ZIMBABWE’S largest milk processor Dairibord Holdings Limited has bemoaned the country’s unbearable macro-economic challenges, including tight liquidity, weakening regional currencies and persistent deflation for reducing company margins.
By Taurai Mangudhla
Zimbabwe’s business environment is “more excruciating” than what Dairibord had anticipated towards the end of 2015, causing stress in the business, CE Anthony Mandiwanza told the company’s annual general meeting on Wednesday.
“The business environment is more excruciating than what had anticipated even as we did our budget in November-December last year. I don’t know if many of us here would have thought we would be talking about bond notes reminding us about the times of the Zim kwacha (Zimbabwean dollar) and yet it has such a profound impact on the business; so really I am repeating the business environment is excruciating and companies are in trouble,” said Mandiwanza.
“In terms of our outlook, we repeat there are heavy headwinds ahead. In fact we are in a storm. We are already in a storm and we don’t see the situation relenting indeed up to end of June.
“We believe in the short term that is until the end of June the current trend will subsist, into the second half as we begin to benefit from the investment s which we have undertaken.
“On the liquidity situation, delays by government and local authorities in terms of settlements affects us directly.
“Government missed its revenue collection target for the first quarter of 2016 by 6% while deepening deflationary pressures and reduction in prices is something that is almost a new normal. Deflation for April year-on-year stood at -1,644 % while food and non-alcoholic at -4,06% and this directly impacts on Dairibord business.”
In a trading update for the period between January and April 2016, Mandiwanza said raw milk intake for the group went up by 17% with Dairbord Zimbabwe and Dairibord Malawi recording 19% and 7% growth in raw milk intake respectively.
The Dairibord CE said the national milk intake has also gone up by about 18% in the period under review.
“The sales in terms of volumes went up 6% for the group in line with our projections. The revenue was slightly behind at 6 % lower than same period last year, mainly because of the negative impact of average selling prices which are lower than the same period last year,” Mandiwanza said.
“Operating profit was flat at the same level as last year maintaining about 1% margin, but of cause the top line is causing a squeeze on profitability.”
Dairiboard said key drivers for volume growth were liquid milk and beverages.
“We noticed a shift towards basic consumer products as consumers stretch the dollar. Consequently, the average consumer price per litre went down as you see the volume is up but the revenue is down 6%.
“Volume were up 6%, but the selling price went down by 11% at US$1,11 compared to US$1,24 in the same period last year. Procurement costs went down 11%, while overhead costs per litre fell by 9% in the reporting period,” he said.
Going forward, Mandiwanza said, the group is focused on driving volumes and revenues while at the same time reducing costs at a faster rate than the price adjustments in order to “keep the jaws open.”
The group plans to commission a new maheu (traditional drink) plant in the second half of the year with a view to double production and increase on flavour varieties of the product. The group has recently commissioned a new peanut butter plant to increase capacity at Lyons.
“We are internalising production of cartonised Chimombe milk from South Africa, which will contribute towards volume increase. We were undersupplying the market and the plant will be commissioned in the second half,” he said.