Innscor turnover nears the billion-dollar mark!

The story of how a quick service restaurant 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 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 marginalized when Innscor’s story is narrated, corporate finance ingenuity in the form of mergers & 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 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 revenue. 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 one 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 6 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 categorization, 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 have estimated revenues of $892 and $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? The company has employed that strategy before in the companies highlighted earlier and could repeat the same. Considering that there seems to be a huge conglomerate discount implied by the market and a premium on spinoffs this option remains on the cards. Some of the companies that might be ready for a spin-off could be a consortium of the Pro brands i.e. ?Profeeds, Probrands etc.

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 aren’t 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.