Champion Breweries Plc is planning to raise capital through a public offer aimed at both meeting Nigerian Exchange (NGX) listing requirements and funding its expansion.
At the company’s “Facts Behind the Figures” presentation on October 15, 2024, the Managing Director Dr. Inalegwu Adoga stated, “We intend to issue new shares to the public to achieve the required NGX free float of 20%. Addressing the free float deficiency will help us raise funds to complete our current infrastructure upgrades, increase our capacity to meet existing demand, gain operational efficiency, and enhance profitability.”
However, looking at the company’s financial performance, market conditions, new ownership, etc., raises key questions about whether this offer presents a compelling investment case.
Following its acquisition in June 2024, EnjoyCorp now holds an 86.4% stake in Champion Breweries, cementing its control. Akwa Ibom State retains a 10% interest, while the public holds the remaining 3.6%.
This acquisition has brought in fresh resources and expertise, which Champion Breweries hopes will drive operational efficiency and profitability.
However, the key question remains whether EnjoyCorp’s involvement will provide the strategic edge necessary to compete effectively in the dominated market by bigger players and deliver sustainable financial growth.
In 2023, despite the challenging environment, marked by policy shifts that led to pre-tax losses, increased retained losses, and erosion of shareholders’ funds across the consumer goods sector, the company managed to close with a pre-tax profit of N445 million.
Over the past five years (2019–2023), the company has sustained profitability growth, with pre-tax profit increasing at a compound annual growth rate (CAGR) of 16%.
However, high operating costs remain a persistent issue, compressing profit margins and limiting the company’s ability to translate revenue growth into sustainable returns.
For the nine-month period in 2024, the gross profit margin stood at 41%, but only 8.16% of that was converted into operating profit, as over 80% of gross profit was consumed by selling, distribution, and administrative expenses.
This trend highlights the company’s ongoing struggle with operational costs, a challenge that persisted in 2023, when the operating profit margin fell to 4.75%, down from a healthier 18.5% in 2022.
Looking at its historical metrics, the company’s struggle with expenses is clear. Over the past five years, on average over 75% of gross profit has been absorbed by operating expenses, limiting the operating profit margin to an average of 10% per year. Similarly, the pre-tax profit margin has averaged 9.7% over this period.
The impact of these compressed margins has been evident in the return on equity (ROE), which has averaged only 6.19% over the last five years and 0.19% for the first nine months of 2024, signalling the company’s challenge in delivering strong returns to shareholders.
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