By Peter Egwuatu
SEVEN-Up Bottling Company Plc (7-up) recently released its full year result for the period ended 31st March 2009, showing a fair performance in view of the recent economic challenges.
The company posted a turnover of N34.86 billion and a Profit After Tax (PAT) ofÂ N1.53 billion.It declared a final dividend per share of N1.50, same as dividend payments made in the last two years, reflecting a payout ratio of 50%, and a dividend yield of 5% at its current price.
According to Vetiva Research, â€œ the company recorded slower growth in earnings for the period under review, an occurrence which we attribute to the companyâ€™s susceptibility to economic challenges experienced over the last few months; however, relative to the general performance of other players within the sector in recent times, we consider the earnings â€˜quite satisfactoryâ€™ largely on account of the companyâ€™s ability to partially hedge against risks within the sector. (Exchange rate, interest rate risks etc).â€
7-Up imports its major input (concentrated extracts for its drinks), consequently exposing the company to exchange rate risks in the face of prevailing exchange rate volatility. Furthermore, 7-Up faced increased raw material prices (i.e. raw materials that sourced through intermediaries, such as sugar, corks/caps e.t.c.).
The company was also unable to transfer the increased cost incidence to cosumers in the light of stiff competition in the soft drinksmarket space. Rising prices of commodities and food inputs (many reached record highs in 2008/9), coupled with exchange rate volatility, had an adverse impact on the input cost of companies especially for those with high reliance on these products in their production processes.7-Up has the second largest market share in terms of volumes in the packaged drinks sub sector, following closely behind NBC, which occupies the first position. However, relative to NBC, 7-Up appears to be more stable in terms of earnings sustainability, pricing and cost management.
Taking a look at the balance sheet, Vetiva said , â€œ we observe that the short termborrowing increased significantly by 110% to N8.87 billion from N4.22 billion which fails to support the decrease in its working capital position by -44%. We believe the company has been able to overcome the challenges prevalent in the real sector and expect its performance to improve in the 2009/10 financial year. However, we remain cautious as we note the rising prices for sugar (sugar has been trading at record highs), as this may impact costs for the packaged drinks sector.â€