Published: 20 March 2014

DZLH is projecting a 6% volumes growth in FY14 driven by investments in constrained lines and new products after posting an 8% decrease in sales volumes for the year ended 31 December 2013, group CEO Anthony Mandiwanza told analysts yesterday.

"We are anticipating 6% volumes growth in 2014 driven by investments in constrained lines and new products. The group's revenue is also projected to grow by 5% and Capex to close at $10 million.

"What we're saying is that in spite of the anticipated serious economic challenges in 2014, management is confident that the growth pillars identified will deliver sustainable value creation," he noted.

Furthermore, he said they will put more resources on their Heifer Importation Programme and "an additional 200 Heifers bringing the total to 290 in 2014 will result in incremental raw milk volumes of 1.6million litres per annum."

Under processing, he noted that the group will make capital investments of $10 million in 2014 and investments will be made in plant and equipment to increase capacity and efficiencies.

Giving the operational environment in Zimbabwe, Mandiwanza noted that liquidity challenges became more excruciating in the second half of 2013 as a result of the protracted trade deficit and low investment.

Capacity utilisation in the foods and beverages sector is at 42% from 58% recorded in 2012.

"We are experiencing increase in costs of key materials and inputs against declining consumer prices," he noted.

He further stated that erratic supply of utilities continue affecting the group's operations as well as weak demand "due to declining disposable incomes and high unemployment."

Mandiwanza also said the weakening of the South African Rand is resulting in cheaper imports getting into the country therefore making Zimbabwe a trading economy.

In Malawi, he noted that declining consumer purchasing power and erratic power supply are affecting their operations.

Turning to the performance highlights, he indicated that sales volumes for the group went down 8% to 65.41 million litres while revenue decreased by 6% to $100.1 million.

DZPL contributed 54% to volumes and 57% to revenue; Lyons contributed 39% to volumes and 38% to revenue; and DML contributed 7% to volumes and 4% to revenue.

Operating loss for the period was $1.837 million versus an operating profit of $9.8 million in 2012.

He noted that raw milk intake went up by 2% to 27.42 million litres. Meanwhile, cash generated from operations was 11% up at $5.945 million and this was achieved on the back of prudent working capital management.

Mandiwanza said the group's liquidity position reflects capacity to meet its obligations going forward.

"While national milk production declined 2% to 54.7 million litres, DZPL recorded a 1% growth to 21.4 million litres. DZPL commands 40% share of the total raw milk produced in Zimbabwe," he said.

He noted that the growth is a direct result of the Heifer Importation programme which contributed 3% (700 000 litres vs 1 million litres target) of DZPL's milk intake.

"The Heifer program will continue with 90 high yielding Friesian heifers (45 already received) in the first quarter of 2014 with a contribution to total milk intake of 500 000 litres.

Mandiwanza told analysts that the growth in raw milk intake reflects the positive impact of the investments in additional milk collection centres.

Total assets for FY13 declined to $67.80 million versus $73.79 million in prior period.

On business restructuring, he said; "We completed the rationalisation process during the year resulting in streamlined overhead costs and improved efficiencies. DZPL operating factories are down to 4 from 7 and we aim to further reduce the factories to 3 by year end."

He noted that staff complement reduced by 240 closing the year at 1 418.

On cost containment, under variable costs key drivers were raw milk, milk powders, sugar and packaging materials.

"Mitigatory strategies which are being deployed include product reformulations to manage costs without compromising quality. We also developed alternative suppliers to widen the supply base and benefits from competitive sourcing eg fruit concentrates, sugar and milk powders.

"We also upscaled the Heifer program to substitute expensive imported powders,' he said.

On overhead costs Mandiwanza said they are exploiting synergies through consolidating manufacturing, sales and distribution facilities as well as reduction in unit costs.

"Cumulative investments from 2009 to 2013 were at $21.6 million. The investments have improved product quality and supply efficiencies and market competitiveness.

The group maintained a low gearing of 13% marginally up from 12% in 2012 and at the end of the year, Dairibord "secured a $6 million loan facility from the PTA Bank with tenor of 5 years at an all cots of 10.3%."

"Dairibord Malawi is still making a positive contribution to the group and we will focus on exports to maintain viability and mitigate costs," he said.

The group did not declare dividend for the year 2013.

Giving the financial review, FD Mercy Ndoro said operating profit margin dropped to 3% from 9% and price adjustments for liquid milks and foods resulted in reduced selling prices per litre.

"There are two main factors that affected the components of the business. The first issue is the non-recurring costs… and the second was the selling prices and rising costs," she said.

Looking at the portfolio performance, Mandiwanza said sales volume for liquid milks grew by 2% to 25.8 million litres while revenue decreased by 1% to $34.6 million.

"Revenue per litre was impacted by price adjustments to improve competitiveness in the market," he said.

Foods sales volumes remained stable at 12.6 million litres and these, particularly for yoghurts, were impacted by production disruptions during the strategic rationalisation programme.

Revenue for foods was 5% down at $34.5 million and these were also impacted by price adjustments to improve competitiveness in the market.

The beverages portfolio recorded a 19% decrease in sales volumes to close the period at 27 million litres while revenue went down by 13% to $29.7 million.

"The right-sizing of the Cascade bottle from 500 million to 400 ml resulted in reduced volumes whilst benefiting from enhanced value per litre. Fun 'n Fresh and Nutriplus were negatively affected by relocation of plant and equipment from Bulawayo to Chitungwiza," he said.

Furthermore, Mandiwanza said Aqualite bottled water sales were impacted by production supply side constraints.

Under portfolio contributions to revenue and volumes, he indicated that liquid milks contributed 39% (vs 36%) to volumes and 35% (vs 33%) to revenue, foods 19% (vs 18%) to volumes and 34% (vs 34%) to revenue and beverages 42% (vs 46%) to volumes and 30% (vs 32%) to revenue.

"The spread of revenue across the portfolios reflects a healthy strategic mix of the group's product offering. Planned investments in beverages will result in the restoration of the balance in the product mix," he noted.

Turning to the market share data, under liquids, he stated that in Zimbabwe the group holds 31% and 30% market share in the UHT Long Life and Cultured Milk respectively while in Malawi they hold 27%, 54% and 52% market share in UHT Long Life, Cultured Milk and Pasteurised milk.

On foods, Dairibord holds 60% market share in yoghurts, 68% in bulk ice creams, 78% in in-hand lines and 31% in condiments. Meanwhile, in Malawi they recorded a 79% market share of yoghurts and 36% in Dairibord Ice Creams.

Moving on to beverage's market share, he indicated that in Zimbabwe, daily beverages hold 52% market share, quick brew 24% and in Malawi, juices hold 43%.

Going forward, Mandiwanza said the group will research into cost effective ingredients without compromising quality and develop alternative suppliers.
- zfn