Chibuku offsets decline in lagers for Delta Beverages

Delta's three months trading period to 30 June 2014 was characterised by depressed consumer demand due to the tight liquidity conditions. The move by consumers to value products remained evident.

Delta experienced growth in its sorghum beer category (Chibuku) but total beverage volumes were near flat for the quarter to June 30 after declines in the lager beer and sparkling beverages categories.

In its quarterly trading update, Delta said because of the change in sales mix as witnessed in the March full year, total beverage volume for the quarter grew 1% year on year.

"There is sustained growth in sorghum beer and alternative beverages against declines in lager beer and sparkling beverages.

Sorghum beer is up 15% for the quarter driven by increased investment in Chibuku Super production capacity. Alternative Beverages mainly Maheu volumes jumped by 22% year on year with some encouraging uptake in the new dairy mix (SuperSip) and drinking yoghurt Delta launched the yogi sip in June.

Lager beer volume is 21% below last year while sparkling beverages are down 8%. Consumer demand especially in the two categories remains depressed in line with the prevailing subdued economic performance.

"The stretched consumer is now focusing on value for money products."   

Revenue for the quarter declined by 3% year on year reflecting the changes in sales mix and the ongoing value chain management initiatives.

Management reports that the financial performance of the company reflects the changes in the sales mix as well as the ongoing value chain management initiatives. Further business performance update will be provided at the AGM, to be held on Wednesday, 30 July 2014. We are likely to update our model after the AGM.

In a note to investors, Imara Edwards Securities, Addmore T. Chakurira, said, "We expect the operating environment to remain tight (low GDP growth, tight liquidity conditions, slowing consumer demand, high risk of deflation etc). Nonetheless, we believe Delta is well poised with its pristine balance sheet, dominant market share, strong cashflows and solid management. Although lager volumes eased in Q1 15 and are likely to remain under pressure, Delta's product mix ensured that overall beverage volumes remained almost static. In addition we believe that margins can be maintained given the ongoing value chain management initiatives.

Management states that value creation will be achieved through deploying brands across price segments, regular big hit innovations and in-trade capacity to grow market size and profit pools. EBITDA margins are expected to range between 26% and 30% in the long-term on the back of a favourable shift in mix, improved efficiencies, competitive pricing, reduced maintenance costs and supply chain savings. In our view, the new offerings (dairy based beverages) and innovative packaging offer significant opportunities. Chakurira advised investor to buy Delta for the long-term.