Seven Up records N1.55 billion loss on rising costs

Seven Up Nigeria Plc has recorded a loss of N1.55 billion for the period ended June 2016 as harsh dollar shortages and a weak currency spiked import costs of raw materials and machinery.
The loss in the period under review was from a profit of N1.82 billion the previous year, the worst results in more than a decade, based on data gathered by BusinessDay.
Seven Up’s loss was due to a 37.87 percent rise in cost of sales to N38.47 billion while cost of sales ratio increased to 81.17 percent in 2016 from 69.89 percent the previous.
A very high cost of sales means the company is not efficient and it is spending more on input cost to produce each unit of products.
The beverage producer recorded an 18.73 percent rise in sales to N46.13 billion, thanks to its marketing, distribution and advertising strategies.
Analysts say the hike in the price of sugar, a raw material component in the manufacture of soft drinks contributed to high production costs.
Seven Up and other Fast Moving Consumable Goods (FMCG) Firms are facing their worst financial performance in a decade as crimping consumer spending, devaluation of the currency and inability to access dollars to import raw materials continues to slow growth.
“Most companies, particularly consumer ones, have found it very challenging,” Robert Omotunde, an analyst at Afrinvest West Africa Ltd., “We don’t think there’ll be much improvement this quarter. As long as the foreign-exchange market is inflexible, we won’t see a major earnings surprise on the upside.”
Cadbury Nigeria Plc, GlaxoSmithKline Nigeria Plc, Pz Cussons Nigeria Plc, and International Breweries Nigeria Plc, recorded losses in the period under review.
In order to curb inflation and protect a depleting reserve, the central bank pegged the naira at N197-N199 for 15 months, forcing companies to source dollars at the inaccessible parallel market.
Consequently, investors fled and abandoned naira assets on concerns that a sudden devaluation could lead to the loss of significant investment.
Consumer goods firms have cut down on expansion plans, shed jobs and their stocks took a beaten on the floor of the exchange.
While the central bank has adopted a flexible exchange rate in June with a view to allowing the naira trade freely, companies still bemoan scarcity of dollars.
The naira was stable at N305.15 as of 12:00 am, the commercial city Lagos.
Seven Up’s debt to equity ratio (D/E) increased to 114.483 per cent in 2016 from 78.83 per cent last year, which means the portion of debt in the company’s capital structure has surged.
The company’s finance costs was up 12.72 per cent to N1.86 billion while total borrowing stood at N25.46 billion in the period under review.
Seven Up’s share price dropped 5 per cent to N136.15 on the floor of the exchange, valuing the company at N87.22 billion. The company’s shares have shed -22.51 percent and underperformed the NSEASI of -8.86 percent.