CHAIRMAN’S STATEMENT OPERATING ENVIRONMENT
The year under review presented significant challenges including the introduction of new tax regulations, a restrictive monetary policy framework, exchange rate volatility, inflationary pressures, liquidity constraints, utility supply inconsistencies, route to market disruptions, and aggregate demand fluctuations.
The introduction of the Zimbabwe Gold (ZWG) currency in April initially stabilised both the exchange rates and inflation. However, by September 2024, rapid depreciation led to substantial devaluation causing pricing distortions within the formal trade, that stifled performance. In response to these market challenges, the Group optimised its route-to-market strategy, while complying with regulatory directives.
The introduction of the sugar content surtax fiscal policy adjustments including the VAT reclassification of milk products, and the increased Intermediated Money Transfer Tax (IMTT) on USD transactions, resulted in significant cost increases. This necessitated price increases particularly across the Beverages portfolio that negatively impacted competitiveness and consumer demand. Consequently, a price rollback to pre-surtax pricing was implemented, leading to margin erosion.
Operational inefficiencies stemming from inconsistent availability of utilities increased production costs and disrupted output, while supply chain challenges hindered material procurement.
FUNCTIONAL AND PRESENTATION CURRENCY
Given shifts in the operating environment’s currency dynamics, the Board of Directors determined that effective 1 March 2024, the Group’s functional currency had transitioned from the Zimbabwe Dollar to the United States Dollar. In compliance with the IFRS Accounting Standards, comparative financial statements were restated for the change in presentation currency.
In adherence to Regulatory Note SECZ070325 issued by the Securities and Exchange Commission of Zimbabwe, the financial results for the year ended 31 December 2024 have also been presented, in a separate publication, in ZWG for Special Purpose Reporting.
While the functional and presentation currency conversion processes align with IFRS Accounting Standards, users should exercise caution in relying on these figures given exchange rate distortions, estimation uncertainties in inflation indices as well as comparability distortions given the change in presentation currency.
PERFORMANCE
Raw Milk
Data released by the Dairy Services Unit, Ministry of Lands, Agriculture, Fisheries, Water, and Rural Development indicates national raw milk production reached 114.7 million litres in 2024, reflecting a 15% annual growth rate. Concurrently, the Group received 42.2 million litres, marking a 49% increase over the preceding year and a 37% market share.
Sales Volume and Revenue
The Group achieved a consolidated volume growth of 10% driven by strong performance in the Liquid Milks and Foods categories, though constrained by a marginal 1% growth in Beverages.
The Liquid Milks 20% significant year-over-year growth was due to an increased raw milk supply, with notable market share gains across Chimombe, Steri and Lacto.
Foods sales volumes rose 47%, led by Yummy yoghurt and ice cream, while improved product availability bolstered Rabroy Tomato Sauce sales.
Beverages realised only 1% growth, impacted by subdued Pfuko maheu performance due to pricing challenges from the sugar tax and VAT adjustments.
USD sales volume rose to 83% of total volume, up from 79% in the corresponding prior-year period.
Annual revenue reached US$126.75 million, an 18% increase over the prior year, driven primarily by a 10% volume growth.
Exports grew by 13% year-over-year, contributing 8% to total sales revenue, up from 6% in the prior period.
Profitability
The Group faced significant cost pressures from new legislative and regulatory pronouncements. The VAT reclassification of milk (US$0.63 million) and the Special Surtax on Sugar Content in Beverages ($2.26 million), impacted profitability. However, cost mitigation strategies for raw and packaging materials enabled a 30% increase in Gross Profit to US$31.73 million.
Operating profits declined due to increased selling and distribution expenses, and higher fuel costs driven by power outages.
Finance costs consist of interest expenses incurred and exchange losses incurred on foreign currency denominated loans. The notable reduction in finance costs was largely caused by a decrease in the exchange losses on foreign currency denominated loans from US$8.44 million in 2023 to US$1.76 million. The interest expense also decreased from US$1.85 million to US$1.29 million as the Group accessed loans with lower interest rates and extinguished those which were more costly to service.
Despite macroeconomic challenges, the Group posted a Profit for the Year of US$3.78 million, a significant increase from the prior year’s US$1.03 million.
Working Capital
The Group’s operating cash flow improved from the prior year comparative period, due to improved profitability in cash terms. Notwithstanding, the Group had some incidences of working capital deficits during the year, mainly as a result of prolonged delays in payments by some critical debtors. The delays caused a substantially high Expected Credit Loss allowance as at 31 December 2024.
To improve liquidity, the Group is implementing measures to accelerate inventory turnover, shortening the cash operating cycle and tightening its credit risk management practices to reduce risk of customer default.
Sustainability
The Group remains committed to sustainable growth, recognizing our responsibility to the environment and our stakeholders. Key priorities include enhancing sustainable production practices through reduced energy and water usage and minimized waste generation, coupled with the deployment of robust waste management and recycling initiatives. Community development remains a priority, with a particular focus on empowering small-scale farmers who are integral to our supply chain. Furthermore,
ensuring the well-being of our employees remains paramount, fostering a safe and supportive work environment that promotes growth and prosperity for all.
Exports grew by 13% year-over-year, contributing 8% to total sales revenue…
OUTLOOK
The Group continues to navigate a complex and volatile environment characterized by evolving regulatory policies and currency fluctuations. High input costs, an onerous tax burden, and pricing pressures remain key challenges.
To mitigate these impacts, the Group is optimizing operations, investing in capacity enhancement, and leveraging technology to strengthen product offerings. A strong emphasis is being placed on regional expansion through export growth and the toll manufacturing model in South Africa to diversify revenue streams and increase foreign currency earnings.
Cost reduction remains a strategic priority, with comprehensive measures underway to minimize expenditures. Furthermore, securing a stable, low-cost raw milk supply through robust out-grower support programs is essential for maintaining competitive advantage.
DIVIDEND
Given the prevailing challenges in the operating environment, liquidity pressures and the need to preserve capital for the Company’s strategic volume growth initiatives, the Board of Directors has resolved not to pay a dividend for the financial year ended December 31, 2024.
APPRECIATION
I wish to express my sincere appreciation to my fellow board members, management, staff, and all stakeholders for their steadfast support and commitment to our strategic objectives amidst a demanding economic landscape.
J.K.H. Sachikonye
Chairman
25 March 2025