An Egyptian Exporter 2Q 2011 Results Presentation September 2011
Corporate Summary
Introduction: An Egyptian exporter Lecico Egypt S.A.E. is one of the world s largest sanitary ware producers and a large tiles producer 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 a significant exporter with c45% of Lecico s sanitary ware sales volume going into Europe Lecico finished major capacity expansions in tile and sanitary ware in 2007 which boosted capacity to 21.4m sqm of tiles and 6.7m pieces of sanitary ware and fire clay In Summer 2010, Lecico began brassware production with a 300,000 piece per annum capacity factory In Summer 2011, Lecico began production in its new tile factory in Borg El Arab. The factory is expected to reach 17m sqm capacity over the coming 4 years Split of domestic and export 1 Egypt (41%) Lebanon (11%) Export (48%) Split of sanitary ware and tiles 1 Sanitary ware (56%) Tiles (44%) Brassware (0%) Vitry Le Francois Established 1894 Fire Clay Sanitary capacity: 90,000 pcs 2006 Borg El-Arab Established 1997 Sanitary ware capacity 2.0 million pcs 2005 4.4 million pcs end 2007 Tiles capacity 8.5 million m 2 mid 2011 (est) 14.9 million m 2 mid 2013 (est) 17.0 million m 2 mid 2015 (est) Brassware capacity 0.3 million pcs mid 2010 Kfarchima * All production facilities are owned and controlled by Lecico Established 1959 Sanitary ware capacity: 350,000 pcs 2007 Tiles capacity 1.1 million m 2 2005 Borg El-Arab Khorshid Alexandria Khorshid Cairo Kfarchima Beirut Established 1975 Sanitary ware capacity 2.5 million pcs 2005 1.8 million pcs (inc FC) end 2008 Tiles capacity 17.0 million m 2 2005 21.4 million m 2 mid - 2007 Note: (1) FY 2010 3
Corporate Profile
Investment case Experience Regional leadership Growing exports Significant cost advantage Brand with over 50 years of history Multi-national management Decades of OEM exports to Europe Sanitary ware market leader in Egypt and Lebanon Largest producer in the Middle East c 58% of sanitary ware is exported SW exports 9% CAGR (2000-10) 10%+ UK, France & Ireland mkt share USD 13.80/piece cost (40% of peers) c USD 1.50/piece shipping to Europe European quality product Aggressive expansion program Tile capacity more than doubled and sanitary ware capacity grew 49% since 2000 Substantial further tile capacity expansion underway Strong historic growth record Supplier for key European brands 18% Revenue CAGR (2000-2010) 20% Net Profit CAGR Export-led growth 5
Domestic market leadership Market leadership in Egypt Sanitary ware market (5.8 million pieces) 1 Tile market (80 million m 2 ) 2 5% 6% 7% 16% 9% 14% 8% 34% Lecico Aracemco Cleopatra Gravena Pharaos Ideal Stnd Duravit Other Leading sanitary ware market share 2.0m piece Lecico capacity expansion ongoing 6% 23% 25% Cleopatra 10% 17% 19% Pharaos Lecico Al Amir Gemma Others Competitive pricing to support distributors sanitary ware sales 4.4 m sqm Lecico capacity expansion ongoing Note: (1) Management estimates for 2009 Note: (2) Management estimates for 2005 Market leadership in Lebanon Sanitary ware market (0.58 million pcs) 3 Tile market (8.5 million m 2 ) 3 36% Lecico Imports Leading sanitary ware market share Branded as European quality 24% Lecico Imports Number two market share in tile sales Presence maintained to complement sanitary ware sales 64% 76% Note: (3) Management estimates for 2009 6
Growing exports Growth in group s exports Lecico s total export volumes (sanitary ware) Pieces (000) Exports/total 4,000 80% 3,000 51% 56% 59% 62% 65% 58% 60% 58% 50% 46% 42% 60% 2,000 40% 1,000 20% 1,229 1,240 1,431 1,982 2,389 2,267 2,884 3,638 3,063 3,364 2,899 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sanitary ware export volumes Percent of total volume Sanitary ware export volumes grew at 9% CAGR (2001-2010) Egypt s leading sanitary ware exporter Lecico exports c60% of its sales vs. 20% for local peers Lecico sells to over 50 countries (including OEM sales) Approximately 30% of exports (17% of sanitary ware sales) are for other brands Lecico represents over 50% of Egypt s sanitary ware exports with the balance split among 9 manufacturers 2010 Volumes fell due to warehouse fire, UK slowdown and repositioning France Export focus on Europe Europe as percentages of total exports Growth of Lecico brand sanitary ware market share in UK Pieces (000) Europe/exports 3,000 81% 79% 82% 84% 80% 81% 76% 81% 81% 100% 76% 80% 2,000 60% 1,000 40% 1,009 1,133 1,622 1,998 1,819 2,336 2,782 2,481 2,724 2216.452 20% 0 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 European sales volumes Europe/total exports (%) 900 800 700 600 500 400 300 200 100 0 4.8% 5.4% 6.1% 6.7% 6.6% 6.6% 7.4% 8.0% 8.5% 11.3% 10.9% 400 470 560 650 680 650 725 770 663 744 711 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Number of pieces sold (000 pcs) UK market share (%) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Average of over 80% of exports are to Western Europe 2011 should see improvement on new markets and OEM 7 UK estimated c11% market share in Lecico-branded sales A further c14% market share in OEM sales to the UK
Significant cost advantage International cost advantage Lecico produces sanitary ware at an all-in average cost of US$14.90/piece In Egypt, ceramic manufacturing cost averages US$13.80/piece of sanitary ware The difference reflects higher packing costs for EU-destined exports and significantly higher industrial cost in Lebanon Our information suggests other low cost producers manufacturing cost averages US$15-30 / piece While European producers average US$35+ / piece depending on their market Why is Lecico able to produce so cheaply? Egypt: Low energy costs, low labour cost, low investment costs, low effective taxes Size: Economies of scale, standard global plant size: 1m pieces Experience: Over 45 years as a company and almost 40 years as a sanitary ware producer Utilization: 85-90% capacity utilization rate versus 70% industry average in Egypt 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$20-30 / piece vs. US$25-40 / piece global standard Low shipping cost to Europe: US$1.50 per sanitary ware piece vs. approx US$6+ for Asian manufactures 8
Growth strategy
Long-term commercial strategy Expand regional and international exports Aim to increase market growth UK, Ireland, France Potential future markets Germany, Italy, Algeria, Saudi Arabia, Iraq, Syria, Poland New and expanded OEM contracts Sanitec, Heritage, SFA and others 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 10
Financial overview
Profit and loss Net sales Cost of sales breakdown (1H 11) EBIT Net Profit 12
Quarterly P&L Trends Net sales Gross profit EBIT Net Profit 13
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 14
Quarterly Segmental trends Sanitary ware average price, cost and profit per piece Sanitary ware sales volume Tile Average Price, Cost and Profit per sqm Tile sales volume 15
Balance sheet and cash flow Working capital Returns and leverage Capital expenditures 2011e Project Investment cost (LE m) 2011e Maintenance work 30.0 Gres Porcellanato Tile plant phase 1 35.0 Casting shop expansions 30.0 Frit and Brassware 2.0 Total planned specific project capex 97.0 16
P&L summary 2Q 2011 Income statement 2Q % 1H % (LE m) 2011 2010 11/10 2011 2010 11/10 Net sales 249.7 255.7 98% 465.2 525.2 89% Cost of sales (176.7) (164.6) 107% (321.9) (340.6) 95% Gross profit 73.0 91.1 80% 143.3 184.6 78% Gross margin (%) 29.2% 35.6% (6.4%) 30.8% 35.1% (4.3%) Distribution and administrative expenses (42.6) (41.3) 103% (81.7) (85.8) 95% Net other operating income (1.2) 0.9 - (2.7) (0.7) - Operating profit (EBIT) 29.2 50.7 58% 58.8 98.1 60% Operating (EBIT) margin (%) 11.7% 19.8% (8.1%) 12.6% 18.7% (6.1%) Investment revenues 2.6 0.0-2.6 0.1 - Finance income 1.7 1.6 106% 3.2 3.2 100% Finance expense (16.7) (17.3) 97% (28.2) (29.9) 94% Profits before tax and minority (PBTM) 16.8 35.0 48% 36.4 71.5 51% PBTM margin (%) 6.7% 13.7% (7.0%) 7.8% 13.6% (5.8%) Income tax (3.4) (7.7) 44% (8.6) (16.1) 53% Deferred tax (5.1) 0.5 - (4.0) 1.5 - Net Profit after tax (NPAT) 8.3 27.8 30% 23.8 56.9 42% NPAT margin (%) 3.3% 10.9% (7.6%) 5.1% 10.8% (5.7%) Employee profit participation (3.1) (3.0) 103% (6.3) (5.9) 107% Net profit before minority interest 5.2 24.8 21% 17.5 51.0 34% Minority interest (0.1) 0.9 (11%) 0.1 1.6 - Net Profit 5.1 25.7 20% 17.6 52.6 33% Net profit margin (%) 2.0% 10.1% (8.1%) 3.8% 10.0% (6.2%) 17
Segmental Analysis 2Q 2011 Sanitary ware segmental analysis 2Q % 1H % 2011 2010 11/10 2011 2010 11/10 Sanitary ware volumes (000 pcs) Egypt (000 pcs) 460 527 87% 777 1038 75% Lebanon (000 pcs) 88 58 153% 133 104 128% Export (000 pcs) 533 721 74% 1199 1564 77% Total sanitary ware volumes (000 pcs) 1,082 1,306 83% 2,108 2,705 78% Exports/total sales volume (%) 49.3% 55.2% (5.9%) 56.9% 57.8% (0.9%) Sanitary ware revenue (LE m) 144.8 139.9 104% 270.4 301.5 90% Average selling price (LE/pc) 133.9 107.1 125% 128.3 111.4 115% Average cost per piece (LE/pc) 94.3 77.2 122% 89.6 79.3 113% Sanitary ware cost of sales (102.0) (100.9) 101% (188.9) (214.5) 88% Sanitary ware gross profit 42.8 39.0 110% 81.5 87.0 94% Sanitary ware gross profit margin (%) 29.5% 27.9% 1.7% 30.1% 28.9% 1.3% Tile segmental analysis 2Q % 1H % 2011 2010 11/10 2011 2010 11/10 Tile volumes (000 sqm) Egypt (000 sqm) 4,548 3,997 114% 8,076 8,132 99% Lebanon (000 sqm) 485 684 71% 981 1,239 79% Export (000 sqm) 650 1,438 45% 1,529 2,780 55% Total tile volumes (000 sqm) 5,683 6,119 93% 10,586 12,151 87% Exports/total sales volume (%) 11.4% 23.5% (12.1%) 14.4% 22.9% (8.4%) Tile revenue (LE m) 102.3 115.8 88% 190.3 223.7 85% Average selling price (LE/sqm) 18.0 18.9 95% 18.0 18.4 98% Average cost per sqm (LE/sqm) 12.9 10.4 124% 12.4 10.4 119% Tile cost of sales (73.4) (63.6) 115% (131.1) (126.1) 104% Tile gross profit 28.9 52.2 55% 59.2 97.6 61% Tile gross profit margin (%) 28.2% 45.1% (16.8%) 31.1% 43.6% (12.5%) Brassware segmental analysis 2Q % 1H % 2011 2010 11/10 2011 2010 11/10 Brassware volumes (000 pcs) Egypt (000 pcs) 8,085 0 0% 14,100 0 0% Lebanon (000 pcs) 0 0 0% 0 0 0% Export (000 pcs) 0 0 0% 0 0 0% Total brassware volumes (000 pcs) 8,085 0 0% 14,100 0 0% Exports/total sales volume (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Brassware revenue (LE m) 2.6 0.0 0% 4.5 0.0 0% Average selling price (LE/pc) 324.3 0.0 0% 320.6 0.0 0% Average cost per piece (LE/pc) 152.7 0.0 0% 133.0 0.0 0% Brassware cost of sales (1.2) - 0% (1.9) - 0% Brassware ware gross profit 1.4 0.0 0% 2.6 0.0 0% Brassware gross profit margin (%) 52.9% 0.0% 52.9% 58.5% 0.0% 58.5% 18
Balance Sheet Summary 2Q 2011 Balance Sheet (LE m) 30-Jun-11 31-Dec-10 1H11/FY10 (%) Cash and short-term investments 196.3 112.4 175% Inventory 541.9 473.3 115% Receivables 300.2 318.4 94% Related parties -debit balances 52.5 42.6 123% Total current assets 1,091.0 946.7 115% Net fixed assets 633.9 663.3 96% Intangible assets 22.9 23.1 99% Projects in progress 176.9 150.0 118% Other non-current assets 28.9 28.9 100% Total non-current assets 862.5 865.3 100% Total assets 1,953.5 1,812.0 108% Banks overdraft 769.2 557.1 138% Current portion of long-term liabilities 37.9 56.9 67% Trade and notes payable 91.8 69.3 133% Other current payable 129.8 151.3 86% Total current liabilities 1,028.8 834.6 123% Long-term loans 0.0 11.5 - Other long-term liabilities 91.9 91.9 100% Total non-current liabilities 91.9 103.4 89% Total liabilities 1,120.7 938.0 119% Minority interest 1.9 2.9 64% Issued capital 400.0 300.0 133% Reserves 309.6 294.3 105% Retained earnings 103.7 182.0 57% Net profit for the year 17.6 94.8 19% Total equity 830.9 871.1 95% Total equity, minorities and liabilities 1,953.5 1,812.0 108% 19
Share performance and data
Shareholding structure and performance Liquidity has moved to local share and improved Lecico share price Lecico valued at a market cap of US$ 106 million with a 51% free float All activity has moved from GDR to local share As part of its annual profit distribution, Lecico increased number of shares from 60m to 80m on 7 July 2010 Local share trades US$ 76,000 per day and on 98% of trading days (12m thru 25 Aug 2011) Trading frequency has gone to 98% of market days from c 40% of market days in 2005-2007 Lecico trades at a trailing PER multiple of 6.7x 2010 earnings EV/EBITDA of 4.7x. Price to book value of 0.7x Dividend Yield of 12.6% Shareholding structure Share liquidity overview (GDR) Share liquidity overview (Local) Concord PE 10% Local float 37% Intage / Gargour 39% GDR float 14% 21
Thank you For additional information, please contact: Taher G. Gargour Telephone: +203 518 0011 Fax: +203 518 0029 E-mail: tgargour@lecico.com Visit our website at: www.lecico.com 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. 22