Delta Corporation (Delta) half year results released today show declining top and bottom numbers. Revenues and profits were all down 8% primarily due to a worsening operating environment. Revenues were down from $338m to $341m as the product mix shifted from pricier alcoholic beverages to cheaper sorghum based beer such as Super Chibuku. Sorghum beers volume increase by 6% in the period under review compared to the same period last year whilst lager beer volume decreased by 11%. Profits were $31m compared to 2015 figure of $35.7m and net profit percentage also fell from 13.3% to 12.7%. However, Delta always experiences increased volumes during the Christmas festivities which helps alleviate the H2 figures. The balance sheet however remained strong with almost $200m in cash and cash equivalents, a good current cover of 2.08:1 and a comprehensive gearing ratio of 13%.

External factors which negatively affected Delta’s operations and/or results are:

Water Shortages

Water shortages which have hit Zimbabwe due to drought which hit the country last year. Water shortages are also attributable to archaic water management systems by the various city councils which are evidenced by the delays in implementing smart water meters and delayed attendance to burst water pipes. Water rationing has disrupted production at Delta plants across the country and this adversely affects volumes.

Delayed International Payments

Delays by the Reserve Bank of Zimbabwe (RBZ) in settling Telegraphic Transfers has resulted in the delay in implementing new projects for Delta. Two sorghum beer plants in Masvingo and Kwekwe which were supposed to be commissioned in the financial period were pushed back due to this as equipment suppliers did not received their funds timely.

Threat to withdraw Coca Cola bottling contract 

The Coca Cola Company (TCCC) informed Delta of its intentions to withdraw the Coca Cola Bottler’s Agreement with them following the merger of SAB Miller (the former single largest shareholder in Delta) with Belgium’s AB InBev. If TCCC goes ahead to cancel the contract then Delta would stop the production of the likes of Coca-Cola, Fanta, Schweppes, Spar Letta, Minute Maid etc…which are all anchor brands. This would materially affect Delta’s financial performance. With Adam Molai’s Varun Beverages Pepsi plant expected to commission next year, Delta might be overshadowed by the new kid on the block if the worst comes to the worst.