K.P. to stop stocking lines of unprofitable drugs

Press, Volume CXV, Issue 33933, 28 August 1975, Page 18

K.P. to stop stocking lines of unprofitable drugs

(New Zealand Press Association)

DUNEDIN.

Kempthorne Prosser and Company, Ltd, one of New Zealand’s major pharmaceutical wholesalers, is to stop stocking lines on which the company cannot earn a reasonable profit, because of controls or insufficient margins.

“We trust that public health does not suffer in the process, but your board has had enough of playing the role of Father Christmas to the pharmaceutical community,” the Chairman (Mr P. W. Fels) said in his review for the year to May 31. Although warehouse sales had increased $3.7 million, net profits in the warehouse division were substantially lower. Mr Fels said this was because of the continuing controls on profit margins — which have become quite unrealistic On some products — and a substantial increase in costs incurred for wages, and indeed in every respect of running the warehouses.

“Shareholders can no longer be expected to finance the stocks and book debts necessary for a fullline operation, and where we cannot get a reasonable profit on any line because of controls of any type, or insufficient margins, we will cease to stock that line.” Mr Fels said the company’s pharmaceutical laboratories were also severely affected by increased costs, and the manufacture of some lines would have to be discontinued.

Referring to fertiliser sales, Mr Fels said that there were only two months — June, 1974 and April, 1975 — when tonnage of

fertiliser sold exceeded that of the equivalent month in the previous year. Total sales for the year were 309,239 tonnes compared with 453,523 tonnes previously. “It is an unfortunate fact that the easiest farm expenditure to prune is that for fertiliser, and an unusually good growth of pasture in the districts served by our works undoubtedly influenced fanners in their decisions on cost cutting," Mr Fels said. The latest accounts confirm the preliminary announcement on profit, which showed a 48 per cent reversal — mainly because of a fall in fertiliser sales and an upsurge in nonrecoverable costs in the warehouse division.

Net profit for the year to May 31 was $733,789 compared with $1,409,695 in 1974.

The directors are maintaining the 12 per cent total dividend, by the payment of an 8 per cent final on September 12.

The 12 per cent dividend will require $537,129 and is covered 1.4 times by the profit. Eamings on shareholders’ funds have slipped from 11.8 per cent to 5.2 per cent in the latest year, and earnings on capital are down from 31.5 per cent to 16.2 per cent.

Capital has remained unchanged at $4,476,070; shareholders’ funds are up from $11,951,991 to $13,921,163 — largely as a result of a property revaluation which added more than $1.5 million to capital reserves. The results this year were based on total sales of $32,892,341 which was only a small increase of the 1974 total of $32,527,950. The company’s total gross profit including investment income slipped from $3,024,683 to $1,773,475. After depreciation of $498,580 ($472,856 previously) profit before taxati o n was $1,013,883 ($2,314,736).

The provision for taxation this year was $280,020 compared with $904,967 in 1974. However, the company has a total liability for tax for 1975 of $534,017 and this year an investment allowance of $93,839 has been taken into consideration in asssessing the taxation for the current year. The company says in a note to the accounts that the provision for taxation represents the balance of taxation provided in the accounts for the current year after deducting provisional tax paid, plus the instalments of deferred tax payable during the year to May 31, 1976. Provisional tax paid in excess of taxation provided in the accounts has been included in sundry debtors.