Surging costs, drought milk Dairibord

LIVINGSTONE MARUFU

Zimbabwe’s largest milk processor, Dairibord Holdings Limited, swung into a loss of ZWL$76.6m during the year to December 31 2020, from a profit of ZWL$671.5m it reported in the previous year, negatively impacted by a surge in operating costs and droughts which affected the value chain.

The group’s operating costs grew by 10% compared to 2019 owing to foreign currency exchange rate movements, imports, utilities costs, repair and maintenance. An operating profit margin of 4% was attained down from 8% in prior year.

Revenues for the group, however, increased by 5% to ZWL$5.2bn during the reviewed period from ZWL$5bn reported in 2019. Export revenue was affected by border lockdown restrictions and was lower than prior year by 6%.

Sales volumes were 12.5% below 2019. The performance was particularly affected by a lacklustre outturn in the second quarter in which volumes dropped by 48% on year on year due to Covid-19 restrictions that impacted trading hours and sales channels.

“The operating environment was challenging. Despite the improved business operating environment in the second half of the year, some negative impacts remained throughout   such as increased lead times  across supply chains,  increased labour and utility costs  as well as increased  Covid-19 mitigation costs,” Dairibord board chairman, Josphat Sachikonye said.

He said the liquid milks category declined by 9% due to the decline in raw milk intake and supply constraints in the importation of milk powders.

The decrease in raw milk intake was as a result of stock feed prices due to its shortages culminating from droughts in proceeding years.

The beverages category declined 19% while the food category which has the highest value and margins increased by 9% over 2019.

However, Dairibord registered a significant growth in domestic foreign currency sales.

Total foreign currency revenue increased by 123% over 2019 and accounted for over 13% of the total inflation adjusted revenue.

The revenue generated coupled with the proceeds from the forex auction market contributes towards meeting the company’s import bill.

Cashflows generated from operations improved to ZWL$238m on account of improved working capital management to support growth, the business made investments in inventories and prepayments for the procurement of imported material.

The interest bearing borrowings increased to ZWL$440m from ZWL$28.8m to support working capital.

Sachikonye said the gearing ratio at 20% was still within the board’s risk appetite.

Forex liabilities were reduced to US$180,000 from US$900,000, reflecting a 76% drop which is in line with the company’s strategy to minimise forex exposure.

Going forward, the company is optimistic that good rains will improve supplies into the company’s supply chain and reduce dependency on imports.

The company’s strategy is to leverage investments in brands, human capital, plant, equipment as well as focusing on collaborations across the value chain to optimise results.

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