A. Zorbas & Sons Ltd., one of the island’s largest bakery products producer and retailer reported its first decline in net profits during the first half on the back of higher labour costs as the new collective agreements were renewed and higher fuel costs as oil prices raced to a new record.
Total turnover was up 15% to CYP 13.74 mln in the first half of 2005 from CYP 12 mln a year ago in the same period, mostly because of the addition of new stores, while the company failed to provide a breakdown of how its existing stores, open at least 12 months fared.
Gross profit was up at CYP 5.4 mln from CYP 4.76 mln with the gross profit margin at 39.3% in H1’05 from 39.65% in H1’04. Administration costs raced 21% year-on-year higher to CYP 909k from CYP 752k while sales and distribution costs surged 26% y/y higher to CYP 3.17 mln from CYP 2.5 mln before.
The sharp increase in costs forced the pretax profits to fall to CYP 1.36 mln from CYP 1.51 mln a year ago, while net after tax profits fell 9% to CYP 1.199.000 during the first half of 2005 compared to CYP 1.315.000 in the same period a year ago. Earnings per share fell to 7.84 cent from 8.6 cent a year ago.
The company blamed the profit decline on payroll increases as it renewed its collective agreement with staff in February 2005 and increased the minimum pay. A sharp increase in fuel costs also hurt the net results.
Despite the decline in first half profits, Zorbas issued a positive profit forecast, informing the investing public that its full year results would record an improvement compared to the net profits of CYP 2.45 mln recorded in 2004.
Quarterly decline
The second quarter figures released by Zorbas showed an even worse performance as net profits dived 30% to CYP 481.000 in the Q2’05 from CYP 684.000 in the Q2’04. During the second quarter, total sales were up 13% to CYP 7.18 mln from CYP 6.34 mln in the same period a year ago. Earnings per share in the second quarter fell to 3.14 cent from 4.47 cent previously.
In the balance sheet, while the level of stock was stable at CYP 1.5 mln, debtor balances surged to CYP 1.8 mln from CYP 1.2 mln at the end of the 2004, confirming the difficulties in collection of overdue balances in the retail sector. Cash and bank balances were stable at CYP 2 mln, while shareholders funds were unchanged at CYP 10.2 mln, which forced the book value per share to decline to 0.6536 from 0.6943 at the end of 2004.
Cash flow from operations was slightly down at CYP 1.72 mln from CYP 1.96 mln, while the company spent CYP 1.5 mln on purchasing new equipment and machinery for its stores. During the second quarter, the company also paid CYP 1.14 mln in dividends.
