eBusiness Weekly
Enacy Mapakame
Diversified industrial conglomerate, Innscor Africa will maintain profitability in the financial year 2020 on the back of product line diversification as well as improved efficiencies.
Economic headwinds are expected to persist in the near future in the absence of a quick solution to the foreign currency problem.
This, coupled with poor utilities supplies as well as waning disposable incomes are seen posing pressure on local industry especially consumer oriented firms such as Innscor.
However, IH Securities sees the industrial giant’s innovativeness seen through a diversified product portfolio and improved efficiency helping the company maintain its growth trajectory in the 2020 financial year.
Innscor is a focused group of light manufacturing businesses which produce a number of brands in the consumer staple and durable product space. The Group manufacture consumer staple and durable goods for the mass market through a managed and where strategically appropriate, integrated portfolio of businesses.
Revenue is therefore seen growing 83 percent to $2,36 billion. Innscor became the first company to breach the billion-dollar revenue mark since dollarisation.
“We anticipate that regardless of the current economic environment characterised by inflation and subdued income, the group will continue to enjoy moderate growth in volumes in basic commodity products.
“On the back of growth in volumes coupled with sustained price increases of products, we anticipate that revenue for the group will register an 83,5 percent growth year on year to $2,36 billion for FY20,” said IH.
For the 2019 financial year, the industrial giant defied economic order and reported a surge in profitability on good product mix, good strategic raw material positions and well-controlled overheads combined with volume growth and replacement pricing policies.
These gave rise to an operating profit of $258 million which represented a 234 percent growth over prior year.
Profit before tax came in at 371 percent ahead of prior year to $296 million while overall headline earnings per share rose 412 percent to 31,19 cents while profit for the year jumped 390 percent to $238 million.
Innscor has carried out several projects to improve efficiencies and production despite the obtaining economic challenges, characterised mainly by foreign currency shortages.
The group automated some of its processing plants to increase capacity and Innscor anticipates to start seeing the benefits of such projects, notably the bakery lines, the cereal line, additional retail sites as well as plant upgrades in Probottlers.
These capacity building initiatives are also seen bearing fruit as soon as the economy begins to gain growth momentum.
“We anticipate that regardless of the current economic environment characterised by inflation and subdued income, the group will continue to enjoy moderate growth in volumes in basic commodity products,” said IH.
The brokerage firm also contends that the mill-bake segment margins will experience pressure due to the indirect price controls in the sector although Government has allowed companies with free funds to import grain into the country.
But, in the absence of the subsidy through the Grain Marketing Board (GMB) cost of production is likely to shoot although this will be countered by the improved production efficiencies.
As such, earnings before interest, tax, depreciation and amortisation (EBITDA) margins are projected to marginally decline to 19,5 percent from 20 percent.
Net margins are seen softening to 10,6 percent from 13,8 percent while total assets should grow 21 percent driven by growth in current assets from the increase in biological assets and the cash position of the group.
Its share price is projected to reach $5,78 on the Zimbabwe Stock Exchange (ZSE) and IH upgraded the industrial conglomerate to a buy recommendation.
By close of trades Tuesday, Innscor was pegged at $2,83.
