Delta hit by constrained consumer spending

PHILLIMON MHLANGA

ZIMBABWE’S largest brewer, Delta Corporation Limited, is feeling the pinch of constrained consumer spending as volumes across its product offering slid in the six months to September 2019  resulting in revenue declining to ZWL$1,5 bn from ZWL$1,6bn in the corresponding period last year.

Zimbabwe is currently experiencing hyperinflation, which is ravaging the economy, leading to consumers switching to less expensive products.

The company’s operations were disrupted by shortages of electricity, fuel and availability of foreign currency.

In a statement accompanying the group’s financial results, published Tuesday, board chairman, Cannan Dube, said volumes for Delta’s lager beer suffered a 48% decline compared to the same period last year, while sorghum beer volume dropped 15%.

The company said the prices of the major inputs such as maize and imported packaging materials rose ahead of disposable incomes. This has put pressure on the sorghum beer prices which has resulted in consumers switching to more affordable brands and packs within the category.

Sparkling beverages volume also declined 56% due to prolonged stock outs at the beginning of the financial year. Raw material supply remains a challenge as the category has a high import content.

Volumes for National Breweries PLC Zambia was down 20% partly due to higher pricing on the back of a steep increase in maize prices and the depreciation of the Kwacha.

Afdis recorded a soft volume outturn at 41% below prior year due to limitations in accessing and the high cost of foreign currency.

Delta’s associate Schweppes Holdings Africa also experienced reduced volume performance at 33% below prior year due to limited foreign currency supply for packaging material and reduced demand from higher pricing. Nampak Zimbabwe was also constrained by falling demand from its customers.

“The operating environment continued to deteriorate during the period under review,” Dube said.

He added: “Our production and distribution operations were disrupted by the shortages of electricity and fuel, which in themselves are a manifestation of the limited availability of foreign currency.

“The sourcing of imported goods and services remains constrained by the shortages of foreign currency, particularly in view of the backlog in settling past due obligations.

“Consumer spending remains low as incomes have lagged the escalation in prices of goods and services. The Company has been adversely impacted by shortages of potable water, electricity and fuel. Volume performance is thus constrained and significantly below last year across our product offering.”

Delta’s profit for the period under review, however, was 45% up to ZWL$382,4m from ZWL$263m achieved in the prior comparative period.

Total assets grew 24% to ZWL$4,7bn from ZWL$3,8bn.

Delta has a legacy foreign liability amounting to US$72m registered by the Reserve Bank of Zimbabwe. The company’s board, however, noted that there remained a risk, in the event that the central bank vary the policies regarding these liabilities. This means the blocked funds liabilities could be paid at exchange rates that are above the RBZ settlement rates that is 1:1.

Therefore, Delta, has made a provision of ZWL$1,2bn in potential exchange loss as at the end of September.