Rapid expansion adds cost before profit is generated from the new business that flows from the expansion, that seems to be the case at Lasco Distributors that enjoyed double digit growth in the year to March this year, but suffered declines in profit.
Profit slipped 11 percent in the March quarter for the company to $152 million from $171 million in 2014, from revenues that jumped a significant 26 percent to $3.16 billion from $2.5 billion. For the full year revenues grew a lesser level of 18 percent to $11.2 billion and profit fell to $547 million from $587 million after providing for the cost of share options to employees of $26 million, but this was not the only item driving down profit.
Operating cost rose with the average number of persons employed during the year climbing to three hundred and sixty nine (369) from three hundred and forty four (344) helping to push the wage bill 21 percent to $934 million. Administrative, selling and other expenses rose 18 percent to $1.53 billion during the year. Gross profit margin declined to 17.94 percent from 19.37 percent in 2014 and was the major factor for the fall in profits.
With increases in sales, inventories grew much more than growth in revenues in the final quarter at 44 percent, receivables increased 26 in line with increased sale revenues while payables grew by 38.7 percent.
The company reported that the “claim by Pfizer Limited (Pfizer) against Lasco Distributors, and others for damages for breach of a patent relating to a particular product. Final judgement as to liability was received from the Privy Council in favour of the company. The matter is now set for 18 January 2016 for assessment of damages payable to the company under the undertaking Pfizer gave to the Court.
Earnings per share ended at 16 cents, while the stock is trading at $1.69 or just over 10 times historical earnings, the focus has to be on the future especially with the strong increase reflected in the final quarter sales numbers. Investors need to bear in mind that profits become taxable at 12.5 percent starting in the second half of this fiscal year and for five more years.