Earnings Release 4Q 2015

Transcription

1 Earnings Release 4Q 2015 Oriental Weavers Reports Strong Local Sales, with Exports on the Mend in FY 2015 CAIRO, March 14, 2016 Oriental Weavers Carpet Company [ORWE EY; ORWE.CA], one of the world s largest machine-made rug and carpet manufacturers, reported today its financial results for the quarter and fullyear ending 31 December Q 2015 v 4Q 2014 Sales EGP 1.37 bn 4% EBITDA EGP 167 mn 40% Attributable Net Income EGP 63 mn 9% Gross Profit Margin* 9.7% 260 bps EBITDA Margin 12.2% 310 bps Net Profit Margin 5% 100 bps Proposed Dividend per Share of EGP 0.5, implying a dividend yield of 7% *Reported figures include depreciation expenses FY 2015 v FY 2014 Sales EGP 5.88 bn 4% EBITDA EGP 803 mn 4% Attributable Net Income EGP 356 mn 3% Gross Profit Margin* 11.3% 10 bps EBITDA Margin 13.7% 10 bps Net Profit Margin 6% 100 bps *Reported figures include depreciation expenses 4Q 2015 Earnings Release Page 1

2 For the purpose of the analysis in this earnings release, Oriental Weavers compares actual 2015 results against adjusted 2014 figures for the merger of Modern EFCO with EFCO in late December 2014 (subsidiaries of the non-woven segment) and not against the statutory figures reported in 2014 as this allows for a more accurate gauge of Oriental Weavers financial performance. A MESSAGE FROM OUR FOUNDER, MR. MOHAMED FARID KHAMIS, TO SHAREHOLDERS: Net Sales (EGP bn) 2015 was a year of both challenges and victories. We witnessed as Egypt took notable steps in the direction of economic recovery, demonstrating the strength and resilience of its underlying fundamentals, and allowing us to remain optimistic about the future In 2015, Oriental Weavers reported top-line growth of 1% as a decline in export volumes to some of our overseas markets was offset by the strong growth exhibited in local sales. Revenues from local sales grew by 5% y-o-y and 15% y-o-y for the fourth quarter and full year 2015, respectively, on the back of increases sales volumes in Egypt thanks to the expansion in our showroom network and the introduction of novel collections to the market. Our bullish outlook on local growth prospects rides on several factors, including Egypt s diverse demographics and continued investments in real estate developments by public and private sector entrepreneurs Q 2014* Q 2015 FY 2014* *Using adjusted 2014 figures FY 2015 Our diverse business model allowed us to sustain our strong position in the Egyptian market and helped Oriental Weavers remain immune to the challenges that vexed our local economy this year, particularly a shortage in foreign currency that affected businesses across the board. Our confidence in the strength of the Egyptians market s dynamics saw us open a total of nine new showrooms during FY 2015, expanding our reach and ability to cater to varying needs and tastes on both the residential and hospitality fronts. Meanwhile, exports in 2015 continued to face challenges brought on by a number of factors, mainly the impact of the Euro s depreciation against the USD which affected exports sales value by 16% during the year, as well as selling price adjustments of c. 5-8%, and reduced exposure to one of our main overseas clients. Additionally, political and economic instability in some of our main export markets such as Libya, Yemen, Iraq, Russia, and Ukraine also weighed down on our exports. That said, our export team worked feverishly against those odds to draft an action plan that involves tapping into new markets while simultaneously growing our presence in existing ones. North America, our prime overseas market, grew by 9% in FY 2015, driven by growth in overall market demand in addition to marketing campaigns and the introduction of new product ranges. In 4Q 2015 Earnings Release Page 2

3 2H 2015, Oriental Weavers introduced six new running line collections to the North American market, varying in grade and prices to cater to a more diverse pool of clients. Our consistency in delivering innovative product offers coupled with the strategic and longstanding relationships we have built with some of the largest furniture retailers and department stores in our export markets have effectively posited us on a route of sustainable growth, as demonstrated by the considerable increase in order volumes witnessed at the 2016 Domotex Hannover exhibition in Germany and the Atlanta and Las Vegas Fairs. Our new collections were warmly received at those events and Oriental Weavers was the recipient of the Most Magnificent Rug award at the Atlanta Fair. On the operational level, Oriental Weavers continued to upgrade its manufacturing capacities, in addition to our ongoing efforts to improve central supply chain management, boosting productivity levels and reducing costs and waste significantly saw us finalize our short-term expansion plans and add a number of new looms to our facilities, including velvet machines and highspeed looms that produce thicker, high-density rugs will see us further our expansion plans by adding new yarn machinery and purchasing Gobelin looms to meet the growing demand for this category in our export markets. The above indicators all point to the fact that 2015 was, all-in-all, a good year for Oriental Weavers thanks largely to the hard work and dedication of our team, the continuous support of our partners, and the confidence placed in us by our investors and shareholders. As we look ahead to the future, we will continue to invest and add value to our business, and concentrate our efforts on product innovation, operational excellence, and sales executions as we grow our geographical reach and work to capture greater shares of our existing markets. 4Q 2015 Earnings Release Page 3

4 LOCAL SALES STILL STRONG, EXPORTS ON THE MEND Net sales for FY 2015 came in somewhat flat at EGP 5.88 billion from EGP 5.81 billion in the year prior, despite an 8% decline in export sales, which were offset by higher sales volumes in our local market during the same period. Sales from the Egyptian market climbed by 15% y-o-y from EGP 2.3 billion to EGP 2.7 billion in the 12-month period. Sales by Destination 4Q % 45% The fourth quarter of 2015 saw net sales reach EGP 1.37 billion compared to from EGP 1.46 billion in 4Q 2014, down by 6% y-o-y. Local sales grew by 5% y-o-y during 4Q 2015 to reach EGP 622 million from EGP million in the comparable period last year. Meanwhile, total sales from exports declined by 14% during the fourth quarter, coming in at EGP million, owing not only to the drop in the EUR against the US Dollar, but also to political and economic instability in major export markets like Russia, Ukraine, and Iraq among others, as well as reduced exposure to one of the company s main export clients. Local Sales Exports It is worth highlighting that after adjusting for the 9% appreciation of the EGP against the EUR, the company would have recorded a 2% decline in export value during Local Sales Local Sales (EGP mn) Most segments in this division reported increases in sales value and volumes during 4Q 2015, with total sales from the local market coming in at EGP million, up 5% y-o-y driven by increased demand ahead of the Coptic wedding season in Egypt. For the full year 2015, local sales recorded a growth of 15% over FY 2014, closing the period at EGP 2.7 billion on the back of a 6% rise in volumes during the same period on the back of improved consumer appetite in the residential and hospitality segments, in addition to the availability of capacities allocated to the local market. 2,299 2,655 Oriental Weavers worked hard during the year to meet the steady and gradual increase in demand, adding 9 new showrooms to its existing network reaching 231 venues and ramping-up marketing efforts with more aggressive advertising campaigns, especially as the company rolled-out new product offerings that cater to broader client categories. The Wholesale segment was the highest contributor to local sales revenues this year and showed a 24% y-o-y increase in sales value for FY The hospitality segment exhibited the most growth, however, showing y-o-y increases of 33% and 34% for 4Q and FY 2015, respectively. The year saw the company provide carpeting for most of Cairo s newly established hotels such as the newly inaugurated Ritz Carlton Cairo, St. Regis, and the Holiday Inn and also refurbish many of the city s longstanding Q14* 4Q15 FY14* FY15 *Using adjusted 2014 figures 4Q 2015 Earnings Release Page 4

5 ones, such as the Four Seasons Nile Plaza, in addition to the Four Seasons in Sharm El Sheikh on the Red Sea coast. Export Sales Sales revenues from exports declined by 8% y-o-y during FY 2015 to EGP 3.2 billion, as volumes witnessed a similar decrease of 7% y-o-y. Fourth quarter sales revenues from the division also dropped, decreasing 14% from 4Q 2014 to reach EGP million by the end of the three-month period on the back of a 20% decline in volumes. A number of factors were behind the drop in export levels, including the depreciation of the EUR against the EGP, reduced exposure to one overseas client, and selling price revisions the company had implemented at the start of the year to pass on the reduced costs of the company s raw materials. Additionally, difficulties in the economic and political climate in some markets like Libya, Yemen, Russia, Iraq, and Ukraine also affected the performance of our exports division. However, Oriental Weavers export committee worked tirelessly during the year to draft a plan of action to hedge the company against circumstantial fluctuations by widening the company s geographical footprint and attempting to expand into new markets in Africa, the GCC, Europe, and Asia. Meanwhile, signs of improvements in European markets like Greece and Italy are beginning to appear. The American and Canadian markets were in the lead for another consecutive quarter, constituted almost 50% of total export sales. Revenues from that region climbed 9% y-o-y to EGP 1.6 billion in FY 2015 thanks to an overall growth in the market, the introduction of unique and novel products, and more impactful marketing campaigns. Additionally, 2015 also saw an uptick in housing construction and sales activity. Figures issued by the US s National Association for Home Builders show existing home sales in the United States growing by more than 6% y-o-y during 2015, while single-family home construction rose to its highest levels since 2007, boding well for Oriental Weavers. The e-commerce and catalog segment also witnessed strong growth this year, standing as a testament to the company s efforts to develop brand awareness and loyalty. Over the last three years, the company had awarded great focus to building strategic product-development relationships with some of North America s largest home furnishing chains. These efforts have evidently bolstered consumer confidence and allowed more of our customers to feel greatly at ease placing larger-sized orders and shipments via Internet channels. Additionally, our licensed program with Tommy Bahama has also continued 4Q 2015 Earnings Release Page 5

6 delivering results that exceed expectations, gaining greater levels of popularity with retail clients and their customers. Oriental Weavers outdoor product category also sustained its upward trend during the year, propelled by US retailers drive to expand their focus to consumers looking for outdoor furnishing as demand in that segment grows. This falls in line with the company s strategy to cater to new demand bases. In the same vein, Oriental Weavers used the Domotex Hannover Fair as well as the Atlanta and Georgia Fairs this year to showcase its newest ranges and designs, which were positively received by audiences. The company exhibited new running line collections at these shows, introducing a variety of new qualities from Grades A and B, which included machine-made qualities produced in the company s American and Egyptian weaving facilities, new outdoor products manufactured in Egypt, and handcrafted ranges produced in India. FY 2015 Revenue Performance by Region* 9% 26% 6% Russia & China 23% Africa 15% 23% GCC 1% Asia *Blue shaded areas denote the three key markets of Egypt, the US & Canada, and Europe. TOP-LINE FLAT IN FY 2015 The Group reported EGP 1.37 billion in net sales in 4Q 2015, showing a decline of 6% y-o-y from the EGP 1.46 billion in the comparable quarter last year. On a full-year basis, net sales were somewhat flat, growing by 1% from EGP 5.81 billion to EGP 5.88 billion in FY 2015 due to a drop in exports that was outweighed mostly by an increase in local sales. 4Q 2015 Earnings Release Page 6

7 Oriental Weavers prime high-end product, Grade A Woven, showed growth of 13% in revenues for FY 2015, as volumes increased by 12% y-o-y during the same period and 21% for the fourth quarter alone. The category s volumes witnessed growth on the export and local fronts during the year, largely driven by improved demand in the local market and higher purchasing power and consumer confidence in the North American market, in addition to the wide range of new products introduced to the market during the year. Overall, the Woven category saw sales volumes decline by 4% y-o-y in FY 2015 and 6% y- o-y in 4Q 2015, on the back of a drop in Grade B sales. Revenues for the full year remained flat, but inched up 2% during the quarter as the performance of Grades A and C helped offset the decline in Grade B. The segment s revenues for the full year stood at EGP 3.96 million, and closed the quarter at EGP 1.03 billion. Sales revenues from the Tufted category reached EGP 1.01 billion at the end of FY 2015, a decrease of 2% from FY 2014 and despite a 4% y-o-y increase in volumes, which reached 41.3 million square meters at the end of the year, compared to 39.6 million square meters in FY Non-Woven Felt saw volumes drop 8% y-o-y from FY 2014 levels to stand at 13.4 million square meters at year s end. A resultant 26% drop was witnessed in overall sales value for the segment during the same period mainly due to difficulties faced in export markets. The Fibers & Others saw revenues grow by 21% y-o-y to reach EGP million at the end of FY Table 1: Product Mix in Terms of Value (EGP '000) 4Q Q 2014 Change % FY 2015 FY 2014 Change Woven 1,031,524 1,009,122 2% 3,958,206 3,944,964 0% Tufted 186, ,235 (29%) 1,010,249 1,031,580 (2%) Non-woven felt (adjusted) 45,675 44,175 3% 165, ,962 (26%) Non-woven felt (reported) 45,675 (102,619) (145%) 165,183 77, % Other 110, ,575 (24%) 741, ,619 21% Total (adjusted) 1,373,744 1,462,107 (6%) 5,875,149 5,811,125 1% Total (reported) 1,373,744 1,315,313 4% 5,875,149 5,664,331 4% Table 2: Product Mix in Terms of Volume (SQM '000) 4Q Q 2014 Change FY 2015 FY 2014 Change Woven 14, , % 56, , % Tufted 8, , % 41, , % Non-woven felt 3, , % 13, , % Total 26, , % 111, , % 4Q 2015 Earnings Release Page 7

8 Segment Contribution to Sales Volumes in 4Q 2015 Segment Contribution to Sales Revenues in 4Q 2015 Contribution to COGS in 4Q % 3% 8% 18% 32% 54% 14% 75% 25% 11% 46% Woven Tufted Non-Woven Felt Woven Non-Woven Felt Tufted Others Raw Materials Selling Exp. Industrial Exp. Others 4Q 2015 SEES GROSS PROFIT MARGIN IMPROVING THANKS TO REDUCED COSTS For the full year of 2015, gross profit margin remained flat at 11.3% compared to 11.5% in however, on a quarterly basis gross profit margin came in at 9.7%, 1.1 percentage points higher than 4Q 2014 thanks to the decreased cost of raw materials, improvements in operational efficiency, and cost-cutting initiatives. EBITDA for the quarter rose by 8% to EGP 167 million vs. EGP 154 million in 4Q 2014, with an EBITDA margin of 12.2%, up 1.62 percentage points from the comparable period last year. For the full year, EBTIDA dropped by 1% to EGP 803 million with a margin of 13.7% compared to 13.9% in The company realized EGP 42 million in FX losses during the year on the back of the EGP s devaluation against the USD, as well as the depreciation of the EUR. Additionally, higher provisions and impairments reaching EGP 95.3 million (EGP 40 million goodwill impairment related to MAC - a 58.5% owned subsidiary - and EGP 40 million slow moving inventory and EGP 15.3 million in tax settlements) booked during the year compared to EGP 50 million in FY 2014 adversely affected the company s operating income which stood at EGP 374, down 14% y-o-y compared to 2014 figure of EGP 433 million. Attributable Net Profit (EGP mn) Attributable net income for 4Q 2015 came in at EGP 63 million vs. EGP 68 million (on an adjusted basis) in the same period last year. The 8% decline was on the back of a 49%-lower export rebate collections as well as higher financing costs owing to the impact of the EGP devaluation on USD denominated debt. Additionally, investment income in 4Q 2014 included an EGP 24 million oneoff gain from sale of investments. On a full-year basis, attributable net income reached EGP 356 million, down by 6% y-o-y on the back of increased Q14* 4Q15 FY14* FY15 *Using adjusted 2014 figures 4Q 2015 Earnings Release Page 8

9 provisions and impairments, in addition to the aforementioned reasons. Net profit margin for 4Q 2015 and FY 2015 came in at 5% and 6%, respectively. The Board of Directors is proposing a dividend payout of EGP 0.5 per share implying a dividend yield of 7%. The proposal is expected to be approved in the company s Annual General Meeting dated 2 April OUTLOOK Our focus on introducing new, value-adding products to our mix and improving quality and service levels while dramatically cutting costs has expanded our position within the marketplace. The company s results in 2015 have been promising and bode well for the coming year, as the company is poised to capitalize on improvements in global economic conditions. Going forward, oriental Weavers will continue to leverage its diversified business model as its pursues growth locally, regionally, and internationally. We intend to continue upgrading our manufacturing technology in order to improve margins, profitability levels, as well as the overall quality of our products. We will remain focused on our endeavors to expand our company s presence throughout the region, where we see much room for growth. RECENT DEVELOPMENTS After an 18-month delay in the disbursement of export subsidies, The Egyptian Ministry of Trade and Industry issued a decree in late January 2016 declaring the cancelation of the 2014 export subsidy program. The decree further stated that companies would revert back to pre-2014 rates, which allowed us to collect EGP 51 million in delayed amounts. Please refer to page 7 of our 2Q 2014 Earnings Release for more details about these rates. We continue to see strong growth in the e-commerce and catalog segments in the US, as consumers are more comfortable making larger purchases online and also thanks to the ease of shipping process, which delivers area rugs directly to consumers homes using a US courier service. We have developed strategic product development relationships with several of the largest furniture retail store chains. Our licensed program with Tommy Bahama has continued to exceed expectations and is very popular with our retailer customers and their consumers. 4Q 2015 Earnings Release Page 9

10 INVESTOR RELATIONS CONTACTS For further information, please contact: Farida Khamis Vice President Oriental Weavers Carpet Company fkhamis@orientalweavers.com Ingy El Diwany Investor Relations Manager Oriental Weavers Carpet Company ieldiwany@orientalweavers.com Tel (Direct) : +2 (02) Fax : +2 (02) STOCK SYMBOL ORWE.CA CAPITAL Issued and Paid-In Capital: 450mn EGP Number of Shares: 450 million shares Par Value: 1 EGP per share SHAREHOLDER STRUCTURE 57% Khamis Family & Related Entities 39.5% Institutions 3.5% Retail 4Q 2015 Earnings Release Page 10

11 Income Statement (EGP mn) Three Months Ending December 31 Twelve Months Ending December Change adj. adj. Change Net Sales 1,374 1,315 1,462-6% 5,875 5,664 5,811 1% Less: COGS 1,240 1,222 1,336-7% 5,209 5,028 5,141 1% Gross Profit % % Gross Profit Margin* 9.7% 7.1% 8.6% bps 11.3% 11.2% 11.5% bps Less: Selling & Distribution Expenses % % General & Administrative Expenses % % Provisions & impairment % % Sum % % Net Income from Operation Activities % % Operation Activities Margin 5.1% 2.0% 3.6% bps 6.4% 7.2% 7.4% -108 bps Add / Less: Investment Income % % Interest Income % % Other Revenues % % Capital Gain % % Financing Expenses % % Foreign Exchange Differences % % Sum % % Net Profit for the Period before Income Tax % % EBT Margin 6% 6% 8% bps 7% 8% 9% bps Add / Less: Current Income Tax % % Deferred Tax % % Income Tax for the Period (16) (23) (35) -55% (67) (91) (103) -35% Net Profit for the Period % % Net Profit Margin 5% 4% 5% bps 6% 7% 7% bps Attributable to: Equity Holders of the Parent % % Minority Interest % % *Reported figures include depreciation expenses 4Q 2015 Earnings Release Page 11

12 Balance Sheet (EGP mn) 31-Dec Dec-14 Long Term Assets Fixed Assets (Net) 2,577 2,663 Projects in Progress Investments - Available for Sale Goodwill Total Long Term Assets 3,095 3,173 Current Assets Inventory 1,588 1,632 Trades & Notes Receivable 1,251 1,029 Debtors and Other Debit Accounts Cash on Hand & at Banks Total Current Assets 3,613 3,453 Current Liabilities Provisions Banks - Credit Accounts 1,153 1,323 Long Term Liabilities - Current Portion Suppliers & Notes Payable Dividends Payable 8 12 Creditors & Other Credit Accounts Deferred Tax Liability Total Current Liabilities 2,239 2,417 Working Capital 1,375 1,036 Total Investment 4,470 4,210 Financed as Follows: Shareholder's Equity Issued and Paid Capital Reserves 1,525 1,505 Retained Earnings Net Profit for the Period Exchange Differences Arising on Translation of Foreign Currency Treasury Stocks (15) (15) Total Equity Attributable to Equity Holders of the Parent 3,835 3,519 Minority Interest Total Equity 4,215 3,917 Long - Term Liabilities Long Term loans Deferred Taxes Liabilities Total Long Term Liabilities Total Shareholder's Equity & Long Term Liabilities 4,470 4,210 4Q 2015 Earnings Release Page 12

13 Statement of Cash Flows (EGP mn) Cash flows from Operating Activities: Twelve Months Ended December Change Net Profit for the Period before Income Tax % Adjustments to Reconcile Net Profit to Net Cash Provided by Operating Activities Fixed Assets Depreciation % Provisions other than Deprecations % Interest Income (25) (8) 208% Financing Expenses % Investment Income (0) - Gain from Sale of Investments - (24) -100% Capital Gain (8) (4) 111% FX Losses % Operating Profits before Changes in Working Capital % Change in Working Capital (Increase) in Inventory 4 (110) -104% Decrease (Increase) in Trades & Notes Receivable and other Debit Accounts (256) (81) 217% Decrease (Increase) in Suppliers & Notes Payable and other Credit Accounts (39) % Cash Flows Provided by Operating Activities % Interest Income % Paid Financing Expenses (83) (88) -6% Tax Payment (89) (56) 58% Net Cash Flows Provided by Operating Activities % Cash Flows from Investing Activities Payments for Purchase of Fixed Assets and Projects in Progress (163) (99) 64% Proceeds from Sale of Fixed Assets % Payments for Purchase of Treasury Bills (116) - Proceeds from Sale of Investments % Net Cash Flows (used in) Investing Activities (266) (37) 618% Cash Flows from Financing Activities: Proceeds (Payment) from Banks-Credit Accounts (170) (65) 161% Dividends Paid (239) (230) 4% (Payment) Proceeds in Long Term Liabilities 11 (74) -115% Net Cash Flows (used in) Provided by Financing Activities (398) (369) 8% Net Change in Cash and Cash Equivalents During the Period (160) % Cash and cash equivalents at beginning of the period % Cash and Cash Equivalents at End of the Period % 4Q 2015 Earnings Release Page 13

14 ABOUT ORIENTAL WEAVERS CARPET COMPANY Oriental Weavers is a global player in machine-woven rugs and carpets; the company is renowned for superior product design and quality, as well as technological innovation. Today, the company is one of the largest producers of machine-made woven rugs in the world. It is management s vision to build a state-of-the-art, internationally-competitive carpet and home textile company characterized by a sharp focus on its customers, and driven by marketing- and export-oriented strategies. ( FORWARD-LOOKING STATEMENTS Certain information contained in this document consists of forward-looking statements reflecting the current view of the Company 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 the Company to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including worldwide economic trends, the economic and political climate of Egypt and the Middle East and changes in business strategy and various other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in such forward-looking statements. Recipients of this document are cautioned not to place any reliance on these forward-looking statements. The Company undertakes no obligation to republish revised forward-looking statements to reflect changed events or circumstances. # # # 4Q 2015 Earnings Release Page 14