end of the year, the group’s Total Assets stood at ZWL$249 billion, with cash and equivalents of ZWL$20.1 billion. Total liabilities rose to ZWL$106.7 billion, which included Total Borrowings of ZWL$28.2 billion.
- The group declared a final dividend of US$0.0156 per share that will paid on or around the 25th of November 2022.
- Going forward the group will aim to adapt and optimize its business models, maintain appropriate levels of margin return, ensure that overheads are contained, and ensure maximum free cash generation.
- The groups Mill-Bake segment recorded an operating profit of ZWL$51.5 billion, after revenues rose by 40% to ZWL$165 billion. This was supported by sales volume rises of 19% in the bakery division. The group is investing in a new US$25 million fully automated manufacturing facility in Bulawayo which it expects to become operational by the end of 2022. It also plans further plant automation enhancements for its Harare plant.
- Overall sales volumes at National Foods gained 13%. Within the segment, volumes in the wheat flour milling division were flat due to cost-push pressures and constrained local wheat supply. Volumes in the maize milling division were also relatively flat, while volumes in the down packed and stock feeds divisions increased by 31% and 12% respectively. The traded goods division saw volumes rise by 34%, largely driven by pasta sales. The group reported plans to localize pasta production, with a plant expected to be commissioned in late 2023. Volumes in the snacks division increased by 24%, and the group plans to expand its product portfolio. Growth in the biscuits division was subdued as higher wheat prices damped demand. The group plans to broaden its product portfolio in the division as well invest in new “state of the art” production facilities. Volumes in the cereals division gained 35% during the financial year.
- The Profeeds segment saw sales volumes rise by 15% in stockfeeds and 39% in day-old chicks. The group is in the process of establishing a new plant in Bulawayo which is expected to be completed during the new financial year. The fertilizer segment saw volumes rise by 152% while the group’s Profarmer retail chain grew to 47 outlets countrywide. The group reported that it had successfully appealed to the Administrative Court against the Competition and Tariffs Commission’s (CTC) directive to disinvest its non-controlling interest in Profeeds and pay a fine of ZWL$40.6 million. The group added that the CTC had since appealed the ruling to the Supreme Court.
- The Proteins segment earned a operating profit of ZWL$23.5 billion after revenues increased by 44% to ZWL$92.9 billion. In the segment’s divisions, Colcom registered sales volume growth of 11%. Irvines recorded 6% growth in table egg volumes, 17% growth in frozen poultry and 25% growth in day-old chicks while AMP reported sales volume growth of 16%. During the financial year the group added a further 8 outlets to its Texas retail network to bring the total countrywide count to 53 stores.
- The Light Manufacturing and Other Services segment made an operating profit of ZWL$14.1 billion after its revenues increased by 140% to ZWL$70.6 billion. Among the segments divisions, NatPak’s sales volumes gained 19%, Prodairy registered volume growth of 31%, Probottlers recorded growth of 23% while Probrands recorded a margin decline in sales volumes.
Commentary and Analysis
The group’s noticeable rise in profit versus the relatively modest rise in revenues suggests it benefited from sizeable fair value gains on property, plant and equipment. Considering the net capital investments made during the period, the size of the fair value gain is likely somewhere between ZWL$10 billion to ZWL$15 billion. That aside, at face value nothing particularly stands out in the groups consolidated financial figures.
Looking at the group’s segment revenue performance over the last five years, the growth in the Light Manufacturing and Other Services segment is a noticeable development. Although it remained the lowest revenue generating segment during the period, its US$ implied sales more than doubled. By comparison, revenue growth in the Mill-Bake and Proteins segments was subdued 14% and 38% respectively. 
The groups volume growth across its operating segments underlines the Light Manufacturing and Other Services unit as the current center of revenue growth. It’s a situation that owes a large part to the prevailing economic environment. Constrained access to capital for existing and would be competition in Fast Moving Consumer Goods (FMCG) markets has allowed Innscor to enter and take up market share. Unless there’s a sudden influx of easily available capital in Zimbabwe, the major limiting factor the segment’s growth should be the prevailing consumer capacity and operating environment. In that sense, short term growth across all segments could be depressed as long as the government maintains its tight liquidity policy.
Competitive pressures are likely more of a factor within the proteins segment where consumers are increasingly reliant on informal market for cheap proteins – although this is somewhat offset by the groups position as a major supplier of day-old chicks and stockfeeds. The Mill-Bake segment is heavily dependent on the available supply of wheat, maize and other grains. Given the government’s effective control of the local grain trade and the price of the grain outputs, the segment’s prospects are not entirely within the group’s control. The government’s capacity to cover the expected production shortfall in the 2022/2023 agricultural season will be key, as will be the prices set for key food commodities. Beyond that, the group’s move into fertilizer production should be translating to improved cost efficiencies in its grain contracting schemes. These efficiencies should be filtering through to up-stream value chain activities in protein and stockfeed production. Going forward, it will be interesting to see next move Innscor will make to to expand its value-chain control. The practical guess is pesticides, herbicides, etc. A move into seed production would be the most interesting albeit unlikely development.
Overall, Innscor’s short term outlook depends to a large extent on the domestic economy establishing and maintaining stability. In the environment, the group’s is expected to maintain and expand its distribution channels to the informal retail sector. The blocked Prodairy – Dairibord merger suggests there is some institutional push-back against Innscor consolidating its market positions by means of acquisition. All the same, invested internally the groups US$56 million capital budget should help the process along. It will be interesting to see if the group will make any significant investment in some of its smaller “emergent” interests within the light manufacturing and services segment. The Buffalo Brewing Company stands out as an interesting proposition, given the absence of competition in the local commercial beer market.
On the ZSE, since the start of 2022 the Innscor share has gained 124% value in nominal terms and lost 62% in implied US$ terms. The share is currently trading at a price to book ratio of 0.8x – Harare
