Net profitability dwindles even though revenues climb in Q1
Durrant Pate/ Contributor
Pharmacy chain Fontana Limited is now feeling the pinch from the end of its tax holiday having served five years on the junior stock market and is now liable to pay 50% of its income tax liability.
Companies on the junior market receive a full income tax holiday for the first five years after listing and a 50% income tax holiday thereafter until the 10th year, they pay full income tax. With this in mind, Fontana now has liability to corporate income taxes, which required a provision of $11.9 million for the just ended September first quarter.
As a result of the tax liability, net profit for the quarter contracted by 1.5% to $60.5 million. However, operating profit grew by 26.9% moving from $80.8 million to $102.6 million. Revenue for the quarter closed on $2.07 billion, an increase of 16.2% over the $1.78 billion booked last year.
All Fontana locations posted higher revenues
Other income also grew by 7.7% to $35.7 million, as Fontana seeks to tap into new revenue streams in the Portmore store. There were increased revenues in all Fontana’s locations, including its newest store in Portmore, which continues to maintain its break-even monthly sales. Transaction counts, average spend per customer, and prescription counts continue to show month-over-month gains as the pharmacy chain grows its footprint in St Catherine. Cost of sales went up 9.9%, resulting in gross profit jumping from $603.2 million to $774.5 million.
This is a 28.4% increase over the first quarter of 2023. Fontana’s efforts to capitalize on economies of scale within its procurement and inventory management activities resulted in a higher gross margin of 37.5%, up from 33.9% in the prior year.
Expenses rising
Operating expenses grew by 28.6%, ending the quarter at $671.9 million compared to $522.3 million last year. This was partly attributable to the opening of the Portmore store in November 2023, along with increased staff costs across the network.
As Fontana continues to focus on staff retention, engagement and satisfaction, costs and benefits contributed to 58% of the operating expenses increase over last year. Provisions were also made for senior staff retiring in 2025, some with over 50 years of service.
The company continues to make inroads into industrial security and insurance rates, as well as improve on its conservation efforts as we saw increases in utilities. Finance costs surged 25.3%, moving from $52.6 million in Q1 last year to $65.9 million in the quarter under review, which was mainly attributable to foreign exchange losses on the lease liability (IFRS16) as well as the new store.
Earnings per share remained constant at $0.05 for both comparable quarters. Total assets at the end of the quarter stood at $5.6 billion, up from $5.2 billion in the previous comparative period, reflecting an increase of 6.2%.
Favourable cash and cash equivalents
Cash and cash equivalents remain favourable at $1.2 billion, which is 4% less than the previous comparative period. Shareholder’s equity grew to $2.7 billion, up from $2.5 billion or 6.1% over the prior corresponding quarter, which puts the company in a strong position to pursue further expansion opportunities as they come up.
As for its outlook, Fontana plans to continue investing in technology that will improve efficiency and contribute to a better control environment. At seven stores strong, Fontana is experiencing a tremendous period of growth and development, well positioned as one of the most recognized retail brands in Jamaica and the premier pharmacy chain across the country. The company promises that the current second quarter is anticipated to be the best yet!
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