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Beer Business That’s Crystal Clear

WHEN it comes to investor relations issues, most companies on the Zimbabwe Stock Exchange are often found wanting. For some, it is because of ignorance that investors deserve to be informed; whilst for others it is sheer arrogance.

Even some of the so-called blue chip companies, which are expected to know better and lead the way, do not come clean on this one.

It is common in other markets for listed companies to have a department of investor relations. This department is charged with the responsibility of handling inquiries from shareholders and investors, as well as others who might be interested in the company’s stock or financial stability.
The underlying principle is to ensure that stakeholders, particularly shareholders and investors, can easily access information about the company whenever necessary. This reduces information asymmetry, which occurs when some stakeholders of the company, usually board members and management, keep all the information to themselves. More often than not, these privileged few trade on this information prejudicing others in the process. That few cases of insider dealings have been brought before the ZSE committee reflects the lethargy of regulators rather than the absence of such cases.  
Among the few companies that have been consistently forthcoming in their treatment of investors over the years is Delta. Every Delta meeting, be it an analysts briefing or an annual general meeting (AGM), is usually detailed. Once again, the company did not disappoint at its AGM on 24 July with an announcement that it is targeting to double beverages output to 500 million litres by September 2010.  
This will put Delta at similar levels to Kenya’s East African Breweries in terms of production. The Nairobi Stock Exchange listed EAB has a market capitalisation of above US$1,5 billion compared with Delta’s US$500 million.  Delta has a slight advantage in capacity which is estimated at one billion litres, whilst EAB’s is 600 million litres.
Currently, demand for beverages outstrips supply resulting in Delta having to import more products from other SABMillier affiliates in the region. This, the company believes, is a temporary measure aimed at plugging the supply gaps until the company’s output increases.
More importantly, the imports have also helped the company fight competition which had seen rival brands such as Heineken and Amstel commanding a large following.  The Zimra clampdown at the border posts has also played a part in reducing beer imports through busting smuggling syndicates that were bringing the contraband into the country.
The company acknowledged that margins on its products were under pressure. Unlike during the hyperinflation period when prices were regularly hiked to maintain high margins, the obtaining stable environment actually breeds price competition. To grow the margins the company has to focus on internal efficiencies such as cost containment.  While the supply of inputs has improved, thanks to the adoption of multiple currencies, the major constraint to the industry at the moment is the supply of utilities such as electricity, water and communications.  
Some companies are losing as much as 20% of their production to power cuts. The situation is much worse for big companies such as Delta which cannot operate big plants profitably when running on generators. It is imperative for institutions such as Zimbabwe Electricity Supply Authority and the coal miner, Hwange Colliery, to be capitalised for a sustained economic recovery to be achievable.
Delta also revealed that volumes in the quarter to June were strong with lagers growing by 33% while sorghums improved by 21%. Volumes for soft drinks grew at a slower rate of 16% because of shortages of containers. In terms of the revenue split, beverages contributed 88% while the three other businesses namely malt production, plastic and glass contributed the remainder. A spike in volumes is expected in July with lagers projected to grow by a massive 150%. Volumes for the traditional Chibuku in July are expected to treble those of the previous year.  
Monthly turnover which was US$16 million in February improved to US$26 million by June.  Management projects that these monthly revenues will average US$26 million in the next three months. There is also scope for this figure to rise to US$40 million per month by September 2010 which is their yearend.
In the outlook, Delta expects capacity utilisation to continue climbing up especially in the next six months leading to the festive season. All non-core businesses, such as Ariston and food and industrial processors, are earmarked for disposal. In fact, the management anticipates the disposal of Ariston to be completed by July 31. Already 11 suitors are reportedly bidding for the stake.  In a bid to consolidate its position in the beverages sector Delta is now awaiting regulatory approval for the acquisition of a significant stake in Schweppes Zimbabwe.
Rumours are also linking Delta to an anticipated acquisition of Mutare Bottling Company — a company which has the Coca Cola franchise in Manicaland — from Econet in a deal allegedly involving the Ariston stake.
With the support of the anchor shareholder, SABMiller of South Africa, Delta has the wherewithal to reclaim its position among big the brewers in the region.


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