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[May 2008]
Lecico First Quarter 2008 Results
Lecico Egypt SAE (Alexandria, Egypt) has announced its consolidated results for the first quarter of 2008. Highlights for Q1 2008 are:
• Lecico revenue up 14% to LE 264.1 million (65.6% from sanitaryware)
• Sanitaryware revenue up 9% to LE 173.2 million, partially driven by 2% growth in volumes to 1.4 million pieces (59.4% exports)
• Tile revenue up 25% to LE 90.9 million, driven by 24% growth in volumes to 6.0 million square metres (20.4% exports)
• EBIT up 20% to LE 42.1 million, margin up 0.8 percentage points to 15.9%
• Net profit up 26% to LE 29.6 million, margin up 1.1 percentage point to 11.2%Lecico Egypt Chairman and CEO, Gilbert Gargour, commented: “I am pleased to report a very strong start to the year, with the highest quarterly gross, operating and net profit results in over two years. Our volumes continue to grow and we have so far been able to absorb Egyptian and global inflationary pressures while improving our returns.
“In the Egyptian market in particular, we have seen very strong demand despite our recent price increases, which is no doubt due to the great efforts of our sales and marketing teams, but also – I hope – a sign that the strong growth in Egypt in past years may be improving the middle and working class base that makes up the majority of Lecico’s customers. Our recent efforts to grow sales in the Middle East have also continued to show strong results in the quarter, with both sanitaryware and tiles exports in the region continuing to grow strongly in the quarter.
“However, the news is not all good and we have seen the beginning of some of the challenges that we anticipated for 2008 impacting our numbers. Our outsourcing for Sanitec is down significantly as expected this quarter and we are seeing some signs of a slowdown in our major European markets which may be linked to a downturn in the economies of these countries. Given these trends, I continue to believe that Lecico will need to work hard to make sure sales remain strong in the year ahead and we will need to continue to focus on improving our price points and our efficiency to absorb cost inflation.”
Elie Baroudi, Lecico Egypt MD, added: “I am pleased to report a respectable 14% year-on-year revenue growth in the first quarter, with domestic sales and regional demand continuing to drive growth in both sanitaryware and tiles volumes, allowing us to use more of our recently expanded capacities in both segments.
“The company increased prices marginally in most markets and this – combined with a favorable exchange rate environment, efficiency improvements in our manufacturing process and a continued focus on cost and balance sheet control – allowed us to improve our profit margins, driving bottom line 26% growth for the quarter.
“Overall, these results are a strong start to the year, but I share our Chairman’s concerns about the operating environment in Europe in the year ahead and the implications this has for Lecico’s revenue growth in the coming quarters. While I remain confident that Lecico will still deliver a good performance over the rest of the year, I would caution investors from assuming the growth in revenues and margins in the first quarter should be taken as a benchmark for coming quarters.”
Looking ahead to the outlook for 2008, then in Sanitaryware Lecico is seeing some softness in major export markets which, combined with the beginnings of the expected significant reduction in outsourcing to Sanitec, is putting pressure on export volumes. This trend may well continue into the rest of the year with Sanitec volumes expected to continue reducing and increased speculation about a slowdown in some of Lecico’s main export markets, although the company expects to continue to take market share in its main export markets, grow into new markets and enter into new outsourcing agreements.
Demand for sanitaryware in Egypt and Middle Eastern markets continues to remain buoyant, but the company believes it may prove difficult to grow sanitaryware volumes significantly year-on-year if these trends continue over the rest of the year.
Lecico expects cost inflation to continue in 2008, not least because of the significant energy increases seen in September 2007 and a further increase expected in 2008. Lecico will continue to try and offset as much of the inflationary cost increases as possible through a continued focus on improving efficiency and through price increases in most markets.
The outlook for the company is also dependent on several external and unpredictable factors, chief among them exchange rates, the size, extent and timing of any energy price increases in Egypt, the political situation in Lebanon and the extent of any slowdown in the global economy.
While the company has taken account of these risks in its budget, it cannot account for all possible scenarios for each of the above risks. Any improvement or significant worsening in these risk factors could lead to financial performance above or below the company’s current expectations.
On capacity expansion and capital investment, the company reported that the new sanitaryware plant is now operating both production lines and that will progressively grow to 2 million pieces per annum functional capacity at that site by the end of 2008.
Work is well under way on the new decorating plant – International Ceramics – in Borg El Arab which should be operational before the end of the first half of 2008 and will ultimately have a capacity to decorate approximately 400,000 pieces per annum.
A new tile project was recently announced on the site owned by International Ceramics in Borg el Arab. That will be undertaken in three phases with the first phase dedicated to 3.8 million square metres white body porcelain tile, all for export to Europe. That first phase is estimated to cost US$13.5 million and will come on stream in mid 2010.
www.lecicoegypt.com
ENDS