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Oliver Kazunga, Senior Business Reporter

DAIRIBORD Zimbabwe Limited (DZL) has invested US$2 million in additional Ultra-High Temperature (UHT) filling and packing equipment, which will double capacity for cartonised beverages by year-end.

Recently, the food processing company invested about US$1,5 million into an ammonia plant, which has since been commissioned and the technology was expected to see growth in ice-cream production, improving product portfolio mix and margin performance going forward.

In a trading update for the quarter ended September 30, 2021, Dairibord Zimbabwe Limited (DZL) said the business was geared to take full advantage of the high demand through increased production capacity and forward planning for inputs into production.

“The improved performance achieved in third quarter is expected to sustain into the final quarter of 2021 as demand is expected to remain firm,” said the firm.

“The company also invested US$2 million in additional UHT filling and packing equipment that will double capacity for cartonised beverages towards the end of the fourth quarter of 2021.”

During the period under review, the Zimbabwe Stock Exchange-listed firm said raw milk utilised in the quarter was up seven percent from second quarter and up five percent over prior year. Cumulative raw milk utilised was three percent ahead of prior year.

“Milk supply remains constrained by the high cost of stock feeds. The Government launched command silage, a welcome initiative intended to support dairy farmers grow their own silage in order to improve stock feed availability and reduce cost of milk production,” said the company.

“This should see improved milk production in the ensuing year.”

DZL sales volumes grew by 78 percent over the same period last year and 23 percent over the prior quarter. Year to date sales volumes of 67 million litres were 63 percent above the same period in 2020.

The beverages category anchored the growth with a 165 percent increase over prior year, while the foods category grew by 49 percent, said the firm, adding that liquid milks surpassed previous year by 13 percent.

“However, growth in the liquid milks category was constrained by raw milk supply shortages. Capacity utilisation increased from 33 percent in the third quarter of 2020 to 60 percent in the third quarter of 2021 largely due to growth of the beverages category.

“Despite the significant increase in volume across all categories, the business was still not able to meet demand due to supply side challenges,” said DZL.

It said major maintenance work on key lines hampered production but will spur volume growth going forward. Revenue for the quarter in inflation adjusted terms was 11 percent (23 percent in historical terms) above the second quarter of 2021 and 69 percent (157 percent in historical terms) above the third quarter of 2020.

Year to date inflation adjusted revenue was 67 percent above (268 percent in historical terms) the same period last year.

“Significant cost-push pressures ahead of inflation were experienced from both the local and foreign supply sources of raw and packing materials, negatively impacting margins.

“Cost containment, cost reduction, and strategic procurement of inputs mitigated the negative impact thereof, resulting in a slight recovery in the year-to-date operating margin to six percent (7 percent in historical terms) compared to four percent in 2020 (10 percent in historical terms),” it said.

The drive to generate foreign currency revenues continued to bear fruit with year-to-date foreign currency revenue up 196 percent from last year. Borrowings as at September 30, 2021 were $839 million, up 30 percent from June 30, 2021, as the business leveraged the balance sheet for growth. The borrowings were utilised to fund stocks of materials to support growing volumes and capital investments.

“Delays in disbursements from the auction market also contributed to rising debt. The group remains sufficiently liquid with a current ratio of 1,59 up from 1,38 in December 2020 and 1,40 as at 30 June 2021,” said DZL.

“The continued depreciation of the Zimbabwe dollar poses a threat to business performance. “Notwithstanding the challenges faced by the auction system, the resolutions reached at the recent stakeholder engagement between Government, the Reserve Bank of Zimbabwe and the business community, if adhered to, will have an impact on the forex operating environment and the business at large.”

 

-@KazungaOliver