Zimbabwe: Delta Corporation reports revenue growth for Q3 and nine months to December 31

Beverages giant Delta Corporation Limited reported revenue growth for the third quarter and nine months to December 31, 2019 although sales volumes tumbled across most segments, The Herald said.

Revenue for the quarter rose 27 percent in inflation adjusted terms (646 percent historical) reflecting the changes in product mix and price increases.

For the nine months to December 2019, inflation adjusted revenue increased by 2 percent and 346 percent in historical terms.

However, a combination of shortages of foreign currency to import raw materials, electricity to brew beer and fuel to distribute products resulted in a volumes slump. The third quarter, which falls within the festive season usually records high sales as demand skyrockets in line with the season’s festivities.

But the group’s third quarter report shows lager beer volumes declined 43 percent for the quarter and 46 percent for the nine months compared to the same period in the prior year. Delta said it has had to cut back on lager beer production during the period under review.

“Consumer spending is constrained by low disposable incomes as salary and wage adjustments continue to lag the increases in prices of goods and services,” said Delta in its trading update.

Last year, Government’s policy framework was designed to restore fiscal sustainability and stability as a critical anchor for investor confidence and economic growth under the theme ‘Austerity for Prosperity’.

The year also saw a culmination of currency reforms that resulted in the floating of the exchange rate, the abolishment of the multi-currency system and re-introduction of the Zimbabwe dollar. These, however, did little to make the much needed foreign currency accessible on the official interbank market maintaining pressure on local businesses.

Having started off at par with the United States dollar, the local unit rapidly lost value against the dollar to see it end the year trading at $16 local for a single US dollar on the official interbank market while, trading as high as $23 to the United States dollar on the parallel market. This highly eroded disposable incomes and subsequently low consumer demand across sectors.

Market watchers have quipped in saying local businesses need to innovative to survive the volatile and forex deprived environment. Key strategies include diversifying product mix, import substitution as well as looking at the export market

Said Delta: “There is a focus on supplying key brands and packs and conserving foreign currency.”
Sorghum beer volume in Zimbabwe declined 41 percent for the quarter and 25 percent for the nine months.

Production of sorghum beer was also lower during the period under review as it was “adversely impacted by the constrained supply of maize and escalation in the cost of imported inputs such as packaging materials. There is renewed focus on the returnable Scud pack,” said Delta.

The country recorded depressed agriculture production during the 2018/2019 season and indications are that the country will need to import an estimated 800 000 tonnes of grain to be food secure this year. Already, the market is facing mealie meal shortages.

Delta’s regional operation — Natbrew Zambia — also recorded volume declines, at 32 percent lower from the prior comparable quarter.

There are some pricing disparities with other alcohol categories particularly driven by the steep increase in maize prices. However, it was not all doom and gloom for the beverages giant as sparkling beverages segment’s volumes grew 38 percent for the quarter on the back of a good performance of new products, but was down 40 percent for the nine months.

“There is a notable volume recovery in response to improved product supply and moderated retail pricing. The recently launched “No Sugar” variants have been welcomed by the consumers.”

African Distillers (Afdis) recorded a 10 percent volume drop for the quarter with the group raising concern over imitation products on the market. However, demand for ciders and white spirits remained strong.

Beverages volume at Schweppes Holdings declined 23 percent for the quarter due to an outage of key imported raw materials for both the Mazoe and Minute Maid brands; but performance of the recently launched Fruitade range of products was positive.

Meanwhile, Delta has renewed a three year bottler’s agreement to September 2022 with The Coca Cola Company (TCCC).

Delta had been trading under a cautionary issued with respect to the notice received from TCCC advising of an intention to terminate the bottler’s agreements with the group entities.

This followed the merger of AB InBev and SABMiller Plc in October 2016 and the subsequent agreement in principle reached between TCCC and AB InBev to explore options to restructure the bottling operations in a number of countries

Going forward, although Delta expects the macro-environment to “remain challenging”, it will “manage the emerging risks with particular focus on reducing the foreign liabilities and maintaining consistent product supply.”

Performance wise on the Zimbabwe Stock Exchange, Delta shares traded at $3,99 by close of Wednesday’s session.

Although the economic volatility is expected to weigh down on business performance, companies like Delta and other top capitalised stocks are expected to survive the turbulence on the back of their strong cash generative businesses while those with foreign currency exposure will add to their allure.

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