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Cost cuts Spur Vitafoam to Growth as Profits Surge

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Vitafoam Nigeria Plc has spent less on input cost to generate each unit of revenue amid a tough and unpredictable macroeconomic environment, a cost mechanism that helped bolster profit.

The largest producer of foam produce by market capitalization in Africa’s largest economy saw net income surge by 82.20 percent to N2.15 billion in the nine month to June 2020 from N1.18 billion the previous year.

Operating profit followed the same trajectory as it spiked by 55.98 percent to N3.65 billion in the period under review as against N2.34 billion the previous year.

These numbers could increase as Nigerian Millennials reach their nesting years, and as typical, replace their old mattresses with new ones.

Nigeria has a population of 200 million-with over half between the ages of 16 and 25- and the World Bank expects the figure to hit 400 million by 2050.

What this means is that these young population will soon be embracing new home formation, a boon for operators in the industry.

The industrial revolution shortened the night and led to the proliferation of mattress companies across the globe. The product was a luxury before the Second World War. Innovation in sleep also accelerated growing market for the succulent foam.

To tap into the enormous potential in the Nigerian market and meet the changing dynamics of customers demand, Vitaform has been leveraging on research and development.

In 2019, it launched about seven products at once that included: Vita Pearl, a pillow that regulates temperature and draws moisture from body, assorted customised beds, Sofas, Trifold mat for leisure, Reading chairs, three specialised mattresses including orthopedic and classic and various polyurethane sandwich panel steels.

But the importation of substantial and cheap product through the porous borders into the country is stifling the growth of the mattress industry.

The Federal Government has closed the country’s borders since last year, but it is uncertain how long the closure will last to curb smuggling as some manufacturers are complaining that the closure is hurting their businesses as they are unable to ship their goods in and 0ut of the country.

The challenging macroeconomic environment has weakened consumer purchasing power, undermining the demand for mattress, as inflationary pressures and high unemployment rate helped push more people into the poverty line.

In the United States that is considered a rich country, Millennial replace their mattresses every 8.9 years.

Nigeria’s unemployment rate at 23 percent as at the third quarter of 2019 is one of the highest in the world, according to according to a recent data by National Bureau of Statistics (NBS).

And the Nigeria Employers’ Consultative Association (NECA) expects the figure to hit 33.50 percent by the end of 2020 as COVID-19 crisis ravages the economy.

Inflation rate accelerated for the 10th straight month in June to 12.0 percent, as restrictions on access to foreign exchange and continued border closures drove up prices.

Nigeria’s GDP growth slowed in Q1-2020, as the impact of social distancing measures adopted in March weighed on economic activities.

Economic growth slowed to a nine-quarter low of 1.87 percent year on year (yoy) from 2.55 percent year on year (yoy) in the fourth quarter (Q4-2019) and 2.12 percent (yoy) second quarter (Q2-2019).

As a result of the uncertainty caused by the coronavirus pandemic, the International Monetary Fund (IMF) expects the economy of shrink by 3.40 percent this year.

Further analysis of Vitafoam’s financial results shows it made money from core operations and it was able to turn each Naira invested to sales into higher profit as evidenced in strong margin expansion.

Operating profit margin increased to 22.16 percent in 2020 from 13.35 percent the previous year while net profit margin increased to 13.05 percent in the period under review as against 6.73 percent as at 2019.

The company’s shares are attractive as it has a price to earnings ratio of 2.57 times, while market capitalization as at close of trading on Wednesday was N7.19 billion.

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