Qualceram profit drop offset by one-off gain

A decline in sales and a delay in restructuring reduced operating profits at Qualceram Shires by over 50 per cent in the six months to June 30th, but the poor results were offset by a one-off gain from the sale and lease-back of some UK properties.

The ceramics specialist reported yesterday that first-half turnover was €49.1 million, down 4 per cent on the same period in 2002, when sales reached €51.2 million.

Profits before tax almost doubled to €3 million from €1.54 million. However, an exceptional gain of €2.66 million from the sale last April of some UK properties for €30 million boosted its pre-tax profits.

The sale reduced the company's debt burden by €28.2 million and almost halved its debt-to-asset ratio from 128 per cent to 65 per cent.

The accounts show that operating profits were cut by more than 50 per cent to €1.9 million from €4 million in 2002. Basic earnings per share (eps) were 11.56 cent, an 80 per cent gain on last year's earnings of 6.29 cent.

However, NCB analyst, Mr Murray McCarter, pointed out that adjusting for the one-off gain, eps was 0.9 cent, well below the broker's 8.3 cent prediction for the first half. The board did not recommend the payment of a dividend.

The cost of sales increased marginally to €34.2 million to €33.7 million, while operating margins were slashed from 8.5 per cent last year to 4.5 per cent. Operating expenses were €12.96 million during the period as against €13.3 million last year, while gross profits of €14.9 million in 2003 compared with €17.5 million in 2002.

Qualceram blamed the inclusion of extra fixed costs caused by the delay in closing its Stoke-on-Trent facility in the UK and the inclusion of rental charges in the cost of sales figure for the poor operating margin. The rents were paid on the sold and leased-back UK properties.

In a statement, chairman Mr Sean Henneberry said the impact of currency translation on sterling sales (caused by the euro's appreciation during the first half) and a flat performance in the UK accounted for the 4 per cent decline in sales.