Big Headache: Medical Disposables and the Covid hangover

 



 Kurt Boothe, CEO of Medical Disposables and Supplies Limited said in the company’s report for the six months ended September 30, 2024, that MDS will have to take remedial action to collect money owed by government.


Medical Disposables Group is a supplier of surgical devices, offering products including surgical devices and items needed for one time use such as bandages, hypodermic needles, exam gowns, face masks and gloves

Most of the sales through the medical division are to government institutions, there has been a slowing in collections, causing an uptick of $44 million in receivables year on year.

Addressing receivables and the continuous pursuit of new business opportunities to drive inorganic growth, he said, as well as cost containment and reduction remain priority areas for the Group.

Chairman Winston Boothe said in the December report on the company’s annual performance for the Financial Year ended March 31, 2024, that the period was perhaps, the most challenging year for the company for since its listing on the Junior Market of the Jamaica Stock Exchange in December 2013.

The medical distribution company listed on the JSE ten years ago. In comments released in the annual report on December 23, 2024, he outlined, “During the period under review, we continued our efforts to recover from the lingering adverse economic effects of the Covid 19 Pandemic period, during which the Company experienced supply chain and other logistics issues which resulted in significant increases in freight and other related costs, all of which still obtain.”

Arising from the supply chain and logistics disruptions which occurred during the period of the pandemic, a decision was taken to increase inventory levels, for the continuity of Medical and Pharmaceutical supplies to customers.

However, the heightened increases in inventory levels which followed, along with the effect on operating cash flows made it necessary to increase borrowings with the concomitant increase in finance cost which resulted.

At the same time the increase in inventory levels resulted in overstocking when the pandemic came to an end, making it necessary for a significant inventory adjustment against profits of the financial year.

In the management discussion the company clarified: “The year in review was saddled with inventory issues stemming from the residual effects of the pandemic period. Continued supply chain hinderances during this period resulted in severe overstocking that in turn plagued company performance in a number of areas.

“Much of this inventory had to be liquidated with heavy discounting which affected top line margins, while a large portion of stock was written off as expired, which also anchored the bottom line. Management took the decisions to move forward nevertheless with renewed vigour towards recovery, once these hurdles have been cleared. “

Total sales remained relatively consistent over the previous year, dipping from 1.6 per cent to $3.7 billion.

An increase in marketing activity, trade deals, and promotions driving up the selling and promotional expenses.

Management said, “It is important that while we seek to penetrate new areas, that we also ensure that we protect our current market share and shield against our rivals.”

Increased operational expenses coupled with top line margin reductions presented an operating loss of $1.7 million. Finance costs had a major impact on bottom line positions with a 53.5 per cent increase to $159 million. The net losses of $315 million resulted from the accumulative down turn but included $123.8 million of stock write offs of expired inventory from the overstocked items that were not liquidated.

Total assets were reduced by $288.5 million to $2.7 billion as a result of a targeted inventory reduction of $375.7 million deemed overstocked from the COVID period.

Notably, the MDS Group achieved total sales of $1.88 billion for the six months ending 30 September 2024.

This represented growth in sales of $87.97 million or 4.91 per cent over the comparative period of the prior year, supported by a $152 million or 73 per cent increase in sales through the medical division. However slow collections from government is a challenge.

The sales for the pharmaceutical and consumer divisions were again severely affected by supply chain challenges during Q2 and diluted the overall sales performance for the first half of the FY.

Gross profit fell by $15.47M or $3.4 per cent for the six months ending September 2024 because of the lower sales revenue in most divisions,

Total assets of the Group stand at $2.8 billion as at 30 September 2024, having fallen by $179.64 million or 6.02 per cent year on year.

Kurt Booth said that the group commenced a reduction of its debt in Q1 and will continue to do so in the ensuing months.

He concluded, “This will contribute to an overall reduction in finance costs. Management has taken corrective action to address issues with stock as far as is possible. With the investment in sales and merchandising personnel, the company is moving to capitalize on the various selling and distribution opportunities to increase sales revenue and improve gross margins.”

 

Photo Credit: CEO of Medical Disposables and Supplies Limited Kurt Boothe. MDS Photo.

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