Dairibord Zimbabwe stays put in Malawi despite profits decline

The Dairibord Zimbabwe Limited (DZL) has said it is not pulling out its investment in Malawi despite recording a 41 percent decline in profitability on the Malawi market.

DZL investment recorded the decline due to devaluation of the kwacha and milk supply challenges which saw its subsidiary, Dairibord Malawi Limited (DML), making less than US$500 000 in profits.

The company says DML’s profit contribution to DZL for the 12 months to December 2012 fell from US$1 million to US$484 000.

Reserve Bank of Malawi (RBM) devalued the kwacha in May last year to fully liberalise it and also address challenges bedevilling the country’s economy.Dairiboard-250

DZL Chief Executive, Athony Mandiwanza, said besides the devaluation, contributions from Malawi operations were also affected by a 10 percent decline in milk supply due to challenges with electricity and one bulk supplier starting its own milk processing operations.

But Mandiwanza said despite the challenge the company would not divest from Malawi because it was still viable as well as for strategic reasons after sustaining operations during tough times.

Before divesting, said DZL boss, there was need to carry out a cost-benefit analysis and be able to demonstrate to shareholders that by selling an investment directors will not be throwing away value.

“In 2008 Malawi actually carried us, 80 percent of this company survived because of Malawi. That was the only place where we were generating foreign currency to keep the business afloat,” Mandiwanza told The Herald newspaper.

“The bottom line last year was nearly a million and this year just under a million and that is a positive contribution to the business, so what we see in Malawi are challenges, but we believe those challenges are only transient, they are not permanent challenges at all.”

Unlike in Zimbabwe where the company closed two plants due to economic challenges, the DZL boss said they would remain in Malawi to ensure shareholders do not lose value due to inflation.

DZL, which in 2011 increased its shareholding in the Malawi operation from 60 percent to 68 percent, said it was also cautious not to repeat previous experience when it sold its canning business, Mulanje Peak Foods, at a loss.

“A typical example, we had to dispose, as part of our rationalisation of the operations in Malawi, by selling Mulanje Peak Foods, which was undertaking the canning of various products. We sold that and got K87 million, I wish it was the US dollar and translates to a ‘modest’ number,” he bemoaned.

DZL also plans to replicate its local heifer rehabilitation programme in Malawi as part of strategic measures to increase milk supply there.

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