Lecico  Strategy  Analysis  Strategic  Management  Course  

Presented  to:  Dr  Sherif  Delawar  

     

Presented  by    

1. Ahmed Ali Attia Ibrahim Taha 2. Mohamed Saad El Yamany 3. Mohamed Wasel

 Students  of  Group  A  

Table  of  Contents  

Background  .........................................................................................................................  3  Introduction  .................................................................................................................................  3  History  ..........................................................................................................................................................  3  Lecico  Egypt  ...............................................................................................................................................  3  Company  profile  .......................................................................................................................................  3  

Corporate  governance  ..............................................................................................................  6  Social  responsibility  ..................................................................................................................  6  Employees  ..................................................................................................................................................  6  Training  and  Development  ..................................................................................................................  7  Employee  Communications  ................................................................................................................  7  Employment  Policy  .................................................................................................................................  7  Holidays  and  Pilgrimages  .....................................................................................................................  8  Community  .................................................................................................................................................  8  Environment  and  Health  &  Safety  ....................................................................................................  8  Environmental  Policy  ............................................................................................................................  9  Packaging  and  Waste  Reduction  Policy  .........................................................................................  9  

Environmental  scanning  ..............................................................................................  10  External  environment  ............................................................................................................  10  Natural  Environment  ..........................................................................................................................  10  Society  Environment  ...........................................................................................................................  12  Task  (Industry)  Environment  .........................................................................................................  18  

Internal  Environment  ............................................................................................................  29  Organization  culture  ...........................................................................................................................  29  Organization  structure  .......................................................................................................................  31  Organizations  resources  (Assets  /  human  skills)  ...................................................................  31  

Strategy  formulation  .....................................................................................................  46  SFAS  ..............................................................................................................................................  46  TWOS  ...........................................................................................................................................  47  BCG  (Boston  Consulting  Group)  .........................................................................................  49  Space  Matrix  ..............................................................................................................................  50  Grand  strategy  matrix  ...........................................................................................................  52  Strategic  Alternatives  and  recommended  strategy  (QSPM)  .....................................  53  Recommended  Strategy  ........................................................................................................  55  

Strategy  Implementation  .............................................................................................  56  Action  Plan  .................................................................................................................................  56  

Evaluation  and  control  .................................................................................................  58  Lecico  balance  scorecard  ......................................................................................................  58  

References  ........................................................................................................................  62        

Background  

Introduction  

History    Lecico  has  come  a  long  way  since  its  modest  early  beginning  of  manufacturing  1000  pieces  of  sanitary  ware  per  day.  The  company  was  the  pioneer  in  the  ceramics  business  in  the  Middle  East  and  its  origin  goes  back  to  1959  when  it  started  its  first  manufacturing  facility  in  Lebanon.    

Lecico  Egypt    Lecico  Egypt  is  an  Egypt-­‐based  public  shareholding  company  engaged  in  the  manufacture  of  tiles  and  sanitary  ware  products.  The  Company  operates  three  factories  in  Egypt,  one  in  Lebanon  and  one  in  France,  which  produce  over  6  million  pieces  of  sanitary  ware  and  22  million  square  meters  of  tiles  annually.  Lecico  Founded  in  1975  in  Alexandria,  Egypt,  Lecico  Egypt  S.A.E.  Group  (Lecico  Group)  is  one  of  the  leading  sanitary  ware  and  ceramic  tiles  companies  in  Egypt.  In  1997,  the  Gargour  family  entered  into  a  50/50  joint  venture  with  Sanitec  Ltd  OY  (“Sanitec”),  a  prominent  manufacturer  of  sanitary  ware  in  Europe.  Subsequently,  in  November  2004,  Lecico  Group  executed  Egypt’s  first  dual  local  and  GDR  offering  and  is  now  traded  in  both  the  “London  Stock  Exchange”  and  “Cairo  &  Alexandria  Stock  Exchange”.  As  a  result,  the  shareholders  structure  of  the  group  is  now  as  follows:  Gargour  family  continues  to  retain  control  through  a  32%  stake,  while  Sanitec's  share  has  been  diluted  to  reach  15%,  down  from  39%;  in  addition  to  the  free  float  that  accounts  for  the  remaining  balance.  

 

Company  profile      

       

The  Lecico  Group  of  Companies  Lecico  Egypt  S.A.E.  is  the  principal  operating  company  in  Egypt  and  acts  as  the  holding  company  for  the  Lecico  group  of  companies.  The  following  chart  sets  out  the  corporate  structure  of  Lecico  and  its  principal  subsidiaries    Lecico  for  Ceramic  Industries  S.A.E.  Lecico  for  Ceramic  Industries  S.A.E.  was  established  in  Egypt  in  1997  as  a  joint  stock  company.  Lecico  for  Ceramic  Industries  directly  owns  the  Company  exist  Borg  El-­‐Arab  sanitary  ware  plant  (the  new  Borg  El-­‐Arab  factory  currently  under  construction  is  owned  separately  by  European  Ceramics  S.A.E.,  as  to  which  see  below)  and  its  operations  focus  on  the  production  of  sanitary  ware  for  domestic  and  export  customers.    European  Ceramics  S.A.E.  (‘‘European  Ceramics’’)  European  Ceramics  was  established  in  Egypt  in  2004  as  a  joint  stock  company.  European  Ceramics  owns  the  new  factory  currently  under  construction  at  Borg  El-­‐  Arab  which  will  produce  additional  sanitary  ware.    International  Ceramics  S.A.E.  International  Ceramics  was  established  in  Egypt  in  2004  as  a  joint  stock  company.  Lecico  Egypt  currently  holds  99.9%  of  International  Ceramics  S.A.E.    Sarrdesign  S.A.E.  Sarrdesign  was  established  in  Egypt  in  2009  as  a  joint  stock  company.  Sarrdesign  is  a  brassware  manufacturing  joint  venture  between  Lecico  and  the  Shaarawi  family  with  a  design  capacity  of  300,000  units  per  year.    The  Lebanese  Ceramic  Industries  Co.  S.A.L.  (‘‘Lecico  Lebanon’’)  Lecico  Lebanon  was  established  in  Lebanon  in  1959  as  a  joint  stock  company  and  was  one  of  the  founders  of  Lecico.  Lecico  Lebanon  is  the  Lebanese  operating  company  which  produces  and  markets  sanitary  ware  and  tile  in  Lebanon  for  export  and  domestic  sales.  Web  site:  www.lecico.com.lb    Lecico  (UK)  Limited  (‘‘Lecico  (UK)’’)  Lecico  (UK)  was  established  in  1987  in  England  and  is  a  wholly-­‐owned  subsidiary  of  Lecico.  It  is  a  holding  company  for  the  European  subsidiaries  Lecico  plc  and  Lecico  France.  Web  site:  www.lecico.co.uk    Lecico  Algeria  The  Company  was  established  in  2006,  the  company’s  purpose  is  trading  and  manufacturing  of  ceramics  and  related  products,  Lecico  Lebanon  currently  hold  60%  of  its  share  capital.    Lecico  Saudi  Arabia  Lecico  Saudi  Arabia  began  operations  in  2006.  Lecico  Saudi  Arabia  is  focused  on  the  marketing  and  distribution  of  the  sanitary  ware  and  tile  products  of  the  Group  in  the  Kingdom  of  Saudi  Arabia.  

Lecico  Plus  For  Trading  S.A.E  The  company  was  established  in  2007,  the  company’s  purpose  is  trading  and  marketing  of  sanitary  ware,  ceramic  tiles,  and  trading  in  modern  building  material.    Lecico  for  Trading  and  Distribution  of  Ceramics  S.A.E.  The  company  was  established  in  2006  as  a  joint  stock  company  where  Lecico  Egypt  holds  70%  of  it’s  shares,  the  company’s  purpose  is  distribution  of  ceramics,  sanitary  ware,  tiles,  kitchen  and  bathroom  accessories.    Stile  Stile  was  incorporated  in  2009  in  Italy.  Stile  is  a  joint  venture  between  Lecico  and  the  SFA  Group.  The  JV  is  responsible  for  the  marketing  and  distribution  of  “Stile”  as  a  new  sanitary  brand  in  the  Italian  market  with  a  full,  exclusive  range  of  Italian-­‐  designed  products  manufactured  in  Lecico  Egypt.    Lecico  Poland  Lecico  Poland  was  incorporated  in  2009  in  Poland.  Lecico  Poland  is  focused  on  the  marketing  and  distribution  of  the  sanitary  ware  and  related  products  of  the  Group  in  Poland  and  the  markets  of  the  CEE.    Lecico  South  Africa  Lecico  South  Africa  began  operations  in  2009  when  Lecico  acquired  a  controlling  stake  in  its  South  African  distributor.  Lecico  South  Africa  is  focused  on  the  marketing  and  distribution  of  the  sanitary  ware  products  of  the  Group  in  South-­‐Africa.    Lecico  France  Lecico  France  SARL  was  established  in  France  in  1994  and  is  a  wholly-­‐owned  subsidiary  of  Lecico  (UK).  The  operations  of  Lecico  France  focus  on  the  marketing  and  distribution  of  the  sanitary  ware  products  of  the  Group  in  France.    Lecico  plc  Lecico  plc  was  established  in  England  in  1987  and  is  a  wholly-­‐owned  subsidiary  of  Lecico  (UK).  The  operations  of  Lecico  plc  focus  on  the  marketing  and  distribution  of  the  sanitary  ware  products  of  the  Group  in  the  United  Kingdom  and  Northern  Ireland.      

Corporate  governance        Board  of  directors  

Name   Age   Position       Year  Initially  Appointed  to  

Board  Mr.  Gilbert  Gargour   67   Chairman  and  CEO   1981  Mr.  Taher  Gargour   42   Managing  Director   2008  Mr.  Elie  Baroudi   65   Director   2003  Mr.  Alain  Gargour   59   Director   1997  Mr.  Toufick  Gargour   70   Director   1974  Mr.  Georges  Ghorayeb   61   Director   2003  Eng.  Aref  Hakki   77   Director   1998  Mr.  Pertti  Lehti   53   Director   2002  Dr.  Hani  Sarie-­‐Eldin   46   Director   2010  Dr.  Rainer  Simon   61   Director   2011  Mr.  Mohamed  Younes   73   Director   2004    

Social  responsibility      As  one  of  Egypt’s  leading  manufacturers,  Lecico  considers  Corporate  Social  Responsibility  (CSR)  to  be  an  integral  part  of  the  way  it  operates  and  an  important  contributor  to  its  reputation.    The  Board  takes  regular  account  of  the  significance  of  social,  environmental  and  ethical  matters  and  the  measures  covered  in  this  report  are  monitored  and  reviewed  with  the  aim  of  continually  improving  performance.    

Employees    Lecico  recognizes  it  is  dependent  on  the  quality  and  effectiveness  of  its  employees.  The  Company  has  a  good  track  record  in  recruitment  and  retention.    In  a  labor  settlement  reached  following  the  worker’s  strike  in  February  2011,  Lecico  offered  a  number  of  additional  benefits  that  added  27%  to  the  company’s  wage  bill.  Aside  from  salary  increases,  the  benefits  introduced  included.    

• 5% of any profit distributed as a dividend will be distributed to all workers

• A meal allowance extended to all workers in the company’s Borg El Arab plants

• 1.5 extra months of salary per annum bonus to workers in the company’s Khorshid plants

 

Training  and  Development    854  members  of  staff  from  all  areas  of  the  Group  have  attended  internal  development  courses  in  2011  and  40  members  of  staff  have  received  external  training.  Language  training  remains  a  key  focus,  as  well  as  courses  in  IT,  Finance,  Marketing  and  Time  Management  and  safety  and  environmental  compliance  to  the  international  ISO  18001  and  ISO  14001  standards.    

Employee  Communications    Lecico  recognizes  that  comprehensive,  two-­‐way  communications  are  essential  to  the  retention  of  skilled  employees.  A  number  of  communication  channels  are  in  place  including  briefing  meetings,  worker  boards  and  notice  boards.    To  further  improve  two-­‐way  communication,  the  Company  has  a  Worker's  Follow-­‐Up  Committee  representing  staff  from  all  departments  and  factories  that  meets  regularly  with  the  Executive  Board.  In  February  2011,  following  the  strike  in  our  factories,  workers  representatives  from  each  factory  were  added  to  ensure  it  was  more  representative  of  the  different  departments  and  employees  in  the  company.    The  key  initiatives  of  the  Worker's  Follow-­‐Up  Committee  included  improving  the  personal  support  for  any  employee  in  hospital;  ensuring  monthly  incentives  were  paid  to  service  departments;  increasing  the  Company's  contribution  to  employee's  Hajj  pilgrimages;  increasing  the  benefit  paid  for  marriages  or  deaths  in  the  families  of  its  employees;  increasing  disability  support  for  employees;  and  implementing  a  “Creative  Worker  of  the  Month”  program.    

Employment  Policy    Lecico’s  policy  is  to  provide  equal  opportunities  to  all  existing  employees  and  anyone  seeking  to  join.  The  Company  is  committed  to  the  fair  and  equitable  treatment  of  all  its  employees  and  specifically  to  prohibit  discrimination  on  the  grounds  of  race,  religion,  sex,  nationality  or  ethnic  origin.    Employment  opportunities  are  available  to  disabled  persons  in  accordance  with  their  abilities  and  aptitudes  on  equal  terms  with  other  employees.  If  an  employee  becomes  disabled  during  employment  the  Company  makes  every  effort  to  enable  them  to  continue  employment,  with  re-­‐training  for  alternative  work  where  necessary.    The  Company  operates  a  number  of  employee  pension  schemes  across  its  business  including  a  retirement  fund  and  has  recently  offered  a  tailored  partial  contribution  private  health  insurance  plan  to  its  administrative  staff.  Lecico  contributed  over  LE  3.1  million  in  pension  contributions,  accident  and  medical  insurance  support  for  its  staff  in  2011.  The  Company  also  paid  out  LE  1.5  million  in  2011  to  400  laborers  who  had  left  the  company  between  2001  and  2006  to  offset  lower  retirement  packages  in  those  years.  

 

Holidays  and  Pilgrimages    Lecico  recognizes  the  importance  of  a  good  work/life  balance  for  its  staff  and  offers  several  programs  to  help  staff  make  the  most  of  their  time  outside  of  work.  These  programs  include  organizing  and  subsidizing  day  trip  and  week-­‐long  holidays  for  its  staff  and  their  families  in  the  summer;  partially  funding  its  staff’s  Haj  and  Omra  pilgrimages  and  giving  salary  bonuses  to  the  staff  in  Ramadan  and  around  other  key  holidays.    In  2011,  these  programs  included  a  total  of  over  2,531  subsidized  holiday  days  enjoyed  by  staff  and  a  total  expense  in  holiday  and  pilgrimage  support  of  over  LE  150,000.    

Community    Lecico  believes  it  has  a  responsibility  to  contribute  to  the  community  through  donations  of  goods,  funds  and  time  to  charitable  organizations  as  well  as  investing  in  the  neighborhoods  around  its  factories.    The  total  value  of  the  Company's  donations  during  2011  was  LE  420,903  with  the  majority  of  this  being  donations  of  goods.  It  is  the  Company’s  policy  not  to  make  political  donations  and  no  political  donations  were  made  in  the  year  2011.    Lecico  also  trained  circa  100  plumbers  in  a  new  internal  local  training  programs  designed  to  support  local  businesses  and  promote  water  saving  products.    The  Company  also  funded  local  sporting  facility  rental  and  equipment  for  its  workers  to  play  football  twice  a  week.    

Environment  and  Health  &  Safety    Lecico  is  committed  to  developing  its  business  in  a  responsible  manner,  protecting  the  health  and  safety  of  its  employees  and  addressing  evolving  environmental  issues  and  ensuring  compliance  with  applicable  legal  requirements.    Lecico  has  well  developed  environmental,  packaging  and  waste  reduction  policies  that  are  communicated  to  all  employees  who  are  encouraged  to  participate  in  achieving  the  Company’s  goals.    All  Lecico’s  factories  in  Egypt  are  certified  for  ISO  9001  (quality  management  systems),  ISO  14001  (environmental)  and  ISO  18001  (Health  and  Safety).  ISO  14001  is  an  internationally  accepted  certification  for  effective  Environmental  Management  System  (EMS).  The  standard  is  designed  to  address  the  delicate  balance  between  maintaining  profitability  and  reducing  environmental  impact.  ISO  18001  is  the  internationally  recognized  certification  for  occupational  health  

and  safety  management  systems.  It  was  developed  by  a  selection  of  trade  bodies,  international  standards  and  certification  bodies  to  be  compatible  with  ISO  9001  and  ISO  14001,  and  help  any  company  meet  their  health  and  safety  obligations  in  an  efficient  manner.    In  2011  the  company  our  external  auditors  TUV  recorded  zero  audit  failures  or  breaches  of  compliance  against  the  IS0  9001,  14001  and  18001  standards  in  which  we  are  certified.    In  2011  Lecico’s  factories  received  new  certifications  from  AENOR  from  Spain,  WATERMARK  from  Australia  and  NORDTEST  from  Sweden.    

Environmental  Policy    All  Lecico  companies  seek  to:    

• Minimize the use of all materials, supplies and energy – and wherever possible use renewable or recyclable materials.

• Minimize the quantity of waste produced in all aspects of our business. • Adopt an environmentally sound transport policy. • Communicate our environmental policy to all staff and encourage them

to participate in the achievement of our goals. • Supply and promote, wherever possible, those products, which

contribute to energy conservation and do not damage the environment. • Ensure that the Company continues to meet present and future

environmental standards and legislation.  

Packaging  and  Waste  Reduction  Policy    All  Lecico  companies  seek  to:    

• Purchase recycled and recyclable packaging where practicable, including pallets and cartons.

• Return reusable pallets to suppliers and similarly recovering used pallets from customers.

• Reuse packaging opened at branch level for internal transfers and deliveries.

• Actively take part in recycling and reclamation schemes. • Within its businesses embrace electronic communication aimed at

significant reduction in internal paperwork throughout the Company. • Ensure that the Company continues to meet present and future

environmental standards and legislation.      

Environmental  scanning    

External  environment  

Natural  Environment      Geography:    Egypt  lies  in  the  northern  corner  of  Africa.  It  is  bounded  by  the  international  frontiers  of  the  Mediterranean  Sea  in  the  North,  the  Red  Sea  in  the  East,  Libya  in  the  west  and  Sudan  in  the  south.    Area: Total  area  of  Egypt  is  approximately  1  million  Km2    Capital: Cairo    Population:  Population:  83,688,164  (July  2012  est.)  Age  Structure:  

32.5%  (male  13,917,469/female  13,298,009)    15-­‐24  years:  18.2%  (male  7,833,062/female  7,427,571)    25-­‐54  years:  38.1%  (male  16,166,968/female  15,723,340)    55-­‐64  years:  6.5%  (male  2,710,567/female  2,718,105)    65  years  and  over:  4.7%  (male  1,750,195/female  2,142,878)  (2012  est.)  

 Median  age  

Male:  24.3  years    Female:  24.9  years  (2012  est.)  

 Population  growth  rate:  1.922%  (2012  est.)  Birth  rate:  24.22  births/1,000  population  (2012  est.)  Death  rate:  4.8  deaths/1,000  population  (July  2012  est.)  Net  migration  rate:  -­‐0.2  migrant(s)/1,000  population  (2012  est.)  Urbanization  

Urban  population:  43.4%  of  total  population  (2010)    Rate  of  urbanization:  2.1%  annual  rate  of  change  (2010-­‐15  est.)  

 Major  cities  -­‐  population  

CAIRO  (capital)  10.902  million;  Alexandria  4.387  million  (2009)    Ethnic  groups:  Egyptian  99.6%,  other  0.4%  (2006  census)    Religions:  Muslim  (mostly  Sunni)  90%,  Coptic  9%,  other  Christian  1%    Literacy:  Definition:  age  10  and  over  can  read  and  write  

Total  population:  70.3%  Male:  77.6%  Female:  62.7%  (2006  EST.)  

 Topography:  Egypt  is  geographically  divided  into  four  main  divisions:  

1- The Nile Valley and Delta (approx. 33,000 Km2) It extends from the North Valley to the Mediterranean Sea and is

divided into Upper Egypt and Lower Egypt, extending from Wadi Halfa to the south of Cairo and from North Cairo to the Mediterranean Sea. The River Nile in the north is divided into two branches, Damietta and Rachid embracing the highly fertile agricultural lands of the Delta.

2- The Western Desert (approx. 680,000 Km2) Extends from the Nile Valley in the East to the Libyan borders in the west, and from the Mediterranean in the north to the Egyptian southern boarders. It is divided into: - The Northern Section: it includes the coastal plain, the northern plateau and the Great Depression, the Natroun Valley and Baharia Oasis. - The Southern Section: it includes Farafra, Kharga, Dakhla, and El-Owainat in the far south.

3- The Eastern Desert (approx. 325,000 Km2) It extends from the Nile Valley in the West to the Red Sea, Suez gulf, and Suez Canal in the East, and from Lake Manzala on the Mediterranean in the North to Egypt's southern borders with Sudan in the south. The Eastern Desert is marked with the Eastern Mountains that range along the Red Sea with peaks that rise to about 3000 feet above the sea level. This desert is a store of Egyptian natural resources including various ores such as gold, coal, and oil.

4- Sinai Peninsula (approx. 61,000 Km2) Sinai has a triangular shape having its base at the Mediterranean in the North and its apex in the South at Ras Mohammed, the Gulf of Aqaba to the East and the Gulf of Suez and Suez Canal to the west. It is topographically divided into three main sections: - The southern section: it involves extremely tough terrain that is composed of high-rise granite mountains. Mount Catherine rises about 2640 meters above sea level, thus making it the highest mountaintop in Egypt. - The Central section: it comprises the area bounded by the Mediterranean to the North. - At-Teeh plateau to the south: it is a plain area having abundant water resources derived from rainwater flowing from southern heights to the central plateau.

 Climate:    The  Egyptian  climate  is  influenced  by  the  factors  of  location,  topography,  and  general  system  for  pressure  and  water  surfaces.  These  aspects  affect  Egypt's  climate  dividing  it  into  several  regions.  Egypt  lies  in  the  dry  equatorial  region  except  its  northern  areas  located  within  the  moderate  warm  region  with  a  climate  similar  to  that  of  the  Mediterranean  region.  It  is  warm  and  dry  in  the  summer  and  moderate  with  limited  rainfall  increasing  at  the  coast  in  winter.  The  annual  average  day  and  nighttime  temperatures  in  Lower  and  Upper  Egypt  is  20  and  25,  and  7  and  17  respectively.      Water  Resources:    Egypt  depends  on  three  main  sources;  the  River  Nile  water,  rain  fall  and  floods  in  addition  to  ground  water.  

 Mineral  &  Oil  Resources:    Egypt  is  endowed  with  a  fortune  of  important  metals  such  as  phosphates,  raw  iron  and  oil.    Development  and  the  Environment:  Sustainable  development  entails  a  pattern  of  growth  in  which  economic,  social,  as  well  as  environmental  conditions  are  equally  considered  and  carefully  balanced,  leading  to  living  standards  for  future  generations  which  are  no  worse  off,  if  not  better,  than  present  ones.  In  this  respect,  environmental  protection  and  a  balanced  use  of  natural  resources  must  constitute  an  integral  part  of  the  development  process.  In  Egypt,  as  the  available  natural  resources  must  support  a  rapidly  increasing  population,  sound  management  of  such  resources,  together  with  a  continuous  improvement  of  the  protection  of  the  environment  are  an  evident  necessity.      The  Ministry  of  State  for  Environmental  Affairs  (MSEA)  with  its  executive  agency,  the  Egyptian  Environmental  Affairs  Agency  (EEAA),  meet  this  challenge  by  continuously  striving  for  the  integration  of  the  environmental  dimension  into  national  policies,  plans  and  lines  of  action.  This  is  carried  out  with  an  immediate  focus  on  the  reduction  of  pollution  and  the  conservation  of  Egypt's  natural  resources  through  effective  environmental  management.      Environmental  Authority:  In  June  1997,  the  responsibility  of  Egypt's  first  full  time  Minister  of  State  for  Environmental  Affairs  was  assigned  as  stated  in  the  Presidential  Decree  no.275/1997.  From  thereon,  the  new  Ministry  of  Sate  for  Environmental  Affairs  (MSEA)  has  focused,  in  close  collaboration  with  the  national  and  international  development  partners,  on  defining  environmental  policies,  setting  priorities  and  implementing  initiatives  within  a  context  of  sustainable  development.      According  to  the  Law  4/1994  for  the  Protection  of  the  Environment,  the  Egyptian  Environmental  Affairs  Agency  (EEAA)  was  restructured  with  the  new  mandate  to  substitute  the  institution  initially  established  by  Presidential  Decree  No.  631  of  the  year  1982.  EEAA  represents  the  executive  arm  of  the  Ministry.      MSEA  and  EEAA  are  the  highest  authority  in  Egypt  responsible  for  promoting  and  protecting  the  environment,  and  coordinating  adequate  responses  to  these  issues.    

Society  Environment    The  PESTLE  analysis  of  Egypt  identifies  issues  that  affect  the  country's  performance  using  the  strengths,  weaknesses,  opportunities,  and  threats  (SWOT)  framework.  The  political  landscape  section  discusses  the  evolution  of  the  political  scenario  in  Egypt,  as  well  as  the  country's  economic,  social,  foreign,  and  defense  policies.  The  section  also  discusses  the  country's  performance  according  to  World  Bank  

Governance  Indicators.  The  economic  landscape  section  outlines  the  evolution  of  Egypt's  economy,  as  well  as  the  country's  performance  in  terms  of  GDP  growth,  composition  by  sector  (agriculture,  industry,  and  services),  fiscal  situation,  international  investment  position,  monetary  situation,  credit  disbursement,  banking  sector,  and  employment.    

   

Political    Egypt  continues  a  process  of  political  transition.  The  country  has  undergone  dramatic  political  changes  since  the  2011  revolution  that  toppled  the  regime  of  former  President  Hosni  Mubarak.  In  June  2012,  elections  were  held  and  Mohamed  Morsi  won  51.7  percent  of  the  vote.  He  took  office  on  June  30,  2012,  and  a  new  constitution  was  passed  in  a  referendum  in  December  2012.  After  mass  demonstrations  and  the  removal  of  President  Morsi  on  July  2,  2013,  an  interim  president  was  sworn  in  on  July  4  and  a  Constitutional  Declaration  was  issued  on  July  9.  An  interim  government  was  formed  on  July  16,  2013.  A  body  appointed  by  Egypt's  interim  government  to  rewrite  the  country's  constitution  met  for  the  first  time  on  September  8,  2013.  After  a  referendum  on  a  new  constitution,  the  country  is  scheduled  to  head  to  presidential  and  parliamentary  elections  in  early  2014.  

Economical    Egypt’s  economy  is  still  suffering  from  a  severe  downturn  and  the  government  faces  numerous  challenges  as  to  how  to  restore  growth,  market  and  investor  confidence.  Political  and  institutional  uncertainty,  a  perception  of  rising  insecurity  and  sporadic  unrest  continue  to  negatively  affect  economic  growth.  Real  GDP  growth  slowed  to  just  2.2  percent  year  on  year  in  October-­‐December  2012/13  and  investments  declined  to  13  percent  of  GDP  in  July-­‐December  2012.  The  economic  slowdown  contributed  to  a  rise  in  unemployment,  which  stood  at  

13  percent  at  end-­‐December  2012,  with  3.5  million  people  out  of  work.  Foreign  exchange  reserves  have  continued  to  decline  and  are  now  less  than  3  months  of  imports.    The  government  also  needs  to  reconcile  the  need  for  more  public  spending  with  the  objective  of  reducing  the  deficit,  which  rose  to  11  percent  of  the  GDP  in  FY11/12.  A  major  challenge  the  government  faces  is  managing  the  state  budget,  which  includes  salaries  for  public  sector  and  subsidies,  items  that  account  for  more  than  half  of  all  public  expenditures.    Measures  to  further  reduce  fuel  subsidies  planned  for  April  2013  have  now  been  postponed  to  later  this  year.  Ongoing  political  tensions  have  prolonged  Egypt’s  bid  to  secure  a  $4.8  billion  loan  from  the  International  Monetary  Fund  (IMF).  The  IMF  has  been  discussing  a  program  of  support  with  the  government  and  calling  for  stronger  fiscal  adjustment,  full  disclosure  of  underlying  measures,  and  broader  political  support.  Economic  growth  remains  weak,  with  a  high  fiscal  deficit  and  gross  public  debt  (domestic  and  external)  rising  to  nearly  100  percent  of  GDP  at  end-­‐June  2013.  Low  growth  rates  pose  a  danger  to  mounting  social  frustrations,  as  they  will  not  suffice  to  deliver  the  needed  jobs  and  opportunities.  Unemployment  rate  reached  over  13  percent  in  June  2013.  Most  critically,  however,  more  than  three-­‐quarters  of  the  unemployed  are  between  15  and  29  years  of  age.  

Socio-­‐cultural    Over  the  past  two  decades,  Egypt  showed  marked  improvements  in  a  number  of  social  indices:  infant  mortality  and  malnutrition  among  children  under  five  both  decreased  by  half  and  life  expectancy  rose  from  64  to  71  years.    The  economy  and  the  living  standards  for  the  vast  majority  of  the  population  improved  although  in  an  uneven  manner.    The  Household  Income,  Expenditure  and  Consumption  Survey  (HIECS)  for  2010/2011  showed  that  the  poverty  rate  increased  from  21.6  percent  in  2008/09  to  25.2  percent  in  2010/11.    Conversely,  the  extreme  poverty  rate  declined  from  6.1  percent  in  2008/09  to  4.8  percent.    Inequality  remained  constant  over  the  last  2  years,  according  to  the  Gini  coefficient  recorded  with  31  percent  in  both  2008/09  and  2010/11.  Although  only  a  little  over  half  of  the  population  lives  in  rural  areas,  more  than  78  percent  of  the  poor  and  80  percent  of  the  extreme  poor  live  there.    These  income  disparities  are  reinforced  by  the  gaps  in  social  indicators,  where  virtually  all  health  indicators  and  literacy  rates  are  worse  in  Upper  Egypt  than  in  Lower  Egypt  and  worse  in  rural  areas  than  in  urban  areas.    Illiteracy  rates  among  young  women  in  Upper  Egypt  are  24  percent,  twice  the  rates  of  their  male  counterparts.  The  new  government  also  faces  the  challenge  of  addressing  social  inequality.  This  will  involve  developing  an  education  system  that  equips  students  with  the  skills  to  compete  in  the  global  economy,  and  a  private  sector  governed  by  transparent  rules  that  allow  for  equal  access  to  both  entry  and  opportunities.    A  better-­‐targeted  system  of  social  benefits  would  ensure  that  the  needs  of  the  most  vulnerable  are  being  met  while  reducing  the  pressure  on  the  national  budget.  The  previous  government  had  made  efforts  to  modernize  the  economy  with  a  program  of  privatizations.  While  there  had  been  periods  of  sustained  growth,  averaging  seven  percent  before  the  economic  slowdown  in  2008,  the  opportunities  it  created  were  not  shared  equally.  The  uprising  was  

motivated  by  the  perception  that  both  the  political  and  economic  systems  were  rigged  in  favor  of  a  privileged  minority.  This  was  equally  true  of  the  expansion  of  the  private  sector,  which  was  seen  as  yet  another  way  of  benefitting  the  elite.  Investment  will  be  needed  to  stimulate  business  activity  as  the  only  source  for  the  scale  of  jobs  and  opportunities  needed.  The  education  system  will  need  reforms  that  gear  it  more  toward  a  market  economy,  as  enterprise  surveys  have  shown  that  workers’  skills  do  no  match  the  needs  of  private  businesses.  

Technological    Governmental  spending  in  R&D,  Egypt  is  from  the  lowest  country  that  spend  on  R&  D  in  comparison  with  other  countries  which  adversely  affects  their  development  in  the  areas  of  agricultural,  industrial  and  other  industries   Internet  users  growth  rate  Due  to  the  successful  implementation  of  a  free  Internet  strategy  in  2002,  Egypt  now  has  the  largest  Internet  market  in  Africa  with  more  than  five  million  users  in  early  2006.  However,  Internet  penetration  is  still  relatively  low  and  the  vast  majority  of  users  are  located  in  urban  area  

Legal    According  to  the  Law  4/1994  for  the  Protection  of  the  Environment,  the  Egyptian  Environmental  Affairs  Agency  (EEAA)  was  restructured  with  the  new  mandate  to  substitute  the  institution  initially  established  in  1982.  At  the  central  level,  EEAA  represents  the  executive  arm  of  the  Ministry.    The Principal Functions of the Agency Include:

• Formulating environmental policies. • Preparing the necessary plans for Environmental protection and

Environmental development projects, following up their implementation, and undertaking Pilot Projects.

• The Agency is the National Authority in charge of promoting environmental relations between Egypt and other States, as well as Regional and International Organizations.

Foreign trade  The  Egyptian  market  is  gradually  opening  up,  especially  after  signing  an  agreement  with  the  European  Free  Trade  Association  (EFTA)  in  2006,  and  a  free  trade  treaty  with  the  United  States.  Its  three  primary  export  partners  are  the  European  Union,  which  represents  more  than  a  third  of  the  trade,  United  States  and  Syria.  Its  three  primary  import  partners  are  the  European  Union,  the  United  States  and  China.  Egypt  mainly  exports  mineral  fuels  and  oil,  cotton,  iron  and  steel.  It  imports  mainly  consumer  electronic  goods  and  capital  goods,  nuclear  reactors  and  nuclear-­‐powered  boilers,  cereals,  food  products  and  chemical  products.  Import  volume  has  doubled  and  is  twice  the  export  volume,  a  fact  that  contributed  to  the  deterioration  of  the  country's  trade  balance.  

Tax Rate The  standard  rate  of  corporate  income  tax  is  40%.  The  rate  is  32%  on  profits  arising  from  export  operations  and  on  profits  of  an  industrial  company  as  long  as  they  arise  from  its  industrial  activities.   Withholding Tax Any  business  operating  in  Egypt  must  withhold  against  any  payments-­‐-­‐  made  to  any  contractor  or  supplier  of  goods  or  services-­‐-­‐  the  following  basic  percentages:  Contracting  and  supplying:  1%  Services:  3%  Commissions:  10%  Professional  fees  (under  LE  500):  10%  Professional  fees  (over  LE  500):  15%  Leasing  of  property  or  selling  of  goods  for  trading  or  manufacturing:  1%  -­‐  5%  (to  be  added  on  the  payee's  tax  liability  account.  Corporate Tax Exemptions and Deductions  

• Almost all business expenses are deductible including depreciation, interest, royalties, rent, profit sharing payments to employees, legal expenses, pension and Egyptian state social insurance contributions.

• Profits of companies located in the free zones. • Capital gains are applicable in some cases of asset replacement. • All tax holidays granted under Investment Law No.8/1997. • Joint stock companies employing more than 50 employees and

maintaining proper books of accounts are granted a tax holiday for a five-year period. Also, hotels and tourist projects are granted a tax holiday for a five-year period which can be extended to ten years if the project is located in a remote area.

• For joint stock companies listed in the stock market, a deductible allowance is made that is equal to interest income, which can be earned on a bank deposit (currently 10.5 percent).

• Ninety percent of income generated by companies from their movable capitals which have been subject to the new tax imposed by Law 187 of 1993.

 Personal Income Tax

• Taxable Income Tax Law No. 187 of 1993 distinguishes among the following categories of income of individuals (as well as partners in partnerships):

• Salaries and wages. • Commercial and industrial profits • Income from immovable property • Income from movable capital • Noncommercial profits.

• Taxation of Foreigners

Foreigners  that  have  been  working  in  the  country  for  more  than  183  days  with  their  annual  salaries  varying  from  LE  1.00  to  LE  50,000  are  subject  to  paying  a  20  percent  income  tax.  However,  if  the  employee's  annual  income  exceeds  LE  50,000  then  they  will  be  liable  to  pay  32  percent  income  tax.  

• Social Insurance Contribution Rates

  Employer(%)   Employee(%)  On basic monthly salary up to L.E. 500 / month  

26   14  

On variable pay (such as production incentive bonuses)-up to L.E. 500/month

24   11  

 Labor force and laws

Labor force Government,  armed  forces  &  public  sector:  36% Agriculture:  34% Private  sector:  30% The  new  unified  Labor  Law  No.  12  for  2003  regulates  the  Egyptian  labor  market.  The  new  Law  comprises  257  articles  that  address  all  the  legal  aspects  regulating  the  Egyptian  labor  market.  The  new  law  aims  at  increasing  the  private  sector  involvement  and  at  the  same  time  achieving  a  balance  between  employees  and  employers'  rights.  Amongst  the  most  important  issues  that  the  new  law  addresses  is  the  right  of  an  employer  to  fire  an  employee  and  the  conditions  pertaining  to  this  as  well  as  granting  employees  the  right  to  carry  out  a  peaceful  strike  according  to  controls  and  procedures  prescribed  in  the  new  law.      

Environmental  legislation      Law  4/1994:  has  a  greater  role  with  respect  to  all  governmental  sectors  as  a  whole.  The  law  has  been  designated  as  the  highest  coordinating  body  in  the  field  of  the  environment  that  will  formulate  the  general  policy  and  prepare  the  necessary  plans  for  the  protection  and  promotion  of  the  environment.  It  wills  also,  follow-­‐up  the  implementation  of  such  plans  with  competent  Administrative  authorities.  The  laws  and  regulations  covering  the  governmental22  sector  that  can  be  grouped  according  to  the  pollutant  emissions  from  various  activities:  The  Environmental  Protection  Law  has  defined  the  responsibilities  of  the  agency  in  terms  of  the  following  

• Preparation of draft legislation and decrees pertinent to environmental management.

• Collection of data both nationally and internationally on the state of the environment.

• Preparation of periodical reports and studies on the state of the environment. Formulation of the national plan and its projects.

• Preparation of environmental profiles for new and urban areas, and setting of standards to be used in planning for their development.

• Preparation of an annual report on the state of the environment to be prepared to the President.

 Global  Warming  Legislation  Over  a  decade  ago,  most  countries  joined  an  international  treaty  -­‐-­‐  the  United  Nations  Framework  Convention  on  Climate  Change  (UNFCCC)  -­‐-­‐  to  begin  to  consider  what  can  be  done  to  reduce  global  warming  and  to  cope  with  whatever  temperature  increases  are  inevitable.  More  recently,  a  number  of  nations  approved  an  addition  to  the  treaty:  the  Kyoto  Protocol,  which  has  more  powerful  (and  legally  binding)  measures.  The  UNFCCC  secretariat  supports  all  institutions  involved  in  the  climate  change  process,  particularly  the  COP,  the  subsidiary  bodies  and  their  Bureau.    

Task  (Industry)  Environment    

Fives  Forces  of  porter      

   In  a  competitive  framework  characterized  by  declining  barriers  to  entry,  the  distinction  between  foreign  competitors  on  the  Egyptian  market  and  foreign  competitors  on  the  other  markets  (that  are  the  market  where  Egypt  could  export)  is  losing  importance.  In  other  words,  Egyptian  manufacturers  have  to  

face  competitors  that  will  try  to  expand  their  shares  in  the  Egyptian  market  as  well  as  in  the  European,  Mediterranean  and  African  areas.  We  should  rather  differentiate  between  “present”  and  “future”  competitors,  taking  into  account  that  other  countries  in  the  region  are  building  a  strong  productive  capacity  and  that  the  export  might  become  their  first  way  of  sectorial  development.  Therefore,  among  the  main  present  competitors  for  the  local  industry  we  can  consider  Turkey,  China  and  UAE:  they  can  export  in  the  Mediterranean  area  (included  Egypt)  via  shipping.  In  fact,  imports  from  the  Mediterranean  and  Middle  East  area  are  still  limited,  with  the  growing  presence  of  China.  On  the  other  hand,  Egyptian  exports  are  mainly  directed  to  UAE.  In  the  near  future  (from  two  to  five  years)  Iran,  Morocco  and  Saudi  Arabia  can  become  important  regional  players,  because  they  are  building  huge  production  capacities  and  the  export  will  be  the  obvious  channel  to  allocate  their  production  surplus.  Their  productions  could  reach  part  of  the  region  by  truck.  

Threats  of  New  Entrants  The tile and sanitary industry in Egypt is on a growth stage, which makes it an attractive investment. The demand for tiles and sanitary is persistently increasing due to the booming construction sector. However the initial startup cost for a manufacturing plant is massive especially on plant and machinery and distribution channels (732,162,639 L.E). The typical payback period of setting up a plant is about 4 to 5 years also the industry requires economies of scale to produce a product with a significant cost advantage; hence this makes a barrier for potential players to enter the industry. The consolidated balance sheet for the year ended 31/12/2012 gave a total assets figure of 2,030,485,287 L.E (Opportunities). Total investment in the sector stood at EGP5bn. The country has about 25 tiles plants with a total annual capacity of 225mn sqm p.a, while consumption is around only 140-160mn sqm p.a, leaving Egypt with room for an enormous export capacity. In FY08/09, Egypt’s Ceramics industry was ranked 8th in the world in terms of total production output.

Rivalry  among  Existing  Firms  Since the industry has a significant growth rate in Egypt and globally as well, so the rivals will not do much impact on the industry since the demand is growing and the market is not saturated. Since the product is highly differentiated in colors, dimensions and design, this leads to products differentiation in the industry and hence it decreases the force of rivals (Opportunities).

Threats  of  Substitute  product  The closest substitutes for tiles are marbles, wooden (parquet) flooring and grout & mortar however for the sanitary ware the ceramic is the dominant choice up to now due to the ease cleaning and temperature resistance. Even the price of ceramic tiles may elevate due to heavy production cost (increasing energy and raw material prices), still its price remains competitive to the substitutes. On the other hand there is no current alternative for the sanitary ware. On the whole, households prefer to use ceramic tiles to get their desired fit and finish and also many of wooden parquet installed on the ceramic tiles to improve the flatness of the floor (Opportunities).

Bargaining  Power  of  Buyers  There is heavy influx of cheaper tiles from China, India and Indonesia, which is preferred by income elastic customers. Nevertheless despite of premium prices possessed by locally manufactured tiles, due to high quality and durability, the local demand still exists and also the domestic buyers are not limited in numbers. Overall customers possess a moderate bargaining power due to the availability of cheap imports (Threat).

Bargaining  Power  of  Suppliers  Tile and sanitary industry consumes large quantities of clay and consumes a lot of energy as well. Around 31% of the production costs accounts for the raw material and 16% of the cost accounts for energy. Since the government subsidiary was removed from the energy supplied to the industry plus the gas production shortfall, which might affect negatively on the industry, the suppliers’ posses a higher bargaining power (Threat).      

Issue  priority  matrix    After  the  analysis  of  such  factors  we  will  distribute  them  according  to  issues  priority  matrix.  The  items,  which  have  been  categorized,  as  high-­‐high,  medium-­‐  high  or  high  medium  will  be  our  focus  in  selecting  the  opportunities  or  threats,  which  can  be,  categorized  as  strategic  factors.    Issue  Priority  

Matrix  Probable  Impact  on  Organization  

High   Medium   Low  

Probability  of  occurrence  

High   • Raw Material (clay,ball clay,feldspar )are available locally from Aswan and Sukhna (Opportunity)

• Low foreign reserve might negatively affect the business activities (Threat)

• Shortfall in gas supply and delay in gas wells development along Egypt and consequently lead to a higher energy price. (Threat)

• High inflation rate will impact the product price and lose low price competitiveness (Threat)

• Higher exchange rate will impacted negatively on the industry since the raw material for the glaze is not available on local market (Threat)

• Downturn in European markets may negatively affect export sales (Threat)

• Deployment of advanced technology in the firing equipment leads to energy conservation (Threat)

• Frequent strikes might affect the company supply chain (Threat)

• Labour union becomes more robust and the labour asking for their rights (Threat)

• The country will go for more construction projects especially for the youth housing which will give a significant growth to the industry (Opportunity)

• Egypt current instable political situation (Threat)

• World directions toward the eco-design products (Threat)

• World direction towards new application in the ceramics products like in the medical and electrical industry (Opportunity)

• Open new market in Libya especially in after their revolution and more development projects will be in place (Opportunity)

• Moderate ambient temperature and region out of earthquakes zones (Opportunity)

 

Medium   • High rate of unemployment might put stress of over employment on industry manufacturer (Threat)

• The increased awareness with hazards caused by such ceramic factories for its neighborhoods may cause serious problem in the near future especially after this socio-cultural changes occurred after revolution (Threat)

• Lake of trained or skilled workers and managers (Threat)

• No support from universities and other research institutes in the field of R&D (Threat)

• Nanotechnology science will contribute in the change of the industry know how (Threat)

• Low Fresh water supply along Egypt might be arises due to the building of new dams on the Nile Basin countries (Threat)

• New strict environmental regulations might be arise which impact significantly on the industry capital cost (Threat)

• Rivalry among Existing Firms (Thread)

• Evolving of new economic countries might negatively affect the global market share (Threat)

• More restricted environmental regulations after the revolution (Threat)

• The perspective of new political system to taxation laws; import/export regulations and the extent of government bureaucracy in business regulation (Threat)

• Bargaining power of buyer (Threat)

• Threats of New Entrants (Threat)

• Ending the monopoly politics which was undertaken by the previous authorized party by assigning the major country projects to a specific manufacture (Opportunity)

• Newly joint trade with China will adversely affect the industry (Threat)

• Threat of substitute product

 

Low   • Political disturbance in the whole region due to the struggle between Iran and Israel about the nuclear arms race issue. (Threat)

• Imported tiles and sanitary could be significantly decreased due to stringent protectionist policies could enacted by the government in the future (Opportunity)

• Disturbance in relations between Israel and Egypt about Sinai security issue; modification of peace agreement and Palestine issue. (Threat)

• Bargaining power of suppliers (Threat)

• Revolution of the pigments industry (Threat)

 

 

Strategic  Groups    

     

Strategic  Types      Lecico  use  defender  strategy  because  it  focus  in  improving  efficiency  to  make  expansion  growth    Lecico’s  strategy  is  to  leverage  its  large  production  base  in  Egypt  to  build  a  significant  presence  across  the  Middle  East  and  Europe  by  providing  innovative,  modern  design  and  world-­‐class  quality  ware  at  competitive  prices.  Expand  regional  and  International  Exports.    Lecico’s  strategy  is  to  continue  developing  its  presence  and  footprint  in  regional  and  European  export  markets  under  its  own  brands  and  as  an  OEM  producer  for  leading  global  manufacturers.  In  2008,  we  are  seeing  a  strong  increase  in  enquiries  from  existing  and  new  customers  across  all  categories.  Lecico’s  exports  to  Europe  account  for  over  80%  of  exports  and  over  35%  of  the  company’s  sales.  The  Lecico  brand  has  a  10%  market  share  in  the  UK,  France  and  Ireland  combined.  Lecico  plans  to  increase  it’s  market  share  in  Europe  by  targeting  new  markets  and  OEM  customers  while  also  widening  its  offering  in  existing  markets.  Lecico  will  also  continue  to  selectively  explore  any  opportunities  to  make  value-­‐enhancing  acquisitions.    As  a  result  of  Lecico’s  focus  on  growing  its  presence  in  regional  markets,  the  company’s  sanitary  ware  and  tile  exports  to  the  Middle  East  have  grown  50%  annually  over  the  last  five  years.  Lecico  sees  strong  opportunities  for  continued  growth  in  regional  markets,  particularly  in  those  countries  with  large  populations  and  underdeveloped  or  rapidly  growing  economies.  Lecico  has  established  small  trading  subsidiaries  in  Saudi  Arabia  and  Algeria  to  better  access  these  markets.    Lower  production  costs.  Lecico’s  production  base  in  Egypt  provides  it  with  relative  cost  savings  in  energy  and  labor  that  allow  it  to  be  a  competitive  producer  of  world-­‐class  quality  products  for  European  and  regional  markets.  The  company  is  dedicated  to  constantly  improving  efficiency,  cost  control  and  vertical  integration  in  an  effort  to  remain  competitive.        

Competitive  Analysis    

     Al  Omaraa  co.  (  La  Beaut’e  )   Lecico  Group  Production  capacity  11  production  lines  produce  80,000  square  meter  daily  means  26,900,000  annually  

Production  Capacity  in  Egypt  14  production  lines  produce  88,000  square  meter  daily  means  29,500,000  Plus  8,000,000  for  Lecico  Lebanon  

Aim  to  Obtain  Maximum  Level  of  quality  for  the  final  product  That  is  begin  from  Raw  material  necessary  to  be  from  pure  &  highest  level  of  Material  

Aim  to  satisfy  its  customer  satisfaction  through  producing  larger  number  of  product  ranges  

Omeraa  use  a  logo  well  known  to  Christian  religion  to  accomplish  

Lecico  is  a  well  known  brand  since  50  years  

market  share  fast  Distribution  channels  depend  mostly  on  customers  in  upper  region  due  to  lack  of  Cleopatra  market  share  

Distribution  channels  are  bounded  well  by  sharing  the  company  in  empowering  distributer’s  assets  like  purchasing  warehouses  for  each  region  

Same  percentage  yearly  for  work  lab  to  research,  development  &  training  factor  whether  it  is  for  industrialization  and  quality  technical  or  for  humanity  trouble  with  different  company  departments  

Lecico  invest  on  complementary  items  used  in  the  industry:  

• Purchasing  moulds  for  its  sanitary  seat  cover  used  by  the  supplier  Rubex  

• Improve  the  idea  of  flushing  system  by  importing  most  efficient  samples  for  Local  suppliers

Average  Market  selling  Price  per  meter  square  25  L.E  

Average  Market  selling  Price  per  meter  24  L.E  

They  begin  to  produce  this  year  with  2  kins  of  frites  to  use  in  their  production  beside  importing  other  70%  of  their  needs  from  Spain  

Lecico  use  98%  of  its  needs  of  frites  locally  from  its  internal  factory  of  8  kins  beside  exporting  exceeded  production  for  Lecico  Lebanon  factory  needs  

By  using  a  team  of  professional  designers,  the  product  is  highly  developed  beyond  local  customer  expectation  

Lecico  import  designs  from  China  due  to  high  machinery  used  in  graphic  designs  available  in  Chinese  ceramic  industry  

 

Industry  Matrix    

Key Success Factors

Relative Weight

Lecico Rating

Lecico Weighted

Score

Al Omaraa Rating

Al Omaraa

Weighted Score

Distribution Channels

0.3 4 1.2 3 0.9

Product varieties 0.25 3 0.75 2.5 0.625 Economy of scale

0.2 4 0.80 3.5 0.7

Technology 0.15 2 0.3 3.5 0.525 Managing volatility

0.1 1.5 0.15 2.5 0.25

Summation 1 3.2 3        

   Comments  on  Industry  Matrix    Distribution  Channels:  Without  efficient  distribution  channels  manufacturing  companies  cannot  distribute  nor  sell  their  products,  Lecico  dominates  local  and  foreign  distribution  networks  by  offering  them  attractive  sales  incentives  and  discounts.    Product  varieties:  Product  varieties  range  from  different  designs  of  the  same  product  to  a  whole  package  of  the  sanitary  products  (sanitary  ware,  tiles  &  brass).  Lecico  produces  all  three  product  ranges,  although  Lecico  has  little  product  designs  compared  to  the  competitors  but  the  acquisition  with  Sarreguemines  plant  in  France  will  provide  Lecico  with  the  updated  product  design  and  TQM  system  in  the  sanitary  ware  product.   Economy  of  scale:  The  economy  of  scale  is  very  important,  in  addition  to  its  entry  barrier  effect  for  the  industry,  it  is  essential  for  providing  low  cost  with  high  quality  products.  Technology:  Technology:  Old  operated  design  kilns  in  Lecico  are  heavily  consumers  of  energy  (only  4  kilns  out  of  17  had  been  replaced  by  newly  fuel  gas  saving  technique). Managing  volatility:  Managing  volatility  is  important  due  to  extreme  changes  in  energy  prices  with  unstable  supplies.  Also  frequent  strikes  affect  the  company’s  supply  chain.      

EFAS    Opportunities     Weight   Rating   Weighted  

score  Comments  

Raw  Material  (clay,ball  clay,feldspar  )  local  availability  from  Aswan  and  Sukhna    

0.2   5   1   Availability  of  Raw  material  with  cheap  prices  

Open  new  market  in  Libya  especially  in  after  their  revolution  and  more  development  projects  will  be  in  place  

0.10   3   0.3   Might  face  new  competitors  from  Chinese  manufacturers    

Closeness  to  European  markets,  Demographic  location  when  compared  to  Chinese  and  Indian  competitors  in  the  European  market.  

0.10   4   0.4   Advantage  when  compared  to  Chinese  and  Indian  competitors  

Opening  Retailer  in  more  European  countries  (European  Unions)  

0.05   2   0.1   Takes  time  to  establish  a  good  position  in  market  

The  country  will  go  for  more  construction  projects  especially  for  the  youth  housing  which  will  give  a  significant  growth  to  the  industry  

0.05   1   0.05   Political  disturbance  in  country  

Summation   0.5     1.85    Threads   Weight Rating Weighted  

score Comments

Shortfall  in  gas  supply  and  delay  in  gas  wells  development  along  Egypt  and  consequently  lead  to  a  higher  energy  price  

0.15   1   0.15   Industry  highly  depends  on  energy  supply  prices  and  can’t  oppose  government  rules.    

Frequent  strikes  might  affect  the  company  supply  chain  

0.1   4   0.4   Political  disturbance  in  country  

Lake  of  trained  or  skilled  workers  and  managers  

0.1   3   0.3   Low  quality  and  quantity  training  for  workers  in  Egypt    

World  directions  toward  the  eco-­‐design  products  

0.1   2   0.2   Direction  of  Environmental  satiability    

Low  Fresh  water  supply  along  Egypt  might  be  arises  due  to  the  building  of  new  dams  on  the  Nile  Basin  countries    

0.05 2 0.1 Water  supply  dilemma

Summation   0.5 1.15            

Internal  Environment    

Organization  culture      Lecico  Egypt  culture  is  the  values  and  behaviors  that  contribute  to  the  unique  social  and  psychological  environment  of  an  organization.    Organizational  culture  includes  an  organization's  expectations,  experiences,  philosophy,  and  values  that  hold  it  together,  and  is  expressed  in  its  self-­‐image,  inner  workings,  interactions  with  the  outside  world,  and  future  expectations.  It  is  based  on  shared  attitudes,  beliefs,  customs,  and  written  and  unwritten  rules  that  have  been  developed  over  time  and  are  considered  valid.  Also  called  corporate  culture    Lecico  Egypt  Conducts  its  business  with  relative  cost  savings  in  energy  and  labor  that  allow  it  to  be  a  competitive  producer  of  world-­‐class  quality  products  for  European  and  regional  markets.  The  company  is  dedicated  to  constantly  improving  efficiency,  cost  control  and  vertical  integration  in  an  effort  to  remain  competitive.  It  also  maintains  world-­‐class  quality,  service,  manufacturing  and  design.    Lecico  Egypt  recognizes  it  is  dependent  on  the  quality  and  effectiveness  of  its  employees.  The  Company  has  a  good  track  record  in  recruitment  and  retention  and  has  increased  its  investment  in  training,  development  and  employee  communications.    Lecico  Egypt  believes  it  has  a  responsibility  to  contribute  to  the  community  through  donations  of  goods,  funds  and  time  to  charitable  organizations  as  well  as  investing  in  the  neighborhoods  around  its  factories.    As  mentioned  before,  lecico  Egypt’s  main  marketing  strategy  is  cost  leadership  so  it  counts  mainly  in  the  reduction  of  production  costs  while  maintaining  high  quality  levels  and  so  decision  making  is  typically  centralized,  developing  of  new  ideas  is  a  must  but  still  innovation  is  not  the  main  force  driving  the  company.    

Geert  Hofstede  dimensions    Located  in  Egypt,  Lecico  Egypt  Staff  follow  the  same  society  behavior  in  terms  of  Geert  Hofstede  dimensions.    

Power  distance  Egypt  scores  high  on  this  dimension  (score  of  70)  which  means  that  people  accept  a  hierarchical  order  in  which  everybody  has  a  place  and  which  needs  no  further  justification.  Hierarchy  in  an  organization  is  seen  as  reflecting  inherent  inequalities,  centralization  is  popular,  subordinates  expect  to  be  told  what  to  do  and  the  ideal  boss  is  a  benevolent  autocrat.    

Individualism  Egypt,  with  a  score  of  25  is  considered  a  collectivistic  society.  This  is  manifest  in  a  close  long-­‐term  commitment  to  the  member  'group',  be  that  a  family,  extended  family,  or  extended  relationships.  Loyalty  in  a  collectivist  culture  is  paramount,  and  over-­‐rides  most  other  societal  rules  and  regulations.  The  society  fosters  strong  relationships  where  everyone  takes  responsibility  for  fellow  members  of  their  group.  In  collectivist  societies  offence  leads  to  shame  and  loss  of  face,  employer/employee  relationships  are  perceived  in  moral  terms  (like  a  family  link),  hiring  and  promotion  decisions  take  account  of  the  employee’s  in-­‐group,  management  is  the  management  of  groups.      

Masculinity  /  Femininity  Egypt  scores  45  on  this  dimension  and  is  thus  considered  a  relatively  feminine  society.  In  feminine  countries  the  focus  is  on  “working  in  order  to  live”,  managers  strive  for  consensus,  people  value  equality,  solidarity  and  quality  in  their  working  lives.  Conflicts  are  resolved  by  compromise  and  negotiation.  Incentives  such  as  free  time  and  flexibility  are  favored.  Focus  is  on  well-­‐being.  An  effective  manager  is  a  supportive  one,  and  decision-­‐making  is  achieved  through  involvement.    

Uncertainty  avoidance          Egypt  scores  80  on  this  dimension  and  thus  has  a  high  preference  for  avoiding  uncertainty.  Countries  exhibiting  high  uncertainty  avoidance  maintain  rigid  codes  of  belief  and  behavior  and  are  intolerant  of  unorthodox  behavior  and  ideas.  In  these  cultures  there  is  an  emotional  need  for  rules  (even  if  the  rules  never  seem  to  work)  time  is  money,  people  have  an  inner  urge  to  be  busy  and  work  hard,  precision  and  punctuality  are  the  norm,  innovation  may  be  resisted,  security  is  an  important  element  in  individual  motivation.  

 

Organization  structure    Executive  Officers  Name   Position       Year  Initially  

Appointed  to  Board  

Mr.  Gilbert  Gargour   Chairman  and  CEO   1981  Mr.  Taher  Gargour   Managing  Director   2008  Mr.  Georges  Ghorayeb   Group  Technical  Director  and  

Managing  Director  Lebanon  2003  

Mr.  Mats  Bergdahl   Executive  Director  –  Export   1997  Mr.  Mohamed  Hassan   Financial  Manager   1974  Mr.  David  Gater   Total  Quality  and  New  Product  

Development  Director  2003  

Eng.  Elie  Youssef   Production  Director,  Sanitary  Ware  

1998  

Mr.  Alessandro  Raimondi  

Khorshid  Plant  Manager,  Tiles   2002  

Mr.  Pertti  Lehti   Supply  Chain  Director   2010    

Organizations  resources  (Assets  /  human  skills)    Lecico  distribution  channels  are  very  robust  locally  and  globally  since  it  has  distribution  channels  in  18  countries  and  25  channels  locally.  Lecico  Distribution  channels  are  bounded  well  by  sharing  the  company  in  empowering  distributer’s  assets  like  purchasing  warehouses  for  each  region.  Lecico  recognizes  that  comprehensive,  two-­‐way  communications  are  essential  to  the  retention  of  skilled  employees.  A  number  of  communication  channels  are  in  place  including  briefing  meetings,  worker  boards  and  notice  boards.  To  further  improve  two-­‐way  communication,  the  Company  has  a  Worker’s  Follow-­‐Up  Committee  representing  staff  from  all  departments  and  factories  that  meets  regularly  with  the  Executive  Board.  

Value  chain  analysis    The  value  chain  analysis  initiative  calls  for  energy  cost  management,  planning  for  joint  purchasing  and  management  of  the  internal  supply  chain,  and  process  control  and  productivity  improvement.  

Primary Activities: Raw Material: The  consumption  of  the  natural  raw  materials  is  around  2,000,000  tons.  This  quantity  will  be  increased  proportionally  with  the  expansion  of  the  sector  production  capacity  the  industrial  cost  of  ceramic  tiles  is  divided  into  60%  raw  materials,  15%  Labor  cost,  15%  fixed  asset  depreciation,  3%  energy  and  the  rest  is  miscellaneous.  For  sanitary  wares  the  industrial  cost  is  divided  into  30%  raw  materials,  50%  labor  cost,  5%  energy,  5%  fixed  asset  depreciation  and  the  rest  is  miscellaneous.  The  imported  raw  materials  cost  presents  74%  of  total  raw  materials  cost  for  ceramic  tiles  and  82%  for  sanitary  wares.    Operation: Ceramic  tiles  production  starts  by  blending  the  dust  constituents  to  obtain  a  certain  mixture.  Then,  the  mixture  is  placed  in  the  Mix-­‐Muller  to  adhere  the  particles  of  the  dust  in  a  solid  state.  Next,  the  dust  is  transported  to  a  pul  verizer,  which  breaks  down  the  dust  globules  created  by  the  muller  into  a  fine,  dusty  form.  This  dusty  form  is  transformed  in  the  pressroom  into  a  solid  body  of  specific  size,  shape  and  tensile  strength.  Next,  the  body  is  stacked  on  metal  racks  and  entered  the  drying  rooms  to  void  off  the  moisture  from  the  body  and  to  attain  the  required  tensile  strength.  The  body  is  then  placed  on  a  moving  spray  booth  chain,  where  the  ceramic  tile  glaze  is  applied  to  the  face  of  the  tile.  The  glazing  process  enables  the  best  possible  results  in  color,  weight  and  density  of  the  ceramic  tile.  There  are  many  other  methods  of  applying  glazes  to  the  ceramic  tile,  including  silkscreen  patterns,  waterfall  glazes,  brushes,  and  roto  screens,  and  others.  Tiles  can  be  produced  as  glazed  and  unglazed  tiles.  Glazed  tiles  may  be  plain  or  decorated  and  generally  used  as  both  wall  and  floor  tiles.  Meanwhile,  unglazed  tiles  are  more  suited  to  commercial  and  industrial  settings  and  commonly  used  for  areas  of  heavy  foot  traffic.  

After  glazing,  the  tile  must  be  heated  intensively  to  provide  it  with  the  required  strength  and  the  desired  features.  The  glazed  tiles  are  put  through  the  firing  zone  of  the  kiln  (furnace),  at  high  pressure  and  temperature  (around  2100  degree  Fahrenheit  for  45-­‐minutes),  where  the  glaze  becomes  fluid  and  attacks  the  body  of  the  tile,  absorbing  some  of  the  chemical  properties  of  the  body  and  creating  a  bond  between  the  glaze  and  the  body.    

Packaging: Packaging  seems  to  be  an  important  issue.  The  modern  pallet  packaging  system  is  not  used  for  the  local  sales,  while  it  is  used  for  the  exports  but  with  a  low  level  of  automation.  The  packaging  does  not  fit  the  international  standards  (the  cardboard  is  poor  and  the  boxes  are  manually  prepared).  During  the  company  survey,  a  trader  highlighted  that  the  sub-­‐standard  in  packaging  affects  the  overall  Egyptian  industry  (special  pieces  breakage  can  reach  5%).  All  these  elements  influence  the  export  capability,  because  the  developed  markets  are  particularly  sensitive  to  the  effectiveness  in  deliveries,  breakages,  homogeneity  inside  boxes,  etc.  For  example,  considering  that  the  general  market  trend  shows  to  appreciate  special  pieces  and  associated  décor  pieces,  high  percentages  of  breakage  for  this  product  types  can  destroy  an  opportunity  for  the  Egyptian  industry  and  compromise  the  image  of  the  local  manufacturers  as  producers  able  to  control  the  entire  value  chain  in  the  richest  segments.  On  the  other  hand,  the  problem  is  common  to  many  developing  industries  because  an  automated  packaging  system  generally  requires  investments  in  training,  more  skilled  people,  continuous  technical  assistance  for  software  and  hardware,  so  that  the  packaging  phase  can  easily  become  a  bottleneck  within  the  entire  cycle.    Customer Satisfaction: Interviews  with  professional  operators,  such  as  dealers  and  contractors,  provided  the  most  detailed  information  about  the  level  of  satisfaction  offered  by  

Dust   Blender   Mix-­‐Muller  

pluverizer  Press  Room  Drying  Rooms  

Glazing   Firing   Sorting  and  Packaging  

the  local  output.  In  fact,  these  channels  are  aware  about  alternative  productions  from  a  number  of  countries  and  manufacturers  and  are  in  strong  competition  to  reach  the  best  procurement  conditions.  More  than  final  consumers,  dealers  and  contractors  are  particularly  interested  in  the  overall  quality  of  the  service  provided  by  the  companies  and  constantly  include  them  in  a  sort  of  global  comparison.  Concerning  the  tiles  market,  the  main  issues  highlighted  during  the  company  survey  can  be  summarized  as  follows:    

1- No regular stock for some product typologies; 2- An excessive interval time between the order and the delivery; 3- Production problems cause sometimes delays in the delivery schedule; 4- Lack of conformity for the same product type (inconstancy of the final

product, mainly concerning colors); this problem is particularly frequent in case of tiles supplied in different deliveries, i.e. at end of a project;

5- Gap between designs of imported and Egyptian tiles; 6- Differences between the producer catalogue and the actual range and

also between approved samples and delivered tiles. Supporting Activities: Firm Infrastructure: A  sound  management  team  with  extensive  experience  in  the  global  ceramics  and  sanitary  ware  industries  is  one  of  Lecico  Egypt’s  primary  assets.  This  affords  it  strong  credentials  and  a  well-­‐established  business  network.  The  Gargour  family  currently  retains  control  of  Lecico  through  a  39%  stake  by  Intage  Holdings  and  Lecico  board  members.  This  consists  of  the  13%  stake  of  local  shares,  in  addition  to  a  26%  stake  held  in  GDRs.  Corporations  and  institutions  hold  a  further  18%  stake,  with  GDR  free  float  and  local  free  float  currently  standing  at  12%  and  30%,  respectively.  Lecico's  corporate  management  strategy  recently  garnered  international  attention  within  the  global  financial  arena.  In  FY10  it  was  listed  as  one  of  the  top  ten  constituents  of  Standard  &  Poor’s  newly  launched  S&P/EGX  ESG  Index,  the  first  index  designed  to  track  the  performance  of  companies  listed  on  the  Egyptian  Exchange  (EGX)  that  have  demonstrated  strong  leadership  on  environmental,  social  and  corporate  governance  (ESG)  issues.    Human Resources: Due  to  its  strong  development,  Egyptian  industry  seems  to  face  a  certain  pressure  on  some  specific  categories  of  labor  force.  Technicians  with  3  to  5  years  of  experience  are  very  required  and  the  competition  to  hire  them  is  increasing  among  the  companies,  especially  in  industrial  sites  with  high  level  of  concentration  (for  example,  10th  of  Ramadan).  Losing  such  a  kind  of  workers,  for  the  company  which  sustained  the  costs  of  training  them,  means  to  loose  important  investments  in  human  resources  and  a  delay  in  building  an  important  layer  of  middle  level  technicians.  The  scarcity  seems  to  concern  the  young  workers  that  come  from  the  secondary  school  (a  specialized  secondary  school  in  ceramics  does  not  exists  in  Egypt)  rather  than  engineers  with  a  long  university  curriculum.    

Technology Development: For  the  Egyptian  industry  the  choice  among  alternative  suppliers  of  technology  depends  on  which  phase  the  equipment  is  used  in  (to  appreciate  the  different  phases  see  the  charts  below  that  show  cycles  of  an  Egyptian  manufacturer:  the  charts  are  just  an  example  of  possible  production  flows,  consistent  with  cycles  common  in  the  world  industry).  For  the  body  preparation,  the  Egyptian  companies  prefer  to  buy  less  expensive  mills  and  spray  dryers  from  Chinese,  Turkish  and  local  producers  (see  above  chapter  one,  “Technology  suppliers”).  In  this  phase  of  the  process,  the  technology  is  less  complex  and  the  engineering  is  more  important  than  the  equipment  itself.  Pressing  and  glazing  are  instead  usually  assisted  by  the  Italian  technology,  even  though  in  the  near  future  the  Chinese  suppliers  could  get  an  important  share  in  the  press  market.  Intermediate  solutions  are  sometimes  adopted  in  Egypt  for  kilns,  which  can  be  designed  by  Italian  manufacturers  and  produced  by  Chinese  companies  (due  to  the  lower  cost  of  labor  in  China).  The  main  local  producer  in  tiles  is  a  clear  example  of  “exclusive”  relationship  with  technology  suppliers:  from  the  very  beginning  the  development  of  production  lines  has  been  decided  with  the  support  of  the  most  important  Italian  supplier,  looking  for  a  continuous  improvement  in  production  control  and  final  product  quality.  The  “picking”  model  seems  to  be  more  attractive  for  low  cost  producers,  which  tend  to  minimize  the  depreciation  costs  using  less  expensive  solutions  in  the  market.    Procurement: This  initiative  goes  beyond  the  technical  aspects  of  getting  the  right  quality  of  raw  materials,  to  identifying  how  to  source  the  right  supply  in  the  right  form  early  in  the  supply  chain        

 

Financial  Analysis    Lecico  Egypt  Chairman  and  CEO,  Gilbert  Gargour,  commented  "2012  was  a  year  of  sales-­‐led  recovery  with  record  revenues  driving  a  recovery  in  margins  and  profitability  from  a  difficult  2011.Expanded  tile  business  has  been  the  principal  growth  driver  for  the  year  with  the  new  plant  inaugurated  in  late  2011  improving  sales  volume,  value  and  margins.  “Our  sanitary  ware  businesses’  strong  revenue  growth  came  from  record  sales  in  Egypt  and  Libya  but  weaker  margins  meant  a  lower  than  2011  contribution  from  this  business  if  they  exclude  the  provisions  taken  last  year.  “All  in  all  we  are  hopeful  of  further  progress  in  the  coming  year.  We  expect  to  see  continued  growth  in  sales  in  both  Europe  and  the  Middle  East  despite  these  difficulties.  The  weakening  of  the  Egyptian  pound  will  make  our  export  business  more  competitive  and  the  roll  out  of  the  second  phase  of  our  tile  plant  –  expected  in  May  2013  –  will  increase  our  total  tile  capacity  by  just  over  20%  and  will  add  around  LE  118  million  in  revenue  per  annum  when  fully  sold.  “We  must  however  be  cautious  about  our  forecasts  and  expectations  as  the  general  political  and  economic  situation  in  Egypt  remains  fraught  with  uncertainties.  There  seems  to  be  a  very  strong  momentum  towards  adopting  economic  measures  (energy,  subsidies  and  taxes),  which  are  quite  austere  at  a  time  when  growth  is  already  slow.  If  this  is  not  accompanied  by  government  spending  this  will  inevitably  lead  to  a  dangerous  situation.”  Taher  Gargour,  Lecico  Egypt  MD,  added,  “Our  results  for  the  quarter  and  the  year  show  a  strong  improvement  from  a  very  weak  comparable  period  last  year.  “In  2012  we  reached  our  highest  ever  sales  numbers  but  operating  profits  are  around  7%  below  the  average  achieved  in  2007-­‐2010  as  a  result  of  a  gross  profit  margin  around  8  percentage  points  below  average  margins  pre-­‐revolution.  “Thanks  to  efforts  to  control  costs  and  realize  economies  of  scale  we  have  been  able  to  reduce  proportional  sales  and  administration  expenses  to  new  lows  but  despite  this  our  EBIT  margin  is  still  around  4  percentage  points  below  the  average  margin  level  achieved  pre-­‐revolution.  “Our  net  profit  level  and  margin  remain  significantly  below  the  levels  achieved  in  past  years  due  to  higher  debt  and  financial  expenses.  “Margins  in  the  fourth  quarter  grew  quarter-­‐on-­‐quarter  on  the  back  of  a  strong  tile  performance  and  lower  overheads.  Although  sanitary  ware  remains  challenging  I  am  optimistic  that  we  will  see  that  businesses’  margins  improve  in  the  coming  year  as  a  result  of  higher  sales,  strong  efficiency  gains  and  the  weakening  Egyptian  pounds  positive  impact  on  export  profitability.  “Over  the  course  of  the  year  and  the  quarter  we  have  been  able  to  continue  reducing  debt  and  we  hope  this  will  help  us  reduce  interest  expense  in  the  year  ahead  to  deliver  more  of  that  operational  growth  to  our  bottom  line.  “We  remain  committed  to  improving  efficiency  and  returns.  I  am  optimistic  that  we  should  keep  delivering  improvement  over  the  coming  quarters  and  the  year  ahead,  assuming  no  dramatic  shift  in  the  risks  in  our  operating  environment.”    

 Figure  1:  Lecico  Egypt  consolidated  balance  sheet  

   

 Figure  2:  Lecico  Egypt  consolidated  income  statement  

 

 Figure  3:  Lecico  Egypt  consolidated  cash  flow  

 

   FY:  Tile  sales  volumes  rose  38%  in  2012  to  31.7  million  square  meters  as  a  result  of  the  full  inclusion  of  production  from  the  new  plant  and  the  sale  of  the  stock  of  tiles  built  up  as  the  plant  was  rolled  out  in  the  second  half  of  2011. Average  net  prices  were  up  8%  year-­‐on-­‐year  to  reach  LE  19.9  per  square  meter. Tiles  revenues  rose  50%  year-­‐on-­‐year  to  LE  631.8  million  in  2012. Average  cost  per  square  meter  increased  2%  to  reach  LE  12.8  per  square  meter. Tile  gross  profit  margins  for  2012  rose  4.1  percentage  points  to  35.8%  and  gross  profits  were  up  69%  year-­‐on-­‐year  at  LE  226.1  million.  

Brassware  4Q:  Sales volumes for fourth quarter rose 48% to reach 25,827 pieces compared to 17,449 pieces in fourth quarter of 2011. Average net prices rose 8% year-on-year to reach LE 279.4 per piece due to product mix.  Revenue for the quarter rose 61% to reach LE 7.2 million. Average cost per piece fell 16% to LE 141.8 per piece.  Gross profit margins rose 15 percentage points to 49.2% and gross profit rose 131% to LE 3.6 million.    

   FY:  Sales  volume  for  2012  rose  93%  to  76,778  pieces.  And  net  average  prices  fell  11%  to  LE  267.2  per  piece. Revenue  for  the  year  rose  72%  to  reach  LE  20.5  million.  Average  cost  per  piece  rose  22%  to  reach  LE  196.8  per  piece. The  gross  margin  fell  19.8  basis  points  to  26.4%  and  gross  profit  fell  2%  to  LE  5.4  million. Revenue  and  margin  for  the  period  do  not  necessarily  reflect  normative  run  rates  for  this  segment  given  the  small  volume  of  operation  since  startup.  

Financial  position  The  value  of  Lecico’s  assets  increased  5%  at  the  end  of  December  31,  2012  to  reach  LE  2,030.5  million.  Total  liabilities  were  up  3%  at  LE  1,169.9  million.  Net  debt  to  equity  improved  15%  to  reach  0.74x  compared  to  0.87  times  at  end  of  2011  and  net  debt  was  reduced  7%  to  LE  632.9  million  compared  to  LE  683.7  million  at  the  end  of  2011.        

Ratio  analysis    Name   Company   Industry  

Valuation  ratios  P/E Ratio TTM   8.3   10.1  Price to Sales TTM 0.48   0.63  Price to Cash Flow MRQ 7.45   6.65  Price to Free Cash Flow TTM 8.06   9.69  Price to Book MRQ 0.74   2.33  Price to Tangible Book MRQ 0.76   2.29  

Profitability  Gross margin TTM 28.44% 14.58%  Gross Margin 5YA 32.26% 18.54% Operating margin TTM 13.66% 11.53% Operating margin 5YA 14.3% 15.1% Pretax margin TTM 6.87% 8.74% Pretax margin 5YA 8.05% 12.13% Net Profit margin TTM 5.74% 6.65% Net Profit margin 5YA 6.52% 9.29%    

     

 Per  share  data   Company   Industry  Revenue/Share TTM   17.1 912.64 Basic EPS 0.79 36.5 Diluted EPS 0.79 26.2 Book Value/Share MRQ 11.17 207.86 Tangible Book Value/Share MRQ 10.86 207.84 Cash/Share MRQ 4.73 96.24 Cash Flow/Share TTM 2.12 90.49 Management effectiveness Company Industry  Return on Equity TTM 9.33% 28.08% Return on Equity 5YA 8.88% 32.9% Return on Assets TTM 3.64% 6.81% Return on Assets 5YA 3.99% 9.16% Return on Investment TTM 8.15% 14.95% Return on Investment 5YA 7.27% 16.85%  

     

   Growth     Company   Industry  EPS(MRQ) vs Qtr. 1 Yr. Ago 62.92%   69.83%  EPS(TTM) vs TTM 1 Yr. Ago 1,745.95%   113.7%  5 Year EPS Growth -9.02%   -24.84%  Sales (MRQ) vs Qtr. 1 Yr. Ago 12.59%   11.99%  Sales (TTM) vs TTM 1 Yr. Ago 19.13%   7.88%  5 Year Sales Growth 5.26%   10.47%  5 Year Capital Spending Growth -12.12%   30.4%  Financial  strength     Company   Industry  Quick Ratio MRQ   0.62   0.39  Current Ratio MRQ   1.1   0.82  LT Debt to Equity MRQ   5.93%   53.17%  Total Debt to Equity MRQ   120.13%   174.66%  Efficiency     Company   Industry  Asset Turnover TTM   0.63   1.04  Inventory Turnover TTM   1.69   4.02  Revenue/Employee TTM   -­‐   3.06M  Net Income/Employee TTM   -­‐   14.11K  Receivable Turnover TTM 3.51   59.6  Dividends   Company   Industry  Dividend Yield   6.07%   7.57%  Dividend Yield 5 Year Avg.   -­‐   10.5%  Dividend Growth Rate   -12.64%   0.68%  Payout Ratio   -­‐   -­‐        

IFAS  

Strength     Weight   Rating     Weighted  Score  

Comments  

Experienced  visionary  top  management   0.2   4   0.8   Company  have  good  managers  

Lecico  built  and  operate  a  new  plant  for  the  waste  water  treatment  which  treat  the  effluent  water  and  recycle  it  again  

0.05   3   0.15   Would  solve  the  problem  of  water  supply    

Lecico  operate  a  new  plant  for  glaze  production  which  is  the  first  plant  in  Egypt  to  manufacture  the  glazes  instead  of  importing  from  Spain  

0.1   5   0.5   New  facility.  Advantage  against  competitors.  Reduce  cost  of  import.  

Lecico  distribution  channels  is  very  robust  locally  and  globally  since  it  has  distribution  channels  in  18  countries  and  25  channels  locally  

0.1   4   0.4   Wide  distribution  channel    

Lecico  did  an  acquisition  with  Surgamine  plant  in  France  which  provide  Lecico  with  the  updated  product  design  and  TQM  system  in  the  sanitary  ware  product  

0.05   3   0.15   Continuous  development  

Summation   0.5     2    

Weakness   Weight   Rating     Weighted  Score  

Comments  

Lack  of  competitive  intelligence  system  to  gather  the  all  data  about  the  competitors  

0.1   4   0.4   Insufficient  information  and  difficult  to  build  information  system  

Old  operated  design  kilns  in  Lecico  which  are  heavily  consumes  energy  (only  4  kilns  out  of  17  had  been  replaced  by  newly  fuel  gas  saving  technique)  

0.15   2.5   0.375   Old  machines  hard  to  replace  

Highly  intensive  labor  factory  (6000  workers)  because  of  the  manual  operation  in  the  process  

0.05   4   0.2   Labor-­‐intensive  

Lecico  does  not  have  R&D  sector  in  Egypt  

0.1   1   0.1   Can  spend  more  on  R&D  if  required  

High  debt  to  equity  ratio  145%     0.1   2   0.3   Common  within  large  cooperate  industry  to  reduce  taxes    

Summation   0.5     1.375    

Strategy  formulation  

SFAS    Strategic  factors   Weight   Rating   Weighted  

score  Comment  

Experienced  visionary  top  management  (0.2)  (S)

0.15  

4   0.6   Company  have  good  managers  

Raw  Material  (clay,ball  clay,feldspar  )  local  availability  from  Aswan  and  Sukhna    (0.2)  (O)

0.2   5   1   Availability  of  Raw  material  with  cheap  prices  

Old  operated  design  kilns  in  Lecico  which  are  heavily  consumes  energy  (only  4  kilns  out  of  17  had  been  replaced  by  newly  fuel  gas  saving  technique)  (0.15)  (W)

0.1   2.5   0.25   Old  machines  hard  to  replace  

Shortfall  in  gas  supply  and  delay  in  gas  wells  development  along  Egypt  and  consequently  lead  to  a  higher  energy  price  (0.15)  (T)

0.15   1   0.15   Industry  highly  depends  on  energy  supply  prices  and  can’t  oppose  government  rules.  

High  debt  to  equity  ratio  145%  (0.1)  (W)

0.05   2   0.1   Common  within  large  cooperate  industry  to  reduce  taxes  

Lecico  distribution  channels  is  very  robust  locally  and  globally  since  it  has  distribution  channels  in  18  countries  and  25  channels  locally  (0.1)  (S)

0.05   4   0.2   Would  solve  the  problem  of  water  supply  

Lecico  operate  a  new  plant  for  glaze  production  which  is  the  first  plant  in  Egypt  to  manufacture  the  glazes  instead  of  importing  from  Spain  (0.1)  (S)

0.05   3   .15   New  facility.  Advantage  against  competitors.  Reduce  cost  of  import  

World  directions  toward  the  eco-­‐design  products  (0.1)  (T)

0.1   2   0.2   Direction  of  Environmental  satiability  

Open  new  market  in  Libya  especially  in  after  their  revolution  and  more  development  projects  will  be  in  place  (0.1)  (O)

0.05   3   0.15   Might  face  new  competitors  from  Chinese  manufacturers  

Closeness  to  European  markets,  Demographic  location  when  compared  to  Chinese  and  Indian  competitors  in  the  European  market.  (0.1)  (O)

0.1   4   0.4   Advantage  when  compared  to  Chinese  and  Indian  competitors  

TWOS     Strengths (S)

S1: Experienced visionary top Management. S2: Lecico built and operate a new plant for the wastewater treatment, which treat the effluent water and recycle it again. S3: Lecico operate a new plant for glaze production, which is the first plant in Egypt to manufacture the glazes instead of importing from Spain. S4: Lecico distribution channels are very robust locally and globally since it has distribution channels in 18 countries and 25 channels locally. S5: Lecico did an acquisition with Sergamine plant in France, which provides Lecico with the updated product design and TQM system in the sanitary ware product. S6: Good product diversification between tiles, sanitary ware and brassware. S7: Lecico has good reputation in the market since 50 years. S8: Reduction in product manufacturing cycle from 45 minutes (industry average) to 25 minutes, this is due to internal tailored design of the frit in the new glaze plant to fit the kilns.

Weaknesses (W) W1: Lack of competitive intelligence system to gather the all data about the competitors. W2: Old operated design kilns in Lecico which are heavily consumes energy (only 4 kilns out of 17 had been replaced by newly fuel gas saving technique) W3: Highly intensive labor factory (6000 workers) because of the manual operation in the Process. W4: Lecico has not R&D sector in Egypt. W5: High debt to equity ratio 145%.

Opportunities (O) O1: Egypt will go for more construction projects especially for the youth housing which will give a significant growth to the industry. O2: World direction towards new application in the ceramics products like in the medical and electrical industry. O3: Open new market in Libya especially after their revolution and more development projects will be in place.

SO Strategies • Investment in new production

line to increase the market share and be capable to cover the booming market. • Expand the glaze factory

production to be capable of handling the increase of tiles and sanitary production. • Establish long-term contract

with the raw material suppliers for lower cost. • Penetrate the market by

Acquisition with ceramic tiles manufacturer to be capable in catching the demand of booming market.

SO Strategies • Investment in new

production line to increase the market share and be capable to cover the booming market.

• Expand the glaze factory production to be capable of handling the increase of tiles and sanitary production.

• Establish long-term contract with the raw material suppliers for lower cost.

• Penetrate the market by acquisition with ceramic

O4: Ending the monopoly politics, which was undertaken by the previous authorized party by assigning the major country projects to a specific manufacture. O5: Raw Material (clay, ball clay, feldspar) is available locally from Aswan and Sukhna.

tiles manufacturer to be capable in catching the demand of booming market.

Threats (T) T1: Shortfall in gas supply and delay in gas wells development along Egypt and consequently lead to a higher energy price. T2: Higher exchange rate will impacted negatively on the industry since the raw material for the glaze is not available on local market. T3: Frequent strikes might affect the company supply chain and operation. T4: The increased awareness with hazards caused by such ceramic factories for its neighborhoods may cause serious problem in the near future especially after this socio-cultural changes occurred after the revolution. T5: Lake of trained or skilled workers and managers.

ST Strategies • Replace the 13-fired kilns by

new fuel saving kilns, replacement will be within 3 years and by internal financing.

• Increase the export sales in order to reserve a foreign exchange and used in the investments of the new line and change out the old kilns.

• Construct a restricted quality assurance and quality control program for the out waste from the factory like water, emissions and solid waste. • Penetrate the market by

acquisition with ceramic tiles manufacturing plant to be capable in catching the demand of booming market.

WT Strategies • Comprehensive preventive

maintenance program for the current kilns in order to optimize the gas consumption. • Compensation program

should be in place to minimize the probability of the labor strikes. • Establish a system for

competitive intelligence to gather the competitor’s data and being updated with the market needs. • Construct a restricted quality

assurance and quality control program for monitoring the waste from the factory like water, emissions and solid waste. • Establish a competency

program for the current labor with attractive incentive system to retain the competent and skilled labor.

 Based  on  the  company  financial  position  and  the  opportunities  which  show  up  like  the  expected  booming  in  the  construction  field  in  Egypt  for  the  middle  standard  housing  sponsored  by  government  and  the  potential  market  in  Libya  and  MENA  region,  the  WO  strategy  is  the  most  preferable.  This  kind  of  strategy  will  allow  the  company  to  overcome  its  weaknesses  by  gaining  the  market  opportunities.   The  example  of  that  is  market  development  in  the  MENA  region  and  Middle  East  countries  OR  Investment  in  a  new  production  line  to  penetrate  the  current  market  by  more  market  share  and  this  option  would  require  great  financing  capabilities.

The  overall  conclusion  from  the  TOWS  matrix  is  the  WO  strategy  is  the  best,  which  offers  two  main  options  of  growth  strategy:  

1. Market development in a new market like MENA regions and Middle East countries (Currently 60% of the exports to the Euro Zone), this is required to build a new production line to open in these new markets.

2. Market Penetration by investment in a new production line using financing (within 3 years) to increase the current market share in Egypt and European countries which is expected to grow in the next few years.

 

BCG  (Boston  Consulting  Group)    

 

     

Space  Matrix      Internal  strategic  position  Competitive  analysis  (CA)  (-­‐6  worst,  -­‐1  best)  

External  strategic  position  Industry  (IS)  (+1  worst,  +6  best)  

Market  share   -­‐2   Barrier  to  entry   5  Customer  service   -­‐1   Growth  potential   5  Product  quality     -­‐3   Profits   5  Consumer  loyalty     -­‐5   Access  to  financing     5  Manufacturing  Experience     -­‐2   Resource  utilization   4  Brand  and  Image   -­‐5   Tech:  Know  how   2  Product  life  cycle   -­‐5      Average   -­‐3.8   Average   4.3  Total  axis  X  score:  0.5  Financial  stability  (FS)  (+1  worst,  +6  best)  

Environment  Stability  (ES)  (-­‐6  worst,  -­‐1  best)  

Earnings  per  share   4   Price     -­‐2  Liquidity     3   Inflation  rate   -­‐4  Revenue  increase   4   Technology  changes   -­‐2  Return  on  Equity   3   Competitive  pressure   -­‐3  Efficiency  ratio   4   Demand  variability   -­‐1  Cash  flows   5   Price  elasticity  of  demand   -­‐3  Average   3.8   Average   -­‐2.5  Total  axis  Y  score:  1.3  è  1.5      

     

Conservative   Aggressive  • Market penetration • Market development • Product development • Concentric diversification

• Market penetration • Market development • Product development • Backward integration • Forward integration • Horizontal integration • Concentric diversification • Diversified diversification

Defensive   Competitive  • Retrenchment • Divestment • Liquidation • Concentric diversification

• Backward integration • Forward integration • Horizontal integration • Market penetration • Market development • Product development • Joint venture

     

Grand  strategy  matrix    

RAPID  MARKET  GROWTH  WEAK  COMPETITIVE  POSITION  

   Quadrant  II   Quadrant  I  

STRONG  COM

PETITIVE  POSITION  

 

• Market development • Market penetration • Product development • Horizontal integration • Divestiture • Liquidation

• Market development • Market penetration • Product development • Forward integration • Backward integration • Horizontal integration • Concentric diversification

Quadrant  III   Quadrant  IV  • Retrenchment • Concentric diversification • Horizontal diversification • Conglomerate

diversification • Liquidation

• Concentric diversification • Horizontal diversification • Conglomerate

diversification • Joint ventures

SLOW  MARKET  GROWTH      The  industry  growth  rate  is  high  and  Lecico  has  a  strong  competitive  position,  so  our  strategy  will  be  in  Quadrant  1    In  this  Quadrant  the  market  penetration  and  the  market  development  is  the  matched  strategies  with  SPACE  and  TOWS  matrix.  We  will  apply  the  QSPM  technique  to  evaluate  the  two  strategies  where    

• Strategy 1 (S 1) is the market development. • Strategy 2 (S 2) is the market penetration.

     

Strategic  Alternatives  and  recommended  strategy  (QSPM)    Strategic  factors   Weight   Rating   S  1   S  1  

Weighted  Score  

S  2   S  2  weighted  Score  

Experienced  visionary  top  management  (0.2)  (S)

0.15  

4   4   0.6   4   0.6  

Raw  Material  (clay,ball  clay,feldspar  )  local  availability  from  Aswan  and  Sukhna    (0.2)  (O)

0.2   5   5   1   4   0.8  

Old  operated  design  kilns  in  Lecico  which  are  heavily  consumes  energy  (only  4  kilns  out  of  17  had  been  replaced  by  newly  fuel  gas  saving  technique)  (0.15)  (W)

0.1   2.5   2.5   0.25   2.5   0.25  

Shortfall  in  gas  supply  and  delay  in  gas  wells  development  along  Egypt  and  consequently  lead  to  a  higher  energy  price  (0.15)  (T)

0.15   1   1   0.15   2   0.3  

High  debt  to  equity  ratio  145%  (0.1)  (W)

0.05   2   3   0.15   2   0.1  

Lecico  distribution  channels  is  very  robust  locally  and  globally  since  it  has  distribution  channels  in  18  countries  and  25  channels  locally  (0.1)  (S)

0.05   4   4   0.2   4   0.2  

Lecico  operate  a  new  plant  for  glaze  production  which  is  the  first  plant  in  Egypt  to  manufacture  the  glazes  instead  of  importing  from  Spain  (0.1)  (S)

0.05   3   3   0.15   3   0.15  

World  directions  toward  the  eco-­‐design  products  (0.1)  (T)

0.1   2   2   0.2   2   0.2  

Open  new  market  in  Libya  especially  in  after  their  revolution  and  more  development  projects  will  be  in  place  (0.1)  (O)

0.05   3   4   0.25   3   0.15  

Closeness  to  European  markets,  Demographic  location  when  compared  to  Chinese  and  Indian  competitors  in  the  European  market.  (0.1)  (O)

0.1   4   4.5   0.45   4   0.4  

Summation   1       3.35     3.15  

     Strategic  factors   Comments  on  Market  

development  (S  1)  ,  Market  penetration  (S  2)  rating  

Experienced  visionary  top  management  (0.2)  (S)

Same for the two strategies

Raw  Material  (clay,ball  clay,feldspar  )  local  availability  from  Aswan  and  Sukhna    (0.2)  (O)

Competitive  advantage  rather  than  competitors  in  developed  market  

Old  operated  design  kilns  in  Lecico  which  are  heavily  consumes  energy  (only  4  kilns  out  of  17  had  been  replaced  by  newly  fuel  gas  saving  technique)  (0.15)  (W)

Same  for  the  two  strategies  

Shortfall  in  gas  supply  and  delay  in  gas  wells  development  along  Egypt  and  consequently  lead  to  a  higher  energy  price  (0.15)  (T)

Increasing  energy  price  won't  help  in  market  penetration  if  he  counts  on  lowering  prices  

High  debt  to  equity  ratio  145%  (0.1)  (W) Common  behavior  in  big  companies  in  Egyptian  market  to  reduce  taxes  

Lecico  distribution  channels  is  very  robust  locally  and  globally  since  it  has  distribution  channels  in  18  countries  and  25  channels  locally  (0.1)  (S)

It  is  same  for  market  development  and  penetration  

Lecico  operate  a  new  plant  for  glaze  production  which  is  the  first  plant  in  Egypt  to  manufacture  the  glazes  instead  of  importing  from  Spain  (0.1)  (S)

It  is  add  for  market  development  and  penetration  

World  directions  toward  the  eco-­‐design  products  (0.1)  (T)

It  will  be  threat  for  both  strategies  due  to  globalization  

Open  new  market  in  Libya  especially  in  after  their  revolution  and  more  development  projects  will  be  in  place  (0.1)  (O)

Libya  is  a  fast  growing  market  with  high  potential  so  It  is  totally  a  plus  for  market  development.  

Closeness  to  European  markets,  Demographic  location  when  compared  to  Chinese  and  Indian  competitors  in  the  European  market.  (0.1)  (O)

Less  effort  to  spread  in  neighbor  European  countries  

     

Recommended  Strategy    According  to  the  previous  illustration  we  find  that  the  sequence  of  analysis  and  matrices  led  to  this  result,  which  is  the  dot  position  on  the  SPACE  matrix  (at  the  Aggressive  strategies  zone).   Aggressive  strategies  that  the  company  has  to  select  are:  

1. Market development 2. Market penetration 3. Forward integration 4. Backward integration 5. Horizontal integration 6. Concentric diversification

From  the  Space-­‐matrix,  we  advise  the  company  here  to  select  either  “Market  Penetration”  or  “Market  Development”  because  the  other  strategies  would  either  need  much  more  financing  sources  which  isn’t  available  in  this  case  or  won’t  help  company  focus  on  its  core  operation  business.      Based  on  the  QPSM  matrix,  the  selected  new  directional  strategy  will  be  Growth  strategy,  Market  Development.      The competitive strategy will be focus  on  cost  leadership  strategy  Revision  of  the  mission  and  objectives:    

1. We selected the below mission statement for the company 2. Excellence is a way of Life at Lecico; it knows no boundaries nor is it a fixed

standard. It is a “state” that is continuously changing and evolving. It pushes us to reach even more challenging Standards of Performance.

3. As a Global Leader in the Industry, we stand committed in all our Endeavors for: • Excellence through Hi-Quality Products and Services with the lowest

price .The Best Value for Money. • Excellence in protecting our environment by applying the best practices

and techniques. • Excellence in our role and responsibility, by creating in every employee

the skills and the will, the “Passion to Excel” by benchmarking to still higher levels of performance and creating The Future Today.

Market  Development  Strategy  A  market  development  strategy  targets  non-­‐buying  customers  in  currently  targeted  segments.  It  also  targets  new  customers  in  new  segments.    Market  development  strategy  entails  expanding  the  potential  market  through  new  users  or  new  uses.  New  users  can  be  defined  as:  new  geographic  segments,  new  demographic  segments,  new  institutional  segments  or  new  psychographic  segments.  Another  way  is  to  expand  sales  through  new  uses  for  the  product.  

Strategy  Implementation    I  would  like  to  mention  that  we  had  some  help  from  internal  Employees  in  Lecico  Company  whom  have  helped  us  with  the  details  inside  the  Action  Plan  and  balance  scorecard.  

Action  Plan    Suggested  action  plan  for  Lecico  for  the  year  2014:    

Objectives: Responsibility Increase the cash inside the company by reviewing the dividends policy to avail an internal financing for the new line and the new 3 kilns.

CFO

Increasing the ROE. CFO Monitor the debt ratio and avoid any debt in the incoming 3 years. Target to reach 50% debt to equity ratio in 2016.

CFO

Enhance Lecico Risk management by improving effectiveness of the Risk Register and better communication.

Production Manager

Develop a robust performance measure for the wastewater and emissions conformity to law.

Quality Manager

Monthly meeting with the employees and the top management in order to establish a direct communication and avoid any strikes.

Human Resources Manager

Conduct every 6 months a market research for the updated design and what is customer prefers.

Marketing Manager

Monitor the customer complaints and the progress and feedback from the customers.

Marketing Manager

Establish a good advertisement camping for the brassware.

Marketing Manager

Promote Lecico image Locally by frequent effective contribution to the community through applying required projects and food distribution.

CEO

Established a good distribution channels at Libya and MENA region.

Supply Chain Manager

Update the dividends policy to be stock dividends to increase the cash in the company for the new investments.

CFO

Develop a robust governance systems by enhancing the expediting efficiency ,and shorten pre award time cycle for service contracts.

CEO

Conduct bi-quarterly internal audit on all Lecico departments.

Quality Manger-CEO

Forming a team for the new line project with milestones.

CEO-Production Manager

Change out 3 old kilns by new fuel saved kilns. CEO-Production

Manager Implement six sigma quality program. Quality Manager Review Staff Compensation Package. Human Resources

Manager Develop Lecico Shared Values & Culture. (Where sustainability is in the core values of the company).

CEO

Develop a Career Development Plan for the key positions.

Human Resources Manager

Developing integrated marketing communication at MENA regions ad Middle East.

Marketing Manager

Develop a competency program for the employees. Human Resources Manager

Improve inventory turnover by increasing monthly sales of sanitary ware.

Marketing Manager

Improve receivables turnover by reduce the days in collection to be less than 90 days.

CFO

         

Evaluation  and  control    

Lecico  balance  scorecard    Financial Metrics  Objective     Performance  

Measure  Unit  of  Measure  

Supporting  Initiatives  

Increase  Profit          

Cost  Optimization  

           

Risk  Management  

Profit  Before  Tax  (PBT)  

LE  Mil   1. Achieved 200 million LE net profit sales

2. Achieved net profit margin 13%

3. Achieved ROE 12% 4. Increase the cash inside

the company by reviewing the dividends policy avail an internal financing for the new line and the new 3 kilns (30% is required for 2013)

5. Monitor the debt ratio and avoid any debt in the incoming 3 years. target to reach 50% debt to equity ratio in 2016 (30% reduction in 2013 is required)

6. Reduce communications costs

7. Saving of 7% of approved Opex budget FY 2013

8. Enhance Lecico Risk management by improving Effectiveness of the Risk Register and better communication.

Sanitary  Unit  Cost   LE/unit    Tiles  Unit  cost   LE/Square  Current  Ratio   Meter  

Decimal  Organization  ROE   %  Net  profit  margin   %  Reduction  in  Banking  Fees  

LE  Mil/  Year  

Opex  Cost  Saving  Target  

%  Opex  Savings  

Risk  Mitigation  Action  Plans  

%  Overdue  risks  in  corporate  Risk  Register  

   

 Customer Metrics  Objective     Performance  

Measure  Unit  of  Measure  

Supporting  Initiatives  

Sustain  Customer  satisfaction  

     

Enhance  Environmental  

&  Social  Responsibility  

         

Maximize/  preserve  

Shareholder  Value  

Customer  satisfaction   %  Outcome  from  the  market  research  

1. Achieved 200 million LE net profit sales

2. Achieved net profit margin 13%

3. Achieved ROE 12% 4. Increase the cash inside

the company by reviewing the dividends policy avail an internal financing for the new line and the new 3 kilns (30% is required for 2013)

5. Monitor the debt ratio and avoid any debt in the incoming 3 years. Target to reach 50% debt to equity ratio in 2016 (30% reduction in 2013 is required)

6. Reduce communications costs

7. Saving of 7% of approved Opex budget FY 2013

8. Enhance Lecico Risk management by improving Effectiveness of the Risk Register and better communication.

Minimize  the  workers  strikes  probability  

No.  of  strikes  per  year  

Update  the  designs  based  on  consumer  feed  back  

No  of  updated  design  per  year  

Air  Pollution   No.  of  breaches  to  acceptable  levels  per  month  

������Uncontrolled  Particulate  Release  

Amount  of  particulates  released  (In  Excess  of  10  ppm)  per  month  

Water  pollution   No.  Of  breaches  to  acceptable  levels  

Implement  Community  Development  Projects  

Expenditure  (LE  '000)  

Percentage  of  exports   %  Brassware  Volume   Units  Tiles  Sales  Volume   Million  

square  meter  

Sanitary  Sales  Volume  

Million  Units  

   

 Internal business process Metrics  Objective     Performance  

Measure  Unit  of  Measure  

Supporting  Initiatives  

Ensure  Safe  Operations  with  highest  quality  

 Robust  

Governance  Framework  

 Develop  Innovative  Processes  

 Stream  flow  Operations  

Lost  Time  Incident  (LTI)  

No.  of  LTI  per  month  

1. Update the dividends policy to be a stock dividends to increase the cash in the company for the new investments

2. Develop a robust governance systems by enhancing the expediting efficiency, and shorten pre award time cycle for service contracts

3. Conduct bi-quarterly internal audit on all Lecico departments

4. Forming a team for the new line project with milestones, Change out 3 old kilns by new fuel saved kilns

5. Develop a robust quality assurance and control program for the waste water and emissions conformity to law

Number  of  defected  products  

%  of  defected  products  per  month  

Customer  complaints   No.  of  customer  complaints  per  month  

Closure  of  internal  Audit  Findings  

%  of  Audit  Findings  overdue  

Successful  Implementation  of  CAPEX  projects  

%  CAPEX  Projects  Implemented  

Average  energy  consumption  per  1  m2  of  tiles  and  sanitary  

M3  of  gas  per  1  m2  of  tiles  product  

Plant  Utilization   %  Utilization  

Amount  of  waste  water  out  from  the  plant  

M3  of  waste  water  per  month  

Receivables  turn  over   No.  of  days  Lecico  take  to  collect  its  receivables  

   

 Learning and growth Metrics  Objective     Performance  

Measure  Unit  of  Measure   Supporting  

Initiatives  Boost  Quality  Culture      Improve  Internal  Climate/  Controls      Enhance  Staff  Competency      Improve  Technology  

Conduct  training  on  six  sigma

No. Of employees attended

 

Implement  six  sigma  quality  program  within  2  years  plan      Review  Staff  Compensation  Package      Develop  Lecico  Shared  Values  &  Culture  (environmental  repos  ability  shall  be  the  core)      Career  Development  Plan    Develop  a  competency  program  for  the  employees  

Quality  awareness  sessions  to  the  workers  

Average  No.  Of  sessions  attended/employee/month  

Occupational  illness   No.  Of  cases  reported  

HSE  training  man  days  

Average  HSE  Training  Man-­‐days  per  staff  

Staff  attrition   %  Staff  attrition  Employee  Satisfaction  

%  Satisfaction  of  staff  %  Decrease  in  overtime  

Improve  the  current  compensation  system  

%  Effectiveness  

Staff  Training  Man-­‐days  

Average  Training  Man-­‐days  per  staff  (excluding  HSE  and  Quality)  

Performance  Appraisal  review  

Performance  review  session  per  employee  per  year  

Awareness  sessions  for  the  environmental  impact  by  the  industry  

No.  Of  sessions  per  year  

Automated  System  for  customer  Complaints  

No.  Of  unsolved  issues  per  year  

Develop  a  competitive  intelligence  automated  system  

%  Of  completion  

     

References  • Lecico History: http://www.lecicoegypt.com/profile_pgs/history.html • Lecico Egypt: http://www.finbi.com/pdf/Lecico.pdf • Corporate governance:

http://www.lecicoegypt.com/profile_pgs/board.html • Company Profile: http://www.lecicoegypt.com/profile_pgs/group.html • Social Responsibility: http://www.lecicoegypt.com/csr/csr.html • Natural Environment:

http://www.eeaa.gov.eg/english/main/envprofile.asp • Financial Analysis : http://www.lecicoegypt.com/downloads/financial-

reports/Lecico%204Q2012%20newsletter.pdf