7-UP posts N10.77bn loss on currency woes

A shortage of dollar in Nigeria, driven by the oil price crash that forced suppliers to buy currency at the black market premium, has balloon the production costs of Seven Bottling Company Plc, tipping the company in a loss position.

For the year ended 31 March 2017, Seven Up recorded a loss after tax of N10.77 billion as against a profit of N3.34 billion the previous period.

Sales increased by 26.43 percent to N108.27 billion in the period under review as against N85.63 billion,  thanks to a price hike across products.

The loss was caused by a 57.35 per cent rise in cost of sales to N95.35 billion. Cost of sales ratio jumped to 88.06 per cent in 2017 from 70.79 percent  the previous year. This means the firm is increasingly spending on input costs to produce each unit of product.

An industry expert who spoke to BusinessDay on the condition that he will not be named, said that 7-UP was low on inventory and couldn’t source dollars to buy raw materials.
He added that sudden rise of 24 percent in the price of sugar, a critical raw material component in the manufacture of soft drinks, drove production costs high.

Import of machines, spare parts, packaging material became very expensive.
Consumer goods firms in Africa’s most populous nation have been operating in a volatile and tough operating environment as a drop in oil prices tipped the nation to a recession. Nigeria’s economy contracted 0.52 per cent in 2016, according to the National Bureau of Statistics (NBS).

 

Further analysis of 7-UP’s financial statement showed the company is highly geared with huge debt in its capital structure. Gearing ratio increased to 84.82 per cent in 2017 as against 63.02 percent the previous year.
Seven Up’s total long term loans spiked by 81.64 per cent to N33.06 billion while total trade and payables spiked by 56.55 per cent to N24.25 billion.  Finance costs increased by 37.03 percent to N4.44 billion.

 

Devaluation of the naira by 40 percent swelled the dollar-denominated loans in the capital structure of the firm.

 

Experts are of the view that the creation of a market-driven foreign currency window is a boon to manufacturers as the policy is expected ease liquidity.
“The recent pronouncement of the CBN comes as a relief. If the intervention is sustained, there’s no doubt that we will have continued improvement in sourcing raw materials,” Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria said.

 

7-UP  share price closed at N86.45 on The Nigerian Stock Exchange on Friday.

BALA AUGIE