Soft consumer spending dents Delta

DELTA Corporation lager beer volumes fell 10% in the half-year to September as guzzlers pursued value, but other product lines — chibuku, carbonatednand alternative beverages — grew in the same period, a company official has said.

By Chris Muronzi

Financial director Matts Valela said the last six months of the year have been challenging, charecterised by soft consumer spending and a self-correction of the green back value.

Valela told analysts and journalists in Harare this week at the group’s analysts briefing that Chibuku volumes and alternative beverages (Maheu) had grown 9% and 57% respectively in the same period compared to the prior year.

He said the Chibuku beer volumes were buoyed by the launch of the Chibuku super sorghum brew, which he said was popular with low-end customers, while Maheu growth could be supported by the fact that it’s a relatively new product and coming off a low production base.

Valela said government’s decision to raise excise duty for beer also contributed to low beer volumes as retailers marked up prices beyond the agreed prices but said the company had addressed the anomaly that has seen retailers benefitting much more than the manufacturer.

CEO Pearson Gowero said while the excise duty effectively saw prices rising by 6%, retailers had increased beer prices by 33%, a move that punished consumers.

He said the beer increase was meant to create value and cut back on the retailers’ mark-up, which was contrary to the group’s strategy to grow volumes.

“Right now they are squealing,” Gowero said, in reference to the impact of the mark-up correction Delta imposed on retailers as part of extracting value from its products through a price increase.

The price of a 375ml brown bottle is now 90 US cents from 80 US cents while 340ml green bottles are selling at US$1 from US80 cents.

Brown bottle quarts are selling at US$1,75 from US$1,55 while green 660ml bottles are now US$1,80 from US$1,75. Gowero said the premium brands had remained resilient in the same period, notwithstanding the price increases, something that helped the group’s sales and margins. In terms of sales contribution, lager was down 4% at US$164 million, while sparkling beverages contributed 8% at US$110 million.

Valela said Chibuku was largely in line with the volumes growth, up 24% at US$76 million, while alternative beverages rose 59% at US$7 million.

Group revenue grew by 5% to US$315,5 million from US$299,6 million, while earnings before interest rose by 10% to US$62,6 million.

Delta’s operating margin was up from 21,92 to 23,04%, while earnings before interest, taxation, depreciation and amortisation rose 10% to US$77,7 million.

Attributable income increased by 12% to US$47,2 million.

Earning per share stood at 3,83 US cents in the period under review from 3,50 US cents in the prior comparative period, showing a 9% growth.

Cash and cash equivalents stood at US$82 million in the same period from US$58 million in the prior year.

Cash generated from operations was at US$73 million from US$68 million but retained US$63 million from US$54 million in the same period last year. Short-term borrowings were at US$15,7 million from US$28 million. The group’s finance costs stood at US$3 million in the same period, while finance income was at US$4 million.

The group, according to its cash flow statement, invested US$27 million in fixed assets and expansion of operations.

Gowero said they would lobby government to lower excise duty and encourage volumes growth in the last half of the group’s financial year to March after Finance minister Patrick Chinamasa presents his budget in January.

The group has plans to commission another Chibuku Super line next year buoyed by strong performance of the sorghum beer, adding the company would launch 1,25 litres of Chibuku Super, a product management wants to retail at US$1.