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Darlington Musarurwa – Business Editor
THE decline in revenues by listed giants Delta Corporation, Econet Wireless Zimbabwe (EWZ) and OK Zimbabwe has created a market myth that the economy is in free fall, but a comparison of these companies’ revenue generating capacities and profits with their peers in Zambia suggests Zimbabwe’s economy is re-basing and self-correcting, analysts say.
However, there is a strong view that Government must intervene to expand the market and ensure companies reverse the trend and start growing.
Zambia is an ideal reference because of its demographics: its population of 14 million people is comparable to Zimbabwe’s 13 million, while its GDP at US$27 billion is almost double Zimbabwe’s US$14 billion.
Delta Corporation — the biggest company on the Zimbabwe Stock Exchange by market capitalisation — reported on May 13 that revenues for the year ended December 3, 2014 fell four percent to US$576 million from a year ago. Net profit slumped 13 percent to US$92 million.
On May 21, the country’s biggest telecommunications firm by market value and subscribers EWZ reported revenues fell 0,9 percent to US$746 million for the period ending February 28, while net profit dropped 41 percent to US$70 million.
OK Zimbabwe, considered the biggest grocer and retailer in Zimbabwe, reported the same trend: revenues declined 4,3 percent to US$462,7 million and profit after tax dipped 22,2 percent to US$7,5 million.
But it is the sheer size of the profits — US$92 million for Delta and US$70 million for Econet — that raises questions as to if these really are companies in decline despite the comparative drop in revenues.
Opinion is split on whether the economy is mired in deflation (an unsustainable drop in prices) or disinflation (where prices are self-correcting).
The latter view, which is supported by Reserve Bank Governor Dr John Mangudya, is reinforced by the fact that local pricing is markedly above regional averages.
“The Reserve Bank’s considered view is that the reduction in the rate of inflation in the national economy was and is a necessary process towards correcting the high prices obtaining in the country.
“It is disinflation and not deflation. Instances of disinflation are not uncommon and are viewed as normal to correct some of the macro-economic fundamentals due to market failure…
“Disinflation is different from a deflation phenomenon which is caused by businesses lowering prices in a desperate attempt to get consumers to buy their products. In the case of Zimbabwe, businesses are lowering prices not because of lower demand but because imports are coming into the country cheaper,” said Dr Mangudya in his February 2015 Monetary Policy Statement.
Delta dwarfs Zambian Breweries
There are interesting comparisons between the performance of Delta Corporation and Zambian Breweries, both units of London-based SABMiller Plc, which indicate that the local economy is not as bad as is being projected.
For the year ended March 31, 2014, Zambian Breweries managed to sell 2,1 million hectolitres of beer and sparkling beverages, compared to Delta’s 1,7 million hectolitres.
The volume growth recorded at the Zambian beverage maker happened at a time when the Zambian kwacha dropped to record lows against the United States dollar (1:5 300).
Zambian authorities also hiked excise duty to 60 percent from 40 percent, resulting in a 16 percent increase in the beer price.
A 500ml bottle of beer costs about US$1,50 in Zambia.
Despite selling more volumes and a 16 percent increase in the price of beer, Zambian Breweries only managed to rake in US$186 million in revenues in the period.
Its operating profit rose 28 percent to US$42,3 million, while profit topped US$25 million.
This was significantly lower than Delta. In the same period, Delta’s revenue rose to US$625 million, while its operating income and net profit were US$134,2 million and US$105 million, respectively.
Such a performance offsets the 18 percent drop of lager volumes and a two percent decline in sparkling beverage volumes realised during the year.
Though conditions have remained more or less the same in Zambia, Zimbabwe’s Government has been trying to accommodate the demands of the local beverage maker, which contributes significantly to the fiscus.
On January 1 this year excise duty was slashed to 40 percent from 45 percent and Delta obliged through a downward review of beer prices.
In fact, the company has been reducing the price of beer since September 2014.
It is generally believed that Delta Corporation continues to outshine the Zambian unit because of local cost structures and prices that continue to be higher than regional averages.
As a clear sign that the company is not ailing, as is the perception in the market, Delta will be paying out more than US$28 million in dividends to its shareholders after announcing a final dividend of USc2,30 per share.
The company has 1 246 401 035 shares in issue.
In November 2014, UK-based Hartland-Peel Africa Equity Research, which has a comprehensive database on African-listed companies dating back to 1990, ranked Delta Corporation — which last week had a market capitalisation of US$1,3 billion — as the fourth-biggest company in Africa in the industrial, manufacturing, food, beverage and tobacco category.
It was only eclipsed by Nigeria Breweries, Nestle Nigeria, Tanzania Breweries and East African Breweries of Kenya.
Telecoms perspective
The performance of Airtel Networks Zambia is marginally different to Econet Wireless Zimbabwe’s.
Airtel Networks, a subsidiary of Bharti Airtel, is the second-biggest mobile telecommunications company in Zambia after MTN Zambia, but the latter is not listed on Lusaka Stock Exchange.
Having 3,3 million subscribers in 2013, the Zambian firm was 2,5 times smaller than EWZ, which had 8,8 million subscribers.
By extrapolating the revenues and profit Airtel Networks at US$307 million and US$61 million, the performance is comparable to that of EWZ whose revenues topped US$753 million and US$119,4 million.
In essence, EWZ profit was about twice as big as that of its peer.
EWZ has declared a final dividend of USc0,0031 per share after its net profit slowed to US$70 million in the year ending February 28, 2015.
Also, OK Zimbabwe, the country’s biggest grocer, will be paying out US$1,6 million to shareholders after it reported a profit after tax of US$7,5 million in the year ended March 31, 2015.
A shrinking cake?
What worries economists is the drop in revenues and profits.
Economist Mr Brains Muchemwa said last week this could point to deflation, though this did not necessarily mean Econet, Delta and OK Zimbabwe were in bad health.
“It must not be forgotten that we are using a very stable currency, and from the recent financials it might seem that we are in deflation. It is simply a reflection of the state of the economy. For revenues to continue to fall below the negative rate of inflation is dangerous.
“One thing to also consider is the ratio of household debt to disposable incomes which continues to rise significantly to such an extent that they can no longer push consumption.
“We must take into account that the (consumer price index) was re-based in 2009 and we cannot continue saying the economy is re-basing,” contended Mr Muchemwa.
He said it was important for companies to restructure operations vis-a-vis costs and debt.
Buy Zimbabwe chief economist Mr Kipson Gundani said Delta, Econet and OK Zimbabwe had managed to come this far because they had near-monopolies in their sectors.
“This is not rocket science. What we are currently witnessing is a shrinking market. We have been recording successive trade deficits of between US$3,4 billion and US$3,5 billion since 2009, which cumulatively adds up to US$18 billion to date.
“These companies have come this far because they haven’t been exposed to any meaningful foreign competition. Delta holds about 97 percent of the market. Actually companies that have borne the brunt of foreign companies have since closed,” said Mr Gundani.
We regret to announce that our SME monthly focus, which was supposed to be published today, will be carried in our next edition.
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