Innscor banks on diversity to anchor group resilience

Innscor Africa is positioned to navigate challenges presented by the uncertain global economic outlook and complexities in the local environment due to its diversified product offering.

The group, in its half-year financials for the period to December 31, 2023, said given that the business operated in the consumer staples sector, demand was largely sustainable even in times of economic downturn.

“The group remains resilient in ensuring its business models are optimised for the prevailing trading environment, supported by a drive to ensure economies of scale are unlocked across the value-chain, with the objective of attaining affordable consumer pricing for all products,” said chairman Mr Addington Chinake.

He noted that despite the macroeconomic environment, the group delivered pleasing volume growth across most business units against the comparative period in 2022, driven by a sustained recovery across the mill-bake value chain, supported by firm demand in the protein, beverage, and light manufacturing segments.

All these segments, he said, benefited from investment valued more than US$157 million in the last two years, targeted at capacity building, product extensions, and venturing into new categories.

“In the period under review, the group has also been actively focused on building capacity within the sales and distribution functions of consumer-facing business units,” said Mr Chinake.

Innscor’s operations span across various sectors of the economy.

The group is engaged in the manufacture, distribution, and retailing of household commodities, food and fresh produce.

It operates through segments that include; milk-bake, protein, light manufacturing services, and head office services.

The milk-bake segment focuses on bakery divisions, National Foods, and non-controlling interest in PROfeeds, while the protein segment comprises Colcom, Irvine’s, Associated Meat Packers, Texas Meat, and Texas Chicken.

The light manufacturing segment is involved in the production of stockfeeds, edible oils, bakers’ fats, and the sale of other general household products; the production, processing, and marketing of pork and related food products; and the manufacture and retail of household goods and appliances.

It is also involved in the production of chicken, table eggs, and day-old chicks; the down-packaging and manufacture of grocery products such as rice, dairy, candles, and beverages; and the production of a variety of bags for packaging, which include open-mouth bags, general-purpose bags, and carrier bags.

During the period under review, the group’s revenue grew 20,2 percent to US$480,409 million, with the growth underpinned by improved capacity utilisation across the group’s core manufacturing entities, supported by the introduction of new product categories, category extensions, route-to-market optimisation, and an acute focus on pricing strategy to ensure affordability and convenience to the consumer.

Stockbroking and research firm IH Securities, in a snapshot review of Innscor’s earnings, said the group sunk US$32 million into capital expenditure during the six months to December 2023, compared to the US$125 million spent in the two preceding financial years.

“These investments will allow the group further scope to generate revenue as well as further improve manufacturing processes and efficiencies,” it said.

However, IH noted that consumer liquidity in the remaining half of Innscor’s financial year was projected to be constrained due to the ongoing El Niño-induced drought conditions, which will likely have a downside of slower volume growth outside of the staples offering in the second half.

“Margins will likely remain under pressure from a combination of the increased cost of doing business and the group opting to cushion the consumer from a 100 percent pass-on of these costs.

“However, the capital expenditure programme is notably now at the tail end, paving the way for improved free cash flows in the medium term as well as valuation,” IH said.

In the 2022 financial year, the group invested US$70 million on various capital projects.

The additional US$56 million for the ensuing year (FY2023) was spent on bread delivery trucks while another US$10 million was spent on the pasta and biscuits plant at National Food Limited.

About US$8 million was spent on beverage equipment, while the Colcom factory upgrade and the Bulawayo feed mill will cost US$7 million each.

The table egg facility upgrade and innovations at National Foods also got US$5 million each, while the Kwekwe dairy farm received US$4 million.

Innscor also invested in a new Buffalo Brewing Company, and the group’s entry into opaque beer has provided direct competition to one of Zimbabwe’s largest beverage companies, Delta, which has over the years enjoyed near monopoly of the market.

Meanwhile, Innscor said the recently announced policy measures targeting amendments to value-added tax regulations, sugar tax, and trading modalities with the buoyant informal sector have necessitated a sharp refocus on trading models across the group’s business units and products.

Mr Chinake said that notwithstanding the direct cost-push pressure arising from this policy shift, the group was focusing heavily on unlocking cost savings in both the bills of materials and operating cost lines, to ensure that product pricing remains both affordable and convenient to the consumer and that volume momentum is maintained.

“The group remains hopeful that the authorities will pursue a pathway for implementing policies that encourage more market-determined outcomes,” he said.

-herald