Tuesday 24 November, 2020

Fontana boosted by cost efficiencies

A woman shops inside the Fontana Waterloo store.

A woman shops inside the Fontana Waterloo store.

Fontana Limited, which operates pharmacies and sells consumer goods, says the company is benefiting from  economies of scale which have fed into improved margins.

While net profit amid the COVID pandemic decreased by 9.8 per cent, moving from $306.6 million to $276.5 million over the comparative period, revenues were higher.

For the 2020 financial year, the company registered revenue growth of 21.8 per cent to $4.5 billion.  This growth is mainly driven by addition of the Waterloo store in October 2019.

The company posted earnings per share of  $0.22 versus $0.26 for 2019.

In its analysis in the annual report for the year ended June 2020, the company's management said cost of goods sold as a percentage of sales decreased to 62 per cent in the  financial year under review,  moving from 64 per cent last financial year.

“This is the direct result of greater cost efficiencies in overseas purchasing as well as increase in sales of higher-margin products.  This resulted in a 28.3 per cent increase in gross profits over the prior year,” they outlined.

The efficiencies extended to inventory management where the aim was to reduce the levels of slow moving/aged inventory and concentrate on the accuracy of inventory valuations.

This has resulted in a reversal of inventory impairment provisions over prior years.

Management noted that during the year, the opening of the new flagship Waterloo Square store in October 2019 was well received, but this was followed by the onslaught of the COVID-19 pandemic.

Restrictive measures such as curfews, border closures, and social distancing, together with the slow-down in economic activity and consumer purchasing power all had significant impact on the business in the fourth quarter.

Despite this, management said, the company performed well, registering revenue growth of 21.8 per cent to $4.5 billion compared to 2019.

This growth, they outlined, was mainly driven by addition of the Waterloo store.

“The Waterloo store has complimented our other stores and allowed for greater accessibility to our offerings in Kingston. These three top stores (Fairview, Barbican and Waterloo) combined accounted for 68 per cent contribution to total revenue,” management outlined.

During the year, operating expenses increased by 23.4 per cent to $1.33 billion, directly attributable to the opening of Waterloo Square, which accounted for most of the overall increase in expenditures for the fiscal year.

Later the company’s  response to the pandemic saw implementation of  cost saving measures including  reduced staffing,  non-critical overheads and agreed salary reductions and/or reduced hours for all staff.

Finance costs increased by $147 million over last year driven primarily by the adoption of IFRS 16 in July 2019 and fair value losses in Fontana’s  Unit Trust investment of $23.1 million. The net impact of the IFRS 16 adoption was $83.8 million.

Net Assets increased by 65 per cent.  Shareholder equity grew by $226.5 million, an increase of 17.9 per cent.
Primary sources of liquidity in 2020 included funds provided by operating activities ($412m) and loan proceeds ($302.6m).

Cash and cash equivalents increased by $223 million a 59 per cent increase over that of 2019. The company paid out $49.97 million in dividends on January 17, 2020

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