MDS profit dips as it increases spend on market research, promotion
Health care and consumer products distributor, Kingston-based Medical Disposables and Supplies Limited (MDS) is reporting a decline in net profit for the three months ended June 30, 2019.
During the quarter, the company allocated greater resources towards increased business activities, market research, and promotion.
"Profits before tax decreased mainly due to the volatility of the foreign exchange and the further devaluing of the Jamaican dollar which continued from last year into this year's first quarter. Calculations suggest that given a normalized situation, profit before tax would have exceeded that of the corresponding period," Kurt Boothe, general manager of MDS, told Loop Business.
Net profit dipped 15.8 per cent to 16.09 million in the first quarter of this year, compared to the $19.1 million posted in the corresponding period 2018. The declines were attributed to the high levels of non-operating expenses, and the fact that company is in its sixth year of being listed on the Junior Market of the Jamaica Stock Exchange is now subject to 50 per cent income tax remission as at December 24, 2018.
However, there were many positives which augur well for the future.
"Infrastructure increased by 20.8 per cent mainly to aid our productivity and improved efficiencies. A new warehousing area was added and other facilities improved. This is in line with the company’s growth and future outlook plan. Most notably, we’ve improved our IT systems solutions to aid real-time decision making," Boothe said.
Total assets increased by $284.5 million from $1.368 billion to $1.652 billion during the first quarter of 2019. The company’s inventories and other receivable and prepayment balances increased as a direct result of the expectations of added business opportunities.
These assets were supported by shareholders’ equity of $775.30 million and liabilities of $877.5 million, which grew by $83.07 million or 12 per cent and $201.4 million or 29.8 per cent respectively.
There was a marked 19 per increase in market research and promotional activities aimed at the consumer division and the implementation of infrastructure needed to improve sales growth.
"With the planned expansion of the consumer division, the company deemed it necessary to invest in a number of research initiatives to pilot the process of widening the product range. In addition, the existing products in this segment that was relatively new to the portfolio required promotion for market penetration. It should be noted, however, that the company is still well within its targeted spend for the year, " Boothe revealed.
"This realizes an increase over the previous quarter as a greater portion of resources have been allocated for the first quarter, to prepare for a guided rollout of products before year-end."
The company generated sales in the first quarter of $557.23 million, reflecting a modest growth of $16.12 million or three per cent over the corresponding quarter in 2018. This performance was attributed mainly to price adjustments, given a dip in unit sales across our consumer product lines.
Operating expenses of $102.4 million increased by $16.80 million or 19.7 per cent over the $85.6 million for the corresponding period. This movement was due mainly to costs associated with increased business activities, marketing research and promotional activities aimed at the consumer division in particular, and infrastructure needed to be in place to improve the sales growth overall.
Non-operational expenses were $12.5 million increasing by $7.9 million or 64.9 per cent to $20.15 million over the corresponding period in the previous year; which was accentuated by foreign exchange losses of $9.4 million owing to the devaluation of the Jamaican dollar in relation to the US currency for the review period.