In an effort to strengthen market competitiveness, ensure growth and profitability, Champion Breweries plc has concluded required processes towards recapitalization, Shuaibu Ottan, Chairman of the company said at the company’s 2011 and 2012 combined annual general meeting in Lagos.
He said that refinancing of existing debt through conversion to equity and injection of fresh cash to the company through rights issue were key success factors that must be embarked upon; adding that efforts were being made to secure the cooperation and commitment of major shareholders to participate in the refinancing programmes.
Giving accounts of the 2011 financial year, Ottan disclosed that the company recorded a loss of N1.8 billion, stressing that the huge down-turn was principally due, in part, to the N603.5 million committed to the overhauling of the company’s production equipment to enhance improved capacity to function efficiently and achieve its set production targets.
Other factors that contributed to the loss, according to the chairman, were interest cost of N517 million arising from the company’s accumulated debt burden, and the N716m on depreciation occasioned, partly by the evaluation of assets during the year.
According to him, the trading results for 2012 continued on the negative trend as in previous years. He noted that turnover remained stable at N1.8 billion; while loss of N1.3 billion was recorded for the year. Interest cost of N707 million and depreciation charge of N782 million resulting mainly from asset revaluation, are major contributing factors to reported loss.
He pointed out that efforts must be geared towards resolving the issues surrounding the planned debt re-financing as well as improvement on the utilization of installed capacity of the brewery towards positive turnaround of the business performances.
Ottan further explained that with the support of professional advisers, the various restructuring options were fully considered before the company resolved to go for the following order of refinancing; debt-to-equity conversion, allotment of shares on deposit for shares account balances and right issue.
In the board meeting of 7th of June, 2012, he disclosed that the board approved a share conversion price of N1.85 per share for the debt-to-equity conversion. He said this was based on the fact that valuation methods such as discounted cash flow do not ascribe value to the company’s shares in view of its huge debt and interest burden.
After taking into consideration the recently concluded acquisition by Consolidated Breweries Plc of the 57 per cent shareholding in Champion and the regulatory filings for the transaction, which included a price of N1.85 per share, he said the price range for the debt-to-equity conversion of 50 kobo to N1.85 per share was considered.
He said, ‘’this means that 3.1 billion ordinary shares will be allotted to Consolidated Breweries to reduce the company’s debt with N5.735 billion’’. The board also resolved to propose an increase in the Authorized Share Capital. According to the chairman, this