Oriental Weavers Carpets Company (S.A.E) (ORWE) Q2 FY2025 Earnings Call Transcript & Summary

Hello, everyone. This is Mirna Maher from EFG Hermes, and welcome to Oriental Weaver's Second Quarter 2025 Results Conference Call. I'm pleased to be joined today by Hazem Al Zifzaf, CEO and MD; Shehta Farouk, CFO of the Woven Division; and Ahmed Abdelmeguid, IR Manager. We will first start the call with a quick update from management, and then we'll open the floor for the Q&A session. Please go ahead.

Thank you, Mirna, and thanks to EFG for hosting this quarter's conference call. I will start off by reading the disclaimer statement. Good morning and good afternoon, everyone. This is our customary disclosure statement. This earnings call is intended for analysts and investors only. If any media accidentally gained access to this call, kindly hang up now. Certain information disclosed during this earnings call 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, the Middle East and changes in business strategy along with various other factors. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may materially vary from those described in such forward-looking statements. The company undertakes no obligation to republish revised forward-looking statements to reflect changes in events or circumstances. I will now hand over the call to Mr. Hazem Al Zifzaf, CEO and MD, to give you a brief overview of the performance.

Thank you, Ahmed. Thank you, Mirna, and thank you, everyone, for joining the call. I'm not going to go through the details of the financials because they're available through the financial statements and through our earnings release. I'm going to shed some light on the results and give general comments. And then if someone has any questions, we can do that after my commentary. So let's start with a quick look at the first half of the year. Revenues reached EGP 12.6 billion, up 17% year-on-year, supported by stronger volumes in international markets in addition to benefiting from devaluation. Despite this top line growth, margins came under pressure. The drops were driven mainly by rising input costs, higher SG&A due to inflation, lower export rebates, which offset our revenue gain. Sales-wise, international business remained the main growth engine, continuing from quarter 4 from last year. This is good news for us as we will likely have gained share in international markets. The first half revenue were up 27% year-on-year to EGP 8.4 billion, driven by growing orders from the Middle East and emerging markets, offsetting the headwinds from newly imposed U.S. tariffs, weaker retail trends and global inflationary pressures on consumer demand. It's worth highlighting that online partnerships in the U.S. and Europe performed well, and we are particularly pleased with new business wins from IKEA, where we have been gaining share at the expense of competitors. In addition, we have some good news to share on footprints in the hospitality sector during first half, having floored prestigious names such as Monaco Baltimore, InterContinental Dublin in Europe, Marriott Delta Toledo in the U.S. and Habtoor Grand Resort and Mandarin Oriental in Dubai as well as Sofitel and voco in Riyadh. We take great pride in these mega projects in which we compete globally. On the domestic front, Egypt revenues came in at EGP 4.2 billion, only 2% up compared to the last year numbers, affected by soft market constrained consumer purchasing power, coupled with a shift towards cheaper soft flooring alternatives. To speak more revenue by segment, woven were up 18% year-on-year, supported by the valuation impact on selling prices, which came in 22% higher, offsetting the 3% decline in volume. Tufted revenue were up 5%, driven by 16% higher pricing and offsetting the 10% decline in volume, while nonwoven revenue was up 59%, driven by 48% higher pricing and 8% higher volume. Looking towards the end of the year, market condition, we foresee continued soft market condition on both in Egypt and the Western side of the world. Our guidance for revenue is EGP 27 billion to EGP 28 billion, net profit margin between 10% to 11%. What will drive this is focus on enhancing operational efficiencies, optimizing costs and restructuring high-cost manufacturing sites while leveraging our R&D capabilities to launch higher-margin products in profitable channels and destinations. These actions not only will help 2025 results, but also will help position us better once the pent-up demand starts. This is always the case whenever the market takes a soft dip, it's usually followed by a couple of years of strong growth. With that, I'll stop and hand the call back to Mirna in case you have any questions. Thank you.

[Operator Instructions] We have the first question in the chat from Marian. What's your guidance on export rebate by year-end?

Actually, we expect to recognize a total of EGP 700 million in 2025. We already recognized EGP 160 million in the first half, and we still have another EGP 540 million to receive in the second...

The next question from Omnia Saber. In the earnings release, it was mentioned that EGP 104 million of export rebate in Q2 2025 fully relates to the program covering July 2024 until June 2025. Since export proceeds during that period were around EGP 18 billion, does that mean that the rebate rate going forward is roughly 0.5%?

Actually, not -- it's based on the government's flow of payments. So -- the current percent is almost 3% for the program starting in July '24 to June '25. And we have another program that started in July '25 to June '26, which is higher, I think, 4%. And the flow payment differs from a Q to another. So...

The next question is from [indiscernible]. What are the earnings estimates for 2025 and 2026?

As I mentioned, we're now fully ready to share '25 numbers. And as I mentioned, we're looking at 27% to 28% top line with a net income margin between 10% and 11%.

We have a follow-up question from Omnia. What is the percentage of export rebates for July 2025 onwards?

It's ranging between 4% and 4.5%. And this program will continue for 3 consecutive years.

We have another question from [indiscernible]. What is the bottom line guidance for Q3 2025?

[indiscernible], I think it's too early to give you a guidance for Q3 in specific. I think if you could wait, we can just make a call and discuss our guidance together before -- after the [indiscernible].

[Operator Instructions] I think this question was already covered, but we have another question in the chat on the total expected export rebates for 2025.

Okay. Let me repeat that again. We expect to recognize a total of EGP 700 million in 2025. We already recognized EGP 160 million in the first half. So we are still waiting to receive another EGP 540 million in the second half.

Ahmed, just one question from my side. If you can provide guidance on CapEx for 2025.

Sure, Mirna. Actually, we are planning for around $30 million to $35 million for this year, which is almost EGP 1.6 billion. It's distributed between capacity, quality and innovation, sustainability and more.

We have another question from Omnia in the chat regarding the latest change in the company's purpose or business activities. We noted new articles that include adding furniture, ready-made garments and so on. Is Oriental Weavers planning to venture into new businesses in the near future?

Thank you for the question. We are using our -- we're trying to leverage our retail platform in Egypt to sell other items as well as complementary items to carpets, which will help improve the returns of these outlets and give us a better offering for our customers. And hopefully, even one day, we may consider branding some of those items and selling it to our international customers. It's one of the new ideas that we are experimenting with, and that's why we have changed the purpose of the company to allow us to exploit these opportunities.

We have a question in the chat on the analyst dashboard. Is it not published yet?

Please just send me an e-mail, I will send the updated one too.

I think we've covered all the questions. So back to you if you have any concluding remarks.

First of all, thank you all for joining and for your questions. I would like to recommend for anyone who is based in Egypt to visit our new store in Mivida Lake District. It's a new store for Oriental Weavers. It's a new generation store. It's an haptic experience. It's the first of its kind in the world for any carpet manufacturer. It's really a look to the future and reflects some of the thinking the new management is thinking of as far as taking the business forward. It's not just providing an innovation to our customers, but it also has an economic advantage because it can transform our large format store into a much smaller format store, allowing us to expand at a much faster pace and realize higher return on our invested capital. So if you're in Egypt, please head to Mivida Lake District and have a look at our store and let us know what you think whether privately or when we meet again on our next call. Other than this, I really want to thank you for your time and look forward to meeting you in our next call.

Thank you very much, and thank you, everyone, for joining. This concludes today's call.