FTN Cocoa’s Harvest of Losses

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FTN Cocoa came into the stock market with such bright prospects, but has kept disappointing investors with a string of losses, writes Goddy Egene

When FTN Cocoa Processors Plc was listed on the Nigerian Stock Exchange (NSE) in 2008, it came with very bright prospects. The enthusiasm with which the company was received by investors was understandable considering the products it produces. Many years back, Nigeria used to be the second largest producer of cocoa until the discovery of oil in the 1950s. This shifted attention and to oil.

However, the renewed move for the diversification of the nation’s economy to reduce the dependence on oil and major revenue earner has raised growth prospects for other commodities, cocoa being one of them. That was why the listing of FTN Cocoa Processing was seen as a very good investment opportunity for investors. However, eight years after its listing on the Nigerian bourse, the company has suffered more losses.

Corporate profile
FTN Cocoa Processors Plc started as Fantastic Abiola Nigeria Limited, a private company limited by shares, which was incorporated on 26 August, 1991. The name Fantastic Abiola Nigeria Limited was changed to Fantastic Traders Nigeria Limited on 26 August, 1998 and further changed to FTN Cocoa Processors Limited on 3 December, 2007. The company got listed on the NSE in February 2008.

The principal activities of the company are the processing of cocoa beans and palm kernel into cocoa liquor, cocoa cake,cocoa butter, cocoa powder, palm kernel oil and palm kernel cake.

The board of directors of the company is led by Chief Simeon Oguntimehin as the chairman while Mr. Abiola Aderonmu is managing director. Akin Loaye is the executive director. Other directors are: Mr. Wole Abegunde, Mr. Olusoji Balogun, Wale Jubril and Mr. Peter Nwalozie.

Financial performance
The company has performed dismally since its listing on the NSE. A year after its listing, which was 2009, the company posted a profit after tax of N260 million. This dipped to N64 million the following year. It slipped into a loss position in 2011, ending that year with a loss of N243million. The loss worsened to N405 million in 2012 but improved to N286million in 2013. However, the loss further worsened to N577million in 2014 and another loss of N201million in 2015.

A further analysis of the company’s performance showed that investors’ hope for a profitable year in 2015 did not came to realisation. The company began the year 2015 on a positive note with 155.4per cent growth in revenue for the first quarter (Q1) ended March 31, 2015, to N387.97million, from N151.894million in the comparable period of 2014. The company also returned from loss position during the period to a profit of N3.695million.

Expectations that the good numbers, posted during the Q1 would be sustained, was dashed, as FTN Cocoa Processors ended with a loss after tax of N39.065 million for the half year ended June, 2015. FTN Cocoa ended the year 2015 with a loss after tax of N201.195 million, compared with N577.204 million recorded a year earlier. Its revenue grew by 453 per cent to N1.368 billion from N247.418 million recorded in 2014.

While the company attributed the growth in revenue in 2015 to its strategic deal with Transmar Group of United States, the deal is yet to impact positively on its performance.
FTN Cocoa has begun 2016 on another negative note, recording a loss of N63 million in Q1, as against a profit of N3.695 million in the corresponding period of 2015.

An analysis of the figures showed that FTN Cocoa posted a revenue of N341 million in 2016, down 12 per cent from N388 million recorded in the corresponding of 2015. Cost sale was reduced from N413 million to N311 million. Operating expenses rose from N29.57 million to N35.44million.Net finance cost soared from N42 million to N82million.

Apart from huge borrowing during the review period, the company’s finance income shrank from N41 million to N0.325 million. Hence, the company ended the Q1 with a loss of N63 million, compared with a profit of N3.69 million in the corresponding period of 2015. Shares of FTN Cocoa has remained at 50 kobo in the over the last one year.

In all, FTN Cocoa has been be faced with many challenges ranging from delays in the disbursement of the export expansion grant. There is also the general problem of poor power supply. Other challenges include imposed duty on processed cocoa in the international market; high interest rates; and the lack of competitiveness of processed cocoa when compared with raw cocoa in the export market, under-utilisation of installed capacities.

The Transmar deal
The strategic deal with Transmar will no doubt have positive impact on FTN Cocoa in the near future given the status of the company. Founded 30 years ago, privately owned Transmar is an integrated cocoa processor with operations across Europe, Latin America and North America, as well as sales offices and representation globally. The group has been steadily increasing its investment in cocoa cultivation through various partnerships across Ecuador, Sierra Leone and Tanzania among others.

In the deal, Transmar signed an uptake agreement with the FTN Cocoa, guaranteeing a market for all the company’s product up to installed capacity for the next five years and renewable.

According to the FTN Cocoa MD, Aberonmu, the company said Transmar will also provide technical support, especially in the areas of machines, spare parts and quality control the Nigerian firm. He explained that the company has obtained a quality assurance to penetrate into the global market without hitches.

He added that Transmar would be taking 100 per cent of FTN products, while the company has equally been looped into the global maintenance and quality control scheme of Transmar, which enables them to get spare parts at a lower cost.

Aberonmu said: “The Nestle deal that we have that makes us the no 1 supplier to Nestle is because we have looped into their global market. Nestle have a worldwide ways of giving other in cocoa. The benefit is there and we are enjoying the partnership. “Before now, when we have problems, we would order for spare parts and most of these parts are off the shape, they have to be reproduced.

“Now, once there is any issue, and the spare part is not available, they can pull it from any of their factories from any country and that is why we hardly have any problem of parts. There is now a regular supply from their pool and spare parts are becoming cheaper. Transmar is very strong and they are backing us up. There is market for our installed capacity.

We don’t have problem anymore producing without having market for them.
“One of the problems of cocoa industry, not only in Nigeria alone, including Cote d’Ivoire is most time producing the goods and not having up takers.

“The way to go in cocoa business is the volatility from currency. Today is when you have strategic partnership with very strong people and this makes us competitive in the industry.”

He said the company is working to consolidate existing rules and provide working capital, disclosing that they are currently discussing with couple of some development banks and local banks to boost our working capital.