Dairibord Holdings Surges Back to Profit Despite L...

Dairibord Holdings Surges Back to Profit Despite Liquidity Strain

Audrey Galawu

Assistant Editor

In the first half of 2024, Dairibord Holdings Limited, one of Zimbabwe’s leading dairy and food producers, faced significant liquidity challenges.

These challenges were driven by the country’s volatile economic environment, which included currency shifts, inflationary pressures, and macroeconomic instability.

However, despite these hurdles, the company demonstrated resilience by not only maintaining operational continuity but also posting a remarkable profit recovery.

Zimbabwe’s economic landscape in early 2024 was defined by persistent inflation, erratic exchange rate fluctuations, and the introduction of a new currency, the Zimbabwe Gold in April. These factors tightened liquidity across the market.

For businesses like Dairibord Holdings, the rapid depreciation of the local currency before the ZWG introduction resulted in significant foreign exchange losses, compounded by a constrained monetary supply as the government sought to mitigate inflation through rigorous fiscal policies.

Dairibord faced difficulties in funding day-to-day operations due to a working capital shortfall. The company’s operations were further stressed by substantial investments in inventory and advanced payments to suppliers, coupled with delayed customer settlements.

To bridge the cash flow gap, Dairibord relied on short-term borrowings, which increased its interest-bearing liabilities.

Despite these liquidity constraints, Dairibord achieved a volume growth of 2% during the period, driven primarily by robust sales in its Liquid Milks and Foods categories. The company utilized 19.97 million litres of raw milk, a 40% increase year-on-year, cementing its market leadership with a 36% share of the national milk market.

However, the success in milk production contrasted with a notable contraction in its Beverages category, which faced setbacks due to rising costs from a newly imposed sugar tax and supply chain difficulties.

To navigate the turbulent economic conditions, Dairibord implemented strategic pricing adjustments and cost containment measures. These efforts enabled the company to grow revenue by 13% to US$54.71 million, compared to US$48.47 million in the same period in 2023.

While this revenue growth was a positive indicator, the company’s liquidity challenges remained significant as it struggled to accelerate inventory turnover and shorten its cash cycle.

One of the most striking outcomes of Dairibord’s half-year performance was its return to profitability. The company recorded a profit of US$3.06 million in the first six months of 2024, a notable turnaround from the US$736,361 loss in the same period last year. This recovery was achieved despite escalating production costs driven by imported inflation, changes in tax policy, and foreign exchange rate distortions.

Key to this profitability was the company’s ability to manage costs efficiently. Dairibord successfully reduced its cost of sales by 1%, despite increases in raw material and tax-related costs.

Moreover, the company’s export strategy yielded impressive results, with export volumes growing by 59% year-on-year, contributing 9% to total sales.

However, Dairibord’s financial costs remained high due to foreign exchange losses of US$3.3 million on foreign currency-denominated obligations. Despite these headwinds, the company’s strategic emphasis on foreign currency generation through export sales and toll manufacturing helped stabilise its financial position.

The introduction of the Zimbabwe Gold currency in April 2024 marked a significant shift in Zimbabwe’s monetary policy. While this currency brought some stability to exchange rates and inflation, its long-term impact on the economy remains uncertain.

For Dairibord, the adoption of the ZWG required careful navigation, as the company’s functional currency remained the US Dollar.