Yesterday, Michal Solowow, the controlling shareholder of Cersanit
gave few more details regarding company’s further expansion in Ukraine and Romania:
Production in the Ukrainian factories should start only in the beginning of 2008. The first phase of the investment (7m m2 of ceramic tiles and 1m pieces of sanitaryware) should cost EUR 99m and will be financed mostly from the EUR 80.8m loan from EB
RD. The loan will comprise an ‘”A Loan” of EUR 40.4m for the bank’s own account and a “B Loan” of also EUR 40.4m which will be syndicated to commercial banks. Accor
ding to Michal Solowow, in spring 2008, Cersanit
will start the second stage of the investment, which is expected to double the capacity at the cost of EUR 50m. In 2008, the revenues from Ukraine should come in at PLN 300m and the investment should be profitable.
In line with earlier statements, the sanitaryware capacity of Cersanit
’s Romanian subsidiary Romanceram, should increase to 1m pieces. Cersanit
also plans to launch a production of tiles in Romania, with the target capacities and in stages similar to Ukraine. Michal Solowow has not given any more details or timeline of this investment.
According to the daily Puls Biznesu, Cersanit
also considers launching production in Russia, which should start soon.
Our view: The information regarding timeline and capex of the Ukrainian project is disappointing and is expected to trigger a slight downward revision of our 2007 earnings forecast and a significant upward revision of our 2007-2008 capex assumptions. We were expecting the production in Ukraine to start in 4Q07 and generate 2007 sales of PLN 62m (4.4% of total) and EB
IT of PLN 13m (5% of total). Please note, that originally Cersanit
planned to start Ukrainian operations in 2Q07. Our forecast of PLN 330m sales generated by Ukraine in 2008 is 10% above the stated plan of PLN 300m. The capital expenditures stated by Michal Solowow are almost twice as high as we expected (PLN 200m in the first stage), which was originally stated by the main shareholder and confirmed by the company. As far as Romania is concerned, we have not assumed production of tiles in Romanceram, however the news comes as no surprise to us as the Romania and Balkan countries are very promising markets. The news is not likely to trigger us to increase long term capacities as we have assumed constant expansion in both main businesses to reach target capacities stated several months ago by Michal Solowow (100m2 of tiles and 10m pieces of sanitaryware).