eBusiness Weekly
Business Writer
Innscor’s decision to migrate from a conglomerate format into a light manufacturing focused business was the right decision, its chief executive said on Wednesday, after the company reported a 19 percent rise in operating profit.
In 2015, Innscor embarked on an unbundling drive that saw the group demerging its Quick Service Restaurants business now Simbisa Brands Limited, its Speciality Retail and Distribution businesses now Axia Corporation Limited as well we the disposal of SPAR Zimbabwe in 2016. In the current year, the group also disposed of its interest in SPAR Zambia Limited and The River Club.
The group is now 15 to 16 months into the new format focused on providing staple, durable and iconic brands targeting the mass market, CEO Julian Schonken said.
“We believe we made the right decision in transforming the business which is now showing better performance as reflected by the results coming through.” For the full year ended June 30, 2017, Innscor’s continuing operations posted revenue of $580,3 million, one percent lower than the $586,9 million posted prior year comparative. EBITDA margins have since improved to 11,29 percent in 2017 from 7,86 percent in 2015.
The group’s headline earnings per share, which excludes the exceptional charge incurred at Irvine’s as a result of Avian Influenza, increased by 39 percent to 4,74 US cents over the prior year; with the group benefiting from renewed focus and energy in its reconfigured format.
Most of the group’s units recorded growth in volumes with the exception of National Foods which delivered a subdued performance for the year under review. Volumes at 507 000mt were 10 percent below the prior year and were largely impacted by the poor performance of the Maize Division, which saw volumes reduce by 39 percent as the Grain Marketing Board continued to price its commercial offering aggressively, resulting in a loss of $0,7 million being recorded in the maize division.
However, the bakery operation was the biggest driver of the group’s results after the introduction of the new half-loaf and family-loaf offerings.
The bakery business consolidated its bread operations and this ensured that production efficiencies, product quality and capacities continued to be enhanced and resulted in good operating profit growth.
A total 146 million loaves were sold up from 141 million loaves sold prior year comparative, whilst pie volumes increased by 150 percent following a re-positioning and re-launch of the product.
Notwithstanding the solid performance recorded, the outlook for the business remains challenging, with some margin erosion being experienced in the second half of the financial year. Focus in the coming year will be directed toward the ongoing pricing management of key raw materials as well as the main conversion and distribution overhead cost buckets.
Profitability was, however, much improved with operating profit increasing by 19 percent to $65,5 million while overall profit before tax at $41,6 million was 7 percent ahead of $39,0 million achieved prior year comparative.
Cost benefits were realised both at operating unit level, following the various restructure programmes initiated over the past year, and also at Head Office level, as a result of a much more streamlined, and focused management structure.
“We introduced activity based costing systems and also introduced a more formalized approach to allow us to reach the desired business models,” said Schonken.
The lower level of operating expenditure incurred was the principal driver in the improvement recorded at operating profit level. Below the operating profit level, and of significance, was the exceptional charge of $7,3 million which resulted from the outbreak of Avian Influenza at Irvine’s. This charge relates to the value of the 835 000 livestock culled as a result of the outbreak and to prevent further infections from taking place.
In order to adapt to the prevailing conditions, significant focus was placed on reducing the group’s foreign creditor positions in the second half of the year under review, and this, coupled with the migration from imported maize supply to local maize supply following a successful local agricultural season, saw a cash flow increase in the group’s working capital position of $47,7 million.
This change in working capital strategy resulted in reduced cash being generated from operations and a marginal increase in the net gearing of continuing operations to 15,32 percent on the back of increased usage of local borrowing facilities.
The group’s working capital strategy was changed to suit the operating environment with the group resorting to prepayments for key raw materials. Maize inventories were also reduced following the good agricultural season.
Schonken said the group’s policies are now focused on local production and manufacturing as well as import substitution activities. The group uses 320 000 tonnes of maize and 220 000 tonnes of wheat per annum.
