Forex shortages, inflation weigh on Innscor

Published: 06 December 2018
Diversified Industrial group, Innscor Africa Limited says gross profit margins during the first quarter of the 2019 financial year remained under pressure due to foreign currency and inflationary pressures, resulting in cost increases for both local and imported materials.

In October, Zimbabwe experienced price increases and shortages of basic commodities with the foreign currency exchange rate hitting as much as 400 percent on the parallel market. Inflation rose above 20 percent for the month of October.

At Innscor, chief executive Mr Julian Schonken told shareholders at the group's annual general meeting yesterday that currency challenges existed across portfolio coupled with inflationary pressures and the group was looking at ways of surviving the turbulence.

The group managed to keep its operating expenditure controlled during the quarter and the operating expense to gross margin ratio continued to reduce. This, he said, allowed for improved operating leverage.

"Whilst volumes were generally firm across the Group during the quarter, gross profit percentages remained under some pressure with cost increases in both the local and imported bills of materials.

"Substantial inflation in operating costs has taken place following the close of the first quarter and thus remains a key focus area for our management teams to ensure competitively priced goods in a highly volatile market," he said.

Despite the challenges, overall volumes remained firm on the back of robust consumer demand across subsidiaries especially at National Foods. Total volume growth at National Foods was achieved during the quarter driven by growth across products.

Schonken said maize volumes increased by 55 percent over the comparative period as the maize harvest was lower than last season, and consumers also elected to sell their home-grown maize to the Grain Marketing Board (GMB).

The Stockfeed division recorded a 44 percent jump in volumes growth, largely on the back of the recovery in the poultry market following the outbreak of Avian Influenza last year.

Snacks and Treats rose by 48 percent while the flour unit operated at maximum capacity. Industry side, the milling industry has been affected by foreign currency shortages for wheat imports resulting in supply gaps for flour.

"Efforts to develop our local raw material pipeline are on-going through the provision of support to local farmers.

"This summer our contract farming schemes will amount to 9 000 hectares of maize, soya beans, sugar beans and popcorn," said Mr Schonken.

The bakery division recorded a 16 percent growth in loaf volumes as demand remained firm. The group is working on an upgrade on two lines in Harare that should enhance capacity and manufacturing efficiencies.

The project is due for completion during the third quarter of financial year 2019. At Probrands, volumes were 20 percent above those recorded in the comparative period, with strong performances in rice, down-packed product and powders.

Increased demand at Profeeds resulted in volumes growth of 23 percent above those recorded in the comparative period, on the back of a recovery in day old chick supply. Recovery at Irvines is continuing smoothly and management is upbeat of a good performance going forward. The unit was severely affected by the Avian Influenza Virus that hit the industry last year.

Meat processor — Colcom — recorded a 28 percent volumes growth in the pork operation with good performances across the core fresh, processed and pie categories. The pig expansion project was completed during the latter part of the quarter under review and has resulted in a 25 percent increase in weekly pig numbers.

Overall, Innscor's product supply has been consistent during the quarter in most categories but foreign currency shortages have impacted those products that require imported raw materials. Management has indicated they would continue engaging authorities to ensure uninterrupted local production continues.
- the herald
Tags: Forex,


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