In response to the federal government’s call on diversification of the nation’s revenue, and more active participation in the cocoa value addition to the agricultural exports, many cocoa processing companies have tried to up their game, yet struggling to find their feet in the market.
Sadly, instead of the desired returns on investment, many investors and shareholders have suffered huge losses and indebtedness as a result of the harsh operating environment in Nigeria.
FT Cocoa Processors Plc. a Nigeria-based agro-allied company, listed on the Nigerian Stock Exchange is currently in deep water.
In a statement released to the Nigerian Stock Exchange, the company gave reasons for its inability to organise its Annual General Meeting for the past two years, let alone declare dividends to its esteemed shareholders. According to the management, this was due to the “unfavourable conditions of the company and non-availability of the required working capital to produce Cocoa beans”
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 huge and considering the products it produces, Cocoa.
The cocoa company lamented that despite all efforts to secure working capital both locally and internationally, it has not yielded any result. More worrisome is the fact that its major investor, Transmar Commodity, in the United States of America ran into financial problems and went into liquidation.
The Deal with Transmar
In 2015, Transmar Commodities Group LLC signed an off-take agreement with FTN Cocoa guaranteeing a market for all FTN products up to installed capacity for the next 5 years and renewable. The company was also meant to provide technical support especially in areas of machines, spare parts, and quality control, the agreement allows Transmar to own 40 percent of FTN shares.
Sadly the fortunes of Transmar went bad when two former executives at the company were accused and charged to court for defrauding banks to win a $400 million credit line for the New Jersey-based cocoa trading company.
Financial performance
An analysis of FT Cocoa’s result shows that the company has performed poorly 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.
Further analysis of the company’s performance showed that investors’ hope for a profitable year in 2015 after the Transmar deal did not come to a realisation. The loss ballooned to N847 million in 2016 and dropped slightly to N762 million in 2017, its half-year result for 2018 for the period ended June 2018 shows that loss stood at N211million.
Way Forward
While speaking with BusinessDay, Mike Odunlami, a player in the Agri-business industry noted that FTN Cocoa has been faced with several challenges ranging from delays in the disbursement of the export expansion grant, the general problem of poor power supply.
According to Odunlami, these challenges are common to most Agric-businesses in the country.
“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-utilization of installed capacities,” he added.
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
Shareholders are waiting for the Abiola Aderonmu-led board of FTN Cocoa Processor to turn things around. To achieve this, it must seek a strategic partnership with confectioneries companies such as Cadbury and Nestle by acting as a supplier. Also, the Government must provide the much-needed support for companies engaged in the value addition of cocoa beans by providing low finance scheme for them to thrive and compete on the global stage.
Opinion by Paul Uzum, a trader on the Nigerian stock exchange market
In contrast to the expectations of the Nigerian equity market in 2019 following the bearish trend of the all share index (ASI) in 2018 which saw the market dip by 17.83 percent, the first quarter of the year has experienced a further decline by 1.26 percent in market performance as at the close of market on Friday.
There were high expectations from the political side as many investors expected a change of government and began taking positions. Major reason is that the orientation of the Buhari-led government during the first tenure tilted the economy more towards a socialist oriented economy, which was government dominated, likewise saw the private sector struggle through.
However, apart from those in the banking industry who made profits due to a high interest environment, those in the consumer goods sector and other sectors, struggled during the first four years of the led administration.
From the economy blue print the APC major opponent revealed, fixated on a private sector driven economy, investors anticipated with high hopes, a change of government knowing fully well that this was needed to drive rapidly growth in the economy. However, their expectations were cut short with the re-election of the incumbent administration.
Foreign portfolio investors have a wide array of countries to invest in with expectations that their investments will be safe.
In terms of outlook for the market in the long run, in a report published by the CEO of the Nigerian stock exchange on the outlook of the market for this year, he anticipated a market recovery in the third quarter of the year.
However, my take is that this attitude of ‘‘sit down and look’’, ‘‘watch first’’, ‘‘let’s be sure’’ will continue for a long while as investors wait to see what the government at the federal level tends to do this second term.
Will they come with the same attitude? Will sanctions continue? Will there be change in attitude towards the private sector? These are the questions in the hearts of investors. If the investors don’t see any prospect during this second term, we may not see any significant recovery of the market going forward.
What is keeping the market now is the earnings season, as investors bargain hunt and seize profit taking opportunities. When investors begin to see that there isn’t demand pressure on stocks both from FPIs and local institutional investors like PFAs, we may see strong apathy in the stock market even in the second quarter of the year.
Although some stocks may still outperform the market, but this will be selected cases largely on special happenings in that industry or company such as tender offers, mergers and acquisitions etc. Generally, I do not expect so much from the market except there is a change in attitude of the government and its dominance over the economy.
In the last three to four years, most stocks listed on the stock market have been struggling however with the exemption of some banking stocks especially Tier one banks.
Foreign investors’ perception of the Nigerian equity market for now is negative as no investor will want to come into a market where there is no clear direction to governments move to boost the private sector.
This is however despite the Nigerian equities are cheap in dollar term because of heavy devaluation on the naira. Also compared to other emerging markets, the Nigerian equities market is trading at 9x lower than peers showing there are potentials in the market.
All the present government need do is to adopt the economic blue prints of his opposition and open up the economy for more foreign investment. Boosting the private sector is key to enhance rallying performance in the Nigerian stock market.
