Vono products posts N102.21 million losses

Vono Products inability to meet short term obligations demands has threatened its existence in the foreseeable future, a situation that signals the company can no longer convert liquid assets to cash to cover payable.

A buyer usually considers negative working capital in a target as detrimental because it signifies additional capital that will be required to run the business after closing.

The company has a negative working capital of N645 million (2014: N458 million), said the external auditors of Vono Products, in its September 30 2015 audited financial statements.

“These conditions indicate the existence of material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern,” said the auditors.

Negative working capital is when a company’s current liabilities exceed its current assets.

Vono products’ current ratio, a measure of working capital was 0.406 xs in 2015 as against 0.459 xs in 2014, which is below the industry standard of 2.1 xs.

Analysts say a buyer actually prefers to see a working capital ratio of 1 to 1.5 times, which means there is at least one N1 of current assets for every naira of current liabilities.

The audited financial statement of Vono Product showed the company posted a loss after tax of N102.21 million, eclipsing the N11.98 million losses in 2014. Sales dipped by 10.86 percent to N793.02 million in 2015 as against N889.66 million in 2014.

Analysts say the faltering performance of the company validates the urgent restructuring undertaken by its managements with a view to enhancing the injection of fresh capital.

Vono products are in talks with the shareholders of Vitafoam, another foam maker, for a scheme of merger, which will see the former being absorbed by the latter.

The enlarged company will benefit from economies of scale, cost savings and improved operational and administrative efficiency and improved profitability.

Hitherto, Vono Products had bemoaned that the security challenges the north part of the country has made it practically impossible to move products to the crisis region.

This is on top of the weak consumer spending that has also eroded consumer spending as many people have less money in their pockets to buy mattresses.

Nigeria’s consumer price inflation stood at 9.6 percent year-on-year in December, up 0.2 percentage points from November, and still above the central bank’s target upper limit of nine percent, the NBS said in its recent report.

Analysts say 2015 was a horrendous year for bedding manufacturers as central bank’s foreign exchange restrictions continue to prevent these firms from making a leap forward at both the top and bottom lines.

After devaluation in November 2014 as a result of the drop in oil price, followed by its plunge to a record low in February 2015, the Abuja based bank stabilized the naira by imposing trading restrictions and banning importers from using the foreign-exchange market for about 40 items.

These monetary policies make it difficult for manufacturers to import raw materials and obtain dollars needed to operate unhindered. Many firms have resulted to cutting down jobs in order to save costs and stay in business as the dollar shortage bites hard.

Nigeria’s economic growth slowed to 2.84 percent in the third quarter of 2015 from 6.23 percent a year earlier as a result of lower oil price, according to NBS data.

Vono Products share price closed at N0.92 on the floor of the exchange while market capitalization was N518.55 million.