Input prices, which affect price competitiveness and operating margins, increased 21% in the first half of 2018 — 150% higher than the growth in volumes — and might continue in the outlook, according to Dairibord Holdings Limited (DHL).
BY TATIRA ZWINOIRA
The milk, foods and beverages maker achieved an operating profit of $0,720 million in the first half of 2018, a 239% improvement on a loss position of $653,297 reported over the comparable period last year.
The performance was supported by firm demand and volume growth of about 6%.
DHL chairperson Josphat Sachikonye said volume and revenue performance were constrained by challenges in the supply of raw materials and packaging materials on a majority of its product lines. The supply bottlenecks were attributed to foreign currency shortages, which also drove input costs upwards.
While anticipating a significantly better second half and “sustained economic growth” in the outlook, the company sees foreign currency shortages persisting and posing “significant risks” to input costs and product supply.
Sachikonye said the inflation rates for various inputs were varied. For instance, average raw and packaging material prices increased by 15% compared to the same period in 2017.
“The business achieved an operating profit of $0,720 million, a 239% improvement over last year. Profit for the period improved to $0,270 million from a loss of $0.845 million, which included non-recurring restructuring costs of $0,867 million,” Sachikonye said.
“Key issues to note during the reporting period were; significant increases in prices of inputs. While volumes sold grew by 6%, the cost of materials increased by 21%. Compared to the same period last year, the average raw and packaging material prices increased by 15%.
“The increase in overheads was contained at 3%. The restructuring undertaken in 2017 enabled the business to effectively deal with overhead costs despite increasing cost push pressures.”
Sachikonye said group performance was weighed by Dairibord Malawi, which reported a loss of $0,293 million during the period.
Group turnover increased 15% to $50 872 million from $45 35 million in 2017 on account of a 6% increase in the volume of high-value lines such as condiments, ice creams and cartonised Fun and Fresh to 41 002 million litres.
DHL’s market share for liquid milk categories improved as a result of a 12% increase in the supply of raw milk as a result of an enhanced milk supply strategy.
The Zimbabwe Association of Dairy Farmers has projected a 12% increase in raw milk production by the end of 2018.
DHL’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) rose 18% to $3,45 million in the period under review from $2,93 million in the comparable period last year, an indicator of improved profitability in the underlying business.
The EBITDA margin was just 6,79%.
Earnings per share improved to 0,10 cents from a loss making 0,22 cents in 2017, indicating an improved profitability, after the company overturned the previous year’s loss position.
However, the net profit margin was just 0,53%, showing the company is still not earning enough profit on each dollar of revenue generated.
The profit margin is under pressure from rising input costs.