The story of how a quick service restaurant that started in Speke Avenue, Harare in 1987 has grown up to be a manufacturing giant, should be studied in every business school throughout the country and beyond. It is one of the most inspirational entrepreneurial stories of how to build a resilient business in a volatile, uncertain, complex and ambiguous environment like ours.
In fact, there is a joke thrown around every now and then, that the “I” in Zimbabwe stands for Innscor. The idea behind the joke really is to explain that almost everyone in the country, in one way or another, uses Innscor products. Whether you are eating the Baker’s Inn bread in the morning with Irvines eggs, or drinking the Nyathi sorghum beer on the weekend, you are bringing money into Innscor’s account.
Although organic growth can never be marginalised when Innscor’s story is narrated, corporate finance ingenuity in the form of mergers and acquisitions and unbundling was critical in its growth. Innscor has been involved in some of the stellar corporate transactions this country has ever witnessed.
Some of the biggest brands and biggest listed companies on both exchanges like Padenga Holdings, Simbisa Brands Limited, Axia Corporation, and Colcom were at some point part of Innscor and assisted it to get to where it is today. At some point, it even controlled the Spar franchise in Zimbabwe. Even the listing of the company on the Zimbabwe Stock Exchange, back in 1998 was through the reverse takeover of Capri, an appliances manufacturer then.
Now the big task for Innscor is to once again cross the US$1 billion-dollar revenue mark, at least in most analysts’ opinion. Anyone who has been following the company for some time will remember that in 2014 the company’s revenue once crossed that billion-dollar mark. After that the company then unbundled Simbisa Brands in 2015 and Axia Corporation in 2016. That was followed by currency issues and economic turmoil that negatively affected almost every player in the market. Can the current operations re-cross the billion mark again?
With Delta reporting annual revenues of US$768 million, Innscor is probably the locally listed company with the highest revenue in the country. The fact that none of those locally listed companies have reported a USD turnover close enough to US$1 billion speaks volumes to the type and nature of the market they are playing in. The latest numbers released by the Victoria Falls Exchange-listed conglomerate showed that the annual revenues grew by 13% to US$910 million. Although it has not yet gotten to the mark, this new top-line number makes Innscor one of the fastest-growing companies in the country. Over the past six years, it has been growing at an annual compound growth rate of 20%.
At a time when Innscor should be in the maturity stage of its life cycle, it is putting up growth numbers which are consistent with a company in the growth phase. Perhaps we might want to break down the revenue number to analyse where it is coming from. According to FY24 numbers, Innscor’s revenue was driven by volume increase in the various segments of the business.
Sales volume growth was reported across the segments of the business with the bakery division recording an overall volume growth of 12% whilst National Foods was at 6%. Lower harvests pushed the demand for maize products up 21% and stockfeeds growth came in at 8%. The company highlighted that the imposition of Value Added Tax (VAT) on imported rice and the ban on rice exports out of India led to a 21% drop in the downpacking division of the business.
In absolute revenue terms, the biggest growth came from the mill-bake division, which put on a US$74 million growth, translating to 17% growth versus the previous year's numbers. The mill-bake is the biggest division in the group’s categorisation, and it includes Baker’s Inn, National Foods and Profeeds. The protein division, which was the second highest contributor to the top line grew by US$20 million translating to an 8% growth. The beverages and other light manufacturing division is also another critical division of the business which grew by 5%.
In a financial year that coincided with the drought season, you would expect the revenues to be lower, but Innscor numbers tell a different story. Their revenue was higher than most of the analysts’ projections for FY24 including leading brokerage firms like IH Securities and Morgan & Co. which had estimated revenues of US$892 million and US$804 million respectively.
Behind Innscor’s growth was obviously capital expenditure. Between 2019 and 2023, Innscor deployed a cumulative US$200 million towards expansion and maintenance. The company has also been starting completely new lines and divisions which pushed its growth. The Nyathi beer is an example of that and earlier in the year the company also started the pasta division.
Going into the future, since some of these divisions have grown substantially, what are the chances that they will be unbundled into stand-alone companies?
Some of the companies that might be ready for a spin-off could be a consortium of the Pro brands, that is Profeeds, Probrands and others.
If the company goes on to perform an exercise like that, then it can affect the journey to the billion-dollar revenue mark. However, any analyst worth listening to will tell you that absolute revenue numbers are not all that matter. There are many other things to look at like the profitability and the key attributes of any potential unbundling like what the current shareholders walk away with.
Assesing the banks
To assess the financial health of the banking sector, we look at the capital adequacy ratio. This ratio is a total weighted average of banks' assets using certain weights for different assets. It basically assesses if a bank will be able to absorb shocks using its assets. The monetary policy reported that on average banks in Zimbabwe are way above the minimum capital adequacy benchmark of 12% with the average at 46%.
There is also a core capital requirement set at US$30 million, the local currency equivalent for Tire 1 banks and the MPS reported that 15 out of the 18 banks were compliant and the non-compliant banks are working to do so. Moving to the income component of the financials, we will look at the net income margin.
This metric compares the profit of the bank by comparing the net interest income the bank gets minus interest expenses then dividing it by the earning assets.
In my calculations, I used the loans and advances as my earning assets and concluded that using the inflation-adjusted numbers most of the banks had a margin above 8% with other institutions like FCB having 13%.
If our earlier breakdown of LTD reviewed that banks are not as aggressive in their lending, so where else is their income coming from?
The MPS showed that only 10,44% of banks’ total income came from the funded income or the interest income.
Gains on revaluation of investment property contributed 25,19% towards banks profitability. Given the hyperinflationary nature of our environment, banks tend to buy properties to hedge their capital and these revaluations on the properties are contributing to income.
Banks also made 17,74% of their money from fees and commissions up to June 2024 and 14,78% from the previous period. This has been the bone of contention as economic agents believe that banks are charging exorbitant fees in the form of monthly charges, transaction fees and balance enquiry fees amongst other charges.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
