Saturday, April 4, 2009

Dairibord’s Uganda venture in the red

Saturday, 04 April 2009 -- Shame Makoshori -- The Financial Gazette

ZIMBABWE Stock Exchange-listed Dairibord Holdings’ US$6 million investment in Uganda has plunged into serious viability problems caused by its inability to secure working capital required to drive the business.

Dairibord last month came close to pulling out of the project because of the perennial working capital constraints hobbling the investment.

But chief executive officer Anthony Mandiwanza told The Financial Gazette this week that a full report on the group’s interest in Ugandan would be tabled before shareholders at an Annual General Meeting (AGM) to be held in a few weeks’ time where the future of the business will come under the spotlight.

“Details of that issue will be discussed with shareholders at the AGM,” Mandiwanza said on Monday. “We are already preparing the year-end report. We will issue a detailed report to shareholders.”

A report on the investment published in the group’s annual report for the period ending December 31 2008 showed the company has had serious problems in attracting working capital.

“The investment in Uganda performed very poorly in year 2008 due to a combination of factors, chief of which was inadequate working capital,” the group said last week.

“The company was 100 percent debt financed. Efforts to raise working capital funding have not yielded the desired results. If working capital funding is not secured, the directors will take appropriate action,” it added.

About a year ago, Dairibord announced the US$6 million investment through the acquisition of a 61 percent stake in a major dairy plant in the milk-rich east African country through its Malawi subsidiary, Dairibord Malawi.

The transaction meant the Zimbabwean company, effectively took control of the operation.

The investment was part of Dairibord’s ongoing efforts to diversify earnings and gain greater market coverage in the region while at the same time maintaining its dominance on the domestic market.

The strategic location of the investment in east Africa was an added advantage because Uganda is one of the continent’s leading milk producing states with output of well over one billion litres per annum.

Dairy industry statistics show that out of the one billion litres, only 10 percent was processed in Uganda, which has an equatorial climate allowing for all-year round milk production.

At the time of the announcement of the deal, Mandiwanza said the cost of milk per litre in Uganda was as low as 17 United States cents compared to 32 US cents in Kenya, 50 US cents in Zimbabwe and 42 US cents in South Africa.

Projected earnings from the east African country were expected to double that of Dairibord Malawi, acquired in 1998.

Dairibord’s sales volumes for the year were 43 percent lower than in 2007, with domestic volumes declining by 45 percent while exports also declined by 24 percent. Dairibord said the decline in volumes was on account of a 41 percent reduction in raw milk intake.