Vono fails to stride as Opex margin widens

Vono Products plc, a company in the Fast Moving Consumable Good (FMCG) sector, has failed to stride in the nine months ended June 2014, as spiraling operating expenses continue to widen, analysis of the financial statement shows.

For the first nine month period through June  2014, the company posted a loss of N22.62 million, which is more than the N3.20 million the same period of the corresponding year (Q2) 2013, while sales increased slightly  by 3.06 percent to N628.35 million.

Analysis by BusinessDay shows that the company took a hit at the bottom line due to swelling operating expenses.

Operating expenses in the review period increased by 13.82 percent to N178.88 million compared with N157.15 million the preceding year. Operating expenses margin moved to 28.46 percent in 2014 from 25.80 percent in 2013. It means that for every one naira made in sales by the company, it spends N0.28k on operating expenses.

Additionally, cost of sales jumped by 2.70 percent to N457.80 million in Q3 2014, as against N445.73 million last year, while cost of sales margin which measures the relationship between sales and production cost was flattish at 73 percent.

The insurmountable costs incurred by Vono Products are peculiar with most firms operating in the FMCG sector of Africa’s largest economy and populous economy, Nigeria.

Most firms have distribution costs spike due to bad roads, delay at the country’s ports caused by menacing gridlock that at times results in production bottlenecks.

An industry analyst, who prefers to remain anonymous, said Vono Product had been spending copiously on diesel oil, which is a more expensive alternative source of energy to power plant for the purposes of production. These challenges, he said, are responsible for part of surging energy costs thus the huge operating expenses.

Most industry players in the sector have bemoaned the volatility in the country’s currency in relation to the dollar as this fluctuation makes the price of imported materials expensive.

Manufacturers should brace up as the country’s apex bank has devalued the naira to N168 from N155 in order to protect the reserve and stabilise the economy as crude, which accounts for 75 percent of government revenue, continues to dwindle.

Analysts are also attributing the slow growth of Vono Products to squeeze in consumer spending and also the insurgency in the North part of the country that has hindered most firms from pushing their products to the crisis region.

They also added that the influx of cheap and substandard products into the country from Asian countries further undermine the growth prospect of Vono Products  and other firms operating in the industry.

Vono’s interest and similar charges were up by 62.88 percent to N16.06 million from N9.89 million last year, while total interest bearing loans increased by 17.03 percent to N516.52 million.

The proportion of debt in the capital structure of the company expanded as debt to equity ratio, which measure the extent to which a firm’s balance sheet is funded by lenders, moved to 63.37 percent as against 52.86 percent the preceding year.

Total assets were down by 1.86 percent to N1.88 billion, while accumulated losses that form part of total equity stood at N1.74 billion.

The company’s share price closed at N1.07 on the floor of the NSE, while market capitalisation was N603.1 million.

BALA AUGIE