How Coca-Cola’s pulling out will impact on Delta

Since operating income is a measurement that shows how much of a company’s revenue will eventually become profit, the decline will have a significant negative effect on the earnings given such a large decline. Therefore profit attributable to owners which amounted to $80.09 million recorded in 2016 would fall significantly in the next reporting period if the termination goes ahead. That will lower shareholders value as well.

Delta Corporation has a 49 percent stake in Schweppes Holding Africa Limited, a manufacturer and distributor of non-carbonated, still beverages under licence from The Coca-Cola Company. Schweppes was acquired by TCCC in 2001 as part of its global acquisition of Cadbury Schweppes International’s beverage brands.

Its product portfolio includes cordials, fruit juices, bottled water and flavoured drinks which are marketed under well renowned brand names; Mazoe, Minute Maid and Schweppes Water.

As such, the termination of the The Coca-Cola Company (TCCC) Bottlers’ Agreements with Schweppes Holding Africa Limited further worsen Delta’s financial performance since this will reduce the group’s profit from associates.

Profit from associate contributed by Schweppes has been increasing in the past two years, with the associate contributing $2.4 million which is 2.3 percent of Delta‘s profit before tax in the previous financial year ended 31 March 2016.

As such the termination of the agreement with Schweppes will definitely spill over to Delta because it will mean that the profit that used to come from Schweppes will no longer be realised and this will further worsen its financial performance.

Sources close to developments say Delta is ready to sell off the unit.

Previous reports have suggested that TCCC has the prerogative to buy out sparkling beverage operations from SABMiller units, this may well happen because it is unlikely that the global giant would want to exit market in Southern Africa where is has held a near monopoly.- The Source

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