Corporate Summary Introduction: An Egyptian exporter Lecico Egypt - - PowerPoint PPT Presentation

Corporate Summary

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Introduction: An Egyptian exporter

Split of sanitary ware and tiles1 Split of domestic and export1

* All production facilities are owned and controlled by Lecico

Alexandria Khorshid Borg El-Arab Cairo Established 1997 Sanitary ware capacity 2.0 million pcs 2005 4.4 million pcs end 2007 Tiles capacity 6.4 million m2 mid – 2011 12.8 million m2 mid – 2013 Brassware capacity 0.3 million pcs mid – 2010 Borg El-Arab Established 1975 Sanitary ware capacity 2.5 million pcs 2005 1.8 million pcs (inc FC) end 2008 Tiles capacity 17.0 million m2 2005 12.0 million m2 2016 Khorshid Established 1959 Sanitary ware capacity: 200,000 pcs 2007 Kfarchima Kfarchima Beirut

 Lecico Egypt S.A.E. was founded in 1959 and has been majority

• wned 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

Note: (1) FY 2018

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A major sanitary ware exporter

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OEM pedigree and history

• Over 20 years of OEM experience

with largest brands in Europe

• 33% of exports to OEM brands

An export led sanitary ware business

Large and independent

• The largest sanware factory in

Europe, Middle East and Africa

• Independent from all major brands

Growth is coming from sanware exports

Sanware exports grew at a 25% CAGR (2014-2018)

• Vs. 6% CAGR

for rest of revenue

Experience and quality

• Over 30 years of exports to Europe
• Certified in all major markets
• Claims less than 0.1% of exports

Significant cost advantage

• USD 13.30/piece cost (70% of peers)
• c USD 1.50/piece shipping to Europe

Supplier for key European brands Export-led growth 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

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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

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 Increase own brand and white label  UK, Germany, France, South Africa

Long-term commercial strategy

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 Expand in Developed Markets

• Expected growth for OEM customers in Europe is an

additional volume of 900K + pieces by 2020

• Some new agreements have been established with OEM

customers at USA to provide circa 200K + pieces at 2020

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A major sanitary ware exporter to Europe

Growth in group’s exports Export focus on Europe

• Sanitary ware export reached a record percentage of sales

volumes in 2018…

• …mainly led by sales growth in Europe
• Exports to Europe reached levels ever in 2018
• Growth forecasted to continue in 2019 and 2020

Lecico’s total export volumes (sanitary ware) Egypt’s leading sanitary ware exporter Europe as percentages of total exports Growth of Lecico brand sanitary ware market share in UK

• 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)

• Expecting exports and OEM proportion of sales volume

and value of sanitary ware to continue to rise in 2019

• 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

Challenges since 2014

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.  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 2014-2018 is over 19% (average of 15% per year)

 The latest increases were done at the end of June 2018

– 50% increase in diesel and other petrols – 33% increase in electricity

 We anticipate 1-2 more years of hikes in electricity and petrol

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Item Increase since 2014 Impact Natural Gas 517% from an average of EGP 17.4/mbtu to EGP 107.4/mbtu Approximately 15% of costs 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

..met collapse in regional markets and over-capacity

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 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 2017

Gains of floatation eroded by high inflation

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 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 17.5. 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 government- led 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.

Lecico is cutting costs and unlocking capital

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 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 2019. – 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.

Financial overview

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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

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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.

P&L Breakdown by Quarter

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Lecico Group Profit & Loss (LE Million) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sanitary Ware 166.3 197.1 194.1 276.5 336.9 359.2 396.7 404.4 393.4 411.1 435.1 377.7 Tiles 138.8 137.8 129.5 193.4 185.8 212.6 216.2 216.0 242.1 274.2 235.8 250.3 Brassware 13.9 11.7 13.2 24.2 23.0 14.2 20.7 20.7 17.6 19.7 20.3 28.3 Net Revenues 319.0 346.6 336.7 494.1 545.8 586.0 633.6 641.1 653.0 705.0 691.2 656.3 Cost of Sales 291.5 316.0 314.0 421.6 411.9 454.7 508.1 499.8 509.4 580.6 586.0 559.1 Gross Profit 27.5 30.6 22.7 72.5 133.9 131.3 125.5 141.3 143.6 124.4 105.2 97.2 % of Sales 9% 9% 7% 15% 25% 22% 20% 22% 22% 18% 15% 15% Selling expenses 15.8 22.6 20.6 27.0 34.7 36.0 39.7 36.2 39.0 40.5 41.2 36.7 Administration expenses 38.2 27.4 16.8 33.1 46.6 47.6 50.0 59.3 47.2 53.0 58.8 79.9 Overheads 54.0 50.1 37.4 60.2 81.3 83.6 89.8 95.5 86.2 93.5 99.9 116.6 % 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) 12.3 52.6 47.7 35.8 45.8 57.4 30.9 5.3 (19.4) % of Sales

• 2%

10% 8% 6% 7% 9% 4% 1%

• 3%

Exceptional gain (loss) 25.5 50.9 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 3.0 0.1 0.2 0.0 0.0 6.4 (0.0) 0.0 0.0 5.1 0.0 Exchange Variances 11.3 (1.4) 1.3 109.9 2.9 7.7 1.0 4.7 5.1 (10.0) (1.9) (1.7) Profit before tax (36.5) (41.6) (40.0) 93.1 27.9 21.3 0.5 2.4 31.0 13.7 (46.0) (71.1) % of Sales

• 19%

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) 79.5 18.6 13.7 (5.2) 10.1 24.4 5.0 (50.9) (92.9) % of Sales

• 16%

3% 2%

• 2%

4% 1%

• 2018

2017 2016

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Key Segmental Analysis

Sanitary ware – sales volumes and revenue Sanitary ware – gross profit and margin Sanitary ware – selling price and cost per piece Tiles – sales volumes and revenues Tiles – selling price and cost per sqm Tiles – gross profit and margin

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Quarterly Key Segmental Trends

Sanitary ware sales volumes Sanitary ware average price and cost Tiles sales volumes Tile average price and cost

All Segmental Breakdowns by Quarter

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Lecico Group Sanitary Ware Analysis Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Volume (000's pieces) Egypt 534 451 553 645 491 418 496 419 438 485 409 396 Lebanon 37 37 37 41 30 38 41 37 20 27 35 24 Exports 553 721 688 693 731 721 779 860 794 841 967 883 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 147.9 163.1 151.8 200.6 269.1 305.2 301.4 307.3 313.9 303.9 308.2 289.7 Revenue 166.3 197.1 194.1 276.5 336.9 359.2 396.7 404.4 393.4 411.1 435.1 377.7 Cost of Sales 139.6 164.3 166.4 205.3 216.8 239.4 284.5 284.9 273.2 312.7 350.0 301.0 Average Cost Per Piece 124.2 135.9 130.2 148.9 173.2 203.4 216.2 216.5 218.0 231.1 248.0 230.9 Gross Profit 26.7 32.8 27.6 71.3 120.1 119.8 112.2 119.5 120.2 98.4 85.1 76.7 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 310 245 200 201 116 139 172 131 71 125 150 132 Exports 1,012 748 358 894 677 724 929 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 21.3 23.1 22.3 27.8 34.1 35.2 36.1 37.9 38.5 37.9 40.9 38.7 Revenue 138.8 137.8 129.5 193.4 185.8 212.6 216.2 216.0 242.1 274.2 235.8 250.3 Cost of Sales 141.8 143.1 139.1 203.6 182.7 206.1 210.6 203.5 223.8 254.1 223.3 240.2 Average Cost Per sqm 21.8 24.0 23.9 29.2 33.6 34.2 35.1 35.7 35.5 35.2 38.7 37.1 Gross Profit (3.1) (5.3) (9.6) (10.2) 3.1 6.5 5.6 12.5 18.3 20.1 12.5 10.1 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 368 620 19 160 321 1,600 3 16 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 341.8 338.0 387.4 567.8 679.4 687.1 735.9 792.1 790.0 728.6 850.9 807.0 Revenue 13.9 11.7 13.2 24.2 23.0 14.2 20.7 20.7 17.6 19.7 20.3 28.3 Cost of Sales 10.0 8.6 8.5 12.8 12.3 9.2 12.9 11.4 12.4 13.9 12.6 17.9 Average Cost Per Piece 246.3 249.8 249.7 299.8 364.7 444.6 461.0 437.9 557.8 513.1 528.2 511.1 Gross Profit 3.9 3.0 4.7 11.4 10.7 5.0 7.7 9.2 5.2 5.8 7.7 10.4 Gross Profit Margin 28% 26% 36% 47% 46% 35% 37% 45% 29% 30% 38% 37% 2018 2018 2018 2017 2017 2017 2016 2016 2016

Balance Sheet by Quarter

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Balance Sheet 2014 2015 2016 (LE m) 4Q 4Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

‎ Cash and short-term investments 245.7 168.0 377.4 354.3 365.1 297.8 261.3 368.3 284.1 356.0 186.9 ‎ Inventory 667.9 701.0 889.8 1013.2 1092.3 1086.2 1133.8 1183.1 1138.5 1165.1 1087.2 Receivables 449.6 496.7 690.7 710.3 752.9 777.4 744.3 823.1 891.0 902.6 765.1 Related parties -debit balances 61.8 62.2 66.3 43.4 44.7 55.0 38.7 28.3 25.5 35.0 23.1 Current Assets 1,425.0 1,427.9 2,024.2 2,121.2 2,254.9 2,216.4 2,178.0 2,402.8 2,339.2 2,458.8 2,062.2 Non-Current Assets 777.1 730.9 769.8 758.4 778.7 769.0 782.1 781.0 760.6 756.2 744.4 Total Assets 2,202.0 2,158.8 2,794.0 2,879.6 3,033.5 2,985.3 2,960.1 3,183.8 3,099.8 3,215.0 2,806.5 ‎ Banks Overdraft 734.5 826.7 1204.4 1228.0 1391.1 1383.3 1390.5 1539.2 1490.9 1615.2 1332.0 Current portion of long-term liabilities 44.8 37.7 47.3 47.2 47.1 46.5 46.6 39.9 33.4 33.4 20.0 Trade & other payables 384.6 357.3 438.1 490.2 476.2 497.1 464.9 520.8 492.6 543.1 518.7 Total Current Liabilities 1,163.9 1,221.7 1,689.8 1,765.5 1,914.5 1,926.9 1,902.0 2,099.9 2,017.0 2,191.7 1,870.8 ‎ Long-term loans 97.6 60.0 67.3 55.4 43.6 31.6 20.0 15.0 10.0 5.0 0.0 Other ‎ long-term liabilities 1.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provisions 9.6 9.8 10.7 9.2 9.8 10.2 10.6 9.6 9.3 9.3 9.3 Deferred tax 33.7 30.6 25.8 25.5 25.0 25.2 22.8 18.4 17.9 17.6 23.4 Total Non-Current Liabilities 142.2 100.8 103.8 90.1 78.3 67.0 53.4 42.9 37.3 31.9 32.7 Total Liabilities 1,306.1 1,322.4 1,793.6 1,855.6 1,992.8 1,993.8 1,955.4 2,142.8 2,054.2 2,223.7 1,903.4 Minority Interest 9.5 5.8 5.2 4.2 2.4 1.5 18.7 20.1 20.0 18.9 22.8 Total Equity 886.4 830.6 995.2 1019.8 1038.4 990.0 986.1 1020.9 1025.6 972.5 880.4 Total Equity, Minorities and Liabilities 2,202.0 2,158.8 2,794.0 2,879.6 3,033.5 2,985.3 2,960.1 3,183.8 3,099.8 3,215.0 2,806.5 Receivables Days 79 98 130 93 94 94 88 87 91 91 75 Payables days 42 36 49 47 44 39 36 35 34 36 31 Inventory Days 211 227 242 224 230 216 221 212 191 190 178 Gross Debt 877 924 1,319 1,331 1,482 1,461 1,457 1,594 1,534 1,654 1,352 Gross Debt / Equity 1.0 1.1 1.3 1.3 1.4 1.5 1.5 1.6 1.5 1.7 1.5 Net Debt 631 756 942 976 1,117 1,164 1,196 1,226 1,250 1,298 1,165 Net Debt / Equity 0.7 0.9 0.9 1.0 1.1 1.2 1.2 1.2 1.2 1.3 1.3 Working Capital (Inv. + Receivable -Payables) 762 876 1,164 1,257 1,384 1,380 1,423 1,490 1,540 1,527 1,336

2017 2018

Share performance and data

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Shareholding structure and performance

 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 15.02 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)

Share liquidity overview (Local)

Lecico bought and redistributed 10% of shares

Lecico share price Shareholding structure (12/2018)

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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.