Introduction: An Egyptian exporter

Transcription

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2 Corporate Summary

3 Introduction: An Egyptian exporter Lecico Egypt S.A.E. was founded in 1959 and has been majority owned by the Gargour family since 1969 The company has a global competitive advantage making European quality sanitary ware at Egyptian costs c45% of Lecico s sanitary ware sales volume is exported to Europe Lecico finished expansions in sanitary ware in 2007 which boosted capacity to 6.5m pieces of sanitary ware and fired clay In Summer 2010, Lecico began brassware production with a 300,000 piece per annum capacity factory In 2011 Lecico opened a new tile factory in Borg El Arab which reached 12.8m sqm capacity in 2013 (Total tile capacity 35m sqm) In 2016, Lecico took the step to reduce production capacities in Egyptian tiles and Lebanese sanitary ware and to stop tile production in Lebanon to match demand In 2019, Lecico is beginning a restructuring of Lecico Lebanon to further cut production in Lebanon and unlock value from asset base Split of domestic and export 1 Split of sanitary ware and tiles 1 Borg El-Arab Established 1997 Sanitary ware capacity 2.0 million pcs million pcs end 2007 Tiles capacity 6.4 million m 2 mid million m 2 mid 2013 Brassware capacity 0.3 million pcs mid 2010 Kfarchima Established 1959 Sanitary ware capacity: 200,000 pcs 2007 Borg El-Arab Khorshid Alexandria Khorshid Cairo Kfarchima Beirut Established 1975 Sanitary ware capacity 2.5 million pcs million pcs (inc FC) end 2008 Tiles capacity 17.0 million m million m * All production facilities are owned and controlled by Lecico Note: (1) FY

4 A major sanitary ware exporter

5 An export led sanitary ware business Large and independent Experience and quality OEM pedigree and history Significant cost advantage The largest sanware factory in Europe, Middle East and Africa Independent from all major brands Over 30 years of exports to Europe Certified in all major markets Claims less than 0.1% of exports Over 20 years of OEM experience with largest brands in Europe 33% of exports to OEM brands USD 13.30/piece cost (70% of peers) c USD 1.50/piece shipping to Europe A unique position in supply to Europe These factors put us in a unique position to supply both other manufactures, buying groups and own brand sales into developed markets Growth is coming from sanware exports Supplier for key European brands Sanware exports grew at a 25% CAGR ( ) Vs. 6% CAGR for rest of revenue Export-led growth 5

6 Significant cost advantage International cost advantage Lecico produces sanitary ware at an all-in average cost of US$13.30/piece (2018) In Egypt (without subsidiary costs/consolidation) manufacturing cost averages US$10.75/piece of sanitary ware (2018) Our information suggests other low cost producers manufacturing cost averages US$15-30/piece While European producers average US$30+/piece depending on their market Why is Lecico able to produce so competitively? Egypt: Reasonable energy costs, low labour cost, low investment costs Size: Economies of scale, standard global plant size: 1m pieces Experience: Over 50 years manufacturing experience Efficiency: Production per employee is over twice that of our local competitors Investment, distribution and overheads benefit from regional economies of scale Sanitary ware investment cost approx. US$30-40/piece vs. US$35-55/piece global standard Low shipping cost to Europe: US$1.50 per sanitary ware piece vs. approx. US$6+ for Asian manufactures 6

7 Long-term commercial strategy Increase own brand and white label Expand in Developed Markets UK, Germany, France, South Africa New and expanded OEM contracts V&B Agreement to go to 750k pieces (12% of capacity) Grohe Agreement to supply 300k pieces already at limit. Grohe wants to grow to 750k pieces by 2020 Geberit Expansion of supply to 150k+ pieces in 2019 Draft agreement to supply Gerber in the US (2020 supply) Build multi-brand and service options solutions for customers Local service options in key markets (stock, delivery, tailor-made NPD) International manufacturing options: direct container delivery at competitive pricing Dual brand + strategy: European brands (Sarreguemines), Commercial brand (Lecico) and OEM Commercial strategy: Offer more for less Strategy based on giving all the benefits of European supplier at best prices Consistent and dependable world-class quality, service, manufacturing and design Advantages over European peers: Greater flexibility as a partner at better prices 7

8 A major sanitary ware exporter to Europe Growth in group s exports Lecico s total export volumes (sanitary ware) Egypt s leading sanitary ware exporter Lecico exports over 75% of its sanitary ware sales value and over 65% of volume vs. 20% for local peers (FY18) Lecico sells to over 50 countries (including OEM sales) Approximately 33% of exports (21% of sanitary ware sales volumes) are for other brands (FY 18) Sanitary ware export reached a record percentage of sales volumes in 2018 Expecting exports and OEM proportion of sales volume and value of sanitary ware to continue to rise in 2019 mainly led by sales growth in Europe Export focus on Europe Europe as percentages of total exports Growth of Lecico brand sanitary ware market share in UK Exports to Europe reached levels ever in 2018 Growth forecasted to continue in 2019 and UK estimated c15% market share in Lecico-branded and white label sales in the UK In addition Lecico does around 1% further sales in OEM

9 Challenges since 2014

10 Sharp cost inflation began in 2014 Since July 2014, the government has pushed through a series of significant cost increases on energy which have continued on an annual basis. Item Increase since 2014 Impact Natural Gas 517% from an average of EGP Approximately 15% of costs 17.4/mbtu to EGP 107.4/mbtu Electricity 229% from EGP/KwH of 0.25 to 1.15 Approximately 6% of costs Diesel Petrol 400% from EGP/litre 1.10 to 5.50 All goods, material and personnel transport affected The impact of these increases is approximately 150% increase in annual total costs or LE 2.1bn About 20x historical annual profit These increases led to significant inflation (compounded by currency) across the board in Egypt including labour costs (c20% of COGs). Headline inflation in Egypt for is over 19% (average of 15% per year) The latest increases were done at the end of June % increase in diesel and other petrols 33% increase in electricity We anticipate 1-2 more years of hikes in electricity and petrol 10

11 ..met collapse in regional markets and over-capacity Consumer demand in Egypt squeezed since 2H 14 Consumer inflation squeezed spending on tiles and sanitary ware from 2H 2014 onwards with sales volumes in Egypt down every year since 2014 Added competition particularly in tiles and sluggish economy Exports to Libya also limited and fragile The Middle East in general and Libya in particular have been sharply affected by regional instability Between 2014 and 2016, exports to the region fell 60% in absolute terms and from 18% of total revenue in 2014 to 7% in 2016 Combined with slowing sales to Egypt this creates an even greater gap between production and sales capability for Lecico and peers particularly in tiles which were primarily a domestic and regional export business Egyptian market facing surplus capacity of around 30% in tiles Informal market data suggests that installed tile capacity in Egypt reached 490 million square meters per day while actual production is around 340 million square meters Increased price competition as manufacturers fight for market share Price competition and aggressive bargaining to shore up market share have been common since 2015, forcing Lecico to reduce prices in tiles from 2014 through

12 Gains of floatation eroded by high inflation LE floatation in 11/2016 led to a significant spike in sanitary ware margins and a return to profitability Egyptian pound went from LE 8 to the dollar to LE Effectively increasing export prices by 100% and leading to a spike in local prices Local competition though fierce in tiles began to pass on cost inflation from the currency and subsequent governmentled cost hikes allowing Lecico to break from cycle of price reduction Sanitary ware market in Egypt also becoming accustomed to large price increases Since approximately 50% of production cost is hard-currency linked, this devaluation was only partially turned into profits Margins still under pressure from cost inflation After a spike in margins in 1Q 2017 following the devaluation, Lecico s margin has come under pressure by the significant inflation in Egypt in 2017 and 2018 (over 45% cumulative inflation) This was compounded by a sharp increase in interest rates in Egypt to offset inflation which saw the cost of debt in Egypt go from 12% to 19%. especially from exports Since the currency has been stable since November 2016, cost inflation has been particularly negative on exports where competition is global and price increases of 3-5% are considered aggressive. The floatation was critical in lifting us out of significant losses, but margins have been squeezed by cost inflation over the past two years returning the company to losses. 12

13 Lecico is cutting costs and unlocking capital In response to these challenges Lecico launched a number of programs to try and cut costs: Over LE 70 million in cost savings in Lecico Egypt (raw material changes, overtime and expat savings, headcount reductions) of which LE 50 million savings earmarked to begin in Over LE 30 million in cost savings outside of Egypt (headcount reductions, closing subsidiaries, etc) through 2018 Lecico is targeting at least an annual saving of another LE 20 million from restructuring of Lebanon (2020 onwards) Lecico sold real estate assets unlocking LE 60m in 2018 and targeting a further LE 400m+ from land in Lebanon Lecico Egypt also reduced tile capacity by 30% to 24m sqm per year Capacity was unsold due to market shrinkage and over capacity Relative saving of LE 30m + compared to working below capacity Reduced physical footprint allowing for future land sales Ongoing program to reduce working capital Reduce receivables through tighter terms in export and better collection locally 2018 lowest receivables days since 2014 Reduce finished goods inventories through stagnant/obsolete sales program and tighter discipline on production levels 2018 lowest inventory days since 2014 Restructuring of Lecico Lebanon in 2019 should cut total inventories by 10% and unlock cash through production reductions Reduce major subsidiaries finished goods stock levels and payment terms to tighten discipline and move cash to Egypt 2018 historic low receivables days within Lecico Group These projects are ongoing and in 2018 helped us to have a small reduction in net debt despite significant bottom line losses and negative cash flows from operations. 13

14 Financial overview

15 Profit and loss Net sales Cost of sales breakdown (2018) EBIT* Net Profit * * = FY 2018 EBIT and Net profit includes LE 76.7m in one-off income 15

16 Quarterly P&L Trends Net sales Gross profit EBIT* Net Profit* * = 2018 includes LE 25.7m in one-off operating profit in 1Q and LE 51.0m in 2Q. 16

17 P&L Breakdown by Quarter Lecico Group Profit & Loss (LE Million) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sanitary Ware Tiles Brassware Net Revenues Cost of Sales Gross Profit % of Sales 9% 9% 7% 15% 25% 22% 20% 22% 22% 18% 15% 15% Selling expenses Administration expenses Overheads % of Sales 17% 14% 11% 12% 15% 14% 14% 15% 13% 13% 14% 18% Operating Profit (EBIT) exc exceptional (26.5) (19.4) (14.7) (19.4) % of Sales % 10% 8% 6% 7% 9% 4% 1% -3% Exceptional gain (loss) Net Financial Expenses (21.3) (23.8) (26.7) (29.3) (27.6) (34.1) (42.7) (48.1) (57.0) (58.1) (54.5) (49.9) Dividend Income (0.0) Exchange Variances 11.3 (1.4) (10.0) (1.9) (1.7) Profit before tax (36.5) (41.6) (40.0) (46.0) (71.1) % of Sales % 5% 4% 0% 0% 5% 2% -7% -11% Taxes & minorities (4.8) 2.4 (9.1) (13.6) (9.3) (7.6) (5.7) 7.7 (6.6) (8.7) (4.9) (21.8) Net Profit after tax (41.3) (39.1) (49.1) (5.2) (50.9) (92.9) % of Sales % 3% 2% - 2% 4% 1%

18 Key Segmental Analysis Sanitary ware sales volumes and revenue Sanitary ware selling price and cost per piece Sanitary ware gross profit and margin Tiles sales volumes and revenues Tiles selling price and cost per sqm Tiles gross profit and margin 18

19 Quarterly Key Segmental Trends Sanitary ware sales volumes Sanitary ware average price and cost Tiles sales volumes Tile average price and cost 19

20 All Segmental Breakdowns by Quarter Lecico Group Sanitary Ware Analysis Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Volume (000's pieces) Egypt Lebanon Exports Total Volume 1,124 1,209 1,278 1,378 1,252 1,177 1,316 1,316 1,253 1,353 1,412 1,303 Average Selling Price Revenue Cost of Sales Average Cost Per Piece Gross Profit Gross Profit Margin 16% 17% 14% 26% 36% 33% 28% 30% 31% 24% 20% 20% Lecico Group Tile Analysis Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Volume (000's sqm) Egypt 5,181 4,964 5,254 5,871 4,653 5,171 4,896 4,274 5,039 5,995 4,406 5,225 Lebanon Exports 1, ,288 1,185 1,106 1,210 1,110 Total Volume 6,503 5,957 5,812 6,966 5,447 6,034 5,996 5,693 6,295 7,227 5,766 6,467 Average Selling Price Revenue Cost of Sales Average Cost Per sqm Gross Profit (3.1) (5.3) (9.6) (10.2) Gross Profit Margin -2% -4% -7% -5% 2% 3% 3% 6% 8% 7% 5% 4% Lecico Group Brassware Analysis Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Volume ( pieces) Egypt 40,787 34,188 33,433 42,530 33,843 20,637 27,921 26,070 21,957 25,445 23,885 35,084 Exports , Total Volume 40,787 34,556 34,053 42,549 33,843 20,637 28,081 26,070 22,278 27,045 23,888 35,100 Average Selling Price Revenue Cost of Sales Average Cost Per Piece Gross Profit Gross Profit Margin 28% 26% 36% 47% 46% 35% 37% 45% 29% 30% 38% 37% 20

21 Balance Sheet by Quarter Balance Sheet (LE m) 4Q 4Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Cash and short-term investments Inventory Receivables Related parties -debit balances Current Assets 1, , , , , , , , , , ,062.2 Non-Current Assets Total Assets 2, , , , , , , , , , ,806.5 Banks Overdraft Current portion of long-term liabilities Trade & other payables Total Current Liabilities 1, , , , , , , , , , ,870.8 Long-term loans Other long-term liabilities Provisions Deferred tax Total Non-Current Liabilities Total Liabilities 1, , , , , , , , , , ,903.4 Minority Interest Total Equity Total Equity, Minorities and Liabilities 2, , , , , , , , , , ,806.5 Receivables Days Payables days Inventory Days Gross Debt ,319 1,331 1,482 1,461 1,457 1,594 1,534 1,654 1,352 Gross Debt / Equity Net Debt ,117 1,164 1,196 1,226 1,250 1,298 1,165 Net Debt / Equity Working Capital (Inv. + Receivable -Payables) ,164 1,257 1,384 1,380 1,423 1,490 1,540 1,527 1,336 21

22 Share performance and data

23 Shareholding structure and performance Lecico bought and redistributed 10% of shares Lecico share price Lecico Acquired 10% of shares (8m shares) on 31/07/2017 and redistributed them on 09/07/2018 Shares were acquired at LE 6.0 per share (a premium of 33% to market price at time of offer) Investors submitted million shares to the offer and shares were acquired on a pro-rata basis (53.3% of shares offered) Shares distributed as a dividend to shareholders in July 2018 following AGM approval in late March 2018 Lecico valued at a market cap of US$ 20.8 million with a 56% free float Local share trades circa US$ 16,200 per day and on 79% of trading days (12m through July 2018) Free float increased 5% to 56% following the sale of Private Equity holdings in the company in February 2018 Lecico trades at a EV/EBITDA multiple of 5.7x (2017) Price to book value of 0.4x PER of 10.0x (2017) Shareholding structure (12/2018) Share liquidity overview (Local) 23

24 Thank you For additional information, please contact: Taher G. Gargour Telephone: Fax: Visit our website at: Forward-looking statements: This presentation may contain certain forward-looking statements, relating to Lecico Egypt S.A.E. business, which can be identified by the use of forward-looking terminology such as will, planned, expectations, forecast or similar expressions, or by discussions of strategy, plans or intentions. Such statements may include descriptions of investments planned or currently under development by Lecico Egypt S.A.E. and the anticipated impact of these investments. Such statements reflect the current views of Lecico Egypt S.A.E. with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of Lecico Egypt S.A.E. to be materially different from any future results that may be expressed or implied by such forward-looking statements. 24