FRESH headwinds emanating from depressed commodity prices and low agricultural productivity expected will likely suppress consumer demand this year, Zimbabwe beer brewer and soft drinks maker Delta Corporation said on Thursday.
This was said as Zimbabwe readied new measures to try to fix a distorted monetary sector. Delta has changed its functional and reporting currency to the US dollar as its sales volumes are now 70 percent in foreign currency.
The company has been hit by new taxes on sugar content in its non-alcoholic beverages products, which include carbonated soft drinks. Faith Musinga, company secretary for Delta, said in the quarter to the end of December, Zimbabwe’s economy continued to be characterised by economic headwinds.
These were translating to shifts in monetary and fiscal policies as authorities responded to the currency and inflation developments and attendant fiscal bottlenecks. While there has been increased use of foreign currency for domestic transactions, Zimbabwean companies are now required to deal only with tax registered and fully compliant retailers and suppliers.
Lower rainfall has been predicted for the current season and this was likely to eat into demand while suppressed prices of lithium, platinum and other metals would also erode some spending power from the economy.
“In the outlook, the economy is expected to struggle for demand. The operating environment in Zimbabwe remains complex, with no easy solutions to the numerous economic challenges such as the currency and inflation dynamics,” said Musinga.
Delta has, however, continued to invest in capacity for its products, installing new product manufacturing lines to enhance capacity. During the December quarter period under review, Delta Corporation’s lager beer volumes soared 15 percent, sustaining volume growth.
A new packaging line commissioned in August 2023 had assisted to stabilise overall product supply. Further support emanated from a stable supply of key raw materials and a reliable manufacturing platform.
The soft drinks category, which has of late seen intense pricing competition from the local manufacturer of Pepsi, maintained its volume recovery momentum after it registered volume growth of 38 percent for the quarter.
“The volume drive is anchored on keener retail pricing and improved supply of flavours and packs. The unit recorded its highest ever monthly volume in December 2023 (but) the sector will be adversely affected by the unavoidable price increases arising from the introduction of the sugar tax,” Musinga said.
Although the lager beer and soft drinks volumes had surged, Delta recorded a decline in volumes for the wines and spirits business, Afdis, that it jointly owns together with Distell. Afdis had “registered a sluggish performance in the quarter with volume declining by 12 percent compared to prior year due to an increase in grey trade on key brands and reduced uptake” by the formal trade.
“Aggregate demand may be impacted by the high inflation and reduced foreign currency inflows arising from lower mineral prices and the anticipated reduction in agricultural output resulting from the forecast below normal rainfall.”
Analysts at IH Securities said in a Zimbabwe equity strategy paper that Delta was benefiting from increased productivity. However, other analysts said this required significant investment into capacity, with many other companies unable to do this.
“Strong productivity and an increasingly dollarised trading environment powered by the informal sector led to strong volumes performances in consumer companies, in some cases record highs like Delta although there have been visible corrections in margins as costs are right size in hard currency,” said the IH Securities analysts.
The increased uptake of the US dollar across the economy had prompted Delta to shift its reporting currency to the US dollar to effectively give shareholders fair value of the company. The Zimbabwe Stock Exchange permits companies to report in foreign currency as Zimbabwe currently uses a multiple currency framework despite sustained weakness in the local unit of exchange.
Directors for Delta had considered the current operating environment and listing requirements under International Financial Reporting Standards (IFRS) and concluded that it was “necessary to present the financial statements in US dollars for the 2024 full year”.
“Notwithstanding the due care and best endeavours to provide users with the most realistic view of financial performance and position of the group, there are inherent subjectivities and technicalities involved in the translation of ZW$ financial information,” the company said.
Challenges from this included mismatches between the consumer price indices and exchange rates used in the conversion process. These “may not be aligned to the rates inherent in the financial transactions”, resulting in distortions in financial information. – IOL