Vassiliko Cement Works Pcl (VCW) reported a strong set of first half results with net profit increasing by 21.1% YoY to CYP 4.09 mln on the back of higher sales and better cost controls. The main driver of profitability was the satisfactory growth in total sales from cement and clinker sales in 1H06, mainly driven by price effect rather than volumes, according to Egnatia Financial Services.
Total Company sales exhibited a strong growth of 12.8% YoY to CYP 24.9 mln, primarily driven by increased export sales (CYP 3.3m: +103% YoY) and higher local sales (CYP 20.8m: +6% YoY).
Total quantities of cement and clinker sold increased to 755k tons vs. 677k tons in 1H05, (+11.5% YoY) with the increase resulting from higher export sales. Local quantities of cement and clinker sold remained stable on a YoY basis at 588k tones, whilst VCW’s export sales marked a sizable increase to 167k tons (vs. 91k tons in 1H05). Total consumption of cement in the local market declined by 1.5% YoY in 1H06 to 810k tons.
Average sale price for local sales of cement rose to CYP 35.4 per ton (vs CYP 33.4 per ton in 1H05), whilst the average selling price of export of cement hiked to CYP 19.9 per ton vs CYP 18.0 per ton in 1H05 and CYP 18.4 per ton in FY05.
Despite the increase in gross profit in absolute terms by 6.6% YoY, gross profit margin fell by 150bps to 26.7% primarily due to changes in sales mix towards the lower yielding export sales as well as higher energy prices. Rising energy prices and exceptionally higher depreciation costs (+151% YoY) burdened operating expenses (CYP 2.1m in 1H05 to CYP 2.6m in 1H06).
At the bottom line, the reversal of net finance charges recorded in 1H05 to a net finance income had a positive impact on Net Profit (+CYP 218k). This advanced to CYP 4.09m, up by 21.0% YoY (+14.9% divergence from our estimate), yielding an EPS of 7.6 cent against 6.3 cent in 1H05.
During 2006 the management announced its plans to double the capacity of its electricity plant to 10Mw that will lead to annual cost savings of CYP 0.6m. The new electricity plant will commence operations as of September 2006 and is estimated to cost c. CYP 1.5m. Additionally, VCW is examining the use of alternative energy sources in order to attain further cost st containment.
