Innscor’s turnover is approaching one billion dollars

Innscor

The story of how a fast food restaurant that started on Speke Avenue in Harare in 1987 grew into a manufacturing giant should be studied in every business school across the country and beyond. This is one of the most inspiring entrepreneurial stories about how to build a resilient business in a volatile, uncertain, complex and ambiguous environment like ours.

In fact, there is an occasional joke that “I” in Zimbabwe means Innscor. The idea behind the joke is to explain that almost everyone in the country uses Innscor products in one way or another. Whether you’re eating Baker’s Inn bread with Irvines eggs in the morning or drinking Nyathi sorghum beer at the weekend, you’re depositing money into your Innscor account.

While organic growth cannot be marginalized in Innscor’s history, corporate finance ingenuity in the form of M&A and business unbundling has played a key role in its growth. Innscor has been involved in some of the outstanding corporate deals this country has ever seen.

Some of the biggest brands and largest companies listed on both stock exchanges such as Padenga Holdings, Simbisa Brands Limited, Axia Corporation and Colcom were at one point or another part of Innscor and helped it get to where it is today. At one point he even controlled the Spar franchise in Zimbabwe. Even the company’s listing on the Zimbabwe Stock Exchange in 1998 was the result of a reverse takeover of Capri, a then home appliance manufacturer.

Innscor’s big task now is to cross the $1 billion revenue mark again, at least in most analysts’ minds. Anyone who has been following the company for some time remembers that in 2014, the company’s revenues already exceeded the billion mark. The company then separated Simbisa Brands in 2015 and Axia Corporation in 2016. Then came currency problems and economic turmoil that negatively affected almost every player in the market. Can current operations cross the billion mark again?

With Delta’s annual revenue of $768 million, Innscor is arguably the local publicly traded company with the highest revenue in the country. The fact that none of these local publicly traded companies had USD turnover close enough to $1 billion speaks volumes about the type and nature of the market in which they operate. The latest figures released by the Victoria Falls-listed conglomerate showed annual revenues rose 13% to $910 million. Although the result has not yet been achieved, this new result makes Innscor one of the fastest growing companies in the country. It has grown at an annual rate of 20% over the past six years.

At a time when Innscor should be in the maturity phase of its life cycle, it is experiencing growth comparable to a company in the growth phase. Perhaps we might want to break down the revenue number to analyze where it’s coming from. As per FY24 data, Innscor’s revenue was driven by volume growth across its various business segments.

Sales volume growth was recorded across all business segments, with the Bakery division reporting overall volume growth of 12%, while the National Foods division was 6%. Lower harvests resulted in an increase in demand for corn by 21% and an increase in feed by 8%. The company highlighted that the imposition of Value Added Tax (VAT) on imported rice and the ban on rice exports from India led to a 21% decline in the downpacking division.

In absolute terms of revenue, the largest increase was recorded in the bakery division, which recorded an increase of USD 74 million, an increase of 17% compared to the previous year’s figures. The largest division in the group’s categorization is Mill-Bake, which includes Baker’s Inn, National Foods and Profeeds. The protein division, which was the second largest contributor to profits, grew by $20 million, an increase of 8%. Beverages and other light manufacturing is also another critical division of the company, growing by 5%.

In a financial year that coincides with the drought season, one would expect lower revenues, but Innscor’s numbers tell a different story. Their revenue was higher than most analyst forecasts for FY24, including leading brokerage firms such as IH Securities and Morgan & Co., which estimated revenue at $892 million and $804 million, respectively.

Of course, capital spending was behind Innscor’s growth. Innscor has committed a total of $200 million to expansion and maintenance from 2019 to 2023. The company also launched completely new lines and departments, which accelerated its development. An example is Nyathi beer, which also launched a pasta division at the beginning of the year.

Looking ahead, as some of these divisions have grown significantly, what are the chances that they will be split into stand-alone companies?

Companies ready to be separated could include a consortium of Pro brands, i.e. Profeeds, Probrands and others.

If the company continues to do so, it could impact its path to billions in revenue. However, any analyst worth listening to will tell you that absolute revenue numbers aren’t the most important thing. There are many other things to pay attention to, such as profitability and key attributes of a potential spin-off, such as what current shareholders walk away with.

Rating of banks

To assess the financial health of the banking sector, we look at the capital adequacy ratio. This ratio is the total weighted average of banks’ assets using specific weights for various assets. Essentially, it assesses whether the bank will be able to absorb shocks using its assets. Monetary policy has shown that, on average, banks in Zimbabwe are well above the minimum capital adequacy benchmark of 12%, with an average of 46%.

There is also a baseline capital requirement set at $30 million, the local currency equivalent for Tire 1 banks, and MPS reported that 15 of 18 banks have met the requirements and that non-compliant banks are working to do so. Moving on to the income element of financial data, we will look at net profit margin.

This ratio compares a bank’s profit by looking at the net interest income earned by the bank minus its interest expense and then dividing it by the revenue-generating assets.

In my calculations, I used loans and advances as earning assets and concluded that, using inflation-adjusted numbers, most banks had margins above 8%, while other institutions such as FCB had 13%.

If we stated in our earlier LTD breakdown that banks are not that aggressive in lending, where else does their income come from?

The MPS showed that only 10.44% of banks’ total income came from capital or interest income.

Profits from revaluation of investment properties contributed 25.19% to banks’ profitability. Given the hyperinflationary nature of our environment, banks tend to purchase properties to protect their capital, and changes in property valuations contribute to income.

Banks also earned 17.74% on fees and commissions until June 2024 and 14.78% in the previous period. This has been the basis of the dispute as traders believe that banks charge excessive fees in the form of monthly fees, transaction fees and balance checking fees, among others.

• Hozheri is an investment analyst interested in, among others, sharing views on the performance of capital markets, the economy and international trade. He holds a B. Com in Finance and is progressing well in the CFA program. – 0784 707 653 and Rufaro Hozheri is his username on all social media platforms.

Related topics