Vitafoam: OPEX, Sales Cost Impedes Profit

Kayode Tokede

Vitafoam Nigeria Plc in its audited result and accounts for full year ended September 30, 2022 recorded a significant increase in revenue but a double-digit growth in cost of sales and operating expenses reduced profits.

The foam-manufacturing company 2022 performance further highlighted the severe business operating environment faced by companies operating in the country.

Vitafoam Nigeria reported two per cent drop in profit before tax to N7.21billion in 2022 from N7.34 billion reported in 2021, while profit after tax also dropped by two per cent to N4.52billion from N4.6 billion reported in 2021.

Despite the decline in profit, the management proposed dividend rose by seven per cent to N2.37billion in 2022 from N2.22billion proposed dividend in 2021.

The group’s topline position showed a 31 per cent increase in revenue to N46.31billion in 2022 from  N35.4billion in 2021, driven by 30.77 per cent increase in sale of goods (Foams and other products) and 31.62 per cent growth in  rendering of services by delivering of goods at a point in time  (Freight Income).

The company continued to grow its revenue with improved sells in polyurethane/reconstituted foam (mattress, cushions, pillows, sheetings) and allied products that conform with international standards, and applicable statutory.

The company had attributed its steadily impressive performance to continuous investment in innovative products and services across its businesses.

Revenue other than from contracts with customers showed N45.48billion within Nigeria in 2022 from N34.55billion in 2021, while outside Nigeria, it stood at N829.16million in 2022 from N853.9million reported in 2021.

From the profit & loss figures, Vitafoam cost of sales rose by 42.3 per cent to N30.91billion in 2022 from N21.72billion in 2021.

The group reported N30.09billion raw materials and consumables cost of sales in 2022 from N21.17billion in 2021, key contributing factor to the overall cost in the year under review.

The interplay between revenue and cost of sales dragged gross profit in 2022 to N15.4billion, an increase of 13 per cent from N12.6billion reported in 2021.

Vitafoam Nigeria’s non-core business transactions closed audited 2022 at N397.92million in 2022 from N236.55million in 2021.

As regards operating expenses, the group reported 49 per cent increase in total operating expenses to N8.87billion in 2022 from N5.97billion in 2021.

The breakdown of expenses revealed that distribution expenses rose by 47 per cent to N2.08billion in 2022 from N1.41billion in 2021 as Administrative expenses hits N6.79billion in 2022, representing an increase of 50per cent from N4.54billion reported in 2021.

 On finances, Vitafoam Nigeria finance income moved from N254.86million in 2021 to N998.62million in 2022, while finance charges dropped by 17.3per cent to N704.99 million in 2022 from N852.51million recorded in 2021.

In addition, the group’s Basic Earnings Per Share stood at N338per share in 2022 from N339.00 per share in 2021.

With the exception of a tint of increased gearing, the foam-manufacturing group recorded a well-rounded performance with considerable improvements in revenue, profitability, returns and balance sheet strength.

Stronger balance sheet

Group total balance sheet size grew by 24 per cent from N31.79billion in 2021 to N39.44billion in 2022. Total assets growth was driven by significant increases in current assets.

Current assets increased to N32.85billion in 2022, representing an increase of 31.46per cent from N24.99billion in 2021, while non-current assets dropped by 3.1 per cent to N6.59billion in 2022 from N6.8billion in 2021.

Viatfoam’s total liabilities also rose by 26.1 per cent from N18.85 billion in 2021 to N23.77 billion in 2022. The breakdown of total liabilities showed a 25.3per cent drop in non-current liabilities to N1.797billion in 2022 from N2.41billion in 2021, as current liabilities rose by 33.6per cent to N21.97billion in 2022 from N16.45billion in 2021.

While the paid up share capital remained unchanged, total equity funds rose by 21.13 per cent from N12.94 billion to N15.67 billion reported in 2022.

With 25.4 per cent increase in bank loans to N13.98billion in 2022 from N11.14billion in 2021, the group’s financing structure showed slight increase in leverage, though the internal financing structure remained considerably high.

The proportion of equity funds to total assets dropped to 39.7 per cent in 2022 from 40.69 per cent in 2021.

Modest liquidity

The liquidity position of the company improved considerably during the period with better financial coverage and working capital. Current ratio, which relates easily available finances to similar liabilities, dropped from 1.52 times in 2021 to 1.49 times in 2022.

The latest audited report showed resilience and underscored the focused investments and expansions in value-adding businesses. In the increasingly competitive and constraining business landscape, companies with diversified products and long-established cost management structure stand greater chance of winning the headwinds.

There is considerable untapped potential in the group’s emerging protective and insulation businesses while the foam, bedding and furniture businesses are in strong market-leading positions.

An expected boost in intra-Africa trade should further open up opportunities to scale up market share.