Innscor engages govt over tax

Innscor Africa Limited has raised concerns over high taxes and their detrimental impact on the company's profitability, warning that the escalating cost-push pressures are putting a strain on its financial performance. The company's management has engaged with the government over the issue as part of broader discussions with business membership organizations (BMOs) ahead of the 2025 National Budget announcement later this month.

In a trading update for the first quarter of the 2024 financial year, covering the period ended September 30, Innscor cited a series of challenges, including the recent adjustments to Value Added Tax (VAT) and sugar excise duties, which have directly impacted its manufacturing costs. These tax increases, coupled with ongoing currency volatility and power shortages, have resulted in higher production costs that are difficult to pass onto consumers, many of whom are already struggling with rising prices.

"The group's management teams continue to focus on navigating the complex policy landscape, notably the cost-push pressure caused by changes in VAT regulations and the excise duty on sugar for beverage products," Innscor stated in its report. "These, alongside sustained pricing distortions in the retail channel and complex market regulations, have added to the financial strain."

The company also highlighted the negative effects of the ongoing power shortages, which have led to increased reliance on expensive auxiliary power sources, further driving up operational costs. Additionally, the El Niño-induced drought has worsened the situation, with a reliance on imported grain adding another layer of financial strain.

Currency volatility was another major factor, with the local currency experiencing a 43% overnight devaluation during the review period. This, combined with increased local currency interest rates and higher statutory reserve requirements, has exacerbated liquidity challenges across the market.

Despite these economic hurdles, Innscor reported solid volume growth in several of its business segments, including mill-bake, beverages, and packaging, driven by significant investment in its operations. The company noted a 3% increase in volumes in its bakery division, a 20% increase in National Foods Holdings Limited, and a 26% growth in Prodairy, among other positive results. However, the protein segment, particularly in pork, continued to face challenges due to the formal retail channel's reliance and the impact of VAT changes.

The company's associate firms, Nutrimaster and Profeeds, saw a decline in volumes by 3% and 8%, respectively, during the period, signaling some pressure within these segments.

In response to the ongoing challenges, Innscor has continued to engage with relevant authorities to seek sustainable, long-term solutions that address pricing, VAT adjustments, and the broader economic challenges affecting the business.

"While the group is pleased with the progress made in the quarter under review, our management teams will continue to focus on volume targets, controlling production costs, and managing both variable and fixed costs," said the company. "Generating free cash and achieving strong returns on shareholders' equity remain central to our strategy."

As one of Zimbabwe's largest companies, with a listed value of US$269.06 million as of last Friday, Innscor's financial health is closely tied to the broader economic conditions in the country. The company's calls for tax relief and policy adjustments underscore the increasing pressure on businesses operating in the current challenging environment.

With several BMOs urging Treasury to address the high taxes and volatile currency, the government faces growing pressure to implement reforms in the upcoming budget to prevent further economic strain and support business sustainability.