Q3 profit rose 18% pretax for the Lab

Profit jumped 43 percent before tax at Limners and Bard, with revenues surging 41 percent for the third quarter to July this year. The robust third quarter profit did not hold for the final quarter despite a 55 percent jump in fourth quarter revenues to $226 million from $146 million in 2019, with profit inching just a two percent higher for the final quarter from $18.9 million in 2019 to $19.24 million this year.
Full year profit rose 18 percent from before tax in 2019 from $108 million to $127 million and just 41 percent from $90 million after profit tax. There was no tax payable for 2020, following the tax relief benefit now enjoyed from listing on the Junior Market of the Jamaica Stock Exchange.
Revenues increased 44 percent, moving from $632 million in 2019 to $912 in 2020. Cost in generating revenues grew much faster than income, with an increase of 51 percent for the year to $613 million and 68 percent for the final quarter to $154 million.
Administration expenses and other costs rose 55 percent to $241 million for the year and by 54 percent for the October quarter to $54 million as salary related cost jumped 43 percent for the year and directors’ remuneration more than doubled with a rise of 110 percent to $24.6 million. The company’s CEO and the Chairman indicated the sharp increase was due to one executive director serving as a director for a part of the previous year, resulting in the numbers looking distorted. In the July quarterly report accompanying the results, the Chairman, Steven Gooden and Kimala Bennett, Chief Executive Officer commented on increased cost, stated, “these included a systemization initiative and training to assist in efficiencies linked to our growth drivers and a pay-out of 50 percent of our 2019 employee profit share.

Kimala Bennett, Chief Executive Officer of The Lab.

The audited financial statements did not include the comparative 2019 segment results, as is the norm, to allow investors to compare the current year’s figures with those of 2019. In an interview with the Chairman and the CEO, they pointed out that salaries were cut during the uncertainty to business earlier this year. At the same time, the profit share payment was suspended. As the year unfolded, with results looking positive, the board decided to reinstate the full salaries and pay out the profit share for 2019 that was approved earlier in the year, the full cost of which is included in the second half of the fiscal year, the directors indicated. The services of five new employees were engaged in the final quarter, to meet increasing demand in the future, adding to the increase in cost. The directors stated that no decision has yet been made about profit share for 2020 and no provisions are included in the 2020 audited accounts.
The company separates the business in three segments. Revenues for the Media Segment moved from 46 percent of total revenues in 2019 to 53.96 percent in 2020, Production Segment revenues fell as a percentage of overall revenues from 35.77 percent in 2019 to 25.67 percent, while the Agency segment rose from a contribution of 18 percent to 20.4 percent.
Revenue for the Production segment for the year was $234 million just up from $226 million in 2019, with Gross segment profit rising marginally from $100 million to $102 million for a Gross profit margin of 43.6 percent. The Media segment pulled in 68 percent more revenues than in 2019, to reach $492 million, resulting in an increase in Gross profit of 77 percent to $71.5 million and a Gross profit margin of just 14.5 percent. The Agency segment climbed a robust 65 percent to $186 million from $113 million in 2019 and enjoyed a 45 percent rise in Gross profit to $124.7 million from $86 million, with a Gross profit margin of 67.2 percent. Up to the third quarter, the media segment delivered a 60.5 percent growth in revenue amounting to $136 million putting revenue in this area at $362 million and resulting in revenues of $130 million in the fourth quarter.
The Company generated cash flows from operations of $140 million up from $121 million in 2019. After increased working capital needs, repayment of loans, payment of $19 million in dividends and net inflows from movements in fixed assets, the company held on to $89 million of the funds generated and ended with cash and equivalent at $380 million at the end of the year.
Current assets jumped sharply to $560 million from $387 million in 2019, receivables leaped from $84 million to $158 million. The level of receivables amounts to the total revenues generated in the final quarter and that was the case in 2019. Current liabilities amounted to $149 million, up from $83 million in 2019. Borrowings stood at just $65 million. Shareholders’ equity climbed to $464 million from $356 million in 2019.
The strong growth in revenues is positive for the company, however, the production segment, with a high profit margin, was flat during the year, while Media placements, a low contributor to profits grew strongly, with much higher risk associated with it, due to the high level of liabilities it incurs. Strong growth in the Agency segment is excellent as it contributes the most to gross profit and is an area to watch for continued robust growth.
The financial reports indicate some weakness in management, particularly the financing area, but the company is addressing this with the planned employment of appropriate personnel. As indicated above, there is no comparison for the segment accounts and no information on segment assets and liabilities, which is the standard requirement. Past quarterly reports do not contain segment results, which is the norm. These are all areas that point to weakness in critical areas.
The final quarter numbers are of major concern with increased cost wiping out the benefit of a big surge in revenues. The directors’ commentary for the third quarter results speaks to cost rising, but there is no commentary explaining what happened in the final quarter.
The company has been reporting big increases in staff cost for some time, the level of increase suggests that some of these costs relate to direct operating expenses rather than administration and therefore distorts the contents of the data presented to shareholders and withholds pertinent information for better understanding of the contents of the profit out turn.
With nearly two months of the current quarter having elapsed, the directors revealed that the company is on target to meet their forecast so far. After the year end, the company declared a regular dividend of 3.4 cents per share and a special dividend of 4 cents payable on January 22.
In going public, one objective for the use of the proceeds was in funding acquisitions. The directors indicate that they reviewed some potential candidates, but so far, none have met their objectives.
The company reported earnings of just 2 cents per share in the October quarter and 13 cents for the year. IC Insider.com projects 22 cents earnings per share for fiscal 2021, with the stock last trading at $3.05 on the Junior Market of the Jamaica Stock Exchange on Thursday for a PE ratio of 14 and based on 2021 projected earnings.

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