Zimbabwe: Delta's Beer Sales Down, but Soft Drinks Register Growth

3 August 2020

Beverages giant, Delta Corportion Limited's beer sales, both lager and sorghum, took a dip for the first quarter to June 30, 2020, but its soft drink's sales were positive.

The mixed performance was achieved on the back of economic headwinds and limited access to markets due to Covid-19 induced restrictions.

"Authorities around the world including those in our region implemented various measures to contain the possible spread of the virus. These included lockdowns, restrictions on travel and social gatherings and limiting the sale or consumption of alcoholic beverages.

"The economies in most countries have experienced severe impacts arising from the curtailed economic activity and stressed health delivery systems," said company secretary Alex Makamure in trading update for the quarter.

The quarter under review came at a time a national lockdown was under way and at its peak resulting in restrictions in access to markets.

Beer halls, clubs, bottle stores and other social gatherings that drive alcohol sales have been under lock and key resulting in the reduction in sales volume.

Trading in alcoholic beverages was restricted to off- premise outlets for home consumption in line with the Covid-19 guidelines.

Additionally, the effects of the pandemic hit an already fragile economy characterised by foreign currency shortages, unstable exchange rate, high inflation, waning disposable incomes and food deficiencies arising from persistent droughts among other factors, according to management.

During the quarter under review, lager beer volume declined by 18 percent compared to the same period last year, noting the low outturn in prior year during the transition to the mono-currency system.

Sorghum beer volume in Zimbabwe declined by 51 percent for the quarter due to limited access to the market particularly in trade channels such as bottle stores and bars.

According to the beverages giant, the category witnessed higher price adjustments driven by escalation in the cost of imported inputs such as packaging and brewing cereals. In regional operations -- Natbrew in Zambia, recorded a volume increased of 17 percent for the quarter, benefiting from price moderation and the ongoing measures to revive volume. The sales were mostly in Chibuku Super which is more accessible in the off-premise trade channels.

Mr Makamure indicated that the performance in Zambia was, however, constrained by a tight working capital cycle.

For the South Africa based entity, United National Breweries, the business traded for a few weeks during the quarter as the authorities in that country implemented very strict prohibitions on the sale and consumption of alcohol under the Covid-19 national lockdown measures.

The prohibition was partially lifted in June but reintroduced on July 16, 2020.

Away from alcohol, the sparkling beverages segment maintained a growth trajectory as volume grew by 35 percent for the quarter compared to prior year although the recovery momentum has been slowed by the limited market access and limited activity in key sales channels.

At associate company, African Distillers (Afdis), an overall 8 percent volume growth was recorded for the quarter driven by the spirits category.

Beverages volume at the other associate, Schweppes Holdings, declined by 32 percent for the quarter reflecting the constrained trading under Covid-19 conditions.

Exports at Schweppes have been affected by the depreciation of regional currencies which reduces competitiveness. However, there has been an improved intake of juicing and processing fruit.

In terms of financial performance, revenue for the quarter was 5 percent below prior year in inflation adjusted terms compared to a growth of 765 percent in historical cost terms, reflective of the impact of the Covid-19 disruptions on volume and the cost driven price changes.

Earnings Before Interest and Taxes grew by 10 percent in inflation adjusted terms and 838 percent in historical cost, compared to year on year inflation of 737 percent.

Going forward, the Delta board said will continue to focus on reducing the foreign currency exposure.

It also said the policy changes to allow use of FCA free funds to settle domestic transactions and the introduction of the foreign currency auction system is expected to improve access to foreign currency to meet operational requirements and to settle legacy debts.

Related to the issue of foreign currency, net foreign liability was reduced by US$3,5 million during the quarter to US$60 million. Except for the South African business unit which has been affected by the ban on alcohol, all the other businesses are cash generative hence the group is operating as a going concern.

Going forward, the business environment is likely to remain unchanged in the near future with Covid-19 posing some uncertainties. Delta is, however, upbeat the business will benefit from the improved access to foreign currency through the new auction system and domestic sales in foreign currency.

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