Delta plans US$22m capex investment

LIVINGSTONE MARUFU
Delta Corporation Limited, the biggest brewer in Zimbabwe, is planning to spend US$22m as part of an accelerated capital investment in order to increase production capacity, Business Times can report.
Speaking to Business Times on the sidelines of the company’s analyst briefing, Group CEO, Matts Valela, confirmed the development.
He said the investment in new equipment will increase efficiency.
“We have Earnings Before Interest, Tax Depreciation and Amortisation (EBITDA) of US$74. 40m and we are going to invest 30% of that into capex programmes,” Valela said.
In its financial results for the six months to September 30, 2024, Delta reported a 85% spike in profit to US$41.053m from US$22.13m in the period under review.
Revenue for the group increased by 11% to US$389m in the period under review.
The proportion of domestic sales undertaken in foreign currency declined from an average of 88% in the prior year to around 77% in the current period following the introduction of the Zimbabwe Gold (ZiG) currency.
He said this shift is largely attributed to the introduction of the ZiG currency, the strict enforcement of dual pricing regulations and increased sales to the formal retail sector which largely trades in local currency.
“The exchange rate was stable in the first quarter but depreciated sharply on the parallel market in the second quarter. This led to pricing distortions in the formal markets, which resulted in reduced inflows of foreign currency from trading and banking channels. The ZiG was devalued at the end of the period under review, which ameliorated the pricing disparities. There were disruptions to trading in the formal sector arising from the route to market policies and taxes introduced through the 2024 National Budget. This was compounded by the price hikes resulting from the sugar content surtax on beverages, which attracted imports from regional markets,” Valela said.
At least U$20.5m, according to Valela, was remitted to ZIMRA through sugar tax with carbonated soft drinks accruing US$7.8m, cordial/ juice US$8.98m and alcoholic US$0.18m.
The balance was accrued from the associates.
This caused unavoidable price increases arising from sugar tax and dented volume.
Valela also disclosed that Delta has put in place strategies on pricing, product reformulation and pack size alignments to cushion the customers.
The introduction of the sugar tax also caused price increases in Maheu and soft drinks.
The implications of the sugar tax comes at a time when Delta is grappling with ZIMRA on the disagreement regarding the currency of payment for certain taxes and the methods of splitting taxes by currency for the period between 2019 and 2021.
It also comes at a time when Delta is battling ZIMRA’s tax dragnet.
Finance director Alex Makamure said tax issues inflicted pain on the company.
“A total of US$20.5m on sugar tax was accrued for the period of between February to September 2024 with the estimate for calendar fiscal year 2024 at US$32m.Carbonated soft drinks accrued US$7.8m, cordials/Juice US$8.98m and alcoholic US$0.18m. The balance was accrued from other associates.
This caused unavoidable price increases arising from sugar tax, which dented volume growth.To cushion the customers, Delta has instituted ongoing strategies on pricing, product reformulations and pack size alignments,” Makamure said.
He said Delta has instituted an absorption of cost for price moderation by changing pack sizes.
“We have carried out some intensive marketing campaigns and moderated pricing have supported demand, mitigating the impact of the sugar tax. Competitiveness has been affected by grey imports, driven by sugar tax-related price increases and currency developments,” Makamure said.
He said the introduction of sugar tax drove price increases (Maheu and soft drinks).
The implications of the sugar tax comes at a time when Delta is battling with ZIMRA on the disagreement regarding the currency of payment for certain taxes and the methods of splitting the taxes by currency for the period 2019 to 2021.
Delta was ordered to pay US$54.7m by the Supreme Court after it lost its appeal to pay in local currency.
Delta has since appealed to the Constitutional Court.
” ZIMRA positions ignore the fair economic value of prior payments. The tax cases are ongoing. There are significant legal and factual issues still to be addressed. Adverse Supreme Court judgment is being challenged at the Constitutional Court, ” he said.
Going forward, Valela said the company will focus on protecting the balance sheet, optimum resource allocation, generating positive cashflows to fund the ongoing capital projects and turning around the regional operations.