transcription, oriental weavers, 15/06/20, …€¦ · web viewpresentation nada amin hello...

TranscriptionOriental Weavers, 15/06/20EV00108880

Thursday, January 14, 2016

Transcription, Oriental Weavers, 15/06/20, EV00108880

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Presentation

Nada AminHello everyone. My name is Nada Amin, I am part of EFG’s Consumer and Healthcare team. It’s our pleasure today to be hosting Oriental Weavers’ First Quarter 2020 conference call. I will be introducing Miss Yasmine El Gohary, the company’s Investor Relations Manager to introduce the rest of the team and kick off the call. Yasmine, please go ahead.

Yasmine El GoharyGood morning everyone. Thank you all for attending our [audio] quarterly [audio] call. Today, I have with me Mr. Hani Amin, our Export Director, Miss Radwa Kamel, Group Treasurer, and Mr. Shehta, our [audio]. Today, I will be talking on behalf of [audio] because she couldn’t make it with us today and we will give you a quick update on the company’s results [audio] and a quick guidance—

[Technical difficulty]

In the first quarter, we achieved sales of EGP 2.3 billion, down 13% year-on-year. The reasons for the decrease were the decline of 12% in the export revenues during the quarter, [audio] of which was EGP appreciation compared to Q1 2019, while local sales [audio] by 13% compared to Q1 2019.

On a more positive note, our gross profit margin increased by 20% mainly due to lower polypropylene prices and lower nylon prices [audio] [by 18%] and lower consumption of polypropylene [audio]. We also collected export rebates of almost 54 million during the quarter, EGP 151 million until May. We are cutting back on all non-essential expenses for the time being until things are clearer, locally and globally.

As for the balance sheet, [audio] sustainable liquidity [audio] through the crisis. Our business model remains solid with strong [audio] market taking the necessary actions to manage the downturn. We have taken the necessary actions to respond to the global event in the best possible way. We remain focused on the long-term and we are confident we will be able to overcome this unprecedented event.

In terms of guidance for Q2, [audio] expecting sales to be down in the range of 25%. [Audio] gross profit margins in the range of 10-11%, and net profit margin in the range of 7%.

I hand over the floor to Mr. Hani to give us quick update [audio].

Hani AminGood afternoon everyone. My name is Hani Amin, Export Director of Oriental Weavers. I would just try to give you a little bit of our performance of experts since the beginning of the year [audio] quarter one and also a little bit of quarter two, next two months, April and May as well.

We actually started very strongly in January with [audio] for exceptional year, and actually received a lot of signs during the DOMOTEX fair in January in Germany that there will be a big boom in business in different areas in 2020. However, of course, we [inaudible] COVID-19 situation changed a little bit from one market to the other.

If we talk about, in general, exports in the company represents between 60-65% of our turnover, and during Q1, I would say that until the end of Q1, we have been performing quite well regarding the circumstances. We ended Q1 almost within the same range or very slightly less than what we expected to have, and this, of course, was the reason that we had a lot of shipments during January and we received good turnover of order flow until the end of January. Starting from the middle of February, the turnover of the new orders started to decrease a little bit, and in March, we had even stronger or lower flow of orders until the end of March. We didn’t face major cancellations of orders during Q2 from our customers worldwide, however, we did face some delay requests for production or loading from Oriental Weavers. Cancellations of orders, I would say, will not exceed 5% of our total order turnover during Q1.

If we talk about specific markets, generally speaking or historically, our biggest market is usually the USA market, and my colleague Jonathan will speak shortly in detail about the US market and how it is performing. Whether we have [audio] an increase in orders from different customers in the US, mainly due to the effect of the online business, there has been a boom on online business with some of our customers in the US, and this is natural, because due to the COVID-19 problem, a lot of the customers tend to go now to online [audio] including the carpets as well.

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We have witnessed an increase in the percentage of our orders that we receive from US customers compared to previous year. I would say that from our total turnover of orders we received, the percentage that contributes to the online orders increased maybe from 5% until 12%, 10 or 12%.

Our biggest customer worldwide is IKEA, we are the main supplier of IKEA worldwide. As other retailers were hit during the COVID-19 [audio], IKEA have closed most of the shops in several regions, especially the main ones in the US and Europe. Some shops remained open in areas like Japan and Russia. I'm still talking about Q1 as well. Of course, this has affected [audio] of the orders during Q1 from IKEA. This has changed starting from the middle of April, as IKEA has started to open their shops again worldwide, and I would say by the end of May, 95% of IKEA shops have been opened again.

In Europe, in general, we have witnessed different [audio] from customers and regions. We have seen increase in business from Germany and this is also, again, mainly due to the fact that online business has been [audio] in the US, and we received a lot of orders from Germany for online business. Also, one of the reasons we received an increase from Germany is because we received promotions going to discounters and supermarkets. These kinds of retailers are the ones who stayed open during the crisis, and they depend on promotion of rugs, mainly in small sizes, like mat size, that could be [resold] in the stores and these grocery, and discounters, and supermarkets have been open during the crisis, some of them with limited working hours, and some with limited working days.

We have seen stable business in Scandinavia in Europe. The reduction in business in Europe we have witnessed coming South Europe and East Europe. However, this has been changing since the middle of May, as most of the shops have opened again in South Europe and in [audio] Europe as well.

In the Middle East, we have witnessed a good flow of orders coming from Saudi Arabia, which is the main and biggest market for us in the Middle East. In Saudi Arabia, most of our customers have taken the policy of keeping the track with shipments and loading without any delaying, so they would be ready for the Ramadan season when the month of Ramadan comes, followed by the feast, you will have the goods ready to go to the market. This was reflected positively on the flow of loading and orders coming from Saudi Arabia. A few customers in Saudi Arabia decided to postpone loading a little bit, but these were 25% of the customers there.

Generally, for other regions in the world, we had stable business in Japan. In Japan, we are dealing mainly with the biggest retailer in Japan, which is a company called [Nitori], and they have about 550 retail shops, furniture shops in Japan, and Oriental Weavers supplies 100% of their machine-made rugs for all the stores. Luckily for us, the Nitori shops were closed during [audio] the months of March, and then they started opening up again. Since April, all 550 shops were all open for business, which again stabilized our flow of orders and loading for them. Our business in Japan was not affected by COVID-19, I would say it remained the same and expect it to go up in Q2 and Q3 as well.

We had some closures with the lockdown coming from [different] markets in sporadic areas, like in Africa and in some parts of the Middle East and Latin America as well, but generally, these parts don’t contribute much to our sales turnover.

One last thing I would like to add is that we had a good opportunity during the month of April and May, because some of our main competitors in Turkey have closed down their factories because of the crisis. Oriental Weavers, on the contrary, remained open through the full time of the crisis and we were fully operating, fully loading without any delays. This has resulted that some customers in different markets shifted part of their orders going to Turkish producers to Oriental Weavers so they can keep up their commitments with shipping [windows]. Definitely, this was also an added value to us during the crisis that we got an extra business that we actually not planned for.

Lastly, I would say that, as I mentioned, IKEA is now operating fully, almost 95% of the stores are open, and we have actually just gained a new program from IKEA, with a new product that will be sold for IKEA worldwide, and we are expecting to have the results of this new program to be very obvious during [Q3]. It will be reflected positively on our sales.

Basically, that is a brief about what has been happening in exports.

Just to summarize, I would say that we might be down a little bit in value with exports, however, [square meter-wise] we are almost the same. We are expecting to compensate for this less value during [audio] and during [audio]… since middle of May, we have been seeing an increased stream of orders coming to Oriental Weavers after more markets are opening up for business.

Thank you.

Yasmine El GoharyJonathan, will you give us a quick brief about the US?

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Jonathan WittAs Hani mentioned, a little bit about the business in the USA, we were a few weeks behind Europe, so in one way, we were lucky that in Q1 our volume was down 18%, however, if you look at that on a dollar basis, we were down 10% dollar versus dollar. The big effect that we saw was as stores began to close in March, there were a lot of cancellations of existing orders and even future orders as there was so much uncertainty. Around 46% of the orders in comparison to the previous March were cancelled. Then as we entered April, most States began their lockdowns. In fact, 42 of the US States were in stay-at-home orders within the first few days of the month.

Through that period, we did have ecommerce, as was mentioned earlier. Amazingly, our pure play ecommerce retailers are up 60% with us year-to-date, and the home center business is also an important piece, where they were luckily able to stay open and, in some cases, their business is up with us year to date and we’re steady. The other big place that we saw increased activity was with other retailers that were deemed “essential”, meaning that they had food and/or cleaning supplies, those types of items, so they were able to stay open. Since they were some of the few stores that were open, there was a lot of traffic there and we saw a nice pickup of anywhere from 20-40% with some of those retailers in their rug business.

That said, we were lucky to have all of those channels working, but that was, obviously, not nearly enough to offset the thousands of stores that were closed in the furniture/flooring and department stores.

In April, we had quite a challenge and our business was down – our shipments were down about 60% and, again, our orders were down about 50% compared to 2019.

Luckily, as we moved into May things began to open up in certain geographies across the United States. We were seeing more activity, tracking that by State, and it actually exceeded our expectations in terms of the amount of orders that were coming back to us, some in new business and some reinstatements of those orders that were cancelled back in March. In May, our orders were actually up 19% and it was our third largest booking month of the last five years, so it was very encouraging to see and our shipments for the month of May were only down 7% compared to 19%, versus the terrible April that we experienced, it was very encouraging.

Then as more States have continued to open up, we've actually seen June shipments are up 25% month-to-date, and our orders continue to be at a higher level than they were in the previous year.

For Q2, as it stands, we project that our business, overall, will be down 24% versus last year due to the month of April. However, our incoming orders should level off and be close to even with 2019 based on the activity that we’re seeing.

Looking forward to Q3 and Q4, I believe is – based on what we’re seeing today, I feel we will be back on track, but of course another outbreak of the pandemic and/or the effects of any stimulus that the Government puts into effect could change our demand. The good news is we were already well positioned for the ecommerce business before the pandemic, so unlike many of our competitors who are now reacting and trying to adjust their business model, we’re already there in place. And as Hani mentioned, the effect of the Turkish product or lack thereof during the pandemic has afforded us some additional opportunities and we hope that that will continue as we have been awarded some new national placements due to the lack of inventory coming in from Turkey.

Finally, like all of us these days, we've adjusted how we do business, whether it’s work from home and/or our customers who are working from home and not accepting visitors at this point, so as we've done the work from home, we've actually been able to have online video conferences that resulted in rug placements that normally we would have had to go a large presentation or attended one of the trade shows to get. Definite change in how we will do things moving forward, but it’s nice to see that it’s a possibility.

Yasmine.

Yasmine El GoharyThank you, Jonathan. We can go ahead with the Q&A. Operator.

Q&A

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Operator[Operator instructions]

Our first question comes from [Jane Lorens] from Amwal Capital. Please go ahead.

Jane LorensIn previous years, you’ve attributed the increase in SG&A costs to showroom rents and the rising costs of showroom rents. How is that going to affect business in the current COVID environment? Have you managed to cut back on some showroom costs, negotiate lower rents and what is guidance going forward in this regard. Thank you.

Radwa KamelYes, hello, we negotiated some of [audio] April and May. We reduced rent around… the monthly rent of the showrooms is [audio] … so we managed to reduce them by around [audio]. Also, we managed to reduce some of [audio]—

[Off microphone]

—which is around 670,000 and we cancelled the – due to the current situation—

[Off microphone]

Hello, can you hear us?

OperatorYour line is not really clear, could you get closer to the microphone please and repeat your answer. Thank you.

Radwa KamelThe monthly rent of the showrooms is in the range of EGP 5 million. We managed to reduce it by 10% for the months of April and May. We reduced the fees paid to the security by 83,000 per month. We reduced the regular maintenance by 670 per month, and we cancelled the hospitality expenses by around EGP 60,000 per month.

Does that cover your question?

Jane LorensYes.

OperatorOur next question comes from Divye Arora from Daman. Please go ahead.

Divye AroraIf you can give some clarity about the export rebates, how much have you recovered in this quarter. Thank you.

Yasmine El GoharyWith regards to the export rebates, we've already collected around 151 million up until May. We’re expecting to receive around 97 million in Q3 based on the protocols that were signed in late 2019 and early 2020. So that’s basically it.

Divye AroraOn the pricing side, what did we experience in the first quarter, if you can let us know? Obviously there is a pressure on the volumes right now, given the less demand of the product, so how much you had to reduce the prices in Q1 and what do you expect this year, let’s say for the next six months now. Do you expect the prices to go down further by, let’s say, 10-15% from here to drive the sales higher, and what strategy the competitors are following? Are they also trying to undercut each other in terms of gaining market share in a bad environment?

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Hani AminWell, we actually started the year with, in January during the fair we have in Germany, this is our biggest event for the rug industry, we already started the year with having reasonable price reduction as a kind of incentive to the customers. This actually has resulted that we – what I mentioned earlier – that we received a good flow of orders during the month of January. Later, after… actually, at the end of Q1, we received some requests for further reduction in price in spite of the effects of COVID-19, and we did actually reduce in 5-6% in export prices. However, this was not generalized for all customers, because the requests were not coming from all regions.

What we did is we tried to give this price reduction to some of our biggest customers who can actually give us volumes in return of the reduced prices. This is actually one of our strategies that we are trying to focus on now is that we are looking for more volumes to keep our portfolio as a mass producer, at the same time, not much less price. However, we believe that with increasing of the online segment (the ecommerce) and also with the more opportunities we received in the last two months from the fact that many of our competitors had their business frozen during COVID-19 and, actually, we have received news that some of our competitors in Europe and Turkey might go out of [audio]. With all these factors combined, we expect that we will receive further stream of orders coming during Q4 and Q3, which hopefully by Q4 will be reflected or decreasing the gap when we compare the export turnover between this year and 2019.

Just to give you an example, in April, the export sales were down maybe about 40% compared to last year, however, by the end of May we managed to reduce this gap to be 25% and by the amount of orders we are receiving now, we are expecting by the end of Q3 to close this gap maybe to reach around 112-15%, less.

Radwa KamelBut in regards to the pricing, we managed… in order to do [audio] at the beginning of the year, the offers were calculated on a polypropylene price of around 980, and as we speak, the average polypropylene price used in our cost [audio] inventory is priced based on an average of [audio]… can you hear me properly?

Divye AroraNo, we can’t hear you.

Radwa KamelIn regards to our prices, the prices offered to our customers at the very beginning of the year was based on a polypropylene price of around 980. As we speak, the average price of our inventory is around – the average cost of our inventory is around 1,017, so yes we are giving some discounts to our customers to encourage them to put more orders, so we are expecting prices to be down in the coming quarters by around 5% [audio] 10% of our exports.

Divye Arora Sorry, the other thing is for the polypropylene, what is the average cost you are expecting for this year versus last year in terms of how much it will be down, the raw material cost, this year versus last year.

Radwa KamelThe average of last year was 1,100 for the whole year. This year it would be within the range of [audio]… you can say around 9-10% lower.

OperatorOur next question comes from Aly Elgamal from Azimut Egypt. Please go ahead.

Aly ElgamalI'm sorry to bother you again with this, but the line was cutting out when you were giving the guidance. I'm sorry, can you just repeat that.

And the second question is, are you witnessing any local sales pick up as you are witnessing abroad or not? Thank you.

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Yasmine El GoharyAs for the guidance of Q2, sales we’re expecting down in the region of 25%. Gross profit margin in the range of 10-11%, and net profit margin in the range of 7%.

Local sales, we’re seeing a slight pickup, not as much as abroad, in the range of 4-5%, in the same period compared to last year, mainly coming from the showrooms, not the wholesalers, so just a slight increase, given the current situation [audio] not like US and Europe, so it’s just a marginal increase. Now, our working hours is until six in the showrooms, so whenever there is an increase in working hours, [audio] our sales.

Aly ElgamalJust one last follow-up question with regards to the guidance, do you have any guidance for the export rebates to the end of the year?

Yasmine El GoharyAs I mentioned, we took so far 151m and we’re expecting around another 97 million in Q3, and that’s it.

OperatorOur next question comes from [Hadi Masaat] from Jarir Investment. Please go ahead.

Hadi MasaatI just have one question on the dividends for the year 2019. I remember mentioning that it will be distributed in July this year. Can you just give me an exact date, if possible, when the dividends could be distributed? Thank you.

Yasmine El GoharyWe haven’t received this exact date so far. Whenever I get the date, I will announce it, so there's no exact date [audio] so far.

Operator[Operator instructions]

There are no further questions. Dear speakers, back to you for the conclusion.

Conclusion

Yasmine El GoharyThank you so much for everyone joining. Hopefully, we see you in better results [in Q2] with more clarity and be safe. Thank you.

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transcription, oriental weavers, 15/06/20, …€¦ · web viewpresentation nada amin hello...

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