LASCO Distributors lowers profit

Revenue for the year to March increased 11 percent, but profits fell by 8 percent cooling the rapid growth experienced in the previous year for Lasco Distributors. The stock price nevertheless jumped just before the release of the results from $10.50 to $15 in response to an announced stock split.  Profit came in at $507 million without any tax charge, down from $550 in 2012 after a tax charge of $30 million. The result helped to maintain the stock at the level reached before the actual results were published as earnings per share came in at $1.51.

Revenues grew by $795 million to $8,255 billion in a period when official data says the local economy recorded negative growth. Gross profit margin declined quite sharply to 19.9 percent  from 21 percent in the prior year due to a what management states is “a one off adjustment to cost of sales related to import duties, absorption in increased volumes for institutional sales at lower margins, and the impact of the volatility of the exchange rate.”

The management statement continued “during the last financial year there were unavoidable disruptions in the supply chain for key products which impacted on revenue and profit performance. Whilst the company makes efforts to improve efficiencies there were also investments for future growth.

lasco_logo_150x150“Administrative and other expenses increased by 15 percent to $871 million, due to organisational changes in staff resources to strengthen the company’s market presence and preparation for impending new projects.

“The company has had success in its marketing activities as it has seen growth in some core categories and deeper penetration in targeted distribution channels. The widening of appeal and stronger brand presence is the platform for newly launched products and other planned projects with our partners.”

Balance sheet | Inventories increased by $535 million over the corresponding period in 2012, primarily due to inventory carried for important institutions and planned major promotional activities for key products which extend beyond March. Trade and other receivables increased by $315 million due to the increased marketing activity and extended credit arrangements for key institutions. “The trade receivables continue to be managed within industry standards and extended terms for supplies to key accounts is achieved in collaboration with our suppliers. Current liabilities also increased as trade and other payables was $267 million over the corresponding period and this is due to the continued supply agreement with our strategic partners,” the company stated in a release to shareholders.

Equity capital stood at $1.89 billion while current assets amounted to $2.7 billion versus current liabilities of $1.16 billion. The company is virtually debt free with just $46 million in overdraft outstanding on the books at March.

LASCOPharma_logo150x150Looking forward | The company has geared up for improved business. Some of it seems to be government related. Additionally, Lasco Manufacturing expansion is well on its way and when completed and in full production, Lasco Distributors will benefit from increased flow of items to market locally.

The stock may be fully valued, currently at $15 each, bearing in mind the valuation of other junior market companies, but profits should improve going forward thus providing opportunities for further gains in the future.

Legal matter | There is a claim by Pfizer Limited (Pfizer) against Lasco Distributors Limited  and others for damages for breach of a patent relating to a particular product. The action has been tried and judgement entered in favour of the company. The judgement has been appealed by Pfizer. The appeal has been heard in the Supreme Court of Jamaica and the court has reserved its judgement. The matter has been further appealed to the Privy Council and the records of appeal have now been settled and communicated to London. It is anticipated that the matter should come before the Privy Council either by the end of this year or during the first quarter of next year.

The attorneys are of the opinion that the company should be successful on this appeal and anticipate that the amount to be recovered by the company may be approximately $400m. If not, the company will be liable for cost estimated at $25M and for an accounting as to profits made by the company as damages to Pfizer for its loss of profit attributable to the sale of the product from the commencement of the company’s dealing to the date of the interim injunction issued on 29 March 2005.

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