Dairibord Holdings (DZL) says its toll manufacturing project in South Africa is now at an advanced stage, as the group looks to improve its capacity to generate foreign currency from exports and mitigate local market-related challenges.
Toll manufacturing entails outsourcing all the production or part of it to a third-party company, where you provide all the raw materials or semi-finished products.
DZL, the country’s largest milk processor, is a manufacturer and marketer of milk, foods, and beverage products.
Group chairman Mr Josphat Sachikonye, in a statement of financials for the year ended December 31, 2023, said the group was well-positioned to capitalise on emerging opportunities as part of its growth strategy.
“The organisation will continue to explore avenues for expansion, both domestically and regionally, while ensuring a sustainable and responsible approach to business operations,” he said.
He noted that raw milk supply growth and the capital investment drive will underpin the overall volume trajectory, with focus being deployed on expanding plant capacities.
The group will also optimise manufacturing capabilities by maintaining financial discipline and investing in technology and innovation to enhance product offerings.
In April 2022, DZL said demand in South Africa was mainly a result of informal supply channels, hence, what was more sustainable was to reorganise the supply channel and have a formal presence in neighbouring countries.
Already, the company’s brands have a presence in markets such as Zambia, Mozambique, and Botswana.
However, Mr Sachikonye said the group was aggressively pursuing a lean and agile cost structure, ensuring sustained profitability and long-term value creation.
The group’s revenue for the year was 47 percent up to $724,12 billion compared to $452,94 billion the prior year, primarily attributed to the 11 percent increase in sales volumes and strategic pricing adjustments implemented to safeguard against margin erosion.
Foreign currency revenue accounted for 84 percent of Dairibord’s total revenue, compared to 58 percent in 2023.
IH Securities said the trend is expected to continue given that the Zimbabwe National Statistics Agency estimates over 80 percent of transactions in the economy are currently being conducted in foreign currency.
The research and stockbroking firm said the ongoing El Niño phenomenon has impacted the cost of producing milk, the cost of stock feeds, as well as power and water availability.
“The group, however, has taken measures to mitigate these effects with the installation of 1 million-litre water reservoirs at each operating plant and a 1,5 million-litre reservoir at the Chitungwiza plant.
“Dairibord has also completed its Chipinge solar plant project, which aims to provide sufficient electricity to cover the expected shortages this year.
“Focus for management is on optimising the route to market to complement revenue from the formal sector,” reads the snapshot review by IH.
According to the Dairy Services Unit of the Ministry of Agriculture, Lands, Fisheries, Water and Rural Development, national milk production output increased by 8,78 percent to 99,8 million litres in 2023 compared to the preceding year.
Intake by processors also increased to 91,8 million from 82,5 million litres in 2022.
Mr Sachikonye said raw milk utilised by the group at 31,4 million litres was 10 percent above the prior year, representing 34 percent of milk intake by processors.
He said the Milk Supply Development Unit continued to invest in technology and training programmes to support producers, promoting best practices and sustainable agricultural methods.
“These initiatives not only optimise the company’s value chain resilience, ensuring consistent and high-quality raw milk supply but also support the empowerment of the local farming communities,” he said.
During the year under review, the group’s cumulative sales volume performance was ahead of the comparative period last year, with 11 percent growth to 108 million litres. Liquid milk registered 8 percent growth, whereas beverages maintained a consistent growth momentum with 18 percent growth.
Foods, however, declined by 21 percent owing to persistent challenges in the procurement of high-quality inputs, reduced demand for bulk ice creams due to power outages, and heightened competition from cheaper imports in the condiments category.
Mr Sachikonye said since the promulgation of Statutory Instrument185 of 2020, the group has experienced a consistent rise in the collection and utilisation of foreign currency.
However, the group experienced significant cost increases on account of imported inflation and price distortions arising from exchange rate movements, which resulted in sharp increases in material costs and utilities.
Resultantly, the cost of sales grew by 41 percent in inflation-adjusted terms, and the group’s operating profit grew by 48 percent to $69,31 billion compared to $46,72 billion in the prior year. – Herald
