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Enacy Mapakame
Despite the volatile operating environment characterised by falling consumer spending power, listed consumer oriented stocks are defying the economic order sustained by volume growth, wider product range and “favourable” pricing.
The obtaining foreign currency shortages resulting in waning disposable incomes, power shortages, subdued productivity and implementation of austerity measures, have had a knock on effect on businesses across sectors as well as on consumption patterns, a trend that started late last year.
But the likes of Innscor Africa, National Foods, Axia and Simbisa that released financials for the year to June 30 have shown that although it has not been a smooth sailing, they can still survive in a turbulent environment and report earnings growth.
These have also rewarded shareholders with dividends at a time other firms are preserving capital for expansion projects and other capital requirements.
For industrial conglomerate, Innscor, good product mix, improved production efficiencies as well as good raw materials position have been crucial catalysts for earnings growth, which saw the firm report a 390 percent jump in profit to $238 million.
Well-controlled overheads coupled with volumes growth also played well for the diversified industrial group while replacement pricing policies gave rise to an operating profit of $258 million, which was 234 percent above prior year.
At National Foods, after tax profit increased 229 percent to $56 million on volume growth, which was sustained by 60 percent and 42 percent increase in volumes for the maize and stock-feed divisions, respectively.
This was on the back of the relative affordability of maize, which the Government continued to sell at subsidised pricing.
This helped offset declines in flour division, which was a result of foreign currency shortages for wheat imports. The country has experienced supply gaps in flour and flour products such as bread due to insufficient foreign currency to import wheat.
While foreign currency shortages and inflationary pressures are likely to persist in the near future, National Foods is envisaged to maintain a growth trajectory as it leverages on increased demand for grain for both humans and livestock consumption.
This comes as grain output for the 2018/19 agriculture season was depressed due to drought.
In line with this, Government has indicated the country will need to import 800 000 tonnes of grain to meet the national grain requirement, circumstances that usually see National Foods thrive as companies with free funds have been given leeway to import.
At Simbisa, regional operations buoyed earnings growth as the quick restaurant service group felt the pinch in Zimbabwe, its largest market where customer count declined due to waning disposable incomes.
Regional operations recorded revenue growth of 118 percent and management indicate focus will be to boost regional business operations as the local trading environment remains relatively unstable in comparison to regional peers.
The conversion of regional revenues from USD to the local RTGS$ is likely to further boost Simbisa’s figures in this current financial year.
Retail and specialty distribution group, Axia’s revenue grew 102 percent to $557,4 million in financial while Earnings Before Interest Tax, Depreciation and Amortisation surged to $72,7 million from $25,8 million in the previous year.
Apart from the usual power cuts, forex shortages and soaring exchange rate locally, the business was also affected by defaulting customers in Malawi while Zambia had a 3 percent decline in revenue, which resulted in the group’s regional operations, through DGA, recording a 2 percent decline in turnover.
In the near future, austerity measures are expected to continue coupled with inflationary pressures and volatile exchange rates that will put more pressure on consumer spending.
It is therefore, anticipated consumers will put focus on basic food stuffs and have a negative impact on retailers of discretionary goods like Axia as real disposable incomes remain under pressure.
Other consumer-oriented stocks such as Delta, BAT, retail chain OK Zimbabwe and Afdis may not be spared as well, as significant migration from aspirational high margin products to low margin affordable products will be the order of the day as consumers seek value for money.
Online Reporter