Delta Corporation getting favourable rates on bank deposits

Cash-rich beverages maker, Delta Corporation Limited is getting favourable rates on deposits from the country's banking sector of between nine to 12 percent, against borrowing rates of eight percent at a time when most companies are enduring high finance costs due on debt and loan repayments.

Unlike Delta, many companies are failing to make any savings, as they are surviving from "hand to mouth" due to the prevailing liquidity challenges.

The company's interim results for the half year ending September 30, 2013 reflect net finance income of $4,2 million.

Responding to questions from the Financial Gazette's Companies & Markets, Delta's company secretary, Alex Makamure hinted that the strength of the company's balance sheet had worked in their favour to attract high savings deposit rates.

"The interim financial statements reflect finance income of $4,2 million versus an interest expense of $3,1 million, a net of $1,1 million. This derives from the savings deposit rates of 9-12 percent compared to our average borrowing rate of eight percent," he said.

"The group has a long-term loan of $60 million and periodically generates excess cash which is invested on short term basis. Borrowing rates are assessed at an individual company level taking into account the strength of the balance sheet and risk associated thereto," Makamure said.

Being a daily cash business with high volumes, analysts say it was inevitable for the company to receive premiums for deposits made as banks are desperately in need of cash, especially now due to increased withdrawals caused by market uncertainty over the direction of the country's economy.

Confidence in the banking sector has plummeted to unprecedented depths due to bank closures, resulting in increasing withdrawals.

Most salaried customers only use bank accounts for salary deposits which are normally withdrawn immediately after transfers.

Analysts said Delta's business was ahead in grabbing opportunities arising from the prevailing macro-economic stability. It has been one of the few manufacturers that have managed to attain optimum capacity utilisation after the introduction of the multiple currency system.

Essentially, Delta is able to transfer any increase in the cost of production to its consumers without suffering a significant drop in demand.

Delta has also seen a rapid growth in capacity utilisation post dollarisation which can be attributed to a robust business model and constant investment in plant and machinery.