Nelson Gahadza-Senior Business Reporter
DAIRIBORD Holdings says it invested US$3,5 million towards building additional capacity in its ice-cream and UHT (ultra high temperature) plants as the group seeks to improve the product portfolio and margin performance.
Company’s secretary, Samson Punzisani, said the business was geared to take full advantage of the high demand through increased production capacity and forward planning for inputs into manufacturing.
“The company invested about US$1,5 million in a recently commissioned ammonia plant that will see growth in ice-cream production, improving product portfolio mix and margin performance,” he said in a statement of the financials for the period to September 30, 2021.
He added that the company also invested US$2 million into additional UHT filling and packaging equipment that will double capacity for cartonised beverages towards the end of the last quarter of 2021.
Mr Punzisani said the continued depreciation of the Zimbabwe dollar posed a threat to business performance, however, notwithstanding the challenges faced by the auction system, he said the resolutions reached at a recent stakeholder engagement between Government, the RBZ and the business community, if adhered to could have an impact on the forex operating environment and the business at large.
He said the group’s drive to generate foreign currency revenues continue to bear fruit with year to date foreign currency revenue up 196 percent from 2020.
The group’s trading update for the quarter under review shows that revenue increased 11 percent from the prior quarter and 69 percent in historical terms above the third quarter of 2020.
Year to date inflation adjusted revenue was 67 percent above the same period in 2020.
Mr Punzisani said significant cost push pressures ahead of inflation were experienced from 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 compared to four percent in 2020,.
He noted that during the period under review, the group’s borrowings were up 30 percent at $839 million from the 30 June 2021 quarter, as the business leveraged the balance sheet for growth.
“Borrowings were utilised to fund stocks of materials to support growing volumes and capital investments,” Mr Punzisani said.
He added that delays in disbursements from the auction market also contributed to rising debt, but indicated the group remained sufficiently liquid with a current ratio of 1,59 up from 1,38 in December 2020 and 1,40 as at June 30, 2021.
According to the group’s trading update, raw milk utilised in the quarter was seven percent up from the second quarter and up five percent over prior year. Cumulative raw milk utilised was three percent ahead of prior year.
Mr Punzisani said during the period, milk supply remained 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, this could see improved milk production in the ensuing year,” he said.
During the quarter under review, sales volumes grew by 78 percent over the same period last year and 23 percent over the prior quarter while year to date sales volumes of 67 million litres were 63 percent above the same period last year.
“The beverages category anchored the growth with a 165 percent increase over prior year, whilst the Foods category grew by 49 percent,” he said.
Liquid milks surpassed previous year by 13 percent, but growth within the category was constrained by raw milk supply shortages.
The group’s capacity utilisation increased to 60 percent during the quarter under review from 33 percent in the third quarter of 2020 largely due to growth of the Beverages category.
“Despite the significant increase in volumes across all categories, the business was still able to meet demand due to supply side challenges,” he said, adding that major maintenance work on key lines hampered production but will spur growth going forward.
Mr Punzisani said the improved performance in the third quarter 2021 is expected to sustain into the final quarter of 2021 as demand is expected to remain firm.