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The continuous hike in the interest rates by the central bank to rein in rising inflation has ballooned finance costs that undermined Vitafoam Nigeria Plc profit, but the company has the financial strength to pay its debt.
The leading manufacturer of foams and furniture accessories posted profit after tax (PAT) of N4.37 billion for the year ended September 2023, which is 3.36 percent lower than 2022’s N4.52 billion.
It is worth noting that the slump at the top line (profit) is largely because of a 223.41 percent surge in finance costs to N2.23 billion as non-financial firms.
Nigerian firms have seen finance costs or interest expense surge since mid-2023 as the war in Eastern Europe that jerked up the price of grains combined with higher prices of local food caused a surge in inflation that left the central bank with limited options than to keep hiking interest rates to achieve price stability.
In November 2023, the overall inflation rate rose to 28.20 percent, surpassing the October 2023 rate of 27.33 percent. This indicates a month-on-month increase of 0.87 percent.
The Monetary Policy Committee (MPC) of the central bank had increased the benchmark interest rate (MPR) by 25 basis points to 18.75 percent from its initial 18.5 percent, representing the highest interest rate in 22 years.
Interestingly, the balance sheet of Vitafoam is looking better and healthier and there are no threats to going concerns.
The interest coverage ratio for the company stood at 3.02 at the end of 2023, substantially lower than 2022’s 9.1, according to MoneyCentral’s calculations. The figure is a measure of a company’s ability to repay its debts, with a ratio of at least 2 generally considered the minimum acceptable amount for a company with solid revenues. Analysts typically prefer a coverage ratio of 3 or higher.
The improved financial strength of Vitafoam means it can pay dividends to shareholders, which underpins investors’ confidence in the company.
The company sales increased by 14.40 percent to N52.98 billion in the period under review from N46.31 billion the previous year.
Vitafoam Nigeria over the years has improved its revenue in polyurethane/reconstituted foam (mattress, cushions, pillows, sheetings) and allied products that conforms with international standards, and applicable statutory.
Gross profit spiked by 20.0 percent to N17.94 billion in the period under review from N14.94 billion the previous year.
The company said it will continue to pursue its innovative growth strategy and invest in new projects that delivers higher returns to shareholders.
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