FosRich closes the year with strong 4th quarter

FosRich, a Junior Market listed company that is a distributor of lighting, electrical and solar energy products, recently added the manufacturing of PVC pipes and repairing of transformers to its list of goods and services it provides.
The company reported strong fourth quarter results, with profit before tax rising 46 percent to $50 million from $34 million in the December quarter of 2019. Profit rose just 15 percent over 2019 to $126 million for the 2020 fiscal year, up from $110 million in 2019.
They incurred $2.7 million in taxes for 2019 due to under accrual of the 2016 taxation and no interest income was booked on advances to a related company. There was no tax charge in 2020, under tax savings enjoyed from listing on the Junior Market.
Revenue climbed 18 percent in both the final quarter and for the year, coming in at $504 million and $1.9 billion, respectively, up from $1.6 billion for 2019. “The product lines that had significant increases over the prior year were PVC Products, which grew by 252 percent, Industrial Electrical Products, which grew by 194 percent, Hardware, which grew by 153 percent and Control Devices which grew by 144 percent,” management reported in the analysis of the company’s financial performance for the year.
Other income dropped 38 percent for the year to $32 million, from $52 million in 2019 and fell from $30 million in the final 2019 quarter to negative $366,000 in the 2020 fourth quarter.
Cost of sales increased by a mere one percent for the quarter but grew by 19 percent for the year, from $902 million to $1.1 billion. Gross profit climbed 39 percent for the December quarter to $270 million and 16 percent to $825 million for the 2020 fiscal year, up from $709 million in 2019. Gross profit margin for the year remained at a healthy 44 percent and 54 percent for the final quarter. Cost of sales is based solely on cost of goods sold and not the full direct cost entailed in selling. It is troubling that with such a high mark up on goods sold, net profit is just contributing a mere 6.6 percent, due partially to the high level of inventory carried and high distribution cost currently, in addition, finance cost accounted for 8.4 percent of sales in 2020 and 6.79 percent in 2019.

Mark Croskery speaking to Cecil Foster, Managing director of FosRich before the company went public.

The high finance cost includes cost of funds advanced to a related party, and the amount includes provision for expected losses on receivables. At the year-end, near two year’s supply of inventories were on hand, but that is up from about 13 months at the end of September. The level of inventories consumes around half of the profit margin due to the turn over time for the inventory. “Vagaries of the supply chain due the holidays in China” resulted in the increased year-end inventories in 2020, Foster informed Foster further indicates that they have seen inventory position “steadily getting better.”
Administration, marketing and selling expenses fell 13 percent for the quarter but grew by four percent for the year from $487 million to $506 million. Finance cost rose 46 percent for the year to $160 million, from $109 million with $38 million of the increase due to provision for expected credit losses.
Current assets for the 2020 financial year stood at $2 billion inclusive of cash and bank balances of $34 million and trade receivables of $245 million, while current liabilities increased by 5 percent to $580 million. Shareholders’ equity stood at $869 million and borrowings totalled $1.6 billion, resulting in a high degree of leveraging that is extremely risky.
A total of $365 million is due from a related party, with the funds used to complete the construction of an apartment complex in Kingston that is yet to be completed. According to Cecil Foster, Managing Director, the units are virtually complete and should be disposed of within two months. “All 80 units are sold at prices between $16 and $35 million and that will allow for full repayment this year of the amounts advanced,” Foster informed No interest was booked on the debt during the year, even as Fosrich has to pay interest on amounts borrowed to help fund the amounts due from the related party. The cost to the company is around $30 million per year, Foster confirmed that interest is payable and will be fully paid when the debt is paid this year.
FosRich paid dividends of 9.5 cents per share in November 2020, amounting to $48 million. Earnings per share came out at 25 cents for the fiscal year. projects 45 cents per share for 2021.
The company is not focusing solely on its traditional business of distribution. In 2019, the company commenced the manufacturing of PVC pipes, with the plant producing 16 different types of PVC pipes, on a 24-hour basis and currently has the capacity to supply the entire local market. According to the company’s management, PVC Products delivered revenues of $66 million for the period in 2019 that they operated and in 2020 up to September. “We have been profitable in this area since November last year, Foster told” There is more to come from the manufacturing of PVC pipes. “We will be manufacturing four to sixteen inch PVC pipes at Hayes in Clarendon as well as fittings for the pipe,” Foster informed this publication. From all indications, the company should have a full year of profit for the pipe division in 2021.
After 20 months of discussions with JPS in taking over their pole-mount transformer repair activity, the company has an agreement to do so and the activity is now in operation. Phase one of the reconstruction of our new distribution centre at 76 Molynes Road is completed, management told shareholders in their September interim report.
The application for Blue Emerald Limited, a new company for registration under the Special Economic Zone Authority, in order to take advantage of the significant long-term tax concessions is at an advanced stage. Activities being undertaken at the new Hayes facility in Clarendon will be done through this company, acting exclusively for FosRich under a contract manufacturing arrangement.
The stock last traded at $5.25 on the Junior Market of the Jamaica Stock Exchange with a PE of just 11.7. Going forward, Foster says that 2021 has started out well in fact, he said “very good.” As such, shareholders can look forward to more gains in 2021. This is clearly a stock to have on ones’ watch list if not already owned.

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