Floating naira will show the real value – Adeniyi

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Group Managing Director/Chief Executive Officer, Vitafoam Nigeria Plc, Mr Taiwo Adeniyi, spoke to two newspapers on the performance of the company in 2020 and issues confronting the manufacturing industry; EVEREST AMAEFULE was there

Vitafoam had a good showing in 2020; how would you describe the performance?

We never rested on our oars. We decided not to give in to the excuse of what was going on in the country.

The year was belaboured with a lot of activities that had a negative impact on the economy and businesses. It started with the COVID-19 shock.

Then, the nation was on a lockdown. Just within that same period, we had #EndSARS protests and before you knew what was going on, the year 2020 closed.

Even at that, Vitafoam Plc was able to weather the storm by coming out with the financial results for the year 2020.

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 any form of delay.

It takes a lot of strategies, planning, hard work and working smartly to achieve the result we had.

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Some analysts have ascribed your sales performance to the establishment of COVID-19 isolation centres. How do you respond to this?

Even if it was Vitafoam alone that supplied foams to all isolations centres in Nigeria, the value wouldn’t have been worth N20bn. But virtually, all foam making companies in the country participated in the supply of foam to those centres, not just Vitafoam.

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 had put ourselves in a class that our competitors always looked up to. Innovation is the drive; we do not wait for our products to expire in the market before we bring up another one.

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.

How were you able to speedy up research and produce purpose-fit product within the period?

There are two perspectives to mattresses because you have to look at the core and the covering. The core of the mattress does not change; it talks about density. But the covering for a mattress changes. For instance, if you take a mattress we have been covering with fabric over the years, for the purpose of COVID-19, the covering changed to PVC.

With PVC covering, you can sanitise and reuse your mattresses for other patients. 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 was the covering that we had to change.

There have been concerns that Vitafoam doesn’t reward its shareholders in the same proportion as the corporate earnings. What do you say to this?

Giving returns to shareholders of a company like Vitafoam goes beyond sitting down and thinking we have made N10 today, we should be able to pay shareholders N8. No; you have to consider your Earnings Per Share. You also have to consider if you pay that much, would you not end up borrowing? What is the outlay and my working capital structure?

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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 the year 2016 was an example of a terrible year for the company; we still made sure that we paid 12 kobo dividend to our shareholders to keep to the dividend payment history of the company.

Our dividend policy at Vitafoam is that every year, we are going to pay dividends. What the value of dividend payout will be is depended on a number of factors and not just profits.

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What assurance do we have that this is sustainable?

The performance of 2020 is just the beginning of greater things to come for Vitafoam Plc. In fact, we have the result of the first quarter and I can assure you, it is in no way of any less performance to what we recorded in the same period of last year. 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, the populace thought shareholders of Vitafoam had wasted their money. We were even accused of taking money from the parent company to start businesses that would become moribund. But as of today, all our subsidiaries are returning profits. Those 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 underfunding. The moment we got the funding right, every subsidiary turned in profit.

We got financing assistance from the Bank of Industry when we left the platform of commercial banking, where the rates were killing. The BoI intervention changed the whole financing structure.

When you plough back what should have gone to shareholders, how do they get compensated?

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 dividends.

When investors want to take a position on company shares, they first look at your company ratios. And what drives 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.

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What is the outlook for the manufacturing sector for the year 2021?

It is a bleak outlook. All the factors that should drive growth in the manufacturing sector are currently 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 to let manufacturers have access to forex to fund raw materials is all in shambles.

The reason is that the country does not have enough forex to go round. Even Vitafoam or the foam industry in general, 80 per cent of our raw materials for production come in from outside our environment.

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That means we are really forex dependent to get raw materials. 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 a hundred of containers waiting at the bay of the seaports of Lome, Togo. All shipments coming to Nigeria are now being diverted to Lome. Some have been there for upwards of three months with no space for them on Nigerian water to come.

The question is: what are 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. 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 meeting in Lome and say to them that thousands of containers supposed to come to the shores of Nigeria are within your shore and let them take the port charges or whatever forms of arrangement that will enable Nigerians to clear their containers off the shore of Togo.  After all, we all signed to AfCFTA agreement.

We, manufacturers, have been waiting for more than three months now for our containers to come over to Nigeria. The goods are still there.

How can government enhance the ease of doing business in Nigeria?

Someone should move the Federal Government seat to our ports. All the ports in Lagos, including Apapa and Tincan, are congested. Government should initiate a policy that will enable manufacturers to clear their goods via 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.

Local sourcing of raw materials can resolve the challenges at the ports and the scarcity of forex. What is your take on this?

I talked mainly about our sector and the materials. As of today, nobody is producing polyol and TDI (Toluene Diisocyanate). These are major raw materials for our production. These are petrochemical byproducts. Our only hope is the petrochemical industries that are being constructed.

Yes, we can also talk about the local sourcing of materials for foam production. But natural sources are limited in supply. The volume required for this population cannot come from just natural resources.

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You have subsidiaries in other countries and each of them should be a source of forex to grow Vitafoam. How much of forex do you generate on your own?

We are not yet getting returns from our subsidiaries outside Nigeria because they are just coming out of a negative window to become profit making ventures. We expect that going into the future, we will have some returns from the investments.

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Are Nigerian manufacturers ready to take up the challenge of the African Continental Free Trade Area?

There is this saying that necessity is the mother of invention. It is not about being ready; the agreement has been signed. It has come to stay. If you don’t plug in, you plug out.

The Federal Government has declared January for more sensitisation of the agreement for the manufacturing sector in Nigeria. It is not about being ready or not; Nigeria cannot hold back other African countries.

How do you think we can resolve the challenge of forex especially 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 is the value they get from the FDI. 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 its government interventions we want to continue with, then we are only postponing the evil day. 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 resource 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.

But manufacturers complain if the price goes up?

The manufacturers will complain because it is expected of government as policy maker to say we can sustain this elasticity for a period of six months and so be it.

You issue a policy on it that it will trade for N500 for the period. As a manufacturer, I will plan all my work or trading activities using the N500 benchmark for the period. As such, I will complain if the government changes suddenly.

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