DZL | Dairibord Holdings HY23 Earnings Update; Currency dynamics weigh down on profitability

According to the Ministry of Agriculture’s Dairy Services Department, Zimbabwe’s 1H23 milk intake by processors rose 9.19% to 42.08mn litres from the prior year comparative period. Dairibord’s milk intake increased 16% in 1H23 and the Group retained its position as the processor with the highest milk intake at 14.23mn litres, representing 34% of the total intake by processors. Despite the adverse operating environment marked by severe inflationary pressures and depressed liquidity, the Group’s cumulative sales volume performance was ahead of the comparative period last year as total sales volumes for the period grew by 9%. A 6% growth in Liquid Milks’ sales volumes was largely spurred by the 32% growth in Chimombe volumes. Meanwhile, Beverages recorded a 16% growth in sales volumes, attributable to capital investments made in this revenue segment which improved production throughput and sales. However, inconsistent supply of quality inputs affecting peanut butter and salad cream, and depressed demand for ice creams resulted in a 23% decline in Foods volumes compared to the prior year. Nevertheless, the overall volume growth accounted for a 766% rise in historical revenue to ZWL$99.94bn compared to the prior year. Imported inflation and price distortions arising from exchange rate movements resulted in sharp cost increases, particularly in material costs and utilities. Consequently, cost of sales grew by 640% to ZWL$62.05bn. Resultantly the Group’s EBITDA declined by 6% to ZWL$1.03bn, with EBITDA margin easing to 1.03% from 9.53% in the prior year. Cash flows from operations were stifled by significant expenditure in inventories, prepayments to suppliers and customer settlement delays. The Group used short term borrowings to fund working capital shortfalls. The rapid depreciation of the local currency towards the end of the period resulted in significant foreign exchange losses of ZW$27.49bn arising from foreign currency denominated obligations. These exchange losses, in addition to increased finance costs of ZW$31.10bn weighed down the performance of the business resulting in a loss for the year of ZW$22.53bn, a 3,148% decrease from the ZWL$793mn profit in 1H22. Dairibord did not declare a dividend for the period.


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