KARACHI, March 2: Cement sector profits declined 62 per cent in the first half of fiscal year 2007 (July-Dec) compared to the same time last year.

The recently declared financial results of the listed cement companies for the first six months of the current financial year were all too gloomy.

Taking figures of 18, out of the total 21 listed cement companies, which represented 91 per cent of the total Rs105 billion (US$2 billion) market capitalisation, analyst at JS Global Limited, Atif Malik arrived at the cumulative numbers. The three listed companies not included were Dandot, Mustehkam and Pakistan Cement, for their results have not been announced as yet.

The cumulative profitability of the 18 sample companies stood at Rs2.21 billion (US$36 million), which represented a decline of 62 per cent over the first half of fiscal year 2006 combined earnings at Rs5.81 billion (US$96 million).

Installed capacity of the cement sector increased dramatically to 23.9 million tons for the six months under review, from 16.6 million tons in the comparable half of the last year, as companies went into huge expansions.

Cement dispatches for the half year under review stood at 8.8 million tons, which reflected a 20 per cent increase over 7.3 million tons in the same time last year; capacity utilisation was down to 74 per cent from 88 per cent.

The most interesting number was the net profit margin which shrank to just nine per cent, from 22 per cent in the similar six months of earlier year.

Net sales of cement sector registered a drop of three per cent to Rs25.8 billion, from Rs26.6 billion in the first half of last year.

Gross profit plunged by 46 per cent to Rs5.6 billion, from Rs10.4 billion in the same time last year. Gross profit margins slipped to 22 per cent, from 39 per cent.

Profit before tax (PBT) of the cement sector witnessed a 67 per cent drop to Rs2.7 billion, from Rs8.0 billion and profit after tax (PAT) decreased 62 per cent to Rs2.2 billion, from Rs5.8 billion.

Are the cement companies making exorbitant profits? That at least is not represented by the accounts and per ton analysis figures.

Net retention price was shown to have gone down by 19 per cent to Rs2,944 per ton for the period under review, from Rs3,640 in the first half of year 2006, while cost of sales rose by four per cent to Rs2,310 per ton.

“Thus with falling retention prices and increased cost of manufacturing, per ton gross profit evidenced a hefty decline of 55pc amounting to Rs634 per ton.”

Analysts said in spite of the rising sales volume, net sales had decreased by three per cent mainly due to lower cement prices, whereas gross profits went down by 46 per cent on the back of lower retention prices by the producers.

In the first half of year 2007, with new capacities coming on line, there was a glut of the concrete, which sparked a price war.

This led to lower retention prices, which in turn pushed gross margins down.

Almost all of the mentionable companies in the sector showed a fall. Diluted earnings per share (eps) at D. G. Khan Cement worked out at Rs3.37, reflecting a 25 per cent drop from Rs4.47 earned in the same time last year.

The largest among the lot, Lucky Cement’s eps slipped seven per cent to Rs3.01, from Rs3.25.

Fecto Cement registered the single largest decline in eps by 92 per cent to Rs0.47, from Rs5.94.Maple Leaf followed with an 80 per cent decrease in eps to Rs0.37, from Rs1.81 and Kohat showed eps at Rs1.08, down 71 per cent from Rs3.71.

Earnings per share of Cherat Cement also was noticeable 69 per cent to Rs1.18, from Rs3.75.

The rare exceptions were Attock Cement, which saw its eps increase by 38 per cent to Rs6.91, from Rs5.01 and a 222 per cent (though lower in terms of absolute numbers) rise in eps to Rs0.79 at Dadabhoy Cement, from Rs0.24.

Going forward, analysts thought that for the third and fourth quarter of fiscal year 2007, cement companies might post better results, mainly due to increase in cement prices from Rs170 per bag in the second quarter of fiscal year 2007 to Rs220 to 240 per bag, currently.

The demand also peaked in the summer season. “For full year FY07 we expect sector to post 30-35per cent decline in profits”, analysts said.