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Business Reporter
DELTA Corporation’s third quarter trading update last week which showed that total beverage volumes were flat compared to the prior period is only a reflection of a slowdown in the economy. In its third quarter report to the end of December 2013, Delta said that the total beverage volumes for the quarter were flat against the same period last year, and up 2 percent for the nine months ended 31 December 2013.
Lager volumes and sparkling beverages dropped 25 percent and 6 percent respectively year on year on the prior comparable quarter, whilst sorghum beer and alternative beverages (mainly Maheu) registered growth in the quarter of 18 percent and 23 percent respectively.
“This reflects overall slowdown in consumer spending and evidences continued down trading by consumers, a trend witnessed throughout much of 2013,” Delta said in the trading update released last Thursday.
The drop in lager volumes was accentuated by an increase in excise duties in the 2013 National budget.
Consequently, Delta said revenue was down 3 percent for the quarter, but remained up 2 percent for the nine months.
“While the revenue increase was largely in line with our expectations, we suspect revenue composition in terms of lager contribution was lower than expected and thus we suspect margin expansion would have halted,” financial analysts Inter Horizon Securities commented last week.
The financial and equities research firm said “Going forward we expect a relatively flat performance (by Delta) for the full year to 31 March 2014.”
Generally, the liquidity situation tightened in the last half of the year forcing many companies to either scale down or retrench in what has reduced the buying power of many, hence the softening aggregate demand.
The fact that aggregate demand is weakening has a direct impact on productive sectors of the economy as their producer find few takers, which in turn negatively impacts on the overall growth of the national economy.
Tight liquidity, as is typical of any election year, saw economic agents prior to elections adopting a “wait and see” attitude, with the last few months before the plebiscite witnessing an intensified liquidity squeeze in the economy.
This leads to weak aggregate demand in most sectors of the economy. It also had the effect of slowing down economic activity, with 2013 GDP growth now estimated at 3,4 percent, down from the earlier 5 percent projection. Zimbabwe’s gross domestic growth was 10,6 percent in 2012.
The tight liquidity situation has resulted in an increasingly difficult operating environment for the Government, civilians as well as the private sector.
Consumers now tend to limit expenditure on the most basic items required in their daily life as their disposable income continues to shrink in the wake of companies either retrenching to cut costs or closing down.
As producer of fast moving consumer goods Delta is one of companies that should have experienced a boom in revenues and volumes in the festive sea It is normal for economies emerging from hyper-inflation to experience a few years of strong growth as the “low hanging fruits” are harvested, a period of fast growth followed by a slowdown, it is evident, Zimbabwe needs to put in place confidence building measures to deal with the challenges at hand before the economy slides into full blown deflation. Business confidence remains low and Zimbabwe’s country risk premium is still high.
The result is a lack of investment and financial inflows required to drive future growth, hence tightening liquidity situation. Delta is one of those companies that have been caught in the intricate web induced by ever tightening liquidity situation as consumers become selective and restrict their expenditure to basics required in their daily life.
However, while Delta’s growth rate has slowed down considerably since last year, the company is still doing much better than its closest peers.
Delta is still a cash cow and the company still accounts for most of the profits in the beverage market by itself. Operating as a near oligopoly Delta worries less about direct competition and this makes Delta a decent company to invest in, save for its powerful monopolistic tendencies with its suppliers.
Online Reporter