Currency woes force Delta to shrink market presence

Delta Corporation Limited, has had to give up market share and shelf space due to pricing discrepancies resulting from distortions from foreign currency exchange rates.

According to Delta management, formal sector players such as retail and wholesale outlets have struggled to pay for merchandise, forcing the beverages giant to restrict supplies to certain outlets.

In addition, according to Delta, the implementation of new route-to-market policies has also disrupted the formal sector, increasing operational complexity and impacting market access.

These policies, coupled with the introduction of the sugar tax, have further squeezed the margins of formal retailers and wholesalers.

Speaking at an analysts and media briefing for the half-year to end of September 2024 on Wednesday, financial director Alex Makamure, said in some cases the Group had decided not to continue to sell to some of its trading partners because of pricing distortions and difficulties in credit control.

He said formal channels were being forced to sell at the official exchange rate, but it did not make sense if it then takes Delta 70 days to recover the money from the partner.

“You have to come to a decision to say, I cannot continue to sell to this partner. And that has been the issue and we had to then re-direct the business,” Makamure said.

Chief executive officer Matts Valela said the group had faced significant challenges “due to recent policy changes affecting distribution and market access.”

Valela said some of the challenges include “pricing distortions, credit risk management and changes in route-to-market policies have impacted formal trade channels.”

He said a big percentage of the sparkling beverages go through formal outlets but some outlets were at some point running empty occasioned by credit control challenges and grey imports that are coming in.

Valela said in terms of market share, the Group had experienced varied performance of formal retail and wholesale channels due to pricing distortions and poor account management.

Market share for both sparkling beverages and chibuku were both lower than prior year comparative with management blaming it on pricing distortions and the deliberate credit control measures that saw some outlets not getting any supplies.

Valela said tracking market share is a particularly difficult thing to do especially given the challenges in the modern trade.

“So we have relatively given up space in some of the operators, given up shelf space because credit control issues are a challenge.

“Remember I said when there is positivity in the exchange rates, it compromises the ability for our sector to price and to remain competitive. And we are witnessing that with some of our partners.

“And so you will find that sometimes in supermarkets . . . our products are not there. It is not that we do not have the products, it is sometimes that credit control is an issue. And the ability to set up deals between ourselves becomes a challenge,” Valela said.

Meanwhile, the financial results, presented in US dollars, highlight a 11 percent increase in revenue to US$389 million.

However, after adjusting for currency conversion distortions, the underlying revenue growth is estimated to be around 3 percent. Profit before tax and earnings before interest and tax (EBIT) were reported at US$55,8 million and US$64,8 million, respectively.

The Board declared an interim dividend (number 135) of US1 cent per share to be paid on December 10, 2024. However, trading margins were impacted by the under-recovery of the sugar tax and higher costs of imported maize.

During the period under review, the Group had paid a total US$16,96 million toward the sugar tax.

Carbonated soft drinks contributed US$7,8 million while cordials from associate company, Schweppes Holdings Africa, contributed US$8,98 million.

According to Makamure, a total of US$20,5 million in sugar tax accrued for February to September 2024. Estimate for calendar fiscal year 2024 is US$32 million, he said.

Despite these headwinds, Delta Corporation said it is well-positioned to capitalise on opportunities from increased consumer spending, leveraging its recent expansion in production capacity.

The company said it remains focused on generating aggregate demand and positioning itself for future growth.

However, the company’s success will hinge on its ability to navigate these challenges effectively. A stable exchange rate, clear and consistent government policies, increased consumer spending, and a competitive edge will be crucial in shaping Delta’s future trajectory.-ebsinessweekl