Delta Corporation has given a huge thumbs up to the country’s economic growth prospects saying “consumer spending remains high” while the informal sector is “buoyant”
In its trading update for the three months to December 2022, the beverages giant said the high consumer spending benefitted from “improvements in wages and salaries across various sectors”.
As the economy dollarises, with the mix of the currency basket at 60:40 for USD and ZWL, wages are stabilising and in some instances improving in real terms, giving a boost to consumer demand.
Increased mining activities and diaspora remittances and Government infrastructure spending were also beneficial.
Delta enjoyed high consumer spending with sales volume for lager beer growing by 17 percent for the quarter under review and 18 percent for the nine months compared to the same period last year.
The growth in volumes was also recorded in the sorghum beer category with volume growing by 11 percent for the quarter compared to prior year and is up 12 percent for the nine months.
The Sparkling Beverages volume grew by 5 percent for the quarter and is up 14 percent for the nine months.
The high demand was also extended to subsidiary African Distillers Limited (Afdis), which reported a volume growth of 10 percent for the quarter and 11 percent for the nine months.
Demand was also buoyed by a “stable US Dollar pricing”, according to Delta.
Through Statutory Instrument 118A of 2022, Government allowed settlement of any transaction or payment for goods and services in foreign currency.
SI 118A will remain in force for the period of the National Development Strategy 1 (NDS1).
NDS1 is the national economic plan which runs for the period from January 2021 to December 2025.
This has allowed local businesses, including Delta, to generate foreign currency through domestic sales.
The third quarter witnessed a slowdown in inflation and exchange rate volatility in response to some policy interventions, which resulted in increased foreign currency transactions and constrained Zimbabwe dollar liquidity.
“The Zimbabwe businesses recorded a significant increase in the proportion of foreign currency sales during the quarter to beyond 70 percent,” reads part of the trading update signed off by Delta’s Company Secretary Ms Faith Musinga.
“There was a corresponding increase in the purchases settled in foreign currency, as the economy dollarised,” said Musinga.
Delta also described the informal sector, particularly in mining, as “buoyant”.
Small-scale miners generated US$1,4 billion in 2022 after contributing 68 percent of the gold delivered to Fidelity Gold Refinery in the year.
The RBZ, however, plans to focus on ensuring value preservation for the local currency and promoting its use to increase its proportion in the dual currency basket, according to local media reports.
Despite recording strong demand, Delta is not leaving money on the table according to an executive with a local wholesaler.
“From where we are sitting they certainly have opportunity to grow volumes even further,” said the executive in a private conversation.
Delta acknowledged as much in the trading update highlighting supply constraints for some of its products.
“Product supply was stable although there were intermittent gaps arising from outages in power, water supplies, mismatches in the demand and supply of brands and packs,” said Delta of its lager beer segment.
Despite the Chibuku Super Banana flavour exciting the market, there are still packaging capacity and supply chain bottlenecks that need to be addressed. Supply constrained were also reported on PET packs, returnable glass packs and ciders at Afdis.
“The supply of PET packs remains constrained and will be addressed by the investment in additional capacity, which is expected in the current quarter.
“The supply of returnable glass packs was affected by the delayed receipt of glass bottles and some disruptions to production operations arising from power and water outages.
“The supply of ciders was constrained by a regional shortage of glass bottles,” Ms Musinga.
As a show of confidence in future prospects, Delta is pushing investments across the Group.
In the lager beer category, the installation of additional packaging plant is on schedule for commissioning in the first half of 2023.
For the sorghum beer category, the installation of additional production capacity at Harare brewery is in progress for commissioning during the first half of 2023.
“The supply of PET packs remains constrained and will be addressed by the investment in additional capacity which is expected in the current quarter,” reads part of the trading update.
At Afdis, the business commissioned a new PET line for packaging of spirits and commenced local fermentation of ciders.
“The capital investment projects are progressing according to plan and expected to contribute to business performance in the coming financial period,” said Musinga.
Going forward she said the country has opportunities to benefit from the rich mineral resources and firming commodity prices.
“The Group remains focused on exploiting the opportunities arising from activities that generate aggregate demand such as the infrastructure development projects, mining activities and diaspora remittances,” Musinga said.
The period under review was, however, not without challenges with inflation and currency depreciation expected to affect financial performance.
“The financial outturn in F23 could be affected by the foreign currency tax assessments arising from differences in interpretation of legislation on the currency of payment of certain taxes,” Musinga said.
Group revenue grew by 44 percent for the quarter and 53 percent for the nine months in inflation-adjusted terms compared to growth of 407 percent and 419 percent for the quarter and nine months respectively in historical cost terms.
“This reflects the volume growth and the replacement cost-based pricing.”