OW Investor Presentation 2Q18

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Investor Presentation
Oriental Weavers in Numbers
No. 1
EGP 10 bn
61%
World Largest
producer by volumes
Record Turnover in
2017
Export contribution in
2Q2018
85%
c. 80%
EGP 400 mn
Market share in Egypt
Utilization rate
Backlog of export
incentives
Slide 2
Main segments of OW
Woven
Tufted
Description
Surface yarn is woven simultaneously
with the backing. Then a latex
compound is added.
Subsidiaries
OWC
OWI &
OWT
OWUSA
OW
China
% of Revenues
35%
25%
20%
1%
22.5%
Exempted
25%
17%
23
44
NA
3.4
Tax rate
Capacity
mn sqm
(Dec 2017)
The surface yarn is
inserted into a
polypropylene sheet
MAC
New MAC
16%
22.5%
Fibers bonded
together using
chemicals and heat.
EFCO
3%
Exempted
46
Non-woven
22.5%
19
Slide 3
A Vertically Integrated Business Model
Oriental Weavers has complete control over the manufacturing process.
 Raw material procurement: The wool is sourced from suppliers in Egypt, New Zealand and the UK;
Polypropylene granules are sourced from local and regional suppliers.
 Fiber extrusion: Raw wool and PP granules are converted into fibers and then spun into yarn. OW
produces internally 100% of its own polypropylene fibers and 60% of its nylon needs.
 Weaving & Tufting: The carpets are woven at one of our facilities in Egypt, China or the US,
depending on the end user. The designs are determined by the customer needs; we offer more than
4 million copyrighted designs to choose from.
 Retail & Distribution: Locally, the rugs are sold through our 244 retail & wholesale outlets.
Internationally, rugs are distributed worldwide through our list of prominent agents. In the US, rugs
are distributed through OW USA.
Fiber extrusion
Weaving & Tufting
Retail & Distribution
Slide 4
Positive triggers for OW
1. The US Tit for Tat tariffs on imports from China and Turkey should open more room for growth.
2. Turkey’s exporters must convert 80 percent of their foreign exchange revenue into lira within 180 days of
receiving payment. The measure went into effect from Sept 4 and will last six months. This will cause more
pressure on exporters.
3. Pending export subsidy collection (EGP 400 million).
4. Reviving demand in the local market.
5. A 5% increase in local selling prices starting September.
Slide 5
Export Market development
Revenue contribution & performance by region in 1H2018
▼33%
Russia & China
▲ 3%
Americas
▼19%
▼ 3%
Asia
▲13%
▲96%
Africa
▲5%
Africa &
GCC
4%
Egypt
37%
Russia &
Asia
3%
Europe
20%
US
36%
Slide 6
Longstanding relationship with major customers
Slide 7
Export Market Development in 2Q/ 1H 2018
Percentage ∆
Volume
Value
Average
Price
2Q 2018
Contribution to
Export Revenues
2Q 2108
2Q 2017
Woven
▲11%
▲8%
▼3%
80%
74%
Tufted
▼12%
▼19%
▼8%
18%
22%
Non-woven Felt
▼37%
▼44%
▼10%
2%
4%
Total
▼2%
▼0.2%
▲2%
100%
100%
Total (1H 2018)
▼3%
▼1%
▲4%
100%
100%
USDEGP
17.88
▼1%
Slide8
Export performance overview
Export vs. Local Revenue volume %
Export
Local
2016
2017
46%
60%
2015
54%
2014
68
65
54%
3.5
57%
3.4
46%
43%
6.7
3.7
Export volumes (mn sqm)
40%
Export revenues (EGPbn)
2014
2015
2016
2017
60
2014
2015
63
2016
2017
Slide 9
International Hospitality segment recorded
39% y-o-y growth in 2Q2018:
We installed the carpets at a number of projects worldwide, including:
 the Ritz Carlton-Charlotte, Hyatt Mission Bay, and Westin Houston Galleria in the US.
 Also, we finished the installations of a number of projects in Dubai including Paramount Towers A, B & D,
the Address Montgomerie, Phase 2 of the Atlantis, and Novotel Hotel.
Slide 10
Export outlook:
Latin America
US & Canada market:
-
Possible changes in trade barriers between the US and Turkey & China
-
Focusing on small online retail accounts which results in 100% growth ytd
-Bio Trade which supplies Home Depot & Walmart
in exports to Home City ($3.3mn) and 160% to Nuloom ($1.1mn)
-Launching a new line for Tommy Hilfiger in Brazil
-
New Program with Dallen on 7 new products (agent sells to Menards,
Rooms to go, Home Goods, Havaries)
Africa: 90% growth yoy
-
New promotions from Costco & Menards
-
Three new online accounts in Canada including Jsonic and Multi.
Wider expansion in South Africa, Congo, Benin,
Ghana, Togo, Ruwanda
-
MAC: New program for artificial grass with NATCO
- 90% share in Tanzania
-
EFCO: New program for Dollarama and Dollar General
- 200% growth in exports to Kenya
-Expanding in South Africa (Walmart, house& home,
game)
Slide 11
Export outlook:
Europe:
Asia & Japan
Ikea:
-20 % growth in Japan.
-
OW is IKEA’s development supplier
-
Currently working on a new product range for IKEA, started shipment in early
September (10% increase till 8M2018)
- Expansion with Scandinavian retailers like Rosta and Jysk
France: Partnering with NK Sales, major distributor in France to stock and distribute in
France, for USD 4 million in 2019.
Germany: We are 71% higher till August, working with large online retailers such as floor
direct and Beotta
-Three New promotions with Aldi and a new promotion with Liddle (500k [email protected])
-Spain: Zara Home,
-Italy: Natuzzi
-Two new confirmed promotions in Poland for $500k.
-Partnering with new customers in Turkey, Russia, Poland, Ukraine, the UK, Romania &
Slovakia.
Slide 12
-Nitori: introducing 6 new ranges ($750k)
- Partnering with major retailers,
wholesalers, and dept stores.
- New wholesalers in South Korea
- New retailers in Indonesia, and Singapore
New Zealand| Bunnings
-India | Big Bazar
-Approaching customers in Bangladesh, Siri
lanka, Vietnam & Pakistan
Global Macro Fundamentals
US Market
Europe
• US economy continues to move forward, wage growth and
higher new jobs added
• Expected continuous growth in new home sales driven by
employment gains and a rise in household formations.
• Rising renovation and remodeling activities, growing interest in
interior decordation
Homeowners improvements & repairs (USD bn)
360
340
USD Bn
320
300
280
279
285
260
240
220
4.80%
291
296
298
304
310
315
318
324
336
8.5%
9%
9%
Asia & Africa
European economy is set to follow a
moderate growth path.
Strong potential in African
beside East Asian markets.
Residential renovation and
maintenance grow steadily by about
1.5% per year.
Developing consumer trends
driving growth in these
regions.
8%
8%
Growing Urbanization
7%
7%
5.90%
6.8% 6.7%
6.7%
6.50%
6.4% 6.3% 6.5%
5.20%
6%
6%
5%
200
5%
Q1
Q2
Q3
2016
Q4
Source: Joint center for housing studies
Q1
Q2
Q3
2017
Q4e
Q1e
Q2e
2018
Q3e
Slide 13
Industry overview| Global carpets & rugs market
Global Carpets & rugs market by value (USD bn)
Global Carpets & rugs market by bn sqm (5 yr CAGR)
North America: 2.6%
Asia & pacific:3.2%
Total
Europe:1.1%
others:3.8%
5
4.4
5 year CAGR
4.1%
0.5
45
Source: Freedonia group
5 year CAGR
2.6%
1.5
1.0
37
2016
0.6
2021
1.7
1.1
1.4
1.6
2016
2021e
Source: Freedonia group, Company estimates
Slide 14
Demand Drivers in Egypt
Growing economy
GDP is expected to grow by 5-6% annually up to 2020
as per the IMF.
Sizeable youth
population
50% of the Egyptian population are near the marriage
with around one million marriages taking place annually.
Housing gap
Housing gap is about 3 million units which creates potential
for the development of new private and social housing
projects.
Egyptian culture habits
Soft floor coverings are considered essential in every house
Sizeable youth bracket
Slide 15
Local Market Development in 2Q/1H 2018
Percentage ∆
Volume
Value
Average
Price
2Q 2018
Contribution to
Local Revenues
2Q 2108
2Q 2017
Woven
▲10%
▲12%
▲2%
82%
83%
Tufted
▲8%
▲12%
▲4%
11%
11%
Non-woven Felt
▲1%
▲11%
▲10%
4%
4%
3%
2%
Others
▲121%
Total 2Q 2018
▲8%
▲13%
▲4%
100%
100%
Total 1H 2018
▲3%
▲8%
▲4%
100%
100%
Slide16
Local market overview
Export vs. Local revenues%
2015
2016
2017
33%
40%
67%
2014
55%
2.3
3.4
Local
60%
2.3
3.0
Local sales volumes (mn sqm)
60%
40%
Export
45%
Growing local revenues (EGPbn)
48
2014
2015
2016
2017
2014
51
54
2015
2016
46
2017
Slide 17
Revenue progress
Revenues (EGPbn)
EGPbn
Export
Sales volumes (mn sqm)
Local
6.8
5.7
5.8
2.3
2.3
3.4
3.5
3.7
2014
2015
2016
10.1
111
Local
117
114
48
51
54
46
65
60
63
68
2014
2015
2016
2017
mn sqm
113
3.4
Export
3.0
6.7
2017
3-year CAGR 21%
Slide 18
2Q2018/1H 2018 Revenue summary
Value (EGP mn)
Volume (sqm)
2Q 2018
2Q 2017
% Change
2Q 2018
2Q 2017
%
Change
1,488
1,351
10%
13.9
12.7
10%
OW USA
511
454
13%
2.7
2.2
22%
OW China
30
51
-41%
0.4
0.5
-26%
Tufted
391
444
-12%
7.1
7.6
-7%
Non-woven Felt
71
89
-21%
3.4
3.9
-13%
2,526
2,414
5%
27.5
26.9
2%
Woven- Egypt based
Total
Value (EGP mn)
Volume (sqm)
1H 2018
1H 2017
% Change
1H 2018
1H 2017
%
Change
Woven- Egypt based
2,952
2,758
7%
28
26
8%
OW USA
1,032
1,016
2%
6
5
6%
OW China
46
71
-36%
1
1
-21%
Tufted
818
885
-8%
15
16
-11%
Non-woven Felt
144
179
-20%
7
8
-7%
Total
5,033
4,938
2%
56
56
Slide 19
0%
Diversified Product Mix
2Q 2018 Revenue Mix (by volume)
Nonwoven
Felt
12%
Tufted
16%
Woven
51%
Tufted
26%
OW China
1%
2Q 2018 Revenue Mix (by value)
Non-woven
Felt
3%
OW China
1%
Woven
60%
OW USA
20%
OW USA
10%
Woven-Grade A
Woven-Grade B
Woven-Grade C
EGP300/sqm
EGP128/sqm
EGP68/sqm
Tufted wall-to-wall
Tufted pieces
Non-woven (EFCO)
EGP46/sqm
EGP61/sqm
EGP18/sqm
Slide 20
Hospitality segment recorded 6% y-o-y growth:
Among the projects that were installed in 2Q 2018 were
Vida Al-Alamein Hotel at Marrasi North Coast,
Sharm El Sheikh Conference Center,
A number of hotels in Sahl Hashesh, Marsa Alam, and Giza.
Currently the company has started production for the axminister carpets for the new capital’s 10,000 sqm
mosque, which is to be the largest mosque in Africa.
Slide 21
2Q 2018 Cost Breakdown
OW China
Other 2%
15%
Polypropylene
- Nylon
29%
2,100
USD /ton
1,629
1,500
Selling
21%
1,363
1,584
1,303
1,082
979
900
Wool
4%
Depreciation Wages
4%
8%
1,585
1,218
990
Raw Material
50%
1,456
Backing 300
10%
Finishing
material
7%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Company
Almost 63% of costs are dollar based.
Slide 22
Recent and Future Expansions
2015
Woven
Tufted
Nonwoven
13 looms added
increasing
production
capacity by 6%
2016
4 new goblin
looms
9 new looms
2 yarn
production
lines
MAC penetrated
the artificial turf
segment following
the addition of
two new machines
Two new machines
added
2017
Establishing a new factory
10 new looms pending local
and international demand
One Heatset yarn machines
8-10 new looms pending local
and international demand
Six yarn machines
2016-2020

Two new
machines
added
2018e
One digital printing
Two yarn machines
Two yarn machines & other
equipment
Finishing and coloring machines
Two new machines
Slide 23
Financial Summary
900
700
500
300
772
803
1,116
1,523
600
12%
500
10%
8%
100
6%
2014
2015
3-year CAGR 25%
2016
2017
6.5%
6.8%
200
100
1.0
1.4
1.2
0.7
1.0
2014
2015
2016
2017
0.0
1.0
0.6
0.5
4%
1.2
0.8
6%
400
300
1.2
0.4
1.1
1,100
14%
6.1% 7.1%
1.5
Net debt/EBITDA
1.3
13.8%
700
8%
Net debt
0.8
1,300
13.6%
16%
EGPmn
800
EGPbn
Net margin
1.0
1,500
Net income
680
1,700
EBITDA margin
16.5%
15.1%
484
EBITDA
Net Debt (EGPbn)
356
EGPmn
Net Income Performance
367
EBITDA Performance (EGPbn)
2014
2015
2016
2017
3-year CAGR 23%
Slide 24
0.2
0.0
Impact of Energy Subsidy Reform on Costs
Energy cost
Jun-14
Jul-15
Jul-16
Jul-17
Jul-18
%
Change
5
5
-
Natural gas (US$/mmbtu)
2.25
5
5
Electricity (EGP/KW)
0.28 0.435
0.53
0.69
0.99
43%
2.35
3.65
5.5
55%
Transportation costs (EGP
Diesel/Liter)
1.1
1.80
* Energy cost represents less than 4% of the company’s total cost
Slide 25
Export Incentive Program:
Export cash
proceeds
Documents submitted
to Export Subsidy
Fund
EGP400 mn delayed
disbursement till
August 2018
OW collected EGP60
mn in 1H 2018.
Exports
Export subsidies
(% of exports in
EGP)
Sources: Company
Slide 26
Export Incentive Program
The program includes only very minor changes to incentive rates, but does offer exporters
extra incentives in growing USD exports from 10%–25%, exporting to Africa and opening
new markets (such as Russia, China, Latin America, CIS).
These amendments should be implemented retroactively on export shipments starting July 1,
2016.
Non-free Zone area (NFZ)
Local
materials
Imported
materials
Old
10%
6%
New*
12%
6%
Program
100%
imported
material
Free Zone area (FZ)
100%
imported
material
Average rate based
on 70% of exports
from FZ
Local
materials
Imported
materials
6%
9%
5.0%
5.0%
5.3%
6%
9%
4.5%
4.5%
5.0%
Slide 27
Share Data
o450 mn shares at par value of EGP 1 per share.
o Issued and Paid-in Capital EGP 450 mn.
oListed in EGX since September 1997.
EPS
2.00
81%
1.80
1.60
1.40
o Market Cap USD 280 mn (as of Aug 19, 2018).
o2017 DPS of EGP1.5.
oReuters; Bloomberg ORWE.CA; ORWE EY.
92%
78%
66%
81%
1.81
0.40
90%
70%
1.46
60%
50%
59%
0.80
0.60
100%
80%
76%
1.20
1.00
o3 Month average daily value EGP8.3mn.
Payout ratio
0.37
0.40
0.43
0.48
40%
0.55
30%
20%
0.20
10%
-
0%
2011
2012
2013
2014
2015
2016
2017
Shareholders’ structure
Khamis Family
Institutions
Foreign Institutions
Local Institutions
Treasury Shares
Retail
Sources: Company
56%
38%
27%
11%
1%
5%
Slide 28
Disclaimer
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.
Slide 29
For More Information, please contact
Ingy El-Diwany, CFA
Investor Relations Manager
+202-22685166
[email protected]
www.orientalweavers.com
Slide 30
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