eBusiness Weekly
Business Writer
Conglomerate Innscor, a leading player in the country’s business landscape, has raised concerns over mounting tax uncertainties stemming from recent currency fluctuations and policy changes.
The company highlighted a lack of clear guidance from authorities as a major hurdle.
In a statement accompanying its half year financials, Innscor pointed to the reintroduction of the Zimbabwe dollar (ZWL) as the official currency in 2019, followed by the swift legalisation of foreign currency for domestic transactions in 2020, as key events that created significant confusion regarding tax obligations.
The company argues that these policy shifts, coupled with a perceived lack of clear instructions and practical support from tax authorities, have resulted in varying interpretations of tax law.
This has led to disagreements with the government over the appropriate currency for tax settlements and the methods used to calculate tax liabilities.
Innscor’s statement suggests that these unresolved discrepancies have created a number of uncertainties in their tax position.
The company is reportedly seeking court intervention to obtain clear rulings on the disputed matters.
“The Group continues to seek adjudication by the courts on these matters,” reads part of the statement.
In its half year to December 2023 results, Innscor accounted for tax amounting to US$11,9 million in its Income Statement while its balance sheet had deferred tax liabilities amounting to US$36 million.
Analysts warn that this ongoing tax dispute between Innscor and the government could have wider implications for the Zimbabwean business environment.
“Unclear tax regulations can discourage investment and hinder economic growth. Businesses may be hesitant to expand or invest heavily if they fear future disagreements with tax authorities.
“Furthermore, prolonged uncertainty surrounding tax obligations could potentially strain the relationship between the government and the private sector, hindering collaborative efforts to revive the Zimbabwean economy,” said Walter Mandeya of Trigrams Investment.
“Innscor’s case serves as a spotlight on the importance of clear and consistent tax regulations.
Addressing these uncertainties could foster a more predictable and business-friendly environment, encouraging investment and economic activity,” he added.
Further, the company highlights that even though the government extended the multi-currency system and strived to improve monetary policies, the economy still wrestles with tight cash flow, local currency fluctuations and inflation, particularly towards the end of 2023.
However, Innscor reports success in overcoming these hurdles. They achieved volume growth across most business units compared to the same period last year.
This can be attributed to a recovery in the Mill-Bake value chain, strong demand for protein, beverage, and light manufactured goods, and strategic investments in capacity building, product diversification and new category exploration.
For the Mill-Bake value chain, the bakery division recorded volume growth of 23.3 percent over the comparative period on account of consistent wheat pricing and innovative route-to-market initiatives, which saw the scaling up of country-wide express shops during the period under review, coupled with continued investment to replace the existing bread distribution fleet.
National Foods registered an aggregate volume growth of 3.4 percent over the comparative period, driven by a recovery in flour volumes and continued momentum in the stockfeeds business.
For the light manufacturing segment, Mafuro Farming, raw milk production grew 76 percent over the comparative period, mainly driven by the operationalisation of a new, state-of-the-art dairy facility in the Midlands province.
Probottlers aggregate volumes increased 22 percent over the comparative period, driven by improved capacity utilisation within the “Fizzi” CSD category, where volumes closed 20 percent ahead of the comparative period.
Additionally, the company focused on strengthening its sales and distribution capabilities, which significantly contributed to the improved sales volume.
Innscor emphasises its commitment to optimising business models for the current environment.
This includes efforts to achieve economies of scale across the value chain, ultimately aiming to deliver affordable consumer pricing for all products.
They acknowledge the importance of working capital efficiency and strong free cash flow generation to navigate liquidity challenges and support future capital expansion and optimisation initiatives.
Financial Performance
The company recorded a 20.2 percent increase in revenue compared to the same period last year, reaching US$480.4 million.
This growth is attributed to improved capacity utilisation across core manufacturing units, new product launches, and optimised sales and distribution channels.
While revenue grew, operating profit before depreciation, amortisation, and fair value adjustments (EBITDA) experienced a 10.7 percent contraction.
This decline stems from increased costs within the supply chain, which the company could not fully offset through price adjustments.
Additionally, investments in the sales and distribution network, although driving volume and revenue, slightly increased the cost base.
Financial income saw a significant improvement due to net foreign exchange gains, while interest expenses dropped due to reduced borrowing rates.
Depreciation and amortization costs increased due to recent capital investments but remained proportional to revenue growth.
Innscor’s profit before tax (PBT) rose 15.4 percent year-on-year to US$45.161 million. This increase reflects the improved financial performance, offsetting the lower EBITDA margin.
However, a one-time tax charge related to the revised corporate tax rate impacted the final result.
As a consequence, headline earnings per share (HEPS) remained nearly flat compared to the previous period.
Current period Headline Earnings Per Share (“HEPS”) of 4.14 US Cents closed marginally ahead of the 4.13 US Cents per share recorded in the comparative period. The Board declared an interim dividend of 1.40 US Cents per share.
Innscor maintains a robust financial position with a strong asset base and efficient working capital management. Net gearing, a measure of debt relative to equity, has also improved to 6 percent.
The company generated solid cash flow from operations, enabling them to continue their capital expansion plans. Over US$32 million was invested in ongoing projects during the reporting period.
While Innscor demonstrates continued growth, managing cost pressures remains a key challenge.
The company’s focus on optimising business models and maintaining a strong financial position will be crucial for navigating the current economic environment.
