Zimbabwe: Innscor Hedges Against Inflation

Zimbabwe Stock Exchange-listed Innscor Africa Limited says rapidly rising inflation has forced it to deploy profits into maintaining its inventory after more than doubling its total income to $989,67 million in six months.

The increase in income was due to $381,25 million attributable to currency exchange differences arising from foreign operations.

In the 2018 comparative period, Innscor had an income of $477,44 million.

"Steep inflation coupled with very limited debt availability from financial institutions, and in the absence of supplier credit, required profits to be fully deployed to maintaining inventory at appropriate levels," said Innscor's independent non-executive chairman Addington Chinake, in a statement accompanying the firm's financial results for the six months ended December 31, 2019.

"The group's balance sheet remains very strong; however, management of each component of working capital will continue to require intense focus, particularly with regard to key raw material inventories such as maize, wheat and soya.

"Current inflation levels have resulted in a steep increase in the value of replacement product and, conversely, a substantial decline in real gearing levels."

Chinake added: "The group will, therefore, continue to work with its financial institution partners in achieving a more appropriate level of debt to support its growth plans.

"The group will also continue to approach the market with direct debt instruments to fund critical programmes such as contract farming."

Despite Innscor posting a 16% increase in revenue to $4,26 billion, the volume performance across all segments was generally mixed as inflation continued to rise.

Innscor's bakery division saw a reduction in loaf volumes of 45% in the period under review due to limited flour and controlled pricing on bread.

National Foods, where Innscor holds a 37.82% stake, overall volumes for the period under review declined by 32% to 211 000 metric tonnes.

"All categories, other than maize, which was similar to the comparative period, showing reductions in volumes, were driven largely by reduced consumer spending power and the progressive removal of subsidies, notably within the flour value-chain," Chinake said.

Profeeds, an Innscor associate company, recorded a 27% decrease in feed volumes and a 33% decrease in day-old chick volumes compared to the previous period.

"The majority of this volume decline was within the retail platform, which serves the small-scale market segment and is a reflection of subdued consumer spending and evolving consumer demand in response to the current market conditions," Chinake added.

Colcom, which comprises of Triple C Pigs, Colcom Foods and Simon's Pies, experienced a 17% decline in overall sales volumes.

"Irvine's recorded a 26% volume growth in table eggs during the period under review, with the volumes achieved being an all-time high for the business," Chinake said.

"Frozen chicken volumes were, however, 14% behind the comparative period, while day-old chick volumes declined by 34%, as small-scale farmers reduced operations in response to current economic conditions and diminished crop yields."

Innscor owns a 49% stake in Irvine's Zimbabwe Private Limited.

Chinake said in light of the tight business environment, Innscor would continue investing in capital projects to provide long-term business optimisation and efficiency.

"In addition, the group will continue to assess growth opportunities in both adjacent and new categories in its pursuit of value creation for shareholders," he added.

Meanwhile, Innscor's total assets grew to $8,32 billion during the period under review from a 2018 comparative of $7,63 billion.

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