Vitafoam scales hurdle as sales jump

Vitafoam Nigeria Plc has scaled the hurdles of the macro economic conditions and tough operating environment as the Nigeria foam maker’s sales increased in the period under review.

According to the company’s audited statement for the year ended September 2015, sales increased by 2.28 percent to N17.18 billion as against N16.71 billion recorded in the corresponding period of 2014.

Although the company’s top lines may have increased by single digit, analysts say the results are commendable given the faltering performance by most manufacturers in Africa largest economy.

Manufacturers are finding it practically difficult to stride as infrastructure deficit such as lack of modern transport network and erratic power supply continue to stunt growth potentials.

Also crimping growth of these firms are security challenges in the north part of the country, high cost of borrowing, double taxation and pressured consumer wallets as a result of rising inflation.

“Giving priority to manufacturing without first fixing rail transport is rather misguided,” said Ayo Teriba, head of Lagos-based consultancy Economics Associates. “High transport and energy costs will make most manufacturing projects uncompetitive, unprofitable and unsustainable.”

Manufacturing output contracted by 3.8 percent in the third quarter 2015, after a 14 percent expansion a year earlier.

Economic growth has slowed to 2.4 percent on the back of halving of oil price which makes up 70 percent of government revenue and 90 percent foreign exchange earnings.

Unemployment rate already speed up to 9.9 percent, while inflation rate appeared to be stalled at 9.3 percent, high the CBN’s bench mark rate to 9 percent and 8 percent respectively.

Despite the huge bottlenecks such as huge energy costs, lack of proper transport system and the effects of devaluation on cost of raw material imported, Vitafoam’s cost of sales ratio increased by a single digit 3.80 percent to N11.75 percent, lower than the inflation figures.

The foam maker’s gross profits were up by 0.74 percent to N5.43 billion in 2015 as against N5.39 billion in 2014.Gross profit margin fell to 46.21 percent in the period under review from 47.65 percent in 2014. Cost of sales margin increased to 68.40 percent in 2015 as against 67.68 percent in 2014.

Vitafoam’s net income reduced by 42.85 percent to N249.05 million in 2015 compared with N435.60 million in 2014.

The fall at the bottom line was as a result of an increase in finance costs by 30.46 percent to N1.01 billion in 2015 from N804.83 million in 2014.

Analysts say the company is susceptible to currency risk as naira devaluation may spiral up debt in its capital structure. Total borrowing in the balance sheet stood at N3.05 billion.

The currency restriction imposed by the central bank of Nigeria is also making it difficult for manufacturers import materials to meet production.

In order to stabilize the naira, the Abuja based bank imposed trading restriction and banned importers from using the foreign exchange market for about 40 items including toothpicks and wheelbarrow.

Vitafoam share price closed at N5.25 on the floor of the exchange while market capitalization was N5.16 billion.

 

BALA AUGIE