Delta Corporation says it owes foreign suppliers US$41 million, as surging demand continues to exert pressure on its forex needs.
Delta’s products, especially carbonated soft drinks, have been in short supply and the situation worsened at the beginning of October when the central bank announced a policy to ring-fence forex deposits, a move which triggered a run on the unofficial local currency – bond notes and electronic deposits – as well as panic buying by consumers spooked by the prospect of shortages.
The company’s major imports include raw materials for beverage manufacture and packaging. Favourable credit terms from parent company Anheuser-Busch InBev and the Coca Cola Company have, however, helped what would have been a far worse situation.
Announcing its results for the six months to September, Delta chief executive Pearson Gowero and finance director Matts Valela told analysts on Wednesday the company was struggling to meet booming demand. Delta’s annual foreign currency needs range from US$60 million to US$100 million, at current levels of demand for its products. Composite volumes, across product lines grew 13% in the half year to 3,574,000 hectolitres, excluding the Zambian subsidiary’s contribution.
Delta accesses all its foreign currency requirements from the formal channels, the Reserve Bank and commercial banks, Gowero said. The central bank, which has maintained a tight forex allocation regime since mid-2016, has struggled to meet growing import demand in recent months, resulting in widespread shortages, including of petroleum products.
“We faced a number of constraints, mainly due to outages in imported raw materials because of limited access to hard currency. We also found that, because of the perception that our products are going for a discount relative to what is happening elsewhere in the economy, that drove consumption and put our facilities under pressure as we were not able to cope with the demand,” Gowero said.
“Therefore, we witnessed constrained capacity, particularly for clear beer and Chibuku Super. Obviously, one has to be carefully to say whether or not this indicated long-term demand or temporary demand before one starts to think about additional capacity.”
Soft drinks were highly constrained by the shortage of raw materials due to their high import component.
Lager volumes rose 54% to 1,040 hectolitres on the same period of 2017, exceeding the peak recorded in 2012/13 and reasserting the product segment’s position as the main contributor to revenue, accounting to 56% to EBIT and 47% to gross sales.
Gowero attributed the volume growth to increased output in the agriculture and mining sectors, as well as government wage increases during the half year. He also acknowledged that consumers taking advantage of the widening gap between the official exchange rate and the black market rates could be driving up demand.
Last year, Zambian Breweries Plc, now a Delta subsidiary, complained about returnable glass shortages caused by smuggling of product into Zimbabwe, where pricing was higher. This has changed dramatically over the past 12 months, with the effective price of beverages in Zimbabwe now among the lowest in the region, thanks to the exchange rate distortion caused by the authorities’ insistence on pegging the bond note and RTGS at parity to the US dollar.
In effect, lagers cost an average US30 cents in Zimbabwe, compared to US70 cents to US$1 in Zambia.
With revenue jumping 37% to $341 million and attributable income 79% to $58 million, Valela admitted that Zimbabwe’s multiple pricing environment, it was difficult to make sense of numbers.
“I must just say upfront, with a distorted multi-tier pricing environment, it’s always difficult to read numbers. What do they mean, you never know. There’s contested currency values, I know accountants are busy arguing as to how we’re going to present financials, but what I want to underline here is that Delta has not taken a price increase in the last five years. So what you’re going to see here, I’m reporting on constant currency, same pricing as five years ago. The only thing which will vary is value and mix,” Valela said.
The foreign currency has also seen Delta’s anchor shareholder Anheuser-Busch InBev’s dividends stuck in the country, although the central bank is working on a structure to ensure foreign shareholders get their dividends.
Delta, which closed the period sitting on a $350 million cash pile, has declared a US4,50 cent dividend per share.