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Delta would implement business survival initiatives which included reducing fixed costs and optimisation of production and distribution costs.

DELTA Corporation’s financial results for the year to December 31, 2015 are proving consumers are becoming price sensitive due to the liquidity crunch in the economy, with most of them embracing the cheaper brands they once abandoned.

The liquidity crisis, which has been accompanied by high unemployment, has resulted in many beer drinkers failing to afford the lager beers.

Consequently, they are going for opaque beer, which is slowly becoming the mainstay of Delta’s business.

Delta’s chief executive officer, Pearson Gowero, said the firm would focus on increasing Chibuku Super capacity by commissioning the third bottling line in Bulawayo by July this year after failing to meet demand for the opaque beer product.

Delta is also expected to resume barley malt exports, however only when the value chain improves.

A continued change in the mix from mainstream beer towards low cost and premium brands saw Delta’s revenue for the full year to March decline four percent to US$575 million. Analysts said had it not been for the change in product mix, revenue decline could have been double figures.

Delta’s finance director, Matts Valela, said there was a general volume decline in favour of lower priced products in response to the prevailing liquidity challenges.

Since August 2013, beer drinking trends have changed drastically, according to Delta’s quarterly trading update.

Lagers seem to have now become some form of a status symbol as few now afford them.

Not so long ago most people would avoid being seen holding and drinking opaque beers as they were considered a brew for loafers and the less enterprising.

In street lingua, opaque beer is known as masese and it was a rare sight to see young professionals imbibing such liquor.

However, with no defined or tangible formula to improve the country’s liquidity crisis masese has now become one of the most popular alcoholic beverages.

Gowero said the company was worried by the ongoing trend where sorghum beer was having a growing influence on the business, when lagers should be the mainstay of the business.

To deal with this situation, he said, Delta would implement business survival initiatives which included reducing fixed costs and optimisation of production and distribution costs.

Volume recovery initiatives would also be implemented. This is expected to be achieved through a review of pricing for affordability and competitiveness across all beverage categories.

Delta is also expected to optimise working capital and leverage on its positive cash position.

Sparkling beverage volumes declined by seven percent to 1,47 million hectolitres during the quarter to March 31, 2015 due to lower priced imports and cordials while alternate beverage volumes grew 11 percent to 194 hectolitres on prior year. All in all, total volumes declined two percent to 6,79 million hectolitres.

Sorghum beer was the largest contributor to revenue at 55 percent from 50 percent last year while lagers shrunk five percent to 20 percent from last year.

In the beer category, sorghum beer contributed 72 percent while lagers contributed 28 percent. Delta said it benefited from excise duty reduction and price reductions for affordability and competitiveness.

Lager beer sales declined 12 percent to US$278 million, while sorghum beer sales shot up 21 percent to US$176 million.

In the soft drinks segment, sparkling beverage sales were down 10 percent to US$204 million while alternative beverage sales grew 10 percent to US$16 million.

Delta operations, to a large extent, are a mirror image of the country’s economic environment.

The company’s business model, however, allows it to generate significant cash and grow volumes.

Essentially, Delta is able to transfer any increase in the cost of production to its consumer without suffering a significant drop in demand.

Delta has also seen a rapid growth in capacity utilisation, post dollarisation, which can be attributed to a robust business model and constant investment in plant and machinery.

The business is ahead in grabbing opportunities arising from the prevailing macro-economic stability. It has been one of the few manufacturers who managed to attain optimum capacity utilisation after the introduction of the multiple currency system.

Delta’s operating income declined to US$111,1 million from US$129,8 million as the firm lost value at the gross margin level which went down to 22 percent from 25 percent in the prior year.

Taxation declined to US$29,81 million from US$32,22 million in the prior year. Profit for the year declined to US$91,95 million from US$104, 073 million in the comparable period.

Total assets grew to US$663,66 million from US$619,88 million in the comparable period.


Source : Financial Gazette