Dairibord now on solid footing. . . as corporate and organisational restructuring yields results

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Tawanda Musarurwa
Efforts to increase capacity and re-align corporate and organizational structures are starting to yield benefits for listed milk processor Dairibord Holdings.

In 2016, the group commenced a restructuring exercise when Martindale (Pvt) Ltd (trading as Lyons), and NFB Logistics (Pvt) Limited, commenced trading as divisions of DZPL but retaining their distinct corporate brands.

Last year, the milk processor moved to further create a lean operational structure, whittling selling and administration costs by at least 10 percent per annum.

With regards to production, Dairibord has for the past six years work at numerous initiatives to increase milk intake: namely the up-scaling productivity for the existing herd, attracting more farmers, and growing the herd through the Heifer Procurement Scheme.

The first indication of an upturn in fortunes for the group in view of the rolling restructuring process was that Dairibord posted a significantly improved set of results in FY2017.

H1 numbers follow from FY2017
And its latest H1 2018 interims shows that the firm is now on a firm footing going forward.

For the six months to 30 June, 2018, the group’s revenues rose by 15 percent from the prior comparable period to $50,9 million and EBITDA (earnings before interest, tax, depreciation and amortisation) increased 18 percent to $3,5 million (with an EBITDA Margin of 6,8 percent).

Production indicators were positive, with volumes growing 6 percent to 41 million litres despite supply constraints for both packaging and raw materials for key product lines.

Overall, EBIT came in at $0,7 million (EBIT Margin of 1,4 percent) and profit after tax (PAT) was $0,27 million, giving a PAT margin of 0,5 percent and an earnings per share (EPS) of $0,10c per share.

Notwithstanding that margins for the period under review were thin, the milk processor managed a turnaround from a loss of $0,85 million (including restructuring costs) in H1 2017 to record a net profit of $269 844 in H1 2018.

Analysts at Akribos Research Services say the company’s top-line growth has and will continue to be assisted by improved national milk supply (with Dairibord’s milk intake increasing 12 percent), as well as strong milk demand fundamentals.

“Recent reports show that milk production in the country has increased 12 percent in the first six months of 2018. The highest milk production was in January when 6,1 million litres of milk were produced, up 10 percent from the comparative prior year.

“The Zimbabwe Association of Dairy Farmers (ZADF) has set targets to double the annual milk production in the country by 2022, reaching a target 131 million litres annually. Annual milk consumption stands at circa 120 million litres (national production is estimated at 64 million litres per annum) compared to peak usage of 270 million litres recorded in the 1990s.

“We highlight that there is currently a milk supply deficit in the country of circa 60 million litres that is currently being filled by imports. The total national herd stands at circa 29 000 cows and at its peak, the country had 119 000 cows. Overall, there are total of 15 milk processors in the country and Dairibord remains the biggest taking up 34 percent of raw milk. Dendairy has grown to become a close second with 33 percent. The rest (13 companies) share the balance of 33 percent,” say Akribos analysts Batanai Matsika and Ambition Mnkandla in a research note. 

In respect of what they term “strong milk demand fundamentals”, the analysts explain:

“According to the IFCN Dairy Research, the fact that the majority of the world’s population lives in developing countries (Asia and Africa), population growth has been the main driver of increased demand for dairy products.

“Based on milk equivalent (ME), average per capita global milk consumption amounts to about 100kg of milk/year. Per capita consumption in Western Europe is in excess of 300kg of milk/year compared with less than 30kg (and even sometimes as little as 10kg) in some African and Asian countries.

“Per capital milk consumption in Zimbabwe is less than 30kg and we expect this to increase as economic fortunes in the country improve.”

Good projections going forward
IH Securities analysts also predict further positive outcomes for Dairibord going forward.

“Dairibord appears to have turned a corner despite facing challenges in prior operating periods, particularly from a margin and operating efficiency perspective. We forecast revenue growth of 5,7 percent year-on-year to $109 million in 2018E.

“We forecast EBITDA growth of 14,5 percent year-on-year to $10,9 million in FY18E. We anticipate net income of $2,2 million in FY18E up 63 percent year-on-year driven by the absence of significant once-off charges in this period.

“We now estimate that Dairibord trades on a PER (+1) of 21,0x to FY18E vs peers at 18.5x in the same period.”

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