AL Ahram Beverages has issued a profit warning regarding fiscal year 2001 results ending December. ABC has confirmed that the primary factor necessitating a change in outlook comes as a result of the Egyptian government’s newly finalized sales tax agreement, concerning transfers between production and distribution entities. In short the new legislation has increased the transfer price by 9.4 percent, effectively reducing net consolidated prices.
ABC enjoys the position of intra company sales tax savings on its wholly owned distribution subsidiary Reach, which will in part partially offset the sales tax effect. However, the company estimates the total impact of the taxation change to be LE19 million on sales and operating income, and LE11 million on net income in FY01.
Moreover, ABC has reported that alcoholic beverage volumes have increased at a slower pace than expected as a result of decreased tourist arrivals into Egypt, which traditionally accounted for 15 percent and 85 percent of the company’s beer and wine volumes, respectively. Not withstanding, ABC has undertaken price increases on a number of key products in the year, which has further proved detrimental to total volume growth.
In the related press release the company further commented on the fact that having begun integrating El Gouna Beverage Company in the 2Q of this year, operational cost savings have yet to fully offset the cost of financing the acquisition. Finally ABC’s SG&A expenses increased during the first half of 2001.
Accordingly the company estimates that sales for the first half of 2001 results will witness a 20 percent year on year growth rate, with that figure increasing to 30 percent by December 2001. ABC’s operating income is expected to fall 3 percent in the same period and grow approximately 20 percent for the full year. EBITDA has been estimated to reveal a 30 percent year on year growth, while 1H net income is expected 11 percent down over last year. Finally, full year net income has been forecast to come in flat.
Prime Securities S.A.E.
© 2001 Mena Report (www.menareport.com)
