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

Corporate Summary

Introduction: An Egyptian exporter  Lecico Egypt S.A.E. was founded in 1959 and has been majority owned by the Gargour family since 1969  The company has a global competitive advantage making European Kfarchima quality sanitary ware at Egyptian costs Established 1959  c45% of Lecico ’ s sanitary ware sales volume is exported to Europe Sanitary ware capacity: 200,000 pcs 2007  Lecico finished expansions in sanitary ware in 2007 which boosted Kfarchima Beirut 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 Alexandria Borg El-Arab Khorshid reached 12.8m sqm capacity in 2013 (Total tile capacity 35m sqm) Cairo  In 2016, Lecico took the step to reduce production capacities in Borg El-Arab Egyptian tiles and Lebanese sanitary ware and to stop tile production Khorshid Established 1997 in Lebanon to match demand Established 1975  In 2019, Lecico is beginning a restructuring of Lecico Lebanon to Sanitary ware capacity 2.0 million pcs 2005 Sanitary ware capacity further cut production in Lebanon and unlock value from asset base 4.4 million pcs end 2007 2.5 million pcs 2005 1.8 million pcs (inc FC) end 2008 Tiles capacity Split of domestic and export 1 Split of sanitary ware and tiles 1 mid – 2011 6.4 million m 2 Tiles capacity 12.8 million m 2 mid – 2013 17.0 million m 2 2005 12.0 million m 2 2016 Brassware capacity mid – 2010 0.3 million pcs * All production facilities are owned and controlled by Lecico Note: (1) FY 2018 3 3

A major sanitary ware exporter

An export led sanitary ware business Large and independent Experience and quality OEM pedigree and history Significant cost advantage • Over 30 years of exports to Europe • Over 20 years of OEM experience • USD 13.30/piece cost (70% of peers) • The largest sanware factory in with largest brands in Europe • Certified in all major markets • c USD 1.50/piece shipping to Europe Europe, Middle East and Africa • 33% of exports to OEM brands • Independent from all major brands • Claims less than 0.1% of exports 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 Growth is coming from sanware exports Sanware exports grew at a 25% CAGR Export-led growth Supplier for key European (2014-2018) brands Vs. 6% CAGR for rest of revenue 5 5

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 6

Long-term commercial strategy Expand in Developed Markets  Increase own brand and white label  UK, Germany, France, South Africa • 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 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 7

A major sanitary ware exporter to Europe Growth in group’s exports Lecico ’ s total export volumes (sanitary ware) Egypt ’ s leading sanitary ware exporter • 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) • Sanitary ware export reached a record percentage of sales • Expecting exports and OEM proportion of sales volume volumes in 2018 … and value of sanitary ware to continue to rise in 2019 • … mainly led by sales growth in Europe Export focus on Europe Europe as percentages of total exports Growth of Lecico brand sanitary ware market share in UK • UK estimated c15% market share in Lecico-branded and white • Exports to Europe reached levels ever in 2018 label sales in the UK • Growth forecasted to continue in 2019 and 2020 8 • 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. Item Increase since 2014 Impact Natural Gas 517% from an average of EGP Approximately 15% of costs 17.4/mbtu to EGP 107.4/mbtu 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  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 10

..met collapse in regional markets and over-capacity  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 11

Gains of floatation eroded by high inflation  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. 12