The Herald (Harare)

21 January 2013

Zimbabwe: Delta Profits to Soar

FINANCIAL analysts Invictus Securities have projected Delta Corporation's 2013 profits to jump by 31 percent to US$98 million on the back of volumes and premium beer sales growth. Revenue for the Zimbabwe Stock Exchange-listed firm is also projected to surge by 20 percent to US$666 million in

the period under review, according to a report by Invictus Securities.

Delta are manufacturers of Castle Lager, Bohlinger's, Castle Lite, Lion Lager, Coke and Fanta.

The company posted US$75 million profits in the 12 months to March 2012 while revenue in the same period came in at US$554 million.

The projections come on the back of strong performance by Delta in the third quarter of its current financial year, a continuation of the impressive performance delivered in the first half of the same financial year.

Delta registered strong performance in the first half of the year under review (2013), underpinned by volumes growth and more premium products in the beverage firm's sales.

"The lager beer volumes run rate improved to 7 percent by the end of quarter 3 of 2013, compared to 6,6 percent for first half of 2013, sorghum beer volumes growth stood at 10 percent year-on-year for the third quarter of 2013," said Invictus Securities.

"Sorghum beers (sales) volumes are now 9 percent behind the comparable period last year. December saw the increased excise duty come into effect with management confirming our belief that this will have minimal effects on their business.

"We believe that our financial year 2013 revenue forecast of US$666 million and bottom line US$98 million are still attainable."

Lager beer volumes for the third quarter were 5 percent ahead of prior year and 7 percent up for the three-quarter period to December.

"Sparkling beverages volumes are up 8 percent for the quarter (September to December) and 10 percent for the nine months to December 2012."

Sorghum beer volumes are down 10 percent for the quarter to December 2012 and 9 percent for the nine months, a trend consistent with the first half of the year.

Revenue for the quarter October to December 2012 was up 14 percent and 16 percent on a year-to-date basis, supported by improved product mix and minimal price increases.

Finance Minister Tendai Biti last December increased excise duty on lager beer from 40 percent to 45 percent of manufacturer's price with effect from December 1 2012.

This has been disruptive on both volumes and retail pricing due to lack of small denomination coins, but the impact on the business' performance is expected to be minimal.

Delta's share price has increased significantly since December 2012 after the brewery firm indicated that it had enough stock and capacity to meet festive season demand.

Invictus Securities contends that the stock retains an upside potential, albeit from an elevated position and is closing in on full valuation.

"The focus on premium brands is bearing fruit as indicated by the decline in sorghum beer consumption and the subsequent increase in premium lines," said Invictus.

Recent results have shown that the beverages maker is past its peak capital expenditure, hence free cash flows would increase in future, increasing the chances of a dividend.

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