New export markets lift Carbacid profit to Sh174 million
Mixed fortunes: Carbon dioxide manufacturer Carbacid posted losses on equity investments of Sh17.4million compared to a gain of Sh2.1million period last year.
Carbacid Investments Limited has reported a 27.7 per cent increase in net profit for the six months to January 31.
The carbon dioxide manufacturer earned Sh174.8 million up from Sh136.9 million posted during a similar period last year.
Carbacid also saw its revenues for the period increase by 63 per cent to Sh473.7 million, a growth attributed to export earnings from new markets.
“The increase in turnover was achieved by penetrating new export markets...which will continue to be developed further,” the company said in a statement.
The company, however, posted losses on equity investments of Sh17.4 million compared to a gain of Sh2.1 million in a similar period last year.
A renewed interest of multi-nationals in the region such as SABMiller with their brewery in Tanzania has seen the regional market continue to grow, offering manufacturers new opportunities.
Carbacid has also benefited from increased demand for carbon dioxide from food, beverage and flavoured juice makers a market, which is expected to grow as companies engage in regional expansion plans.
“The market for its products, particularly on its long-term supply contracts for Coca- Cola, continues to be a key earnings driver for the gas maker although regional sales are now likely to be at over 50 per cent,” said Standard Investment Bank (SIB) in an analysis of the company’s half year results.
The earnings are a marked improvement from those of a similar period last year when the company’s half-year net profit dipped by 12 per cent.
The slow down at the time was linked to a reduced demand for carbon dioxide from the non-beverage sector such as pesticide manufacture and water treatment.
Eric Musau, an investment analyst with SIB, added that the company is also keen on the Rwanda, Uganda and Tanzania markets edged on by the fact that one of their top clients.
East African Breweries Ltd is now operating its own carbon dioxide recovery unit – a move that is likely to reduce their marketshare. Mr Musau added that PepsiCo’s plans to enter the Kenyan market coupled with SABMiller’s intention to build a factory worth Sh6.6 billion in Uganda may cushion the carbon dioxide producer’s earnings going forward and spur more exports.
Despite the soaring cost of production that has continued to eat deep into sales of businesses in the region, Carbacid managed to reduce their operating margin by three per cent.
The company noted that the effects of increased direct costs mainly on fuel, electricity and staff costs weighed heavily on earnings during the period but management controls helped bring down the margins to 55 per cent.
Carbacid however warned that these factors would continue posing the greatest risk to their profitability going into the second half of the year.
“They will the major challenges to maintain margins in the second quarter of the year while currency movements will also impact on the results in the second half of the year,” the firm noted.
The company also has to contend with new competitors such as industrial gas manufacturer BOC Kenya who are the latest firm to announce intentions of beginning to manufacture CO2 in order to diversify its business and grow their flat sales.
BOC, which had tried to acquire Carbacid in 2005, follows in the footsteps of Spectre International and several sugar factories that are also looking to enter the carbon dioxide market.
The company however intends to invest in new equipment and transport facilities in the second half of the year to counter this expected onslaught.
Directors recommended an interim dividend of Sh3 per share, up from the Sh2 which they have paid out during the last two successive half year periods to January.
Carbon dioxide is used as a preservative in the manufacture of beer, wine and fizzy drinks and is a by-product generated during the generation of ethanol.
It is also used as a cooling agent and sterilisers as it inhibits the growth of micro-organism.
