An Egyptian Exporter. First Half 2005 results road show September 2005

Transcription

1 An Egyptian Exporter Taher G. Gargour Business Development Walid A. Rateb Investor Relations First Half 25 results road show September 25

2 Corporate Summary

3 Introduction: An Egyptian exporter Lecico Egypt S.A.E. is a leading sanitary ware producer in the middle east and a large tiles producer Lecico has large production facilities in Egypt and a small facility in Lebanon Lecico 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 The company is the leading sanitary ware producer in Egypt and Lebanon and a significant exporter to Europe Between now and end-26, Lecico aims to continue its growth by expanding sanitary ware capacity by 54% This expansion will make Lecico approximately the sixth largest sanitary ware producer in the world Kfarchima Established 1959 Sanitary ware capacity: 6, pcs 24 Tiles capacity 1.1 million m 2 24 Borg El-Arab Established 1997 Kfarchima Beirut Alexandria Borg El-Arab Khorshid Cairo Khorshid Established 1975 Split of domestic and export 1 Egypt (41%) Lebanon (9%) Split of sanitary ware and tiles 1 Sanitary ware (62%) Phases 3&4 expected to be completed end 26 Sanitary ware capacity 1.2 million pcs million pcs million pcs end 26 Sanitary ware capacity 2. million pcs million pcs end 25 Tiles capacity 9.7 million m million m million m 2 24 Export (5%) Tiles (38%) * All production facilities are controlled by Lecico Note: (1) 3 June 25 3

4 Corporate Overview

5 Strong management & over 4 years brand history Management team Lecico founded in Lebanon Tile production started 1959 Georges Ghorayeb Gilbert Gargour Chairman and CEO Elie Baroudi Operations established in Egypt Sanitary ware production started Sanitary ware production started in Lebanon Group Technical Director and Managing Director, Lebanon Managing Director Egypt 1983 Tile production started in Egypt Mohamed Sorour Ahmed Sharaf Sanitec becomes indirect shareholder in Lecico via CHME 1997 Factory Managers Elie Youssef (Sanitary) Nabil Nader (Tiles) General Manager Factory Admin Khorshid Factory Managers B Dalgarno (Sanitary) A Raimondi (Tiles) General Manager Finance & Legal Financial Controller M Hassan Lecico enters into a sourcing agreement with Sanitec Sanitary ware factory opened in Borg El- Arab (Egypt) Borg El-Arab 2 completed Financial Controller C A Khalil Borg Factory Managers W Gestner (Sanitary) W Hourani (Sanitary) Legal Counsel S Hamouda 26 Borg El-Arab 3 & 4 expected to be completed by year end Senior management experience: average 16yrs with Lecico and 23yrs industry experience 5

6 Domestic market leadership Market leadership in Egypt Sanitary ware market (4.5 million pieces) 1 Tile market (8 million m 2 ) 1 8% 9% 9% 7% 11% 6% 12% 38% Lecico Cleopatra Gravena American Standard Aracemco Pharaohs Duravit National Ceramics Leading sanitary ware market share 8% Lecico domestic sales volume CAGR (-4).5m pc per annum Lecico capacity expansion in 25 1% 22% 1% 16% 24% Cleopatra 18% Pharaohs Lecico Al Amir Gemma Other Competitive pricing to support sanitary ware sales through distributors 29% Lecico domestic sales volume CAGR (-4) Market leadership in Lebanon Sanitary ware market (.5 million pieces) 1 Lecico 45% 55% Imports Leading market share in sanitary ware Branded as European quality Tile market (8.5 million m 2 ) 1 55% 3% Uniceramic Lecico Imports Number two market share in tile sales Presence maintained to complement sanitary ware sales 15% Note: (1) Management estimates 6

7 Growing exports Growth in group s exports Lecico s total export volumes (sanitary ware) Pieces () Exports/total 4, 8% 56% 6% 3, 46% 5% 6% 41% 42% 2, 4% 1, 2% 1,229 1,24 1,431 1,982 2,389 1,177 % H 5 Sanitary ware export volumes Percent of total volume Export breakdown (by volume) South Africa UK (39%) Sanitec (18%) France (16%) Other Europe (1%) Middle East (3%) South Africa (2%) Syria (2%) Saudi Arabia (2%) Other (8%) Sanitary ware export volumes grew at 24% CAGR (21-24) Lecico produces under key European brand names Lecico sells to over 55 countries Average of 81% of export volumes go to Europe Export focus on Europe Europe as percentages of total exports 1% Growth of market share in UK 8 8.% 9% 8% 81% 79% 82% 84% 81% % 4.% 7% 6% 5% H Number of pieces sold ( pcs) UK market share (%) 2.%.% Strong European sales continued in 1H 5 despite UK slow down Current demand from European clients is not being met by Lecico 7 UK estimated 7% market share in direct sales Other key markets for Lecico are France and Ireland

8 Significant cost advantage International cost advantage Lecico produces sanitary ware at an all-in average cost of US$8.9 / piece In Egypt, industrial cost averages US$6.6 / piece of sanitary ware The difference reflects packing costs, accessories and the higher industrial cost in Lebanon Our statistics suggest other low cost producers industrial costs average US$9-15 / piece While European producers average US$2-3 / piece depending on their market Why is Lecico able to produce so cheaply? Egypt factors: Low energy costs, low labour cost, low investment costs, low effective taxes Size factors: Economies of scale, standard global plant size: 1m pieces Experience: Over 45 years as a company and almost 4 years as a sanitary ware producer Investment, distribution and overheads benefit from regional economies of scale Sanitary ware investment cost approx US$12-15 / piece vs. US$2-3 / piece global standard Low shipping cost to Europe: US$1 per sanitary ware piece vs approx US$4-5 for Asian manufactures 8

9 Sanitec and other business relationships Knowledge transfer Quality and production control Product development Personnel secondments/exchanges Expansion Design facilities Product expansion Capacity expansion Revenue visibility Margin protection Commercial Lecico manufactures products under Sanitec and other brands Indirect equity stake Purchased in 1997 Board representation CMS management agreement CMS provides technical consultancy services to Lecico CMS is paid 2% of annual sales CMS is owned by Sanitec and Intage EQT acquisition of Sanitec good news for Lecico: Continued Sanitec focus on outsourcing production likely 9

10 Strategy

11 Long-term sanitary ware growth strategy Aim to increase market growth UK, Ireland Increase presence opportunistically France, South Africa Potential future markets Expand production capacity Expand regional and international exports Germany, Algeria, Iraq, Syria Build on leading domestic positions and regional brand history to expand in the Middle East Production locations in ideal position to exploit Middle Eastern demand Sanitary ware capacity expansion: from 4.6m pcs in 24 to an expected 7.1m pcs by end 26 Expanding casting capacity to handle greater proportion of WCs in either plant Lower production costs while keeping European quality Constructing in-house production facility for key raw material for tiles (frit plant) Local sourcing of raw materials without compromising quality Cost savings through improvements in manufacturing efficiency 11

12 25: A challenging year A confluence of negative events are hurting performance in 25 Sharp slowdown in UK market Sanitary ware market size down 2-3% as part of overall slow down in consumer spending Impact on Lecico: Over 5% of Lecico exports go to UK market (direct and OEM combined). In addition to lower sales volumes as result of UK weakness, most new sales generated in markets with lower prices and margins than the UK Good news: Lecico is still gaining UK market share and exports -excluding UK market - are up 39% Outlook: Slowdown appears to be continuing in the third quarter Egyptian pound appreciation Egyptian pound appreciated by c5% year-on-year against the dollar, sterling and euro Impact on Lecico: Export prices, revenues and margins squeezed. FX losses incurred on cash and credit Outlook: Lecico still runs risk of smaller FX losses and further pressure on operations if currency appreciates further Sluggish demand in Egypt and Lebanon Political instability in Lebanon and inflationary pressure in Egypt depress local demand Impact on Lecico: Lebanese sanitary ware sales down 26% YTD, Egypt sanitary ware sales up marginal 2% YTD Good news: Strong steel and cement consumption numbers in Egypt may be lead indicator of stronger demand growth Good news: Market for tiles in both countries remains fairly buoyant on expanding usage Outlook: Indications are that both markets will remain lacklustre into the third quarter 12

13 25: driving intensive effort to grow sales Lecico is aggressively pursuing new opportunities to return to growth Expanding into new sanitary ware markets Recently hired sales representatives for Germany and Latin Europe (France, Italy, Spain) to build/expand direct sales in those markets (late 25 or 26) Setting up joint ventures with established trading groups in Algeria and Nigeria (26) Preliminary discussions to link with distribution network for the Gulf (27) Increasing penetration in existing sanitary ware markets New sets and image campaign in Egypt to raise profile and expand high-end sales (ongoing) Creating unbranded special set to compete with dumped Chinese product in the UK (early 26) Exploring possibility of breaking into UK DIY market with unbranded new models (late 26 or 27) Expanding product range Fine fire clay capacity to be increased from c6k pieces to 2-25k pieces (ongoing through 27) Currently reviewing possibilities to increase tile capacity (early 27) 13

14 Outlook: 25 and beyond 25 revenue likely to be slightly lower year-on-year (vs. LE 697 million in 24) Continued strong performance in tile segment over the balance of volume expected at around 17 m sqm (c8-9 m sqm in 2H 25) vs. 15 m sqm in 24 Export volumes expected at around 3 m sqm (c1.8 m sqm in 2H 25) vs. 1.6m sqm in 24 Margins to remain around 2Q 25 levels due to product mix and continued roll-out of the frit plant Weakness in Sanitary ware to continue over the balance of volume expected at around 3.8 m pieces (c1.9 m pieces in 2H 25) vs. 4.3 m pieces in 24 Export volumes expected at around 2. m pieces (c.9 m pieces in 2H 25) vs. 2.4 m pieces in 24 Sanitary ware margins expected to remain around 2Q 25 level due to product mix and capacity utilisation Full year net margin expected to be slightly higher than the 15.5% seen in the first half Significantly lower net financing expenses year-on-year offset by large one-off FX losses Direction of Egyptian pound exchange rate over 2H 25 may have an impact on net margins in particular Return to year-on-year growth expected in 26 Efforts to expand sales and diversify range should begin bearing fruit in 26 However, risks of further slow down in UK, exchange rate directions, input prices and a range of other factors make any forecasting notional at best 14

15 Financial overview

16 Profit and loss Net sales Cost of sales breakdown (FY 24) LE million Exports (%) 1, 54.2% 6% 49.6% 5.4% % 44.1% 5% 39.1% 36.3% 4% 6 3% 4 2% 2 1% % H 4 1H 5 Raw materials (39%) Other materials (16%) Energy (11%) Salaries and wages (13%) Depreciation (6%) Other costs (15%) EBIT LE million % 26.9% 28.2% 24.1% 18.9% 19.2% 17.9% H 4 1H 5 Margin (%) 3% 25% 2% 15% 1% 5% % Net Profit (1) LE million % 1.7% 11.6% 15.6% 2.5% % % H 4 1H 5 Margin (%) 51 25% 2% 15% 1% 5% % (1) 1H 25 net profit reduced by LE16.9 million FX revaluation loss 16

17 Segmental breakdown Sales and gross profit split (1H 25) Sanitary ware volumes and revenues Tiles - volumes and revenues Net sales Sanitary ware (62%) Tile (38%) Gross profit Sanitary ware (72%) Tile (28%) Revenues (LE m) H 4 1H 5 Net sales revenue Total sales volume Volumes (pcs m) Revenues (LE m) H 4 1H 5 Net sales revenue Total sales volume Volumes (sqm m) Product sales volume by geography (1H 25) Sanitary ware selling price and cost per piece Tiles selling price and cost per piece Tiles sales volume Egypt (8%) Lebanon (6%) Export (14%) Sanitary ware volume Egypt (36%) Lebanon (4%) Export (6%) LE per piece % 5% 47% 46% 44% 46% 42% H 4 1H 5 52% 47% 42% 37% 32% Av price/piece Av cost/piece Gross margin (%) Gross margin LE per sqm % 3% 28% 29% 28% 29% 3% 21% 25% 2% 11% 15% 1% 5% % H 4 1H 5 Av price/sqm Av cost/sqm Gross margin (%) Gross margin 17

18 Balance sheet and cash flow Working capital Days H 5* Inventory days (Inventory/cost of sales) Receivables days (Receivables/net sales) Payables days (Payables/Cost of sales) Net working capital days *1H numbers annualized Returns and leverage 7% 1.1 6% %.7 4%.2 3% -.1 2% 1% % 1% 7% 15% 9% 2% 13% 29% 16% 2% 22% 2% 17% H 5* Return on equity ROIC Net debt/equity * 1H numbers annualized with FX loss added back Capital expenditures Project Investment cost (June 25-6) LE m US$ m Khorshid frit plant Khorshid sanitary expansion Khorshid casting shop expansion 4..7 Borg El-Arab 3 & Land and building works (for all projects) Total planned specific project capex

19 Share performance and data

20 Share structure and history Lecico was listed in November 24 and is currently valued at a market cap of US$ 2 million with a 53% free float Trading history: Since listing, the GDR has averaged 2.4 trades per day, with an average daily value of US$.7 million Difficult environment and low liquidity resulted in underperformance relative to Egypt. This has put Lecico on a deep multiple discount to peers. Share multiples: At current market price (US$1 ), Lecico is trading on 24 multiples of: 8.1x PE, 5.2% Div Yield, 1.7x P/B and 5.2x EV/EBITDA Shareholding structure Free float 53% Intage / Gargour 32% Sanitec 15% Share price history (closing price in US$) Average daily trading data 5, 45, 4, 35, 3, 25, 2, 15, 1, 5, Number of trades Value traded (USD m) 18/11/4 18/12/4 18/1/5 18/2/5 18/3/5 Hermes Index 18/4/5 18/5/5 18/6/5 Lecico GDR 18/7/5 18/8/5.. Dec-4 Jan-5 Feb-5 Mar-5 Apr-5 May-5 Jun-5 No. trades per day Av daily turnover (USDm) 2