Dairibord, the country’s largest milk processor, says it will continue to collaborate with milk producers to enhance viability and volume growth after reporting a firm demand across all its product categories in the first half of 2021.
The period was characterised by reduced trading hours, cost push on imported inputs, delays in the disbursement of allocated foreign currency on the auction trading system as well as low market liquidity and high interest rates, according to the company. But the business was “better prepared than in prior year to mitigate the disruptions to operations.”
It said sales volumes were 54.5% above prior year, representing the highest first half volume performance in the last 5 years.
“Despite the growth, demand still exceeds supply across the product portfolio, particularly in the Liquid Milks category which is constrained by raw milk supply challenges,” said the company in its results.
Raw milk utilisation was 1% above prior year, while national milk production was 2% down. Despite the good rains, the dairy sector continues to face a plethora of challenges chief among them being rise in stock feed prices.
“This again negatively impacted milk supply growth. The group remains committed to supporting local farmers to grow milk supply through actively promoting lower cost operating models in a bid to bring prices back to regional parity in the medium term.”
It said the long-term benefits of increased raw milk production will reduce the dependence on imported milk powders and the associated foreign currency requirement.
Dairibord expects to sustain the growth trajectory experienced in H1.
“Through continuous development of strategic milk supply collaborations such as the Tavistock Estates and Palmline/Zimplats dairy projects to ramp up raw milk intake and implementation of in-progress capital expenditure investments and line extensions that will come online in H2 and boost product availability,” stated Dairibord.
Inflation adjusted revenue rose 65% to ZWL$4.2 billion. This was attributed to an increase in sales volumes and moderate price adjustments to minimise margin compression.
The focus on generation of foreign currency revenues continued, resulting in a 141% increase over the same period in prior year, according to the company.
“Foreign currency revenues accounted for 15% of total revenue up from 9% in the prior year and contributed significantly towards meeting the import bill.”
Over the period there has been a rise in costs of materials and utilities driven by exchange rate movements and commodity price increases. As a result, cost of sales grew by 72% against a revenue growth of 65%. In the same vein, gross profit margin shed off three percentage points from 26% to 23%.
Production efficiencies and cost containment resulted in overheads growing by a lower rate of 53% as compared to revenue growth. The business achieved an operating profit of ZW$166 million compared to ZW$137 million for the same period in 2020.
Net finance charges increased fourfold to ZWL$147 million due to increased borrowings and costs.
“The borrowings were invested in supporting sales volume growth through purchase of raw and packaging materials and funding long working capital cycles, resulting from protracted global supply lead times and delays in disbursements from the foreign currency auction market,” it said.
Net cash generated from operations increased to ZWL$313 million from ZWL$191 million generated in the prior period, benefiting from the improved operating performance and delays in settlement of foreign suppliers. According to the firm, the cash was partly utilised to finance capital expenditure of ZWL$60 million and to pay a dividend of ZWL$82 million – Harare