Poor productivity and vulnerability to price volatility in the commodity market made FTN Cocoa processing record loss in the third quarter (Q3) of the year, as spiralling cost continues to erode income, analysis of the financial statement shows.
The Cocoa processing company has been recording recurring losses as analysts raised caveat about its going concern.
For the first nine months through September 2014, the company posted a loss of N403.72 million from a loss of N336.04 million the same period of the corresponding year of (Q3) 2013, while sales reduced by 25.58 percent to N166.88 million.
Analysis by BusinessDay reveals that the company took a hit at the bottom-line level due to spiralling cost of sales that eroded all revenue that led to negative gross margins.
Cocoa farmers in Nigeria have been facing challenges such as high costs of maintaining farms against pest and disease attack, and difficult bargaining power force continues to impede growth potentials.
It must be noted that each year, farmers lose between 30 percent and 100 percent of their cocoa farm to pests and diseases. The limited number of improved seeds or planting material also means that farmers are harvesting from old trees that produce low yields.
Also, the inability of the farmers to get acquainted to new, more efficient farming techniques has lowered crop yields and incomes, just as lack of organisation among farmers’ groups has limited their ability to purchase supplies at a lower cost.
Further analysis of the financial statement of FTN Cocoa revealed that cost of sales ratio increased to 216.66 percent in Q3 2014, from 169.48 percent the preceding year. This means that for every one naira of sales generated by the company, it spent over N2 on input costs culminating in the aforementioned loss.
Gross loss of N194.24 million was recorded in the review period while operating loss of N334.32 million. Operating expenses were up by 16.63 percent to N159.70 million as against N135.54 million in the preceding period.
Total assets were down by 6.59 percent to N4.25 billion in the review period compared with N4.55 billion the preceding period, while total equity reduced by 23.66 percent to N1.29 billion.
The international Cocoa Organisation price of the commodity was $2028.24 as of December 8, while the New York futures stood at $2894.33 the same day.
Nigeria, Africa largest economy, is the fourth largest Cocoa producer in the world.
FTN Cocoa’s share price closed at N0.50 on the floor of the NSE, while market capitalisation was N1.1 billion.
BALA AUGIE
