Red flag over hostile operating environment

LIVINGSTONE MARUFU

Zimbabwe’s biggest brewer, Delta Corporation Limited, expects the operating environment to deteriorate more  as the country draws closer to elections in two years time.

Delta’s board chairman, Sternford Moyo said the company was concerned that business will be crippled as campaigns by most policy makers would be in full swing.

He said instead of passing crucial bills that carry the country forward, the policy makers would be busy campaigning thereby affecting the country’s operations.

He also said the enactment of  Statutory Instrument 127 of 2021 and the delays in funding allocations from the foreign currency auction dented confidence in the domestic currency and affected the stability gains made  during the past 12 months.

“The Zimbabwean operating environment is expected to remain complex as the country begins to focus on the 2023 general elections in the circumstance of difficult economic policy choices,” Moyo said.

He said this may be further complicated by the COVID-19 pandemic which remains a factor in the short-term.

Revenue for Delta in the six months to September 30,2021, grew 99% to ZWL$ 33.59bn from ZWL$19.60bn.

Profit rose 38% to ZWL$6.64bn in the reviewed period from ZWL$4.89bn reported in the prior comparative period.

Moyo said earnings before interest and tax grew by 5% to ZWL$6.44bn.

He said the operating margins were normalising as inflation induced holding gains dissipated and the austerity measures adopted at the advent of Covid-19 ran their course.

There are cost pressures arising from the disparities in exchange rates applied by local suppliers in setting prices, he said.

Moyo said operations in South Africa and Zambia posted losses as the volume grew from below breakeven levels arising from the limited trading under Covid-19.

He said South Africa continued to implement very strict bans on the sale of, or trading in alcoholic beverages.

Net finance cost includes the exchange loss on the legacy foreign liabilities.

Delta has legacy foreign liabilities of US$13.9m, being those amounts that were due and payable on February 22, 2019 when the authorities promulgated SI33/2019 which introduced the ZW$ currency, as distinct from the US$, as the functional currency.

The company has registered these liabilities with the Reserve Bank of Zimbabwe and transferred to the Reserve Bank the ZW$ equivalent of the foreign debts based on the USD/ ZW$1:1 exchange rate in line with Directives RU102/2019 and RU28/2019 and as agreed with the Reserve Bank of Zimbabwe.

The divergence of market exchange rates and the interbank exchange rate creates a further risk that the “blocked funds” liabilities could be paid at exchange rates that are above the Reserve Bank of Zimbabwe settlement rates, Delta said.

The company remained cash generative, closing the period with a net borrowing of ZWL$864m.

Capital expenditure of ZWL$1.2bn was below planned replacement levels due to forex constraints at the beginning of the year.

Lager beer volume for the six months grew by 57% compared to the same period last year due  to competitive pricing and consistent product supply with respect to both brand and pack.

Moyo said the sorghum beer volume remained buoyant to register a growth of 68% for the six months in comparison to prior year and this was despite the curtailed distribution into rural markets and limited access to some key trade channels such as bars and beer halls that remained inaccessible under Covid-19 lockdowns and curfews.

The volume at Natbrew Plc (Zambia) declined by 22% for the six months due to the limited access to the market under Covid-19 restrictions and resurgence of competition from the illegal bulk beer offerings.

United National Breweries South Africa benefited from the lifting of the alcohol ban to record a volume increase of 118% over prior year.

The sparkling beverages volume grew by 95% over the previous year and the business has responded positively to the ongoing initiatives to recover market share through competitive pricing, focused market execution and consistent supply of brands, flavours and packs.

African Distillers Limited (Afdis) registered a volume growth of 66% over the prior year.

Ready to drink volume grew by 116%which is attributed to improved availability of ciders. Wines and spirits grew by 88% and 34% respectively.

Schweppes Holdings Africa volumes grew by 37% over prior year, driven by improved product supply and market recovery of the Minute Maid Juice drinks which were not available in the previous period.

The volume performance continues to benefit from the increased economic activity as the Covid-19 lockdowns are relaxed.

Nampak Zimbabwe Limited volume and revenue performance of the packaging divisions is being buoyed by the volume recovery in the beverages sector.