Overheads, environment affects Innscor

Published: 10 March 2014

LISTED retail conglomerate Innscor Africa Limited's top line vaulted by 55,4 percent in the interim to December 2013, but the difficult operating environment and huge overheads took the gloss off bottom line.

Revenue for the period came in at a staggering $525 million against $$337,84 million achieved in the prior comparative period of 2011.

While the top line registered impressive growth in the interim period under review, operating profit only jumped 38,4 percent to $47,3 million.

Analysts contend that the less than impressive growth in the bottom was partly due to thin margins in an economy weighed down by tight liquidity and little disposable income as many companies are struggling.

Despite the earnings going up significantly though below analysts' expectations, headline earnings per share retreated to US2,75c compared to US3,68c in the interim period to December 2011, reflecting the impact of increase in issued shares to full requirements of the indigenisation laws.

At an extraordinary general meeting in January Innscor shareholders approved an indigenisation compliance plan that will result in the sale of 12,87 percent of the company's issued share capital to indigenous partners.

The shareholders increased the diversified conglomerate its issued share capital from 800 million ordinary shares to 800 million shares, and 1 000 non-voting Class A ordinary shares for the employee share scheme.

"The group has experienced an extremely challenging first six months and whilst this due in part to overall depressed economic activity being experienced, it is also due to poor control of the overhead in certain core businesses with the effect being compounded by lower margins being realised," said chairman Mr David Morgan.

Innscor said going forward it is important that a number of the group's operating models are revised where necessary and this will be a focal point while management will work hard to ensure overheads are adjusted.

Innscor said it will centralize a number of the large high expense lines common across the different business unit in order to enhance cost cutting while conditions require that it tighten debt collection and lower borrowings.

The retail giant said it will seek solutions to procure grains, widely used its Innscor production processes, locally to reduce the high cost of imported grain.

Further, the next half year will see the group vigorously pursuing regional expansion programmes to increase the share of revenue and profits from outside Zimbabwe in pursuit of its goal to be truly Pan-African entity.

Operationally, Innscor said the bakery division produced a disappointing result with volumes declining by 10 percent over the comparative period and production will be consolidated at the Graniteside plant, which is more efficient after installation of bakery lines.

Local fast foods operations recorded customer counts similar to the same period the prior year, but profitability was affected by lower margins and high overheads.

The Zimbabwe Stock Exchange listed group said a 50 percent increase in regional customer counts increased and positively impacted on revenues and profits.

A new division, milling and protein, has been created to take account of changes in governance structures and this consist National Foods and Colcom. Natfoods produced reasonable set of results with 257 000 metric tonnes sold, representing a 7 percent growth over the comparative period of 2011.

Innscor said while margins remained under intense pressure in the period, the business was able cushion the effects of this to reasonable levels through strategic procurement of raw materials to meet future demand.

Colcom recorded 17 percent increase in volumes over same period in 2011, but core poke operations volumes fell 33 due to rationalisation, which was set off by more than doubling volumes in Associated Meet Packers.

Innscor said overall profitability growth was marginally positive despite an unfavourable livestock fair value adjustment during the interim period.
- Herald

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