Business
JM | Nov 11, 2020

Tax authorities move in on Fosrich to carry out audit

/ Our Today

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Company making provisions to cover additional taxes to be levied 

Cecil Foster, FosRich managing director (Photo: FosRich.com)

The Taxpayer Audit and Assessment Department (TAAD) has moved in on listed company, Fosrich, to execute an audit of its 2016 income tax returns.

This was disclosed by Fosrich’s managing director, Cecil Foster, who pointed out that the tax department is seeking to raise additional income tax from the company, which is in the business of selling electrical items, lighting and solar energy equipment.

In his foreward to the company’s latest September quarterly unaudited financial statement, as well as that for the nine-month period ended September 30, 2020, Foster advised shareholders that Fosrich has “agreed to most aspects of their (TAAD) findings”.

He added: “However, we are also now in the appeal stage of the process in respect of some adjustments.”

The Fosrich managing director said the company has already started to make provisions to cover these additional taxes.

COMPANY FINANCIALS

Turning to the company financials, Foster reported that the year-to-date income as at September 30 this year jumped by $205 million to $1.39 billion compared to $1.18 billion in the prior reporting period in 2019. Gross profit for the year-to-date is up marginally to $554.3 million compared to $514.8 million for 2019, representing an increase of $39.5 million.

Fosrich Company Ltd’s head office in Kingston. (Photo: FosRich.com)

The marginal improvement in gross profit is attributed primarily to the greater availability of the products required by the market. The product lines that had significant increases were industrial electrical products, which grew by 214 per cent and PVC products, which grew by 240 per cent.

During the third quarter the company generated income of $534.3 million compared to $440.0 million for the prior reporting period, representing an increase of $94.3 million. Gross profit for the quarter was $215.7 million compared to $199.6 million for the prior reporting period. Other income was positively impacted by foreign currency gains.

ADMINISTRATION EXPENSES GROWING

Administration expenses for the year-to-date were $436.1 million, reflecting an increase of $42 million or 11 per cent over the prior reporting period amount of $394.1 million. This was driven primarily in the first quarter by a combination of building out of its human resources expertise, as the company builds out its capacity for the future.

Other cost increases incurred during the period were due to staff benefits, increased legal and professional fees, increased selling and marketing costs, increased computer expenses, increased motor vehicle expenses, increased insurance costs, increased security cost and increased electricity cost. This increase is also being affected by the requirements of IFRS 16, which requires that all long-term leases be brought on the balance sheet as right-of-use assets with the financial obligation being reflected as financing and with the appropriate financing cost calculated.

As such, Fosrich has opted to include this cost, which amounted to $9.9 million, as part of operating cash flows. During the second quarter, Fosrich effected certain cost containment measures which the company expects will be the new normal. This was done in response to the challenges anticipated as a result of COVID-19.

MANAGING INVENTORIES

The company continues to closely manage inventory balances and the supply-chain with a view to ensuring that inventory balances being carried are optimised, relative to the pace of sales, the time between the orders being made and when goods become available for sale. This is being done to avoid both overstocking and stock-outs.

“Sales in most categories were less than anticipated. This due to the uncertainties which resulted from the COVID-19 pandemic, which affected our customers buying patterns.”

Cecil Foster, managing director of FosRich

According to Foster, “monitoring is done both at the individual product level and by product categories. Sales in most categories were less than anticipated. This due to the uncertainties which resulted from the COVID-19 pandemic, which affected our customers buying patterns.”

In terms of trade receivables, Fosrich continues to closely manage trade receivables with an emphasis being placed on balances over 180 days. The company has implemented strategies to collect these funds as well as to ensure that the other buckets are managed.

As a result of the anticipated impact of COVID-19 on customers, Fosrich has reviewed all credit arrangements and, where necessary, credit limits have been reduced and credit periods shortened. For some items the company has instituted seven-day credit or cash. 

DP

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