eBusiness Weekly
Enacy Mapakame
Analysts forecast food and dairy processor – Dairibord Zimbabwe, to treble its full year revenue for the financial year 2020 driven by price adjustments although the operating environment remains constrained.
The operating environment has been challenging for businesses due to limited foreign currency, high inflation resulting in low disposable incomes and utilities supply challenges.
These were compounded by the COVID-19 outbreak, which resulted in reduced production and trading hours as the country observed lockdown restrictions to limit the spread of the pandemic.
During the first half of FY20, Dairibord’s top line was sustained by pricing adjustments as food and beverage volumes fell. Overall sales volumes were down by 32 percent on the same period in prior year as COVID-19 induced disruptions on supply chains and market access, further exacerbated an already challenging economic environment.
For the 2020 full year, brokerage firm IH Securities, sees revenue growing by 348 percent to $2,2 billion on among other factors, cost containment measures, which the group has over the years successfully implemented.
Dairibord’s strategy also entails continued import substitution by supporting local milk production initiatives, defending market share and increasing export volumes.
During the first half of the financial year, intake of raw milk decreased by 6 percent as the industry struggled with the cost of stock feeds, which outpaced inflation.
Dairibord, however, continues to channel efforts towards increase of domestic supply of milk to reduce reliance on imported milk powders.
“While the local demand side of liquid milk has been constrained by weakening disposable incomes, the export market presents an opportunity for the supply side to continue growing.
“The growth rate of foreign sales is to be dampened in the short term as the region feels the effects of COVID 19,” said IH Securities in an earnings review update.
As such, liquid milk volumes is seen taking a 6,8 percent dip in FY20, while volumes from the beverages and food segments are expected to fall by 10 percent and 15 percent respectively. But this will not be the case for the following year.
“We then expect double digit growth of 10 percent and 35 percent for liquid milk and foods in FY21 as the environment returns to normalcy and some recovery begins to take place,” said IH Securities.
The business is also expected to continue reducing its foreign currency denominated liabilities while improving its working capital position.
However, foreign currency shortages and the inflationary environment cannot be overlooked as these will continue to pose challenges for businesses across sectors.
Without a quick solution to these and erratic utilities supplies, the business environment will remain challenging.
Said IH: “Recent cost drivers have been disruptions in electricity and water supply; we anticipate that operating costs will increase again driven by increased utility costs.”
