KEY THEMES
Less losses: Lecico Egypt [LCSW] managed to narrow its consolidated net loss after minorities to EGP6.8mn in Q2 2021 compared to a net loss of EGP75mn a year before. LCSW’s performance improved on back of 66% higher revenues of EGP636mn and despite the seasonal demand weakness caused by Ramadan. It even reported pre-tax income in Q2 2021, a first in three years.
The three segments that helped LCSW prune its losses: Taking the lead was sanitary ware (65% of sales) of which revenues leapt 93% y/y to EGP412mn in Q2 2021, powered by an increase in both volume (+72% y/y) and prices (+13% y/y). Sanitary ware volume surged 72% y/y to 1.25mn pieces, as export volume soared 119% after the European markets recovered, which offset an 8% fall in local volume. Meanwhile, the average selling price increased 13% y/y to EGP330/piece. The sanitary ware segment generated a gross profit margin of 16.8% in Q2 2021 against a gross loss margin of 2.2% in Q2 2020.
Secondly, tiles (32% of sales) of which revenues increased 28% y/y to EGP201mn in Q2 2021, driven by a 23% y/y rise in volume, thanks to higher exports and a 5% y/y increase in average selling prices. The tile segment's gross profit margin improved to 19% in Q2 2021 from 8.4% in Q2 2020.
Lastly, brassware, the smallest segment, saw its revenues climb 92% y/y to EGP22.9mn, backed by a 21% increase in local volume and a 59% y/y surge in average price to EGP1,102/piece.
Justified higher debt: Debt mounted in Q2 2021 to EGP910mn compared to EGP860mn in Q1 2021, as LCSW's receivables growth resulted in the need to re-build its inventory which was consumed on higher demand for LCSW's products and some raw materials supply shortage.
Future plans: LCSW targets to improve its margins further (especially for sanitary ware), decrease its overhead costs as percentage of sales, and reduce its tax charges. Granted, 2020 was a tough year as demand hit affected by -COVID-19 and LCSW was much affected by its high exposure to foreign markets which suffered from long lockdowns, yet Q2 2021 figures are healthier and point to a brighter future. LCSW trades at a P/S of 0.17