Ladies and gentlemen, The Board and Management are indeed concerned about the poor operational performance of your company. It is our aim as Directors therefore to ensure a turnaround of the CompanyChairman of CPC in his opening remarks on the company’s Annual Report
Cocoa Processing Company (CPC) makes finished and semi-finished chocolate products in Ghana. They’re largely owned by the state, and are loss making. The Ghanian cocoa farmer should care about the prospects for this business because the millions spent on CPC is money that could have been spent in other parts of the industry. We explain why we are not convinced they have a good plan to get to profitability.
The company Finances
In December 2021, the company released their annual report for the year 2020, in which they reported a substantial pretax loss of $19,596,460. The reasons given were divided into COVID related shipping delays of their semi-finished products, and unreliable machinery affecting production of their finished products.
Their Statement of Financial Position (Balance Sheet to the rest of us) is grim reading. Total assets stand at $152,506,410, but total liabilities outweigh the assets, standing at $190,669,153.
The value of their assets recorded on their books may well not reflect a real-world value. $122m of those assets are in property, plant, and equipment. It is often the case that in a liquidation, these items are sold in auction at a large discount to their book value. I can’t see many buyers in Ghana lining up to buy millions of dollars of chocolate making machinery.
For a company to be insolvent (or bankrupt) in the eyes of the court in the UK, the Directors must see no viable likely future in which the company can return to profitability. This is not the stated case with CPC, who lay out their case why the business has a future in this annual report.
A Need to Focus on Sales
Key to the success of the business going forward, and probably the first area of focus is sales. Yet, in the annual report the sales strategy is glossed over almost as an afterthought. Sales will materialise from expanding the horizons to new territories, apparently.
Instead of explaining the plan to improve revenues, the report explained that the company will take on more debt to invest in a Biomass Plant:
Second, the program to construct a Combined Heat Power (CHP) into a Biomass Plant that will utilize cocoa pod and cocoa shells and other agriculture wastes to generate power for our operations is ongoing.2020 Annual Report
Assuming the cost savings materialise, it will still take years to pay off the debt, and is a huge distraction. Again, the company should be focused on increasing revenues and quick win cost reduction exercises to return to profitability.
Anyone who has ever run a business, knows how hard it is to secure sales. It’s a constant battle that needs the full attention and support of the business. I don’t see where this will come from at CPC as there is little mention of the marketing plan or sales strategy.
None of the Board Members have the necessary experience in Sales or Marketing. The closest is Vincent Okomeah, the Managing Director of CMC. But his bio states: “He is an expert in corporate governance, socio-economic and market research, monitoring and evaluation and driving of strategic growth.”
I wondered if there might be an ‘A’ team of marketing executives on the Management Committee who are responsible for creating the business plan, which the board approves, but reading more the report states:
Operational management is delegated to the Executive Directors and a management committee, which as at the date of this report includes the Executive Directors.2020 Annual Report
The Chairman states in his opening statement regarding the outlook for sales that ‘the future looks promising”, but there is no justification for this from the information provided.
CPC needs a strong and motivated sales team. Initiatives to new markets should be vigorously assessed for viability in line with the business plan. Countries known to pay late, should be moved down the priority list to those where quicker cash flow can be generated. LOI’s should be secured on favourable terms, and incentives could be considered for early payment.
The company is also securing an investment in new equipment from Buhler. This may be a good use of resources, given the company’s reliability issues last year. Sales must be supported by the ability to deliver, and picking an experienced, quality company like Buhler to partner with would make sense.
Why Is the Ghana Government in the Chocolate Business?
With the backdrop of tensions between Ghana and the big chocolate companies, who’ve been using their power to keep prices low, Ghana is working hard to build capacity internally for processing cocoa themselves.
CPC may be one vehicle they are using to build the knowledge and capacity, while simultaneously increasing the internal demand through marketing campaigns. That is not a bad strategy, but the way it is being implemented needs to be rethought.
The Board composition lacks the punch it needs to be effective. Heavily weighted towards accounts and logistics experts, or those with political connections, it lacks entrepreneurs, sales or marketing experts.
Irresponsible Remarks are a Cause for Concern
The following statement from the Chairman, regarding the reason for increasing sales of chocolate, caught my attention.
This was as a result of increasing awareness of the efficacy of consumption of cocoa/ cocoa products in building immunity which is a great asset in fighting any viral infectious diseases.2020 Annual Report
Even though COVID is not mentioned directly, the remark is a dangerous misrepresentation. Neither cocoa, nor chocolate have any magical Covid fighting properties, and to say otherwise, especially from a senior executive representing a state owned company, is utterly irresponsible. Ghana is not in such a good position with regards Covid to allow fake science to be propagated.
CPC might exist for a good reason, but the government is doing the same thing each year, with the same people, but expecting different results. Either shake up the company with a focus on sales and quality production, or get out of the business and invest the money saved back into the industry.