Munesu Nyakudya Business Reporter
DAIRIBORD Holdings says it will continue to reduce costs to grow profits in light of falling margins, as it returned to profitability in the interim to June 2015.
The group posted an operating profit of $848 000 from an operating loss of $627 000 in the same period last year.
“Given the downward trend in consumer prices, lost profit margins will only be recovered through cost reduction,” chairman Dr Leonard Tsumba said in a results statement.
Dairibord Malawi reported improved performance after posting operating profit of $35 000 from a loss of $402 000 in 2014, as cost reduction bears fruit.
Revenue grew 10 percent to $47,9 million against volumes growth of 25 percent to 37,4 million driven by beverages, which grew 63 percent on prior year.
But the mismatch between revenue and volumes was mainly due to a general decline in prices, as well as an increase in the proportion of lower value, per litre beverages.
Liquid milk volumes were up a marginal 1 percent due to disruptions on Steri milk production during the Chipinge plant refurbishment while Foods was flat due to weakening demand.
The group invested $4 million towards the refurbishment of the Chipinge Steri milk plant. Dr Tsumba said the plant now has capacity of 24 million litres per year.
Cash generated from operations improved to $1,73 million from $262 000 in 2014, but remains under pressure due to increased working capital requirements.
Dr Tsumba said cash generation was under pressure due to delayed payments by customers and more working capital needed to support new product lines.
He added that cost containment across the value chain from procurement, production efficiencies, distribution activities and support will be pursued aggressively.
The dairy processor recorded 2 percent growth in raw milk intake for the half year ended 30 June 2015 compared to the same period the previous year.
“The intake for Dairibord Zimbabwe Private Limited increased by 6 percent, while Dairibord Malawi Private Limited declined by 19 percent,” said Dr Tsumba.
He added that the growth for Dairbord Zimbabwe was driven by heifer importation programme, which contributed 8 percent of the milk intake by the group.
“The gap between supply and demand of raw milk in Zimbabwe remains significant. In the circumstances the Group’s Heifer Procurement programme will remain a priority”. A target of 500 heifers for the 2015 financial year has been set.
The slowdown in economic activity in Zimbabwe and the proliferation of cheap imports weighed down on companies competitiveness and consumer prices.
“Price competition in the retail space remained high due to the strengthening of the US dollar against other currencies mainly the South African Rand,” Dr Tsumba said.
“Malawi remained politically stable with depressed economic activity. Floods, low disposable incomes, erratic supply and high cost of utilities impacted on business performance during the period,” Dr Tsumba added.
The group benefited from investments made in 2014, to support new product lines and increased capacity for constrained lines while enhancing efficiencies.