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Dairibord Malawi Limited saw its profit contribution to the parent company for the 12 months to December 2012 falling from US$1 million to US$484 000 largely due to the devaluation of the local currency.
Malawi’s Reserve Bank devalued the kwacha to fully liberalise it and also address challenges bedevilling the economy.
Following the devaluation in May last year, one US dollar could buy 247 Malawi kwacha from MK168.
DZL said that contribution from Malawi operations was 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 DZL chief executive Mr Athony Mandiwanza said that the group would not divest from Malawi as it was still viable as well as for strategic reasons after sustaining operations during tough times.
“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,” he said.
“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,” said Mr Mandiwanza.
The DZL boss said unlike in Zimbabwe, where the group had to close two plants due to economic challenges, they would also remain in Malawi to ensure shareholders do not lose value due to inflation.
DZL has suspended production in Bulawayo and Malawi, for economic reasons, and transferred production operations to Chitungwiza and Harare plants with only the sales and marketing activities remaining in the two provinces.
The dairy group also has a documented record of moving out of unprofitable investments and only last year sold its 40 percent stake in confectioner M.E Charhons, which was experiencing serious viability problems.
But DZL, the leading player in the industry comprising four companies in Malawi, is also cautious not to repeat what happened when it sold its canning business, Mulanje Peak Foods, at a loss.
In 2011 DZL increased its shareholding in the Malawi operation from 60 percent to 68 percent.
“If you wanted to go on capital flight in Malawi and you know that the depreciation (estimating at 100 percent by year end, that itself will not give value in terms of disposing of your asset in hurry.
“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 87 million Malawi kwacha, I wish it was the US dollar and a translates to a ‘modest’ number,” he said.
Before divesting, said Mr Mandiwanza, 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.
DZL also plans to replicate its local heifer rehabilitation programme in Malawi as part of strategic measures to increase milk supply there.
Investment has also been made in generators to address challenges around milk supply due to disruptions caused by inadequate power supply in Malawi.
Online Reporter