eBusiness Weekly
Innscor marks its 20th anniversary on the ZSE today, having reverse listed into Capri. We take a look at a group that has changed considerably over the past two decades, having built up blue chip status along the way.
20 years – take us back?
Innscor came to the market on Monday, January 12, 1998, having acquired the entire shareholding of Capri through a reverse listing. While it was a mere two months after the crash of the Z$, it was very much business as usual in the months that followed and 1998 also saw the listing of CBZ, Econet and Medtech. Back then, Innscor was very much what people still considered the group to be – until Simbisa was spun out – a fast food group (which comprised 53 percent of earnings) with interests in tourism (Shearwater), crocodile skins (then Niloticus, now Padenga), retail and distribution (back then wholesale distributorships like Kodak, Defy and Eveready), and, of course, the manufacture of fridges through Capri, which is what they remain with today. In F97, the group generated sales of US$51 million and an after tax profit of US$4 million.
What did the press say at the time?
The Business Herald of the week of January 8, 1997 revealed that the deal had been kept a closely guarded secret until the announcement by stockbroking firm Edwards and Company. Innscor had “over the past 10 years made strategic investments in the fast food, tourism and retail sectors… In 1997, group sales totaled Z$578 million, generating earnings of Z$42 million,” the Business Herald said.
The media argued that the local branding was strong enough to match any international competition. The Financial Gazette, commenting on the deal, noted that before the reverse takeover, Capri was set to post a loss of Z$7 million, a reversal of its fortunes from a profit of Z$2,7 million in 1997.
The loss was mainly due to high interest rates and competition on its main product line. A week after the listing, the group made plans to invest Z$160 million in expanding the fast food, tourism and retail sectors. Other developments at that time included the acquisition of three Sweet Factory outlets, Dial-A-Delivery and an interest in Mateo’s restaurant.
The story is that Zed Koudounaris and Mike Fowler set up the group?
Partly true – Koudounaris and Fowler’s father took the company into food trading in 1987. Koudounaris and Mike Fowler had been friends since Vainona High School.
Innscor traces its roots back to 1968 when Fowler’s father started TV Sales and Hire (now TV Sales and Home) was established, which is today incorporated in Axia. The group managed to acquire a number of household name agencies along the way such as Kodak and Cadac, but it was the formation of Chicken Inn and the move into bakeries, confectionary retailing as well as the acquisition of the Nando’s and Steers franchises which drove growth in the decade that followed. Shearwater, established in 1985, was acquired in 1993 along with Niloticus, which was purchased from Astra Corporation.
What was their coverage at the time of listing?
In mid-January 1998, as aggressive expansion plans were announced, the group had 98 fast food outlets, of which 14 were Chicken Inns. There were 15 Bakers Inns in Harare and 11 in Bulawayo, retailing 48 different bakery products from two central bakeries in Harare and Bulawayo. Steers Zimbabwe had four outlets. Six Mighty Pies outlets serviced Bulawayo and Harare. The group announced that Manufacturing Inns had taken over all of OK Zimbabwe’s bakery production as of January 1, 1998.
Who else is there from the start?
There have been some long serving employees, Basil Dionisio, who joined the group in 1989 and ran the bakeries for the better part of his life with Innscor is now at Simbisa. There have been a number of MDs – Tom Brown, John Koumides, Toni Fourie and now Julian Schonken. Givemore Munyanyi was with the group at listing, as was Fayaz King, now at Econet and the late Charles Mbanje. Jeremy Brooke joined Shearwater 1985 and was promoted to MD of the division in 1995 before running Natfoods from 2007 until the end of 2014. David Morgan had a long run as chairman only retiring in 2014. He had been Capri chairman since 1979. Other members of the first board included Simba Makoni and Elias Ngugama.
Was there some sort of vision for the group?
In the Edwards & Co note at the time of listing, the broker noted the management philosophy was based on the following principles:
- Invest in people
- Use it or lose it
- Investigate before investing
- Only invest in producers
- Do not live with death
- Shadows are more fierce that reality
Empowered, well structured, incentivised management is key to business success
Edwards said: “Although these philosophies may appear somewhat trite, their application over the past ten years has successfully enabled the group to grow earnings seven fold since 1996”.
Give us the past 20 years in a paragraph
After 2000, the group took interests in protein groups including Colcom (2003), Natfoods (2004), Irvines (2009), Profeeds (2015) and Probrands (2016). With the downturn that took place domestically, Innscor launched a less successful move into African markets by pushing its fast food franchises into East and West Africa and expanding the Spar retail footprint in Zambia and Zimbabwe (particularly in the dying days of hyperinflation).
In the period since dollarisation, the group has unbundled its crocodile skins operation Padenga (2010), fast foods into Simbisa (2015), and the distribution and retail arm into Axia (2016). The tourism operation Shearwater was exited 2016, the same year the group disposed of its Spar operations in Zimbabwe in 2016. Innscor exited its Zambian Spar operations in 2016 and The River Club this past year.
Where has Innscor been successful?
The group ran a world class crocodile skin operation, but its move into the alligator market in the US has not been as successful. The protein operations have experienced mixed fortunes, but on the whole Innscor has managed to derive value from them. Distribution has been a constant earner and the group has managed to acquire new agencies as others were dying. The acquisition of Transerv may have been fully priced, but it has proven to be a good fit in the Axia business. Innscor was relatively intact at the point of dollarisation and did not have to go to shareholders to raise funds. It has consistently paid out US dollar dividends, one of the few companies to do so.
And not so well done?
Retail through Spar, which while it added significantly to the topline, also resulted in increasing losses from 2012 through to disposal. The group hit the dollarisation period being in poll position with its stores well stocked, but somehow it ended up getting its pricing wrong, in part caused by mispricing from its Distribution Centre.
It also spent millions redesigning and refitting stores – such as The Bridge – that were never recovered. Zambia has also been less than successful – a good deal of management time has been spent on trying to make the Spars work, but they have also struggled against a more dominant and well established Shoprite. The aggressive fast food expansion into West Africa was never successful and in recent years most external growth has come in East Africa.
Give us an alternative 20 year reality?
Well, if the Z$ had not crashed in 1997 and the farm invasions had not taken place in 2000, would Innscor have looked afield for growth? Tourism would have continued to boom, which may have become Innscor’s focus.
Certainly the fast food business would have grown exponentially and the competitors would not have been Chicken Slice, but the international operators KFC, McDonald’s and Pizza Hut(the awarding of a never-to-happen McDonalds franchise was made in the week of January 15, 1998, in the Business Herald). The Bakeries business would have been a dead certainty regardless.
The Distribution arm may not have gained as much business as multinationals would likely have opted to do this themselves.
What was their medium term strategy at listing?
- To grow capacity throughout the group by organic expansion, acquisition, adding new brands and entering new markets
- To grow value added spend in tourism by expanding into lodges and branded merchandising
- Expanding their credit book retail to US$13,5 million from US$1,1 million
- Regional expansion of fast food
In early 1998, an aggressive development strategy was announced, focused mainly on the fast food side of the business where all the franchises were to have between six and ten new outlets over three years.
The company wanted to increase market share from 21 percent to 30 percent, grow sales by 30 percent, and grow profits by a minimum of 35 percent per annum.
So what is Innscor as of 2017?
The group divides itself into four divisions: Mill-Bake (Natfoods, Bakeries and Profeeds), Protein (Irvine’s and Colcom – delisted since year end), FMCG & Dairy (being the Probrands operations) and Other (Capri, Natpak). As of 2017, the company has outlets in 11 African countries, including Kenya, Ghana, Mauritius and Zambia. The new structure allows the Group to create capacity and can easily grow should consumer fundamentals improve. It also allows the Group to focus on sound and strategic capital allocations that suit the obtaining environment and in the process allows it to maximize efficiency and optimize opportunities going into the future.
If you were a guessing person, what next?
Simbisa is pursuing a secondary listing on the London Stock Exchange’s junior market (Alternative Investment Market – AIM) to raise capital to expand and for a potential foreign acquisition.
Local acquisitions are currently thin on the ground and subject to possible unfriendliness from the CTC – what really is there domestically that looks attractive? Mill-Bake and Protein could easily be standalone businesses. Could they be merged with a recapitalised CFI? Who really knows… the only thing that remains unchanged, is Capri, the original listing, is still part of the group.
How does the market view Innscor?
Innscor has won a few awards from reputable institutions such as Institute of Chartered Secretaries and Administrators in Zimbabwe (ICSAZ) which awarded the Group first prize as the Best Governed Company on the ZSE in 2016. This speaks to the quality of management that often runs the company.
The current management team of Julian Schonken and Godfrey Gwainda is fairly young and speaks to the future. Schonken also has extensive knowledge of the business with a strong and passionate understanding of the business model of the group. Its treatment of its shareholders has also not gone unnoticed as ICSAZ also gave the Group an award for Best Shareholder Treatment for a Company Listed on the ZSE.
Awards have also been synonymous with most of the Group’s subsidiaries in their various categories.
Also see Mamvura’s Market Minute
