Seven-Up Bottling Company could be delisted after 58 years as a publicly-traded company if the majority shareholder Affelka buys out minority shareholders. Seven-Up’s vice chairman Sunil Sawhney told Reuters that delisting the company from the stock exchange after the takeover would be “logical”. The takeover is subject to shareholder and regulatory approvals, he said.
Privately-held Affelka, the investment firm of the Lebanese El-Khalil family, has offered to acquire 171.5 million shares from minorities at N112.70 per share, an 18 per cent premium to Friday’s share price of N97.12. The takeover bid is aimed at restructuring a firm that has been recording losses since 2015 as rising production costs and stiff completion dampened margins.
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The soft-drink maker, which distributes PepsiCo’s 7up, Pepsi and Mirinda-branded drinks, has been hard hit by a shortage of dollars that bloated the cost of raw materials. For the half-year ended September 2017, Seven Up’s gross margin fell to 15.91 per cent from 18.86 per cent the previous year. Gross margins a measure of profitability is a company’s total sales revenue minus its cost of goods sold (COGS), divided by total sales revenue, expressed as a percentage.
The higher the percentage, the more the company retains on each naira of sales, to service its other costs and debt obligations. The company’s share price was up 4.99 percent immediately after the announcement of the proposed takeover while it has a one year return of -24.34 per cent as of December 1.
Seven-Up has a high gearing ratio, which means it has huge debt in its capital structure as the debt to equity ratio increased to 548.85 percent in the period under review from 114.85 per cent the previous year. Interest coverage ratios stood at -1.32 per cent in the period under review. This means the firm’s operating profit could not cover interest expense.
The Bottler posted an operating loss of N2.68 billion in the period under review. Investors are keen on corporate leverage as they perceive a highly indebted firm as being riskier. The soft drink maker is increasingly losing market share to rival companies as patronage from consumers have reduced, according to an industry expert, who doesn’t want his name mentioned because of the sensitivity of the matter.
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“They have to rebrand and come up with market penetrating product. They should also deepen their marketing and distribution network,” said the expert. Demographic change is also affecting Seven-Up as a lot of the young generation prefers Coca Cola brand. Seven Up’s 13.50 per cent increase in sales in the period under review is one of the lowest among 12 largest consumer goods firms, according to data gathered by BusinessDay.
Seven Up’s sales were unable to cover rising costs and interest expense as it posted a loss after tax of N6.25 billion in the half-year ended September 2017, from a loss of N1.55 billion the previous year. Cost of sales ratios increased to 84.08 percent in the period under review from 81.01 percent the previous year. This means the firm has spent N84 on input cost to produce every N100 of unit generated in sales.
BALA AUGIE
