Delta subsidiaries in revenue fix

BEVERAGES manufacturer Delta Corporation Limited says the volatility of the exchange rate-driven inflation is pressuring its operational costs and hurting the revenue generation capabilities of its foreign subsidiaries.

In its financial update for the year ended March 31, 2022, Delta widened its monetary loss to ZW$7,64 billion (US$22,57 million at auction rate) in the period under review.

This was from ZW$2,57 billion (US$7,6 million, auction rate) in the comparative 2021 period.

The widening of the loss comes as a result of the depreciation of the Zimbabwean dollar, which continues to raise inflationary pressure.

An annual inflation rate of 131,7% was recorded last month, up from April's 96,4%, March (72,7%), February (66,1%) and January (60,61%).

"The volatility of the exchange rate and high inflation puts pressure on operating costs. We use replacement cost-based pricing to protect margins," Delta Beverages general manager-corporate affairs Patricia Murambinda told the Zimbabwe Independent in emailed responses.

"We also note that other players accessing forex through the auctions are charging lower ZWL prices, affecting competitiveness."

The increased inflationary pressure is particularly being felt on distribution costs.

Murambinda indicated this was particularly true of the company's traditional beer-making subsidiary in South Africa, United National Breweries (UNB).

"Inflation is not a major factor in South Africa. However, there is some impact on distribution costs arising from the escalation in fuel prices.

"The major issue in South Africa is related to the hard Covid-19 lockdowns and alcohol bans. We have assisted the South African business with funding during Covid-19 closures. The unit is recovering post the hard lockdowns," she said, adding that the other traditional beer subsidiary in Zambia, National Breweries Ltd, was also relatively small in the "scheme of things".

She added that: "The issue of foreign currency generation is only relevant for the Zimbabwe businesses. There are no forex issues in Zambia and South Africa. We indicated that the local business had 55-60% of revenues in forex".

Delta's local foreign currency generation is now enough to cover its import and Capex requirements.

In the period under review, Delta stated that it did not believe that the official exchange rates prevailing during the financial year were, at all times, fairly reflective of the currency exchangeability.

As such, in preparing its financial statements, Delta used an internally generated exchange rate (transaction rate) to translate foreign-denominated transactions and balances to the functional and reporting currency, the Zimbabwean dollar.

The exchange rate disparities of US$1:ZW$600 on the parallel market against the official auction and interbank forex rates of US$1:ZW$338,49 and US$1:ZW$333,45, respectively, have raised the risks of Delta paying higher amounts on its legacy debt.

According to the Treasury's list of assumed legacy debt on behalf of the private sector, released at the start of the year, it owed Delta US$184 193 015,28 with an outstanding amount of US$142 298 700,57 as of last September.

"The divergence of market exchange rates and the interbank exchange rate creates a further risk that the "blocked funds" liabilities could be paid at exchange rates that are above the Reserve Bank of Zimbabwe settlement rates," Delta said in a statement.

Delta reported legacy foreign liabilities of US$10,7 million, being amounts that were due and payable on February 22, 2019, when the authorities promulgated Statutory Instrument 33/2019 which introduced the ZW$ currency.