Oriental Weavers Carpets First Quarter 2011 Results
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CAIRO, June 14, 2011 Oriental Weavers Carpets Company, Inc. (RIC: ORWE.CA) the world's largest machine-made rug and carpet manufacturer, reported today financial results for the quarter ending March 31, 2011. Highlights: First Quarter 2011 •
Sales value up 6% Y-o-Y to EGP 966 million.
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Net Income after minority for the period reached EGP 78 million, down 15%from the
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same period of 2010.
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EPS reached EGP 0.88 compared with EGP 1.04 in Q1 2010, off 16% Y-o-Y.
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EBITDA totaled EGP 146 million, just lower than EGP 153 in Q1 2010.
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Adjusted EBITDA
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EBT fell 17% Y-o-Y to EGP 89 million.
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Woven Segment sales were nearly flat at EGP 629 million Y-o-Y.
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Tufted Segment sales rose 6% to EGP 229 million Y-o-Y.
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value up to EGP 168 million, compared to EGP 170 million Q-o-Q
Adjusted EBITDA to include other revenues (export subsidies) amounting to EGP 21 million in Q1 2011.
Mr. Mohamed Farid Khamis, Chairman of the Board, said: “The past 12 months have been a remarkable period in Oriental Weavers’ history. We passed from cautious global expansion early in 2010 to record profitability and sales performance at the close of the year and, finally, to the economic fallout from political unrest in our home market of Egypt at the start of 2011. As a global producer and trader, Oriental Weavers is well-accustomed to uncertainty and the cyclical nature of our business. By any measure, however, the past 12 months — indeed, the past two years — have proven uniquely volatile. Oriental Weavers’ continued expansion in these conditions reflects the Group’s global competitiveness, from price to quality and operations. “Sales growth of 6% in the first quarter of 2011, despite two weeks of disrupted operations owing to conditions on the ground in Egypt, reflects strong export performance, increased utilization and efficiency at our factories, and the surprising resilience of local demand. “The weakening Egyptian Pound, which fell more than 2.5% against the United States Dollar over the first three months of 2010, imposed what we expect will be only short-term pressure on profits. The weakening pound added to already more costly dollar-denominated raw material expenses, as did interest payments on foreign currency debt. In most scenarios, Oriental Weavers’ fully global sales base provides natural currency protection as revenues and costs are roughly aligned by currency. The sharp decline of the pound and similarly rapid rise of input costs will be offset as our currency exposure naturally returns to alignment. Moreover, we note that a lower pound will ultimately provide important support to our export business. “Cyclicality has been and will remain fundamental to our business environment. But this is true for industrial producers and retail outlets across our sector and the wider economy. For Oriental Weavers, positioning is key: Sound financial management, low-cost and high-quality production, efficient logistics and distribution, flexible production and a globally diverse revenue base allow
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expanding market share in any climate. This model has served us well over the years and will continue to be fundamental to our worldwide growth. “Looking ahead, we expect to continue penetrating North American and European markets, capitalizing on our comparative cost base, production versatility and a product range that covers all price points. But the vibrant markets across the developing world are no less important as consumption in these territories remains unabated, as underscored by our sales growth continuing at 30-40 percent year-on-year.” Sales & Markets:
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Oriental Weavers’ global sales reached EGP 966 million in the first quarter of 2011, up 6% compared to EGP 915 million in the same quarter of last year. EBITDA remained nearly flat at EGP 146 million in 1Q 2011, versus EGP 153 million in the first three months of 2010, while Adjusted EBITDA in quarter reached EGP 168 million, just lower than the EGP 170 million in the same period of 2010. Oriental Weavers achieved sustained sales growth despite two-weeks of interrupted operations in late January and early February owing to conditions on the ground in Egypt. Disruptions to operations were offset by export growth, improved production efficiency and resilience of the Egyptian consumer market post-shutdown. Gross profit was off 7% compared to Q1 2010 as a rapid increase in raw materials cost pressured profits. Notably, oil based inputs, which account for around half of COGS, rose sharply, including an approximately 25% average rise in polypropylene outlays. Gross profit margin dipped to 12%, down from 14% in the first three months of last year. Despite cost pressures, Oriental Weavers maintained prices across most products throughout the quarter in continued commitment to international retail and commercial partners and as the local consumer climate was ill-positioned to absorb rising prices. In the first quarter of 2011, Oriental Weavers again saw robust sales increases in emerging markets, where established operations, a growing network of agents, a more profitable product mix supported expansion. In Russia and China, Oriental Weavers’ revenues grew 42% to EGP 18 million, while sales to the rest of Asia (excluding China) expanded 39% to EGP 21 million in the first quarter of 2011 compared to the same period of last year. In Africa, sales rose 39% Y-o-Y in the first three months of 2011 to just under EGP 8 million. Oriental Weavers’ emerging markets performance is underpinned by the company’s longstanding ability to serve previously overlooked developing markets. The company focuses on gaining solid ground in highly competitive and rapidly growing markets with new products and concepts specifically created to serve local consumer preferences. Oriental Weavers’ cost control allows the company to introduce these tailored products at competitive prices. In developed markets, floor covering sales remained weak as a soft recovery in consumer confidence and a deflated housing market postponed remodeling projects and business spending while stalling new construction. Cost leadership allowed Oriental Weavers to expand or maintain market share in developed markets, with North American sales rising 6% compared to Q1 2011 to EGP 277 million in the quarter. Oriental Weavers expects North American sales, which accounted for 29% of the Group’s total sales in the first three months of the year, to expand in coming months as product mix, distribution channels and currency movements support exports to the United States and Canada. Sales to Europe grew 5% in 1Q 2011 compared to the first three months of 2011 to reach EGP 258 million.
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Sales in the Egyptian market also rose, reaching nearly EGP 480 million in the first quarter, or 3% higher than the year prior. Sales growth came despite significant political turmoil in Egypt that closed factories and retail outlets and widely disrupted the broader economy. Table 1: Sales by Destination (EGP, 000)
Q1 2011
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Total Local Sales - Egypt
Q1 2010
Change
345,258
335,883
258,122 7,730 277,429 35,292 20,961 18,895 2,218
246,975 5,579 261,119 34,607 15,030 13,287 2,683
Total Exports
620,647
579,280
7%
Total Sales
965,905
915,163
6%
Europe Africa America & Canada Arab Countries Asia Russia & China Other
3% 5% 39% 6% 2% 39% 42% -17%
Segment Analysis: Tufted products led Oriental Weavers’ sales growth in 1Q 2011, rising 6% compared to the first quarter of 2010 to EGP 229 million. Tufted sales represented 23% of total sales by value and 41% of sales by volume in the quarter. The shift toward lower-cost tufted products contributed to a slight easing in margins, but highlights the Group’s versatile response to market conditions. Despite a relative shift toward tufted products, Oriental Weavers’ woven segment continued to lead sales by value in 1Q 2011, representing approximately 66% of revenue in the quarter. Sales of all woven grades were flat compared to 1Q 2010 at EGP 629 million. Grade B products led sales, reaching EGP 262 million, up 5% compared to the first quarter of 2010. Strong demand for Grade B products is supported by the company’s market share developments in North American and European markets, where Oriental Weavers’ costs advantages are particularly strong in the middle of the market. Sales of Grade C woven products were mostly flat at EGP 282 million in 1Q 2011, down just 1% from EGP 286 million on the year prior. High-end Grade A woven products suffered a 9% decline Yo-Y, totaling EGP 85 million in sales during the first three months of 2011. Sales of fibers and handmade goods rose sharply in the first quarter, doubling to EGP 74 million compared to the 1Q 2010 as the line of business has demonstrated marked growth over the past year. Fibers and handmade products represented 8% of sales in the quarter.
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Table 2: Product Mix in Terms of Value (EGP, 000)
Q1 2011 Woven Woven Woven Total
Grade A Grade B Grade C Woven
Tufted Wall-Wall Tufted Pieces Total Tufted
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Change
93,887 249,336 286,432 629,655
-9% 5% -1% 0%
7,189 221,842 229,031
18,403 197,498 215,901
-61% 12% 6%
33,967 73,829
32,426 37,181
5% 99%
965,905
915,163
6%
Non-woven felt Other (Fibers & Hand-Made) Total
Q1 2010
85,034 261,590 282,454 629,078
Table 3: Product Mix in Terms of Volume (SQ.M, 000)
Q1 2011 Woven Woven Woven Total
Grade A Grade B Grade C Woven
Tufted Wall-Wall Tufted Pieces Total Tufted Non-woven felt Total
Q1 2010
Change
524 3,696 7,116 11,336
671 3,739 8,404 12,814
-22% -1% -15% -12%
554 10,601 11,155
830 10,305 11,135
-33% 3% 0%
3,353
3,415
-2%
25,844
27,364
-6%
Margins & Profitability: Gross profit fell 7% in 1Q 2011 to EGP 120 million, compared to EGP 129 million in 1Q 2010. Gross profit margins in the quarter declined 2 percentage points to 12%.
Table 4: COGS (EGP, 000)
Q1 2011 Raw Materials Industrial Exp. Selling Exp. Other Total
Q1 2010
Change
464,319 104,061 170,747 106,256
433,028 84,744 163,674 104,569
7% 23% 4% 2%
845,383
786,015
8%
Net Profit after Minority Interest: Net Profit after minority interest declined 15% in 1Q 2011 compared to the same period a year earlier, totaling EGP 78 million Rising raw materials costs accounted for nearly all of the decline in profits, as COGS rose 7.6% Y-o-Y to EGP 845 million.
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Recent Developments:
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Oriental Weavers approved an EGP 2 per share cash dividend for FY 2010 at the company’s Annual General Meeting on April 17th, 2011. The dividend was payable on May 30th, 2011 to the stockholders of record as May 25th, 2011. The payout implies a dividend yield of 6.3% and was revised upwards from initial intentions to payout an EGP 1.50 cash dividend. The dividend continues Oriental Weavers longstanding commitment to cash payouts, though the FY 2010 dividend returns to standard payout range after offering equity holders an approximately 90% dividend payout in 2008 and 2009. The return to standard dividend policy comes after Oriental Weavers invested EGP 400 million in 2010 and plans to direct another EGP 250 million to expand operations in 2011. Oriental Weavers’ business model relies on a business-to-business approach, which allows a high degree of flexibility. In 2010 the company initiated an “outsourcing / commission weaving” model with select developed market clients. This has grown dramatically in the year and continued expansion in the first quarter of 2011. We expect this business to continue marked growth, possibly selling in the range of 5-6 million square meters and are currently in talks with other clients to expand the line of business. Oriental Weavers is presently finalizing the first phase of its EGP 1.3 billion industrial complex by establishing a new fiber plant with an annual capacity of 400,000 tons. The integrated industrial complex will increase capacity 60% by 2016. In the short term, the expansion of fiber production will continue to insulate Oriental Weavers from global raw materials price pressures and is expected to boost margins by the final quarter of 2011. Oriental Weavers is also pleased to announce the launch of its new Investor Relations Website intended to improve corporate transparency and communication with its shareholders. The website will continue to evolve and we will continue to add new sections, new information and use new tools as Oriental Weavers takes further steps to deliver best in class Investor Relations practices. The new IR website is designed and hosted by Thomson Reuters, world's leading IR website developer and its presents a wide scope of information related to the Company, including recent financial statements, press releases, schedule of upcoming events and many other analytical interactive tools. Investors can view the site at: ir.orientalweavers.com
Outlook: Oriental Weavers again highlights sales at this year’s DOMOTEX Hannover, one of the most significant annual global floor covering trade fairs. Sales this year matched those recorded at the 2010 edition, signaling another year of solid performance and continued protection of our global market share. This is particularly significant in light of the fact that our export woven segment recorded 35% year-on-year growth in 2010 as compared with an industry average of 3-4% in this very mature segment. This year’s DOMOTEX saw Oriental Weavers secure an 8-12 week backlog of orders. While global sales at DOMOTEX remained on pace with 2010 sales, much remains to be seen regarding the strength of global growth and home construction and remodeling for the remainder of 2011. Further, raw materials price pressures continue to squeeze margins. Oriental Weavers will consider sharing the burden of these price pressures should they remain elevated, and will actively pursue a product mix that reduces exposure to the most quickly rising resources. We note in this respect that current oil prices will not only impact Oriental Weavers, but all other global manufacturers. Our strategy is generally to be the last to implement price rises and to raise prices as little as possible.
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Three Months Ended 31 March In (EGP, 000)
2011
2010
Change
965,905
915,163
6%
845,383 120,522
786,015 129,148
8% -7%
12%
14%
-12%
8,114 19,253 --
7,090 18,225 921
14% 6% -100%
27,367
26,236
4%
93,155
102,912
-9%
10%
11%
-14%
5,199 21,225 -(16,434) (13,890)
4,212 16,939 16 (21,468) 5,241
23% 25% -100% -23% -365%
(3,900)
4,940
-179%
89,255
107,852
-17%
9%
12%
-22%
Current Income Tax Deferred Tax
(8,029) 1,038
(11,018) 248
-27% 319%
Income Tax for the Period
(6,991)
(10,770)
-35%
Net Profit for the Period
82,265
97,082
-15%
9%
11%
-20%
77,635 4,629
91,800 5,282
-15% -12%
Net Sales Less: COGS Gross Profit Gross Profit Margin
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Less: Selling & Distribution Expenses General & Administrative Expenses Provisions
Net Income from Operation Activities Operation Activities Margin
Add / Less: Interest Income Other Revenues Capital Gain Financing Expenses Foreign Exchange Differences
Net Profit for the Period before Income Tax EBT Margin
Add / Less:
Net Profit Margin
Attributable to: Equity Holders of the Parent Minority Interest
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31-Mar-11
31-Dec-10
Change
Long Term Assets Fixed Assets (Net) Projects in Progress Investments - Available for Sale Investments in Affiliated Companies Goodwill Paid Under Investments Account Deferred Tax
1,624,977 558,417 82,806 39,997 696,836 19,901 5,443
1,618,219 531,455 82,806 39,997 696,836 19,901 3,723
0.4% 5.1% 0.0% 0.0% 0.0% 0.0% 46.2%
Total Long Term Assets
3,028,377
2,992,936
1.2%
Current Assets Inventory Trades & Notes Receivable Debtors and Other Debit Accounts Cash on Hand & at Banks
1,708,985 786,205 170,756 533,489
1,588,526 805,653 139,554 531,049
7.6% -2.4% 22.4% 0.5%
Total Current Assets
3,199,436
3,064,782
4.4%
Current Liabilities Provisions Banks - Credit Accounts Long Term Liabilities - Current Portion Suppliers & Notes Payable Dividends Payable Creditors & Other Credit Accounts
77,283 1,393,140 273,939 686,123 219,338 141,542
77,463 1,274,412 264,185 702,228 2,028 157,600
-0.2% 9.3% 3.7% -2.3% 10717.0% -10.2%
Total Current Liabilities Working Capital Total Investment
2,791,365 408,071 3,436,447
2,477,915 586,867 3,579,803
12.6% -30.5% -4.0%
Shareholder's Equity Issued and Paid Capital Reserves Unrealized Profits from Available for Sale Investment Retained Earnings Net Profit for the Period Exchange Differences Arising on Translation of Foreign Currency Treasury Stocks
450,000 1,362,136 452 635,487 77,635 184,204 (14,597)
450,000 1,348,588 452 522,325 322,141 144,349 (14,597)
0.0% 1.0% 0.0% 21.7% -75.9% 27.6% 0.0%
Total Equity Attributable to Equity Holders of the Parent Minority Interest Total Equity
2,695,317 201,939 2,897,256
2,773,258 219,982 2,993,241
-2.8% -8.2% -3.2%
Long - Term Liabilities long Term loans Deferred Sales Taxes Installments Housing and Development Bank Loan Creditors - Purchase of Fixed Assets Total Long Term Liabilities Total Shareholder's Equity & Long Term Liabilities
537,827 239 607 518 539,191 3,436,447
582,342 478 727 3,016 586,563 3,579,803
-7.6% -50.0% -16.5% -82.8% -8.1% -4.0%
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In (EGP, 000)
Financed as Follows:
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Three Months Ended 31 March In (EGP, 000)
2011
2010
Change
89,255
107,852
-17%
53,161 -16,434 -158,850
50,231 921 21,468 (16) 180,455
6% -100% -23% -100% -12%
(Increase) in Inventory Decrease (Increase) in Trades & Notes Receivable and other Debit Accounts Decrease (Increase) in Suppliers & Notes Payable and other Credit Accounts
(120,459) (11,754) (41,052)
(20,472) (15,078) (25,831)
488% -22% 59%
Cash Flows Provided by Operating Activities
(14,415)
119,074
-112%
Paid Financing Expenses
(16,434)
(21,468)
-23%
Net Cash Flows Provided by Operating Activities
(30,849)
97,605
-132%
Cash flows from Operating Activities: Net Profit for the Period before Income Tax Adjustments to Reconcile Net Profit to Net Cash Provided by Operating Activities Fixed Assets Depreciation Provisions other than Deprecations Financing Expenses Capital Gain Operating Profits before Changes in Working Capital
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Change in Working Capital
Cash Flows from Investing Activities Payments for Purchase of Fixed Assets and Projects in Progress
(45,521)
(26,539)
72%
Net Cash Flows (used in) Investing Activities
(45,521)
(26,539)
72%
Proceeds (Payment) from Banks-Credit Accounts Dividends Paid (Payment) Proceeds in Long Term Liabilities
118,726 (1,296) (37,617)
52,237 (317) (28,431)
127% 309% 32%
Net Cash Flows (used in) Provided by Financing Activities
79,813
23,489
240%
Cash Flows from Financing Activities:
3,442
94,555
-96%
Cash and cash equivalents at beginning of the period Exchange Differences Arising on Translation of Financial Statements
530,953 (1,004)
336,819 4,841
58% -121%
Cash and Cash Equivalents at End of the Period
533,392
436,215
22%
Net Change in Cash and Cash Equivalents During the Period
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About Oriental Weavers Carpet Company: Oriental Weavers is a global player in machine-woven rugs and carpets; the company is renowned for superior product design and quality, as well as technological innovation. Today, the company is the largest producer of machine-made woven rugs in the world; and through its MAC subsidiary, the largest producer of printed/tufted rugs. It is management’s vision to build a state-of-the-art, internationally-competitive carpet and home textile company characterized by a sharp focus on its customers, and driven by marketing- and export-oriented strategies. (www.orientalweavers.com) Capital: Issued and paid-in capital: 450 MEGP Number of shares: 90 million shares Par value of 5 EGP per share
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Shareholders’ Structure: The Khamis Family 57% Institutions 38% Retail 5% Investor Relations Contacts: For further information, please contact: Farida Khamis Vice President Corporate Finance & Investor Relations Oriental Weavers Carpet Company Tel (Direct) : +2 (02) 2268 5166 Fax : +2 (02) 2268 8447 E-mail :
[email protected] Website:www.orientalweavers.com
Haitham M.A.Moneim Investor Relations Manager Corporate Finance & Investor Relations Oriental Weavers Carpet Company Tel (Direct) : +2 (02) 2268 5166 Fax : +2 (02) 2268 8447 E-mail :
[email protected] Website:www.orientalweavers.com
Forward-Looking Statements Certain information contained in this document consists of forward-looking statements reflecting the current view of the Company 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 the Company to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including worldwide economic trends, the economic and political climate of Egypt and the Middle East and changes in business strategy and various other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in such forward-looking statements. Recipients of this document are cautioned not to place any reliance on these forward-looking statements. The Company undertakes no obligation to republish revised forward-looking statements to reflect changed events or circumstances. ###
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