TheCable

Vitafoam suffered a profit drop in 2015 and closed the year with the lowest profit figure in the past five years. A turnaround isn’t expected in the 2016 financial year, which has already ended for the company in September. Instead, the company has stepped further down from profit drop into a loss. The company closed the second quarter with a marginal profit after a loss of N150 million within the quarter.

A further loss of over N104 million occurred in the third quarter resulting in a net loss of close to N100 million. Can Vitafoam remedy the third quarter loss and show profit to shareholders when its result is due for release next January is the question mark on the foam products manufacturing company this year.

The company’s challenge has been slow growth in sales revenue in the past five years, which extended to a drop in 2016. Sales revenue for the group amounted to N10.99 billion at the end of the third quarter in June, a drop of close to 21% year-on-year. This is a sharp slowdown from the second quarter turnover figure of N8.05 billion.

Based on the third quarter performance, the company is likely to close the year with a drop in sales revenue. Turnover is estimated at N14.8 billion for Vitafoam for the 2016 financial year. That will be a drop of about 14% from the sales revenue of N17.18 billion the company posted in 2015. Sales revenue had edged up by 2.8% last year after a marginal decline in the preceding year.

Cost of sales dropped at equal pace with sales revenue at 21% at the end of the third quarter, which enabled the company to defend gross profit margin.  At 32.5% at the end of the third quarter, gross profit margin was slightly improved compared with the same period last year. That resulted in a slightly lower rate of decline in gross profit at 19.3% to N3.57 billion than sales revenue during the review period.

The company also kept distribution expenses under control, which dropped at a faster rate of 24.4% than sales revenue. Two other cost lines however deviated from the favourable behaviour and these are administrative cost and finance charges, both of which claimed increased proportions of revenue. Administrative expenses declined by 10.3% and finance cost increased by 31.4%. Operating profit was insufficient to meet finance cost, which threw the bottom line into the red.

The company ended the third quarter with a net loss of N99.7 million, down from a net profit of N287 million in the same period last year. The company didn’t have a strong final quarter last year, as the full year profit was below the third quarter figure. That isn’t raising any hopes that the company can turn the third quarter loss into a full year profit this time around. Except for a final quarter windfall, Vitafoam appears likely to end the 2016 trading at a loss – the first loss position in many years.

Last year, the company reported a drop of about 42% in after tax profit to about N250 million, the lowest profit figure in the past five years. The path of profitability has been unstable for the company in recent years. A profit decline in 2013 followed a flat growth in 2012 and a sharp drop in 2015 followed a marginal improvement in 2014.

Vitafoam has been regular on dividend payment despite its unstable record in profit growth. It earned 84 kobo per share at the end of the last financial year and paid out 25 kobo per share in cash dividend. It closed this year’s third quarter operations with a loss per share of 16 kobo compared to earnings per share on 41 kobo in the same period last year. Cash dividend prospects are therefore slim for this year though the company has adequate reserves it can call up for dividends.