Input prices, which affect price competitiveness and operating margins, increased 21% in the first half of 2018 — 150% higher than the growth in volumes — and might continue in the outlook, according to Dairibord Holdings Limited (DHL).
BY TATIRA ZWINOIRA
The milk, foods and beverages maker achieved an operating profit of $0,720 million in the first half of 2018, a 239% improvement on a loss position of $653,297 reported over the comparable period last year.
The performance was supported by firm demand and volume growth of about 6%.
DHL chairperson Josphat Sachikonye said volume and revenue performance were constrained by challenges in the supply of raw materials and packaging materials on a majority of its product lines. The supply bottlenecks were attributed to foreign currency shortages, which also drove input costs upwards.
While anticipating a significantly better second half and “sustained economic growth” in the outlook, the company sees foreign currency shortages persisting and posing “significant risks” to input costs and product supply.
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Sachikonye said the inflation rates for various inputs were varied. For instance, average raw and packaging material prices increased by 15% compared to the same period in 2017.
“The business achieved an operating profit of $0,720 million, a 239% improvement over last year. Profit for the period improved to $0,270 million from a loss of $0.845 million, which included non-recurring restructuring costs of $0,867 million,” Sachikonye said.
“Key issues to note during the reporting period were; significant increases in prices of inputs. While volumes sold grew by 6%, the cost of materials increased by 21%. Compared to the same period last year, the average raw and packaging material prices increased by 15%.
“The increase in overheads was contained at 3%. The restructuring undertaken in 2017 enabled the business to effectively deal with overhead costs despite increasing cost push pressures.”
Sachikonye said group performance was weighed by Dairibord Malawi, which reported a loss of $0,293 million during the period.
Group turnover increased 15% to $50 872 million from $45 35 million in 2017 on account of a 6% increase in the volume of high-value lines such as condiments, ice creams and cartonised Fun and Fresh to 41 002 million litres.
DHL’s market share for liquid milk categories improved as a result of a 12% increase in the supply of raw milk as a result of an enhanced milk supply strategy.
The Zimbabwe Association of Dairy Farmers has projected a 12% increase in raw milk production by the end of 2018.
DHL’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) rose 18% to $3,45 million in the period under review from $2,93 million in the comparable period last year, an indicator of improved profitability in the underlying business.
The EBITDA margin was just 6,79%.
Earnings per share improved to 0,10 cents from a loss making 0,22 cents in 2017, indicating an improved profitability, after the company overturned the previous year’s loss position.
However, the net profit margin was just 0,53%, showing the company is still not earning enough profit on each dollar of revenue generated.
The profit margin is under pressure from rising input costs.