Vitafoam Nigeria PLC is a foremost manufacturer of rigid foams and an array of household equipment. The company defied the much-dreaded impacts of COVID-19 pandemic and maintained its trajectory of strong earnings in its performance in the recent fiscal year. The company is warming up to present its scorecard to the Shareholders at the 59th Annual General Meeting, scheduled for Radisson Blue Hotel, Ikeja GRA, on Thursday, 4th March, 2021. In this engaging interview with The Kernel, the Group Managing Director and Chief Executive Officer, Mr. Taiwo Adeniyi, speaks on the economy, manufacturing sector, finance and African trades among other sundry issues:
What were the main drivers of your performance in 2020?
There is no performance that comes by accident, every performance demands that a lot of work has gone behind it. Our pride as shown by our financial results for last year is that we never rested on our oars; we are resilient. We had also decided not to give-in to excuses of what was going on in the country because if you look at it, you will realise that 2020 was one year belaboured with a lot of activities that had negative impacts on economy and businesses. It started with COVID-19 shock. Just within that same period, we had #EndSARS protests and before you knew what was going on, the nation was on lockdown and 2020 closed. Even at that, Vitafoam has been able to weather the storm by coming out with the impressive financial results for the year.
If you look at the leadership of Vitafoam, it is structured to know when the company should move; know when to act, to know the decision to take at the right time without delay. So, that much we have done to be able to come out with such impressive financial performance we are looking at today. It also takes a lot of strategies, planning, hard work and working smartly to achieve the feat.
Some analysts ascribed your performance to sales of foams due to upsurge in COVID-19 isolation centres. Do you agree?
The people in that category will always look for an easy way out to explain things. But if you do an in-depth analysis of Vitafaom’s performance, you and I will agree that even if it was Vitafoam alone that supplied foams to all isolation centres in Nigeria, the value wouldn’t have been worth N20 billion. But, virtually all foam-making companies in the country participated in the supply of foams to those centres and not just all about Vitafoam. Nobody will attribute the impressive performance of Vitafoam to supplies we made for COVID-19 period. We actually made foams for COVID-19 purposes, but I totally disagree that it was the factor for the growth we recorded. One must bear in mind that over the years at Vitafoam, we have put ourselves in a class that our competitors always look up to. Innovation is the drive; we do not wait for our products to expire in the market before we bring up another one. In other words, there is continual improvement along the line of our processes to the extent that we sell high-margin products – these are products that meet the demand of our teeming populace. At Vitafoam, our research does not start with us; our research starts with the market because after looking at the market, we discover what the market needs, we return to the company and come out with what is best for the market. This gains acceptance and everybody wants it, the moment everybody wants it, sales start moving and the company continues to grow. So, it is not about COVID-19 product sales, it is about innovations. A lot of mattresses were bought from Vitafoam really, but go and check, you will discover those mattresses supplied to isolation centres are not regular mattresses of Vitafoam.They were made specifically for that purpose from our research and innovation platform. We have to produce mattresses using PVC coverings. The PVC covering is usually used to produce mattresses for hospitals. But these were not hospital mattresses; these are mattresses that needed to be used for a particular purpose. As a result, we have to come back to our desk and design products that meet the needs of that purpose and we supplied.
How were you able to speed up research and produce purpose-fit product within the period?
There are two perspectives to mattresses because you have to look at the core mattresses and the materials. The core of the mattress does not change; it talks about density, but the covering for a mattress changes. For instance, one can take a mattress we have been covering with fabric over the years and for the purpose of COVID-19, changed the covering to PVC. With PVC covering, you can sanitise and re-use your mattresses for other patients. But, if it were fabric-covering foam, the patient can sweat or do whatever on it and it becomes completely messed-up. It can become useless from that point but foams made with PVC covering have corrected that since it can be sanitized even after a patient mess it up. You can clean up the PVC with any of the sanitary agents and it will be ready for use again. What we concentrated our efforts on is the covering that we had to change since we have done more of the core mattresses.
In the recent past, acquisition was one of Vitafoam’s growth strategies. Do you still have strategic plan for more acquisition going forward?
At Vitafoam, what we are doing now is consolidation. That does not also mean that the door of acquisition is closed. No. If we have a strategic partner that we can be growing with, yes we will do. But as of today, we are consolidating on the ones we had acquired while making them to contribute to the parent company.
What determines your dividend payment and returns to shareholders?
Given returns to shareholders of a company like Vitafoam goes beyond sitting down and think we have made N10 today, we should be able to pay shareholders N8. No, because you have to consider your earnings per share (EPS), you also have to consider if you pay that much, would you not end up borrowing? What are the outlay and my working capital structure? All these have to be considered before you decide what returns your company can give out as dividends. But one thing we assure our shareholders is that since we started paying dividends, we have never disappointed them. Even in difficult times and year 2016, was an example of a terrible year for the company, we still made sure that we paid 12 kobo dividends to our shareholders to keep to the dividend payment history of the company. In 2020, our company performed well and we have looked at al indices that support dividend payment such as our reserves, and we are confident to say that we can pay what we have decided to pay shareholders. Our dividend policy at Vitafoam is that every year, we are going to pay dividend. What the value of dividend payout will be is dependent on a number of factors and not just profit.
But, our shareholders also benefitted from the growth of the company through share appreciation. By the end of last year, the share price of Vitafoam was about N5. As of today, the share price has doubled, which means that I can go and trade on Vitafoam shares and get value for money plus the dividend. When investors want to take a position on a company shares, they first look at your company ratios. And what drive your ratio are these factors we are telling you. It is not all about paying dividends alone. It is about building the ratios that are attractive to investors. As more investors come in, the value of shares also goes up and you get value for it. If the share price of Vitafoam was trading at about N5 mid-last year, and now trading at about N10, shareholders are better for it.
What assurances do we have on Vitafoam’s growth trajectory?
The performance of 2020 is just the beginning of greater things to come to Vitafoam. In fact, we have the result of the first quarter and I can assure you, it is in no way any less performance to what we recorded the same period last year. And if there is anything, there is growth. So, the growth trajectory has come to stay. This is what we have been doing in the past 10 years with all our subsidiaries. When we came up with those subsidiaries, some people thought shareholders of Vitafoam had wasted their money. We were even accused of taking money from the parent company to start-up businesses that will become moribund. But as of today, all our subsidiaries are returning profits and these subsidiaries can only get better as we progress. Once subsidiaries get better, they contribute to the main purse and the main purse can only become bigger, better and greater in our financial year. Don’t forget the major problem of our subsidiaries was not lack of expertise, marketing or bad management but they were underfunded. And the moment we got the funding right, every subsidiary turned in profit. So, the growth is sustainable.
Since financing structure is a major factor, are you considering equities recapitalisation?
When you do the general ratios of an organisation and look at the shareholders’ base of the company, you will be able to determine the direction of any offer. Our shareholders’ structure is so spread such that 80 per cent of them are actually share-holders – those who hold on to their shares. They are people that spread their shares like 10,000 units and most of them are retired people. They are not upwardly mobile people that are still earning some kind of funding and can be able to take up their rights.
We have looked at it. We have ventured into it and did broad analysis on it, we went to the extent of bringing a consultant to help look at it, but at end of the day, it was clear to us that we were not going to make a success of it. Rather, we would have wasted money. With all these, we realised it was not right for us to do rights issue now. Rather, we should look for a less expensive financing structure like Bank of Industry (BoI), we have looked at it and it was a lot cheaper than using the rights issue platform. This was why we opted for debt financing and if you look at Vitafoam’s balance sheet today, it is one of the strongest in our industry. With this, we may not need the rights issue.
What are your footprints in the area of corporate social responsibility (CSR)?
Up till the period of COVID-19, we have been donating mattresses directly to a number of states. Some people see our products and brands at COVID-19 isolation centres and think we have made money from that. Some of those you see were donations from Vitafoam. Those are some of the activities that formed parts of our CSR. We also get involved in schools because we as an organisation believe knowledge is power. And to fund knowledge, the company will continue to support because what goes around, comes around. If you fund education, it will come back to also contribute to the knowledge base of the organisation. We get involved in a number of CSR activities. We established laboratories around the country. We were also involved in purchasing some computers for some schools as well. We also played major roles in supporting the health sector.
What would you suggest as priorities to enhance ease of doing business in Nigeria?
Someone should move the Federal Government seat to our ports. All the ports in Lagos State, including Apapa and Tincan, are congested. The government should initiate a policy that will enable manufacturers to clear their goods through Onne and other channels. Let those goods that were initially slated for Lagos ports be diverted to those ports and we clear them from there. But nobody is looking at it from that direction. The roads linking the ports should be looked into and worked on. The seaports are all bleak when you look at them.
What is the outlook for the manufacturing sector in the year, considering all factors?
It is a bleak outlook. All the factors that should drive growth in the manufacturing sector are being challenged. I have always said it, if there are no raw materials, the manufacturing sector cannot perform. Every window created through the Central Bank of Nigeria (CBN) to let manufacturers have access to foreign exchange (forex) to fund raw materials is in a shambles. The reason is that the country does not have enough forex to go round. For instance, at Vitafoam or the foam industry generally, 80 per cent of our raw materials come from outside the country. That means we are really forex-dependent to get raw materials right. When you now struggle to get the forex to place order for those goods, they cannot arrive on the shores of Nigeria. Why? As of today, the nation’s ports are congested. We have more than 100 containers waiting at the bay of the seaports of Lome, Togo. All shipments coming to Nigeria are being diverted to Lome. Some have been there for the upward of three months with no space for them in the Nigerian waters. The question is: what is our government agencies and officials doing to correct this? If a container comes to Nigeria, for instance, what happens? You collect duties and port charges. If there is a port in Lome and driving those containers from Lome to Nigeria should not take more than a two-day journey, if Lome ports can retain those containers, what stops Nigerian government and agencies from going to have a form of strategic meetings in Lome and say to them: thousands of containers which were supposed to come to the shores of Nigeria are within your shores, let them take the port charges or whatever forms of arrangement that will enable Nigerians to clear their containers off the shores of Togo. After all, we have signed on to African Continental Free Trade Area (AfCFTA) agreements. There should be a way out to clear Nigerian containers off the shores of Lome; for manufacturers to clear their containers and have access to materials for further production. That way, the economy is sustained. We manufacturers have been waiting for more than three months now for our containers to come over to Nigeria. The goods are still there. We are only lucky that those materials are not perishables. Meanwhile, we have been paying for Letter of Credit (LC) obligation. This is tough.
What about local sourcing of raw materials?
I talked mainly about our sector and the materials. As of today, nobody is producing Polyol and Toluene Diisocyanate (TDI), these are the major raw materials for our production. These are petrochemicals by-products. Our only hope is that when the petrochemical industries come on full stream, we will be able to take advantage. Aside this, there is no alternative except that we continue to import. Yes, we can also talk about the local sourcing of materials for foam production. But natural sources are limited in supply. The volume that is required for this population cannot come from just natural resources. In any case, natural resources are green production, and affordability then becomes an issue. Unfortunately, we believe that anything that is green production is not expensive because it is natural. But it is definitely going to be expensive because you get little output from that particular window. Our major raw materials come out as they are fractionalising the main crude as petrochemical by-products. Those products were being wasted when Nigerian refineries were working. If that happens, for instance, the same by-products that lead to the production of crude oil can be exported from Nigeria too. And that would also bring forex to our country. When you look at the oil industry, the mainstream of income is not more of the petrol, jet fuel and the diesel you sell. Most incomes are more of by-products that come out of the petrol production that serve a number of other industries.
How do you think the forex issue can be resolved to make it available for the manufacturing sector?
What the government is doing is a balancing act and not to rock the boat. But if you ask me, honestly, I think forex should be floated because it will give us the real value of the naira. The major challenge with Foreign Direct Investment (FDI) is the value they get from the investment. The argument is that naira is not yet valued at the rate it should be valued and for as long as that is not happening, it means that we will not have enough forex. If I know that if I bring my forex into this environment, I will exchange it for a value that matches my investment, then I will bring it. But if it is government intervention we want to continue with, then we are only postponing the evil days to the future. The moment government does not have funds to intervene, it becomes a challenge, the rates go up without moderation and when the government intervenes, the rates come down. How long are we going to continue with this especially with dwindling resources from that particular window? I think what should be done is to allow it to be floated and then the value will be determined. In fact, the value will come to the point of equilibrium where it will neither increase nor decrease. This we have not achieved because of the government intervention from time to time to keep the balance.
But manufacturers also complain when forex goes up?
Manufacturers will complain because it is expected of the government as policy maker to say we can sustain the elasticity for six months and so be it. You issue a policy on it, that it will trade for N500 for a period. As a manufacturer, I will plan my work or trading using the N500 benchmark for the period. As such, I will complain if the government changes it suddenly by another increase because it has contravened the bargain of previous N500 policy I was working with.
You have subsidiaries in other countries, and they should be a source of forex, how much of forex do you generate on your own?
We have not yet been getting returns from our subsidiaries outside Nigeria because they are also companies that are just coming out of negative to become profit-making ventures. We expect that going forward; we will have some returns from that investment.
With the coming of AfCFTA, what are the opportunities and challenges that you can see for Nigerian companies?
On AfCFTA, what we must understand is that a lot of work has gone into signing this agreement. It was like a case of the one between two devils, if you don’t allow it, it is already operational. We rather legalise it and let everybody know it is now legal because it has been operational long before now. People take up their goods to the Republic of Benin and bring them into Nigeria because our borders are so porous. It was in the wisdom of this that Nigeria championed this particular agreement. On its benefits, it is now legal and no longer for selected few. It is no longer under the table businesses anymore. It allows every manufacturer to benefit from it. If you are strong in exports, it is time to benefit from it. The main challenge I can see is to unify quality, such that the quality you get in Nigeria is the same you get in Togo. That way, cross-trading is uniform. It will also improve the standard of cross-trading.
Are manufacturers ready to take up the challenges of free trade?
There is this saying that necessity is the mother of invention. It is not about being ready, it has been signed. It has come to stay. If you don’t plug in, you plug out. Whether you are ready or not, there have been a lot of sensitisation programme in the recent past. The Federal Government has also declared January 2021 for more sensitisation on the agreement for the manufacturing sector in Nigeria. It is not about being ready or not because Nigeria alone cannot hold other African countries to ransom.
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