Zimbabwe: Delta corporation and the economy

Delta’s latest financial performance results shows improving volumes across SBUs.

Delta Corporation controls over 50% of the non-alcoholic beverages market in Zimbabwe through its own operations and those of its subsidiaries and associates.
The company also controls approximately 80% of the alcoholic beverages market in Zimbabwe.

A trading update for the 3rd quarter period (October to December) showed that of the three SBUs, Lager volumes improved by 48%, while Sorghum beer and Sparkling beverages volumes went up by 29% and 66% respectively.

Key takeaways from the results are that this is the first time in 8 quarters that volumes in all SBUs have registered a concurrent growth over the prior comparable period.

This is also the first time in 8 quarters that SBUs have all reported double digit growth rates in volumes.

The chart in this segment shows the historical performance of Delta’s SBUs since dollarisation.

Delta volume performance has largely been anchored on sorghum beer. This is because of the nature of the offering. Sorghum beer is typically a high volume and low margin product.

A few years into dollarisation, Delta ramped up production capacity in the sorghum beer line while adding new packs to the line too, notably Chibuku Supper.

At a point when the economy began experiencing a slowdown notably in 2017 onwards, Sorghum beer volumes started to retrend northward and even set new record highs in 2018.

At this point consumers were foregoing mainstream offering such as lager beer and trading down to value products.

In the full year to March 2020, Delta reported the least volumes performance in 11 years. All SBUs suffered a significant plunge and so did revenue.

The significance of Delta’s performance is that the company produces essential products in the food sector and also controls a bigger fraction of the market.

Delta is also involved in downstream and upstream value chains, which impacts agriculture, packaging and transport sectors among others.

It is thus seen as a major player in the economy and its performance often touted as an economic barometer for Zimbabwe.

The positive emerging numbers from the final three months of 2020 are largely in line with the broader performance of the economy.

While most companies are yet to release their earnings to December, ZIMRA numbers shows that taxes collected in the 3rd and 4th quarter of 2020 were significantly improving compared to successive prior quarters.

The growth in revenue, while partially inflation induced, has shown a direct linkage to production and sales volumes especially towards the end of the year.

A more stable exchange rate, improving remittances and a recovering informal sector, all contributed to the growth.

Some companies have also begun releasing numbers showing similar trends over the same period and most are showing double digit volumes growth as well.

While this is in stark contrast to the projected GDP performance of -10% for 2020, the emerging trend is largely due to tilting economic environment.

The first half of 2020 was very bad given the carryover effects of austerity, drought recurrence, cyclone, a very low national budget, quicker growth in inflation, faster depreciation in currency and an unfunctional currency market.

A significant portion of the nation’s GDP was significantly wiped off within a very short space of time.

However, a stabilising currency in the second half following a revamp of the auction saw miners scale up production and coincidentally benefitted from firming global prices particularly in gold, which is seen as a safe haven.

Given the highly informalised nature of Zimbabwe’s economy and the proliferation of small scale mining, a reversal of dedollarisation, increased trading and the volumes of traded in the economy, hence improving consumption and aggregate demand levels. Remittances are also playing a key role and presently Zimbabwe recorded the highest level of remittances since dollarisation in 2020 owing to Covid-19 and friendly policies.

For Delta and the rest of the market, the biggest challenge going forward is Covid-19 and a fragile economic environment. A lockdown which has already been effected in 2021 banned the sale of alcohol and this directly reduces sales.

It further reduces business in the informal sector, a key driver of improving consumption levels in the economy.

Government’s expenditure will likely increase significantly as efforts to combat the crisis are scaled up. Acquisition of vaccines, test kits and PPEs most of which has not been budgeted for, has the potential to destabilise the fragile economy and dent companies’ prospects of a better outlook.

This was first published by the Independent. Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net.