INTERMITTENT power outages and erratic supplies of treated water has pushed up milk processor Dairibord’s operating overheads despite the company registering improved margins, according to its annual report for the year ended 31 December 2022.
Limited investment into water reservoirs and power infrastructure resulted in Zimbabwe being one of the most expensive countries to conduct business, experts say.
Commercial and domestic consumers have over the past year raised alarm on the breakdown of key infrastructure. Businesses and individuals alike are depending on alternative sources for power such as solar or diesel-powered generators which are generally expensive to run. Ahead of the 23 August 2023 general elections, the authorities have undertaken to improve the energy situation, but experts say more needs to be done.
The power outages worsened Harare’s perennial water supply woes, as the crisis crippled water treatment works at the city’s Morton Jaffray water treatment plant. In the same year, in August, the plant had to shut down because of the shortage of water treatment chemicals.
In a statement accompanying the group’s annual report, chairperson Josphat Sachikonye said rolling power cuts and water shortages pushed overheads as the milk processor turned to costly alternative sources of energy like coal and diesel.
“Utilities availability is erratic and at a high cost particularly water and electricity. The business relies on standby facilities to support operations during power and water outages,” said Sachikonye.
In 2022, Dairibord used 6 189 tonnes of coal compared to 5 669 tonnes used in 2021, and 1 608 litres compared 1 165 litres used in the prior year.
He said imported inflation and pricing distortions from currency instability also contributed to the increased costs.
Resultantly, cost of sales and overheads grew by 46.4% and 46% respectively.
Nonetheless, the group recorded positive volume growth compared to prior year.
Domestic market sales volumes in US dollars for the year were 50% up from 17% and exports were 6% up from 5% recorded in 2021.
“This success was made possible by maintaining focus on diversifying and expanding product portfolios, implementing affordable pricing models and consistent review of the route to-market strategies,” he said.
“All these efforts were further aided by ongoing investments in increased manufacturing capacity and capabilities.”
Sales volumes for the period grew 3% ahead of the same period last year, with beverages and foods categories delivering growth of 7% and 10% respectively and liquid milks declining by 7%. Contribution to total volume for liquid milks, beverages and foods was 28%, 62% and 10% respectively.
The group remained the leading milk processor, as raw milk utilised for the year was 28.5 million litres, 4% above 2021, representing 34% of the total intake by processors.
In addition, the group recorded inflation-adjusted revenue of ZW$63.38 billion during the financial year under review, a 40% increase on the comparative period.
“Moderate volume growth and price adjustments to protect margins were the main drivers of revenue growth,” added the company’s chairperson.
In 2023, Sachikonye projected that the continued erratic supply and high cost of quality water and electricity would increase the cost of production and disrupt operations.
He said the management would continue to engage in strategic partnerships and explore initiatives for alternative energy models and efficient production methods.
“Cost containment and cost reduction through improved productivity and efficiencies are also key focus areas to improve profitability,” said Sachikonye.