Innscor revenue projected to increase by 23%

ADVISORY firm IH Securities has projected a 23% rise in revenue at the Zimbabwe Stock Exchangelisted conglomerate, Innscor Africa Limited, for the 2023 financial year, from a combination of volume and pricing.

Innscor management has revealed that indicative revenue in United States dollars is around US$700 million for the financial year 2022 with a net profit of US$90 million.

“For forecasts to remain relevant in the present inflationary environment, we have shifted to a US$ based valuation of the business.

“We expect revenue for Innscor to grow 23% y/y (year-on-year) to US$864 million from a combination of volume and pricing.

“Our view is that EBITDA [earnings before interest, taxes, depreciation and amortisation] margins will register at 13,7% in FY23 (financial year 2023) and improve thereafter. Net margin is, however, expected to soften to a steady state of 7% as other once off income lines fall away,” the researchers said.

Innscor said the operating environment in the financial year 2022 proved turbulent in the face of inflationary pressures emanating from the Ukraine-Russia war and increasing currency instability in the second half of the year.

As a result, the group experienced supply side challenges in the form of increased freight costs and delays in procuring inputs and capital expenditure goods.

Growing demand from the informal market and improved product mix helped boost double digit volumes growth for most of the group’s segments.

In the mill-bake segment, annual loaf volumes were 19% over the comparative year aided by improved loaf quality, and a renewed focus on the sales and distribution functions.

Aggregate National Foods volumes grew 8% year-on-year, while Profeeds volumes increased 15% with an encouraging performance

from the relatively new fish feed category.

In January 2022, the Administrative Court overturned the Competition and Tariffs Commission’s (CTC) directive for the group to disinvest from Profeeds, but the CTC has since appealed the judgment at the Supreme Court.

In the protein segment, Colcom volumes grew 11%, while day-old chicks and frozen chicken units under Irvines grew 25% and 17%, respectively.

The AMP group recorded growth across all categories to 16%. In other light manufacturing and services, investment into capacity initiatives paid off with strong growth shown across all the units.

EBITDA margins in real terms increased by 3,6 percentage points while net operating cashflow to EBITDA came in at 22% relative to 52% in the financial year 2021.

The company said capacity expansion initiatives would continue despite the ongoing liquidity crunch.

While contractionary measures implemented by the central bank have succeeded in promoting stability in the monetary space, lack of liquidity has also had the effect of slowing down consumer demand.

Volumes in the mill-bakes segment for the first quarter of financial year 2023 came under pressure with National Foods volumes softening 18% relative to the same period last year.

However, volumes across other key segments have so far remained resilient exhibiting continued growth despite pricing distortions in some trading channels.

Group volumes objective to the year 2023 are set at 19% growth with increased focus en route to market within the informal sector.

“In our view, that current performance in the key mill-bake section might potentially drag down realised volumes given its weighting,” IH Securities said.

“The group has indicated that going forward focus will be on generating sufficient cashflows for working capital pipelines and expansion projects.”

The recent monetary policy interventions have resulted in local debt funding becoming unviable from a business model perspective and having a pervasive impact on the group’s cost of capital.

As a result, the group has taken firm action to restructure its debt. Capacity deepening investments to the tune of US$56 million are going into the current financial year with new production lines set to augment volume growth.

Capital investments that are set to be commissioned in the financial year 2023 include the US$25 million fully-automated bakery facility, a new flour mill, modernised equipment within the protein segment and launch of the sorghum beerline from Buffalo.