Tapiwanashe Mangwiro Senior Business Reporter
Dairibord Holdings Limited, Zimbabwe’s largest milk processor, says it managed to hedge the majority of its foreign currency debt in the first six months of 2022 from internally generated resources and the currency auction system of the Reserve Bank of Zimbabwe (RBZ).
“Foreign currency obligations amounted to $4.3 million, including a long-term loan of $0.66 million,” company chairman Josphat Sachikonye said in a statement accompanying the results. group financials.
“Most of the obligations were adequately covered by foreign currency assets and expected disbursements from outstanding allocations in the auction market.”
The company’s sales volume increased by 11% during the period under review.
“Demand for our products remained strong across all categories,” he said.
A total of 40% of the sales volume was made in foreign currencies, with 32% destined for the domestic market and 8% for export markets.
Food represented 10% of the total volume, beverages 62% and liquid milk 28%.
“This confirms the growing contribution of non-dairy categories and the diversification of the product portfolio, in line with our ‘more than milk’ strategy,” Sachikonye added.
According to the Dairy Services Department of the Ministry of Agriculture, Zimbabwe’s milk consumption by processors in the six months to June increased by 17% to 38.96 million liters from 33.42 million liters during the comparative period.
Dairibord used 12.29 million litres, or 32% of total processor consumption, and the group maintains its position as the processor consuming the most milk, albeit at lower levels.
Mr. Sachikonye pointed out that the price of animal feed continued to rise alongside the pressure of food inflation. “The group has stepped up aggressive milk supply development initiatives for low-cost, high-volume dairy production,” he said.
As a result, Dairibord believes the long-term benefits will be competitive local milk prices, import substitution of milk powders and export growth opportunities.
During the period under review, revenues increased by 40% to $17.12 billion compared to the same period last year. The revenue growth was attributed to volume growth and moderate pricing adjustments to preserve margins.
Dairibord said they suffered significant cost increases due to imported inflation and price volatility resulting from exchange rate movements and as a result their cost of sales increased by 37% on an adjusted basis. inflation.
“Costs were driven by sharp increases in material and utility costs, with overhead costs up 30%. This increase, however, was less than revenue growth, benefiting from management’s cost containment initiatives,” the president said.
As a result, the group’s operating profit rose 140% to $1.26 billion from $524 million the previous year. The operating profit margin for the period was 7%, compared to 4% for the prior period.
In its outlook, Dairibord said the high cost and erratic supply of utilities, mainly electricity and water, are likely to persist, but lower fuel prices are still welcome if sustained.
According to the group, the high cost of borrowing and short tenures will make it difficult for companies to fill gaps in the working capital cycle and finance investments in plant and equipment for growth.
However, inflationary pressures should ease thanks to the government’s efforts to stabilize the economy.
In the near future, the main objective of the group is volume growth to close the gap between demand and supply in most product categories and cost containment.
Growth will be largely driven by beverages and food, benefiting from the commissioning of plants and equipment for additional processing capacity in the third quarter of the year. Dairibord will also focus on realigning its route to market to increase cash inflows, local US dollar sales and exports.