Starting with the Consolidated Income Statement for Fizz and we see that sales performance in 2016 has been disappointing, with a decline of 8%. The fact that cost of sales has fallen at a slower rate than revenues have declined means that gross profit is down by an even higher 10.5%. As we move down the income statement the subsequent profit figures (operating profit and net profit), show even bigger falls, being down 23% and 23.9% respectively. The biggest upward movement on the income statement is seen with Fizz's finance costs which have increased enormously in percentage terms (175%) but only slightly in absolute terms (N$0.7 million). Fizz still has plenty of room to take on additional financing as its gearing ratio (long-term debt/equity) stands at a very manageable 7.8%. Overall, while performance is disappointing the company's profit margins are still very healthy. Fizz's gross profit margin (gross profit/revenues) stands at 50.5% and its net profit margin (net profit/revenues) is 19.6% in 2016, for example. To maintain these margins it needs to find new revenue streams, most likely by offering sugar-free drinks and/or entering into a franchising agreement just as its rival, Qwench, does with a large American cola manufacturer.


When we come to Qwench's Consolidated Income Statement we see very similar trends to Fizz over the past year, only more pronounced. Qwench's revenues are down 10.2% for example, and its net profit figure is down 31%. It's clear that the poor performance of both companies indicates a wider industry problem with falling demand for carbonated soft drinks and sugary drinks in particular. The fact that this is such a competitive industry means that there is little scope to raise prices without significantly affecting demand, so both Fizz and Qwench need new product lines. The 45% of revenues that Qwench gains from its franchising deal accounts for the big difference in revenues between Qwench and Fizz. This particular franchising deal is worth a huge N$761 million in revenues per year. If Fizz had this deal instead of Qwench, it would overtake its rival. As it stands, Qwench's revenues are five times higher than Fizz's. Like Fizz, Qwench has solid profit margins but they are declining.


Looking at the Consolidated Statement of Financial Position we see that Fizz has invested in its intangible assets in 2016 to the tune of N$32.7 million. Intangible assets are especially important in the soft drinks industry and consist of trademarks, goodwill and patents. The value of a company like Coca Cola is largely based on the strength of its intangible assets which powers its brand. Inventory days ([inventory/cost of sales] x 365 days) have increased by 6 days and care needs to be taken especially with products with a short shelf life, like Fizz's Joocy Juice real fruit drink. It's good to see Fizz's cash position improve by 49% over the year but N$10 million is not capable of making much of a difference when it comes to big capital expenditures. We see that Fizz has paid out 47% if its net profit in dividends this year while its rival pays out just 30% in dividends. The fact that it takes 99 days for Fizz to pay its suppliers on average ([payables/cost of sales] x 365 days) compared to a lower receivables days ([receivables/revenues] x 365 days) figure of 74 days, means that Fizz has reasonably high buyer power over its suppliers.


A number of hints on Qwench's Consolidated Statement of Financial Position indicate that the company is building up its reserves, perhaps in anticipation of turbulent times for the soft drinks industry. Its non-current assets have only increased by 2.5% over the year meaning that they are holding off on big capital expenditure outlays. The fact that cash has increased by 72% to N$316 million and the firm is retaining 70% of its net profit reinforces the view that they are building up reserves. Qwench has higher inventory days and receivable days than its rival but the fact that its payables figure stands at a massive N$505 million means that its cash conversion cycle (inventory days + receivable days - payable days) is negative at minus 119 days. This is a very positive position for Qwench to be in as it indicates cash is coming into the company long before it is leaving. Due to Qwench's considerable size, it exhibits even more buyer power over its suppliers than Fizz does over its suppliers. The most significant difference perhaps between Fizz and Qwench's balance sheets relates to the fact that Qwench is actively managing its financial risk through derivative financial instruments. This means that Qwench is protected from potentially negative movements in exchange rates and commodity prices (sugar principally) as they have hedging instruments in place that would gain in such instances, thus neutralising the effect of negative movements. Finally, Qwench has done well to reduce its level of gearing from 53% in 2015 to 35% in 2016, again indicating that the firm is attempting to bolster its finances.  


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