Innscor expresses disquiet over ‘punitive’ tax regime

BUSINESS REPORTER

Innscor Africa Limited, a cash-rich and diversified conglomerate listed on the Victoria Falls Stock Exchange (VFEX), has expressed disquiet about the country’s tax system, joining an increasing number of businesses that have voiced similar concerns about what they regard as a “punitive” tax regime, Business Times can report.

It comes after the Treasury imposed a number of taxes and levies in an attempt to widen the shrinking tax base, which raised the cost of production in key production lines.

According to Andrew Lorimer, the Innscor group company secretary, the business faced challenging and unstable economic conditions throughout the first half of the year.

The period under review, he said, was marked by severe headwinds as well as material fiscal policy changes.

“These policy changes resulted in the Value Added Tax (“VAT”) status of most basic commodities being changed from zero-rated to exempt. This change had the effect of increasing the costs of production of many of the group’s key lines such as bread, milk, maize meal, salt and stockfeeds among others with the input VAT incurred in the production of these items no longer ranking for deduction in the respective VAT returns,” Lorimer said.

He added: “Within the protein segment, most products moved from exempt status to standard-rated, resulting in increased pricing in these products from producers in the formal sector, and providing further pricing advantage to informal, unregistered producers.”

In addition, Lorimer stated that the region’s output of soy and maize was negatively impacted by the disastrous El Nino drought, increasing the company’s dependency on imports of these commodities.

Despite all odds, the total group volume performance tracked ahead of the comparative period. This was made possible by the large investment made over the previous three years to increase manufacturing capacities and capabilities across all core manufacturing operations.

“Volume performance was underpinned by a firm recovery in the mill-bake value chain, complemented by strong volume growth in the stockfeed and protein businesses, as well as the beverage and light-manufacturing segment.

“The prevailing macroeconomic conditions, coupled with the bold policy measures taken by the authorities, have necessitated a sharp focus by management on re-basing the group’s underlying business models in an effort to maintain relevant, and convenient pricing to the Zimbabwean consumer, and to ensure that critical volume levels are always maintained.

“Efforts continue to also be directed toward ensuring new investments achieve targeted returns, whilst overall free cash generation remains a vital performance metric for the group, in support of future financing and investing activities,” Lorimer said.

Despite the product’s VAT status changing during the reviewed quarter, the Bakeries division closed 16% ahead of the comparable nine-month period thanks to a stable flour price and the preservation of a consumer-friendly exit price point.

Lorimer reports that the Bulawayo bakery facility, which was put into commission, is currently running at maximum efficiency and producing noticeably better-quality and more consistent loaves. Throughout the quarter, innovative route-to-market efforts gained momentum thanks to the expansion of Baker’s Inn express stores around the country and additional investments made in modernizing the operation’s distribution fleet.

At National Foods, volume performance for the cumulative nine-month period was 4% ahead of the comparative period.

He said the flour division continued to record positive volume momentum, closing marginally ahead of the comparative period, on the back of firm demand in the bakers’ flour category, and consistent wheat pricing across the supply chain.

Volume within the stockfeeds division, on a cumulative nine-month basis, closed 10% ahead of the comparative period and demand remained robust across both the poultry and beef categories, although momentum slowed in the current quarter following the recent VAT changes.

The maize division recorded strong volume recovery in quarter free, and, on a cumulative nine- month basis, closed 11% ahead of the comparative period and volumes within the downpacked division have contracted 23% on a cumulative nine-month basis, driven primarily by reduced rice trade on account of the export ban imposed by India, and, more recently, the imposition of VAT on locally traded rice, which impacted on pricing to the local consumer.

The snacks division continued to post very pleasing results and delivered volumes 38% ahead of the comparative period.

Lorimer said additional production capacity is currently being added to both the hard (“Zap Nax”) and soft (“King Curls”) snack categories.

Overall consumer demand in the cereals division improved during the period, resulting in volume growth of 9% over the comparative period, and driven mainly by the growing “Nutri Active” portfolio of cereals and efforts will continue to be directed to marketing and route-to-market initiatives in the period ahead.

“The business commissioned its world-class, short-cut pasta manufacturing plant in February 2024. This is the first large-scale pasta plant to have been built in the country, and deliveries of pasta to the market have recently commenced. The significant investment undertaken in the construction of the new Biscuit plant has also progressed, and the commissioning of this plant is scheduled for June 2024,” Lorimer said.

Colcom division, comprising triple c pigs and Colcom Foods, continued to deliver solid results during the period under review.

Overall pork volumes closed 3% ahead of the comparative period, driven by the sustained demand for fresh pork coupled with a recovery of processed lines, including polonies, bacon and hams, all of which have benefited from improved trade dynamics within the retail segment.

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