Delta lauds improved access to forex
LEADING beverages producer, Delta Corporation, says access to forex has improved under the new forex auction trading system and that domestic sales in hard currency would bolster volume performance.
Although the business has felt a blow from the Covid-19, which has crippled demand since the outbreak of the pandemic early this year, the company says its raw material supply remains stable despite some logistical constraints.
In its business update for the first quarter ended June 30, 2020, Delta said operations were constrained by the peak of restrictions to human and economic activity implemented by authorities in response to the advent of the novel coronavirus. This resulted in mixed performance with a drop in volumes on major units. However, monetary measures recently adopted by Governemnt are set to cushion the business amid continued unstable macroeconomic factors.
“The business will benefit from the improved access to foreign currency through the new auction system and domestic sales in foreign currency,” said Delta.
“The policy changes to allow use of FCA free funds to settle domestic transactions and the introduction of the foreign currency auction system is expected to improve access to foreign currency to meet operational requirements and to settle legacy debts.”
The forex auction system began in June, replacing the fixed exchange rate of US$1:ZWL$25, which was criticised for fuelling the black market through rampant distortion in the exchange rate.
The company also said its supply of key raw materials was stable with the maize deficit in Zimbabwe set to be covered by imports from regional markets.
Countries across the globe, including Southern Afria have implemented various measures to contain the possible spread of the virus. These included lockdowns, restrictions on travel and social gatherings and limiting the sale or consumption of alcoholic beverages.
Severe impacts arising from the curtailed economic activity and stressed health delivery systems have negatively affected beverage firms like Delta.
As a result the group’s revenue for the first quarter was five percent below prior year in inflation adjusted terms compared to a growth of 765 percent in historical cost terms, says the report. This reflects the impact of the Covid-19 disruptions on volume and the cost driven price changes.
Earnings before interest and taxes grew by 10 percent in inflation adjusted terms and 838 percent in historical cost, compared to year on year inflation of 737 percent, it said.
As such Delta said its board will continue to focus on reducing the foreign currency exposure with net foreign liability having already been reduced by US$3.5 million during the quarter to US$60 million.
In Zimbabwe, the impact of Covid-19 had been exacerbated by hyperinflation, an unstable exchange rate and food deficiencies arising from persistent droughts among other factors.
Inflation and the depreciation of the Zimbabwe dollar accelerated during the quarter leading to more frequent price increases at a time when consumer disposable incomes were constrained.
In view of the above, Delta said its lager beer volume for the quarter declined by 18 percent compared to the same period last year, noting the low outturn in prior year during the transition to the mono-currency system.
“Trading in alcoholic beverages was restricted to off-premise outlets for home consumption in line with the Covid-19 guidelines.
“Sorghum beer volume in Zimbabwe declined by 51 percent for the quarter due to limited access to the market particularly in trade channels such as bottle stores and bars,” said the company.
“The category witnessed higher price adjustments driven by escalation in the cost of imported inputs such as packaging and brewing cereals.”
However, at Natbrew Zambia, the company said volume increased by 17 percent for the quarter, benefiting from price moderation and the ongoing measures to revive volume. The sales were mostly in Chibuku Super, which is more accessible in the off-premise trade channels. It said performance was constrained by a tight working capital cycle.
Except for the South African business unit, which has been affected by the ban on alcohol, all the other businesses are cash generative hence the group is operating as a going concern, said Delta.
The South Africa entity, United National Breweries traded for a few weeks during the quarter as the authorities implemented very strict prohibitions on the sale and consumption of alcohol under the Covid-19 national lockdown measures. The prohibition was partially lifted in June but reintroduced on 16 July 2020. The ban could remain in place for an extended period due to the escalation in Covid19 infections.
Sparkling beverages volume on one hand grew by 35 percent for the quarter compared to prior year. The recovery momentum has been slowed by the limited market access and limited activity in key sales channels, said the company. The category has benefited from a stable market supply with the sales mix shifting to one-way packs and take-home offerings.
African Distillers (Afdis) recorded an overall eight percent volume growth for the quarter driven by the spirits category. Meanwhile, beverages volume at Schweppes Holdings declined by 32 percent for the quarter, reflecting the constrained trading under Covid-19 conditions. Delta said the unit’s exports have been affected by the depreciation of regional currencies, which reduces competitiveness. This is despite an improved intake of juicing and processing fruit.
The report on volume and financial performance indicates that the business has been able to sustain its viability during the peak of the restrictions.
To mitigate the impact of the pandemic, Delta has implemented various mitigation measures to improve the workplace health and safety and continues to assess the commercial risks.