China: Anhui Conch profits down 29% for 1H2016

In its trading statement for the first six months of 2016, Anhui Conch has reported that its net revenues fell one per cent YoY to CNY24bn (US$3.6bn), while profits slipped further, falling by 28.8 per cent to CNY3.4bn (US$506m).

The company noted that while Chinese demand for cement continued to grow in the first half of 2016, intense competition and overcapacity had had a negative effect on profits. However, a 13.7 per cent fall in costs - driven by lower prices for raw material, power, and labour - took the market by surprise leading the company's share price to rise by 3.6 per cent.

Deutsche Bank analyst Johnson Wan stated that the market expected Conch to have a strong Q4 that the expectations for the company's profits and revenues had been upgraded to reflect its better than expected performance in the first six months of 2016.

Anhui Conch and its Indonesian and Burmese subsidiaries brought three clinker production lines and seven grinding plants into operation over the period, raising capacity by 4.6Mta for clinker and 8.1Mta for ground cement.

Acquisitions within China raised clinker capacity by a further 5.4Mta and grinding capacity by 3.5Mta. At the end of the period, Conch's clinker capacity stood at 240Mta and its cement capacity at 300Mta.

Sales volumes for the period were reported as 128Mt, covering both clinker and cement. This represents an increase of 11 per cent YoY, which in turn implies falling prices given the slight decline in overall revenues.

In value terms, sales in East China fell by 8.6 per cent, and those in South China by 7.7 per cent. This was somewhat offset by by a 7.6 per cent increase in sales in Central China, while figures for West China remained flat. Export earnings rose by 34.6 per cent, albeit from a low base.