ELLAH LAKES: TIME FOR CASH LOSS?

Many companies do not really begin to feel the full impact of losses until what is reported amounts to cash loss and not just one due to book entries that do not involve cash outflow.
For Ellah Lakes PLC the time for cash loss arrived in the year to July 31, 2015, according to figures released for the period recently.
From these audited figures, it was clear that Ellah Lakes, the fish farmer, recorded N34.7m loss. This was not only 149.6% increase on the N13.9m loss reported in 2014 year, it actually was almost double the N19.9m provision made for asset depreciation.
In 2014 year, the reverse was the case as depreciation came to N22.6m, well ahead of the full year loss recorded thus implying that no cash loss was involved.
That of course, is life threatening because not only that there is increasing prospect of continued diminishing of N710.8m reserves built up years ago, the company's appetite for cash may also increase.
In the case of 2015 year, trouble surfaced not only as turnover dropped by 23.5% to N72.2m, but also as cost of sale decreased by only 12.1% to N60.9m; personnel cost rose by 51.1% to N11.8m and overhead increased by 17.6% to N46m, all in spite if the turnover drop and indeed, involved cash outflow.
For now, Ellah Lakes seems to be kept liquid by 3.27% increase in loans from shareholders from N614.5m to N634.6m. Helped by this, long term borrowing was reduced to N20.2m from N70.2m and bank charges remained stable at N0.25m.
That perhaps was easy because cash loss had not become part of the problem.
SO:
* Now that cash loss has surfaced, it is obvious that the loss of N48.1 on each N100 sale can not be sustained. Overhead and personnel costs need good trimming to ensure at least, growth in step with turnover.
* It is quite interesting that Ellah Lakes, as small and loss prone as it is, has nine members on its board.

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