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Low demand hits Delta volumes

26 Apr, 2019 - 11:04 0 Views
Low demand hits Delta volumes Lager beer volume went down 3 percent in comparison to prior year for the quarter

eBusiness Weekly

Enacy Mapakame
Zimbabwe’s largest company by market capitalisation, Delta Corporation’s aggregate demand went down for the fourth quarter and full year-ended March 31, 2019 as consumer spending contracted while foreign currency shortages persisted.

Across the board, volumes went down, indicative of the slowdown in demand caused by soaring retail prices, a trend now prevalent in the local fast moving consumer goods (FMCG) sector.

Constrained foreign currency to import raw materials saw the beverages giant temporarily halting operations at its sparkling beverages subsidiary, resulting in an 89 percent volume decline compared to prior year for the quarter and decreased by 44 percent for the full year.

Operations have since resumed for the sparkling beverages business albeit at a slow pace but there are ongoing collaborative interventions together with the Cola-Cola company to restore the business to a sustainable footing.

In addition to the foreign currency challenges, Government implemented fiscal measures between October 2018 and February 2019, which significantly altered the business environment.

Key among them were the introduction of the 2 percent transaction tax, the adoption of the RTGS$ as the functional currency as well as the introduction of an exchange rate of the RTGS$ to the US dollar.

Despite the introduction of the interbank foreign exchange market, Delta together with the rest of local industry have continued to battle foreign currency shortages while the rates on the black market continue to skyrocket subsequently eroding disposable incomes.

“Resultantly, there has been a severe decline in aggregate demand,” said Delta in a trading update.

“The board is concerned about the company’s ability to access foreign currency in order to meet its external obligations.

“The  exchange rate needs to be supported by robust and complementary fiscal and monetary policies,” said Delta.

Lager beer volume went down 3 percent in comparison to prior year for the quarter and is up 31 percent for the full year.

Delta attributed the decline in demand to the increase in RTGS$ wholesale and retail prices.

The sorghum beer volume in Zimbabwe eased 2 percent versus prior year for the quarter and grew by 5 percent for the full year. Chibuku Super contributed 85 percent of the total category volume.

Delta said: “Demand for the category remains encouraging despite the cost pressures on imported packaging materials, spares and the re-pricing of agricultural cereals.”

The Zambian subsidiary, National Breweries Plc recorded a volume decline of 24 percent for the quarter and remained flat on prior year for the twelve months.  Product demand has reduced following some price increases and down trading to subsistence offerings.

In terms of revenue, the figures show a 33 percent increase for the quarter and 26 percent for the full year, an increase spurred by the distortions caused by changes in reporting currency from USD to RTGS$.

“The full impact of the introduction of the inter-bank exchange rates on the group’s financial position is still being assessed,” said Delta.

At Afdis, volume and performance indicates fair growth, noting the distortions in the macro-economic environment.

It is anticipated the operating environment will remain challenging for the rest of this financial year and hard to see a reversal of the trend anytime soon under the current existing economic conditions with scarce foreign currency shortages.

Delta could reduce the size of its products and keep the price the same or continue on its path of unsustainable trajectory.

Big as it is, Delta is, however, expected to weather the storm and remain a favourite on its superior brand offering as well as its ability to offer value on the stock market.

“It is going to be a tough year, but Delta will remain a powerhouse and when things normalise we will begin to see demand increasing again on brand loyalty.

“In the meantime, we are likely to see a shift in product preference as the market downgrades to cheaper options,” said Harare analyst Sean Bvurere.

Meanwhile, Delta is still working on finalising a transaction to acquire 100 percent stake held by Diaego Plc in United Breweris Proprietary Limited South Africa who are the  leading  brewer  of  traditional  beer  and  owns  the  Chibuku brand  in  that  country.

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