Production costs remained flat at $20.9 million but gross profit fell 23 percent to $18.9 million on lower revenues.
Overheads increased by 10 percent from $20.7 million in the previous year to $22.8 million partly on the back of a $2.8 million once off impairment of inventories, receivables and equipment.
However, even if the impact of these impairments is excluded, the business still remained unprofitable due to misalignment of the cost structure to the level of production.
The company incurred significant costs to get alternative sources of water as outages in the second half of the year impacted the beverages portfolio as the company was forced to buy in water at $12 to $17 per cubic metre from third parties versus $1.4 per cubic metre from local authorities..
Mandiwanza told analysts that erratic supply and high cost of water procured from third parties for Simon Mazorodze and Chitungwiza factories significantly add to costs incurred during the period
Such exorbitant prices led to very high production costs, thereby stifling the company’s operational efficiency.
Exports will remain subdued as the average cost of raw milk in Zimbabwe at 57 cents/litre, remained high relative to regional competitors, making Zimbabwe’s milk and milk related products uncompetitive on the regional markets.
Dairibord Malawi which contributed three percent of group revenue, posted an operating loss of $200 000 in the year and has been an albatross for a while now.
Mandiwanza said it Dairibord will hold on to the loss-making operation and explore other options to extract value from the business.
On the downside, foreign currency constraints are most likely to continue with negative effect on supply materials.
Milk powder prices are also projected to be lower than in 2016, thereby continuing to put pressure on revenue.
Additionally, competition will increase as new entrants invest in processing capacity and this might as well force the company to further revise prices downwards to protect its market share.
However the company has taken significant steps to counter the downside risks.
This include the realignment of its business model to reduce costs which saw the company consolidating Dairibord, Lyons and NFB logistics operations in a bid to eliminate duplication across the value chain, roles and responsibilities as well as reducing distribution costs.
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