Vitafoam Nigeria Plc veered off course in the second quarter, as foreign exchange losses of N13 billion from foreign-denominated debts plunged the bottom line into the red.
The company incurred a net loss of N7.6 billion in its second quarter operations ended March 2024 – which erased its first-quarter profit of N1.7 billion and left a net loss of N5.8 billion for shareholders at half of the year.
The half-year interim financial report of the foam and fibre-based products manufacturing firm at the end of March 2024 shows it is facing the worst earnings season this financial year since it returned to profitability in 2018.
The company lost profit for the second year in its last financial year ended September 2023 due mainly to foreign exchange loss of N3.6 billion. With further swelling of foreign exchange losses in the current financial year, the company’s declining profit has plunged into a loss.
Unanticipated foreign exchange losses have upset the firm cost controls of Taiwo A. Adeniyi, the company’s group managing director/CEO, who has successfully led the Vitafoam’s re-engineering process through a rebalancing of costs and incomes and has steered it on the path of profitability for the past six years running.
The second quarter accounted for N11.4 billion of the foreign exchange losses, more than 16 times the foreign exchange loss of less than N701 million the company reported in the same quarter in 2023.
The half-year loss has already slashed retained earnings by more than one-half to N7.6 billion and the reserve could disappear in the event of further big losses in the second half.
Besides the exchange losses, Vitafoam is also pressured by rising production costs, which compressed margins in the second quarter.
While sales revenue grew by 77.9 per cent to almost N24 billion in the second quarter, the cost of sales grew at a faster pace of over 82 per cent to N16.5 billion for the quarter.
Gross profit of N7.4 billion for the quarter was more than consumed by foreign exchange loss-induced swelling of administrative expenses from N2 billion to N13.4 billion over the period.
An operating loss of N6.5 billion occurred in the second quarter, which was increased by a finance cost of N1 billion to create a pre-tax loss of N7.2 billion for the quarter.
The bad earnings performance in the second quarter diluted the good first quarter numbers, as costs overtook incomes and the bottom line got the puncture.
The half-year position shows sales revenue growth of 55.7 per cent year-on-year to close at over N41 billion at the end of March 2024.
Cost of production overtook sales at an increase of 58 per cent year-on-year to stand at N27 billion.
Gross profit rose by 51 per cent to N14 billion over the period – which was insufficient to meet administrative expenses swollen by foreign exchange losses from less than N4 billion to N16.7 billion over the period.
The cost overrun created an operating loss of N3.8 billion in the half year, down from an operating profit of N4.4 billion in the same period in the preceding financial year.
Further pressure mounted from finance expenses that jumped close to four and half times to over N2 billion, shifting the company’s position from a net finance income of N162 million to a net finance cost of about N1.3 billion over the review period.
Vitafoam had interest-bearing debts of over N21 billion at the end of March 2024, a decline from close to N24 billion at the end of the last financial year.
The company ended its half-year operations with a pre-tax loss of over N5 billion at the half-year, down from a pre-tax profit of N4.6 billion in the same period last year. Its net loss of N5.8 billion for the six months of trading is also down from a net profit of N3.3 billion over the same period.
The company lost N4.67 per share at the end of its half-year trading in March 2024, down from earnings per share of N2.31 in the same period in the preceding year.
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