Vitafoam: cost of sales reduces profits
Vitafoam Nigeria, in its unaudited results and financial statements for the year ended September 30, 2021, saw a significant increase in revenue, but double-digit growth in cost of sales reduced profits.
The foam manufacturing company also saw growth in its total operating expenses, another financial metric that highlights a tough business environment facing companies operating in the country.
Vitafoam Nigeria reported a 50.9% increase in revenue to N35.4 billion in 2021, profit and unaudited accounts from N23.44 billion reported in 2020.
The breakdown found that locally generated income was up 51.23% to N34.5 billion in 2021 from N22.83 billion in 2020, while income generated outside Nigeria increased 38.6% to N853. , 87 million in 2021 against N615.93 million in 2020.
The main geographic segment of the company is Nigeria and over 99.9% of the company’s sales are made in Nigeria.
The company continued to increase its revenues through improved sales of polyurethane / reconstituted foam (mattresses, cushions, pillows, sheets) and related products in compliance with applicable international and regulatory standards.
The company attributed its impressive and consistent performance to continued investments in innovative products and services across all of its businesses.
Despite the unfavorable operating environment, Vitafoam has remained resilient with an average gross margin of 37.90% over the past five years and the company’s shares are one of the most sought after on the Nigerian Exchange Limited (NGX) because of its track record of consistent profitability. .
The share price for the year to date gained 181% to close at 21.9 N on December 3, 2021 against 7.80 N which it opened for trading in 2021.
The group’s managing director, Vitafoam Nigeria, Mr. Taiwo Adeniyi explained that the company no longer limited itself to the manufacture of rigid foams but had developed other innovative products through its subsidiaries in Nigeria and abroad.
According to profit and loss figures, Vitafoam’s cost of sales increased 69% to N21.01 billion in 2021, from N12.43 billion in 2020.
Cost of goods sold was the driving force behind Vitafoam Nigeria’s cost of sales growth, as it increased 69% to N20.9 billion in 2021, from N12.36 billion in 2020, while The cost of labor increased by nearly 13 percent to reach 80.8 billion naira in 2021. 71.77 billion naira in 2020.
The interaction between revenue and cost of sales drove gross profit in 2021 to N14.37 billion, an increase of 30.4% from the N11.01 billion reported in 2020.
Vitafoam Nigeria’s non-core business transactions closed in 2021 unaudited at N415.34 million in 2021 compared to N648.98 million in 2020.
Regarding operating expenses, the company reported a 22% increase in administrative expenses to 5.02 billion naira in 2021 from 4.13 billion naira in 2020 as distribution expenditure increased by 24%. % to 6.4 billion naira in 2021 against 5.18 billion naira in 2020.
Administrative and distribution expenses plunged the company’s total operating expenses in 2021 to 6.43 billion naira from 5.18 billion naira in 2020.
Regarding finance, the financial income of Vitafoam Nigeria increased from N 106.51 million to N 251.48 million in 2021, while the financial charges increased by 136% to reach N 717.23 million. in 2021 compared to N 930.17 million recorded in 2020.
For the unaudited results reviewed, group profit before tax increased 35% to 7.89 billion naira in 2021 from 5.84 billion naira reported in 2020.
The group paid a tax worth 2.56 billion naira in 2021 against 1.73 billion naira in 2020 to position profit for the period at 5.33 billion naira against 4.11 billion naira declared in 2020.
During fiscal 2020, the company relied on increasing profitability to optimize modest revenue growth into significant improvement in profitability.
This growth has enabled the company to increase dividend payouts by approximately 67% while providing quadruple assurance on dividend sustainability.
With the exception of an increased gear shade, the foam manufacturing group recorded a well-balanced performance with significant improvements in revenue, profitability, yields and balance sheet strength.
The audited report and accounts of Vitafoam Nigeria for the fiscal year ended September 30, 2020 showed that revenue growth of 5.2%, a decrease of 8.1% in cost of sales and a reduction of 11.4% % of finance costs boosted overall performance.
With 8.4 percentage points added to the underlying profit margin, the board of directors increased the dividend payout by 67 percent, placing the company’s performance significantly above current rates in the securities markets. fixed income.
At 7.25 N, the net assets per share provided a basis for a possible further revaluation of the company’s shares on the stock exchange. Vitafoam recorded well-balanced profitability with modest sales growth, despite the negative impact of the COVID-19 pandemic.
Income increased 5.2% from 22.28 billion naira to 23.44 billion naira. Cost of sales fell 8.1% from 13.52 billion naira to 12.43 billion naira. Gross profit thus increased by 25.7%, from 8.76 billion naira to 11.01 billion naira.
Administrative and marketing expenses increased 10 percent to 5.18 billion naira in 2020 from 4.71 billion naira in 2019. Income from non-core activities increased 52 percent to 491 million naira. naira to 745 million naira. Interest expense fell 11.4 percent, from 1.05 billion naira to 930 million naira.
With these, profit before tax increased by 61.5%, from 3.5 billion naira to 5.6 billion naira. After tax, net profit also jumped 72 percent, from 2.39 billion naira to 4.11 billion naira.
Basic earnings per share thus increased from N 1.82 to N 3.05. Net assets per share increased thanks to retained earnings raised to N 7.25 in 2020, 54.3% above 4.70 N registered in 2019.
In view of the exponential growth in earnings, the board of directors of the company recommended a distribution of 979.4 million naira in the form of cash dividends for 2020, or 64.5% more than 595.4 million naira. Naira paid for fiscal 2019. This implied a dividend per share of 70 kobo for 2020 compared to 42 kobo paid in 2019.
The underlying ratios showed a similar positive outlook. The gross profit margin increased from 39.3% to 47%.
The pre-tax profit margin, which measures the average profit per unit of sales and serves as a major indicator of profitability, jumped to 24.1% in 2020 from 15.7% in 2019. Return on total assets rose from 25.3% to 26.1%. hundred.
Return on equity also fell from 40% to 45.4%. Even with the increase in dividend distributions, sustainability has improved with dividend coverage of 4.36 times in 2020 compared to 4.33 times in 2019.
Stronger balance sheet
The group’s total balance sheet size increased by 56.5%, from 13.82 billion Naira in 2019 to 21.64 billion Naira in 2020. Growth in total assets was driven by significant increases in assets. current and non-current.
Total liabilities also increased by 60.4%, from 7.85 billion naira in 2019 to 12.6 billion naira in 2020. While the paid-up share capital remained unchanged, total equity funds increased 51.4%, from 5.97 billion naira to 9.04 billion naira.
With a 35 percent increase in bank loans, the group’s financing structure shows a slight increase in indebtedness, although the internal financing structure has remained very high.
The proportion of equity funds to total assets increased from 43.2% in 2019 to 41.8% in 2020. The ratio of long-term liabilities to total assets increased from 56.8 % in 2019 to 58.2% in 2020.
Current liabilities also increased to 39.8% of total assets in 2020 from 37.3% in 2019. The debt ratio fell to 46.3% in 2020 from 35.9% recorded in 2019.
Staff productivity and cost efficiency improved significantly during the year, providing leeway for increased profitability and returns on investment for shareholders.
The total number of employees increased from 607 people in 2019 to 652 people in 2020. Total personnel costs also improved, from 1.92 billion naira to 2.05 billion naira.
The average contribution of each employee to profit before tax fell from 5.76 million Naira in 2019 to 8.66 million Naira in 2020. The average cost of personnel per head, however, fell slightly by 3.16 million Naira in 2019 to 3.14 million naira in 2020. Total cost of doing business, excluding finance charges, relative to sales increased from 81.8% in 2019 to 75.1% in 2020.
The company’s liquidity position improved significantly over the period with better financial coverage and better working capital. The current ratio, which links readily available finance to similar liabilities, has increased from 1.6 times in 2019 to 1.8 times in 2020. The ratio of working capital to total sales has improved from 12.8% to 30.8%. The debtors / creditors ratio stood at 111.1% in 2020 against 245.5% in 2019.
The last audited report has shown resilience and highlighted targeted investments and expansions in value-added businesses. In an increasingly competitive and constraining business landscape, companies with diverse products and a long-established cost management structure are more likely to beat headwinds.
There is considerable untapped potential in the group’s emerging protection and insulation businesses, while the foam, bedding and furniture businesses hold strong market leadership positions. The expected increase in intra-African trade should open more opportunities to increase market share.
Vitafoam Nigeria is Nigeria’s premier foam manufacturing group. Incorporated on August 4, 1962 and listed on the Nigerian Stock Exchange (NSE) in November 1978, Vitafoam is a fully Nigerian company with a very diverse shareholder structure. Vitafoam is dedicated to the manufacture and distribution of flexible, reconstituted and rigid foams, all in various shapes and designs that make the group a one-stop-shop cushion supermarket. He had recently integrated a wide range of furniture designs and related products, providing the group with a lifelong value chain of birth, education, work and leisure. With subsidiaries in Ghana and Sierra Leone, other subsidiaries in Nigeria include Vita Blom, Vita Visco and Vitapur.