LISTED beverage behemoth Delta Corporation Limited (Delta) has taken the Zimbabwe Revenue Authority to court challenging the formula used by the taxman to determine the currency to pay taxes. The taxman slapped the firm with a tax bill of over US$50 million, which Delta disputes. Our group deputy business editor Tatira Zwinoira (TZ) had a one-on-one interview with Delta chief executive officer Matlhogonolo Valela (MV,) during the company’s analyst briefing last week. The discussion touched on tax and other issues. Find below excerpts of the interview:
TZ: You talked about how the performance of your business in South Africa and Zambia was volatile. What percentage of revenue South Africa and Zambia make to the overall group?
MV: At the moment, it is fairly small. Lager beer is about 41%, sorghum beer is just around 30%. So, the contribution of the sorghum beer business from the region is still very small. But the potential out of South Africa is that business should be bigger than the Zimbabwean business. Only less than 10% of the outlets in South Africa were selling sorghum beer. Now, we are reintroducing pride in our heritage in that territory and that is what we are driving.
TZ: Since their contribution is not big, are you going to change course?
MV: When you are driving a pro-growth strategy, you must dominate the market you are operating. But you cannot then stop and say ‘I am going to just operate from Zimbabwe’. You have got to grow into other markets, grow with the people that you have in your organisation, and deploy the resources that you have to go take bets in other territories. I think South Africa has the potential to match the Zimbabwean business size down the road, but we have to continue to grow. Like I said, less than 10% of beer drinking outlets were selling Chibuku in South Africa or sorghum beer.
Today, we have penetrated all the modern outlets. They are beginning to accept our product, which was never the case a year ago. Now, we will see whether that potential can be converted into trade.
TZ: Let us talk about Zambia.
MV: Zambia has the same strategy. It also had reached a point where less than 10% of the outlets were selling sorghum beer. It was seen as an inferior product to other alcohol styles. We have cleaned it up, we have introduced scud, we have introduced Chibuku Super with its various offerings and those are now the two major packs that are selling. We are climbing up, but the markets are different. The Zambian market has got disposable income challenges, and they are highly price sensitive.
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We keep being let down by the environment, but we are not giving up. We think the Zambian and Zimbabwean populations are almost the same and we should be doing as much business, and we are seeing other alcohol offerings selling in that market. We will find our space.
TZ: You talked about a plant, which you opened in May in South Africa. Can you talk about that?
MV: It is the South African Chibuku Super Plant. It is early days to celebrate, but we are seeing an interesting uptake since the start of production.
TZ: You also talked about the impact of the sugar tax locally.
MV: The sugar tax is not corporate tax. It is like an excise. It is something new that is meant to take value from the consumer, again.
TZ: So, it is on top of the corporate taxes?
MV: Over the corporate taxes that we have been paying. If volume holds, this is the size of a challenge we will have to collect on behalf of the government, more than US$40 million in taxes. Of course, it can be collected, but the assumption, therefore, has to be that manufacturers were under-pricing their products if the consumers can absorb it. We will be happy if the consumers can, but we are also taking measures to try and see how we can make sure our offerings remain affordable to the consumers.
TZ: I saw that your liquidity slightly decreased from 1,37 to 1,21 in the financial year 2024. Can you explain why your liquidity went down?
MV: In any inflationary environment, you have to be careful whether you are holding cash, or whether you are holding stock at any time.
We are generating sufficient cash to be self-funding in our capex [capital expenditure]. We have no worries about liquidity at this point in time. Whatever we generate is what we use for capital expenditure. We have not been borrowing for any of the capital expenditure. We are fine on liquidity, and we are fine on cash.
TZ: Your income tax expense went down from US$24,18 million in the financial year 2023 to US$3,8 million in 2024, but your revenue was up 43%. Can you explain that for me?
MV: Income tax charges as they come into the financials include both income tax and deferred tax. The distortions of hyperinflation and International Financial Reporting Standards have resulted in the reversals of some deferred tax provisions. But, income tax itself has not been affected.
TZ: You said suppliers are resisting ZiG. What are the reasons?
MV: The market in Zimbabwe has been burnt before for holding local currency. Everyone who is trading wants to be able to replace their stock. So, sometimes people are reluctant to part ways with the United States dollar when they cannot replace their stock, especially if banks are not yet giving the money. The proof of the pudding will be when banks are able to pay invoices when people present ZiG. I am sure the market will respond to that. It is early days for us to say they have resisted forever.
TZ: How much are you going to be investing in terms of capex for FY25 and where that money will be directed towards?
MV: At all times, we aim to invest approximately 30% of our EBITDA (earnings before interest, taxes, depreciation, and amortisation) in capital expenditure and it goes to both replacement and new investment. So, we will be going for that type of figure if the environment is stable. Priority or the projects will include the Belmont Brewery in Bulawayo that is aged. We will invest in plants, glass, and containers because it is important to grow your volume; you have to get that glass in. We will also do a lot of what we call replacement capex to optimise our production facilities across the three businesses. And the biggest is the unknown, which is (whether) we are going to win with how we are betting in the region, and should we win then we will find ourselves needing more capex.
TZ: How much in terms of figures?
MV: Well, for the most part, it was plus or minus US$50 million.
