ONE of the biggest and oldest dairy producers in the country and the region, with over 70 years in the game recently released their full-year financial results and commentary.

Dairibord now has the bulk of its product portfolio not dependent on milk since it embraced the strategy of broadening its focus beyond it, and now eyes an aggressive presence in the region.

The Fast-Moving Consumer Goods (FMCG) manufacturer and retailer told analysts at a briefing that their toll manufacturing project in South Africa is now in very advanced stages, and they should expect results next year.

Dairibord already has a presence in the region, mainly due to export sales in countries like Botswana, South Africa, Malawi, and Mozambique but believes the toll manufacturing project will improve their presence in the neighbouring country.

Dairibord Zimbabwe officially divested in the Malawian business in 2019 although it still exports to that market.

Toll manufacturing is when a company sends raw materials or semi-finished goods to a manufacturer with the experience and expertise to finish the production.

This usually is cheaper and more effective than exporting finished products into a country and is one of the best strategies for a business that wants to command a higher presence in a market.

At a time when the continent is preparing for free trade agreements, the dairy processor needs to be well prepared for the competitionrather than just exporting finished products.

Dairibord’s exports in 2023 only registered a 1% growth rate and management explained that with the increase in foreign currency-denominated domestic sales, they sometimes had to sacrifice exports and prioritise the domestic market. This is because of the unfavourable retention policy and the weakening local currency exchange rate.

National milk production in 2023 was reported to be just under 100 million, translating to an average intake of eight litres per capita versus historical highs of 25 litres per capita.

This was a 9% growth from 2022 numbers. Dairibord last year commanded 34% of that local market with the 14 other processors sharing the remaining portion.

This is against a 140 million litres effective annual demand and processors are having to rely on imports to fill in the gap.

Management of Dairibord referred to the prices of raw milk in some of the countries in Africa, with Zimbabwe’s prices being highly uncompetitive whilst countries like South Africa and Uganda are selling at a fraction of that.

Zimbabwe’s cost of raw milk is close to US$0,60 whilst South Africa's average is US$0,40, and Malawi can go as low as US$0,26 per litre. This has been a result of many factors including the massive decline in the national dairy head to 40000 from record highs of 120000.

The company’s sales volumes have been on a steep trajectory, taking out the year that was massively affected by the Covid-19-induced lockdowns. On an overall basis, Dairibord reported an 11% sales volume jump during the year.

Liquid milk and beverages both experienced growth in their sales volume but the foods faced some challenges. Chief amongst the challenges, especially for ice-creams was the power outages throughout the country. The duty-free imports also made it difficult to compete with some cheap imports.

The overall growth in volumes is attributable partly to the capital expenditure projects that the group has been undertaking.

The capital expenditure was for both replacing and buying equipment for plants with US$4,1 million deployed in 2023 and US$24 million budgeted for the next two years. Some of the key capacity enhancement projects undertaken include a Maheu filling line, refurbishment of a water chilling plant, installation of water storage tanks and the new blow moulder in Chipinge.

In anchoring the company’s growth agenda, the Route to Market (RTM) optimisation will be critical. This entails using the most efficient distribution channels from the manufacturer to the end user of the product.

New policies around restricting, who manufacturers sell to will have a bearing on the distribution channel. The withholding VAT for non-compliant registered traders is also likely to slow down the distribution channel.

Currently wholesale and general trade account for over half of the distribution. The portion of retail has significantly shrunk over the periods mainly affected by the currency of choice when selling. There are also franchise stores, which push a significant portion of sales. Management reported that they are still researching to find out the most effective way to get to the customer, although acknowledging that traditional channels remain critical.

The introduction of the sugar tax in the budget last year, although it did not affect the current reported numbers, has a huge impact on the current financial year.

The management highlighted that considering the lower disposable income and the sticky nature of prices, they couldnot fully pass down the tax burden to the consumer in some of the products. With the exception of raw milk, the bulk of the products that the company manufactures have varying degrees of sugar.

Overall analyst’s comment

I couldnot dwell on the actual reported financial numbers which were reported in ZWL due to obvious reasons, but I am happy to know that the company now has 84% of its sales in the greenback and will now be reporting in USD.

However, given the introduction of the new currency and a commitment by the Reserve Bank of Zimbabwe to reduce the portion of the economy trading in USD, the company might be exposed to risk there.

The company sacrificed a dividend payment as it aims to improve its capital expenditure. I believe this is the best decision, especially considering the cost and availability of capital in the country. The manufacturing project in South Africa might be a game changer considering that already the country is the highest destination of Dairibord’s exports and will not be entering new territories. Perhaps if the South African project works out well, it could be replicated in other markets like Zambia.

Widening the product portfolio of the company remains key, and we have seen the company introducing a number of new products on the market in recent years including the Pfuko ineGinger and the Natural Joy juice. 

However, the introduction of Varun Beverages not so long ago in the country has shifted the landscape and one can does not deny that they have snatched a significant portion of the overall market share.

If the volumes are significantly affected by duty-free imports, it says something needs to be changed if the company will stand a chance to compete in the free trade area.

The company continues to be an exciting one to keep an eye on especially if it can manage to report in a hard currency.

  • Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.