Zimbabwe: Innscor Pins Hope On Diversification, Efficiencies

Diversified industrial conglomerate, Innscor Africa Limited's product diversification and efficiencies are expected to sustain the group's earnings at a time economic headwinds will pose severe challenges for local industry.

Market watchers forecast the group to maintain a growth trajectory and record a 381 percent surge in revenue to $6 billion for the financial year 2020, which will be spurred by the inflationary environment. For the FY19, the group achieved $1,2 billion in revenue.

This growth is anticipated despite the challenging operating environment prevailing in the economy.

The outbreak of the coronavirus which has seen economies across the globe lockdown except for essential services, is a threat to operations and will cause economic downturn.

For companies that rely on imports for essential raw materials, the pandemic worsens the situation as free movement has been restricted as part of measures to contain the spread of the disease, which World Health Organisation (WHO) has since declared a global pandemic.

Importation of grain for instance, may be a huge challenge in the event Covid-19 continues as countries from which Zimbabwe imports from may be forced to preserve and enhance their stocks in order to avert shortages and food insecurity.

Already, local companies are reeling under the effects of the pandemic, which has disrupted operations.

"It is our view that production will decline across most industries due to disruptions on global supply chains for products and raw materials, as nations lockdown to contain the disease," said brokerage firm IH Securities.

However, product diversification is expected to keep Innscor's head above water although volumes may be affected.

"Overall for FY20, we estimate that volumes across majority of the segments will come under additional pressure, while consumer spend remains further strained and concentrated on basic and essential commodities.

"We do, however, note that the group has begun to see volumes recovery in some lines in H2 albeit off a low base," said IH Securities.

For the half year to December 2019, the group recorded volume declines across segments. Its bakery division -- Mill-bake recorded a 45 percent collapse in volumes due to limited flour availability and controlled pricing constraints, which has since shifted to market-related pricing.

At National Foods, total volumes went down 32 percent while Profeeds also went down 27 percent in feed volumes, as well as a 33 percent decrease in day-old chick volumes.

Although Colcom recorded 7 percent growth in pig production, total sales volumes fell 17 percent.

On the positive, Irvine's recorded a 26 percent growth in table eggs production but frozen chicken and day-old chick volumes dropped 14 percent and 34 percent respectively.

However, management at Innscor have indicated the group will continue accruing benefits from the automation of its plants and capacity building.

IH sees this as beneficial in the future when the economy starts to gain upward momentum.

Said IH: "In light of the challenging operating environment, we forecast that the group will maintain their strategy of deploying resources to working capital, as indicated by the negative cash flow from operating activities of $70,7 million in HY20.

"Despite the challenging operating environment, we remain optimistic that the business will be able to adjust their strategies and plan accordingly to ensure viability and profitability of the group's operations."

For the FY20, operating expenses are expected to significantly increase in line with the rising cost of doing business while after tax profit should jump to $1 billion compared to $238 million in FY19.

On the Zimbabwe Stock Exchange, a target price of $15,76 is projected and IH Securities maintains a buy recommendation.

See What Everyone is Watching

More From: The Herald

Don't Miss

AllAfrica publishes around 800 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.