Delta posts 1% revenue decline

Published: 26 May 2014

Delta Corporation recorded a 1% decrease in revenue for the year ended 31 March 2014 as total beverage volumes remained flat due to softening demand and declining consumer spend , CE Pearson Gowero told an analyst briefing yesterday.

He said they are not seeing any "green shoots" or hope that things will get better as consumption trends remain poor due to worsening economic fundamentals.

"There was a marked slowdown in the consumer spend in the last half of our financial year particularly in the fourth quarter. Christmas was very subdued…and we're witnessing worsening economic fundamentals… We don't know where this will take us but we hope for a bright future," he added.

Total beverages remained stable at 6.904million HLs against the prior 6.887million HLs and Gowero noted that Lager was down 18% to 1 697million HLs mainly due to softening demand while sparkling beverages declined by 2% to 1.589million HLs. Premium brands' contribution improved to 21% of lager volumes while mainstream and economy products were 72% and 7% from 77% and 4% in FY13 respectively. Matabeland South and Bulawayo had the worst volume declines of 28% and 23% as the depreciating rand attracted people staying in border areas to import product from South Africa. The highest per capita consumption of lager was in Harare at 32l followed by Bulawayo and and Mashonaland West at 25l and 11l in that order.

"Resources deployment will follow the per capita map," said Gowero before adding that the parallel imports in border areas are usually of similar SABmiller brands.

He said the overall lager volumes are almost equivalent to F11 levels.

On sparkling beverages he said Harare, Bulawayo and Midlands had the top per capita consumption figures of 32l, 28l and 11l correspendingly while volume performance was positive in Mash West and Central, Mat North and Midlands with Harare, Bulawayo and Mat South recording shrinkages. Convenience packs grew to 40% contribution from 32% while returnable glass bottles' contribution declined to 60% from 68%.

Meanwhile, sorghum beer grew by 12% to 3.442million HLs in the period under review and alternative beverages went up by 11%.

Commenting on the sorghum beer volumes he noted that this was the highest since dollarisation and he attributed the increase to the "worsening economic environment" as the beer "offers refuge to a lot of consumers."

Furthermore, he noted that the contribution of the business' premium category has gone up as their target market in that area is more resilient. All provinces except Masvingo recorded growth in sorghum beer volumes while Harare, Mash West and Masvingo dominate per capita consumption. Chibuku Super is now 10% of sorghum beer in its first full year of existence.

In beer, he mentioned that retail pricing remains an issue as people take advantage and push price points beyond were they aim them to be therefore affecting the market.

Under lager beer, Gowero said for 2014 and 2015 they have significantly reduced the number of farmers contracted to grow barley as the firm is over stocked given the lower lager volumes.

He told analysts that Delta holds 99% of the market share in lager beers, 84% in sorghum beer and 98% in soft drinks adding that the "focus was on market retention and building brand loyalty."

The lager share was largely driven by mainstream while sorghum beer demand was reignited by Chibuku Super which now constitutes 10% in the sorghum beer mix while Chibuku constitutes 90%.

Gowero told analysts that "scud is holding shore and is growing modestly."

Meanwhile, Delta is looking at further investment for Chibuku Super as they are planning to set up a new plant in FY14.

Moving to the plastic packaging business, Gowero noted an 11% growth in volumes to 10.49million tonnes driven by PET preforms for sparkling beverages.

On gross sales, Lager was down 10% to $316million, sparkling beer was down 2% to $225million while Chibuku was up 24% to $146million and alternative beverages increased by 35% to $15million.

Presenting the financial results, group FD Matts Valela noted that revenue declined by 1% to $625.5million while operating income decreased by 1% to $134.2million.

EBIT was down 1% to $134.2million while EBITDA increased by 2% to $165.3million and attributable income also increased by 3% to $105.7million.

Valela said the operating margin was up from 24.73% to 24.75 %.

The dividend declared went up 4% on prior year with the interim dividend paid per share at 1.30c while the final dividend proposed per share was 2.25c.

Giving an update on the associates, Valela noted that Schweppes volumes were up on prior year with revenue up 6% to $100million. He said the challenge for the business is to manage productivity and supply chain to protect margins and they are working with its management to correct that.

He noted that Afdis is looking at localizing production of ciders this year with the company registering good growth on volume and profitability.
- zfn

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