Dairibord moves to accelerate inventory turnover amid liquidity pressures

CLOUDINE MATOLA

Zimbabwe’s largest milk processor, Dairibord Holdings Limited, has rolled out a series of strategic measures aimed at improving liquidity, including accelerating inventory turnover, tightening credit controls, and shortening the cash operating cycle. These initiatives come in response to working capital challenges that affected the business during the year under review.

Company chairman Josphat Sachikonye told Business Times that delays in payments from key debtors strained Dairibord’s working capital position, despite an overall improvement in operating cash flow driven by stronger profitability.

“The Group’s operating cash flow improved from the prior year comparative period, due to improved profitability in cash terms. Notwithstanding, the Group had some incidences of working capital deficits during the year, mainly as a result of prolonged delays in payments by some critical debtors. The delays caused a substantially high Expected Credit Loss allowance as at 31 December 2024,” said Sachikonye.

To safeguard liquidity, Dairibord is taking decisive steps to streamline operations and manage risk more effectively.

“To improve liquidity, the Group is implementing measures to accelerate inventory turnover, shortening the cash operating cycle and tightening its credit risk management practices to reduce risk of customer default,” Sachikonye added.

Dairibord also faced margin pressures due to new taxes, including the reclassification of milk under VAT regulations and the introduction of a Special Surtax on sugar content in beverages.

“The Group faced significant cost pressures from new legislative and regulatory pronouncements. The VAT reclassification of milk (US$0.63m) and the Special Surtax on Sugar Content in Beverages (US$2.26m), impacted profitability. However, cost mitigation strategies for raw and packaging materials enabled a 30% increase in Gross Profit to US$31.73 million,” Sachikonye said.

Operating profit declined to US$6.2 million during the period under review, down from US$10.3 million in 2023, largely due to rising selling and distribution expenses and elevated fuel costs driven by frequent power outages.

However, finance costs dropped significantly to US$3.05 million from US$10.29 million in 2023, primarily due to a sharp decline in exchange losses on foreign currency-denominated loans.

“Finance costs consist of interest expenses incurred and exchange losses incurred on foreign currency denominated loans. The notable reduction in finance costs was largely caused by a decrease in the exchange losses on foreign currency denominated loans from US$8.44 million in 2023 to US$1.76 million,” Sachikonye explained.

Despite the operational challenges, Dairibord reported an 18% increase in annual revenue, reaching US$126.75 million from US$107.83 million in 2023, driven by a 10% volume growth. Export performance was also robust, growing by 13% year-over-year and contributing 8% to total sales, up from 6% the previous year.