• Innscor shares started trading on VFEX on Monday, 27 February 2023. 
• Innscor reported revenue of ZW$ 291 billion in 2022, up from ZW$ 195 billion in 2021, representing a significant growth of 49.2%.
• The company also reported net assets of ZW$ 143 billion in 2022, up from ZW$ 78 billion in 2021, an 83% upsurge. 

Harare - Innscor Africa Limited is one of Zimbabwe's largest fast-food chains, with operations across various sectors in several African countries. For many years, Innscor has been listed on the Zimbabwe Stock Exchange (ZSE) but on Friday, the 25th of February 2023, the company joins a sleuth of companies migrating to the USD-denominated Victoria Falls Exchange (VFEX). We have underpinned this movement as “The Great Migration”, which we believe has accelerated by the rapid devaluation of the local unit and the impending presidential elections, as companies are increasingly ditching the ZWL-bourse.

This Monday, the ZSE released a public notice which stated that “The ZSE will therefore institute a trading halt on Innscor Africa Limited shares effective Monday, 20 February 2023 to allow for the settlement of shares. Following the implementation of the halt, Innscor Africa Limited will be delisted from the ZSE on Thursday, 23 February 2023 and subsequently listed on the Victoria Falls Stock Exchange (VFEX) on Friday, 24 February 2023. Investors will not be able to buy or sell Innscor Africa Limited's shares during the period the halt is in effect. The shares will start trading on VFEX on Monday, 27 February 2023”.

Innscor’s decision to migrate from the ZSE to the VFEX is a significant move that will have far-reaching implications for the company, the ZSE, and the VFEX. In this analysis, we will explore the implications of this move for each of these stakeholders, as well as Innscor's financial performance over the last 5-6 years.

Implications for Innscor

The migration to the VFEX offers several benefits to Innscor, including access to foreign capital and greater exposure to global investors. Innscor has been able to adapt to the challenging economic environment in Zimbabwe over the years, which has contributed to its stable financial performance. The company's multi-currency pricing system has helped to maintain profitability, while its expansion into other African countries has diversified its revenue streams.

Listing on the VFEX will provide Innscor with access to a wider pool of investors, who are likely to be attracted by the exchange's reputation for stability and transparency. The VFEX is a new exchange that has been set up to attract foreign investment, and this move by Innscor is likely to further boost the exchange's credibility. By accessing foreign capital, Innscor will be better positioned to fund its expansion plans and reduce its exposure to the volatile Zimbabwean economy.

However, there are also risks associated with listing on the VFEX. Innscor will need to comply with more stringent regulatory requirements, which could increase compliance costs. The company will also need to navigate the unique risks associated with foreign exchange, such as currency fluctuations and geopolitical risks. Overall, the migration to the VFEX presents both opportunities and challenges for Innscor, and the company will need to carefully manage these risks to ensure a successful transition. 

Implications for the ZSE

The ZSE has been grappling with several challenges in recent years, including a shortage of foreign currency, high inflation, and a volatile political environment. These challenges have made it difficult for the exchange to attract foreign investors, and many companies have been forced to delist or migrate to other exchanges. The migration of Innscor and other companies to the VFEX is likely to exacerbate these challenges.

The loss of Innscor as a listed company is a blow to the ZSE, as the company is one of the largest and most successful firms on the exchange. The ZSE will need to work harder to attract and retain listed companies, as well as foreign investors. The exchange will need to implement reforms to improve the investment climate, such as improving liquidity, reducing transaction costs, and improving transparency and governance.

The migration of companies to the VFEX could also lead to a decline in the value of the Zimbabwean dollar, as foreign currency outflows increase. This could exacerbate the inflationary pressures that the country is already experiencing. The ZSE will need to work closely with the government to implement policies that address these macroeconomic challenges and improve the business climate.

Implications for the VFEX

The migration of Innscor to the VFEX is a significant vote of confidence in the relatively new exchange, which was launched in 2020. The VFEX is a USD-denominated exchange that is designed to attract foreign investment into Zimbabwe. The migration of Innscor and other companies to the VFEX is likely to increase the exchange's credibility and attractiveness to foreign investors.

The migration of Innscor is also likely to increase liquidity on the VFEX, which has been a challenge for the exchange. With the addition of Innscor, the VFEX will have a more diverse range of listed companies, which could potentially attract more investors. The exchange will need to continue to work on improving liquidity and investor confidence, to ensure that it becomes a leading exchange in the region.

Innscors’s Five-Year Performance - Inflation-Adjusted

Innscor Africa Limited was founded in 1987 and has since become arguably Zimbabwe's largest fast-food chain with a diversified portfolio, to say the least.  Over the last five financial years, Innscor's financial performance has been relatively robust, and stable with frequent growth spurts, on a year-on-year basis. 

Source: Innscor 2022 Annual Report

For the fiscal year 2022, Innscor reported a revenue of ZW$ 291 billion, up from ZW$ 195 billion in 2021, representing a significant growth of 49.2%. The company has been able to grow its revenue and profits despite the challenging economic environment in Zimbabwe. Revenue growth was underpinned by strong sales volumes across all core categories as the Group’s business units achieved improved capacity utilisation, introduced new products, and expanded product offerings across existing categories; this combined with optimal pricing strategies and growing demand from the informal market drove the Group to achieve a pleasing result.

The company's revenue is generated from various business segments, including food processing, retail, and quick service restaurants (QSR).  Based on the company's financial reports, the QSR segment is the largest contributor to Innscor's revenue. This segment includes popular brands and has experienced strong growth in recent years. In addition to QSR, Innscor's other major revenue-generating segments include retail, which includes supermarket chains, and food processing, which includes brands like Profeeds and Baker's Inn.  Innscor also has a presence in other industries, such as agriculture and mining, which generate a smaller portion of the company's revenue. For example, the company owns a 50% stake in National Foods Holdings Limited, which is one of Zimbabwe's largest food manufacturers and has interests in maize milling and packaging, snack production, and edible oils.

Innscor also has a 37.5% stake in Irvine's Zimbabwe, which is a leading poultry producer in the country. The company's other investments include Associated Meat Packers, which is a beef processing and marketing company, and Capri Zimbabwe, which is a leather tanning and processing business. Overall, Innscor's revenue is derived from a diverse range of industries and business segments, with the QSR segment being the largest contributor to the company's earnings. 

Source: Innscor 2022 Annual Report

The company also reported net assets of ZW$ 143 billion, up from ZW$ 78 billion in 2021, an 83% upsurge. The increase in net assets is a function of a number of factors, including the company's strong financial performance, growth in revenue and profitability, and improved efficiency in managing costs.

Innscor's net assets are a key indicator of the company's financial health and strength. A company with high net assets is typically viewed as being financially sound and stable, which can attract investors and lenders. High net assets also provide a cushion for the company in times of economic uncertainty or financial distress, as it can use its assets to weather difficult periods.

Net assets should never be viewed in isolation since other financial metrics such as earnings, cash flow, and return on investment should also be considered when evaluating a company's financial health and performance. However, the reported increase in Innscor's net assets is certainly a positive sign for the company and its shareholders.

Source: Innscor 2022 Annual Report

The Group’s improved sales volumes and product mix, coupled with a well-priced strategic raw material investment and enhanced production and overhead efficiencies, combined to deliver an operating profit of ZW$ 87.8 billion for the year under review, representing a growth of 251% over the comparative year. 

One of the key drivers of Innscor's financial performance has been its ability to adapt to changing market conditions. For example, in response to the hyperinflationary environment in Zimbabwe, the company has introduced a multi-currency pricing system, which has allowed it to remain competitive while maintaining profitability. Innscor has also expanded its operations to other African countries, such as Kenya and Zambia, which has helped to diversify its revenue streams.

Conclusion

While the move presents Innscor with access to foreign capital and a wider pool of investors, it also comes with increased compliance costs and foreign exchange risks. For the ZSE, the migration of Innscor and other companies to the VFEX is a blow to the exchange and will require significant reforms to improve the investment climate. However, the migration of Innscor to the VFEX is a significant vote of confidence in the exchange and is likely to increase liquidity and attract more foreign investment.

As a seasoned analyst, I believe that Innscor's migration to the VFEX is a bold move that underscores the company's commitment to growth and expansion. It is also a timely reminder of the need for Zimbabwe to implement reforms to improve the business climate, reduce inflation, and attract foreign investment. Overall, Innscor's migration to the VFEX presents significant opportunities and challenges for all parties involved, and it will be interesting to see how this move plays out in the coming months and years.

The future outlook for Innscor is a mixed bag. On the one hand, the company has demonstrated strong growth and profitability in recent years, and its decision to migrate to the VFEX is a sign of its commitment to continued expansion and diversification. Innscor has a strong presence in Zimbabwe and the wider African region, and its diverse portfolio of businesses, including fast-food restaurants, bakeries, and supermarkets, positions it well for future growth.

However, the company will also face a number of challenges in the future, including increased competition, rising costs, and regulatory risks. The fast-food industry in Zimbabwe, for example, is highly competitive, and Innscor will need to continue to innovate and adapt in order to stay ahead of the game. In addition, the company will need to navigate the complex regulatory environment in Zimbabwe, which can be unpredictable and difficult to navigate.

Overall, I believe that Innscor has a bright future, but success will depend on the company's ability to continue to innovate, adapt to changing market conditions, and navigate regulatory challenges. The company has a strong track record and a talented management team, and I believe that it is well-positioned to succeed in the years to come.

It is possible that the upcoming elections in Zimbabwe could be a factor in companies' decisions to migrate to the VFEX. Elections often bring uncertainty, and investors may be looking for ways to hedge against potential instability in the capital markets. In addition, Zimbabwe has a history of political and economic instability, and investors may be wary of the potential for this to negatively impact the ZSE.

However, it is also important to note that the decision to migrate to the VFEX is likely the result of a number of factors, including the exchange's stability, access to foreign currency, and the ability to attract a wider pool of investors. While the upcoming elections may play a role, it is unlikely to be the sole driver of companies' decisions to migrate to the VFEX.

It is worth noting that Zimbabwe's government has expressed its commitment to improving the investment climate and attracting foreign investment. The launch of the VFEX is part of this effort, and the government has introduced a number of policy and regulatory reforms aimed at improving the business environment. While there are still challenges to be addressed, the government's efforts may be viewed as a positive step by investors looking to do business in Zimbabwe. 

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