E-Malt.com News article: Zimbabwe: Delta Corporation seen as star performer thanks to cash injections by SABMiller

Operating at 100% capacity and with funding at favourable rates, Zimbabwean beverage group Delta Corporation is a star performer, The Africa Report posted on January, 11.

Amidst a debilitating cash crunch that has wreaked havoc on Zimbabwe's productive sectors, Delta Corporation has bounced back, thanks to a cash injection by London-listed SABMiller.

The beverage group's fortunes are soaring, despite initially having lost the market to imports during Zimbabwe's so-called lost decade between 1998 and 2008.

Joe Mutizwa, who retired as CEO in May 2012, indicated the company had "broken the back of competition" and was on an unstoppable path to growth.

Investors appear to agree, with Delta's market capitalization soaring beyond the $1 bln mark in recent weeks.

The comeback story started with a $16 mln injection from SABMiller in 2009 for plant refurbishment and new bottling lines to increase volumes and reopen outlets closed during the 10-year crisis.

The investment was one of the biggest outside the country's capital-intensive mining sector.

Much of the money from SABMiller had been used to establish a new beer-bottling line, which boosted beer production capacity to 600,000 hectolitres by 2010.

Plants were refurbished at all production facilities and equipment was replaced.

The central bank reported in 2010 that Delta had managed to ramp up volumes to achieve 100% capacity use – the only manufacturing entity to have achieved 100% use since dollarisation.

Most companies are operating at an average 30% capacity, according to financial statements from listed manufacturing concerns.

The benefits of a cash injection from SABMiller are clear, and all the more welcome given the difficulty local banks find themselves in.

Witness Chinyama, an economist with banking group AfrAsia-Kingdom Zimbabwe, says: "Banks are supposed to provide capital to the productive sectors, but there is no funding due to low deposit levels.

There is no capacity for lending of at least a year because the deposits are short-term or transitory."

In its statement for full-year to March 2012, Delta reported that its beer volumes had already exceeded by 22% the 1998 peak level of 1.629 million hectolitres.

Total beverage volumes during the same period reached 6.908 million hectolitres.

Delta has also rolled out "rejuvenated" bottles and new labels for its brands: larger sizes (750ml and quart) now come in 'Calabash' bottles in line with developments surrounding SABMiller operations in other countries, including the successful Chibuku line, a cheaper brand focused on the more affordable end of the market.

Even though the group has significant cash holdings for working capital to support business growth, it still secured long-term offshore funding to the tune of $60 mln at favourable rates.

Capital expenditures for the year to March 2012 amounted to $74 mln.

"I am confident that the business continues to deliver value to all shareholders. The company remains focused on its strategy of investing for both volume and revenue growth," said board chairman Canaan Dube.

The success of Delta is all the more admirable when one considers the fate of other large agribusiness players suffering in Zimbabwe from a lack of capital investment.

Recently, the major fertiliser producer Sable Chemical Industries has mothballed its electrolysis plant, saying it could not afford the $2 mln a month electricity bills.

It will import the ammonium nitrate required – more dollar outflows the economy can ill afford.

In August, finance minister Tendai Biti revealed that both exports and imports had risen, cumulatively reaching $2.16 bln and $5.1 bln respectively. "This gives a half-year trade gap of about $3 bln," he said.

11 January, 2013