Vitafoam Nigeria can rightly be said to have worked for banks and tax authorities in 2015. Of an operating profit of N1.47 billion the foam and furniture manufacturing company posted at the end of its 2014/15 financial year ended September, banks and other lenders grabbed over one billion naira in interest charges and tax authorities claimed more than one-half of pre-tax profit. Shareholders lost value in the year with only N249 million or 1.5% of sales revenue trickling down to the bottom line.
The company’s difficulty in the year began with inability to push up sales, which was further compounded by rising operating cost. Turnover inched up just 2.8% to N17.19 billion in the year, just slightly below our full year forecast of N17.6 billion. This is against a marginal slip in the preceding year. Revenue performance has followed an unstable pattern of rise and fall over the past four years. The marginal improvement in 2015 was grossly insufficient to meet rising costs.
The company resumed downward steps in terms of profit performance as we projected at the end of the third quarter. After tax profit amounted to N249 million for Vitafoam in 2015, which is a drop of 42.8% from the preceding year’s figure. This is the lowest net profit figure the company has posted in several years. It had improved profit in the preceding year by 11.8% after two years of decline. The company’s peak profit performance remains the N540 million it reported in 2012.
The full year after tax profit is down 25.7% from the N335 million the company posted at the end of the third quarter. This means the company traded at a loss in the final quarter. Two major costs accounted for the last quarter earnings disappointment. One is interest cost, which swelled from N554 million at the end of the third quarter to about N1.02 billion at full year. Interest cost therefore grew far ahead of sales revenue at 26% compared to 2.8%. It claimed 69% of operating profit in 2015, up from 53.3% in the preceding year.
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The second cost line that eroded profit capacity in the final quarter is taxation, which rose from less than N187 million at the end of the third quarter to N285 million at the end of the year. This represents an effective tax rate of 53.4% for the company in the year.
Another major rising expenditure is administrative cost, which rose far ahead of sales revenue at 19.5% to N3.83 billion. It claimed 22.3% of turnover in the year against 19.2% in the preceding year. Cost of sales also increased slightly ahead of sales revenue and consequently depressed gross profit margin from 32.3% in 2014 to 31.6% in 2015.
The major encroachments of costs on virtually static sales revenue is the summary of the operations of Vitafoam Nigeria in 2015. This slashed net profit margin from 2.6% in the preceding financial year to 1.5% at the end of the 2015 financial year – the lowest profit margin in many years. The company’s profit margin has maintained a continuing decline from 4.8% in 2010.
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The increase in interest expenses follows an increase in the company’s borrowings. Long-term borrowings rose by 53.3% to N1.41 billion while short-term debts was marginally up at N3.05 billion over the closing figures in the preceding financial year. Debt servicing payments constitute a drain on the company’s cash flow to the extent that new debts had to be incurred in order to meet repayment of old debts and payment of finance expenses.
The company earned 25 kobo per share at the end of the 2015 financial year, down from 53 kobo per share in 2014. The company’s directors have proposed a cash dividend of 25 kobo per share to shareholders for the 2015 financial year. The register of shareholders for Vitafoam Nigeria will close between 15th and 19th February and payment is scheduled for 14th March, 2016.
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