eBusiness Weekly
Fradreck Gorwe
Zimbabwe’s major beverage manufacturer, Delta Corporation, has indicated the acquisition of a South African brewer, United National Breweries (UNB) has not been shelved as might be suspected due to the dilatory. “The acquisition of UNB has been delayed but it is in progress. No other regional transaction is contemplated at this stage,” said group corporate affairs executive Patricia Murambinda in an emailed response to this publication.
The company indicated in 2018 that it had plans to acquire South Africa’s leading manufacturer of traditional African sorghum beer after an agreement with owner of Diageo South Africa Proprietary Limited.
Diageo itself is a global leader in beverage alcohol with an outstanding collection of brands across spirits, beer and wine categories. These brands include Johnnie Walker, Crown Royal, J&B, Buchanan’s and Windsor whiskies, Smirnoff and others.
According to a statement released by Diageo investor relations on 20 December, 2018, the transaction was expected to close in the second half of 2019;
“The transaction, which is subject to regulatory approval, is expected to close in the second half of F19. Sale proceeds, which are not material, have not been disclosed. The transaction is expected to be eps neutral in its first full financial year,” read the statement.
The acquisition is envisaged to unlock Delta’s fortunes after its parent AB InBev revealed plans to divest from some African markets especially in the traditional beer sector.
Despite volumes decline reported for the sector in the trading update for the second quarter to September 30, 2019, the company remains competent in the sector whose expansion is imminent with the planned acquisition of the South African brewer.
Further, the company is expected to realise an improvement with regard to access to foreign currency which challenge impacted heavily on volumes for the second quarter of 2019 as the company struggled to source imported raw materials.
The acquisition is also envisaged to expand the beer category as a sustainable alternative in the face of the dwindling soft drink portfolio due to challenges in securing raw materials. For some time in 2018 the soft drink factories had been on shut down for the very reason.
Foreign currency challenges remain a major blow for a number of companies and the exploration of foreign markets at this time for the beverage company is a good deal for enhanced sustainability. In fact, the absence of any plan at the moment for yet another regional transaction by the company as notified is testimony struggles associated with foreign currency inadequacy.
The acquisition will bring to two the number of major regional acquisitions following the acquisition of National Breweries in Zambia.
Meanwhile the beverages manufacturer performed dismally with regard to sales volume across main segments and subsidiaries for the second quarter and half year to September, 30 2019.
In a trading update released this week, Delta said a myriad of factors contributed to volumes decline which entail potable water shortages, electricity and fuel shortages, and foreign currency shortages among other challenges.
These headwinds, some of which reportedly still taking a toll, were given precedence by monetary policy changes and the surge in inflation which resulted further in low disposable incomes and compressed consumer spending as the company resorted to frequent price increases.
“The policy changes have led to a surge in inflation and a fast depreciating exchange rate. Consumer spending remains low as incomes have lagged the escalation in prices of goods and services. The Southern Africa region has been adversely impacted by shortages of potable water, electricity and fuel.
“The Company has had to implement modest but frequent price increases in response to the inflationary pressures whilst taking into account the affordability issues affecting consumers,” reads the trading update.
Lager beer volume declined 40 percent for the quarter and 48 percent for the six months compared to the same period last year. The pricing of this category has reportedly been “moderated to maintain affordability given the prevailing economic challenges.”
Sorghum beer volume in Zimbabwe fell 29 percent for the quarter and 15 percent for the six months. This was attributable to a rise in prices of inputs (maize, sorghum, and packaging materials), way beyond disposable incomes. To cover the gap, prices of beer were also increased resulting in some customers “switching from the category.”
Sorghum beer volumes at Natbrew Zambia also declined 13 percent partly due to higher pricing on the back of a steep increase in maize prices and the depreciation of the Kwacha. Capacity and power supply further constrained product supply.
Volumes for sparkling beverages also fell by 36 percent for the quarter and 56 percent for the six months to September, 30 2019. The challenge of raw material supply was contributory given that the category “has a high import content.”
Another associate, African Distillers, recorded a soft volume outturn due to difficulties in accessing foreign currency. As a reactive measure, the entity “continues to launch products with a lower foreign currency content.”
Further, Schweppes Holdings recorded a 33 percent beverage volumes fall for the half year on the back of ailing consumer demand and difficulty in accessing imported raw materials.
The difficulty in accessing raw materials is reportedly still taking a toll on operations across segments;
“There are still challenges in sourcing imported raw materials and services due to the mixed performance of the interbank market and difficulties in accessing materials as foreign suppliers remain jittery on account of overdue payables,” said the company.
