Anhui conch sees profits tumble

Anhui conch sees profits tumble
Published: 25 August 2005

Government-imposed anti-inflation measures and soaring energy costs dealt a huge blow to the profitability of Anhui Conch Cement, China’s largest cement maker, in the first six months of the year.   Net profit plummeted 88.49 per cent to 91.41 million yuan, despite a 19.12 per cent rise in sales to 4.51 billion yuan.   Demand for cement was affected by slower growth in fixed direct investment, while competition in cement prices remained fierce in the group’s main markets of Shanghai, Zhejiang, Anhui and Jiangsu.  
Company secretary Zhang Mingjing said yesterday the operating environment would continue to be as difficult as it had been in the first half.  "We have seen no signs of relaxation of macroeconomic measures," Ms Zhang said. "We are hoping for a better second half as the peak season comes in winter, while we will try to minimise operating costs." 
The combined impact of stiff competition, lower demand and hefty rises in energy costs more than halved the group’s gross profit margin to 19 per cent from over 40 per cent previously, she said.   She expected the gross profit margin to be sustained at about 19 per cent on a full-year basis.  
Like other cement makers relying heavily on coal and electricity in production, Anhui Conch saw its coal costs surge 43 per cent and electricity charges increase 7 per cent in the first half.   "Coal costs eased a bit at the beginning of this month, coming down 5 per cent from the first half," Ms Zhang said. "But electricity costs show no signs of improvement."   She added that the company’s cost-control efforts would be stepped up following a 74.22 per cent rise in finance costs to 201.77 million yuan as a result of higher interest rates.   The firm’s distribution costs more than doubled to 335.41 million yuan from 158.56 million yuan in the same period last year and there was an 83.92 per cent jump in the cost of sales to 3.64 billion yuan.  
The fierce competition in cement prices was reflected in much sharper growth in sales volume of cement and clinker - up 66 per cent to 24.21Mt in the first half - compared with the growth in sales value, which rose 19.12 per cent to 4.51 billion yuan.  
"Cement prices in the Yangtze River delta region were sharply lower even after a mild recovery in the second quarter of the year," Ms Zhang said. "But there is light at the end of the tunnel as we have seen the decline stabilise since July."   Ms Zhang pointed out that cement prices in southern China, where the group would seek to expand its sales network, were relatively stable.   Anhui Conch’s profit margin in the eastern China region were 10 percentage points lower, at 19 per cent, than it was in southern China.  
Despite its poor performance in the first half of the year, Ms Zhang said the group was pressing ahead with a capital commitment of between 600 million yuan and 700 million yuan to raise production capacity in the second half.