Dairibord sticks it out in Malawi

HARARE - Listed milk processor Dairibord Holdings Limited (Dairibord) says it is retaining its Malawi-based business for strategic reasons, despite the unit failing to contribute significantly to the group’s bottom line.

Dairibord Malawi (DM) is currently facing viability problems due to foreign currency shortages coupled with local currency devaluation in the southern African country — recently rocked by economic stability.

At the climax of Zimbabwe’s hyperinflation and economic crisis in 2008, DM kept Dairibord afloat, contributing approximately 80 percent of the group’s revenue.

“The challenges in Malawi are not permanent,” Dairibord’s chief executive Anthony Mandiwanza argues.

“We need to do a cost-benefit analysis so that we don’t throw away but, create value. If we want to opt for capital flight from Malawi and dispose our assets in a hurry, it will offer little in terms of value because of the depreciating local currency value,” he told analysts while presenting the group’s financial results for the year to December 2012 last week.

“Although growth of operations will be constrained by the limited availability of foreign currency, Dairibord Malawi will focus on driving exports to sustain viability,” said Mandiwanza.

He added that ensuring that exports cover the import costs and generate ample foreign currency to enhance production was crucial in sustaining the Malawi operation.

This comes as Dairibord — Zimbabwe’s largest dairy products manufacturer — plans to shut down its Bulawayo and Mutare plants as part of strategies to contain costs.

The group said it will also cut its staff compliment by 12 percent to 1 505.

Mandiwanza said they will start implementing the measures by end of March.

He said the streamlining exercise was prudent considering the current depressed business.

Zimbabwe’s milk production has declined — following the land reform programme in 1999 — from a peak of 257 million litres per year to the current 54 million litres.

“The installed infrastructure especially of the milk processing plants is not aligned to the current reduced processing volumes and hence the need to rationalise operations,” Mandiwanza said.

He said the rationalisation is expected to be complete within the first half of 2013.

“This will not affect our production levels as we will consolidate their operations in our Harare and Chitungwiza plants,” said Mandiwanza adding that the exercise will ensure sustainability of operations.

He said the group’s Bulawayo plant used to process 40 percent of the company’s production but, now relied on raw milk supplies being transported from Harare, which was uneconomical.

“We are looking at more than $1 million per annum which we will get out of the rationalisation of Bulawayo and Mutare plants.

“That will open our margins as we move forward. We are now at the tail-end of implementing this significant initiative and it will align our business structure and create a leaner and more efficient organisation,” said Mandiwanza.

He said the group will maintain its sales and marketing teams in the cities to uphold market presence.

Meanwhile, Dairibord recorded a $9,8 million operating profit in the year to December 2012, down from $10,8 million registered in 2011, while profit remained unchanged at $7,1 million.

Operating profit margin shed off two percentage points from 11 percent to nine percent.

Mandiwanza said the group continued to generate positive operating cash flows with net cash flows generated from operations for the year amounting to $5,3 million. Borrowings increased by $1,3 million to $7 million, in support of the 2012 capital expenditure of $6,5 million in plant equipment.

Although profit contribution from the group’s Malawi subsidiary remained positive, the unit’s operating profit went down 41 percent to $484 000 due to currency devaluation.

The group’s revenue from continuing period increased by 11 percent to $107 million whilst revenue from foods increased by 22 percent, beverages by 11 percent and liquid milks by two percent with no consumer price adjustments effected during the year to maintain market competitiveness.

In its outlook the dairy producer said performance will be supported by the investments carried out in 2012, in yoghurt and condiments, and further investments targeted for 2013 with capital expenditure projected at $10 million targeted at improving production capacity and distribution efficiencies.

DHL subsidiaries include Dairibord Zimbabwe Limited, Lyons, NFB Logistics and Dairibord Malawi. - Kudzai Chawafambira

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