Vitafoam Plc, has released its audited results for the 12 months ended September 2017, and they are nothing to cheer about. While revenue increased by 30% from N13.5 billion in 2016 to N17.6 billion in 2017, profit before tax dropped from N61 million in 2016 to N16 million in 2017.

Vitafoam (the group) made another loss for the third consecutive year as it made a loss after tax of N127 million. Vitafoam (the company) made a profit of N190 million– a 116% drop from the N412million it made in 2016.

Salient reasons for the loss are outlined here.

Finance and raw materials cost jump

Increases in the cost of finance and raw materials were the key factors behind the poor result. Finance costs increased by 22.9% from N895 million in 2016 to N1.1 billion in 2017. Thecosts of raw materials and consumables also increased by 34.8%(from N8.9 billion in 2016 to N12 billion in 2017).

Weak performance

Vitapur Nigeria limited, Vitabloom limited, and Vitavisco limited were the only subsidiaries that turned profits in 2017, while Vitafoam Sierra Leone, Vitafoam Ghana limited, Vitagreen limited and Vono furniture continue to bleed. Vitafoam Sierra Leone made a loss of N200 million, Vitafoam Ghana -N154 million, Vitagreen-N2 million and Vono furniture -N33 million respectively.

Capital and wages take up most value added

An analysis of the value added by the group during the year shows that it may be more profitable to work for the company than being a shareholder. Of the N3 billion added as value in 2017, N1.1 billion was spent on finance costs while N1.3 billion was spent on salaries, wages and employee benefits.

Paying dividends despite steady losses

Vitafoam has proposed a dividend of 15 kobo per share amounting to N156.36 million despite the loss. This translates to 82% of the parent company’s profits.

The group has consistently made steadily increasing losses since 2015. It made losses of N36 million, N39 million and N151 million in 2015, 2016 and 2017 respectively.

Even more worrying is that earnings per share have fallen consistently from 48 kobo in 2013 to 18 kobo in 2017

Gearing is a bit high

The company would do better if it keyed into positive market sentiments and raised equity.

Going forward for Vitafoam 

Vitafoam may have to change the management of its loss making subsidiaries or spin them off. Revenue from outside the country dropped massively by 2561% from N346 million in 2016 to N13 million in 2017.

Vitafoam shares are currently trading at N3.24, up 8.00% year to date. Using its current earnings per share, the stock is trading at over 20 times earnings, suggesting that the stock is overpriced.  A price drop however may not happen soon, due to bullish sentiments in the stock market. Except a major change in strategy occurs, the loss making may continue.

About Vitafoam Plc

Vitafoam was established in 1962 by two giants: British Vita and Unilever. The Nigerian Promoter Decree No. 3 of 1977, mandated companies to sell 60% of their share to the Nigerian public, thus in compliance with the decree, Vitafoam became a public company in 1978 and listed on the floor of the Nigerian Stock Exchange in 1978.

In 2008 and 2009 Vitafoam Ghana Limited and Vitafoam Sierra Leone Limited respectively were established. In 2010, Vitafoam became a major shareholder of Vono Products and established two sister companies:Vitapur Nigeria (an insulations products manufacturing company) and Vitablom (fibre processing and soft furnishing company).

In 2012, Vitafoam established its youngest inclusion,Vitavisco for production and sales of Visco elastic foam and Latex products.