Forex payment delays hit Dairibord

LIVINGSTONE MARUFU

 

Zimbabwe’s largest milk processor, Dairibord  Holdings Limited says the delays by the Reserve Bank of Zimbabwe (RBZ) to settle bids from the foreign currency auction system has forced the organisation  to borrow more to sustain operations.

The RBZ is taking more than two months to settle bids forcing Dairibord to borrow more as well as sourcing the greenback from the black market where premiums are high.

“Delays in disbursements from the auction market also contributed to rising debt. Borrowings as at 30 September 2021 were ZWL$839m, up 30% from 30 June 2021, as the business leveraged the balance sheet for growth,” company secretary Samson Punzisani said.

“Borrowings were utilised to fund stocks of materials to support growing volumes and capital investments.”

He said the continued depreciation of the ZWL$ poses a threat to business performance.

Punzisani believes that the resolutions reached at the recent stakeholder engagement between government, the RBZ and the business community, if adhered to, will have an impact on the forex operating environment and the business at large.

Despite challenges, raw milk utilised in the quarter  to September 30,2021, was up 7% from the previous quarter  and up 5% over prior year. Cumulative raw milk utilisation was 3% ahead of prior year. Milk supply remains constrained by the high cost of stock feeds but with the government launching command silage,  stock feed availability will be improved.

This reduces the cost of milk production.

Punzisani said this should see improved milk production in the ensuing year. Sales volumes in the reviewed period grew 78% from the prior comparative period and 23% over prior quarter.

Year to date sales volumes of 67m  litres were 63% above the same period last year.

The beverages category anchored the growth with a 165% increase over prior year, whilst the Foods category grew by 49%.

Liquid milks surpassed previous year by 13%.

Punzisani said the growth in the liquid milks category was constrained by raw milk supply shortages.

The company’s capacity utilisation increased from 33% in Q3 of 2020 to 60% in Q3 of 2021 largely due to growth of the beverages category.

Despite the significant increase in volume across all categories, the business was still not able to meet demand due to supply side challenges.

Major maintenance work on key lines hampered production but will spur volume growth going forward.

Punzisani said significant cost push pressures ahead of inflation were experienced from both the local and foreign supply sources of raw and packing materials, negatively impacting margins.

The company said it will  up cost containment, cost reduction and strategic procurement of inputs to mitigate the negative impact thereof, resulting in a slight recovery in the year to date operating margin to 6% compared to 4% in 2020.

He said the drive to generate foreign currency revenues continued to bear fruit with year to date foreign currency revenue up 196% from 2020.

Dairibord remains sufficiently liquid with a current ratio of 1.59 up from 1.38 in December 2020 and 1.40 as at  June 30 2021.

In the outlook, the company is banking on improved performance achieved in Q3 which is expected to sustain into the final quarter of 2021 as demand is expected to remain firm.

The business is geared to take full advantage of the high demand through increased production capacity and forward planning for inputs into production.

The company invested about US$3.5m in a recently commissioned ammonia plant.

 

Related Articles

Leave a Reply

Back to top button