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Overflow of demand keeps Lecico's worries at bay - Daily News Egypt

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Overflow of demand keeps Lecico's worries at bay

CAIRO: Demand outstripping supply is far from the worst problem a business can encounter. No shock then that the tone of ceramic and tile maker Lecico Egypt’s full-year report, which showed a 38 percent gain in net sales over 2006, was mostly sunny. Much of this sales jump came from exports of sanitary wares – …


CAIRO: Demand outstripping supply is far from the worst problem a business can encounter. No shock then that the tone of ceramic and tile maker Lecico Egypt’s full-year report, which showed a 38 percent gain in net sales over 2006, was mostly sunny.

Much of this sales jump came from exports of sanitary wares – sinks, toilets and similar products – which make up about 68.5 percent of their sales mix. Tiles account for the rest.

The gains boosted revenue by 38 percent over 2006, bringing it to LE 989.5 million; net profit rose 35 percent to LE 107 million. The volume of sanitary wares rose by 21 percent from the previous year, to a record 5.6 million pieces. Tile sales growth was slower, but significant, at 16 percent.

“The sales growth is very important because we were restricted by capacity, Taher Gargour, head of business development at Lecico, told Daily News Egypt.

Lecico makes most of its money through exports to Europe, particularly France and the United Kingdom. Sanitary ware sales in Europe rose 26 percent, and tiles gained 28 percent. Last year the largest chunk of these exports, 34 percent, went to Sanitec, European bathroom manufacturer to whom they supply outsourcing work.

The Egyptian market grew more modestly, with sanitary wares sales up about 10 percent and tiles up 13 percent. The Lebanese market grew faster, with 34 percent in sanitary ware sales and 20 percent in tile sales, though sales in Lebanon account for less than five percent of either market.

While the deal with Sanitec will slow over the coming year and murmurs of a European recession continue to buzz, Gargour said expansion into new markets and the addition of more factory lines will help counter any setbacks. Last year marked Lecico’s first significant move east in Europe, with sales office opening in Germany.

Sales were also chalked up in the nascent markets of Saudi Arabia and Algeria.

Lecico is also gearing up production on two new sanitary ware lines. The first is at nearly full capacity, and the second opened near the end of last year.

In the ceramics industry, production lines often take a year to a year and a half to come fully online, Gargour said. “Because you have skilled labor, it’s not like you turn on the factory and it runs.

The new lines are the fruits of three years worth of investment, he said. Gains should continue through 2009 and into 2010, as factories come into full operation.

The Lecico report also credited the company’s expanding fortunes to efficiency measures undertaken last year. The ceramics industry tends toward waste, Gargour said; the process of firing toilet seats, for instance, is not an exact process. Products are generally about 15 percent larger when they emerge from the kiln, and it is usually impossible to recycle fired material. Eighty-five percent is often a good rate for quality pieces.

To reduce waste, Gargour said, they wanted to work on the fastest-growing product they make: WCs, or toilet seats. Over last year, Lecico was able to reduce scrap rates in the WC-molding process by 2 percent. “This was the single biggest headline figure, Gargour said.

The prices of Lecico’s sanitary wares rose 24 percent last year, reaching about LE 118.9 per piece. This synched remarkably with the 24 percent rise of cost per piece, up from LE 61.1 to LE 75.5.

In addition to higher costs, Gargour attributed the price rise to lingering effects of last year’s buyout of Sarreguemines, a long-established French ceramics maker that once counted Napoleon Bonaparte as a patron.

The future could yet hold some further hazards. Lebanon’s failure to elect a president and darkening political horizon could confuse the market there. Egypt, Gargour says, will likely continue to strip energy subsidies, meaning still higher costs. And there is always inflation.

“We don’t have a crystal ball, but we expect inflation in Egypt to be 10-11 percent [next year], Gargour said.

Recession in Europe, still Lecico’s biggest market, and a slowdown in exports to Sanitec could also hinder sales.

But because demand is still significantly higher than supply, Gargour said Lecico will likely continue to grow. He credits the company’s success so far to the unique niche manufacturing the Middle East allows them to occupy, nestled somewhere between developed world quality and developing world costs.

Ceramics production in Europe and the United States is wavering, Gargour says, due to expensive labor, energy costs and the regions’ shifting specialties. “It’s the kind of work nobody wants to do anymore, he said. The quality of products from emerging competitors in China and India, on the other hand, is often lacking.

“We’re not competing to be the cheapest, he said. “If you don’t care about quality, you can find something cheaper.

So far competition has been relatively small. “‘Competition’ is almost the wrong word, Gargour said. “We’ve never come head-to-head with anyone.

But growth always carries this threat. Lecico’s factories will make them the sixth to eighth largest sanitary ware manufacturer, Gargour estimates. “Eventually it’s probably unavoidable – butting heads with someone.

Topics: FJP

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