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Teraplast 2Q 2011 - Inputs inflation mixed with anaemic local demand

Teraplast Group released un-consolidated 2Q 2011 results under RAS, which include the figures for just the main entity of the group, namely Teraplast.

Sales lose growth momentum on local market contraction: On the back of weak demand on the local market, 2Q sales showed a deceleration from 1Q (+11% yoy) and inched 2.4% yoy to RON 61 mn, while we had estimated an 11% yoy increase. The company said 2Q exports (about 10-20% of total sales) continued to climb yoy, but did not provide the actual growth rate. Looking at the overall 2.4% increase, most likely sales on the domestic market showed a contraction in the second quarter. Sales of own production (about 75% of revenues) decreased by 9.4% yoy, while sales of merchandise climbed sharply by 54% yoy.

Raw materials and provisions hurt profitability: On the costs side, the price of raw materials (PVC, polyethylene and polypropylene) and of some additives increased significantly (between 12-60% yoy) and could not be entirely transferred down to the end-consumers as demand was weak. The company reduced personnel and salaries expenses decreased by almost 25% yoy. Teraplast booked losses of RON 2.5 mn related to doubtful receivables. Additionally, the company said operating expenses include RON 1 mn of penalties on overdue receivables, which would not recur in the following quarters. All these negative factors resulted in a negative operating result of RON 3.3 mn. Financial losses of RON 2.6 mn on higher interest expenses and FX losses on the EUR denominated debt (RON lost almost 3% against the EUR in 2Q) further sunk the bottom line.

Outlook and recommendation: We consider the 2Q 2011 figures as negative since sales lost momentum compared to 1Q due to sluggish activity on the local market. Although exports continued to increase, they were not able to give a major boost to sales. For the second part of the year, we expect an improvement in profitability as the prices of raw materials eased from May-June and as the company obtained lower prices on higher negotiated quantities as well. Although our model is based on IFRS consolidated figures, which include the results of Politub (PE pipes producer) and Plastsistem (producer of thermal insulating panels) that stand-alone figures indicate that we will most likely adjust downward our estimates, which would result in a lower target price. Our recommendation and target price are under review.

Sursa: http://www.rciro.ro

Tags: sales demand local teraplast

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