Delta in strong performance despite forex headwinds

17 May, 2019 - 00:05 0 Views
Delta in strong performance despite forex headwinds

eBusiness Weekly

Kudzanai Sharara and Fradreck Gorwe
Changes made in both the monetary and fiscal environment in October last year, saw Delta report results that were not reflective of the business potential, chief executive officer Pearson Gowero told an analysts’ briefing this week.

In October last year, treasury, through Finance and Economic Development Minister Mthuli Ncube introduced the 2 percent intermediated money transfer tax,  a move that constrained consumer purchasing power and weakened demand for products.

At the same time, the central bank announced the separation of RTGS and US dollar accounts resulting in the business experiencing stress as demand was severely weakened.

It also resulted in foreign currency market distortions with parallel market rates running wild and consumers resorting to panic buying.

Gowero reckons at least 60 percent of the consumer spending power was just lost in that one day when the RTGS dollar was floated against the US dollar. Further subsequent devaluation of the RTGS balances further debased the purchasing power of the consumers.

“Prices began to respond to changes in the environment so we had a situation where incomes were declining. In US dollar terms, it remained relatively stable but from the consumer perspective, prices were increasing at an alarming rate therefore demand became very constrained particularly in the last quarter,” Gowero said.

He, however, said the most significant thing that impacted Delta’s business, following those changes, was really the company’s inability to access foreign currency.

He said soon after the measures were announced, banks stopped supplying any form of foreign currency.

“All channels, banks stopped supplying any form of currency and so did the Reserve Bank and at some point as the alternative market became the dominant force in terms of access to foreign currency so business began to experience a lot of stress.

Gowero said the inability to access foreign currency restrained what the company could produce “as we didn’t have raw materials” in particular in the last quarter.

The soft drinks business was the most affected as volumes decreased by 44 percent to 797 000hl while gross sales in the category also went down by 37 percent to $188 million.

“We started witnessing intermittent production stoppages in the last quarter, particular on account we did not access all the foreign currency we needed therefore some of our raw materials were occasionally running out,” said Gowero.

A new trading framework has since been introduced in collaboration with The Coca-Cola company to address foreign currency and affordability challenges.

Good start to the year carried the day
The 2019 financial year had, however, started on a brighter note and helped the business end the year better than the comparative prior year. Gowero said the business was actually operating at optimal levels, optimising economies of scale in the first three quarters of the year. Both beer factories (Harare and Bulawayo) operated at capacity till December.

“We saw significant growth in some of the premium brands particularly Zambezi and Castle Lite as well as one way packs.”

This saw operating margins expanding to 28,34 percent from 20,75 percent.

Elections, a good agriculture season and a strong mining performance did drive disposable incomes.

“We also witnessed very good fiscal policies which provided additional liquidity, increased consumption particularly of our products.

“We did access a reasonable amount of foreign currency mostly through the formal channels, the RBZ and other commercial banks. We also accessed credit from our suppliers who co-funded our business.

Accessing foreign currency at 1:1 also “made our products more affordable and we saw strong demand for our products, Chibuku and Lager beer in the first half of the year.

“The sorghum beer business operated relatively undisturbed for most of the period and only had a minor adjustment of pricing in the last quarter.”

The strong performance is reflected in the financial results.

Strong second half performance
The group’s turnover for the year ended March 31, 2019 grew by 26 percent to $722,4 million on the back of volumes which went up 11 percent to 7,741 million hl largely on buoyant trading in the first 9 months of the year where prices were stable.

However at least 75 percent of the group’s revenue was recorded in the first nine months of the year as trading was constrained in the last quarter due to supply challenges and increases in wholesale and retail prices as highlighted above.

EBIT achieved was $175,5 million up 68 percent on prior year driven by the domestic beer segment. Meanwhile, EBITDA increased by 58 percent to $212,4 million while the attributable income also went up by 58 percent to $140,7 million.

Profit for the year grew to $143,23 million from $88,50 million.

Share This:

Sponsored Links