LASCO Distributor Ltd (LASD)

Company Analysis

Company Analysis: LASCO Distributor Ltd (LASD)

Company Overview
LASCO Distributor Ltd (LASD) is the largest of the trio of companies owned by business mogul
Lascelles Chin.
LASCO Distributor Ltd is primarily responsible for the distribution of the LASCO group of companies'
branded food, household, pharmaceutical, personal care, and baby-care products in Jamaica. LASCO’s
distribution channel spans Supermarkets, Wholesalers, Small Shops, Schools, Pharmacies, Government
Institutions and health care facilities across Jamaica
The Company operates within two segments: Consumer and Pharmaceutical

Consumer Division
The consumer goods distributed by the Consumer Division include high quality, economical staples
including both milk and soy – milk drinks, corned beef, oats, toothpaste, feminine hygiene products,
soap, infant formula, diapers, and others under the LASCO name.

Pharmaceutical Division
This segment distributes internationally branded pharmaceutical and own-branded products in the
following therapeutic lines: cardiovascular, respiratory, analgesic, central nervous system – related,
gastroenterology - related, oncology - relate d, anti-infective, opthamology - related

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LASCO DISTRIBUTOR LTD (LASD)
Company Analysis

The Company's own branded LASMED line of generic pharmaceutical products was introduced in May
2001, comprises 130 products which treat illnesses ranging from cancer, HIV/AIDS, hypertension,
diabetes, to allergies and asthma.
“Since 2001, the pharmaceutical division of the Company has also been collaborating with the Ministry
of Health in an effort to ensure that the Jamaican government has access to quality pharmaceutical
products at relatively affordable prices that are passed on to the Jamaican population.” 1
The Company has also expanded into an own branded line of vitamins, dietary supplements, and other
products.

LASD Business Model

Lasco Distribution Limited simply distribute products produced by Lasco Manufacturing along with
other branded products. Due to ease of entry and exit from the distribution industry, which results in
intense competition, the distribution business is a low margin business that depends on high volumes of
turnover.
Lasco brand is known for low price, and therefore Lasco will experience even lower margin than the
competition if it is not able to reposition itself.
High volume, product branding and product differentiation are the main driver of Lasco distribution
businesses.

Economic outlook
Wholesale and Retail Industry Information from STATIN price the Wholesale and retail industry as a
$316.6 billion industry, representing little over 17% of real GDP. The sector grew 5.9% in nominal
terms for the fiscal year ending March 31, 2019.

1
Prospectus

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LASCO DISTRIBUTOR LTD (LASD)
Company Analysis

Porter’s Five Competitive Forces

The wholesale and retail industry is highly fragmented; competition is severe resulting in a price war.
The competitive environment is worsen by low barriers to both entry and exit. In addition, the
wholesaling of commodity product transfer the bargaining power away from suppliers to consumers. As
a result, players within the Wholesale and retail industry experience very low margin. Solutions to this
low margin are 1) high turnover, and 2) development of household brands for which one can charge a
higher markup.

Table 1.0 LASD SWOT Analysis

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LASCO DISTRIBUTOR LTD (LASD)
Company Analysis

Financial Analysis
Income Statement
Figure 1.0

In FY 2019 revenue increased 11.44% to $18.61 billion.

Cost of goods sold went up 11.33% to $14.58 billion.
Gross profit added another $377 million to settle at $3.49
billion. Gross profit margin remained stable at 19.5%.
Gross margin has seen a rise over the last three years.
For the six month ending September 2019, revenue grew a
mere 7% over similar period in 2018. Gross profit margin
remained stable at 20%, similar to the corresponding period of 2018.
According to management, “The company gained market share in core categories of liquid beverages,
food and personal care…Negotiations with key suppliers provided better pricing and sourcing
arrangements which also positively impacted our gross profit position.”

Figure1.1

Over the period 2016/2019 operating expense has increased

both in absolute terms and as a percentage of revenue.
Operating expense increased to $2.9 billion in 2019. Of this
amount, $2.2 billion was spent on administrative cost and
only $775 million on selling and distribution. Investment in
marketing and distribution has increase 37%, reflecting a
conscious effort by management to “reach more customers
delivered gains in putting our products on the shelves of
more retailers and in the hands of more shoppers.”
Figure 1.2

Operating profit experience a 35% fall off from

2018 of $1.08 billion to a $705 million in 2019. The
$377 million increased recorded in gross profit in
2019 was totally wiped out by a combination of
reasons. Other income dipped by $259 million,
attributable to $273 million proceeds from the Pfizer
award in the prior year.

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LASCO DISTRIBUTOR LTD (LASD)
Company Analysis

Operating expense increased $491 million. As a result, operating profit margin dipped to 4% from the
7% recorded in 2019. In represent an all-time low within a decade.
For the six months ending September 2019, operating profit fell from $502 million to $440 million.
Operating profit margin was 4.68% (2019), 5.72% (2018).

Balance Sheet
For FY 2019, the firm plowed back $581 million into operation. Of that amount, $353 million went to
funding Property plan and equipment.
Debt increased by $120 million in 2019. The firm reduce its long term debt obligation while increasing
its short term debt year over year. Short term loan increased by $200 million. The firm repaid $80
million of its long term loan.
Also, Inventory fell off by $15.8 million. Cash fell by $257 million. As at September 2019, the firm sits
on $1.3 billion.

Table 1.1

All current ratio improved

marginally over the last three
years, even as inventory dipped
and the firm depleted its cash
balance. Cash balance reduced
24% or by $408 million in FY 2019.
For the six month ending September 2019, inventory inched up only 1% but still remains below 2018
inventory level of $2.55 billion. As at September 2019, the firm need to repay over $246.67 million by
March 2020.
Table 1.2

All the turnover ratio remain

relatively stable over the last three
years. The firm tightened up on its
collection while its suppliers
tightened up on it. Inventory fell
off even as inventory dipped over
the 2019 period. the firm took longer to turn its inventory into cash.

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LASCO DISTRIBUTOR LTD (LASD)
Company Analysis

Branding
Over the last few years, the Lasco brand has loss value, and management seem to be oblivious to this
fact. As such, instead of individually promoting different brands, management continue to rely on the
Lasco name to deliver what it used to in the past.
Besides, Jamaican associate Lasco with low price and it will be difficult to now charge higher price for
its product. This is the reason why Lasco margins remain low relative to its main competitors.
Additionally, the firm continue to brand its other products with the Lasco name, thereby capping the
amount of premium it can generate from each product.
Management simply needs to dissociate other brands from the Lasco brand. Brand such as Icool is able
to stand on its own; however, management continues to link it to the Lasco name. Jamaican love Lasco
for food drink product. Management attempt to cross the brand into beverage is costing shareholders.
A brands value is directly related to the amount spend to keep it alive in consumers mind. Over the
period 2013/2019 Lasco spend an average of $682.46 million per annum on selling and promotion,
relative to Wisynco’s annual average of $4.27 billion.

Segment Report
LASD reports in two segment: 1) consumer Division and 2) pharmaceutical. More than 80% of revenue
flows from the consumer division segment; with the segment accounting for a similar portion of net
profit. Net profit from the consumer division fell 35% however for 2019.
Net profit for the pharmaceutical fell off 60% for FY 2019. The segment contribution to net profit also
fell from 22% to 15%.
Figure 1.3

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LASCO DISTRIBUTOR LTD (LASD)
Company Analysis

Pharmaceutical products reported a profit margin of 9% in FY 2018; this fell to 3% in 2019. A similar
trend pursued for consumer division but at a less pronounce rate. Net profit margin fell from 6% to 3%
from 2018 to 2019.
Even though Lasco has a full pharmaceutical division its margin continues to lag that of competitors.
Two reasons account for this 1) pharmaceutical is dwarf by consumer segment 2) Lasco partner with the
government to keep prices down to the general public for a lot of pharmaceutical product.
Asset turnover for both division trend upwards though marginally. Consumer division turnover was
twice that of the other segment.

LASD Diagnosis
 Management fail to adequately invest in new brands. They are relying on pass success of the
Lasco brand. Lasco spend less than half what Wisynco spend on promotion over the last five
years.
 Jamaica love Lasco for food drink and low cost, therefore repositioning the Lasco brand away
from this segment to premium beverage will be difficult. Management simply need to develop
other brands for this segment and not associate these new brands with the Lasco name.

 Growth in the Pharmaceutical segment is anemic, which could also be as a result of product
association with the Lasco brand.

Valuation

The firm simply needs to focus on branding. It needs

to redirect its funds away from administrative
expenses towards selling and distribution.
As of the date of this report, LASD was trading at a
price of $3.13. PrivateInvestorJa.com (PIJA) believes
this stock is undervalued. Our thinking is, the firm
does have a fundamental issue but it is an issue that
can be easily resolve. As such, we see the stock
trading well above its current price over the medium to long term. PIJA sees LASD as a BUY.

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LASCO DISTRIBUTOR LTD (LASD)
Company Analysis

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All information contained herein is obtained by privateinvestorja.com from sources believed by it to be accurate and reliable. All opinions and estimates
constitute the Analyst’s judgment as of the date of the report. However, neither its accuracy and completeness NOR THE OPINIONS BASED THEREON
ARE GUARANTEED. As such NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF THIS
REPORT IS GIVEN OR MADE BY PIJA IN ANY FORM WHATSOEVER.

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