Kosovo builds profit in marble as ex-warzone turns to luxury
KOSOVO is more often associated with Balkan bloodshed than beauty, but British firm Fox Marble is trying to change those perceptions. The company operates marble quarries in Kosovo and Macedonia and its sites are home to some of the most highly prized stone in the world, including White Sivec, used to build the extraordinary Grand Mosque in Abu Dhabi.
Fox listed on AIM in 2012 at 20p and its shares are now 17¾p. At this price, they are cheap.
The group has suffered from investor suspicion of the Balkans and concerns that the business would never get off the ground. Fox has gone some way toward wrongfooting sceptics, proving that its quarries do house vast quantities of marble, the stone can be quarried and there is demand for it. This year, however, should be pivotal in terms of sales and profits and the stock’s price should respond.
Only last week, the group announced an order worth more than £400,000, supplying two types of marble to a prestigious Berkeley Homes development in London’s Chelsea. This follows a larger order from Berkeley just three months ago, highlighting the appeal of Fox’s products.
Fox was founded by two entrepre- neurs, Chris Gilbert and Etrur Albani. Gilbert made his name in the music business, co-creating independent record company Infectious Records in 1992, which was sold to News Corporation seven years later.
Gilbert went on to start several successful technology and music businesses, most recently a music publishing venture sold to private equity giant KKR and German media group Bertelsmann in 2009.
Soon afterwards, he teamed up with Albani, a UK-educated Kosovan with senior contacts throughout the country. Albani convinced Gilbert that Kosovo was more than just a wartorn nation and in 2011 the duo set up Fox Marble, after the Kosovo government offered them the licences to several prime quarries if they would establish a bona fide marble business and list it on the UK market.
Fox now has interests in 10 quarries in Kosovo and Macedonia, production is up and running and the group has orders worth more than £2million.
Most marble companies are privately owned and fall into one of two categories – they quarry and sell blocks of marble, or they process and sell polished slabs. Fox does both and is the only marble com- pany listed on a Western stock exchange.
The group currently uses a third party to process its blocks in Carrara, Italy, the centre of the marble industry. However, this summer Fox intends to take processing in house, opening a new plant in Kosovo itself. The move should have a big effect on profitability.
Marble blocks sell for about €250 (£181) a ton and cost Fox about €60 to extract. Even relatively ordinary processed slabs of marble sell for around €750 a ton, while top quality stone achieves prices of up to €3,000. Yet the cost of production is about €200, so the profit margins are substantial.
The early years have been tough for Gilbert and Albani, as they have not only had to convince cynical investors, but also potential customers that their marble is beautiful, hard-wearing and as good as the Italian gold-standard. Marble from Kosovan quarries was used in the White House in the US when the original building was constructed in 1792. Now more than two centuries later, Kosovan marble is becoming fashionable again, as businesses around the world begin to appreciate what Fox is offering.
The company also benefits from very low wage costs in Kosovo and a willing, well educated workforce.
Results for 2014 will be released on Tuesday and in January, Gilbert admitted they would be uninspiring, after the launch of the processing factory was delayed and a number of orders were bumped into this year. Revenues of €150,000 are expected, alongside a pre-tax loss of €2.5million (the company reports in euros because Kosovo uses the currency). This year, however, sales are forecast to soar to €6.8million and profits of €1.8 million are anticipated, while analysts have pencilled in revenues of more than €21 million and profits of €12 million for 2016.
Gilbert and Albani are significant shareholders and are keen to pay dividends as soon as appropriate, possibly as soon as next year. Encouragingly, too, Fox is chaired by Andrew Allner, who is also chairman of successful UK paving stone group Marshalls (tipped by Midas in April 2013 at 124p and now trading at 276p).
Midas verdict: Kosovo spent years in conflict and was only recognised as an independent nation in 2008, although its status is still rejected by Russia and Serbia. Such circumstances may not seem conducive to profitable business. However, Fox has made real progress, its marble is increasingly recognised as top quality and the shares are cheap. Adventurous investors should pick some up now.