Zimbabwe’s Delta Corporation likely to face tougher times

Delta Beverages, now an associate of Anheuser-Busch InBev (ABI) which acquired SABMiller last year, faces uncertainty after the Coca-Cola Company (TCCC) last year signalled its intention to terminate sparkling beverage bottling agreements with Delta and its associate Schweppes Holdings Africa.

TCCC, which formed Coca-Cola Beverages Africa (CCBA) along with SABMiller and the South African owners of bottler Coca-Cola Sabco in 2014, had retained the right to buy SABMiller’s stake in the event of a change of control at the brewer. 

Any resultant deal from the negotiations could provide a clearer path for local assets but the separation would likely lower Delta’s revenue and assets by a third.

But Exotix says the process could be complex given that Delta’s sparkling beverage units share a number of manufacturing plants and services with the lager beer business, along with other shared services in management, ICT platforms, distribution fleets and depots.

“There would certainly be dis-synergies if the business were separated and sold. Key considerations include who the eventual buyer preferred by TCCC would be, and whether Delta decides to retain its assets and develop a new soft drinks franchise. Given all the unknowns we cannot speculate on the repercussions at this stage,” said Exotix Partners.

Revenue has been falling since 2014 and the downward spiral is most likely to continue as economic situation worsens. In the 2016 full year results revenue dropped 4.6 percent from the previous year and in 2015 it dropped another 4.3 percent before it further declined by 6.7 percent in the full year 2016 to $538.2 million.

Earnings Before Income Tax Depreciation and Amortisation (EBITDA) has been also on a downward spiral since 2014. In the full year 2014, EBITDA fell by 1.7 percent from the previous year before it dropped 9.8 percent in 2015. In the year to March 31, 2016 it came in 10 percent lower at $128.9 million. That trend is likely to continue.

In line with the revenue and EBITDA, net profit has been on a downward spiral since 2014. Between 2013 and 2016 profit after tax decreased by 23 percent from $104.1 million to $80.1 million, and the trend is most likely to continue as revenue remains subdued.

Both return on equity (ROE) and operating profit margins have been depressed since 2014 owing to subdued earnings. ROE declined from 27.94 percent in the full year 2012 to 16.41 percent in the full year 2016, while the operating margins declined from 25.02 percent in 2013 to 20 percent.

But total assets have been increasing since 2012 as the company continues to invest in more plant and equipment to expand its operations, particularly on the Chibuku Super segment. Between 2012 and 2016 total assets grew by almost one half (49.04 percent ) from $497.1 million to $696.2 million.

Overall performance of the company has been deteriorating since 2014 as the top line remains depressed owing to waning aggregate demand which further puts pressure on profitability.- The Source

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