Despite more than two years of political and economic turmoil in its main markets in Egypt and Libya, Lecico (LCSW), a listed tile and sanitary ware producer, has reported a double-digit increase in sales.
The Alexandria-based company enjoyed an 18 per cent year-on-year rise in revenues for the first nine months of 2013 to reach E£1.1bn ($160m).
Increases in sales volumes were driven by Egypt and Libya, a trend that management expects to continue. In 2012, Egypt accounted for 44.8 per cent of group sales, and Libya 14 per cent.
“Despite economic and political uncertainty in Egypt, I think consumption continues, especially in the mass market,” says Taher Gargour, Lecico’s managing director.
The weakening of the Egyptian state since 2011 has led to a surge in unlicensed housing, which has benefited manufacturers of sanitary ware, home furnishings and building materials. The Egyptian pound has lost about 16 per cent of its value, prompting many to invest in real estate, regarded as a safe asset.
Established in Lebanon in 1959 by Palestinian and Lebanese families, Lecico began operating in Egypt in 1975, when the country opened up to foreign investment under then-president Anwar Sadat.
The civil war in Lebanon began in the same year and lasted for 15 years, while Egypt became Lecico’s biggest market. The size of Egypt’s population – at 83.7m, the Arab world’s largest – helped fuel sales.
“We consider ourselves now an Egyptian company with a Lebanese subsidiary, whereas we began the other way,” says Mr Gargour.
Lecico’s sales volumes were up 25 per cent for sanitary ware in Egypt in the first nine months of 2013, and tile sales climbed 10 per cent. The company has been chasing market share by offering new, upmarket products as well as supplying its traditional working-class customer base, Mr Gargour says.
In Libya, the company has staged a comeback after it lost almost all business there in 2011 following the ousting of Muammer Gaddafi and subsequent unrest. Sales in Libya were up 590 per cent in 2012, and Mr Gargour is expecting another record year in 2013.
“[In Libya,] it’s a demographic push first and foremost. Similarly, after years of underdevelopment, now you have a free market for development, probably unregulated,” he says.
As well as grappling with turmoil in the Middle East, Lecico has had to face the challenge of weaker European markets since the financial crisis began in 2008. It has shut down its French arm, which accounted for 15.2 per cent of sanitary ware and tile sales in 2007 but by 2012 had fallen to 4.4 per cent as the euro weakened.
Analysts and the company regard the closure of the French division as a positive move that will improve the balance sheet in the long term, even if it means a short-term hit: a write-off of E£130m and an expected overall loss this year.
They say the company’s challenge in the next few years will be to boost sales and maintain profit margins as input costs rise.
“They have to grow their sales by double digits every year to maintain their profit margins,” says Loic Pelichet at NBK Capital in Dubai.
In Egypt, the company is budgeting for a 30 per cent rise in energy costs every year for the next three years, as the government plans to remove subsidies to industry. Labour costs have gone up, as workers demand better pay following the 2011 revolution.
To improve its balance sheet, Lecico is limiting capital expenditure and focusing on efficiency gains for better returns on existing assets.
“The exception is tile expansion, and we still have scope for this in the next year or two,” says Mr Gargour.
Source: Financial Times
