Listed milk and dairy products producer Dairibord Zimbabwe Limited (DZL) sees improved profitability in the first half of its financial year compared to the corresponding period last year, helped by strong margins and stable selling prices on its products.
By Taurai Mangudhla
Significant headwinds are expected going forward principally on account of weak economic performance, low disposable income obtaining on the market, slowing aggregate demand and growing completion both from local players and imports, DZL CE Anthony Mandiwanza told an annual general meeting on Wednesday.
Although revenue is expected to end the first half of the year at 2% below prior year, Mandiwanza expects a better performance this year due to stable selling prices, improved margins and cost containment.
“We have remodelled the business to align costs with revenue,” Mandiwanza said.
“The selling price and market share remains stable (and) profit margins improved while operating costs are trending lower.
“The first half of 2017, I believe will be better than 2016 underpinned by the benefits of SI64 (Statutory Instrument 64), a good agricultural season and improved supply of cartonised milk.”
SI64 is a statutory instrument banning the importation of numerous goods without prior clearance in order to protect local industry, which came into effect in 2016.
DZL said its food products have benefited immensely from the import ban.
Mandiwanza said the improved performance in the first half is also on account of enhanced product quality, coupled with a rationalisation exercise that reduced overhead costs to below prior year levels.
“Manning levels have been reduced by 10% from December 2016,” Mandiwanza added as he presented benefits of the rationalisation.
He said the rationalisation exercise, budgeted at US$1 million, had so far cost the group US$866 000 and expected to fall within budget.
In the first four months of the year to April, Mandiwanza said, raw milk intake for the group declined due to incessant rains in January and February that reduced national milk output per cow, coupled with growing completion for milk intake as the industry grows.
“New players also reduced our supplies,” Mandiwanza said although he maintained that adequate volumes will be available from the group’s traditional suppliers throughout the year.
He said the company had not been spurred by foreign currency shortages that have seen industry unable to import raw materials and retool while a cash crisis that is threatening the economy grows.
“As a company, we are feeling the challenges arising from foreign currency accessibility and availability despite good performance in agriculture and mining,” Mandiwanza said.
In its latest annual results for the year ended December 2016, DZL reported an after tax loss of S$5,4 million compared to a US$2,3 million profit the prior year due to declining revenues which were 10% below prior year, coupled with a 9% decline in price per litre.
The reduced revenues, combined with high overhead costs and significant once-off costs, resulted in an operating loss of US$3,8 million.
DZl said demand for its products had weakened while inconsistent supply of inputs due to foreign currency shortages hampered efficiency.