- Strong Growth Across Units: Over 90% of Innscor's units saw growth, with the company starting FY2025 on a firmer note
- VAT Revision Impacts Performance: From exempt to zero-rated on basic products increased cost-push pressures
- Mitigation Strategies: Focusing on cost control, volume targets, and free cash..
Harare- Largest foods processor, Innscor Africa Limited has posted a solid Q1 performance for the period to 30 September 2024. This performance which saw over 90% of its units on the upward trend, sustain growth means the company has started FY2025 on a firmer note.
However, the company has emphasised the need to change Value Added Tax from Zero Rating to Exempt which it says is harming the economic industry.
The VAT revision, implemented by the Zimbabwe government, involves changing the tax status of certain basic products from exempt to zero-rated. This change affects various industries, including food manufacturers like Innscor Africa Limited and sugar companies like Hippo.
Previously, certain basic products like rice, maize meal, and sugar were exempt from VAT. However, under the zero-rating system, these products are still subject to VAT, but at a rate of 0%. This change requires manufacturers to pay VAT on inputs, but they cannot claim it back on outputs.
Early this year, there was a revision of VAT from exempt to zero-rated on many basic products. This change has resulted in substantial cost-push pressure, not just for Innscor but various industries such as sugar industry, large-scale retailers and various manufacturing industries.
As for Innscor, the tax particularly affected the pork and rice categories.
The VAT revision has increased the tax burden on consumers, leading to downward pricing pressure on manufacturers. Innscor is actively engaging with authorities to achieve sustainable, long-term solutions regarding pricing and VAT regulations.
The impact of the VAT revision is far-reaching. Manufacturers must pay VAT on inputs, increasing production costs. This reduced competitiveness makes products less competitive in the market, potentially leading to decreased demand.
The change affected specific segments, such as the National Foods division's Downpacked segment, which includes rice. Volumes declined by 10% due to the VAT imposition and high global raw material prices resulting from India's export ban on the commodity.
Similarly, sugar companies like Hippo are affected. The VAT revision increases production costs, potentially reducing profit margins. Higher prices may make Hippo's products less competitive in the market. To mitigate these effects, companies like Hippo may need to absorb increased costs, pass on costs to consumers, or explore efficiency improvements.
Despite these challenges, Innscor's management remains focused on its portfolio strategy, emphasizing volume targets, cost control, and free cash generation. The company is committed to investing in its operations, including the construction of new production lines and plant upgrades, to drive efficiency and competitiveness.
As the company continues to adapt to the evolving trading environment, its strategic focus on cost management, operational efficiency, and innovative product offerings will be crucial in driving long-term success.
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