Delta’s performance reflects challenges firms must navigate

DELTA Corporation last week reported a significant decline in revenue for the quarter and nine months to December and this was not the first time the group has recorded such a dip.

THE performance is unlikely to change going into the last three months of the group’s financial year and looking at the trend, the results paint a graphic picture of what lies ahead in 2017; a potential rollercoaster before good times roll again.

Delta’s financial performance and situation aptly reflects the difficult terrain Zimbabwe’s corporate world will need to contend with and navigate to stay afloat, before measures Government is working on start to kick in and cause a positive out-turn.

Presumably, in these difficult times organisations need to think about the most effective survival tactics first, then growth. Riding the tide of what lies ahead will need good managers.

Executives are normally entitled to handsome perks, the expectation being they should spend more time analysing the environment and coming up with effective ideas to steady the ship. We do not see this in many companies these days.

And there are quite a handful such directors in Zimbabwe Stock Exchangelisted firms whom observers feel no longer deliver value, how they manage to stay on is anyone’s guess, certainly not about their capability to take the companies forward, even after discounting the difficult environment.

But any corporate executive who, in the last two to three years, has followed the performance reports for companies like Innscor, Econet Wireless, BAT, CFI and Delta will certainly have, almost inevitably, noted a common strand of strain.

It has either been a dip in any one of revenue, profit or volumes, with intermittent instances of increases in between. However, it has mostly reflected a picture of a difficult environment, which demands shrewd leadership to formulate strategy to ensure viability or at least preserve value.

Maybe shareholders need to be more assertive and demand that directors who do not bring or preserve value, regardless of the magnitude of challenges facing the economy, should go.

Delta has managed to do just that, which is the reason analysts believe its stock may continue to rise and that it continues to endear itself to investors, thanks to the support of its deep pocketed shareholders, strong brand equity and diversity.

The beverage maker summed it all up in its summation of the causes of the fall in revenue, which we have seen a few occasions, especially in the period January to December 2016.

The Zimbabwe Stock Exchange-listed brewer said it was weighed down by depressed aggregate demand and product shortages, which result in revenue, volumes and profits heading southward. It is a cancer facing most businesses in Zimbabwe.

Revenue declined 10 percent for the third quarter to December and was lower 9 percent for the nine months period on weak demand and product shortage due to water supply interruptions to two of the group’s sorghum beer plants.

While the problems may vary from one company to another, many such chronic challenges exist in the domestic economy, in size and extent, as to cause viability constraints. It might actually get stormy before getting calm. Delta cited sustained decline in disposable incomes, which continue to shrink on account of company closures and weak economic growth. Finance and Economic Development Minister Patrick Chinamasa projected in his 2017 National Budget that the economy would grow by 1,7 percent. Headwinds will continue to include fluctuations in commodity prices, tight liquidity situation, high cost of utilities (water, electricity and rates), weak aggregate demand, shortage and cost of raw materials, shortage of foreign currency, influx of imports and high cost of finance.

Further, Zimbabwe is expected to continue to record current account deficit, constrained revenue inflows, budget deficit, low to average industrial production, huge import bill and depressed foreign direct investment, at least in the shortterm.

But this should change on account of pro-production policies and initiatives announced in the 2017 budget, including incentives to a number of sectors such as gold mining and manufacturing, ongoing efforts to re-engage the international community (arrears clearance), special economic zones and reforms to ease of doing business conditions.

Admittedly, this may however come after a few casualties from the prevailing challenges and Delta has already been a victim. Delta said sorghum beer volumes decreased by 4 percent for the quarter, but increased by 2 percent for the nine months period.

“The decline in the quarter reflects the disruptions to production due to water cuts affecting the Chibuku Super plants at Chitungwiza and Fairbridge (Bulawayo),” Delta said in an update for the quarter and nine months.

Delta said while the shortage of foreign currency spurred demand of local products, which affected procurement of raw materials for the business, it had faced challenges remitting about $30 million in dividends to its foreign shareholders. This negatively impacted completion of new plants.

As a result, the group’s revenue for the period to September 30, 2016 fell 8 percent to $246,6 million compared to the prior year as all segments recorded lower volumes during the period.

The brewer’s operating income was down nine percent to $39,4 million while earnings before interest, tax depreciation and amortization were eight percent lower at $54,9 million.