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

Good morning, good afternoon, everyone. This is Rehan Hamza from Al Ahly Pharos. I'd like to thank everyone for joining us today in Oriental Weavers 9-month 2025 Results Call. It's our pleasure to be having Oriental Weavers' management with us today. Mr. Hazem Al Zifzaf, CEO and Managing Director; Mr. Tarek Hayaly, Group CIO; Mr. Shehta Farouk, CFO; Woven Segment, Mr. Ahmed Abdelmeguid, Investor Relations Manager. Now I'd like to hand over the floor to Ahmed for a quick comment on the results, and we open the floor for Q&A. Please Ahmed, go ahead.

Thank you, Rehan, and thanks to Al Ahly Pharos 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 have 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 1 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, revise forward-looking statements to reflect changed events or circumstances. I will now hand over the call to Mr. Tarek Hayaly, our CIO. Mr. Tarek, please go ahead.

Thank you, Ahmed, and good afternoon, everyone. Thank you for joining us on our third quarter call for 2025. Before I jump start, things I'd like to add a couple of participants from the Oriental Weavers side. We also have [ Mr. Karim Hassan ], who is the Chief Commercial Officer of the Woven segment. We also have Mr. Andy Brumlow and the President, the OWA Rugs, President; and [ Mr. Alex Lopez ], the CFO of our business in the U.S. as well. They are both joining obviously from the U.S. Let me start quickly by reviewing and having a quick look at the first 9 months of the year. Revenues have reached GBP 19.5 billion, up 13% year-on-year, supported by slightly higher volumes in multiple international markets in addition to benefiting from the devaluation. Despite this top line growth, margins came under pressure, gross profit margin contracted to about 12%, EBITDA margin down to 13% and net attributable profit margin down to 8.5%. The drops were driven mainly by rising input costs, higher SG&A and lower export rebates, which obviously offset the revenue gains. Our international business remains the main growth engine, continuing from 4Q last year. The first 9 months revenues were up 19%, to about EGP 13.2 billion, driven by growing orders from the Middle East and other emerging markets, especially Saudi Arabia, Ukraine, Jordan, Malaysia and Japan alongside continued momentum across Africa as a region as well. This strength helped offset headwinds from newly imposed U.S. tariffs, weaker retail trends and global inflationary pressures on consumer demand e-commerce partnerships in the U.S. and Europe also performed strongly, and we're particularly pleased with new business wins from IKEA. We continue to gain share at the expense of competitors. Our Hospitality segment maintained solid traction as well. We managed to secure landmark projects such as the Trinity City Hotel, The Strand Palace Hotel and the Hilton Paddington Hotel, all in London. On the innovation front, we're proud to have opened the Mivida Haptech store. It's the first of its kind worldwide. It's a measure of legacy to innovation. This concept basically blends craftsmanship with technology. It creates an immersive space where customers can explore, design and visualize their ideal rugs through interactive digital tools and personalized consultations. It's more than a showroom. It's a lifestyle destination that redefines how people experience home decor generally. On the domestic ends of things, Egypt revenues came in at about EGP 6.3 billion, 5% up compared to last year, yet affected by the market conditions remaining soft with constrained consumer purchasing power, coupled with a shift to cheaper corporate alternatives. Now speaking revenues by segment. The Woven segment was up 16%, supported by devaluation impact on ASP, average selling price, which came about 17% higher, offsetting the flat performance of volume. Tufted revenue almost remained flat despite 10% higher ASP, which was affected by 8% decline in volume. The non-woven revenue were up 29%, driven by 35% higher ASP offsetting 4% lower volumes. Let me talk about our outlook for the year very briefly. We foresee continued soft market conditions, unfortunately, both in Egypt, the U.S. and Western countries. Our guidance for revenue is approximately EGP 26 billion and net profit margin to hit 7% to 8%. Oriental Weavers operated, as you can -- as you all know, in a very challenging global and domestic environment with persistent cost pressures and muted demand. Despite these headwinds, we focused on leveraging our R&D capabilities to launch higher-margin products in profitable channels and destinations. Improving our U.S. operations remains a key priority, and we are making solid progress on the path to stronger performance, positioning us well to capture growth once demand rebounds. With that, I'll stop and hand the call back to Adam to open the floor for questions.

[Operator Instructions] And actually, I have a question to start off. So I wanted to ask, since we saw the strong international volumes moving in Q3. Do we expect to see these same volumes continue forth in Q4? And how about some outlook for 2026 in terms of international volumes as well?

Okay. Let me handle this. Actually, our second half is usually a higher season in terms of the international sales. So yes, we expect our -- the growing trend of the international volumes to continue in Q4, supporting the second half to be better than the first half. For 2026, actually, we are currently working on the budget, and we will be sharing it with you soon. We'll be sharing some guidance on the -- some KPIs on the revenue and the margins. But it's not approved yet. So let's wait for this.

All right. We have a question coming in from [ Habib Ahmed ]. She's asking, would there be any new expansion soon and any increases in ASP as well?

Sorry, expansion, you mean CapEx expansion? What's...

I'm assuming she means CapEx expansions maybe in certain business lines.

Yes, we are currently having a plan to increase our capacities, especially in EFCO, which is almost fully utilized. So we are having a plan to increase the capacity in EFCO. We are having a plan for a new polyester yarn facility. That would enhance our operations and enhance the quality as well of the products. And we'll be matching the new trend of polyester carpets. What was the rest of the question, please?

The rest of the question was in regards to increases in average selling price.

Yes, there is -- yes, we have some -- we have some work in place to improve the average selling price, which already reflected there is an improve in Q4, and this will continue throughout 2026 as well.

And if I might add to that question, please. Is the expansion in average selling price limited to the Egypt market or international markets or both?

Egypt, Mainly, International, it's a bit tricky because it's related to the overall to the global supply as well. So it's difficult to predict this move, especially with the feel in dollar.

Okay. We have a question. So the question is, has the U.S. factory been sold or simply closed, if it's been sold, should we expect any capital gains? What is the current capacity and utilization rate of the factory, I'm assuming if it's still open.

Let me take this question. Hello, everyone, and good afternoon. This is Hazem speaking. The U.S. manufacturing has been closed and the entire manufacturing now -- is now based out of Egypt, which gives us better gross margins, which help us become more competitive in our pricing and hence support volume once the demand is back in the U.S. markets. The assets that we have in the U.S. are offered for sale. They have not been sold yet. It will take some time until they're sold. Likely that will not happen before 2026. And yes, likely to have capital gain as a result of the sale of these assets.

Mr. Hazem. We have another question from [indiscernible]. She's asking how -- if there are CapEx expansions coming soon, how are you going to fund these through that and if that will that be dollar or EGP denominated?

I'm going to leave this to Shehta to answer based on our current practice, Shehta, please go ahead.

Okay. Our CapEx will pay from -- in dollar pays through the loan with the bank during 2025.

Okay. Thank you for the replay. We have another question on revenue expectations for 2025 and 2026, they answer this and the revenue for 2025, they mentioned management was EGP 26 billion, if I remember correctly. Yes. And if you have any guidance on 2026, profits as well?

Actually, as I told you, Adam, we are currently finalizing the budget for the next year. And once it's approved by the Board of Directors, we will be sharing the KPIs with you.

Okay. And to answer this question, I remember, it was around 7% to 8% net profit margin, out of revenues of EGP 26 billion?

That's for 2025.

Okay. [Operator Instructions].

I have a question from my side. Could you shed some light on the falling polypropylene prices and its effect on the margins?

Yes. I'll take that as well. Just a piece of info. We secured 3 months worth of PP supply beforehand. So basically, during the first 6 months of 2025, we ended up buying polypropylene at the highest -- at its highest price point, which I mean, very -- on average, the tone was for $1,000 -- 1,000-plus-dollars. So the bulk of this year actually -- we recognize the higher side of the polypropylene prices. It has come down since -- and -- but even throughout the latter part of summer, it's been really volatile. So hence, why the pressure on the cost side.

Let me add to what Torek said, the current trends for PP going forward is positive for us. It should help our input cost -- and -- but it's not the only item that's impacting our input cost as inflationary pressure on many other items also causes pressure on our gross margins. But generally, we're looking at a more favorable PP pricing, which is good news for us going forward.

Okay. Thank you for the reply. We have another question from [indiscernible] she's asking if sales volume is decreasing somehow? Are you planning to diversify your portfolio or add any other projects in the pipeline soon?

Okay. Let me take this. First of all, we have -- we are a global player. We play in across the world. We are in over 100 countries. So when you talk volume, it's a very complex story -- in a simpler manner internationally, we have been doing well for the past 4 quarters, and we think we're even gaining market share, particularly in the Woven segment. That's behind a lot of hard work, a lot of focus, new product introductions and leveraging our history of -- with customer service with many of the long-time customers. Egypt is a challenge because of the macroeconomic conditions and the impact on consumer spending. Remember, we're not food or drinks. We are discretionary product. And so that segment in entirety is being affected by the economic conditions and consumers are downgrading their purchases to cheaper alternatives to carpets. So the solution we're finding is we're going to keep introducing new products that tries to optimize cost. So we are attractive at a price point to the customers. That's our strategy in Egypt. In order to recover some of the volumes that we lost and compete against a shrinking market, if you say. One in international, we continue our game plan, which seems to be working. The added capacity in EFCO, which is the nonmoving segment, this also helps our international business because EFCO's product is in a strong demand, when it comes to the U.S. The added capacity puts in an additional 30% volume that we can supply. So that's also good news for us once this capacity is up and running.

Okay. I have a question from my end. So what can we expect in terms of dividend policy for 2025? And also export subsidies going into Q4?

Okay. Let's split this into 2 parts. I'll take on the dividend question, and then I will ask Ahmed Abdelmeguid to give an update on the subsidy situation. It's too early to decide on dividends. And as you know, this is a topic that we take to the Board and to the general assembly, and that's happening in Q1 2026. However, the growing policy for us is to distribute between 30% to 50% payout ratio, and we have been doing so consistently over the last 2 years. So provided no other plans or other new ideas come on board, that will be the growing practice in 2026.

So for the release, let me tell you our budget -- our expected total rebates to be recognized during 2025 is around EGP 415 million in which we recognized already around EGP 327 million in the first 9 months of the year. They were divided into EGP 100 million as a cash backlog from the government. EGP 27 million as government backlogs in terms of utility subsidies and sold and EGP 200 million from the programs that were starting July 2024 until June 2025. So the remaining amount to be recognized during this year is EGP 88 million in the fourth quarter.

Okay. We have a question from Madam [indiscernible]. She I hope I've pronounced that correctly. She asks, can you shed more light on the circulating news that Oriental Weavers EFCO to increase after the capital increase?

Sorry, can you say that again? What are you saying about EFCO? I couldn't hear you well.

Again, she's asking -- she wants to shed more light on the circulating news that Oriental Weavers stake in EFCO, is going to increase after the capital increase?

Okay. We cannot really say that at the moment. It all depends on who participates in the capital increase. Our stake is 67%. We have the plans and the cash to cover any of the investors, who chose not to participate in the capital increase, but there is no way at this point to predict what stake will end up at once the capital increases over.

Okay. We have a question from [ Bassem Hesham ], She's asking, we can see the decrease in volume is driven by an economic recession. That's a question. And did you pass the COGS cost on the consumer, which is the reason behind a 30% increase in ASP. I'm also mentioning Egypt ASP?

So Bassem, we cannot say an economic recession However, it's all about -- for the Western countries, the interest rate cuts should help the mortgage to increase and refurnishing of the apartments and so. However, according to our vision and for the global peers as well, we see that the interest rate must be -- must have more cuts moving forward to encourage the mortgage to increase, and that should rebound the demand of the carpets. That's a part of the question. The other part is that there is purchasing power constraints for the consumer. So they are shifting to another cheaper alternatives of carpet. That's why we are seeing a slight drop in volumes.

On the say, let me add to what Ahmed is saying. The simple answer to, are we passing all the cost increases to customers through price increases? The answer is no. Because the constrained purchasing power and the competition does not really allow you to fully capture your higher cost into price. However, what we are doing right now is we are introducing new products with different specs in order to be able to have similar margins to the -- if we would add or if we were to increase our prices. So same product increased prices doesn't work or only works at a limited level, but reformulating and launching new products with new specs matching the same margin works. We have been doing that lately, and we will continue to do so in order to recover the higher input cost. But it will take time until this is fully realized. And for the short term, we'll continue to be operating at lower margins until we're able to fully convert -- most of our lineup to newly formulated specs that can be of better margins. Okay.

I have a question from my end. If I -- I want to know just if you could shed light on some of these new products or new higher-margin products that you're planning on integrating and to follow up, we know that Mr. Tarek has just been onboarded to the team, and we want to know given that there's a new CIO and if there is any plans for some M&A activity coming soon, perhaps in 2026?

Okay. On the first part, can you just correct me. You're asking about how many products? I didn't get the specifically on the question on the product side.

No, I was asking about the type of products you are planning to add and like how diverse they are and maybe how many as well?

Okay. First of all, they're corporates, Adam. And they are in the hundreds. We're at any point of time, have thousands of SKUs globally. So very, very complex offering in terms of designs, users, sizes and taste by country globally. It's -- so that's why I say it takes time to really to evolve and form into new products and replace the old ones. So that's on the product side. And yes, Tarek is being hired. He is renowned CIO in Egypt, among the best talents that the country has to offer. And -- we wanted them to join us so that we have new ideas, both in terms of our current structure and supporting current business. And I think you've already seen that in terms of the EFCO's capital increase and expansion. And yes, we have appetite and a long-term view and looking at M&As at the right time, to add to the offerings that we go to our customers with. So this is looking into areas in which we may have not -- or may have not suitable offering for certain segments that the customers may be interested in. But at the moment, there is absolutely nothing specific, and with Tarek just started his work.

Okay. We have another question from [ Salma], she is asking that earlier this year, you released receiving approval to proceed from the sale of non-core unused assets as been necessary. Accordingly, should we expect these asset sales to materialize soon and what they result in capital gains?

Okay. The assets that we're selling are mainly real estate assets that -- they were like residential apartments and villas that were used by increase in the past or some abandoned warehouses, non-profitable showrooms. So these are mainly real estate in nature, and we are starting the process of the sale of these assets. It will go through in 2026. I think any capital gain we expected in 2026. But again, I don't think this is in a way materialistic to our number. This is not really a huge number when compared to our revenues or our net profits.

Okay. Thank you very much for apple have another question.

We have a question regarding the the clients. Is a growing percentage of clients using the NPL like value? Is it the percentage moving?

Can you -- can you please repeat the question?

Percentage of clients using the NPL like value? Is it increasing?

I don't understand the question.

The clients using -- buy now they pay later, like value?

Okay -- you mean in our retail shops.

Yes.

Yes, the answer is yes, it is increasing, but it's still not significant.

Do you have any percentage that you can give us. Out of the sales of...

We don't have the numbers now. I think if you -- we can get back in touch with you and give you an exact number. But remember, retail is only a business in Egypt. It's about 25% of the business of Egypt. Carpets tend to be an item that consumer is buy in cash mostly. The trend has started to change, but it's changing slowly. And we try to push that tool of pay later in order to stimulate the demand -- and we do that, particularly when it comes to promotions, when it comes to seasons. But we can provide you with the exact percentage after the call, if you leave your number or context.

[Operator Instructions] I think we have no further questions at the moment. I guess we can conclude the call. So if the management have any closing remarks, please go ahead.

Yes. I would like to have a closing remark, if you don't mind. First of all, thank you all for joining the call. OW is a great company. It's been there for 45 years. We are truly probably the only true Egyptian global brand in over 100 countries. Our performance, particularly in international has been quite solid, especially in the Woven segment, although this is not an easy task at all competing with players all over the world, from China, India, Turkey, Europe, even in the U.S. So we have built expertise with a very talented group of people across the world to really push our business through. Egypt is, I think, a short-term case until the economy and the purchasing power comes back, but we're doing our best to smartly play around it with new formulations or product lineup so that we can be capturing the margins. So we need to see this as a short-term bump, and then we should come out of it and continue on our growth story. And I'm happy to share with you something this morning, I just found out, and I'm going to ask Andy to share that news with you.

Hello, everyone. It's Andy Brumlow from the U.S. OW. Just real quickly, I wanted to share something with you. Furniture today is widely considered the biggest furniture publication in the U.S. that's published weekly. It goes to all furniture everybody in the furniture segment, and this is one of our main channels in the U.S. Every year, they do a survey, and they do about 50 different categories. They ask retailers who has the best sofa? Who has the best accessories? One of the questions is who has the best machine-made rug. Well, we recently found out that we were listed as a finalist, and we expect to be awarded the best machine-made rug company in the United States for the fourth out of 5 years. So this is something we take a lot of pride in, and we're very, very glad that our furniture segment sees us as 1 of their best suppliers.

With that, we conclude our call, and thank you very much and look forward to seeing you all in 2026. [Foreign Language].

Thank you so much for management for their insightful remarks. We are very honored to host this call, and thanks, everyone, for dialing in. A recording for this call will be sent shortly to all attendees. So have a great day. Bye-bye.