Milk producer, Dairibord Holdings has lamented the high cost of borrowing making it difficult to strike a balance between covering working capital gaps and financing of capital projects it has lined up ahead.
Monetary authorities hiked interest rates for the local currency to 200 percent as part of measures to discourage borrowing local currency from banks for speculative reasons on the parallel market which had become rampant in the economy.
The group, in its Half Year (HY) to June 2022 financial results statement said the current cost of borrowing was prohibitive of growth.
“High cost of borrowing and short tenures will pose difficulty for business to bridge working capital cycle gaps and fund investments in plant and equipment for growth,” said Dairibord.
The high interest rates have however managed to tame the run-away exchange rate movements somewhat bringing stability to the local currency although it has come at a huge cost to industry.
Recently, a local industry body, Confederation of Zimbabwe Industries (CZI) weighed in on the impact of the high interest rates as likely to slow down the manufacturing sector which had begun to recover since the advent of COVID-19 pandemic.
Worse still, the local market is currently constrained of US$ credit and where it’s available it is short-term.
For the first half of the year, Dairibord had borrowings of ZW$1.2 billion which were invested in capital expenditure projects to increase production output and to fund long working capital cycles.
Foreign currency obligations were at US$4.3 million, including a long-term loan of US$0.66 million.
“Most of the obligations were adequately covered by foreign currency assets and expected disbursements of outstanding allotments from the auction market,” the group said.
The group recorded 40 percent growth in revenue of ZW$ 17.1 billion on increased volume sales.
Liquid Milks’ contribution to total volume was 28 percent, Foods 10 percent and Beverages 62 percent.
“This affirms the growing contribution of non-milk product categories and product portfolio diversification, in line with our “more than just milk” strategy,” said Dairibord.
After accounting for finance charges, foreign exchange losses and other incomes, the Group posted a profit before tax of ZW$1.1 billion [historical: ZW$836 million]. As a result it posted a profit for the period of ZW$ 689 million which was 231 percent ahead of prior year levels.