• Thursday, July 25, 2024
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Recurring operational loses crimp Champion breweries Plc growth potentials

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Background

Champion Breweries Plc was incorporated as a Private Limited Liability Company on the 31st of July, 1974 with the name South East Breweries Limited.

The Company’s name was changed from South East Breweries Limited to Cross River Breweries Limited and thereafter to Champion Breweries Limited. The latter name, Champion Breweries Limited was changed to Champion Breweries Plc on the 1st of September, 1992.

On the 24th of November 1974, the then South Eastern State of Nigeria signed an Agreement with Messrs. Haase Brauerie GMBH of Humbury (“Technical Partners”) for the supply and construction of a turnkey Brewery in Uyo with a capacity of 150,000 hectoliters.

The foundation stone of the Brewery was laid on the 19th of March, 1975, and on the 11th of December 1976, the Brewery was officially commissioned and its products, Champion Lager Beer launched into the market with success with initial capacity of 150,000 hectoliters per annum.

The second expansion, which incorporated more sophisticated machinery, was completed and put on trial run in September 1979. The second production line was officially commissioned on the 11th of December 1979 with enhanced capacity of 500,000 hectoliters per annum. The same year the Company’s products, “Champion Lager Beer” and “Champ Malta” won Silver Medal for quality at the 16th World Selection for Beers and Non-Alcoholic Beverages in Luxemburg.

Financial Performance for December 31 2013

Champion breweries Plc for the year end to December 2013 grew gross revenue by 25.8 percent y/y to N2.23 billion from N1.78 billion in the same period of prior year of 2012 (FY12)

Gross profits surged by 105.55 percent y/y to N25.93 million in 2013FY as against N466.38 loss recorded in 2012FY, hence gross profit margin jumped to 1.16 percent from (0.26).

The abysmal figure in gross profits was caused by high input costs as cost of sales margin (COSM) in the review period stood at 98 percent which is lower than 128 in 12M12

It also means that the company incurred N2.20 billion on production cost to generate N2.23 billion revenue in the review period.

Champion breweries may have come under increased pressure from fast growing value brands produced by bigger rivals such as Guinness Nigeria (GN), Nigeria Breweries (NB) and SAB Miller.

Operating expenses for the year ended December 2013 reduced by 10.4 percent y/y to N733.2 million in 2013FY compared with N818.91 million in 2012FY, while operating expense margin (OEM) slid to 32.8 percent in 2013 from 45.86 percent in 2012.

The weak operational performance of the company were further  exacerbated by huge finance cost which increased by 67.13 percent to N1.18 billion from N706.1 million in 12M13 compared with N706.1 million  in 12M12.

Operational inefficiency and huge finance cost have caused the company to post operational loss before tax of N1.173 billion in FY13 which represents a decrease of 34 percent from N1.92 billion loss recorded in FY12     `

Operational loss after tax in FY:13 decreased by 11.43 percent y/y to N1.178 billion compared with N1.33 billion recorded in the erstwhile period of Q3:12.

The company has not been able to use the resources of owners to generate profits as return on assets equity (ROE) in the review period showed a negative figure of -25.60 percent which also declined from -39.11 percent in 12M12.

Return on Assets (ROA) also followed the same dwindling performance as it dipped to -13 percent in Q4:13 from Q3:12

Champion’s to total assets were up by 34.2 percent y/y to N9.13 billion in FY13 as against N6.8 billion in FY12

Accumulated losses or debit balance in reserve of (N8.89 billion) have resulted in a negative value or a debit balance in total equity of (N4.60 billion) in FY13.

The company can strategically carry out a corporate capital reduction and reorganization scheme to write off the loss and revert back to profitability.

Share performance and outlook

The value of shareholders have been magnified as share price has increased by 203.56 percent in the past year to close at N14.51-March 25th 2014- on the floor of the Nigeria Stock Exchange.

Market capitalization on the same day was N13.0 billion, while it had a price to sales ratio of 7.31x

It is expected that after the purchase of a 57 percent stake in Champion by Heineken NV (HEIA) from Consolidated Breweries plc, it will help revert Champion back on the path of corporate success.

Opportunities abound in the brewery industry which the company can take advantage of as the sector is expected to experience a boom as a result of increase in consumer spending fuelled by upcoming elections and rising growth.

BALA AUGIE