FTN Cocoa Processors Plc is groaning under huge debt and it struggles to meet short term obligations, as these protracted challenges threaten its existence. This has not stopped equity traders from pushing the stock up 613% year to date though, making it the second highest gainer so far in 2023.
Of course, the unaudited financial statement for first quarter ended June 2023 shows the company is technically insolvent as total liabilities of N8.97 billion exceeds total assets of N7.22 billion, which resulted in negative shareholders’ fund of N1.74 billon, according to data gathered by MoneyCentral.
The cocoa processor has an accumulated loss of N9.12 billion as at first quarter of June 2023 that validates the recurring losses it has been posting since its existence. It reported zero revenues and loss of N192.3 million for the six months period to June 2023.
Investigations by MoneyCentral reveal that the company’s woes are due to a tough operating environment and a dearth of required working capital to procure cocoa beans.
The company added that its head office was taken over by a bank for failure to meet its exposure to the bank.
Nigeria’s farm-gate cocoa prices have ballooned after the local currency was devalued putting pressure on exporters with shipment obligations.
In short, the currency weakened drastically after the central bank announced the unification of the exchange rate, a decision that foreign investors applauded as the opaque old currency regime stifled foreign direct investment.
The elephant in the room is the negative impact of the tightening cycle on the debt of FTN Cocoa that does not have the cash flow to pay interest on debt in its balance sheet.
To rein in on rising inflation, the central bank increased the monetary policy rate (MPR) by 0.50 per cent to 18.50 per cent, the highest in 17 years.
Nigeria’s inflation rate rose to 22.79 percent in the month of June 2023, representing a 0.38 percent increase from 22.41 percent recorded in the previous month.
Why the rally in shares of FTN Cocoa?
OH Ecosystems Ltd (“Eco”), Norfund, the Norwegian Investment Fund for developing countries, recently announced that it had successfully acquired a majority stake in FTN Cocoa Processors PLC (“FTN”)—a publicly traded company based in Ibadan, Nigeria.
With 20,000 metric tons of installed capacity, FTN transforms cocoa beans into semi-finished products (cocoa liquor, butter and powder) for commercialization to global and local clients. Prior to this investment, FTN had been dormant and underutilised for several years.
Norfund’s investment will upgrade FTN’s operating facilities and extend its reach to produce and sell additional products into the cocoa supply chain.
At its last Extra-Ordinary General Meeting (EGM) held on 30th, May 2023, the Company was authorised to obtain a convertible loan of USD 6.350 million (Six Million Three Hundred and Fifty Thousand United States Dollars), from OH Ecosystems LLC (“OH Eco”).
Eco is supported by established leaders in the global cocoa chain including Niche Cocoa Industry Ltd, Africa’s largest indigenous cocoa processor, who will serve as technical partner.
Based on the financial released by FTN Cocoa, it seems that Norfunds Eco, has it work cut out for it to turnaround the ailing Cocoa processor.
Company Information
FTN Cocoa Processors Plc is a Nigeria-based agro allied company. The principal activities of the Company are the processing of cocoa beans and palm kernel into Cocoa Cake, Liquor, Butter, Powder, Palm Kernel oil and Palm Kernel cake.
The Company exports cocoa cake, liquor, and butter to local manufacturing companies. The Company markets cocoa powder, palm kernel oil and palm kernel cakes to local manufacturing companies.