Orphanides Pcl (ORF.CY) issued its 1Q08 results, posting a 16.8% YoY decrease in
net profit to EUR 618.000. EPS stood at EUR 0.0076. Revenue was up 20.6% y-o-y to EUR 36.8mln. Despite the competitive environment governing the retail sector, the improvement in revenue reflects the increased number of stores in operation and the company’s continuous efforts to advertise and promote its products, and offer them at more competitive prices to its customers.
Gross profit in 1Q 2008 was up 27.8% to EUR 6.9mln, with the gross margin increasing to 18.8% from 17.8% in 1Q 2007. The improvement in the gross margin reflects the 20.6% increase in revenue compared with a 19.6% increase in cost of sales, as well as the company’s continuous efforts to adjust its sales mix in favour of own-brand and directly imported products that yield higher returns.
Other income (primarily rental income and advertising fees) was up 28.3% to EUR 1.5mln. Selling and administrative expenses were up 45.6% to EUR 7.0mln, mainly due to the company’s continuous efforts to advertise and promote its products due to the increasing competition in the market. Increased staff costs due to the increased number of
supermarkets in operation. Increased electricity costs due to the increased number of supermarkets in operation and the higher energy prices. EBIT margin worsened by
200bps to 4.1%.
On the other hand, the bottom line had a positive impact from lower net finance expenses and lower effective tax rate from 17.8% to 12.1% in 1Q08.
3-YEAR STRATEGIC PLAN
The company’s vision is to expand its activities by increasing its competitiveness through systematic quality improvement in a responsible and caring organization. The company indicated that its plan includes the addition of at least 8 new supermarkets on its chain in the period 2007-2009 through organic growth and acquisitions.
Regarding ORF’s land held for development, analysts at Sharelink Securities and Financial Services estimate that the vast majority of this land will be used for the organic growth of the Company. This is evidenced by the reclassification in the financial statements of the Group, of land of EUR19.8mln from investment property to fixed assets at the end of 2006.
Land held for development and classified as investment property in the Group’s financial statements amounted to EUR 9.9m on 31 March 2008. It should also be noted that at the end of 2007, the company proceeded with a revaluation of its land and buildings with a revaluation surplus of EUR 48.0mln (net of deferred taxation) transferred to reserves.
Consequently, shareholders funds on 31 December 2007 increased to EUR 141.5m from EUR 92.2m on 31 December 2006. Shareholders funds amounted to EUR 142.1m on 31 March 2008.
Sharelink analysts say the most important project to mention is the construction of a shopping mall in Pafos of a total area of 7,000sq.m, in which ORF will operate a 5,000sq.m supermarket with a parking space of up to 600 cars in 2008.
The Company’s Management also indicated that all the other additions will relate to much smaller supermarkets compared to the aforementioned one in Pafos, with an annual revenue contribution of EUR 1.7m- EUR 2.1m each. ORF’s 3-year strategic plan is also evidenced by the acquisitions of a number of supermarkets in Nicosia (Ayios Dometios, Dali, Geri and Palaiometoho) and in Larnaka, over the past 12 months. However, we maintain a conservative view as to the profitability contribution of these additions and the future plans, as competition in the retail sector is fierce.
Sharelink are forecasting profit after tax for 2008 at EUR 4.1 mln, but they are maintaining their price target at EUR 0.50 per share.
On 21 May 2008, Orphanides announced that it has been informed by QVT Fund LP that the latter held 10.61% of the share capital of the company. The major shareholder of ORF is its founder and executive Chairman, Christos Orphanides with a 60.52% stake.
