…Posts N4.84 billion loss in Q3 Dec 16
An economic downturn in Africa’s most populous nation that increased costs pressure on firms has hurt Seven Up Bottling Company Plc as the beverage producer recorded back to back losses in more than three decades.
For the third quarter ended December 2016, Seven Up posted a loss of N4.84 billion compared with a profit of N2.23 billion the previous year. Sales were up 26.01 percent to N75.12 billion amid a weak disposable income.
The loss was due to a rising input costs that prevented the firm from translating top line impressive performance to bottom line growth while margins were also suppressed.
Seven Up’s cost of sales (COS) increased by 52.13 percent to N64.08 billion while cost of sales ratio moved to 84.83 percent in the period under review from 69.94 percent last year.
A higher COS ratio means the firm spent N84 to produce N100 of each unit of product.
Seven Up and other beverage producers are struggling with rising prices of ingredients and raw materials fueled by the devaluation of the currency, foreign exchange scarcity and a weak economy.
Experts say the scarcity of dollars experienced by importers of raw sugar had negative impact on the production costs of beverage producers because sugar is a raw material component in the manufacture of soft drinks.
“Beverage makers in Nigeria will remain in a difficult situation in 2017” said Pabina Yinkere, Head, Research Division Vetiva Capital Management Limited
“The major determinant still remains the direction of Nigeria’s FX policy. Sustained FX inaccessibility and possibility of further naira depreciation continues to create headwinds,” said Yinkere.
The naira lost 40 percent of its value against the U.S currency due to central bank removal of a 15 month peg on the currency.
Nigeria’s economy contracted by 2.20 percent in the third quarter of 2016 on the back of a sudden drop in the price of oil since mid-2014.
Inflation for the month of December accelerated to 18.55 percent, the highest in 11 months. Higher inflation squeezes consumer spending thus undermining sales of firms as inventories pile.
John Chukwu, managing director and chief executive officer of Cowry Asset Management Limited sad that because the economic confidence is very low, it is difficult for people to continue to buy goods as they used to as inflation has eaten deep into their wallets.
Seven Up’s finance costs increased by 23.92 percent to N3.16 billion as the devaluation of the naira exposed the company to financial risk.Debt to equity ratio increased to 203.12 percent in the period under review from 71.85 percent the previous year
The company share price has fallen by 39 percent in the past one year to close at N118 while market capitalization stood at N72.64 billion.
BALA AUGIE
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