Reduced production hits Colcom turnover

HARARE - Listed meat processor Colcom Foods Limited says its flagship foods division’s turnover slumped 10 percent in the four months to October 2013 compared to same prior year period due to reduced production.

Overall profitability during the period under review was 8 percent below target with flat volumes and unlikely to grow much higher under the current depressed market conditions.

In its trading update last Friday, the group said it had discontinued production of frozen pies while it had also cut back production of low cost sausages.

Theo Kumalo, Colcom’s chief executive, told an annual general meeting that the company will maintain a flexible pricing model due to the subdued environment.

“We need to remain flexible on pricing,” he said, adding that the group will “continue to review pricing and respond to shifts in the market and extract whatever margin we can from a very depressed market.”

Colcom’s foods division includes Tripple C pigs and the pies business. Kumalo said there was marginal growth in gross profit during the period under review due to increased raw materials cost, particularly the “dramatic” increase in the price of maize and to some extend soya.

“Gross profit margins continue to be squeezed by the requirement to heavily discount sales across all product lines into the market and inability to pass on these raw material cost increases to our customers,” he said.

At present, Kumalo said, most of the major categories of protein are in an oversupply situation in Zimbabwe, resulting in low and sometimes negative margins.

“Demand has dropped to very low levels and therefore we are currently oversupplied and our storage facilities are being fully utilized.”

He said the company will continue to purchase pigs from producers but operating on a formula whereby the market determines the producer price.

“This applies when demand is down and when demand is up. In the meantime we are discounting a range of selected products in an endeavour to promote more sales, which in turn provides opportunities for consumers,” Kumalo said.

The group’s turnover in dollar terms in the period under review went 14 percent up on same period last year, whilst volume growth over prior year was 15 percent.

However, Kumalo noted that trends of volumes and turnover growth will continue at about 14 percent over prior year and that profitability will be enhanced by managing all operational costs downwards in an environment of declining margins.

During the period under review, Colcom invested almost $1,5 million towards the acquisition of a new machinery and equipment in a bid to improve operational efficiencies.

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