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Chinese Central Banks Decisions Affect Jumbo

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Jumbo administration is concerned by the interest-rate policy of the Chinese Central Bank. The fourth consecutive rise of interest rates since October 2010 and the estimates of analysts for at least another two upward interventions until the end of the year have put the administration on alert, since 80% of products traded are imported from China. 

Under the policy of inflation risk restrain, the Chinese Central Bank has the base interest rate at 6.31% from 6.06%. The markets have anticipated at least another two increases of around 25 basis points in 2011, which might affect the gross profit margin of Jumbo, according to Proton Bank analysts. 

According to the publication of six-month results, Jumbo has absorbed the increases in VAT in Greece and decided not to adjust upward the prices of its products. This resulted to a decline of gross margin to 50.28% from 51.86% in the first half of the fiscal year 2010/2011. 

However, the decrease in gross margin was lower than administration’s estimates for the current year as the strengthening of euro against dollar and lowering of transport costs contributed as counterbalancing factors. 

A recent Piraeus Securities report referred on the margin figures of the group, focusing on VAT increases, inflation in the cost of products sold in Asia and the strengthening of dollar. 

However, the group faces a currency risk with the strategy of early storage, which provides the ability to purchase large stocks of products at favourable prices and enable review of current pricing. 

Jumbo is already following a policy of reducing of stocks, as they stood at €139.39m from €176.44m, representing 17.15% of total consolidated assets (from 23.97% in the previous period).
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