Zimbabwe | ZSE

During the period under review, Padenga’s mining business line, Dallaglio, became one of the top three gold producers nationally after registering gold sales of 1,961kgs. The exceptional growth of 101% from the 976kgs registered in FY22 was largely driven by the impact of the first full year of operations at Eureka gold mine. Resultantly, Dallaglio posted a strong performance, recording a profit before tax of US$12.93mn in the period under review, compared to a loss of US$4.34mn in the prior comparable period. Cash generated from operations amounted to US$15.75mn (US$10.11mn FY21) mainly due to the increased gold sales. Under Nile Crocodile Operations, a total of 34,117 skins were harvested in FY22, compared to 55,136 skins harvested prior year.

The local economy saw modest growth in the reporting period, which was driven by both formal and informal mining, government infrastructure projects and diaspora remittances. there was lower than expected maize output, other agricultural products such as wheat recorded growth, contributing towards the economic growth. The economy was, however, negatively impacted by high inflation, the depreciation of the local currency and increased power supply outages during the second half of the year. Consumer spending continued to be buoyant, being boosted by stable USD pricing, and modest improvements in wages and salaries across various sectors.

The operating environment remained challenging characterized by high inflation and currency volatility especially in the second half of FY22. Several monetary policy interventions, particularly regarding local currency, interest rates and money supply management were enacted in response to the escalating inflationary pressures. The negative consequences of extended lead times throughout supply chains, delays in disbursements from the foreign currency auction system and increased wages exerted pressure on costs and margins. This was exacerbated by the inconsistent supply of quality water and power which negatively affected production and increased manufacturing costs. Notwithstanding the turbulent operating environment, the Group recorded positive volume growth compared to prior year. Raw milk utilized for the year came in at 28.5mn liters, 4% above 2021 and representing 34% of the total intake by processors. Dairibord retained its position as the leading milk processor in the country.

The month of April saw resurgence of economic turbulence in the economy as the local currency continued to slump against the greenback. The parallel market premium widened from c.65% at the beginning of the month to c.101% at the end of April as the RTGS posted a double-digit decline for the third straight month within the year. Notably, civil servants were granted a 100% increase in the ZWL portion of wages within the period whilst policy rate was revised downwards possibly hinting to increased money supply.

Based on HY23 financial results, the operating environment remained challenging in Q1 characterized by the depreciation of the local currency, unstable and multiple exchange rates, high inflation and the pass-through impacts of rising global inflation together with supply disruptions arising from COVID-19 and the Russia/Ukraine conflict. The Group was affected by the high local currency interest rates during the first quarter and management embarked on an aggressive repayment program to reduce the resultant finance costs. However, Q2 witnessed subsided inflation and exchange rate volatility, and this resulted in increased foreign currency transactions. Going forward, growth of the business is expected to be driven by a wider TV Sales and Transerv footprint as well as backward integration. Significant progress has been made in the construction of the new bedding factory facility which is set to open in March 2023. Restapedic volumes are anticipated to remain firm especially with the possibility of expanding into export markets. On this backdrop, we forecast Axia revenue to increase by 5% y/y to circa US$214.09mn in FY23. We expect EBITDA margin to remain flat at 12% translating to an EBITDA of US$25.69mn. PAT for the Group is expected to close the year FY23 at US$19.27mn translating to a net margin of 9%.

We expect revenue for Innscor to grow 16% y/y to US$811mn from a combination of affordable pricing policies in place to support volumes and sustained focus on diversification and expanding product portfolios. Our view is that Group EBITDA for FY23 will register at US$115.85mn, assuming an EBITDA margin of 14.3%. Historical EBITDA margin for the Group in a dollarized economy has been c. 11% but Innscor Africa has since adopted a leaner, cost efficient structure by regrouping operations according to their core business and spinning off specialised segments into standalone entities. We forecast net margin in the period to soften to a steady state of 7% as other once off income lines fall away.