Delta beer output declines 42 percent

BEVERAGES giant, Delta Corporation Limited, reported a decline in beer volumes for the year to March 31, 2020 as inflationary pressures continued to cut on consumer spending.

For the year under review, lager beer volume went down 42 percent compared to last year. During its third quarter, which falls within the festive season, lager beer volumes fell 43 percent although this is the period where sales usually sky-rocket in line with the season’s festivities.

Group chairman Canaan Dube, bemoaned the challenging operating environment that was characterised by foreign currency shortages, fuel and utilities supply challenges as well as inflationary pressures that had a knock on effect on consumer disposable incomes.

For Delta, drought induced shortages of brewing materials also added to its woes.

“The trading conditions during the year under review were very difficult particularly in Zimbabwe,” he said in a statement accompanying the group financials for the year under review. The RTGS currency, which was introduced in October 2018, was confirmed as the sole transaction currency on June 24, 2019 but was not fully supported by fiscal measures as envisaged under the Transitional Stabilisation Plan.

“Resultantly, the economy has faced a multitude of headwinds, which culminated in reduced consumer disposable income and weak business performance. The authorities responded with a myriad of fiscal and monetary policy refinements that in some cases fuelled the meltdown,” he said.

Under the lager beer segment, the premium segment Zambezi Lager, however, remained resilient as it maintained its proportionate share of the reduced volume.

Mr Dube indicated there was a prioritisation of returnable bottle packs in an effort to conserve foreign currency and offer the more affordable packs to the consumer although it is noted that the circulation of returnable containers is slowed down during hyperinflation as traders hold them as a store of value.

Sorghum beer in Zimbabwe dropped 25 percent on last year. The pricing of the category was driven by the escalation in the cost of imported inputs such as packaging and brewing cereals. Under this category, Chibuku Super remains the largest contributor to volume in line with the group’s strategy.

In Zambia, sorghum beer volume also went down 27 percent last year and there are ongoing measures to reverse the volume loss to other alcoholic beverage categories and return the business to profitability.

The sparkling beverages volume fell 17 percent compared to last year on the back of foreign currency shortages, utility challenges especially water supply and reduced consumer spend.

At Afdis, foreign currency shortages also constrained growth for the spirits and wines maker although the entity continued to innovate and launch products that require less foreign currency. For associate entities, Schweppes, recorded volume loss for the year although its products continued to dominate the dilutable soft drinks category. At Nampak, overall demand remained subdued reflecting the reduced spending on most packaged consumer goods.

On financial performance, the group recorded revenue growth of 480 percent to $4,2 billion on historical cost basis. Delta attributed the growth to inflation induced pricing across all product categories.

Earnings before interest and tax grew by 650 percent over last year. Headline earnings per share jumped 629 percent to 81,55 cents.

A net finance cost of $100 million was a result of foreign exchange losses and low deposit interest rates.

Delta closed the year with a net borrowing of $1,07 billion. The group’s foreign currency exposure from legacy debt arrangement remains at US$63,8 million.

Due to foreign currency shortages, capital expenditure of $156 million was below planned replacement levels. Like any other business operating in the country under economic uncertainties, management at Delta also believe the course of the economy will largely depend on how the country manages the Covid-19 pandemic as businesses reopen.

The impact of the pandemic will also be reflected in the first quarter of the current financial year. In addition to the impact of the pandemic on operations, the board is also concerned about the deteriorating operating environment as indicated by hyperinflation, rapid changes to the policy environment, weak local currency and the existence of multiple and disparate exchange rates.

The shortages of foreign currency in the formal banking channels have already caused delays in settlement of overdue external obligations.

Delta deferred the declaration of the final dividend due to uncertainties caused by the Covid-19 pandemic.