Zimbabwe’s biggest dairy products processor, Dairibord Holdings Limited has suspended a planned dividend payout to shareholders to protect the business following government’s recent controversial lending directive.
In a shocking move, President Emmerson Mnangagwa on Saturday announced tough measures to address market turmoil, ordering banks to temporarily stop lending, among a host of other interventions.
Dairibord was due to pay out $187 million in dividend for the year ended December 31, 2021 from today.
But a board meeting held on Tuesday to review Mnangagwa’s new measures resolved to shelve the plan to help the firm preserve liquidity.
It said changes in the operating environment and resultant uncertainty had significantly disrupted the credit markets.
“This caused the company to revise the announced dividend position supported with the need to preserve working capital for the company,” the firm said.
“The board will reconsider the dividend position at half year of 2022. Any inconveniences caused to our shareholders are sincerely regretted,” Dairibord added.
Dairibord chief executive officer Anthony Mandiwanza told NewsDay Business that working capital preservation had become crucial under the current situation.
“Working capital management involves looking at your receipts and payments. With the temporary measures put in place, it means that overhead facilities are limited and this is a challenge for us given that the majority of our products are sold on credit to wholesalers and retailers,” he said.
“In terms of revenue inflows, we are paying cash on the supply side because we are asked to pay cash upfront on all inputs. But on the marketing side, it’s all credit sales. Ordinarily, the gap between cash inflow and outflow would be bridged by overdraft facilities and other credit facilities which as of today are suspended. It does not, therefore, make sense for anyone to pay out a dividend at the expense of working capital requirements for the business,” Mandiwanza said.
The Dairibord CEO said the situation was temporary and a new dividend payment schedule would be announced once the position is revisited.
Development economist Chenayimoyo Mutambasere said the measure announced by Mnangagwa would trigger a huge liquidity crisis and cripple industry.
“Companies cannot do without some form of short-term borrowing especially in a volatile environment like ours,”
she said, adding that similar measures were expected to spread across the market.
“Shareholders will not get a dividend and even workers may be sacrificed when desperation takes over,” Mutambasere said.