7-Up keeps profit growing

Seven Up Bottling Company is maintaining profit growth for the fourth year running on stable growth in sales revenue and consistent gains in market share. The soft drinks company is expected to finish the current financial year ending March with new peaks in revenue and profit after it tripled profit in the preceding year.  The company has sustained high profit growth since 2011/12 financial year, launching itself into the top earnings league in its 2013/14 operations. It is the 6th highest earning company on per share basis as per the third quarter interim reports.

Mr. Mr. Sunil Sawhney, the company’s managing director/chief executive officer, is consistently building wealth for shareholders. His strategy is holding down operating costs while pushing up sales volume, which has improved profit capacity. Major gains in profit margin have happened from 3.4% in the 2012/13 financial year to 8.2% in March 2014 and still good at 7.6% at the end of the third quarter operations in December 2014.

The company closed third quarter trading with sales revenue of N59.83 billion, an increase of 8.9% year-on-year. Full year outlook indicates the company would grow turnover by about 10% to N84.5 billion in the financial year ending next March. The company has maintained stable growth in sales volume for several years despite the high competition in the soft drinks market, which indicates a continuing gain in market share. Its management said its competitive edge is the offering of good quality products at cheaper prices than competitors.

Net profit grew ahead of sales revenue at about 16% to N4.54 billion at the end of the third quarter. Based on the third quarter growth rate, the full year outlook indicates after tax profit in the region of N7.4 billion for Seven Up Bottling Company in the 2014/15 financial year. That will be an increase of over 15% on the N6.43 billion net profit the company reported in 2014. Actual revenue and profit numbers may be better than projected as earnings growth are likely to speed up in the final quarter, which is the most critical selling period for the company.

Profit margin has improved from 7.1% in December 2013 to 7.6% at the end of the third quarter. The improvement in margins follows cost saving in two major areas. These are selling/distribution expenses, which declined by 4.5% year-on-year and administrative cost, which grew marginally during the same period.

Two other expenditure lines however claimed increased proportions of sales revenue during the review period. Interest expenses grew by close to 53% to N1.8 billion, already exceeding the full year figure in 2014. Cost of sales also grew ahead of sales revenue at 11.6%, depressing gross profit margin from 39.4% to 37.9% over the review period.

The major increase in interest cost follows increases in the company’s balance sheet debts. Long-term borrowing has grown from N1.43 billion at the end of the last financial year to N6.59 billion at the end of the third quarter. Bank overdraft has also expanded from N1.34 billion to N2.13 billion over the same period. Short-term loans have however dropped by 31.2% to N8.96 billion. New borrowing was necessitated by cash flow pressure induced by a 37.2% fall in net cash generated from operating activities.

The company earned N7.08 per share at the end of the third quarter, improving from N6.11 in the corresponding quarter in 2013. The full year earnings per share expectation is N11.54 for Seven Up Bottling Company in the 2014/15 financial year.

With accelerated growth expected in the final quarter, the company is likely to move up to the 4th position on earnings per share among listed companies in the Nigerian Stock Exchange. The company earned N10.04 per share at the end of the 2014 financial year and paid a cash dividend of N2.50 per share to shareholders.