Coca Cola HBC seals Egypt deal after first-half profit jump

Multi can packs of Coca Cola and Diet Coke are seen for sale in a motorway services shop, Reading, Britain

Coca Cola HBC (CCH.L) on Thursday agreed to buy a majority stake in Coca-Cola Bottling Company of Egypt for $427 million after the Swiss-based soft drinks bottler reported a surge in half-year profits.

A unit of HBC will buy about 94.7% of the Egyptian company from its major shareholders including affiliates of The Coca-Cola Co (KO.N) and MAC Beverages, HBC said.

The deal, which would allow HBC to expand in its largest market Nigeria and grow in Egypt, was announced shortly after the company reported a nearly 68% surge in comparable operating profit to 350.3 million euros for the six months ended July 2.

The company, which bottles and sells Coca-Cola Co drinks in 28 countries and is 23.16% owned by the U.S. company, warned that operating profit margins would be lower in the second half compared with a year earlier due to rising cost inflation.

Nonetheless, the company expects margins to expand by 20 to 30 basis points in 2021, thanks to strength in the first half and as revenue is expected to recover with people eating and drinking out more as restrictions lift.

HBC CEO Zoran Bogdanovic told Reuters that higher raw material costs are expected to continue into 2022.

“Given rising input cost inflation, we struggle to see upside risk to consensus margin expectations in FY22,” said analysts at Jefferies.

A host of factors, including disruptions in global supply chains and rising demand, has pushed up raw material prices, forcing packaged food companies such as PepsiCo(PEP.O)and rival Coca-Cola Co to pass on costs to consumers.

HBC said it expects the Egypt deal to add to earnings in the near term.

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