Dairibord in plant closure

Published: 26 March 2014

Listed Dairibord Holdings Limited (Dairibord) plans to shut down its Gweru plant as part of strategies to contain costs and rationalise operations.

This comes as the milk processor last year closed its Mutare and Bulawayo factories with 240 jobs lost in the process.

The group - employing about 1 418 people - plans to remain with only four plants by year end, out of its initial seven.

Mercy Ndoro, Dairibord's group finance director, said they will soon start implementing the cost reduction measures.

"In terms of restructuring it's an ongoing process. Our next focus will be Gweru where after the investment in steri-milk equipment in Chipinge we then close down Gweru.

"In terms of manpower, we have a lot of contract workers. Permanent workers would be moved to Chipinge while contract workers will lose their jobs and be replaced," said Ndoro.

She added that the total cost outlay for people who were leaving their contract jobs is not going to have a material impact on the business.

In the year to December 2013, the group incurred $800 000 in retrenchments costs after shutting down three local factories, shedding 240 workers in the process.

The listed milk processor last year shut down its Bulawayo and Mutare plants as part of a streamlining exercise which the company noted 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.

Last year, Dairibord's chief executive Anthony Mandiwanza noted that the installed infrastructure especially for milk processing plants was not aligned to the current reduced processing volumes, and hence there was need to rationalise operations.

Dairibord is also planning to spend $10 million in capital expenditure this year, targeted at consolidating its 40 percent market share.

Mandiwanza said the funds would be spent on plants upgrade and procurement of new equipment to boost capacity and efficiencies.

"We are also looking at investing in marketing to increase brand visibility and launch new innovative products and line extension," he told analysts.

This comes as the Zimbabwe Stock Exchange-listed company - formerly enjoying monopolistic advantages - is facing stiff competition from other players such as Delta Corporation, Dendairy and Gushungo Holdings, among others.

Mandiwanza noted that the group would also invest in research on cost effective ingredients without compromising quality and further upgrade its information technology systems.

"The company will this year buy an additional 200 heifers bringing the total to 290 resulting in incremental raw milk volumes of 1,6 million litres per annum," he added.

Dairibord, with other operations in Malawi, has invested $21,6 million between 2009 and 2013 in equipment. Meanwhile, the group has recorded a $1,7 million loss in the year to December 2013, plunging from a $7,1 million after tax profit realised in prior year as volumes declined under pressure from cheaper imports.

During the period under review, revenue went down six percent to $100 million.

The company reported $4,6 million in impairments for plant, equipment and inventories.

Mandiwanza said total group sales volumes recorded an eight percent decline compared to the previous year.

Beverages and foods recorded a decline of 19 percent and one percent respectively while liquid milk products grew marginally by two percent.

"The decline in sales volumes for beverages was due to business disruptions following a strategic decision to re-organise and rationalise processing.

This largely resulted in supply constraints of some product lines.

Although the sales volumes of Cascade dropped as a result of unit size reduction the value per litre was enhanced," he said.

Net cash generated from operations increased to $5,9 million from $5,3 million.

"At the end of the year, the group secured a $6 million loan facility from PTA Bank with a tenure of five years at an ‘all in cost' of 10,3 percent," Mandiwanza said.

Mandiwanza said the group generated $1 million in revenue through a toll arrangement for its Chimombe fresh milk brand.
- dailynews

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