Delta shines the light through resilience
AS the biggest company on the Zimbabwe Stock Exchange, Delta Corporation has shone the light through resilience in turbulent times and innovation for growth, in times of relative stability. Delta’s value accretive is an offshoot of its asset base expansion which has been stimulated by a combination of investment in expanded capacity and new production line as well as acquisition of local and regional assets to compliment its capacity, in the process diversify markets and unlock further shareholder value.
From its lowest ebb in the full year to March 2020, over which the company recorded 4,6 million hector litres in sales volumes, the company has rebounded strongly to report an all-time high sales volume of 9,3 million hector litres over the 12 months period to March 2022. In 2021, the company recorded 6,6 million hector litres in sales which was in line with historical averages. However, in 2022, sales volumes increased by 41% to 9,3 million hector litres.
e significance of this movement is that it has resulted in a more than doubling of income from 2010 levels of about US$161 million to about gled to grow, easing off in 2017, as currency disparities kicked in amid foex shortages and tighter supply side economics.
In 2018 ahead of elections, massive election spend redeemed volumes, but a 2019 austerity program which ushered in a de-dollarisation resulted in massive volume loss as inflation kicked in massively derailing volumes. It was not only aggregate demand which plummeted with purchasing power erosion, but also supply-side bottlenecks particularly on imported raw materials. Delta, together with its supply partners, faced challenges in sourcing imported raw materials as RBZ struggled to manage the forex rationing system.
rough all the turbulence, Delta underwent some massive restructuring. More fundamentally was the consolidation of SAB Miller into AB in Bev, post the later’s acquisition. e disposal of some non core and competing assets also impacted Delta, particularly with regards to bottling rights for e Coca Cola Company (TCCC). When the AB In Bev and SAB Miller merger consummated Delta, the Coca Cola Company, which had been a direct competitor of Pepsi, which in turn is owned by former, sought to revoke its licencing deals made with SAB Miller. SAB Miller’s former operations were predominantly on the Sub Saharan Africa front, mainly South Africa, Kenya and also included Zimbabwe.
However, the material effect of the intended withdrawal did not kick in as extension of rights was negotiated. is in essence meant that the Delta operation as it had been under SAB Miller combining both sparkling beverages and lager beer, was to remain. is is particularly important in that it meant that the business continued to receive massive Capex support and enjoy scale, helping it retain market leadership in the core market of Zimbabwe.
More materially, at the order of South African Competition Commission, SAB Miller was order to dispose of its stake it Distell before the merger with AB In Bev. In the process, the structuring at Stellenbosch based Distell, its wines and spirits maker in turn resulted in the disposal of its stake in Zimbabwe spirits and wine maker, African Distiller. e stake was sold to Delta which increased its shareholding in Afdis from 10% to about 49%, consequently making it a subsidiary, from associate status. e processes of restructuring as a consequence of the merger also resulted in the offloading of National Breweries by AB In Bev, which Delta also snapped in 2018. e company produces sorghum beer for the respective Zambian market but has largely been struggling over the last five years.
Delta also snapped up United Breweries South Africa a sorghum beer manufacturer from Diageo, which is the world’s largest spirits marker positioning it as the most consequential sorghum beer manufacturer in Southern Africa. In the full year to March 2022, UBS reported total sales volumes of 1,3 million hector litres, which was a growth of 63% over the prior year. e unit contributed 14% to total sales volumes for the group in the period under review which helped the company report its best volumes performance on record.
Also underpinning the record performance is a 43% growth in volumes in the Zimbabwe unit, which accounted for 40% of total sales and remains the largest contributor of the market.
While growth appears to all be inorganic given the various acquisitions, the reality is that of a two-pronged approach where local capacity with the Chibuku line has extensively grown over the years. In 2014, a US$12 million investment into the Chitungwiza plant, ramped up total capacity to 1,8 million hector litres.
In 2015, a US$17 million investment at Fairbridge plant in Bulawayo resulted in a capacity expansion to 3,5 million hector litres. A further US$26 million was laid out in 2016, for the setting up of two sorghum beer plants in Kwekwe and Masvingo. An additional plant was set up in Rusape adding on to local capacity, while the bottling rights extension allowed for the acquisition of Mutare Bottling Company.
According to an analysis by Equity Axis, moderation of the financial performance where volumes is concerned shows that after factoring out Zambia, South Africa and the investment in Afdis, volumes will still top seven million hecto litres for the 12 months period to March, still a record high for the company which has in past hit a top of 6,8 million hector litres, that is early into dollarisation. It is not only the sorghum beer segment which has made a difference to Delta’s performance.
It is also the rebound in sparkling beverages, which has struggled since de-dollarisation, both supply and demand side factors have weighed on the performance on the unit’s performance in the past. Forex shortages impacted supply chains and resulted in low product availability at a time where competition intensified offering value packs.