Vitafoam Nigeria loses profit on revenue slow down in the final quarter

Vitafoam Nigeria lost profit in the final quarter and therefore closed its 2013 operations with a lower profit figure than posted in the third quarter. While the company's after tax profit rose by 21% to N480 million at the end of the third quarter, it dropped by 18.2% to N410 million at full year.

It had been expected that the company would achieve its first significant profit recovery since 2009 with the performance records seen in the 2013 interims. This has failed to happen for the company, as it lost both revenue and profit in the final quarter.

For the fifth year running, the company's profit records have remained down from the 2008 peak of N698 million. Rising costs have continued to weaken profit margin and hinder profit recovery. Net profit margin declined from 3.5% in 2012 and 3.7% in the third quarter to 2.5% in the 2013 financial year. This is a further drop from the 8.5% net profit margin the company achieved in 2008.

The foam manufacturing company achieved a new peak in sales revenue in 2013 but a last quarter slow down prevented the strong growth expected based on the third quarter record. While the company grew turnover by 16.4% to about N13 billion at the end of its third quarter operations, the growth rate slowed down to 12.8% to N16.3 billion at the end of its financial year in September 2013.

The company's sales revenue had declined slightly in 2012 at N14.48 billion. The drop in profit in the year was induced largely by the revenue slow down, just as accelerating sales revenue provided the spur for profit growth in the third quarter. While sales revenue in 2013 was more than twice the 2008 figure, net profit is in no way close to the 2008 peak. This is a reflection of the company's significantly changed cost structure.

Three major expenditure lines hindered profit performance during the period. The first is cost of sales, which grew ahead of sales revenue at 16.4% compared with 12.8%. The effect of that was a flat growth of 2.4% in gross profit, which is a sharp slow down from 14.9% in the third quarter. Gross profit margin therefore declined from 35.5% in the preceding year to 33.5% in 2013.

Administrative expenses grew virtually at par with sales revenue at 12.6% during the period and therefore prevented any cost saving. Interest expenses made the biggest rise at 40% to N661 million, showing an accelerated growth in the final quarter from N433 million at the end of the third quarter. A slow down in other income in the last quarter also added to the constraint on the bottom line during the year.

The increase in interest expenses follows a sharp growth in long-term borrowings. Long-term debts more than doubled at 108.4% to N548 million while short-term borrowings were only slightly reduced at over N3.0 billion.

Other significant changes in the balance sheet during the review period include a decline of 16.6% in inventories to N4.31 billion. Trade debtors and other receivables increased by 13.2% to N1.83 billion while cash and bank balances dropped by 29.1% to N263 million. Trade creditors and other payables also dropped by 17.4% to N2.45 billion.

The changes in the balance sheet improved the company's cash flow slightly though the overall cash flow position remains negative. Net cash generated from operating activities expanded by 35.8% to N1.54 billion during the period while net cash used in investing and financing activities declined. The result was a net increase of N240 million in cash flow compared with a net decrease of N595 million in the preceding year.

The company earned 50 kobo per share at the end of its 2013 operations, down from 59 kobo in the third quarter and 61 kobo in the 2012 full year. The drop in net profit prevented the strong increase that was expected in earnings per share for Vitafoam Nigeria in 2013.

The company is regular with dividend payment and has proposed a cash dividend of 30 kobo per share for its 2013 operations. Dividend per share is therefore unchanged from the preceding year's figure. The company's register is scheduled to close on Monday February 17, 2014.