Dairibord targets volumes as liquidity crunch bites

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Listed milk processor Dairibord Holdings Ltd says the company is seeking volumes growth in order to improve profitability in the face of tight liquidity conditions and dwindling disposable incomes in FY16.

Taurai Mangudhla

Revenues are seen flat at the end of FY16 despite a projected 10% slide on the price per litre of milk sustained by an anticipated 10% volume growth, CE Anthony Mandiwanza said.

He was speaking at the company’s analysts briefing for the full year (FY15) ended December 2015.

Mandiwanza said the volume growth would be driven by investments into the Chimombe carton, additional capacity on the Pfuko production line, product promotions and tapping into opportunities in the informal sector.

Mandiwanza said costs will also be reduced through introduction of cost-effective procurement systems, input substitution and corporate restructuring to eliminate duplication of roles and improving production and distribution efficiencies.

In the period under review, the company reported a 281% after-tax profit growth to US$2,3 million for the year-ended December 2015, up from US$604 000 prior year mainly driven by new products and cost-cutting.

The company recently introduced the Pfuko-Udiwo Maheu, extended its production lines across the board lines to start producing new pack sizes and flavours and introduced a number of initiatives, including staff rationalisation to reduce costs of materials and overheads.

Mandiwanza said introduction of new products and increasing production capacity saw volumes and sales grow by 19% and 12% respectively in the period under review.

Although the price per litre realised fell by 12%, the revenues grew by 4% to US$103,4 million reflecting a market that is tight on liquidity and struggling to spend following a series of job and salary cuts as well as company closures in the period under review.

Group FD Mercy Ndoro said pricing pressure and sales mix impacted price per litre. The price for liquid milk fell by 3% whilst that of foods and beverages fell by five and 15% respectively on prior year.

In terms of performance per litre, material costs went down 13% while production and other overhead costs went down by 17% and 185% respectively.

Ndoro said cost reduction initiatives had a positive impact on overall per litre performance.

“While price per litre decreased by 12%, corresponding cost reduction on materials and other overheads was higher culminating in improved operating profit per litre,” Ndoro said.

In terms of portfolio contributions, beverages contributed 52% of volumes sold up from 43% in 2014 and 38% to total revenue, up from 31% the previous year while liquid milks accounted for 34% of total volumes sold, down from 40% prior year and 35% of total revenue down from 37% in 2014.

The volume of foods sold went down by 4% on prior year.

The company said the reduced disposable incomes are affecting demand for foods which are now considered luxury products by consumers.

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