Delta posts magic 100% lager sales volumes growth

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  • Lager volumes rebound for the first time 7 quarters
  • Sorghum beer volumes decline as consumers trade up the value chain
  • Sparkling beverages double digit growth after months of struggling

Delta Beverages, Zimbabwe’s foremost beverages producer, has finally reversed a helpless trend of volumes losses in its key segment of lager beer. Latest results for the half year period to September shows that the company achieved a positive volumes outturn in the lager segment for the first time in 7 straight quarters.

In a statement accompanying the financials the company said lager beer volumes grew by 3% for the half year period to September. This was despite having earlier reported a double-digit year on year volumes loss of -18% in the first quarter of its financial year.

Simulation of the numbers by Equity Axis analysts brought out some pertinent observation on the performance as follows;

The second quarter lager volumes performance (Q2:21) was 18% ahead the same quarter last year

The estimated lager beer quarterly volumes performance at 377,364 hecto-litres was 100% ahead of the preceding quarter (Q1:21).

The quarter on quarter jump of 100% is the biggest since 2009 although emanating from a very low base, the lowest on record.

The quarterly volumes performance at 377,364 hecto-litres is the best in 6 quarters.

These numbers are a very big deal not only to Delta but the broader economy as the company due to its scale and nature of business, is often used as an economic barometer for Zimbabwe.

For the company lager beer is the biggest value driver from both a topline and bottom-line contribution perspective. In full year 2019 (March 2019), lager beer segment contributed 54% to operating profit, highlighting significance of the segment.

Given its market share, northward of 60%, in the beverages sector and the FMCG status, Delta is fundamentally used as an economic barometer. Its performance over the years has fluidly followed that of the broader economy.

In 2018, an election year with significant government spend as well as the last favourable agriculture harvest, Delta significantly benefitted as reflected through its volumes performance which was the second best since dollarization in 2009. Typically, Delta’s performance varies directly with Zimbabwe’s economy although growing regional exposure may tilt the balance over the coming few years.

Equity Axis analysts are however of the opinion that it is still too early to call on the economy. The key fundamentals are showing improvement but not yet solid enough to guarantee mid-term stability, the quip.

The analysts are however of the view that the period between now and 2022 may see the economy stabilising but without meaningful growth impetus, due to lack of stimulus.

The process of redeeming the economy organically, driven by private enterprise, which is the only likely option on the horizon, will be slow and painful but however effective in insuring short-term stability. This process, however, requires a firm currency policy position (guaranteed dollarization) which is acceptable to investors and business.

For Delta, these numbers are encouraging and makes the company look forward with a measured degree of hope. The company also reported a double-digit growth in non-alcoholic beverages volumes of 22% against coming on the backdrop of protracted volume losses over a number of successive quarters.

As consumers retrace trading up the value chain, Sorghum beer is looking like the inevitable casualty with latest financials showing that the segment volumes eased by a steep 31%. The trade-off between lager beer and sorghum beer is typically a reversion to default and reflects an economy moving back to normalcy.

It however remains to be seen if the run on both the economic front and Delta can be sustained given the evident economic fragility and plummeting production volumes still being experienced by some producers, across the economy.

Equity Axis News.

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