By Simbarashe Zishiri, HARARE, November 11 (The Source) – Beverage giant, Delta Corporation is likely to sell-off its sparkling beverages business, which bottles popular Coca-Cola brands, analysts say.
Delta stands to lose a third of its business if The Coca-Cola Company (TCCC) follows through on its intentions to rip up a Bottlers Agreement between the two.
An analyst briefing at the presentation of Delta’s financials for the six months to September 30 on Wednesday failed to provide clues into its management’s thinking of how to proceed.
Executives skirted questions of how to deal with the situation forced upon them by AB InBev’s acquisition of SABMiller, which made Delta an associate of the Belgium-based brewer.
TCCC, the world’s largest beverage company, has a Bottlers Agreement with Delta for 12 brands, which include popular products such as Coke, Diet Coke, Fanta, Sprite, Coke Zero, Powerade among others.
These products form Delta’s sparkling beverages business. For decades, Coca-Cola products have had a near monopoly in Zimbabwe’s sparkling beverages business.
The sparkling beverages contributed 29.32 percent and 23.45 percent to the Delta’s operating income in 2015 and 2016 respectively. It contributed $22,53 million in operating income from the $96,1 million it achieved in the 2016 full-year.
“Coca-Cola does not intend to exit the Zimbabwe market … all involved stakeholders are engaged,” chief executive Pearson Gowero told analysts.
And Delta wants to keep that side of the business, but analysts say signs point to the beverage maker selling off TCCC related assets.
Finance director Matts Valela said that Delta’s agreement with Coca-Cola was independent of SABMiller, but accept that business dealings of AB InBev, as a significant shareholder in the company has a bearing on its activities.
SABMiller was a major bottler of Coca-Cola products in Africa, while AB InBev is a similarly major bottler of rival Pepsi in South America.
“It is not a Coke-Pepsi issue, AB InBev is beer centric and they are acquisitive,” said Valera.
“However, we have other shareholders who own 60 percent (of Delta,) therefore our interest must be to defend the value in the hands of that shareholder.”
When asked what Delta would do if TCCC goes ahead to terminate the bottler’s agreement, Valela responded:
“Coca-Cola owns the brands and we own the assets. There are arrangements that are in place, but that is not going to be an optimum solution,” noted Valela.
On Thursday, Delta announced the appointment of Almeida Cabral De Soares, a representative of AB InBev to its board.
Gowero also said AB InBev executives were in the country to look at its operations.
Analyst Farai Murambiwa told The Source that Delta appears to have a plan.
‘I think they will break up the business, with Delta keeping the non-TCCC side of business,” he said.
Another analyst said it was possible that Delta could sell the sparkling beverages to the Econet Wireless owned Mutare Bottling Company, which is the only other bottler of Coca-Cola sparkling products in Zimbabwe.