Oriental Weavers Carpets Company (S.A.E) ($ORWE)

Hello, everyone. This is Mirna Maher from EFG Hermes, and welcome to Oriental Weavers First Quarter 2026 Results Conference Call. I'm pleased to be joined today by Hazem Zifzaf, Group CEO; Shehta Farouk, CFO; and Radwa Kamel, Group IR and investment analysts. We will first start the call with a quick update from management, and then we'll open the floor for the Q&A session. Gentlemen, please go ahead.

Thank you, Mirna, and thanks to EFG for hosting the conference call. I would like to welcome you to Q1 2026 earnings call. I will start off by reading the disclaimer statements. 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 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 uncertainties and assumptions. 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, revise forward-looking statements to reflect changed events or circumstances. I will now hand the call over to Mr. Hazem Zifzaf, Group CEO and MD, to give a brief overview of first quarter 2026 performance.

Good afternoon everyone, thank for joining our Q1 call. We delivered a strong start to the year has carried from the momentum we had in the second half of 2025, and this is despite continued pressure on global demand, soft discretionary spending in Egypt, and heightened geopolitical uncertainty, as you all know, that war started in Feb of 2026. Revenue grew 9% year-on-year to EGP 6.9 billion, led by an [ 8% ] increase in volumes to 29.4 million square meters. The growth was volume driven, which is a positive for us. Gross profit margin improved to 12.4%. EBITDA margin remained broadly stable year-on-year, while net profit margin expanded to 12.9%. This was aided by the sale of idle assets, real estate assets and efficient export subsidy collections. Excluding capital gains, our adjusted net profit margin increased to 9.1%, which is better than both previous quarter and year-on-year. Net profit, excluding minorities, margin improved to 12.4%. This was driven by our strategic increase in ownership of EFCO, which we did in Q4 of 2025. EFCO is one of our best-performing subsidiaries. During the quarter, geopolitical tensions in the Middle East added volatility to energy markets, impacted utility cost and oil -- materials like polypropylene. Nevertheless, favorable inventories from -- carried over from last year helped support our margins in addition to the sale of the idle assets. Our Tufted business tends to lag the rest of the segments of our business, and it's an area of focus for us in which we are working very hard to bring its overheads and cost structure down. Looking at sales. On the international front, our international sales held up well, led by the United States, our largest market -- the largest market in the world. Tufted exports were the standout with higher prices, U.S. product-driven revenue by 18%. Nonmoving export grew 7% on strong demand for value products and new capacity while -- export grew 2% as currency pressured pricing. Regionally, the Americas rose 10%, Europe 13% and Asia 14% and GCC was soft for obvious reasons. On Egypt front, we had a much better quarter for the Woven segment than the previous 2 quarters, but the 2 quarters prior to that, which is a positive sign. This was driven by our product mix and new product introductions. So revenue in the Woven segment was up 20% Nonwoven grew 17% on favorable mix, while Tufted revenue dipped 2% against a heavily promotional prior year quarter. Our outlook, despite the geopolitical conditions, we maintain our guidance at PHP 28 billion in revenue and net profit margin at the same levels of 2025 between 8% and 8.5%. We continue to work hard to offset the increases in costs resulting from the geopolitical tensions, and we are using our asset sales to offset any upside on the cost side. With that, I end our introductory remarks.

[Operator Instructions] We have a question in the chat from Adam Khalil. Given the recent rise in polypropylene costs, what's the expected impact on gross profit margin? And is Q2 or Q3 the more at-risk quarter? Are you planning to offset this through price increases?

Okay. Thank you, Adam. This is a very good question. We expect the impact of the polypropylene increases to be realized in the second half of the year. The net effect of the increases based on the current prices is between 1.5% and 2% margin impact. Despite that, we are still targeting the same guidance that we gave earlier in the year because we intend to offset that through our program of sale of assets, sale of idle assets. But having said that, we are also working very hard to mitigate these costs through looking at different alternatives for supply, reducing other costs in the supply chain domain. As far as pricing is concerned, we have taken already price increases in anticipation of the increases in costs. These price increases range between 7% and 15%, depending on the market around the world. The impact of this increase is not yet realized. It will be realized in the second half of the year.

[Operator Instructions] We have a question from [ Habiba Ahmed ]. Can you provide us with the net income, gross profit margin and CapEx guidance?

Second, just to open up the sheet on the full year forecast, please. Now on net income, we have already covered that. So we are maintaining our guidance on net income. So we already covered that. On CapEx, our projection of spending CapEx this year is EGP 1.2 billion. Gross profit margin forecast for the full year is 11.2%.

We have another question -- the revenue and net income guidance for 2026.

Guidance for the full year and revenue EGP 28 billion, net income margin ranging between 8% and 8.5%.

The next question is, how much will the asset sale -- how much is it expected to generate the asset sale?

Okay. The asset sale in our best case scenario will generate around for the full year, around EGP 1 billion. Now we say best case scenario because, as you know, the timing of the sale itself is not really within our control. Our objective is always to maximize what we can get for those assets and the process of sale itself can take time. But that's our current forecast or projections for the year.

[Operator Instructions] There are no more questions in the chat. So back to you if you have any concluding remarks.

Thank you, Mirna. Thank you, everyone. We had a very good start of the year, but we also had a lot of headwinds because of the geopolitical tension. But this company has proven always that it can withstand big impacts and big events. We're a big company with a big history with a commanding market share globally. So despite what's going on, we believe that we will be able to navigate these tough times. And we look forward to meeting you all again in our next call for Q2 2026. Thank you, guys.

Thank you very much. Thank you, everyone, for joining, and thank you, Oriental Weavers management, for your time. This concludes today's call.