Did you know that brewing, which is the process of manufacturing beer, is considered the oldest secondary industry in Zimbabwe? In fact, the first beer sales were recorded as early as 1899 under the Salisbury Lager & Beer Company, which paved the way for the modern-day Delta Corporation. Over a century later, beer continues to find innovative ways to make it to the headlines.
However, modern-day Delta Corporation is not only a brewery. It also sells soft drinks, which it classifies as sparkling beverages, and sorghum beer, in addition to the lagers. It also has an investment in Schweppes, which manufactures and sells cordial drinks, including the famous Mazoe brand.
It has another investment in African Distillers, which manufactures wines and spirits. The beverages giant now has operations in South Africa and Zambia.
At some point, it also had a significant stake in Ariston Holdings, which has interests in tea manufacturing. Each time you open your mouth to drink something, there is a fair chance your money is going to Delta somehow. This is why it is such an important company to the Zimbabwean economy, besides the fact that it is the largest locally-listed company.
The Zimbabwe Stock Exchange-listed beverages manufacturer released its, where the volumes of sparkling beverages and lagers grew.
However, it reported a decline in sorghum beer. In this article, we will break down Delta’s numbers and extract some interesting insights.
Clear beer, in the form of lagers, is a critical part of Delta’s business. This is because it is the largest revenue driver and the most profitable beverage. Using the latest financial statements, 42% of the group’s revenue was generated from lager sales.
This, on average, contributed the lion’s share. With a segment operating margin of 28%, lagers also contributed over 70% of overall operating profit. In terms of unit sales, Delta sold 1,275 million hectoliters over the six months, representing a 9% increase from comparable period volumes.
The volume growth in the lagers division was attributed to the ability of the group to effectively supply enough to meet growing demand. Delta has been pouring investments into glass bottle manufacturing, and this has also had a positive impact on the volumes sold. The company also believes increased brand awareness had a role to play in pushing those volumes as they devoted to sponsorship in the sports, arts and entertainment space.
In addition to clear beer, Delta also sells opaque beer, which is classified as sorghum. This is more of the volume driver, but with lower margins compared to the premium clear beer. In the 2024 full year, Delta recorded the highest sorghum volume sales in 25 years. In the period under review, 1,942 million hectoliters were sold here in Zimbabwe, 11% lower than the comparable period.
This represented 47% of local volumes sold, excluding volumes from investee companies and associates.
Delta also sells opaque beer in the region and sold 517 000 hectoliters, down 20% versus the comparable period. By the way, 1 hectoliter represents 100 litres. The Zambia volumes, although taking a knock, are still above the five -half-year average of 487 000 hectolitres. Zambian operations are executed through a company called Natbrew, which Delta has wholly owned since 2020. In South Africa, sorghum beer volumes also came off 8% to 719 000 hectolitres. This is also still above the five-period average of 621 000 hectolitres, and it speaks to how good HY24 (half year 2024) was.
The overall sorghum beer volume drop was attributed to lower disposable incomes, which were caused by drought.
At least 60% of Zimbabweans live in rural areas. Sorghum beer is more popular there, and their primary source of livelihood is agriculture. Drought has a negative impact on their spending habits. The drought also pushed the costs of cereals like maize and sorghum and subsequently pressured the price of the beer. On average, the drought-induced price increase on cereals was between 6% to 27%.
Delta also caters for the teetotalers. However, these were significantly affected by the “sugar tax” that was introduced in the 2024 National Budget. Between February and the end of September 2024, Delta paid a cumulative US$20,5 million in sugar tax and estimates to have paid US$32 million by the end of the year.
The tax is mainly on carbonated soft drinks and the cordials and juices, with a small portion on alcoholic beverages.
Nevertheless, the sparkling beverages witnessed a 10% volume growth to 919 000 hectolitres. Sparkling beverages also contributed 19% towards the overall revenue, up three percentage points versus the comparable period. The operating margin for the sparkling beverages was only 7%, and its contribution to the overall operating margin was 8,5%.
Volume growth was also recorded in the wine and ciders division sold under Afdis. Wines were up 13% to 4,4 million litres, whilst ciders grew by 22% to 44,9 million liters. Afdis also sells spirits, whose volume was stable at 35 million litres. The growth in volume was attributed to increased supply chain management.
Amid the currency crisis in the country, last year Delta decided to change its reporting currency to the US dollar, to align with the functional currency. By then, the US dollar portion of sales had stabilised around 90%.
However, since the introduction of Zimbabwe Gold (ZiG), the US dollar portion of sales came off to the 60% range before gradually reverting to the 80 to 90% range.
ZiG has lost 40% of its value since its inception, and that also puts pressure on the financial numbers to give a clearer picture of operations. According to management, the true revenue growth could be in the region of 3% versus the 11% implied by the financial statements.
This is why we spent more effort looking at the volumes and ratios than the absolute values.
In conclusion, Delta seems to be having a fairly good year despite obviously the sorghum division, which is weighing it the beverages firm . The sugar tax is here to stay and is the new reality. I think going into the future the company might need to gradually reduce its exposure in that section. It only contributes 20% towards the top line. Competition is also excessive.
Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
