Business / Companies
Dairibord rationalising its operations to make the group leaner
22 Mar 2013 at 07:04hrs | Views
Dairibord will focus on rationalisation of operations, group chief executive Anthony Mandiwanza told an analyst briefing yesterday.
"The rationalisation of operations which we intend to undertake is being done due to the need to address our cost structure so that they are aligned to volume activity," Mandiwanza said.
He said operations in Bulawayo and Mutare factories will be discontinued as production has slowed down in these two areas. The number of processing factories will be reduced to 8 from 10.
"Bulawayo used to contribute 40% of the overall total production but currently there is no production, hence the need to rationalise. The same situation was also experienced in Mutare," added Mandiwanza.
The group CE however said that the rationalisation in operations would see production being shifted to Harare but distribution and marketing activities would remain in the respective areas.
"Support services such as management and quality assurance will be eliminated from Bulawayo," he added.
Mandiwanza also told the meeting that staffing levels would be reduced by 12% to 1 505 employees.
"Contract workers will be reduced and all these measures are being taken to open up margins going forward. The process is expected to be completed in the first half of 2013 with expected net savings of $1 million whilst the expected costs of staff rationalisation might be around $0.5 million," he said.
Turning to milk supply, Mandiwanza added that an additional 1 million litres per annum was expected from the first batch of 250 in-calf heifers received in October 2012 and distributed to selected contract farmers.
"The 250 heifers were distributed to 10 selected contract farmers through a loan scheme arrangement."
"The program will continue in 2013 targeting at least 500 dairy cows. This issue of milk supply is an important area which we view as a low-cost high-impact issue to us," he added.
"We have also commenced toll manufacturing since December 2012 as a way to counter bottlenecks in the local supply chain. Volumes are projected to be 200 000litres per month."
He also told the gathering that the toll manufacturing exercise was a "stop-game arrangement" as local milk production remained relatively high hence resorting to imports.
Dairibord will also focus on information systems to enhance business analytics and performance.
Turning to the operating environment, the group CE told the meeting that limited raw milk supply, liquidity crisis, rand weakening and increasing cost of key inputs impacted adversely to its Zimbabwe operations.
"Foreign currency shortages persisted in Malawi whilst the high annual inflation also made business difficult to execute. Inflation stood at 35% in December 2012 compared to 9.8% registered in January 2012," he noted.
Turning to the 2012 performance, he said the total volumes rose by 10% to 71.4 million litres.
"Liquid milks registered a 4% growth in volumes to 25.4 million litres. We see a tremendous opportunity on this front though the growth continues to be impacted by raw milk supply constraints," he said.
Foods volumes were up 21% to 12.6 million litres driven by increased capacity utilisation for ice-cream, yoghurts and peanut butter.
Beverage volumes grew by 10% to 33.4 million litres supported by increased capacity for Cascade, Nutri-plus and increased capacity utilisation for Quench cordials.
"At peak period national milk production stood at 257 million litres per annum compared to the current 54 million litres. The low national milk production is a concern to us," Mandiwanza told the meeting.
National raw milk production was up 6% to 54 million litres compared to prior year whilst Dairibord intake was up 8% to 21.2 million of the national milk production. The growth in Dairibord's intake was on the back of milk supply development initiatives currently being undertaken.
In Malawi, national milk production increased by 4% to 17.6 million litres whilst Dairibord's intake was 10% below 2011 at 5.8million litres. "The decline in Dairibord's milk intake was due to forward integration by milk producers and milk spoilage at the farms due to power outages," he added.
Overall revenues were up 11% to $106.9 million with the group CE noting that revenue streams were evenly spread over its three key portfolios.
Liquid milks revenues were up 2% at $35.1 million whilst the duo of Foods and Beverages rose by 21% and 11% to US$36.5 million and US$34.3 million respectively. Logistics was up 23% at US$1million.
"Food and beverages will continue to spur growth as more investments improve capacity," he added.
The group CE told the meeting that all business units contribution to revenues were up save for Dairibord Malawi whose revenue was down 10% to $6.6 million.
DZPL revenues were up 10% whilst Lyons and NFB's revenues increased by 17% and 23% respectively.
The group finance director, Mercy Ndoro said that revenue growth of 11% came from improved volumes and the change in product mix towards high value, high margin business.
"Operating costs however, were up 14% ahead of revenue growth mainly due to an increase in the cost of key inputs. We felt the impact of a 31% Zesa tariff increase in 2012 whilst sugar cost per tonne also increased from $851 per tonne in 2011 to $1 100 per tonne," she added.
Problems in the United States on milk powders saw the costs increasing by 13% and labour costs also rose in the period under review. Ndoro also told the gathering that there was a misalignment between overhead and volumes of activity impacting on operating costs of business.
"Operating margins were 9% compared to 11% in prior year whilst PBT margins also were down at 9% compared to 10% in prior year," she added.
Profit for the year rose by 1% to $7.2 million. A dividend of US0.45cents was declared from the Basic earnings per share of US1.98c.
Total assets growth of 14% to $73.80 million was driven by an investment in plant and equipment worth $6.5 million and also in working capital.
Borrowings increased by 23% to $7 million whilst the average cost of debt was below 10%.
Cash generation was 12% down at $5.3 million due to additional investment incurred in the year.
Capex of $6.5 million was incurred mainly in generators and boreholes, ice cream processing, yoghurt processing and distribution vehicles.
"We managed to dispose of our 40% equity in ME Charhons for US$1million. However at year end we have received only $0.2 million. Mulanje Peak Foods disposal of assets was concluded after the reporting date and no profit or loss was made from the disposal," she added.
On the outlook, Mandiwanza told the meeting that they were targeting 12% revenue growth inF13 whilst volumes and milk supply are expected to increase by 10% apiece.
Capital expenditure of US$10million to be funded by a combination of debt and internal funds is targeted for 2013.
"The rationalisation of operations which we intend to undertake is being done due to the need to address our cost structure so that they are aligned to volume activity," Mandiwanza said.
He said operations in Bulawayo and Mutare factories will be discontinued as production has slowed down in these two areas. The number of processing factories will be reduced to 8 from 10.
"Bulawayo used to contribute 40% of the overall total production but currently there is no production, hence the need to rationalise. The same situation was also experienced in Mutare," added Mandiwanza.
The group CE however said that the rationalisation in operations would see production being shifted to Harare but distribution and marketing activities would remain in the respective areas.
"Support services such as management and quality assurance will be eliminated from Bulawayo," he added.
Mandiwanza also told the meeting that staffing levels would be reduced by 12% to 1 505 employees.
"Contract workers will be reduced and all these measures are being taken to open up margins going forward. The process is expected to be completed in the first half of 2013 with expected net savings of $1 million whilst the expected costs of staff rationalisation might be around $0.5 million," he said.
Turning to milk supply, Mandiwanza added that an additional 1 million litres per annum was expected from the first batch of 250 in-calf heifers received in October 2012 and distributed to selected contract farmers.
"The 250 heifers were distributed to 10 selected contract farmers through a loan scheme arrangement."
"The program will continue in 2013 targeting at least 500 dairy cows. This issue of milk supply is an important area which we view as a low-cost high-impact issue to us," he added.
"We have also commenced toll manufacturing since December 2012 as a way to counter bottlenecks in the local supply chain. Volumes are projected to be 200 000litres per month."
He also told the gathering that the toll manufacturing exercise was a "stop-game arrangement" as local milk production remained relatively high hence resorting to imports.
Dairibord will also focus on information systems to enhance business analytics and performance.
Turning to the operating environment, the group CE told the meeting that limited raw milk supply, liquidity crisis, rand weakening and increasing cost of key inputs impacted adversely to its Zimbabwe operations.
"Foreign currency shortages persisted in Malawi whilst the high annual inflation also made business difficult to execute. Inflation stood at 35% in December 2012 compared to 9.8% registered in January 2012," he noted.
Turning to the 2012 performance, he said the total volumes rose by 10% to 71.4 million litres.
"Liquid milks registered a 4% growth in volumes to 25.4 million litres. We see a tremendous opportunity on this front though the growth continues to be impacted by raw milk supply constraints," he said.
Foods volumes were up 21% to 12.6 million litres driven by increased capacity utilisation for ice-cream, yoghurts and peanut butter.
Beverage volumes grew by 10% to 33.4 million litres supported by increased capacity for Cascade, Nutri-plus and increased capacity utilisation for Quench cordials.
"At peak period national milk production stood at 257 million litres per annum compared to the current 54 million litres. The low national milk production is a concern to us," Mandiwanza told the meeting.
National raw milk production was up 6% to 54 million litres compared to prior year whilst Dairibord intake was up 8% to 21.2 million of the national milk production. The growth in Dairibord's intake was on the back of milk supply development initiatives currently being undertaken.
In Malawi, national milk production increased by 4% to 17.6 million litres whilst Dairibord's intake was 10% below 2011 at 5.8million litres. "The decline in Dairibord's milk intake was due to forward integration by milk producers and milk spoilage at the farms due to power outages," he added.
Overall revenues were up 11% to $106.9 million with the group CE noting that revenue streams were evenly spread over its three key portfolios.
Liquid milks revenues were up 2% at $35.1 million whilst the duo of Foods and Beverages rose by 21% and 11% to US$36.5 million and US$34.3 million respectively. Logistics was up 23% at US$1million.
"Food and beverages will continue to spur growth as more investments improve capacity," he added.
The group CE told the meeting that all business units contribution to revenues were up save for Dairibord Malawi whose revenue was down 10% to $6.6 million.
DZPL revenues were up 10% whilst Lyons and NFB's revenues increased by 17% and 23% respectively.
The group finance director, Mercy Ndoro said that revenue growth of 11% came from improved volumes and the change in product mix towards high value, high margin business.
"Operating costs however, were up 14% ahead of revenue growth mainly due to an increase in the cost of key inputs. We felt the impact of a 31% Zesa tariff increase in 2012 whilst sugar cost per tonne also increased from $851 per tonne in 2011 to $1 100 per tonne," she added.
Problems in the United States on milk powders saw the costs increasing by 13% and labour costs also rose in the period under review. Ndoro also told the gathering that there was a misalignment between overhead and volumes of activity impacting on operating costs of business.
"Operating margins were 9% compared to 11% in prior year whilst PBT margins also were down at 9% compared to 10% in prior year," she added.
Profit for the year rose by 1% to $7.2 million. A dividend of US0.45cents was declared from the Basic earnings per share of US1.98c.
Total assets growth of 14% to $73.80 million was driven by an investment in plant and equipment worth $6.5 million and also in working capital.
Borrowings increased by 23% to $7 million whilst the average cost of debt was below 10%.
Cash generation was 12% down at $5.3 million due to additional investment incurred in the year.
Capex of $6.5 million was incurred mainly in generators and boreholes, ice cream processing, yoghurt processing and distribution vehicles.
"We managed to dispose of our 40% equity in ME Charhons for US$1million. However at year end we have received only $0.2 million. Mulanje Peak Foods disposal of assets was concluded after the reporting date and no profit or loss was made from the disposal," she added.
On the outlook, Mandiwanza told the meeting that they were targeting 12% revenue growth inF13 whilst volumes and milk supply are expected to increase by 10% apiece.
Capital expenditure of US$10million to be funded by a combination of debt and internal funds is targeted for 2013.
Source - zfn
