Champion breweries revenue rose 47 percent to 3.3 billion in FY 2014, from 2.2 billion in FY 2013 (for comparison, Nigeria Breweries FY 2014 revenue was down 0.8 percent while Guinness’ 6-months to December 2014 was up 4 percent).

While Champion’s revenue growth was a remarkable improvement, the Akwa-Ibom based brewer ended the full year with a loss, as it did in 2013.

But its 2014 loss was an improvement from its FY 2013 loss. Its losses reduced by at least by 36 percent from N1.17 billion in 2013 to N754 million, indicating that efficiency measures are yielding result.

Its total assets rose 5 percent to N9.6 billion during the period.

Eating into its FY 2014 revenue of N3.3 billion was its cost of sales which stood at N2.6 billion. Exacerbating its losses was net finance cost which stood at N1.08 billion. Champion owed N668 million to Raysun Nigeria for “Royalties and Technical fees”.

While the company earned interest from the proceeds of its Rights issue done last year, it incurred larger finance costs relating to interest accrued on N11.6 billion [of debt] payable to Raysun Limited.

Raysun is Champion Breweries’ parent since it acquired a 57 percent controlling interest in Champion from Montgomery Ventures Incorporated of Panama.

“Finance income represents gross interest earned on proceeds from rights issue. Finance cost relate to interest accrued on N11.6 billion due to the Raysun Limited (parent company) which was fully repaid during the year”, a statement on the company’s financial statement read.

It is believed that Montgomery Ventures entered the scene as core investors/technical managers in May 1999, when the Akwa-Ibom State Government along with the Board of Directors re-activated a closed-down brewery. In January 2011, Heineken acquired Montgomery Ventures.

In December 2011, Consolidated Breweries acquired the 57% equity stake in Champion Breweries which was previously held by Montgomery. In December 2013, however, Consolidated Breweries’ holding of Champion breweries stake was transferred to Raysun Nigeria after the merger of Consolidated Breweries with Nigerian Breweries.

As a result, Raysun now already holds a 57% equity stake in the Company. Raysun a wholly owned subsidiary of Heineken.

In spite of the high level of debt eroding revenue, value investors still see huge value in Champion.

“The involvement of Heineken, the third largest brewer in the world in Champion breweries engenders the confidence that has produced the capital appreciation in the stock price post-rights issue, says Obinna Ajoku of Algor strategies, an equities trading firm in an emailed response to BusinessDay questions.

“Improvements have filtered through to the company’s fundamentals over the last year”, he said.

The catch for investors is also that the bulk of Champion’s debt is owed to the parent company, Raysun Nigeria, not to financial institutions like commercial banks.

As part of the supposed financial costs, Champion also carries a liability on its books (worth N1.16 billion), which is termed as payment for “Deposit for shares”.

Items termed as Deposit for shares are usually treated as liability on the receiving entity’s books, but when there is no obligation to pay back, then it will be treated as equity.

The consensus by close watchers (analysts and traders) is that this liability or debt will be converted to equity at a future date, instead of being paid back by Champion.

“The Company received deposits from Montgomery Ventures Incorporated and the Akwa Ibom State Government for shares to be issued at a future date. The deposits from Montgomery Ventures Incorporated were assigned to Raysun Nigeria Limited by virtue of its acquisition of the Company in prior year.

The amounts are repayable on demand and have therefore been classified as a financial liability measured at amortised cost. The amount would be converted to equity when the Company issues the shares”, said a statement on Champion’s 2014 audited full year financial statement.

Recent events seem to suggest that this debt or liability is already being converted to equity.

On Wednesday 22 April (last week), Stanbic IBTC, on behalf of Champion breweries issued a public notice announcing the basis of allotment of the private placement of 626.4 million ordinary shares in 2 applications.

“Both applications were found to be valid under the terms of the placement, and were therefore processed and duly allotted”, Stanbic IBTC said.

“The placement was therefore 100 percent subscribed”, the issuing house said further.

The basis of allotment has been cleared by the Securities and Exchange Commission.

Champion breweries stock currently yields a 1-year return of 76.3 percent. The stock has also rebounded 60.4 percent, since its February low of N4.70. The stock price which closed the week at N7.54, is still trading 52 percent below its high of N15.70 recorded in October.

April 28, 2015;

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