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It is stressful to operate in the foam industry — Vitafoam GMD

The Group Managing Director, Vitafoam Nigeria Plc, Mr. Taiwo Adeniyi, in this interview spoke on challenges confronting the foam business in Nigeria and Vitafoarm’s efforts to diversify its operations, and also reduce finance cost. Excerpts:

By Peter Egwuatu

GIVEN the fact that banks’  loans are very expensive in terms of interest rate, why did the company not take opportunity in the capital market to raise cheaper fund?

As a strategic move to boost our working capital and sustain competitive edge we secured a four-year N2 billion soft loan from the Bank of Industry (BOI) at concessionary interest rate. We could not go to the capital market because the market lacked liquidity due to the economic recession in the country then. Mind you, the market does not work in isolation. The economic situation affects the market. The option we had was to approach BOI as we could no longer cope with banks’ loans.

Group Managing Director, Vitafoam Nigeria Plc, Mr. Taiwo Adeniyi.

The good news is that Vitafoam secured N2 billion structured working capital support facility with Bank of Industries (BOI) at 12 percent per annum interest rate.

Interest capital support facility

When compared to commercial banks 24.5 percent average interest rate borne in 2017. The BOI’s 12 percent annual interest capital support facility, compared with the 25 percent commercial bank rate as at last year, is expected to reduce Vitafoam’s finance cost and enhance the company’s ability to directly import its raw materials off-shore.

How will the BOI loan impact on the company’s operations?

With the loan, there will be a huge favourable reduction in finance cost by a minimum of N240million, representing 20.4 percent.

Secondly, the previously depleted working capital will be boosted by the BOI’s four-year working capital support.

This will enable Vitafoam to source its major raw materials directly from overseas manufacturers, thereby retaining middlemen margin in the business. A minimum of 15 percent margin will be saved on every direct import of major raw materials.

Now that the economy is recovering, will the company still approach the capital market to raise additional funds in the nearest future?

Yes, if there is need for further capital, we will approach the market to raise fund by way of Rights Issue.

Before then, we would have improved on our balance sheet and our shareholders would have seen the impact of the loan we took from BOI. We know it is relatively cheaper to raise money from the capital market than banks.

How have your subsidiaries impacted in the Group’s performance?

We are truly a national company. We have a full fledged factory in Ikeja, Kano, Aba and Jos. We also have factories off shore. We operate in Sierra Leone and Ghana strategically to position the centre for inflow of dollar in the long term because these are dollar based business environment. They have generated some revenue in the form of dollar inflow during the period we were faced with severe forex issue . They have high prospect to generate greater profit. So, overall our subsidiaries have impacted on the bottom line .The key issue is that Vitafoam as a group has a very bright future and the shareholder value would be greatly enhanced. As a mark of competence, Vitafoam is ISO certified.

How do you see your recent result that was sent to the Nigerian Stock Exchange and are you comfortable with the performance?

Vitafoam, the only quoted company in the group earned a Profit After Tax of N190 million last year as against N412 million in the preceding year, despite the tough operating climate.

The Group’s and Company’s revenue also grew by 30 percent and 31 percent respectively compared to prior year.

Also, note that despite the 15.98 percent inflation, in the economy, through firm cost control measures, management reduced administrative expenses by three percent for the Group and four percent for the Company, while distribution cost reduced from five percent to four percent as percentage of revenue between 2017 and 2016 financial year.

Is the company going to reward shareholders by way of dividend in the financial year 2017?

Yes, we do recognize our shareholders’ support and despite the challenges the company went through, the directors would be recommending N156.36million dividend to be paid to shareholders from distributable profit.

Premium would always be accorded shareholder value. We are optimism that with professionalism, dedicated staff, adherence to processes and procedures, internal efficiencies, operational innovation and creativity as well as timely execution of strategy we will continue to profit and reward our shareholders accordingly.

Can you shed light on some of the challenges that your industry and in particular Vitafoam went through in the financial year?

Last year, the industry was confronted with the challenges of high foreign exchange rate, high interest rate, inflation, decline in purchasing power and decline in power supply.

For Vitafoam, due to weak working capital and paucity of forex for Letters of Credit, the company purchased over 80 percent of its raw materials locally, thereby incurring more cost.

How have you been able to navigate these challenges?

The foam business is operating in a very competitive environment. There are many companies in this industry. It is stressful to operate in the foam industry. As professionals, we have tried to keep administrative and financial cost under control.

Administrative and financial cost

This prudent approach enabled us to generate profit. We also limited our exposure to our subsidiaries to a maximum of 40 per cent. This helped to relieve us of financial burden of 100 per cent ownership.

Is it not better for the company to buy its raw material locally than import them and are you not considering back integration strategy?

The forex issue made us to buy our raw materials locally from people who were able to import them (middlemen). Our raw materials for now are not available locally. Our petrochemical company is not working.

So, the raw materials used in our operations are bye products of petroleum products and it is produced by few countries in the world with very high regulations. So, we sourced raw materials outside the country at high cost because they are not available locally in commercial quantities.

We are appealing to the government to revive the Eleme Petrochemical industry to enable it to live up to its strategic objective of serving as a hub for providing raw materials. We are applauding the Central Bank of Nigeria, CBN for its effort in addressing the forex issue through the Investor & Exporter Window. We are not yet there but so far there is improvement in the procurement of foreign exchange.

What is the future outlook for the company?

We have created new business lines. Specifically, Vitaparts Nigeria Limited, a new subsidiary, established to manufacture oil filters, and it is expected to commence operation in the third quarter of the current financial year while importation and installation of the manufacturing plant will be concluded in the second quarter of the year, all things being equal.

These new strategic initiatives are designed to diversify operation and revenue base of the group. In a similar vein, Vitablom Nigeria Limited, the soft furnishing subsidiary has concluded installation of fiber processing plant.

The new production line is expected to boost the operation and revenue base of the group. Innovation and new products development will be the key drivers of our corporate strategy. We shall stay committed to the company’s brand reposition of much more than mattress by broadening the scope of our products offerings across the Vitafoam Group.


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