Oriental Weavers - Initiation of Coverage - February 2016

PRIME INVESTMENT RESEARCH AUTOMOTIVE |EGYPT

GB AUTO – INITIATION OF COVERAGE JANUARY, 14TH

2016

PRIME INVESTMENT RESEARCH

PERSONAL & HOUSEHOLD PRODUCTS|EGYPT ORIENTAL WEAVERS – INITIATION OF COVERAGE

FEBRUARY, 16TH 2016

WE INITIATE COVERAGE FOR … ORWE … ASSIGNING A “BUY” RATING

ORIENTAL WEAVERS; A GLOBAL MARKET LEADER UNDER

SHORT-TERM PRESSURE …

ORWE IS BENEFITING FROM THE GLOBAL DOWNTREND

IN OIL PRICES; ENHANCING ITS COST STRUCTURE.

HOWEVER, THE COMPANY IS UNDER PRESSURE FROM

BIG-BOX RETAILERS TO FURTHER EASE PRICES AFTER

DROPPING IT IN 2015.

WE ANTICIPATE A POSITIVE RESPONSE FROM OWG, TO

REGAIN MARKET SHARE.

ESPECIALLY IN TIME OF A DEVALUATING EGP …

PROVIDING FLEXIBILITY.

ADDED TO REBATES COME BACK.

BUT WE RAISE CONCERN OVER ECONOMIC LOSS.

WE INITIATE COVERAGE FOR ORIENTAL WEAVERS AT A FAIR VALUE

OF EGP 12.66/SHARE IMPLYING 111% UPSIDE POTENTIAL.

WE ASSIGN ORWE A “BUY” RATING.

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PRIME INVESTMENT RESEARCH ORIENTAL WEAVERS - INITIATION OF COVERAGE

FEBRUARY, 2016

We Initiate on Oriental Weavers with a “BUY” rating; due to an upside potential of 111% driven from a Fair Value of EGP 12.66/share. However, we are concerned about economic loss; implied in 0.9% difference between average WACC of 11.73% over 2016-to-2020 and the average calculated after-tax ROIC of 10.84%.

We valued Oriental Weavers using DCF valuation methodology. We valued ORWE utilizing an average WACC over our forecasted horizon of 11.73%, a risk free rate of 9.67%, and a globally adjusted risk premium of 6.876%. Our globally adjusted risk premium was driven from Aswath Damodaran January, 2016 global update on premiums. We adjusted the risk premiums allocated, according to Oriental Weavers exports (56.21%) and local (43.79%) value contributions to total sales on average over the forecasted horizon. We assigned ORWE a beta of 0.80, slightly above the adjusted statistical beta (0.73), to reflect the current increasing risk mainly coming from Europe. We applied a perpetual growth rate of 3%, driven from our view over net population growth coupled with private consumption average forecasted increase of 3.3% driven by disposable income and spending power over short-to-medium term.

Oriental Weavers is a local and global textiles-flooring leader among few globally full integrated groups; OWG exports, target over 130 countries and locally dominates by a market share of c85%. Oriental Weavers keeps on penetrating new markets every year, adding new points of presence through a global and local network of showrooms and partnerships (230+). Currently OWG utilizes the most advanced production technologies, with over 4mn copyright-designs offered to clients. Warehousing investments were essential to maintain closer-distance from demand. OWG has 3 warehouses in 3 continents with a total space of c800K Sqm to speed up bloc-orders` deliveries.

Oriental Weavers is anticipated to benefit from local market prospects while globally maneuvering. We anticipate a year on year enhancement in local demand (Hist. 40% of volume) to represent 46% on average of OWG`s total sales volume from 2015 to 2020. Driven by Egypt`s strong demand in time marriages are anticipated to reach 1.12mn in 2020, and record a 2.75% CAGR over 2014. We also expect OWG exported volumes to fall to 54% on average over same period; due to 1) Europe economic stress, 2) Huge retailers “IKEA” slashing orders from OWG by 20-30% over prices` negotiations and shift to Turkish substitutes. Europe drop was apparent in 9M2015 y-o-y sales value contribution, down from 27% in 9M2014 to 19% in 9M2015. In response, we expect OWG to further cut prices in 2016, to regain market share. On the other hand, the US economy is healthy and performing with residential and commercial investments regaining momentum; however, as price cuts are assumed overall exports, sales to US will mainly be backed by the EGP devaluation. In Time, we anticipate company`s sales to shift back home, which is lower priced Vs. exports blended average price in EGP-terms. The global fall in crude oil along with EGP devaluation are setting GPM at 2

nd historical high.

In 2016, we anticipate OWG to regain a historical GPM of 17%+; and record 17.13% (COGS Excl. Dep.) a level only crossed back in 2010 (17.21%). 2016`s GPM is driven from 1) our forecast of USD 1,006.1/t of polypropylene in 2016 (16% y-o-y estimated decline), with contribution to COGS dropping to c25.5% (313bps y-o-y down). 2) In 2016, we set the EGP/USD at 8.28, representing 7% over 2015`s average of 7.74. Such devaluation would positively impact margins, due to y-o-y flat exports in 2016 (USD denominated).

ORIENTAL WEAVERS … DROPPING OIL MARKETS OVERTAKE DROP IN EXPORTS

BENEFITING FROM DOMESTIC PROSPECTS … WHILE GLOBALLY MANEUVERING

Stock Data Outstanding Shares [in mn] 450.0 Mkt. Cap [in mn] 2,695.5 Bloomberg – Reuters ORWE EY / ORWE.CA 52-WEEKS EGP 5.6 - EGP13.3 TURNOVER (1-YR DAILY AVERAGE) EGP 3.1MN

Ownership Khamis Family 57% Foreign Institutions 23% Local Institutions 17% Retail 3%

Financial Highlights

EGP mn 2014 2015E 2016F 2017F

Revenues 5,664.3 5,858.5 6,133.5 6,693.5 GPM (%) 14.6% 16.7% 17.1% 15.5% Rebates 100.7 147.3 162.8 186.7 EBITDA 876.2 914.6 1,053.2 1,022.1

N.Income 367.1 368.2 473.7 459.9

EPS 0.82 0.82 1.05 1.02 P/E 7.34x 7.32x 5.69x 5.86x DPS 0.40 0.63 0.63 0.72 BV/S 8.70 8.92 9.22 9.44 FCF/S 0.63 0.65 1.46 1.23 GCF/S 1.55 1.96 2.14 2.10 EV/EBITDA 4.2x 4.0x 3.2x 3.2x ROA 5.65% 5.46% 6.92% 6.68% ROE 9.68% 9.28% 11.60% 10.95% ROIC 6.94% 9.57% 10.91% 10.39%

Source: Oriental Weavers, Prime Estimates All prices are as of 15 February 2016 Source: Oriental Weavers, Prime Estimates

Source: Bloomberg

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ORWE EGX 30 - Rebased

“BUY” MARKET PRICE EGP 5.99 FAIR VALUE EGP 12.66 POTENTIAL 111% UPSIDE

INVESTMENT GRADE “VALUE”

Report Content Valuation & Risks 4 Financial Statements 6 Industry Overview 7 ORWE Synopsis & Forecasts 8 Disclaimer 33

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FEBRUARY, 2016

Investment Catalyst … Rebates Oriental Weavers export rebates are secured in our believes; due to Egypt`s worsened FX shortage. The rebates fund value was decreased to EGP 2.6bn by the beginning of FY2014/15 down from EGP3.1; after setting a new rewarding system taking rebates percentage to exports down to an average of 4.5%. However, application did not take place due to difficulty in calculating local components contribution to exported products. Recently, the government announced replacing FY2015 introduced system and regaining the older. Through which export oriented companies would receive around 6.5% of exports. Over our forecast horizon we apply a 6% rebates on exports; driven from the company`s free-zone located exporting companies (OWI) and other non free-zone exporting ones as indicated by Oriental Weaver`s management. Starting from 2016, the company has been collecting accruals, at an average of EGP 3-4mn per week. We set the base on which rebates are calculated to total exports less contribution from OW USA and OW China.

Valuation

In EGP mn 2016F 2017F 2018F 2019F 2020F

FCF 657.4 553.4 533.1 354.2 892.4

PV - FCF 594.9 447.3 384.7 228.4 517.9 Terminal Value

5,065.2

Average WACC 11.73%

Perpetual G 3.00%

ROIC 10.84%

Additions (% of cash & other assets) 260.4

Entity Value 7,531.9

Deductions (Debt & MI) 1,837.0

Equity Value 5,694.8

DCF/s 12.66

Upside Risks

1) More aggressive EGP devaluation in magnitude; as we set EGP/USD at 9.2 in 2018 and launch around of

appreciation thereafter reaching 8.85 EGP/USD by 2020.

2) Higher than estimated exports; driven from faster recovery from Europe, benefiting the company directly

through top-line and through other operating revenues (Rebates).

3) Further markets penetration: Eastern Europe, Asia, Latin America and Africa.

4) Lower than estimate crude oil prices, higher than forecasted Crude oil-polypropylene correlation; hence,

lower polypropylene costs.

5) Stronger than anticipated blended pricing rebound in 2017 after several products` further prices` cuts in

2016.

Downside Risks

1) Stability in FX rates; with no further EGP devaluation (low probability) beyond 2016m would adversely

impact export sales.

2) Unexpected rebates` program cuts, postponement or collection obstacles driven from governmental deficit.

3) Weaker than anticipated European market share rebound, driven from inability to regain lost market share

at IKEA.

4) Further than anticipated exporting prices` (in USD terms) cuts to satisfy big-box and other European

retailers to regain market share; and/or, devaluation in EUR vs. USD slashing consumers` apetite.

5) Higher than anticipated polypropylene costs; driven from lower estimates for new production capacities

versus capacities` phasing out (China).

6) Higher polypropylene costs, driven from faster and stronger rebound in crude oil on the back of crude oil

production cuts or further geopolitical tensions.

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FEBRUARY, 2016

SOURCE: ORIENTAL WEAVERS, PRIME ESTIMATES

Valuation Summary 1) Revenues Dynamics

Over the upcoming horizon, we believe OWG sales to be skewed at first to higher contribution from local sales; driven from,

a) Apparent local ability in maintaining local blended average price per Sqm historically in times of market stress, which led us believing in an upward pricing trend after a pause in 2016, driven by Oriental Weavers` market leadership, differentiated and wide spectrum of offerings.

b) Accelerating population coupled with high marriage rate; will maintain volume sales. Population is anticipated to record a CAGR of 2.6% from 2015-to-2020 coming below number of marriage CAGR of 2.9% over same period, due to an average of 68.5% of total citizens below 34 years old. Hence, pushing average private consumption growth to 3.3% over upcoming 3-years; due to strong demand for new homes or from existing ones` renewals and renovations.

Oriental`s global sales; Growing on back of Egypt`s FX-dilemma We anticipate the EGP to continue on its devaluating path up to 2018 before smooth appreciation follows.

a) Until 2018, we see exporting prices in USD-terms weakening on the back of global economic slowdown; apparent in a drop in OWG`s sales to Europe.

B) Such slowdown came in time with turmoil in oil markets; which brought down polypropylene prices in correlation (highest contribution to COGS). A matter that got noticed, leading big retails “IKEA” and likewise, negotiating price cuts and putting OWG`s exports at risk from Turkish and Iranian replacement. However, we anticipate negotiations on prices to come in favor of more cuts (reminder in USD-terms) and hence the company will maintain its share and sales volume. As Turkish or Iranian products are not comparable with Oriental Weavers` technology, designs, quality or maturity.

In summary, although the blended average price for exports (in EGP-terms) has globally outperformed local blended mainly on the back of devaluations. We anticipate divergence in volume contribution towards the local market above norm from 2016-to-2019 indicated by 2015`s estimated performance. However, as we advance in years exports` volumes contribution regain share in correlation with products` pricing and global economic conditions.

Sales Summary 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR

Total Sales 5,664.3 5,858.5 6133.5 6693.5 7440.7 7900.5 8276.4 7.2% Change 5.25% 3.43% 4.7% 9.1% 11.2% 6.2% 4.8%

Local Sales - in Mn

Sales Value - EGP 2,308.9 2,675.8 2,727.6 2,912.9 3,193.0 3,389.1 3,587.4 6.0%

Change 8.1% 15.9% 1.9% 6.8% 9.6% 6.1% 5.8%

Contribution to Sales Value 39.7% 45.7% 44.5% 43.5% 42.9% 42.9% 43.3%

Sales Volume - Mn Sqm 48.1 53.4 54.5 56.4 58.5 59.7 60.9 2.7%

Change 0.3% 11.0% 2.0% 3.5% 3.7% 2.1% 2.0%

Contribution to Sales Volume 42.7% 47.1% 46.6% 46.3% 45.6% 45.0% 44.7%

Local Blended Price EGP/Sqm 48.0 50.1 50.1 51.6 54.6 56.8 58.9 3.3%

Change 7.8% 4.4% -0.1% 3.2% 5.7% 4.0% 3.8%

Global Sales - Mn

Sales Value – EGP 3,502.3 3,182.7 3,405.9 3,780.5 4,247.7 4,511.4 4,689.0 8.1%

Change 3.4% -9.1% 7.0% 11.0% 12.4% 6.2% 3.9%

Contribution to Sales Value 60.3% 54.3% 55.5% 56.5% 57.1% 57.1% 56.7%

Sales Volume - Mn Sqm 64.7 59.9 62.4 65.4 69.9 72.8 75.4 4.7%

Change -5.1% -7.4% 4.1% 4.9% 6.8% 4.3% 3.5%

Contribution to Sales Volume 57.3% 52.9% 53.4% 53.7% 54.4% 55.0% 55.3%

Exports Blended Price EGP/Sqm 54.1 53.1 54.6 57.8 60.8 61.9 62.2 3.2%

Change 9.0% -1.9% 2.8% 5.8% 5.2% 1.9% 0.4%

EGP/USD 7.3 7.7 8.3 8.8 9.2 9.0 8.9 2.7%

Exports Value - in USD 479.8 411.2 411.3 430.6 460.8 499.4 529.7 5.2%

Exports Blended Price USD/Sqm 7.4 6.9 6.6 6.6 6.6 6.9 7.0 0.5%

Change 0.2% -7.4% -3.9% -0.2% 0.2% 3.9% 2.5%

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2) Costs` Dynamics … LEADING TO HISTORICAL HIGH GPM IN 2016 Aggregate costs slowed down in 2015, driven by polypropylene (the highest contributor to COGS) prices decline. In 2016, we believe PP costs to decline further driven from global market dynamics. An aspect leading to a historical-high GPM in 2016, in time sales price is anticipated to surpass costs per Sqm. The margins upcoming boost is also related to higher exports in relation to USD-tagged costs which represent an average of 60% of COGS [Excl. dep.] (Dropping to 58% as per calculation in 2016 before rebounding to norm); which leaves net FX-driven profit margin. Going forward, we believe Oriental Weaver`s GPM will gradually normalize, due to our anticipation of slower moving prices in comparison with costs rebounding.

Costs Summary [in EGP Mn] 2014 2015F 2016F 2017F 2018F 2019F 2020F CAGR

Oil-Based Costs: 2,559.8 2,341.4 2,315.4 2,714.2 3,182.2 3,461.8 3,623.0 9.1% Change -1.91% -8.53% -1.11% 17.23% 17.24% 8.78% 4.66%

Oil-based Costs-to-Total COGS 50.91% 48.00% 45.55% 47.97% 50.54% 51.23% 51.02% Non-Oil-Based Costs: 2,279 2,537 2,768 2,943 3,114 3,295 3,477 6.5%

Change 5.4% 11.3% 9.1% 6.4% 5.8% 5.8% 5.5% non-Oil-based Costs-to-Total COGS 45.3% 52.0% 54.4% 52.0% 49.5% 48.8% 49.0%

COGS – Net of Depreciation 4,838.7 4,878.3 5,082.9 5,657.7 6,296.1 6,757.0 7,100.5 7.8% Change 1% 0.8% 4.2% 11.3% 11.3% 7.3% 5.1%

GPM [in EGP Mn] 2014 2015F 2016F 2017F 2018F 2019F 2020F CAGR

Total Sales 5664.3 5858.5 6133.5 6693.5 7440.7 7900.5 8276.4 7.2% Change 5.25% 3.43% 4.69% 9.13% 11.16% 6.18% 4.76%

Total Volume - in Mn Sqm 112.8 113.3 116.9 121.8 128.3 132.5 136.3 3.8%

Change -2.85% 0.45% 3.12% 4.27% 5.32% 3.28% 2.83%

COGS – Net of Depreciation 4,838.70 4,878.3 5,082.9 5,657.7 6,296.1 6,757.0 7,100.5 7.8% Change 1.00% 0.80% 4.20% 11.30% 11.30% 7.30% 5.10%

Gross Profit 825.63 980.16 1,050.60 1,035.79 1,144.60 1,143.52 1,175.85 3.7% Price /Sqm 50.2 51.7 52.5 54.9 58.0 59.6 60.7

Cost/Sqm 42.9 43.0 43.5 46.4 49.1 51.0 52.1

GP/Sqm 7.3 8.6 9.0 8.5 8.9 8.6 8.6

GPM 14.6% 16.7% 17.1% 15.5% 15.4% 14.5% 14.2%

Expansions … In 2014, OWG announced plans to add 13 new looms, which took place in 2014 and 2015. The company had a total production capacity of 128mn Sqm before such additions. Out of which, 56mn Sqm represented OWC and OWI woven area production capacity in 2013. The 13 looms will add net capacity of around 7.5mn Sqm as 4 of which were replacement to existing out-dated ones sold. Among the newly added net capacity 2 new Gobelin looms were added given high orders backlog. Net woven capacity increased by 13.4% after the additions to currently stand at 63.5mn Sqm. The 13 looms were purchased at around EGP 90mn, financed by both internal cash and a USD 10mn loan raised from Audi bank. The new looms will produce 5-Sqm production in comparison to the replaced ones of 4-Sqm production; utilizing such higher width looms can produce 2-carpets simultaneously instead of wasting around 1.5-Sqm that used to be converted into lower margins product. Oriental weavers also plan to add another 20 looms of 836.4k Sqm capacity each by 2020, standing at a total estimated cost of EGP 158mn adding around 26% over 2015`s woven capacity. We set 50% of the 20 looms investment costs to be financed through debt and the remainder to be internally financed. Oriental Weavers, also has plans to add a second plant to King Tut at an estimated investment cost of EGP 470mn, adding 55k Sqm to King Tut`s production capacity. However, we did not consider adding such plant to our valuation as it’s a long term plan with yet unclear visibility over exact timing and financing.

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Financial Statements … Historical & Forecast Income Statement Brief Hist. Forecast

In EGP Mn 2014 2015E 2016F 2017F 2018F

Revenues 5,664.3 5,858.5 6,133.5 6,693.5 7,440.7

Change 2.6% 3.4% 4.7% 9.1% 11.2%

COGS 4,838.7 4,878.3 5,082.9 5,657.7 6,296.1

Change 3.7% 0.8% 4.2% 11.3% 11.3%

Depreciation & Amortization (315.0) (326.4) (337.2) (343.4) (355.1)

Gross Profit 825.7 980.2 1,050.6 1,035.8 1,144.6

GPM 14.6% 16.7% 17.1% 15.5% 15.4%

EBITDA 876.2 914.6 1,053.2 1,022.1 1,123.9

EBITDA Margin 15.5% 15.6% 17.2% 15.3% 15.1%

Net Income After MI 367.1 368.2 473.7 459.9 539.8

NPM 6.5% 6.3% 7.7% 6.9% 7.3%

Balance Sheet Brief Hist. Forecast

In EGP Mn 2014 2015E 2016F 2017F 2018F Assets

Cash 591.4 714.9 745.3 830.8 884.9 Net Receivables 1,028.6 1,151.4 1,205.5 1,227.8 1,344.7 Net Inventory 1,631.7 1,656.8 1,721.5 1,916.1 2,149.6

Other Current Assets 201.37 257.76 264.11 266.26 285.88

Total Current Assets 3,453.1 3,780.9 3,936.4 4,241.1 4,665.1

Net PPE 2,663.3 2,526.2 2,360.9 2,108.4 1,938.0 Net Intangibles 366.2 366.2 366.2 366.2 366.2 Other LT-Assets 143.9 194.7 161.7 219.0 209.0

Total Long Term Assets 3,173.4 3,087.2 2,888.8 2,693.7 2,513.2

Total Assets 6,626.5 6,868.1 6,825.1 6,934.7 7,178.4

Liabilities

STD - incl CPLTD 1416.7 1529.6 1446.5 1398.7 1425.2 Accounts Payable 741.0 748.4 807.7 868.0 966.0

Other Current Liabilities 244.6 229.4 171.3 187.7 207.0

Total Current Liabilities 2402.3 2507.5 2425.5 2454.4 2598.2

LTD 131.4 141.1 58.8 48.0 33.5 Other Long Term liabilities 175.9 203.5 189.9 185.2 173.1

Total Long Term Liabilities 307.3 344.5 248.7 233.2 206.5

Total Liabilities 2709.6 2852.0 2674.2 2687.6 2804.7

Equity

Paid-in-Capital 450.0 450.0 450.0 450.0 450.0 Reserves 1,505.1 1,560.4 1,607.7 1,653.7 1,707.7

RE 1,074.4 1,177.6 1,287.8 1,348.0 1,419.6 Minority interest 398.1 394.4 411.6 428.3 447.9

Total Equity 3,916.9 4,016.1 4,151.0 4,247.1 4,373.6

Cash Flow Brief Hist. Forecast

In EGP Mn 2014 2015E 2016F 2017F 2018F 3-Blocks Cash Flow

CF from Operational Activities 765.1 630.2 819.9 777.0 750.6 CF from Investment Activities (146.3) (226.3) (195.5) (100.0) (183.5)

CF from Financial Activities (352.2) 9280.3) (594.0) (591.5) (513.0)

Change in Cash 266.5 123.5 30.4 85.5 54.1

CF Sources & Uses

Sources of Funds 254.4 241.6 (43.0) 109.6 243.6 Uses of Funds (12.1) 118.1 (73.3) 24.0 189.5

Change in Cash 266.5 123.5 30.4 85.5 54.1

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SOURCE: PRIME RESEARCH



Textile Floor Coverings Overview …

The flooring industry, is that including floor surfaces` coverings by whether wood, ceramic tiles or textiles-based. The general term flooring includes 2 general categories; non-textile flooring and textile-based. Throughout this research we will be focusing on the textile-based (Carpets & Rugs) as it is the core focus for “Oriental Weavers Carpets” the company under study. Before diving into our topic; we need to point out that both categories are to an extent complementary. Textile flooring products varies widely in terms of quality, durability, design and technology, and applications they are used for.

Floor-made Textiles` Types: Woven: are the most expensive textile-made floor coverings; as they require expensive raw materials beside more advanced production techniques. Woven products are created on looms by simultaneously interlacing wool, polypropylene or other types of yarn into one customized piece according to predetermined colors and patterns. The result of the multi-level weaving is one of two types of piles, whether a Plush (Cut) carpet characterized by its soft texture or a Berber one with knots or loops like appearance. Modern carpeting techniques can now produce a combination of both styles called cut and loop carpeting. Tufted: Through tufted carpets production, machine needles simulate the knitting process to place a single colored nylon or jute derived yarn into a sheet of polypropylene (PP) called a primary backing. A secondary backing layer is attached by a bonding agent and the tufted piece becomes ready to pass through a dyeing or printing phase. Tufted carpets currently represent the highest contribution to total carpet sales volumes. Due to its low costs relative to woven carpets and higher speed production speed. Non-Woven: the process starts by needle punching fiber threads together, and then they are pressured and thermally bonded to form one coherent piece. During the process the felt or mat toughness can be adjusted to suit its required purpose; whether it will be for residential usage or construction materials application. Felt can be of any color, and made into any shape or size depending on the needle size and structure; mainly 2 needle structures are used, pointed and forked.

Main Fibers Durability Market Share Characteristics

Nylon

Is a generic designation for a family of synthetic polymers, more specifically aliphatic or semi-aromatic polyamides. They can be melt-processed into fibers, films or shapes, first produced in 1935 and first usage for carpet

production goes back to 1959.

Durable c56% -Stains & Dirt Resistant

-Prone to static electricity unless treated

Polypropylene It is a Thermoplastic Polymer resistant to fatigue and is characterized by

strength and rigidity. Mainly driven from ethylene and propylene. Durable C36%

-Stains, Certain Chemicals, Thermal (melting point: 171-degrees), and moisture resistant -Non-static

Polyester Is a category of polymers, includes naturally; natural polyesters are

biodegradable while synthetic ones are not Less Durable c7%

-Resists water soluble stains -Soft

Wool It is a natural fiber obtained from sheep and certain other animals. Highly

Durable c1-2% -Highly Flame Resistant

-Soft, attractive & resilient

Piles Types Uses

Loop Piles Level Loop, Multi-level

loop High Traffic Areas

Cut Piles Velvet/Plush

Saxony Frieze

-Low Traffic Areas - Moderate Traffic Areas

-High Traffic Areas

Cut-Loop (Cut & Uncut piles)

Tip Sheared

Random Sheared

- High Traffic Areas: Home Setting

Carpets Durability Pricing Application

Woven 5-8 years Expensive

Requires regular maintenance Hospitality Sector, Residential

Tufted 2-5 years

Lower Priced vs. Woven

Needs periodical replacements

Commercial, Residential

Non-Woven

Felts 5-10 years Cheapest

Commercial, Residential, Industrial

Others - Handmade

< 5 years Most Expensive Residential, Hospitality

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FEBRUARY, 2016

ORWE`S BOD

SOURCE: ORIENTAL WEAVERS

ORWE`S OWNERSHIP STRUCTURE


Oriental Weavers … Synopsis

Oriental Weavers Carpets (OWC) is a leading Egyptian and multinational textile-flooring manufacturer established in 1979 by Khamis family as a limited liability company as per law no. 43 for 1974 adjusted to law no. 32 for 1977. The company was later changed to a Joint Stock Company in 1991 as per laws no. 230 and 95 for 1989 and 1992 respectively; to prepare for listing which took place in 1994 when the share were floated on EGX.

Oriental Weavers Carpets was the base for a leading group establishment, specialized in carpets and rugs production with its headquarters located in the 10

th of Ramadan City, Cairo. The Group expanded through launching "MAC" its

tufted division in 1981; to become specialized in the production of three main types of carpets and rugs, (i) Woven, (ii) Non-woven and (iii) tufted pieces.

OWG was established with an authorized capital of EGP 500mn, of which EGP 450mn represented the issued and paid-in capital distributed over 90mn shares; at a par value of EGP 5/share that was later in January, 2015 split from EGP 5/share to EGP 1/share, taking the total outstanding number of shares to 450mn.

OWG … FROM A SINGLE FACILITY TO A FULLY INTEGRATED GROUP

As mentioned, OWC was the base for a leading group. The group has grown with continuous investments, to become the largest global producer for its product-mix; incorporating 10 production facilities, 8 of which are in Egypt (c80-85% market share) and another 2 facilities in the USA and China. OWG exerted huge efforts to become vertically integrated; in order to increase its recurring income, ensure a portion of raw materials` supplies, set better cost and value-chain control measures, differentiate itself from others to enhance its competitive advantage through applying most advanced production and warehousing technologies. Oriental Weavers successfully integrated a fibers` production facility within each of its domestically based carpets` facilities.

Raw Materials` Supply - Backward Integration

Through launching the Egyptian Fibers Company (EFCO) in 1988 followed by Oriental Weavers Fibers (OWF) in 1994; OWG was able to secure major contribution of needed fibers for production from its own facilities. The group expanded its backward integration further through launching operations at its state of the art facility "King Tut" back in 2012 to guarantee yarn supplies (dyes and spinning), while excess capacities are exported to third parties or locally sold. OWC recently announced a long term plan of adding a yarn plant of 55k Sqm per annum capacity to King Tut at an estimated investment cost of EGP 470mn (Excluded from valuation due to unclear vision as the expansion is planned to take place in 2018/2020 pending local and global demand conditions).

OWC`s main shareholder "Mohamed Farid Khamis" also enjoys a stake at the Egyptian Propylene and Polypropylene Company (EPPC) (a sister company – not in consolidation) that supplies OWG with a portion of required polypropylene granules. Granules are converted at EFCO or OWI fibers` integration into fibers securing the group`s needs, while excess capacities are exported to third parties.

CEO Salah Abdel-Aziz Chairman/ Executive

Board Members

Mohamed Farid Khamis Member/ Non-Executive

Farida Farid Khamis Executive

Yasmin Farid Khamis Executive

Amr Mahmoud Fawzi Khamis Executive

Mohamed Fawzi Khamis Executive

Mahmoud Reda El Khamisy Executive

Mahmoud Amin Saad Executive

Mohammed Katary Abd Allah Executive

Mahmoud Amin Saad Executive

Alaa ElDeen Shehata Executive

Institutions Representatives

57%

23%

17%

3%

Khamis Family & Related Entities

Foreign Institutions

local Institutions

Retail

9


FEBRUARY, 2016



Production

OWG incorporated 5-carpets` and tufts producing companies, Oriental Weavers Carpets (1979), MAC (1981), Oriental Weavers International (1998), Oriental Weavers USA (1994) and Oriental Weavers China (2006) under the group`s umbrella. Through such incorporation OWG diversified and increased its offering and maintained its competitive edge over global leading manufacturers. EFCO (1988) also produces and export different types of non-woven carpets and rugs beside fibers` sales. OWG also includes a non-consolidated company "Oriental Weavers Textiles" which had a total production capacity of 8.2mn Sqm in 2014; producing the highest quality carpets and rugs. Distribution Arms – Forward Integration

The group had plans to further enhance its margins by selling its offering directly to end consumers through a network of 176 showrooms and 64 wholesalers. OWG had a historic average of adding around 6 showrooms per annum, a figure surpassed in 2015 through adding 9 new showrooms. The growing number of showrooms solidify OWG`s market share of c85% and guarantees further penetration and stronger local sales; in time of launching a new concept of small retail outlets to better serve the middle and lower income segments in Egypt.

OWG maintained relationships with global and local retailers to preserve market share, besides penetrating new markets. The company exports to big box retailers "ex: IKEA" in addition to conducting new valuable partnerships to collaborate with or distribute its products through which on annual basis.

OWC Consolidation

OW USA – 100% OW International – 100% MAC Carpet “Fiber Factory” - 58.3% EFCO – 68%

OW China – 100% New MAC – 98%

Forward Integration Forward Integration

OWC Integration

Backward Integration Production Phase

1- Directly from Facilities to retailers.

2- Direct Online orders by customers.

3- Through 176 showrooms. 4- Shipments to 64 wholesaler

Fibers design Sells Excess

Fibers directly to

other textiles`

manufactures

locally & globally

EFCO Production Facilities (Tufted)

OWC (Woven)

OWI (Woven)

MAC

Polypropylene Granules

Raw Wool

Nylon

Natural/synthetics raw

materials

Fibers are

shipped to one of

the company`s

backward

facilities

Raw materials

are treated to

produce desired

fibers for

production

EFCO Fiber Facilities

Oriental Weavers Fibers

King Tut

OWI & OWC Fibers plant

Production

process begins by

purchasing raw

fibers

Fibers are

processed to

produce Woven,

Tufted or non-

woven products

Exports

Local Sales

1- Extra fibers not used or sold locally.

2- Exports take place directly through OWI, MAC, OWC or EFCO.

3- OW Hospitality (UK) 4- OW USA - Sphinx

Distribution

OW USA

OW China

Producers & Distributors

1- Manufactures woven carpets at their own facilities.

2- Send orders to Egypt for Shipments

Revenues

Cycle End

10


FEBRUARY, 2016

A RISING CONSUMPTION CONTRIBUTING TO REAL GDP (IN EGP BN) GROWTH

TEXTILES TRADE RAISES RED FLAGS

SOURCE: MINISTRY OF TRADE & INDUSTRY

SOURCE: CBE, PRIME ESTIMATES

SOURCE: CAPMAS, PRIME ESTIMATES

Egypt … Is Promising

Egypt`s economy is still reeling from years of turmoil following 2011. The adverse impact was extended to almost all industries that used to be well-performing. Egypt`s textiles industry is among those industries under pressure. But not only because of the worsened society welfare; but due to losing competitive edge regionally and globally due to outdated techniques and technologies not on rivals` current levels. Especially garment-related ones, that lost it all against Turkey, China and European manufacturers.

Such dynamics led Egypt`s textiles net trade to turn red, as we break it down to clothes, garments and raw fabrics. However, in 2014, Egypt exported carpets valued at USD 411.95mn representing 14.3% of total exports, while imports were the lowest among textiles aggregate imports of USD 3,548.4mn, standing at only USD 64.95mn. We believe that Oriental Weavers contributed to the whole industry; due to the company`s sizeable exports to over 130 countries.

Still, hope appears in the horizon with the government plans for restructuring and supporting the industry. That used to be one of the major contributors to the economy, and among foreign currency net suppliers. We also see the recent governmental decision for raising tariffs on some imports including garment and textiles by 10% to reach 40%, would benefit the industry and provide a catching-breath break for upgrades.

Egypt`s new governing regime is intensely focusing on providing more job opportunities to win the fight against high unemployment. Through enhancing Egypt`s investment climate to make room for mega projects to materialize. A matter anticipated to take place gradually over the upcoming years. However, as gradually we say, individuals' disposable income and purchasing ability will be enhancing in correlation; in time of the CBE apparent policy of tackling inflation.

We anticipate Egypt`s population to grow at an average of 2.54% (accelerating in nature) per annum. Such population growth rates should be considered a blessing to consumers-oriented companies. With such population, with majority skewed towards youth we believe private consumption to grow at an average of 3.3% from FY2016F to FY2018F; including high consumption for textiles-flooring, driven by:

Those below 34 years old (most looking for housing) represented 67.7% in 2014.

In 2014, 953k marriages were registered; hence, creating demand for new residential needs, which in turn creates demand on textiles`-based flooring. Marriages would cross the 1mn per annum level in 2017.

In 2014, number of Egyptian families reached 20.9mn, creating demand for carpets and rugs renovation and renewal as the average life of a carpet may come at 5-years based on its constituents.

Total number of buildings was 11.59mn in 2006 according to CAPMAS, out of which 11.15mn were utilized, a figure we believe has grown massively at current time due to 2011-2013 illegal residential construction, an aspect also driving renovation and renewal demand for carpets higher.

Marriages & Youth - in `000 2014 2015F 2016F 2017F 2018F 2019F 2020F Egypt`s Population 87,963 90,118 92,371 94,727 97,190 99,765 102,459

Change 2.30% 2.45% 2.50% 2.55% 2.60% 2.65% 2.70% Total Marriages 953.0 972.1 991.5 1011.3 1041.7 1078.1 1121.3

Change 4.38% 2.00% 2.00% 2.00% 3.00% 3.50% 4.00% Population below 34 Years 59,588 61,281 62,997 64,698 66,575 68,738 71,004

% of Population 67.7% 68.00% 68.20% 68% 68.50% 68.90% 69.30% No. of Families 20,944 21,457 21,993 22,554 23,140 23,754 24,395

3285.8

2793.5 2973.9 2890.8

1987.8

13.8%

-2.3% -5.8%

-18.5%

-28.8%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

-100.0

900.0

1900.0

2900.0

3900.0

2011 2012 2013 2014 9M2015

Exports - in USD mn Imports - in USD mn Net Trade

2.2%

4.2%

3.7% 3.9%

4.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

1000

2000

3000

4000

FY14a FY15a FY16f FY17f FY18f

GDP at market prices Private Consumption

Real GDP Growth Private Consumption Growth

11


FEBRUARY, 2016

SOURCE: PRIME ESTIMATES

SOURCE: CAPMAS SOURCE: CAPMAS

AN APPARENT SUPPLY GAP DRIVEN BY PUBLIC LOW INVESTMENTS … DRIVEN BY A LAGGING BEHIND CAPEX - (IN EGP MN)

After getting into Egypt`s population Anatomy; it is now apparent how residential supply is insufficient. As the private sector supply is to an extent skewed towards higher, middle and upper middle income classes driven from profitability targets. While the lower-middle income to low income segments that represent the higher percentage of Egypt`s population and hence highest contribution to annual marriages suffers from an enlarging gap. On the contrary to the private sector targets, the public sector supply mainly focuses on lower income segments out of the government`s social responsibility; nevertheless, in FY2014 only 42.5K units were supplied to such segments which is still lagging behind demand.

Over the upcoming few years scales will balance; the government recently declared EGP 1bn of "Tahya Misr" fund to be utilized for lower income segments residential supply. Through such capital, the housing ministry along with the Armed Forces engineering division shall build a total number of units exceeding 400K units out of which around 100K units have already been fulfilled. The 400K+ units are due delivery in 2016 and 2017 out of a bigger program for building 1mn residential unit. With such residential supply; we might see for the first time public supply exceeding that of the private sector that is anticipated to maintain its level with no projected jumps.

So as residential supply is expected to record a several-folds hike driven by public spending over the next upcoming years; we shall keep an eye on textiles floor-coverings demand after considering residential pricing and setting anticipations for individuals economic welfare, inflation impact and saving versus spending patterns.

Marriages & Income Segments 2015F 2016F 2017F 2018F 2019F 2020F

Egypt`s Population - in`000 90,118 92,371 94,727 97,190 99,765 102,459

Total Marriages- in`000 972.1 991.5 1011.3 1041.7 1078.1 1121.3

Income Segments Percentage of Population (Hypothetical) High Income Class & Upper Middle 10% 10% 10% 10% 10% 10%

Middle-to-Lower Middle Income 25% 25% 25% 25% 25% 25% Lower Income 65% 65% 65% 65% 65% 65%

Income Segments ` Annual Marriages (Hypothetical) - `000 - (Driven from contributions to Population) High Income Class & Upper Middle 97 99 101 104 108 112

Middle-to-Lower Middle Income 243 248 253 260 270 280 Lower Income 632 644 657 677 701 729

As we anticipate marriage rate to increase annually surpassing population growth sometimes, due to the higher youth contribution in total population. We anticipate higher demand on textiles-floor coverings, as not all new marriages are relocated to new housing destinations; which would act as a catalyst for textiles` renewals and renovations.

53651 70293 78529 30573 42500

142409

114149

98188 105057 103283

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

FY2010 FY2011 FY2012 FY2013 FY2014

Public Residential Supply Private Residential Supply Public Change Private Change

5124 5931

3265 1753

5224

11382

7419 7718 6303

15492

-70% -50% -30% -10% 10% 30% 50% 70% 90% 110% 130% 150%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY2010 FY2011 FY2012 FY2013 FY2014

Public RE Spending Private RE Spending Public Change Private Change

12


FEBRUARY, 2016


A HIGHER LOCAL CONTRIBUTION … FEEDING THE GROUP BUT A BETTER GLOBAL PRICING SERVED BY EGP DEVALUATION – IN EGP`000



ORIENTAL WEAVERS OPERATIONS … THE INTEGRATED GROUP IS SET TO BENEFIT FROM MACRO

DYNAMICS

Egyptian Fibers Company (EFCO) … Historical Analysis & Forecast

EFCO is OWG`s polypropylene and synthetic fibers backward integration, in addition to carrying its own revenue recurring activities locally and globally, through supplying manufacturers.

Egyptian Fibers Company (EFCO) was established in 1987; and has joined the world leading manufacturers by its own due to its diversified product mix comprising polypropylene fibers, non-woven felt, mats and many others. EFCO currently exports its products to over 67 countries other than its local activity. Although EFCO has its own sales activity; it is OWG`s polypropylene Stable Fibers, polyester threads and other synthetic fibers` supplier. As the company`s raw materials of raw synthetics and polypropylene granules are further processed to fibers and threads ready for production by the group`s other facilities. EFCO differentiated itself through utilizing the latest processing and production technologies, enabling customized weights and widths control up to 4 Sqm wide. In addition to, producing customized patterned and printed non-woven mats and felts.

Over the years from 2010 to 2014, the company`s volumes CAGR showed 0.7% decline; affected by a drop in 2014 sales volume. Local volume contribution to total sales volume represented 62.4% on average over same period; as EFCO is the major feeder for the group`s PP dependent flooring textiles. EFCO value contribution has recently been skewed towards higher export contribution (Translated in EGP) supported by the EGP Devaluation versus USD.

In 2014, a 9.3% drop in total sales value derived from lower sales volumes and prices, slowed down 2010-to-2014 total sales value CAGR to 13%. We believe the decline in sales volume was derived from a drop in local and global demand for tufted pieces (later to be discussed), along with local and global pressures on prices in response to polypropylene declining prices; that is strongly correlated with crude oil prices.

Aggregate EFCO Sales 2010 2011 2012 2013 2014 CAGR Total Sales Value– in EGP`000 137,180 154,118 160,810 246,915 223,962 13.0%

Change 1.3% 12.3% 4.3% 53.5% -9.3%

Total Sales Volume 15,004 13,898 14,457 15,755 14,604 -0.7% Change 0.5% -7.4% 4.0% 9.0% -7.3%

Average Price 9.1 11.1 11.1 15.7 15.3 13.8%

Change 0.8% 21.3% 0.3% 40.9% -2.1%

EFCO

Location 10th of Ramadan City OWG ownership 68%

Establishment 1987

Raw Materials Synthetic Fibers

Polypropylene Granules

Output

Non-woven Felt Polypropylene Fibers

Polyester Handmade Rugs

Indoor & Outdoor Rugs Masterbatch

Needle Felt Carpets: Wall-to-Wall

Car & Bath Mats

EFCO`s Capacity 16mn Sqm

10,275 8,584 8,906 9,246 8,948

4,728 5,314 5,551 6,509 5,656

68%

62% 62% 59% 61%

32%

38% 38% 41%

39%

0%

20%

40%

60%

80%

-

5,000

10,000

15,000

20,000

2010 2011 2012 2013 2014

Local Volume Sales Exports Volume Sales Local Contribution Exports Contribution

78,331 82,316 74,186 105,937 100,783

58,849 71,802 86,624

140,978 123,179

57% 53%

46% 43%

45% 43%

47%

54% 57%

55%

0%

20%

40%

60%

-

100,000

200,000

300,000

2010 2011 2012 2013 2014

Local Sales Value Exports Sales Value Local Value Contribution Exports Value Contribution

13


FEBRUARY, 2016

SOURCE: PRIME ESTIMATES SOURCE: PRIME ESTIMATES


VOLUME CONTRIBUTION TO STRENGTHEN BEFORE NORMALIZING … WHILE VALUE CONTRIBUTION REGAINS POSITION AS WELL – IN EGP `000

In 9M2015, the further slash in crude oil prices took polypropylene prices down in positive correlation, which drove selling prices in local and global markets heavily down. Demand from global manufacturers for threads and synthetics was weak in 2015; impacted by lower appetite for spending in time the European economic status was slowing down coupled with a weaker EUR versus USD. However, local sales volume inched up by c1.6% in 9M2015; a rate we slightly increasing over the whole year in our belief.

Due to such change in dynamics; we believe, local volume contribution to total volume will record the highest level since 2011. In 2016, we anticipate a smaller pressure on export prices down; but an increase in EGP terms served by the expected devaluation. However, local prices are believed to start showing a modest uptrend. Due to OWG`s better pricing power in the local market. Starting from 2016, as prices become more appealing, demand is believed to regain momentum to benefit from such prices. From 2015-to-2020, we see EFCO`s sales value growing at 9.54%; driven by c2.6% total volumes` CAGR and strengthened by c6.8% average prices` CAGR.

Aggregate EFCO Sales 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Sales Value– in EGP`000 223,962 191,558 213,509 230,144 272,331 296,691 302,131 9.54%

Change -9.30% -14.47% 11.46% 7.79% 18.33% 8.95% 1.83%

Total Sales Volume 14,604 14,080 15,040 15,200 15,680 16,000 16,000 2.59% Change -7.30% -3.59% 6.82% 1.06% 3.16% 2.04% 0.00%

Utilization 91.28% 88.00% 94.00% 95.00% 98.00% 100.00% 100.00%

Average Price 15.34 13.61 14.20 15.14 17.37 18.54 18.88 6.78%

Change -2.10% -11.29% 4.34% 6.66% 14.71% 6.77% 1.83%

9,152 9,475 9,576 9,565 9,760 9,760

4,928 5,565 5,624 6,115 6,240 6,240

65% 63% 63% 61% 61% 61%

35% 37% 37% 39% 39% 39%

0.00%

20.00%

40.00%

60.00%

80.00%

-

5,000

10,000

15,000

20,000

2015E 2016F 2017F 2018F 2019F 2020F

Local Volume Sales Exports Volume Sales Local Contribution Exports Contribution

94,834 100,147 106,273 116,764 128,678 132,539

96,724 113,362 123,871 155,567 168,013 169,592

50% 47% 46%

43% 43% 44%

50% 53% 54%

57% 57% 56%

0.00%

20.00%

40.00%

60.00%

-

200,000

400,000

2015E 2016F 2017F 2018F 2019F 2020F

Local Sales Value Exports Sales Value

14


FEBRUARY, 2016

SOURCE: ORIENTAL WEAVERS SOURCE: ORIENTAL WEAVERS

A VOLATILE SALES MIX … ACCOMPANIES VOLATILE PRICING – IN EGP`000


Misr American Carpets (MAC) … MAC Carpets is OWG`s foothold in the wall-to-wall tufted carpeting segment, a key division that further diversifies the group’s product mix beyond rugs and mats. MAC was founded over 1981; the company`s production currently comes out from 4 facilities all located in the 10

th of Ramadan City. MAC designs, manufactures, and markets carpets,

utilizing the same advanced technology applied by the whole group. The company offers BCF (Bulked Continuous Filament), spun nylon, polypropylene, wool, blended wool, poly-acrylic, and cotton carpets. It also manufactures and distributes home and car mats; runners’ rugs (narrow rectangular carpets usually placed in hallways); 3D-advertising floor panels and wall to wall carpets.

MAC is the largest producer of custom printed, patterned and tailored wall-to-wall tufted carpets globally, operating with a capacity of 56mn Sqm per annum. The company`s products are delivered to over 107 countries, supplying the world`s largest big boxes and retailers and hence capturing around 30% on average of global market share.

Turning MAC into a vertically integrated company … Prior to 2014, MAC, the Group’s primary arm in wall-to-wall tufted carpet segment, was the only manufacturing facility that was not vertically integrated, relying on Oriental Weavers Fibers for a portion of its yarn. So OWG`s Management moved forward with the merger of the two subsidiaries (MAC & OWF) as of December 31, 2013. And a revaluation of assets of both entities was accordingly carried out at that time.

MAC operations are divided between 2-main segments: Wall-to-Wall & Tufted Carpets

1- Wall-to-Wall Carpets

Wall-to-Wall carpets include a wide variety of tufted pieces that are customized per individuals` or retailers` orders. Wall-to-Wall prices may differ from year to year due to change in product mix. However, over the past period export volumes were falling after 2012`s surge, while local volumes average path was almost flat. Local volumes ups and downs were driven by residential, institutions or individuals preferences; according to their planned spending patterns over replenishments or new demand. However, as Egypt`s economic status was under pressure local volumes maintained weak levels. In 2014, OWG trimmed prices down to maintain export markets appetite; benefiting from the EGP devaluation. While being able to raise local prices on the back of higher demand from residential and tourism activity at that time. Although sales mix volatility, total sales value recorded a CAGR of 8.27%, driven by slight enhancement in volumes of 2.14% and a 6% prices` CAGR mainly supported by the EGP devaluating path.

MAC: W-to-W sales 2010 2011 2012 2013 2014 CAGR Total Sales Value – in EGP`000 72,995 83,325 100,938 94,158 100,288 8.27%

Change -25.23% 14.15% 21.14% -6.72% 6.51%

Total Sales Volume 4,497 4,820 6,444 4,881 4,894 2.14% Change -28.40% 7.18% 33.69% -24.26% 0.27%

Average Price 16.23 17.29 15.66 19.29 20.49 6.00%

Change 4.43% 6.50% -9.39% 23.15% 6.23%

MAC

Location 10th of Ramadan City

OWG ownership 58.3%

Establishment 1981


Polypropylene Fibers Wool

Output

Wall-to-Wall Tufted-Pieces

Tufted Carpets Single & Multilevel-

Textured-Mats MAC`s Capacity 56mn Sqm

2,547 2,825 2,706 2,245 2,698

1,950 1,995 3,738 2,636 2,196

57% 59%

42% 46%

55%

43% 41%

58% 54%

45%

0.00%

20.00%

40.00%

60.00%

80.00%

-

2,000

4,000

6,000

8,000

2010 2011 2012 2013 2014

Local Sales Volume Export Sales Volume Local Contribution Export Contribution

34,684 38,799

13,329

42,503 55,151

38,311 44,526 87,609

51,655 45,137

48% 47%

13%

45%

55% 52% 53%

87%

55%

45%

0.00%

50.00%

100.00%

-

50,000

100,000

150,000

2010 2011 2012 2013 2014

Local Sales Value Export Sales Value Local Value Contribution Export Value Contribution

15


FEBRUARY, 2016



AFTER A LONG PATH OF VOLATILITY … SALES IS EXPECTED TO TURN BACK TO THE GLOBAL MARKET – IN EGP`000

In 9M2015, local sales volume showed an increase of 11.5% while export volume massively jumped by 186% y-o-y; incentivized by OWG`s prices slash. The slash in prices is reasonable, as synthetic fibers derived from crude oil represent the main raw material; which is a matter big box retailers are aware of. Still the EGP devaluation acted as OWG`s guardian, preventing a heavy drop in average prices. we expect the 9M2015 strong local and export sales` volumes to have continued in 4Q2015; with local volume anticipated to mark c12% y-o-y increase while exported volume to record 1.1 folds over 2014`s comparable figure.

Local prices are believed to have fallen to an extent of 9% y-o-y in 2015, while export prices to around 8% lower y-o-y in terms of foreign currencies denominated before getting eased to around 2.5% after translation to EGP. Going forward beyond 2015, we expect a drop in local volumes by around 5% in 2016, driven by lower tourism replenishment appetite before enhancing gradually thereafter, while export volumes to move at an inclining modest trend. So that total volumes are believed to incline at a CAGR of 3.32%; diluted by 2015`s strong sales levels. In terms of prices we expect further slight declines, effective in local market; but inverted to y-o-y growth of c4.8% in export prices thanks to OWG functional currency in 2016. Going beyond that, the rise in demand coupled with the continuing EGP devaluation up to 2018 in time of synthetic and polypropylene-based raw materials anticipated prices` rebound; we believe OWG will have favorable pricing ability and leading to further price increases.

MAC: W-to-W sales 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Sales Value – in EGP`000 100,288 148,671 151,759 166,710 197,151 210,411 220,305 8.18%

Change 6.51% 48.24% 2.08% 9.85% 18.26% 6.73% 4.70%

Total Sales Volume 4,894 7,633 7,575 7,896 8,379 8,726 8,988 3.32% Change 0.27% 55.97% -0.77% 4.24% 6.12% 4.14% 3.00%

Average Price 20.49 19.48 20.04 21.11 23.53 24.11 24.51 4.71%

Change 6.23% -4.96% 2.87% 5.38% 11.44% 2.48% 1.65%

3,022 2,871 2,957 3,193 3,385 3,486

4,612 4,704 4,939 5,186 5,342 5,502

40% 38% 37% 38% 39% 39%

60% 62% 63% 62% 61% 61%

0.00%

20.00%

40.00%

60.00%

80.00%

-

2,000

4,000

6,000

8,000

10,000

2015E 2016F 2017F 2018F 2019F 2020F


56,210 52,865 55,540 64,782 72,789 77,222

92,461 98,894 111,169 132,369 137,622 143,083

38% 35% 33% 33% 35% 35%

62% 65% 67% 67% 65% 65%

0.00%

50.00%

100.00%

-

100,000

200,000

300,000

2015E 2016F 2017F 2018F 2019F 2020F


16


FEBRUARY, 2016


ALTHOUGH EXPORTS ALWAYS REPRESENTED THE HIGHER CONTRIBUTION … A DECLINING TREND IS OBVIOUS – IN EGP`000




THE EGP DEVALUATION COMES IN OWG FAVOR … TO REGAIN THE LOST GLOBAL SHARE – IN EGP`000

2- Tufted Pieces

Tufted Pieces story is to an extent similar to that of the Wall-to-Wall segment, but includes a wider variety of products as it includes all offered mats and other rugs. However, the story is to an extent similar to that of the Wall-to-Wall segment but at different magnitude, as higher volumes and pricing were always skewed towards further demand from global markets. That has always represented the higher contribution to sales value. The below presented period shows a declining trend in sales volume; mainly affected by the gradual decrease in demand from Europe although local demand shows an upward trend; but still such upward trend effect on total sales volume is diluted by the low historical contribution to total volumes. The drop in export volumes was more than compensated by the increasing prices, to positively impact tufted pieces sales value to end 2014 at a 2.42% CAGR over that of 2010.

MAC: Tufted Pieces 2010 2011 2012 2013 2014 CAGR Total Sales Value – in EGP`000 846,360 918,058 846,795 965,754 931,292 2.42%

Change 6.35% 8.47% -7.76% 14.05% -3.57%

Total Sales Volume 41,853 39,784 37,655 38,166 34,689 -4.59%

Change -1.24% -4.94% -5.35% 1.36% -9.11%

Average Price 20.22 23.08 22.49 25.30 26.85 7.34%

Change 7.68% 14.11% -2.55% 12.52% 6.10%

In 9M2015, tufted local sales volume increased by 7.2%, while exports fell by c20%; leading to a considerable change in contribution to total volume; that is believed to prevail over our forecasted horizon. In 2016, we OWG will stabilize local prices while easing export prices by 2% which will be translated to an increase after considering the EGP trend. we anticipate double years increases in 2017 and 2018 in blended price before smoothing. We stabilized local prices in 2016, out of beliefs of considering citizens status; and governmental talks with all industries` leaders. As the tufted segment is among OWG`s highest segments in correlation with residential status. Benefiting from the devaluation, OWG is believed to ease FX-denominated prices in 2016 by 2% after 2015`s estimated 2.5% decrease. To cope with the dropping demand; specially after losing share at one of the world`s largest retailers “IKEA” which replaced 20-30% of OWG`s textile floorings by Turkish counterparts. Starting from 2017, we believe an uptrend in prices will take place once again in response for an anticipated gradual demand enhancement.

5,446 4,534 5,881 7,223 7,017

36,407 35,250 31,774 30,943 27,672

13% 11% 16%

19% 20%

87% 89% 84%

81% 80%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

-

10,000

20,000

30,000

40,000

50,000

2010 2011 2012 2013 2014


98,399 96,545 136,598 148,184 182,719

747,961 821,513 710,197 817,570 748,573

12% 11% 16% 15% 20%

88% 89% 84% 85%

80%

0.00%

50.00%

100.00%

-

500,000

1,000,000

1,500,000

2010 2011 2012 2013 2014


7,382 7,603 7,831 8,458 8,881 9,147

26,842 27,647 29,029 31,352 32,292 33,261

22% 22% 21% 21% 22% 22%

78% 78% 79% 79% 78% 78%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

-

10,000

20,000

30,000

40,000

50,000

2015E 2016F 2017F 2018F 2019F 2020F


182,609 188,088 199,542 226,281 244,723 259,626

750,635 810,729 920,388

1,085,469 1,150,456 1,196,108

20% 19% 18% 17% 18% 18%

80% 81% 82% 83% 82% 82%

0.00%

50.00%

100.00%

-

1,000,000

2,000,000

2015E 2016F 2017F 2018F 2019F 2020F


17


FEBRUARY, 2016



MAC: Tufted Pieces 2014 2015E 2016 2017 2018 2019 2020 CAGR

Total Sales Value 931,292 933,244 998,817 1,119,930 1,311,750 1,395,179 1,455,735 9.30% Change -3.57% 0.21% 7.03% 12.13% 17.13% 6.36% 4.34%

Total Sales Volume 34,689 34,224 35,250 36,861 39,810 41,173 42,408 4.38%

Change -9.11% -1.34% 3.00% 4.57% 8.00% 3.42% 3.00%

Average Price 26.85 27.27 28.33 30.38 32.95 33.89 34.33 4.71% Change 6.10% 1.57% 3.91% 7.23% 8.45% 2.84% 1.30% -3.71%

3- MAC Aggregation

After combining both tufted and wall-to-wall segments projected performance; we believe in a total sales value CAGR of 9.15% from 2015 to 2020; driven by higher anticipated aggregate capacity utilization. Such anticipated increases in utilization rates, are driven by 1) cheaper offerings in 2015 and 2016, served by the EGP devaluation acting as a strong catalyst. 2) In time with stronger demand from local and global individuals, due to better economic outlook by 2018.

MAC Aggregate Performance 2014 2015E 2016 2017 2018 2019 2020 CAGR

Total Sales Value – in EGP`000 1,031,580 1,081,915 1,150,576 1,286,640 1,508,901 1,605,590 1,676,040 9.15% Change -2.67% 4.88% 6.35% 11.83% 17.27% 6.41% 4.39%

Wall-to-Wall Contribution 9.72% 13.74% 13.19% 12.96% 13.07% 13.10% 13.14%

Tufted Contribution 90.28% 86.26% 86.81% 87.04% 86.93% 86.90% 86.86%

Total Sales Volume 39,583 41,857 42,825 44,757 48,189 49,900 51,397 4.19%

Change -8.05% 5.75% 2.31% 4.51% 7.67% 3.55% 3.00%

MAC`s Utilization 70.68% 74.74% 76.47% 79.92% 86.05% 89.11% 91.78%

Wall-to-Wall Vol. Contribution 12.36% 18.24% 17.69% 17.64% 17.39% 17.49% 17.49%

Tufted Vol. Contribution 87.64% 81.76% 82.31% 82.36% 82.61% 82.51% 82.51%

Average Price 26.06 25.85 26.87 28.75 31.31 32.18 32.61 4.76%

Change 5.84% -0.82% 3.94% 7.00% 8.92% 2.76% 1.35%

18


FEBRUARY, 2016

IN 2014, DEMAND STRENGTHENED DUE TO GLOBAL HOSPITALITY DEMAND … HOWEVER, GRADE A IS BETTER PRICED LOCALLY – IN EGP`000



Oriental Weavers Carpet (OWC) & Oriental Weavers International (OWI)

OWC is the holding company for the vertically integrated group; it was founded in 1979. Oriental Weavers Carpet produces three woven carpets and rugs grades (A, B and C). The difference between the featured grades is defined based on the proportion of wool and polypropylene mixture in production. As wool contribution increases the carpet`s grade is enhanced; and value appreciates in comparison with higher polypropylene contribution. Grade A is characterized by having 80/20-Wool/Polypropylene mixture; Grade B has a 50/50-Wool/Polypropylene mixture, while Grade C has a 20/80-Wool/Polypropylene mixture.

Oriental Weavers International (OWI) was established in 1999 as an export-oriented company in the free trade zone in 10

th of Ramadan City. OWI is a life time tax exempted

company; that produces and sell same exact products as OWC. The company’s vertically integrated facilities encompass synthetic fibers production, dyeing and spinning wool as well as the weaving and finishing of products. The majority of the group’s diversified products related to home textiles are produced within this facility (carpets, rugs, Axminster, Gobelin, gun-tuft and fibers). OWI’s main export markets include North America, Europe, and the Middle East, while the company also delivers to more than 60 countries worldwide. It must be noted that sales figures from both companies are reported combined only categorized according to grades; as intra-group transactions are believed to take place to satisfy clients` orders.

Both companies (OWC & OWI) are integrated through owning fibers` production facilities; they also source other needed fibers through intra-group transactions whether with EFCO or MAC. Part of the backward integration for OWI was the establishment of King Tut fibers production facilities with 100 tonnes of fibers production per day; that utilizes the most advanced production technologies. OWI also added a subsidiary ”OW China” in 2006, that is fully owned through which OWG aims to capture a higher market share in the emerging Asian markets.

1- Grade-A Woven Area

Grade A carpets and rugs, are the highest priced products offered by OWG; as they are considered premium quality carpets. Grade A carpets, locally target upper and middle income segments new housing demand and individuals renovation. Demand for Grade A is also generated from luxurious hotels, for replenishing or purchasing wall-to-wall Axminster carpets or hanging Gobelins used for decorations. OWG had higher pricing power in domestic market in comparison with the global one. Which historically sets local value contribution to total grade A sales higher.

OWC & OCI: Grade A 2010 2011 2012 2013 2014 CAGR Total Sales Value – in EGP`000 362,803 365,553 373,312 376,129 402,857 2.65%

Change 23.54% 0.76% 2.12% 0.75% 7.11%

Total Sales Volume 2,452 2,275 2,321 2,181 2,191 -2.77% Change 27.77% -7.22% 2.02% -6.03% 0.46%

Average Price 147.96 160.68 160.84 172.46 183.87 5.58%

Change 4.43% 8.60% 0.10% 7.22% 6.62%

OWC & OWI Location 10th of Ramadan City

OWG ownership 100% OWC Establishment 1979 OWI Establishment 1999



Output

Woven Carpets & Rugs 1- Grade A 2- Grade B 3- Grade C

OWC`s 2013-Capacity 22mn Sqm

OWI`s 2013-Capacity 36mn Sqm

OWC & OWI 2015 63.5mn Sqm

255,015 246,830 256,502 258,202 266,727

107,788 118,723 116,810 117,927 136,130

70% 68% 69% 69% 66%

30% 32% 31% 31% 34%

0%

20%

40%

60%

80%

0

100,000

200,000

300,000

400,000

500,000

2010 2011 2012 2013 2014


1,437 1,314 1,372 1,206

1,024

1,015 961 949

975 1,167

59% 58% 59% 55%

47% 41% 42% 41% 45%

53%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

- 200 400 600 800

1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600

2010 2011 2012 2013 2014


19


FEBRUARY, 2016



LOCAL DEMAND SLOW-DOWN IN COMPARISON TO NORM … BUT REGAINS STRENGTH IN LINE WITH TOURISM COME-BACK- IN EGP`000


IN CONTRARY TO GRADE A, EXPORTED VOLUMES ARE HISTORICALLY HIGHER; ALTHOUGH HIGHER CONTRIBUTION, LOCAL PRICES ARE BETTER-IN EGP`000

In 9M2015, both local and global demand were growing, but global demand was higher. We believe that grade A exports will retain the upper hand in terms of volumes up till 2018; due to the stronger sales in America and Canada driven from the US economic status strength and increasing consumer confidence. Starting from 2019, as Egypt`s tourism activity should be back to its healthy levels once again, and hotels get their appetite back for renewals; we anticipate higher local quantity sales over global sales for grade A. However, throughout the horizon we see sales value contribution skewed towards the domestic side although we slowed down prices growth; driven from the historical pricing premium above exports.

OWC & OCI: Grade A 2014 2015E 2016 2017 2018 2019 2020 CAGR Total Sales Value 402,857 438,221 428,227 461,632 549,329 604,831 638,386 7.81%

Change 7.11% 8.78% -2.28% 7.80% 19.00% 10.10% 5.55%

Total Sales Volume 2,191 2,377 2,330 2,400 2,592 2,669 2,749 2.95% Change 0.46% 8.50% -2.00% 3.00% 8.00% 3.00% 3.00%

Average Price 183.87 184.34 183.81 192.38 211.97 226.59 232.19 4.72%

Change 6.62% 0.26% -0.29% 4.66% 10.18% 6.90% 2.47%

2- Grade-B Woven Area Grade B sales are higher than those of grade A as it mainly targets the middle income class, hotels and corporations. It is characterized by containing high wool percentage making it desirable by households; while being more affordable in comparison with grade A. Exports represent the higher contribution in terms of volumes and values. However, export prices are by far below their local counterparts; coming at cEGP 61/Sqm versus cEGP 94/Sqm in OWG domestic market in 2014. Grade B Export prices are volatile in comparison with local prices that were increasing from 2012 to 2014 and affecting the blended average prices upward year after year.

1,082 1,002 1,056 1,244 1,388 1,457

1,296 1,328 1,344 1,348

1,281 1,292

46% 43% 44% 48%

52% 53% 55% 57% 56%

52%

48% 47%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

-

500

1,000

1,500

2,000

2,500

3,000

2015E 2016F 2017F 2018F 2019F 2020F


291,602 275,470 296,139 366,351 429,226 459,617

146,619 152,758 165,493

182,978 175,605 178,770

67% 64% 64% 67% 71% 72%

33% 36% 36% 33% 29% 28%

0%

20%

40%

60%

80%

100%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2015E 2016F 2017F 2018F 2019F 2020F


5,639 6,529 6,326 5,892 6,513

11,467 13,048 13,713 14,376

17,156

33% 33% 32% 29% 28%

67% 67% 68% 71% 72%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

-

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013 2014


425,527 483,464 511,144 545,261 611,505

566,426 703,144 743,970

864,270 1,041,510

43% 41% 41% 39% 37%

57% 59% 59% 61% 63%

0%

20%

40%

60%

80%

100%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2010 2011 2012 2013 2014


20


FEBRUARY, 2016



EXPORTS TO REGAIN MOMENTUM AND SHARE GRADUALLY … INCENTIVIZED BY OWD EXPECTED PRICE CUTS – IN EGP`000


OWC & OCI: Grade B 2010 2011 2012 2013 2014 CAGR

Total Sales Value – in EGP`000 991,953 1,186,608 1,255,114 1,409,531 1,653,015 13.62% Change 20.85% 19.62% 5.77% 12.30% 17.27%

Total Sales Volume 17,106 19,577 20,039 20,268 23,669 8.46%

Change 27.77% 14.45% 2.36% 1.14% 16.78%

Average Price 57.99 60.61 62.63 69.54 69.84 4.76%

Change -4.53% 4.52% 3.33% 11.03% 0.42%

In 2015, export sales were under pressure on the back of IKEA`s case; replacing imports from OWG`s by lower priced Turkish imports; its worthy to remind that IKEA used to import 70% of its textile floor coverings from OWG, a percentage now thought to have dropped to around 40-50%. Such circumstances led OWG to drop prices in 2015; OWG is anticipated to further discount in 2016 which we expect to immediately show a positive impact on sales volume. But will still benefit from the EGP devaluation when it translates sales. Going forward, we expect modest growth in export prices beyond 2016; in time of regaining lost share back, coupled with other European destinatations gradual rising demand.

Back to 2015; from the 9M2015 performance it was apparent that OWG has also eased prices marginally in Egypt to maintain sales volume in time of benefiting from the enhancing cost structure. An aspect that drove local sales volume up to over 18% y-o-y; with projections for a strong performance in 4Q2015. However, in 2016 we expect grade B local volumes to nearly come unchanged from 2015 estimate; and to slowly move thereafter before dropping in 2018 due to our expectations for rising production costs further that year; hence, taking prices further upward which might shrink local appetite a little. After combining our expectations for local and global markets` dynamics along with our view over FX movements, we expect a grade B sales value CAGR of 7.41% from 2015 to 2020.

OWC & OCI: Grade B 2014 2015E 2016 2017 2018 2019 2020 CAGR Total Sales Value – in EGP`000 1,653,015 1,520,323 1,600,342 1,769,886 1,946,228 2,065,023 2,173,959 7.41%

Change 17.27% -8.03% 5.26% 10.59% 9.96% 6.10% 5.28%

Total Sales Volume 23,669 21,420 22,063 23,166 24,093 25,057 26,059 4.00% Change 16.78% -9.50% 3.00% 5.00% 4.00% 4.00% 4.00%

Average Price 69.84 70.98 72.53 76.40 80.78 82.41 83.43 3.29%

Change 0.42% 1.63% 2.20% 5.33% 5.73% 2.02% 1.23%

7,926 7,943 8,108 8,433 8,269 8,599

13,495 14,120 15,058 15,660 16,788 17,459

37% 36% 35% 35% 33% 33%

63% 64% 65% 65% 67% 67%

0.00%

20.00%

40.00%

60.00%

80.00%

-

5,000

10,000

15,000

20,000

25,000

30,000

2015E 2016F 2017F 2018F 2019F 2020F


725,527 741,638 779,801 843,433 860,128 921,369

794,796 858,704 990,084

1,102,795 1,204,895

1,252,589

48% 46% 44% 43% 42% 42%

52% 54% 56% 57% 58% 58%

0%

50%

100%

0

500,000

1,000,000

1,500,000

2,000,000

2015E 2016F 2017F 2018F 2019F 2020F


21


FEBRUARY, 2016



ALTHOUGH RESIDENTIAL SUPPLY FOR LOWER INCOME CLASSES IS SCARCE CONTRIBUTION REMAINS HIGHER FROM LOCAL MARKET– IN EGP`000

3- Grade-C Woven Area When we think about Grade C sales, we will always need to monitor low income class segment residential sales and such segment`s economic welfare side-by-side to be able to match such status with grade C expectations. Grade C represents the highest single product category among OWG total sales volume. As the product is generally made of 20% wool and 80% polypropylene fibers, which skew grade C carpets to lower pricing range in comparison with those of A and B that contains higher percentages of wool.

Historically grade C local sales contribution to total C-sales value was always higher on the back of higher volumes, compensating for lower domestic pricing bracket. In 2014, international demand for the grade declined due to worries from a global slowdown that would be more severe on lower income individuals; while in Egypt, low income residential supply did not see substantial increases while prices were inflating. However, OWG was able to raise prices in 2014 for the 5

th consecutive year driven from its local dominance and product`s variety supplied.

Over years from 2011 to 2013, an estimate of 500k illegal units were constructed for low income satisfaction; as the segment suffers from a shortage in affordable housing. Such high construction level had an impact on OWG`s grade C sales. A matter that diminished by 2014 due to the governmental stricter control. Still, the Egyptian residential market is estimated to be short of around 3mn units mainly for low income individuals.

OWC & OCI: Grade C 2010 2011 2012 2013 2014 CAGR

Total Sales Value – in EGP`000 848,289 875,506 947,144 1,111,171 1,115,440 7.08% Change 11.49% 3.21% 8.18% 17.32% 0.38%

Total Sales Volume 34,050 31,931 33,810 34,878 32,768 -0.95%

Change 7.33% -6.22% 5.88% 3.16% -6.05%

Average Price 24.91 27.42 28.01 31.86 34.04 8.12%

Change 3.88% 10.06% 2.17% 13.73% 6.85%

19,726 19,547 21,015 22,174

21,920

14,324 12,384

12,795 12,704

10,848

58% 61% 62% 64% 67%

42% 39% 38% 36%

33%

0.00%

20.00%

40.00%

60.00%

80.00%

-

5,000

10,000

15,000

20,000

25,000

30,000

2010 2011 2012 2013 2014


463,442 478,480 555,875 657,983 704,472

384,847 397,026 391,269

453,188 410,968

55% 55% 59% 59%

63% 45% 45%

41% 41% 37%

0%

50%

100%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2010 2011 2012 2013 2014


22


FEBRUARY, 2016




HIGHER RESIDENTIAL SUPPLY FOR LOWER INCOME CLASSES … TURNS GRADE C INTO A VALUE DRIVER – IN EGP`000

We see the housing gab slowly narrowing over the upcoming years; driven by increases proposed for mortgage-to-income ratio as currently the total outstanding mortgages value is below 1% of FY2014/15 GDP; compared to 7% in Turkey and an average of 50-60% in OECD countries. The introduction of the government housing program for low income by supplying 1mn units will be a positive catalyst as well for demand on grade C.

As the government increased auctions for low income housing in 2015, domestic grade C sales volume was on the rise, we anticipate c13.5% y-o-y increase in 2015. Going forward, we are polish on local supply reflected in local volumes contribution forecast.

Exports already dropped in 9M2015 further after 2-consecutive years of declines. We estimate 2015 grade C exported volume at around 19.5% y-o-y decline. And anticipate the downward trend in volumes to end in 2015, with 3% growth in 2016 incentivized by another anticipated round of prices cut. Going forward, exports are expected to regain momentum slowly over our forecast horizon driven by new marriages in developing countries and stabilization in developed economies status; enhancing purchasing willingness.

OWC & OCI: Grade A 2014 2015E 2016 2017 2018 2019 2020 CAGR Total Sales Value 1,115,440 1,227,088 1,282,287 1,405,249 1,541,593 1,637,787 1,729,177 7.10%

Change 0.38% 10.01% 4.50% 9.59% 9.70% 6.24% 5.58%

Total Sales Volume 32,768 33,587 34,595 36,325 37,778 38,911 40,078 3.60% Change -6.05% 2.50% 3.00% 5.00% 4.00% 3.00% 3.00%

Average Price 34.04 36.53 37.07 38.69 40.81 42.09 43.15 3.38%

Change 6.85% 7.33% 1.45% 4.37% 5.48% 3.15% 2.50%

4- Woven Area Expansions:

In 2014, OWG announced plans to add 13 new looms, which took place in 2014 and 2015. The company had a total production capacity of 128mn Sqm before such additions. Out of which, 56mn Sqm represented OWC and OWI woven area production capacity in 2013. The 13 looms will add net capacity of around 7.5mn Sqm as 4 of which were replacement to existing out-dated ones sold. Among the newly added net capacity 2 new Gobelin looms were added given high orders backlog. Net woven capacity increased by 13.4% after the additions to currently stand at 63.5mn Sqm. The 13 looms were purchased at around EGP 90mn, financed by both internal cash and a USD 10mn loan raised from Audi bank. The new looms will produce 5-Sqm production in comparison to the replaced ones of 4-Sqm production; utilizing such higher width looms can produce 2-carpets simultaneously instead of wasting around 1.5-Sqm that used to be converted into lower margins product. Oriental weavers also plan to add another 20 looms of 836.4k Sqm capacity each by 2020, standing at a total estimated cost of EGP 158mn adding around 26% over 2015`s woven capacity. We set 50% of the 20 looms investment costs to be financed through debt and the remainder to be internally financed.

24,855 25,600 26,880 27,578 28,016 28,456

8,733 8,995 9,444 10,200 10,895 11,623

74% 74% 74% 73% 72% 71%

26% 26% 26% 27% 28% 29%

0.00%

20.00%

40.00%

60.00%

80.00%

-

10,000

20,000

30,000

40,000

50,000

2015E 2016F 2017F 2018F 2019F 2020F


902,625 939,000 1,015,529 1,073,134 1,122,892 1,174,731

324,463 343,287 389,720

468,459 514,895 554,446

74% 73% 72% 70% 69% 68%

26% 27% 28% 30% 31% 32%

0%

50%

100%

0

500,000

1,000,000

1,500,000

2,000,000

2015E 2016F 2017F 2018F 2019F 2020F


23


FEBRUARY, 2016


OWC & OCI Backward Integration

The companies have fibers production facilities to secure their production needs and set control over the designing and dyeing processes while benefiting from economies of scale. OWC and OCI also sell excess production locally or globally; in addition to receiving customized orders from local and global manufacturers; in attempts to benefit from OWG`S advanced Technology. Intra-company transactions also take place between the group`s fibers production facilities.

OWC & OCI Fibers Facilities 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR

Local Sales Value – in EGP`000 387,497 422,346 430,344 460,123 502,242 530,694 562,258 5.89% Change -5.34% 8.99% 1.89% 6.92% 9.15% 5.67% 5.95%

Contribution to total sales 63.46% 71.96% 72.58% 71.28% 70.47% 70.00% 70.23% Export Sales Value 223,122 164,564 162,570 185,436 210,508 227,447 238,297 7.69%

Change -16.64% -26.24% -1.21% 14.07% 13.52% 8.05% 4.77% Contribution to total sales 36.54% 28.04% 27.42% 28.72% 29.53% 30.00% 29.77% Total Sales 610,619 586,910 592,914 645,559 712,750 758,142 800,554 6.41%

Change -5.34% -3.88% 1.02% 8.88% 10.41% 6.37% 5.59%

24


FEBRUARY, 2016


Oriental Weavers (Tianjin) Company … a subsidiary of OWI

In 2004, OWG decided to enter the Chinese market through establish a subsidiary under OWI, to benefit from the most populous country on earth. By 2006, an investment exceeding USD 20mn was already in place made; for the establishment of a vertically integrated company. OW China currently has its own fibers production backward supporting its carpets and rugs production operations. The production facilities are extended over around 170k Sqm in Tianjin free-zone. The industrial zone offered a 5-year tax exemption, including full exemption during the first 3 years, and 50% exemption over the remaining 2 years. The plant’s was initially established with a capacity of 1.3mn Sqm, which was increased to 3.3mn Sqm in 2006; to meet anticipated higher demand. OW China targets the large middle class found in China through its relationship with large retailers likewise IKEA and Wal-Mart, as both have seen notable growth there in recent years. OW China mainly focuses on the local Chinese market, with plans for expanding to neighboring markets in Asia. OW does not disclose quantities sold from OW China, only sales values are reported. So after a strong year in 2014, followed by a slowdown in 2015; we believe in a drop in total sales from OW China in 2016 and 2017. Driven by a fall in Chinese Yuan in addition to China`s economic slowdown. In 2016, we expect the highest fall to come from Grade A sales as it’s the most expensive in woven portfolio; however, it is seen to be the fastest in rebounding due to its targeted clientele that would only postpone purchases in 2016. Grade B, is seen to start recovering from the expected 2016`s fall by 2017; while grade C recovery would come a year later. Another factor we considered in our figures, is that a near-by competitor imitate OW China and sell at competitive prices a matter we will maintain worries about until disclosures clear the matter.

OWC & OCI: Grade A 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR

Grade A Sales - in EGP `000 2,829 3,079 2,750 2,979 3,294 3,336 3,397 1.98% Change 9.19% 8.84% -10.70% 8.34% 10.57% 1.30% 1.80%

Grade A Sales to total China`s Sales 4.07% 4.25% 3.99% 4.41% 4.56% 4.23% 4.05%

Grade B Sales - in EGP `000 19,922 20,665 19,750 19,802 22,056 24,098 25,052 3.93%

Change 9.17% 3.73% -4.43% 0.26% 11.38% 9.26% 3.96%


Grade C Sales - in EGP `000 46,772 48,669 46,344 44,818 46,846 51,489 55,445 2.64% Change 9.17% 4.06% -4.78% -3.29% 4.53% 9.91% 7.68%


Total Sales 69,523 72,413 68,844 67,598 72,195 78,924 83,893 2.99%

Change 9.17% 4.16% -4.93% -1.81% 6.80% 9.32% 6.30%

OW China Location Tianjin Zone, China

OWG ownership 100% Establishment 2005/6



Output

Woven Carpets & Rugs 1- Grade A 2- Grade B 3- Grade C

OW China`s Capacity 3.3mn Sqm

25


FEBRUARY, 2016


THE ANTICIPATED DEVALUATION … IS OWG GUARDIAN


Oriental Weavers USA (OW Sphinx)

Oriental Weavers USA is based in Dalton, Georgia, where it manufactures, markets and distributes products imported from the group`s Egyptian production facilities; mainly OWI and OWC. Oriental Weavers USA sells to mass merchants and big-box retailers as Home Depot, Lowes, Bed Bath & Beyond and many others. In recent years the company has been awarded America’s Most Magnificent Rug award through its high-end brand, Sphinx.

OW USA recognition has been rapidly growing due to the company`s focus on valuable partnerships through which OW USA markets its own brands and collaborate with others in producing common lines. On March 25, 2013, OW USA (Sphinx), announced a new

partnership with Pantone, LLC; the global market leader in colors designs. Together, OW USA and Pantone will embarked on a new venture to deliver fashionable and innovative color trends. Sphinx conducted another deal by the end of 2013, through inking an exclusive a licensing agreement with the island-inspired brand Tommy Bahama; for multiple collections of indoor and outdoor rugs. From such deal OW USA will be benefiting from a global client as Tommy Bahama introducing its clientele base to OW designs while Tommy Bahama will be benefiting from OWG`s unique and eclectic designs, materials and colors. The created new line was introduced in early January 2014 at the Atlanta International Gift & Home Furnishings and Area Rug Market, and was very warmly received by critics and customers alike.

In 2014, OW USA recorded a strong performance; however, in 2015 we expect growth to slow down on the back of global worries about a new global recession. Clearly apparent in our estimate for grade C sales, that we believe it to have fallen in USD terms but rose in translation due to the EGP devaluation. We are optimistic about OW USA performance, as the US economic status is more stable so we extended our optimism for grades A and B over our forecast horizon although we anticipate an EGP appreciation starting from 2019. But remain conservative over grade C up to 2019.

OW USA 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Grade A Sales - in EGP `000 28,653 30,790 32,843 37,236 39,340 40,038 40,759 5.77%

Change 15.6% 7.46% 6.67% 13.38% 5.65% 1.77% 1.80%


Grade B Sales - in EGP `000 201,766 222,543 249,024 267,323 275,699 283,150 288,096 5.30% Change 15.6% 10.30% 11.90% 7.35% 3.13% 2.70% 1.75%

Grade B Sales to total China`s Sales 28.65% 30.07% 30.99% 32.33% 32.92% 33.17% 33.03%

Grade C Sales - in EGP `000 473,710 486,695 521,796 522,225 522,332 530,342 543,357 2.23%

Change 15.6% 2.74% 7.21% 0.08% 0.02% 1.53% 2.45%

Grade C Sales to total China`s Sales 67.28% 65.77% 64.93% 63.16% 62.38% 62.14% 62.30%

Total Sales 704,129 740,028 803,663 826,784 837,371 853,530 872,212 3.34% Change 15.63% 5.10% 8.60% 2.88% 1.28% 1.93% 2.19%

OW USA - Sphinx

Location Dalton, Georgia

OWG ownership 100% Distribution Arm – Sphinx 1991

Manufacturing Facility 1994

Distributor: Mainly OWC & OWI production

Manufacturer: Currently carries own production

OW USA Capacity N/A

6% 7%

6%

5%

-2% -2%

-4%

-2%

0%

2%

4%

6%

8%

7.00

7.50

8.00

8.50

9.00

9.50

2015E 2016F 2017F 2018F 2019F 2020F

EGP/USD - LHS Change

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Sales Aggregation …

Revenues by Product Mix

[in EGP 000] 2014 2015E 2016F 2017F 2018F 2019F 2020F

Woven Area Rugs Total Sales Value 3,944,964 3,998,073 4,176,498 4,531,149 4,946,717 5,240,095 5,497,627

Change 10.52% 1.35% 4.63% 9.02% 9.15% 5.92% 4.91%

Total Volume 58,628 57,385 58,988 61,890 64,462 66,637 68,886

Vol. Change 2.3% -2.1% 2.8% 4.9% 4.2% 3.4% 3.4%

Sales Value-to-Total Sales 67.89% 68.24% 68.09% 67.69% 66.48% 66.33% 66.43%

Grade A Value 434,339 472,090 463,820 501,847 591,962 648,205 682,542

Volume 2,191 2,377 2,330 2,400 2,592 2,669 2,749

Sales Value-to-Woven Sales 11.01% 11.81% 11.11% 11.08% 11.97% 12.37% 12.42%

Grade B T. Value 1,874,703 1,763,531 1,869,116 2,057,010 2,243,983 2,372,271 2,487,106

Volume 23,669 21,420 22,063 23,166 24,093 25,057 26,059


Grade C T. Value 1,635,922 1,762,452 1,843,562 1,972,292 2,110,771 2,219,619 2,327,978

Volume 32,768 33,587 34,595 36,325 37,778 38,911 40,078


Utilization 101.66% 90.33% 92.85% 90.29% 87.63% 90.58% 89.57%

Tufted Carpets

1,031,580 1,081,915 1,150,576 1,286,640 1,508,901 1,605,590 1,676,040

Change -2.67% 4.88% 6.35% 11.83% 17.27% 6.41% 4.39%

Volume 39,583 41,857 42,825 44,757 48,189 49,900 51,397

Vol. Change -8.0% 5.7% 2.3% 4.5% 7.7% 3.5% 3.0%

Sales Value-to-Total Sales 17.75% 18.47% 18.76% 19.22% 20.28% 20.32% 20.25%

Wall-to-Wall

100,288 148,671 151,759 166,710 197,151 210,411 220,305

Volume 4,894 7,633 7,575 7,896 8,379 8,726 8,988

Sales Value-to-Tufted Sales 9.72% 13.74% 13.19% 12.96% 13.07% 13.10% 13.14%

Tufted Pieces

931,292 933,244 998,817 1,119,930 1,311,750 1,395,179 1,455,735

Volume 34,689 34,224 35,250 36,861 39,810 41,173 42,408

Sales Value-to-Tufted Sales 90.28% 86.26% 86.81% 87.04% 86.93% 86.90% 86.86%

Utilization 70.68% 74.74% 76.47% 79.92% 86.05% 89.11% 91.78%

Non-Woven Felt

223,962 191,558 213,509 230,144 272,331 296,691 302,131

Value Change -9.30% -14.47% 11.46% 7.79% 18.33% 8.95% 1.83%

Volume 14,604 14,080 15,040 15,200 15,680 16,000 16,000

Vol. Change -7.31% -3.6% 6.8% 1.1% 3.2% 2.0% 0.0%

Contribution-to-Total Sales 3.85% 3.27% 3.47% 3.41% 3.63% 3.73% 3.63%

Utilization 91.28% 88.00% 94.00% 95.00% 98.00% 100.00% 100.00%

Fibers

610,619 586,910 592,914 645,559 712,750 758,142 800,554

Change -5.34% -3.88% 1.02% 8.88% 10.41% 6.37% 5.59%

Contribution-to-Total Sales 10.51% 10.02% 9.67% 9.64% 9.58% 9.60% 9.67%

Total Volume

112,815 113,322 116,853 121,847 128,331 132,536 136,283

Change -3% 0.4% 3% 4% 5% 3% 3%

Total Sales

5,664,332 5,858,456 6,151,648 6,741,551 7,492,409 7,955,102 8,333,672

Change 2.59% 0.81% 5.00% 9.59% 11.14% 6.18% 4.76%

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OWG Costs Analysis & Forecast 1- Oil Based Production Costs … are all USD-denominated costs

The group`s needed raw fibers and other inputs for production are mainly polypropylene, wool, jute, cotton and nylon thread. A portion of such raw materials is sourced globally while the remainder is locally supplied for further manufacturing into intermediate products within Oriental Weavers’ vertically integrated holding structure. After manufacturing intermediate products they are either sold to other local and global textiles` manufacturers with no backward integration and/or those seeking to benefit from OWG designs and technological advancement; or they are further processed into final end-products within one of OWG 10 production facilities in Egypt, China and USA.

i- Polypropylene OWG PP Sources

Polypropylene is the primary input in most textiles-flooring industries; constituted around 32% on average over the past 5-years of OWG`s Cost of Goods sold. It is a crude oil derivative, that can either be sourced locally from a sister company (EPPC) or imported. Polypropylene is then used for synthetic fibers production.

Egyptian Propylene and Polypropylene Company (EPPC)

OWG sources polypropylene whether from EPPC or from the world`s giant petrochemicals manufacturer located in Saudi Arabia, SABIC. EPPC is a sister company established as a joint venture between Oriental Petrochemicals Company (OPC) (which includes Khamis Family in its ownership) and the Egyptian Chemicals Holding Company (ECHEM). EPPC launched 2 new plants in Port Said back in 2010, the first was a propane dehydrogenation plant (PDH) and the other was for copolymer grade polypropylene production. The 2 plants aggregate investment costs and production capacity reached USD 680mn and 400k tonnes per annum respectively; for local supply and exports. However, it must be noted that EPPC is not consolidated within OWG, as it is a private company with Khamis Family in its structure.

As early mentioned that PP is the main raw material for Oriental Weavers, the company enjoys flexibility in sourcing it from EPPC or SABIC or both at varying contribution from each. After reviewing monthly price quotations received monthly from both and after considering other costs including shipment and delivery. OWG decides on the most cost efficient contribution and releases monthly sufficient volumes` orders. However, it must be noted that sourcing from EPPC can be beneficiary for lowering transaction and transportation costs, enhance credit terms negotiated, speed up delivery and reduce stocking inventory from 4-months sufficiency to 1-2 months.

Polypropylene Market Dynamics

Polypropylene is a crude oil derivative, moving in strong positive correlation

Starting from 2016 OPEC has been meeting with top oil-producers; trying to coordinate production at lower levels. Few countries showed willingness for coordination including Iraq, but market leaders as Russia and Saudi Arabia opted their own path. The US recently decided to lift export bans which would add more downward pressure on crude prices; leading cheaper to a PP; however, a recent meeting between Venezuela and Saudi Arabia assured setting a new mechanism to drive oil prices upward in 2016, especially after the oil-rich Iran coming back in game after sanction were lifted.

For polypropylene during the beginning of 2015, supply was perceived as tight, due to both scheduled shutdowns and unexpected production problems in Middle East and Asia. It was thought that such tightening supply and hence supplies shortage would drive prices upward. However, China`s recent announced drop in real growth rates to below 7% was driven from lower trade activity. In other words, such low trade activity was driven from lower demand for durable end-use applications; that polypropylene contributes to. So instead of an inflating PP prices; a lower equilibrium point was met, setting PP prices lower y-o-y. such trend was apparent in a 12.35% m-o-m decline in Asia`s PP prices reaching USD 1100/t in May 2015 down from USD 1255/t a month earlier. Another aspect contributing to the lower polypropylene equilibrium was the scheduled shutdowns for some Chinese polypropylene capacities; an aspect we anticipate to stabilize polypropylene prices in 2016 in time for Chinese trade activity anticipated to remain lower y-o-y.

EPPC – P/PP plants

Location Port Said, Egypt

EPPC - Initial Ownership JV - OPC & ECHEM

Propylene & PP plants USD 680mn

Plants Launching 2010

Capacity 400k tpa of P/PP

EPPC local Market share 85%+

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SOURCE: ORIENTAL WEAVERS, BLOOMBERG, PRIME ESTIMATES SOURCE: ORIENTAL WEAVERS, BLOOMBERG, PRIME ESTIMATES

ALTHOUGH STOCKING MAY DILUTE CORRELATION … IT’S STILL THERE … WE ANTICIPATE VARIANCE NARROWING OVER UPCOMING TERM


In 2015, crude oil supply continued to outstrip demand, resulting in a build-up in inventories; while the weak demand was maintained. However, polypropylene prices did not respond to such crude oil build-up in correlation. The answer came from Europe, which imports propane as one of the main inputs to operate its heating-system during cold months. So crude oil prices drop was to an extent diluted by higher demand for propane (Crude oil derivative) on which propane dehydrogenation (PDH) takes place to produce propylene and latter polypropylene.

In 2016, we anticipate flat crude oil prices in comparison with December 2015, as we expect some high fixed costs crude oil production companies to suffer stress and drop production levels; as already profitability has been on the slide approaching breakeven points. In addition to, the current geopolitical tensions in Middle East with some of the world`s largest producers involved; going on between Saudi Arabia, Iran, Iraq, Libya and Yemen might lead to oil prices flat movement in 2016 and rebound in 2017.

OWG Polypropylene Costs We calculated the correlation between Brent crude oil prices and OWG`s reported monthly quotes for polypropylene per tonne; and found out a correlation of 0.789, marking a strong positive correlation. OWG PP costs correlation with crude oil is believed to be skewed downward in comparison with actual global polypropylene and crude oil correlation exceeding 0.85. Due to the company`s inventory stocking policy; in order not to risk any production disruption due to delayed PP shipments. We believe over 2016 and 2017; OWG will raise the PP share sourced from EPPC to benefit from lower stocking period and record faster moving prices.

We believe the correlation between global Brent crude oil prices (USD 55/bpd – 2020F) and Oriental Weavers sourced polypropylene will rise, skewed by 2016 and 2017 PP inventory management anticipated dynamics; we believe correlation from 2006 to 2020F driven from the 2 commodities monthly average prices, will rise to 0.823 up from 0.789 (2006-to-2015). PP total costs contribution to OWG`s total oil based costs and total costs dropped already in 9M2015, we anticipate a further drop in contribution to costs in 2016; and a rebound to start in 2017 matching our expectations for global crude oil prices. PP total EGP costs are dependent on contracted volumes which also depend on PP contribution to OWG`s different product mix.

OWG PP Costs 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR

Yearly Average Brent Crude USD/bpd 99.8 53.4 38.5 42.0 45.0 50.0 55.0 0.59% Change -8.3% -46.47% -28.00% 9.22% 7.14% 11.11% 10.00%

Yearly Average PP USD/t 1,576 1,198 1,006 1,130 1,249 1,348 1,389 3.00%

Change -0.56% -24.00% -16.00% 12.30% 10.50% 8.00% 3.00%

Total PP costs - in `000 EGP 1,636,947 1,394,197 1,293,710 1,604,139 1,963,883 2,145,512 2,223,672 9.79% Change 1.71% -14.83% -7.21% 24.00% 22.43% 9.25% 3.64%

Contribution to Oil Based Costs 63.95% 59.54% 55.88% 59.10% 61.71% 61.98% 61.38%

Contribution to COGS (Excl. Dep Expenses) 33.83% 28.58% 25.45% 28.35% 31.19% 31.75% 31.32%

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan

-06

Jul -

06

Jan

-07

Jul -

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-08

Jul -

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Jul -

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-10

Jul -

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-11

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-14

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-15

Jul -

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-16

ORWE`s PP USD/t - LHS Brent Crude (USD/b) - RHS

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

Brent Crude ORWE`s PP

We considered each

commodity separate

dynamics in

forecasting prices.

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ii- Backing costs Jute (the world’s second most used and produced natural fiber after cotton) is considered a key element used in rug and carpet backing besides other natural or synthetic fibers. It is usually imported from Bangladesh and/or India as they cumulatively represent over 65% on average, of global annual production. Oriental Weavers imports Jute from Bangladesh, India and Pakistan. We estimate a historical level of imports coming around 20-30k tonnes by OWG. Over the upcoming years, we expect Backing costs to rise relative to total oil-based costs and COGS; due to PP contribution anticipated fall to costs. Backing annual movement is also subject to change in OWG`s production volume for products` with backing requirements; other than pricing anticipated movements.

OWG Backing Costs 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Costs - in `000 EGP 558,189.0 566,304.3 613,144.9 671,319.8 742,395.5 805,060.1 852,652.8 8.53%

Change -3.7% 1.45% 8.27% 9.49% 10.59% 8.44% 5.91%



iii- Finishing Materials Finishing materials input take place during the last phase in finalizing a carpet production to be ready for sale. It includes a varying list of materials that differ to an extent depending on the target design, quality, durability and application of carpets and tufted pieces. Finishing materials are the last process in production; through which latex coatings and other additives are used that is later heated for treatment. We based our expectations for finishing costs on OWG`s total expected production volumes and a modest growth rate over 2014`s average cost per Sqm of production.

OWG Finishing Costs 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Costs - in `000 EGP 364,637 380,927 408,506 438,746 475,956 511,215 546,693 7.49%

Change -13.22% 4.47% 7.24% 7.40% 8.48% 7.41% 6.94%



2- Non-Oil based Production Costs i- Wool

Wool costs are originally USD denominated, mainly contributing to the production of carpet grades A, B and C (Wool/PP: 80:20, 50:50 and 20:80 … on average) other than those needed in minimal contribution to other products. OWG imports the majority of needed wool from New Zealand and/or Australia. Wool total costs are to move upward, at a 7.62% CAGR driven from expected prices growing at a 3.5% CAGR added to our sales` volumes forecast for relevant products.

OWG Wool Costs 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Costs - in `000 EGP 163,574 186,346 200,371 215,991 235,998 251,714 269,029 7.62%

Change -6.32% 13.92% 7.53% 7.80% 9.26% 6.66% 6.88%

Contribution to Non-Oil Based Costs 7.18% 7.35% 7.24% 7.34% 7.58% 7.64% 7.74%


II- Wages Wages grew by an average of 13.95% annually over the years from 2010-to-2014; but slowed down in 2014 and 9M2015; being growing over larger bases. Over our forecasted horizon we anticipate wages to grow on a CAGR of 9.2%; driven from increases in wages and number of workers to satisfy OWG planned expansions.

OWG Wages 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Costs - in `000 EGP 376,412 414,053 455,459 491,895 531,247 584,371 642,809 9.20%



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III- International Operations a- Selling – (Incl. OW USA)

Oriental Weavers report an item named “Selling” in its break down; around 70% of which, represent OW USA distribution arm and manufacturing facility operational expenses “including COGS for the manufacturing facility” as per the company management. While the remainder represents commissions paid on deals conducted with international big box retailers, partnerships and non-categorized-selling expenses as per Egypt Accounting Standards.

OWG - (OW USA) 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Costs - in `000 EGP 1,013,218 1,134,804 1,248,285 1,310,699 1,350,020 1,390,520 1,432,236 4.77%



b- OW China

OW China has been recording losses since 2012, with its COGS-to-Sales coming as 110%+ over the past 3 years. Two main reasons contributed to such losses, 1) An Egyptian manager in charge of the facility in time the staff and labor are Chinese; an aspect creating miscommunication among the facility workforce. 2) A close-by competitor`s production facility that works on imitating OW China designs, which might be marketed at lower prices to capture OW China clientele. In response, OW China`s management was changed in 2015, the new management was able to set new policies pushing up sales value in 3Q2015 by 20.3% y-o-y and 43.6% q-o-q. However, we decided to give the new management until 2017 to succeed in fulfilling the turnaround.

OWG - (OW China) 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR Total Costs - in `000 EGP 79,798 80,379 74,351 70,978 70,752 76,556 79,698 -0.17%

OW China costs - to - Revenues 114.8% 111.0% 108.0% 105.0% 98.0% 97.0% 95.0% Contribution to Non-Oil Based Costs 3.50% 3.17% 2.74% 2.41% 2.27% 2.32% 2.29% Contribution to COGS (Excl. Dep Expenses) 1.65% 1.65% 1.49% 1.25% 1.12% 1.13% 1.12%

IV- Other Costs Other costs include costs involved with facilities` operations; driven from electricity generation, natural gas and diesel required for transportation and shipping costs.

OWG – Others 2014 2015E 2016F 2017F 2018F 2019F 2020F CAGR

Total Costs - in `000 EGP 645,876 721,265 787,741 853,926 925,868 992,053 1,053,701 7.88% Contribution to Non-Oil Based Costs 28.34% 28.43% 28.46% 29.01% 29.73% 30.11% 30.30%


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Total COGS [Excl. Dep.] … AROUND 60% OF COSTS ARE USD-DENOMINATED … STILL BELOW EXPORTS

Costs Summary [in EGP Mn] 2014 2015F 2016F 2017F 2018F 2019F 2020F CAGR

Oil-Based Costs: 2,559.80 2,341.40 2,315.40 2,714.20 3,182.20 3,461.80 3,623.00 9.10%

Change -1.91% -8.53% -1.11% 17.23% 17.24% 8.78% 4.66%

Oil-based Costs-to-Total COGS 50.91% 48.00% 45.55% 47.97% 50.54% 51.23% 51.02%

Polypropylene – EGP mn 1,636.90 1,394.20 1,293.70 1,604.10 1,963.90 2,145.50 2,223.70 9.80% Change 1.70% -14.80% -7.20% 24.00% 22.40% 9.20% 3.60%

Purchasing Price / Ton [in USD] 1,576.00 1,197.80 1,006.10 1,129.90 1,248.50 1,348.40 1,388.80 3.00%

Change -0.60% -24.00% -16.00% 12.30% 10.50% 8.00% 3.00%

Polypropylene-to-Total COGS 33.80% 28.60% 25.50% 28.40% 31.20% 31.80% 31.30%

backing (Jute & others) EGP mn 558 566 613 671 742 805 853 8.50%

Change -3.70% 1.50% 8.30% 9.50% 10.60% 8.40% 5.90%

Backing-to-Total COGS 11.10% 11.60% 12.10% 11.90% 11.80% 11.90% 12.00%

Finishing Material - EGP mn 365 381 409 439 476 511 547 7.50% Change -13.20% 4.50% 7.20% 7.40% 8.50% 7.40% 6.90%

Finishing Material-to-Total COGS 7.30% 7.80% 8.00% 7.80% 7.60% 7.60% 7.70%

Non-Oil-Based Costs: 2,279 2,537 2,768 2,943 3,114 3,295 3,477 6.50%

Change 5.40% 11.30% 9.10% 6.40% 5.80% 5.80% 5.50%

non-Oil-based Costs-to-Total COGS 45.30% 52.00% 54.40% 52.00% 49.50% 48.80% 49.00%

Wool– EGP mn 164 186 200 216 236 252 269 7.60% Change -6.30% 13.90% 7.50% 7.80% 9.30% 6.70% 6.90%

Wool-to-Total COGS 3.30% 3.80% 3.90% 3.80% 3.70% 3.70% 3.80%

Wages– EGP mn 376 414 455 492 531 584 643 9.20%

Change 1.40% 10.00% 10.00% 8.00% 8.00% 10.00% 10.00%

Wages-to-Total COGS 7.50% 8.50% 9.00% 8.70% 8.40% 8.60% 9.10%

-OW USA – EGP mn 1,013 1,135 1,248 1,311 1,350 1,391 1,432 4.80% Change 15.00% 12.00% 10.00% 5.00% 3.00% 3.00% 3.00%

Selling Expenses-to-Total COGS 20.20% 23.30% 24.60% 23.20% 21.40% 20.60% 20.20%

Others– EGP mn 646 721 788 854 926 992 1,054 7.90%

Change -2.10% 11.70% 9.20% 8.40% 8.40% 7.10% 6.20%

Other Expenses-to-Total COGS 12.80% 14.80% 15.50% 15.10% 14.70% 14.70% 14.80%

OW China– EGP mn 80 80 76 71 71 77 80 -0.2% Change 6.40% 0.70% -5.80% -6.30% -0.30% 8.20% 4.10%

OW China-to-Total COGS 1.60% 1.60% 1.50% 1.30% 1.10% 1.10% 1.10%

COGS – Net of Depreciation 4,838.70 4,878.30 5,082.90 5,657.70 6,296.10 6,757.00 7,100.50 7.80%

Change 1% 0.80% 4.20% 11.30% 11.30% 7.30% 5.10%

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PRIME SALES TEAM

Hassan Samir Managing Director

+202 3300 5611 [email protected]

Mohamed Ezzat Head of Sales & Branches


Shawkat Raslan Heliopolis Branch Manager


Amr Saber Team Head-Institutions Desk


Amr Alaa, CFTe Manager


Mohamed Elmetwaly Manager


Emad Elsafoury Manager


RESEARCH TEAM

* [email protected]

+202 3300 5728

HEAD OFFICE PRIME SECURITIES S.A.E. 2 Wadi El Nil St., Liberty Tower, 7th-8th Floor, Mohandessin, Giza, Egypt Tel: +202 33005700/770/650/649 Fax: +202 3760 7543

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Documents

Oriental Weavers - Initiation of Coverage - February 2016