- Enhanced Return on Equity (ROE): 11.07% (up from -2.63% loss)
- Return on Assets (ROA): 6.43%
- Net Profit Margin: 5.67% (up from -1.52% loss)
- Sales Volumes 2% up
Harare- Dairibord Zimbabwe Limited, the largest milk processor has posted a satisfactory performance in the first half of 2024 (HY24), despite encountering tax increases and currency challenges during the period.
Financial performance improved notably, with revenue increasing by 12.7% to US$54.7 million from US$48.5 million in HY2023 while the company reported a net income of US$3.1 million, recovering from a loss of US$736,000 in the previous year.
The group also benefited from a 59% uplift in export volume compared to the corresponding period last year, resulting in a contribution of 9% to overall sales, an increase from the preceding period’s 6% share. The volume sold in US dollars constituted 76% of the total volume, representing an increase from the 64% recorded in the corresponding period last year.
However, profit efficacy was reduced by costs.
“The Group experienced significant cost increments on account of imported inflation, changes in the tax regime and price distortions arising from exchange rate movements,” Josephat Sachikonye, the group’s chairperson said in a statement accompanying the half-year financials.
The introduction of a special surtax on added sugar in beverages during the inset of the year, set at US$0.001 per gram effective February 9, added to the financial strain while the standard rating of maheu and the implementation of VAT on milk powders, along with the reclassification of liquid milks from zero-rated to exempt, contributed to a substantial rise in production costs.
These factors placed considerable pressure on working capital and intensified the financial burden on the group's operations.
As a result of these expenses, the group experienced a marginal increase in sales volumes of 2%.
However, liquid milk volumes increased by 21%, benefiting from augmented raw milk supply. National raw milk intake during the period reached 55.1 million liters, and the group utilized 19.97 million liters, increasing its market share from 23% in the comparative period to 28%.
In the foods segment, sales volumes experienced a 25% increase, largely driven by the exceptional performance of Yummy yogurt and ice creams, along with a recovery in Lyons peanut butter, which benefited from improved product availability.
Conversely, the beverages category contracted by 8%, primarily due to challenges encountered by the Pfuko brand.
Meanwhile, gross profit reached US$15.8 million, a 26.5% increase, while the gross profit margin improved to 28.9% from 25.9%. This indicates better control over costs relative to sales.
Cost of sales slightly decreased by 0.3% to US$38.9 million, which, combined with the increase in gross profit, demonstrates improved operational efficiency.
The group’s operating profit, however, experienced a significant decline, falling to US$3.8 million, a 60.8% decrease from US$9.66 million. This decline in operating profit margin to 6.95% from 20.0% indicates that while revenue increased, the company faced higher costs that affected profitability.
However, with a turn from loss to profit, the net profit margin improved to 5.67%, up from a loss of 1.52%, suggesting that despite the challenges, Dairibord was able to turn a profit.
The return on equity (ROE) rose to 11.07%, a significant recovery from a loss of 2.63%, indicating that the company is generating returns for its shareholders while the return on assets (ROA) stands at 6.43%, reflecting effective utilization of assets to generate earnings.
The current ratio of 1.63 suggests good short-term financial health, indicating that the company can cover its short-term liabilities with its short-term assets.
Meanwhile, the debt-to-equity ratio of 0.79 indicates a balanced approach to financing, showing that the company is not overly reliant on debt for its operations while the asset turnover ratio of 1.95 suggests efficient use of assets in generating sales.
The Group's substantial raw milk supply growth in the first half will partially offset adverse impacts on raw milk production.
The group has to increase emphasis on cost reduction targeting major cost drivers as ZiG is destined for big fluctuations following the 43% devaluation last week Friday.
Strategic priorities may include expanding export activities to boost foreign currency inflows, optimize production capacity, and enhance regional brand recognition.
Commercialization of toll manufacturing operations in South Africa will enable cost-effective production, broadening export reach and mitigating domestic market risks.
By leveraging these initiatives, Dairibord is well-positioned to navigate economic headwinds and achieve sustainable growth.
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