Zorbas profits decline, targets reduced

A. Zorbas & Sons Public Ltd. (ZRP.CY) issued its 1H 2008 results posting a 50.2% decrease in profitability to EUR 602.000 compared to EUR1.2 mln profit reported in 1H07. The Board of Zorbas issued a negative profit warning for its FY08 financial results, expecting full year 2008 results will be lower compared to 2007. EPS stood at EUR 0.0394.
Total sales increased 16.3% to EUR31.7mln due to higher number of retail outlets operating in the period (49 vs. 46 in 1H07) and the increased variety of products offered by the Company.
Despite elevated fixed costs associated with the commencement of operations of a section in the new production, as well as further increases in other production costs, gross profit advanced by 11% yoy to EUR 11.6 mln. However, gross profit margin came in lower by 170bps to 36.6% in 1H08 from 38.3% a year ago. Total operating expenses were up by 17% to EUR 10.6 mln, while as a percentage of revenue they worsened by 20bps to 33.6% in 1H08.
According to Management, the Company did not fully transfer the increased costs to its customers and hence being hit at the gross margin level. Finance costs increased to EUR252k from EUR99k.