An Egyptian Exporter Taher G. Gargour Business Development FY 2005 results presentation March 2006
Corporate Summary
Introduction: An Egyptian exporter • Lecico Egypt S.A.E. is a leading sanitary ware producer in the Middle East and a large tiles producer Kfarchima • Lecico was founded in 1959 and has been majority owned Established 1959 by the Gargour family since 1969 Sanitary ware capacity: • The company has a global competitive advantage making 600,000 pcs 2004 European quality sanitary ware at Egyptian costs Tiles capacity Kfarchima Beirut 1.1 million m 2 2004 • The company is a significant exporter with c40% of Lecico’s sales going into Europe • Lecico is in the midst of a major capacity expansion which will boost capacity to over 7m pieces of sanitary wary Alexandria Borg El-Arab Khorshid • This expansion will make Lecico approximately the sixth Cairo largest sanitary ware producer in the world • Further tile expansion planned for 2006: size of project, Borg El-Arab Khorshid type of tiles and location of plant under review Established 1997 Established 1975 Phases 3&4 expected to be Sanitary ware capacity completed end 2006 2.0 million pcs 2004 2.5 million pcs end 2005 Split of sanitary ware and tiles 1 Split of domestic and export 1 Sanitary ware capacity Tiles capacity 1.2 million pcs 2003 9.7 million m 2 2002 2.0 million pcs 2004 13.4 million m 2 2003 Egypt (41%) 4.0 million pcs end 2007 17.0 million m 2 2004 Sanitary ware (60%) 21.4 million m 2 early 2007 Lebanon (10%) Tiles (40%) * All production facilities are controlled by Lecico Export (49%) Note: (1) 31 December 2005 3
Corporate Overview
Investment case Management and brand Regional leadership Growing exports Significant cost advantage history • Market leader in production of •Targeting growth in typically higher • Economies of scale • Brand with over 40 years of history sanitary ware in Egypt and Lebanon margin exports • Low labour and energy costs • Egyptian, Lebanese and European • European quality product expatriate management Aggressive expansion program Tile capacity doubled and sanitary ware capacity grew 40% since 2000 Substantial further capacity expansion underway Strong historic growth record 26% Revenue CAGR (2000-2005) Sanitec relationship Supplier for key European 30% Net Profit CAGR brands Strong growth despite slowdown in key markets and drop in profitability in 2005 5
Strong management & over 40 years brand history Lecico founded in Management team 1959 Lebanon Tile production started Sanitary ware Gilbert Gargour 1967 production started in Lebanon Chairman and CEO Operations established in Egypt 1978 Sanitary ware production started Georges Ghorayeb Elie Baroudi Group Technical Director and Managing Director Tile production started 1983 Managing Director, Lebanon Egypt in Egypt Sanitec becomes 1997 indirect shareholder in Mohamed Sorour Lecico via CHME Colin Sykes General Manager Group CFO Factory Admin Sanitary ware factory 1999 opened in Borg El- Factory Managers Arab (Egypt) Production Director Elie Youssef (Sanitary) Financial Controller B Dalgarno (Sanitary) Nabil Nader (Tiles) Lecico enters into a M Hassan Borg El-Arab 2 sourcing agreement 2003 completed with Sanitec Production Managers W Gestner (Khorshid) Financial Controller Legal Counsel W Hourani (Borg) Roll out of European C A Khalil S Hamouda 2007+ A Raimondi (Tiles) Ceramics (Borg 3 & 4) and tile expansion S Mancini (Fireclay) Senior management experience: average 16yrs with Lecico and 23yrs industry experience 6
Domestic market leadership Market leadership in Egypt Sanitary ware market (4.5 million pieces) 1 Tile market (80 million m 2 ) 1 6% • Leading sanitary • Competitive pricing to 24% Cleopatra 22% 7% Lecico 38% ware market share support sanitary ware Cleopatra Pharaohs 8% sales through • 8% Lecico domestic Gravena Lecico distributors American Standard 9% sales volume CAGR 10% Al Amir Aracemco (00-04) • 29% Lecico domestic 18% Pharaohs 9% sales volume CAGR Gemma 10% • 2.0m Lecico capacity Duravit (00-04) 11% 12% 16% expansion ongoing Other National Ceramics Market leadership in Lebanon Sanitary ware market (0.5 million pieces) 1 Tile market (8.5 million m 2 ) 1 • Leading market • Number two market 30% share in sanitary share in tile sales ware Uniceramic Lecico • Presence maintained 55% Lecico 45% • Branded as to complement Imports 55% Imports European quality sanitary ware sales 15% Note: (1) Management estimates for 2004 7
Growing exports Growth in group’s exports Lecico’s total export volumes (sanitary ware) Export breakdown (by volume) Pieces (000) Exports/total UK (39%) 4,000 80% Sanitec (18%) 59% 56% France (16%) 3,000 60% 50% 46% 41% 42% Other Europe (10%) 2,000 40% Middle East (3%) 1,000 20% South Africa (2%) 1,431 1,229 1,240 1,982 2,389 2,267 Sy ria (2%) 0 0% Saudi Arabia (2%) 2000 2001 2002 2003 2004 2005 Other (8%) Sanitary ware export volumes Percent of total volume South Africa • Sanitary ware export volumes grew at 13% CAGR (2001-2005) • Lecico sells to over 50 countries (inc OEM sales) • Volumes fell slightly in 2005 due to market slowdown in UK • Approximately 30% of exports are for other brands Export focus on Europe Europe as percentages of total exports Growth of Lecico brand sanitary ware market share in UK Pieces (000) Europe/exports 800 10.0% 3,000 100% 84% 8.0% 82% 80% 81% 79% 600 80% 6.0% 2,000 60% 400 4.0% 40% 1,000 200 2.0% 20% 375 400 470 560 650 680 650 1,009 1,133 1,622 1,998 1,819 0 0.0% 0 0% 1999 2000 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 European sales volumes Europe/total exports (%) Number of pieces sold (000 pcs) UK market share (%) • UK estimated c8% market share in direct sales • Average of over 80% of exports are to Western Europe • Around 50% of total exports are to UK (direct and OEM) •European export volumes (excluding UK) flat in 2005 8
Significant cost advantage International cost advantage Lecico produces sanitary ware at an all-in average cost of US$10.1 / piece – In Egypt, manufacturing cost averages US$7.0 / piece of sanitary ware – The difference reflects lower production volumes in 2005, accessories added in Europe, depreciation and significantly higher industrial cost in Lebanon – Our information suggest other low cost producers manufacturing cost averages US$10-15 / piece – While European producers average US$25+ / 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 40 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$20-30 / piece global standard – Low shipping cost to Europe: US$1 per sanitary ware piece vs approx US$5+ for Asian manufactures 9
Sanitec and other business relationships Knowledge transfer • Quality and production control • Product development • Personnel secondments/exchanges Expansion Commercial • • Design facilities Revenue visibility • • Product expansion Margin protection • • Capacity expansion Lecico manufactures products under Sanitec and other brands CMS management agreement Indirect equity stake • • CMS provides technical consultancy Purchased in 1997 services to Lecico • Board representation • 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 10
Growth strategy
Long-term sanitary ware growth strategy Expand regional and international exports • Aim to increase market growth − UK, Ireland • Increase presence opportunistically − France, South Africa • Potential future markets − Germany, Italy, Algeria, Saudi Arabia, Iraq, Syria • Build on leading domestic positions and regional brand history to expand in the Middle East Expand production capacity • Sanitary ware capacity expansion: from 4.6m pcs in 2004 to an 7.1m pcs by end 2007 • Expanding casting capacity to handle greater proportion of WCs in either plant • Adding capacity in tiles (+4.4m sqm or 24% increase) and expanding fired clay capacity 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 12
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