ANTHONY MANDIWANZA
Golden Sibanda Senior Business Reporter
DAIRIBORD Zimbabwe Holdings says it has an ace up the sleeve and contends its 2014 prospects look bright despite posting depressing results last year which were largely weighed down by non-recurring costs and a competitive market.
The group is expecting volumes growth of 6 percent driven by investments in constrained lines and new products while the top line is forecast to expand by 5 percent.
Revenue for the year came down 6 percent to $100 million, compared to the $120 million projected last year, with the dairy processor saying the top line was negatively impacted by price reduction in order to remain competitive.
Likewise, the bottom line slid into negative territory, after a $1,8 million after-tax-loss on account of once-off payment of $4,6 million, impairments and cost rising faster than prices.
Revenue per litre was impacted by price adjustments to improve competitiveness in the market. The right-sizing of the cascade bottle from 500ml to 400 ml resulted in reduced volumes whilst benefiting from enhanced value per litre.
Fun ‘n’ Fresh and Nutriplus were negatively affected by relocation of plant and equipment from Bulawayo to Chitungwiza.
Operationally, liquid volumes went up 2 percent while revenue declined by 1 percent. Foods volumes were unchanged but revenue saw a 5 percent decrease while beverages volumes and revenue fell 19 and 13 percent, respectively.
In terms of volume contribution, beverages weighed in with 42 percent, foods 19 percent and liquid milks 39 percent. Dairibord said liquid milks contributed 35 percent to revenue, foods 34 percent while beverages contributed 30 percent.
Dairibord group chief executive Mr Anthony Mandiwanza said despite the many hurdles that lie ahead which could affect performance; they had a plan that will deliver better results this year.
“We are confident about your company, it is in safe hands and we are going forward, we are confident about that,” he said.
“Revenue will grow by 6 percent on investment in new equipment and more volumes driven by additional lines and new products,” the dairy processor’s chief executive said.
The 2014 results come against a backdrop of tight liquidity challenges, which became more painful in the second half of 2013 as a result of the protracted trade deficit and low investment.
There also was an increase in costs of key materials and inputs against declining consumer prices, erratic supply of utilities and weak demand due to declining disposable incomes.
In addition to that the weakening of the South African Rand resulted in cheaper imports, making Zimbabwe a trading economy.
The company is planning to execute a strategy that involves volume growth and continuous cost reduction through investment in technology and consolidating operations.
Mr Mandiwanza said the strategy to reduce costs and scale up volumes would not have been conceived if the group did not believe the initiative would positively impact margins.
“The things that we can put together as one, we are already doing. Those that we are compelled to keep as separate businesses, we will as distinct businesses,” he said.
Mr Mandiwanza said production operations will largely be consolidated between Harare and Chitungwiza with the only outlying operation to be retained being the Chipinge sterilized milk processing plant as it is nearer to raw milk suppliers.
As such, Dairibord will focus on product reformulations to manage costs without compromising quality, develop alternative suppliers to widen the supply base and benefit from competitive sourcing and upscale its Heifer development programme to substitute expensive imported powders. Where possible, distribution routes will be consolidated.
A total $10 million will be spent on plant upgrades in Harare (ice cream and yoghurts) and beverages plant at Lyons while there will be a replacement of water bottling plant. Mr Mandiwanza said Chipinge plant will also be face lifted.
Part of the funds to be used for includes $4 million loan secured from the PTA Bank at 10,3 percent annual interest, all in cost. Further, the group said it would reinvest some of the funds from the more than $7 million non-cash expenses such as provisions for assets depreciation.
Mr Mandiwanza said with the cost of imported milk rising from $0,54 per litre early last year to about $0,74 by the end of the year, the heifer programme will be key to cost reduction. Local supplies of raw milk ended 2012 at 0,$64 per litre.
This process has result in the importation of 280 cows, which last year produced 7 00 000 litres against a target of 1 million.
Dairibord is working on bringing another 90 Friesian cows and half has already been delivered while the balance should be in the country within the next two weeks.
Mr Mandiwanza said the company needed to bring down the cost of milk supplies if it was to remain competitive in a market where it faces competition from South African suppliers who used relatively cheaper feed stock in dairy production.
National Milk production declined 2 percent to 54,7 million litres, Dairibord recorded a 1 percent growth to 21,4million litres. It accounted for 40 percent of the total raw milk consumed.
Raw milk intake in Dairbord Malawi, which continues to make a positive contribution to the group and is pursuing regional expansion to dilute the impact of currency depreciation, increased by 3 percent to 5,9 million litres last year.