Delta recorded a 12% surge in lager volumes in the 3 months period to June 2017 against the same period last year. The lager beer segment has, prior to the just ended quarter, recorded a quarter on quarter as well as year on year decline since 2014 and the 1^st Quarter in the current year reporting a positive growth rate representing a turn in performance, Delta reports.

Lager beer is one of the top revenue driver and last year it contributed 33% to operating income while retaining top position in terms of contribution to profit, despite underperformance. Soft drinks registered a 3% growth despite having registering low sales over the prior years to 2014.

Sorghum beer volumes came off by 5% with Chibuku Super however reporting a positive growth of 9% year on year. The company however notes that a 2% growth in revenue is a result of changes in the product mix which is starting to ripe results. In the current year Delta says it will focus on several areas including resolving the bottling franchise matter.

Thoughts…

We expect the retail sector to experience tepid growth. Weak economic fundamentals will continue to constrain retail spending, dampening retail sales. Spending will continue to be largely concentrated on essentials, particularly the basic necessities such as food and drink. Delta’s improved quarterly performance indicates an optimal product mix which was years in the making. A rebound in Chibuku Super and improving sparkling beverages demand supported by the resurge in lager demand ensured an improved outturn.

It is our view that Delta will report both a revenue and profit growth in the current year while margins will slightly improve. An outperforming agric season will help drive the cost of production inputs down, while a growth in lager will see margins firming. Firming regional currencies against the dollar may help curb imports in turn reducing competition.

Ultimately an expected economic growth improvement will help drive demand for products across the various portfolios. On the downside, we note that the economy is still facing serious headwinds which may counter any envisaged growth impetus. This scenario results in diminishing returns as consumers seek alternatives in mainly grey imports in pursuit of stretching the dollar.