Cost increases burden Zorbas

A. Zorbas & Sons Public Co. Ltd. (ZRP) reported a 7.8% decline in net profit for the first nine months of the year, with results burdened by a sharp increase in labour and energy costs.

Total turnover increased by 16% year-on-year to CYP 22.1 mln from CYP 19.01 mln a year ago on the back of the increase in the total number of retail outlets to 35 from 31 a year ago in the same period.

Bakery & confectionery sales were up 7.6% y/y at CYP 13.01 mln, but as a percentage of total sales fell to 58.8% from 63.5% a year ago. Other products surged 22% higher to CYP 6.96 mln, kiosk retail product sales were up 53% at CYP 1.2 mln while sales from the installation and maintenance of refrigerated products were up 111% to CYP 916.000. Gross profit advanced by 12.5% YoY to CYP 8.4 mln but the gross profit to sales margin deteriorated by 130bps to 38.15% from 39.28%.

Total expenses increased by 23.7% to CYP 6.35 mln with administration expenses up 20.6% at CYP 1.36 mln and sales & distribution up 25% at CYP 4.99 mln amid rising fuel and electricity prices, as well as higher labour costs and deprecation charges stemming from the increase in the number of retail outlets and new production units.

The company blamed the renewal of the three-year labour contacts, the increase in the min. wage from CYP 330 to CYP 390 as well as higher energy prices for the deterioration in results.

Operating profit were CYP 2.14 mln from CYP 2.42 mln while financing costs were stable at CYP 61.000. Pretax profit were CYP 2.07 mln from CYP 2.35 mln, while net profit after minority interest was down 7.8% at CYP 1.871.000 for the first nine month of 2005 compared to CYP 2.029.000 net profit a year ago in the same period.

Earnings per share were reported at 12.23 cent against 13.26 cent in 9M05. Based on the stock’s annualised EPS and latest closing price of CYP 1.31, ZRP trades at a P/E ratio of 8x. Book value based on the number of outstanding shares improved to 70.75 cent according to Financial Mirror calculations.