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Market Digest Nigeria

Business

Seven-Up sustains loss position

Just like its peers, higher input costs driven by inflation and unrealised foreign exchange losses have continued to retard earnings of Seven-Up Plc. 

Despite that Nigeria, with a large and growing population of around 190 million makes it arguably the most promising retail market in African, the main business constraints in Nigeria remains the relatively low purchasing power, an expensive operating environment and high import dependence.Consumers are increasingly trading down to more affordable brands due to the economic down turn which was compounded when the country slipped into recession. This has made the manufacturing sector to continue to grow marginally leading profit margin to shrink.The drop in the consumption was an indication of the shift in consumer patterns in the light of the economic situation in the country and corresponding squeeze on disposal income.The slump in profit is being witnessed also as Nigeria suffered from lower crude prices, with government revenues declining and public sector workers going unpaid for months.

Following the challenging macro-environment and the squeeze on household wallets, growth in the real sector of the economy has been constrained with more growth seen among cheaper brands.The sector has also remained a very competitive market with product innovations and other trade activities being the order of the day.The difficult business environment has made the Seven Up Bottling Plc like its peers unable to sustain its performance despite innovative and proactive responses to market dynamics and competitive pressures.Market watchers attributed the depletion in revenue to stiff competition and drop in the value of naira. They also blame higher input costs, driven by inflation and unrealized foreign exchange loss for the poor performance, adding that continued poor liquidity in the foreign exchange market, albeit with a slight improvement resulted in a weak naira which had a transactional impact through higher costs.

Also, challenges of erratic supply of public electricity, weak logistics, insecurity and other high costs of operations attributable to poor infrastructure have continued to make business operating environment difficult especially the real sector of the economy.As Seven Up was not insulated from share price depreciation despite that it remained the only company listed on beverages–non-alcoholic subsector of consumer goods sector following the exit of coco cola firm, its share price movements has also receded and remains susceptible to the challenges facing the manufacturing businesses in Nigeria due to the upset in financial sector following drop in oil prices and currency devaluation.In spite the recent rally being witnessed in the stock market, the share price which closed at N139.00 per share in September 2016 stood at N92.00 per share when the closing bell rang on Friday, a decrease of N47 or 33.81 per cent year to date.

Financials
Seven Up ended the financial year in the red posting a 53 per cent drop in profit after tax for the year ended March 31, 2016.In a filing with the Nigerian Stock Exchange (NSE), the company’s post-tax profit dropped to N3.347 billion during the period under review against N7.125 billion recorded the previous year, representing a decrease of 53 per cent.Profit before tax stood at N3.757 billion as against N8.749 billion posted the previous year accounting for a drop of 57 per cent. However, turnover firmed up to N85.634 billion during the period, compared with N82.450 billion in the same period of last year, representing a growth of four per cent.Directors of the company recommended to members a dividend payment of N1,024,944,581 as against N1,761,623,498 in 2015, representing N1.60 per share from N2.75 per share in 2015.Taking a cue from the downswing of the full year, the soft drink company also began the financial year 2016 on an unfavourable note as it reported a 48 per cent slump in profit after tax for the first quarter of 2016. Net income fell to N1 billion, down from N2 billion reported a year earlier.

Its profit before tax also was equally down by 48.30 per cent, from N2.447 billion in 2015 to N1.265 billion during the Q1 of 2016 as the company remained weighed down by currency-driven headwinds, coupled with rising inflation and competition from other soft drinks manufacturers.The company, however, grew revenue by 15 per cent to N27 billion, up from N23 billion in the previous year. Cost of sales rose to 28 per cent to N20 billion, from N15 billion resulting in a 12 per cent decrease in gross profit.Finance cost for the soft drinks maker jumped 27 per cent to N961 million, up from N760 million.The challenges of operating environment, which continued to have negative impact on the real sector of the economy, led Seven-Up’s bottom line to slip into loss position during the half year.The company posted a loss before tax of N1.945 billion for the half year ended September 30, 2016 as against pre-tax profit of N2.371 billion in 2015.According to the results released to the Nigerian Stock Exchange (NSE), the company’s loss after tax also stood at N1.556 billion during the six months period (April- September 2016) against profit after tax N1.820 billion recorded the previous year.

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However, the company’s revenue declined by 18.72 per cent, from N39.569 billion to N46.979 billion in 2016.Soft drink producer also reported a loss after tax of N4.843 billion for the nine months ended December 31, 2016 as against profit after tax of N2.230 billion a year earlier.Loss before tax equally stood at N4.843 billion in 2016 from N2,884 billion recorded in 2015.Revenue grew 26 per cent from N60.226 billion in 2015 to N75.899 billion in 2016.
Seven-Up sustaining the loss position ended the financial year with a loss before tax of N11.228 billion for the full year ended March 31, 2017 as against pre-tax profit of N3.757 billion in 2016.In a filing with the Nigerian Stock Exchange (NSE), the company’s loss after tax also stood at N10.776 billion during the financial in contrast to profit after tax N3.347 billion recorded the previous year.However, the company’s revenue grew by 26 per cent, from N85.634 billion to N10.277 billion in 2017.

The company also opened the year in the red with a record of a loss before tax of N2.450 billion for the first quarter ended June 30, 2017 as against pre-tax profit of N1.265 billion in 2016.Its loss after tax also stood at N2.450 billion during the period under review in contrast to profit after tax N775.588 million recorded the previous year. The company however maintained growth in growth, increasing revenue by 19.63 per cent, from N26.620 billion to N31.846 billion in 2017.

Why earnings dropped
Chairman of the company, Faysal El-Khalil while speaking at its 56th Annual General Meeting (AGM), said as availability of forex dried up, its sourcing became a huge challenge for companies. The major devaluation of naira, like in interest rates and uncertainty about forex availability, put the survival of businesses in jeopardy. He noted that in addition to the headwinds, the operating environment also remained very challenging.“An on-going insurgency in northern Nigeria and oil related militancy in the Niger Delta had serious impact on business operations and economic activities in the region. The economy continued to struggle with perennial power outages, poor state of infrastructure, namely poor condition of road networks and non availability of gas to industries,” he said.

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Outlook
According to El-Khalil, despite the challenging operating environment, the company was committed to carry on with its growth agenda, introducing new products and packages to meet expectations of market place and consumers.
The chairman said the company has invested substantial resources to expand and upgrade its manufacturing capacity and strengthen sales and distribution systems. According to him, “this has and will continue to enable us deliver value to our end consumers. The sales and marketing initiatives taken by the company will put us in a good position to harness the opportunities that will arise in the market place”.

Last line
Although market watchers remain optimistic over Nigeria resurging from an economic meltdown and eventually breaking away from its dependence on oil as an engine for growth, aggressive marketing is a significant factor needed for the success of brewers and beverage manufacturers to help return to profitability.

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