7-Up lifts profit, now one of the highest earning companies

7-Up Bottling Company was spotted last year as one of the few companies on the high growth track for the 3013/14 financial year. Our projection based on third quarter earnings figures expected a leap of 170% in net profit at the end of the year. The food drinks company has done better than that though with a revised profit figure for 2013, the profit advance amounted to 153.3%. By earnings per share, 7-Up Bottling Company is now one of the leading companies listed in the Nigerian Stock Exchange by earnings per share.

The company closed its 2013/14 operations with a turnover of N77.89 billion. This is an increase of 21.5% over the 2013 sales revenue figure of N64.09 billion. This is just 2.7% above our sales revenue projection of N75.8 billion for the company in 2014. It is also an accelerated growth compared with the improvement of 7.1% in turnover the company recorded in the preceding year. The company has maintained a record of continuing growth in sales revenue over the past five years.

Net profit amounted to N6.43 billion for 7-Up Bottling Company at the end of its 2013/14 financial year. This represents a leap of 153.3% from the revised net profit of N2.86 billion for the prior year. It is 14.8% ahead of our projected full year net profit of N5.6 billion for the company for the year. It is also an accelerated growth from the 51.2% growth in profit achieved in 2013.

The better than forecast performance follows an accelerated growth in profit in the last quarter. This was made possible by a significant gain in profit margin. Net profit margin improved from 5.5% at the end of the third quarter to 8.3% at full year. This lifted profit performance in the final quarter. Of the company’s net profit figure of N6.43 billion for the year, N2.51 billion or 39% was earned in the final quarter.

The company’s outstanding profit growth in the year follows both the accelerated growth in sales revenue and a major improvement in profit margin. Net profit margin went up from 4.5% in 2013 to 8.3% at the end of the 2014 financial year in March.

Two major cost moderations accounted for the improvement in profit margin during the year. These are cost of sales and selling/distribution expenses, both of which moderated relative to sales revenue.

Cost of goods sold grew slightly below sales revenue at 19.9% to N49.42 billion. This permitted gross profit to grow ahead of turnover at 24.4% to N28.47 billion. Gross profit margin improved from 35.7% in 2013 to 36.6% in 2014.

A bigger cost saving came from selling/distribution expenses, which increased moderately at 4.1% to N13.26 billion compared to the 21.5% increase in turnover. It therefore claimed a reduced proportion of turnover from 19.9% in 2013 to 17% in 2014.

An increase of 30.9% in administrative cost claimed a significant part of the revenues saved but nevertheless permitted a leap of 65.2% in operating profit during the review period. The strength for the profit advance in the year came from a change from a negative finance income of N2.26 billion in 2013 to a positive income of N7.0 million in 2014.

Major developments in the balance sheet during the year are in respect of restructuring and cut down of loans and borrowings. The company has cut down its long-term borrowings by 71.3% to N1.43 billion. It has also cut down its short-term debts by 89.2% to N1.5 billion while it has raised bank overdraft by 60.2% to N1.34 billion.

The company earned N10.04 per share in 2014, rising from N4.45 per share in 2013. The rise has placed 7-Up Bottling Company among the highest earning companies listed on the Nigerian Stock Exchange by earnings per share. The rapid growth in earnings per share has spurred share price appreciation in the stock market. By the close of business last Friday, the company’s stock had risen 43.6% above its January 2014 opening price.

The company is consistent with dividend payment to shareholders. Its dividend for the 2013/14 financial year was yet to be announced at press time. It paid a cash dividend of N2.20 per share in 2013, improving from N2.00 per share in 2012.