Case Study - Oriental Weavers (OW)

Case Study

1. Oriental Weavers Group

Presented to Dr. Wael Shams El-din

Prepared by:-
Mohamed Abdel-Kader El Zanaty
Mohamed Abdel-Raouf Kenawy
Mohamed Mostafa Mohamed
Ahmed Nasser Mohamed
Ahmed Samy Mohamed
Fady Gamil Mikhael



May 2018

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TABLE OF CONTENTS
Contents
LIST OF FIGURES .............................................................................................................................................................. 3
LIST OF TABLES ................................................................................................................................................................ 4
LIST OF ABBREVIATIONS /ACRONYMS ............................................................................................................................. 5
INTRODUCTION, .............................................................................................................................................................. 6
1- Company Overview ............................................................................................................................................... 7
1-1 Corporate Information .......................................................................................................................................... 7
1-2 Share Information: ................................................................................................................................................ 9
1-3 Shareholding Structure: ......................................................................................................................................... 9
1-4 Board of Directors (BOD) : ....................................................................................................................................... 10
1-5 Group Structure:.................................................................................................................................................. 10
1-6 Group Brands ...................................................................................................................................................... 12
1-7 Management ....................................................................................................................................................... 13
1-8 Dividends per Share, Last 4 Years ........................................................................................................................ 13
1-9 Corporate Governance ........................................................................................................................................ 14
1-9-1 Functions and Responsibilities of the Board of Directors ..................................................................................... 14
1-9-2 Periodic reports ................................................................................................................................................... 14
1-9-3 Selection of Board Members ............................................................................................................................... 14
1-9-4 Procedures for organizing Board meetings .......................................................................................................... 14
1-9-5 Protect the interests of shareholders .................................................................................................................. 15
1-1 Social Responsibility ............................................................................................................................................ 15
1-11-1 Human rights ................................................................................................................................................ 15
1-10-2 Employment policies .................................................................................................................................... 16
1-10-3 Environmental safety .................................................................................................................................... 16
2 Industry analysis .................................................................................................................................................. 17
2-1 Industry risk characteristics ................................................................................................................................. 17
2-2 Oriental Weavers’ Value Chain ............................................................................................................................ 17
2-2-1 Firm Infrastructures ............................................................................................................................................. 17
2-2-2 Human Resource Management:- ......................................................................................................................... 17
2-2-3 Technology Development:-.................................................................................................................................. 17
2-2-4 Procurement ....................................................................................................................................................... 18
2-2-5 Inbound logistics ................................................................................................................................................. 18
2-2-6 Operations........................................................................................................................................................... 18

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2-2-7 Outbound Logistics .............................................................................................................................................. 18
2-2-8 Marketing & Sales ............................................................................................................................................... 18
2-2-9 After Sales Service ............................................................................................................................................... 19
2-3-1 Political factor: .................................................................................................................................................... 19
2-3-2 Economical factor: ............................................................................................................................................... 19
2-3-3 Social factor: ........................................................................................................................................................ 19
2-3-4 Technological Factor:........................................................................................................................................... 19
2-3-5 Environmental Factor: ........................................................................................................................................ 20
2-3-6 Legal Factor: ...................................................................................................................................................... 20
2-4 Porter Five Forces Model......................................................................................................................................... 20
2-5 S.W.O.T ANALYSIS................................................................................................................................................ 23
3 Risks relevant to the company and how to mitigate these risks .......................................................................... 24
4 Financial statement analysis ................................................................................................................................ 27
5 Statement of Cash Flows (EGP million) ................................................................................................................ 31
6 Asset conversion cycle ......................................................................................................................................... 33
7 Cost of capital ...................................................................................................................................................... 34
8 Capital Structure.................................................................................................................................................. 34

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LIST OF FIGURES
Figure 1- Shareholding Structure 9
Figure 2- Group Structure 10
Figure 3- Management 13
Figure 4- sales, net profit and dividend 27
Figure 5- working investment
Figure 6 - Working capital and current ratio
Figure 7 – debt/equity Cash and Cash Equivalents at End of the Period
Figure 8 – Cash and Cash Equivalents at End of the Period Assets conversion cycle
Figure 9 –Assets conversion cycle

28
29

30
32

33

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LIST OF TABLES

Table (1) Basic Information 7
Table (2) Branches 7
Table (3) Subsidiaries 8
Table (4) Share Information 9
Table (5) Board of Director 10
Table (6) Dividends 13
Table (7) Porter Five Forces Model 22
Table (8) comparison between 4Q 2016, 2017 27
Table (9) Profitability ratios 27
Table (10) Asset efficiency ratios 28
Table (11) Liquidity ratios 29
Table (12) The financial leverage ratios 30
Table (13) The cash flows statement 32

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LIST OF ABBREVIATIONS /ACRONYMS
P.E.S.T.E.L Political, economic , social , technological , environmental , legal
S.W.O.T Strength , weakness , opportunities , threats
C.O.G.S Cost of goods sold
S,G&A Selling ,general and administrative expenses
N.O.P Net operating profit
R.O.E Return on equity
R.O.A Return on assets
W I Working investment
EBITDA Earnings before interest and tax, depreciation ,amortization
A.C.C Asset conversion cycle
CAPM Cost asset pricing model
B O D Board Of Directors

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INTRODUCTION ,
Oriental Weavers is today one of the world's most famous carpet manufacturing brands. The company was
founded nearly 40 years ago where is located in the 10th of Ramadan City. It has achieved record at the
growth rates to become the largest and fastest growing carpet manufacturer around the world.
OW enjoys full vertical integration, which gives it the advantage of processing and producing the fine fibres
and carpet manufacturing. The subsidiaries of OW produce the largest segment of raw materials, enabling the
company to pass this feature to all its customers and enjoy an exceptional competitive advantage.
Company Vision:
- The company is looking to establish its global position on the carpet industry.
Company Strategy:
- Achieving rates of activity development
- Global trade mark
- Variety of products
- Vertical integration

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1- Company Overview
1-1 Corporate Information

Basic Information
Year Founded 1980
Commercial Registration Number 44139
Fiscal Year January 1
th
till December 31
th

Law of Governance Law No. 230 of 1989 and Law No. 95 of 1992
Legal Form of Company Egyptian Joint Stock Company (S.A.E)
Auditor Name Wahid Abdel Ghaffar & Co.
Purpose of Company
Producing, selling and exporting ready-made carpets and
importing related production supplies, equipment, machinery, or
materials.
Headquarters
8 El Shaheed Zakaria Khalil St, Horreya, Heliopolis, Cairo,
Cairo, Egypt
Postal Code: P.O Box: 2498, Horreya 11361
Phone: [phone]
Fax: [phone]
Email: [email protected]
Table (1) Basic Information

Branches
Oriental Weavers Carpets10th of
Ramadan City Branch
B/1, 10th of Ramadan Industrial City Zone, 10th of Ramadan
City, Sharkiya, Egypt
Phone: +(20554) 364600
Table (2) Branches

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Subsidiaries
Egyptian Fibers Company (EFCO)
A1, Industrial Area 3, 10th of Ramadan City, 10th of Ramadan
City, Sharkiya, Egypt
Phone: +(20554) 410163
Fax: +(20554) 410165
Misr American Carpet Mills (MAC)
Zone B-1 & B-2, 10th of Ramadan City, 10th of Ramadan
City, Sharkiya, Egypt
Phone: +(20554) 364511
Fax: +(20554) 364504
OW China
Industrial Area, Dakoutun town, Baodi Dist. Tianjin, Tianjin,
Tianjin, China
Postal Code: 301801
Phone: + 86 -22 - 29685288
Fax: + 86 - 22 - 29685005
Oriental Weavers, USA Inc. Sphinx
Division
3252, Dug Gap Road, SW, Dalton, Georgia, United States of
America
Postal Code: 30720
Phone: [phone]
Fax: [phone]
Oriental Weavers International
Private Free Zone, Industrial Area A1, 10th of Ramadan City,
10th of Ramadan City, Sharkiya, Egypt
Phone: +(20554) 410812
Fax: +(20554) 411136
Oriental Weavers Textiles
Private Free Zone, Industrial Area A6- Plot 139 A, 10th of
Ramadan City, 10th of Ramadan City, Sharkiya, Egypt
Phone: +(20554) 411951/53/54/57
Fax: +(20554) 411958
Table (3) Subsidiaries

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1-2 Share Information:

Date of Listing 25 Aug 1993
Number of Listed Shares 450,000,000
Common Shares 450,000,000
Par Value / Share EGP 1
Authorized Capital EGP 500,000,000
Issued Capital EGP 450,000,000
Paid Up Capital EGP 450,000,000
Table (4) Share Information
1-3 Shareholding Structure:



Figure (1) shareholding structure



55.74%
1.47%
26.85%
11.90%
4.04%
The Khamis Family and Related
Entities
OW (Treasury Shares)
Foreign Institutions
Local Institutions
Retail

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1-4 Board of Directors (BOD) :
The Board of Directors of Oriental Weavers is dedicated to guiding the company to success, enhancing
shareholder value and ensuring the long-term prospects of the world’s largest and fastest-growing rugs
and mats producer:

Mr. Mohamed Farid Fouad Khamis Founder; Non-Executive Board Member
Mr. Salah Abdel Aziz Abdel Motalab Chairman and Chief Executive Officer
Mrs. Yasmine Mohamed Farid Khamis Executive Board Member
Mrs. Farida Mohamed Farid Khamis Executive Board Member
Mr. Mohamed Mahmoud Fawzy Khamis Executive Board Member
Mr. Amr Mahmoud Fawzy Khamis Executive Board Member
Mr. Mahmoud Amin Saad Executive Board Member
Mr. Mohamed Katary Abd Allah Executive Board Member
Mrs. Wadouda Abd El Rahman Badran Non-Executive Board Member
Mr. Alaa ElDeen Mahmoud Shehata Executive Board Member
Mr. Mahmoud Fawzy Fouad Khamis Non-Executive Board Member
Mrs. Maha Bint Ahmed Bin Hassan Feteihy Non-Executive Board Member
Mr. Salah Abd El Salam Mahmoud Non-Executive Board Member
Mr. Nabil Mohamed Mohamed Sarhan Non-Executive Board Member
Mr. Mohamed Mohamed Ali Amer Non-Executive Board Member
Mr. Mohamed Mohamed Farid Khamis Non-Executive Board Member
Table (5) Board of Director
1-5 Group Structure:

Figure (2) – Group Structure
Oriental weaver's carpets
OW USA OW Textiles OW international
OW China
MAC EFCO

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Oriental Weavers International (OWI) (its capacity 34 million m2)
Oriental Weavers International (OWI) was established in 1999 as an export arm of the group. The company’s
vertically integrated facilities and it includes the scope of extrusion of synthetic fibers, 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, Goblin, 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. OWI fully owns OW China with an eye on developing its
market share in the emerging Asian market and in 2012 production began at a new yarn production facility
(King Tut) with an annual capacity of 150 tons daily.
Oriental Weavers (Tianjin) Company Ltd (Oriental Weavers China)( its capacity 4 million m2)
Oriental Weavers China was established in 2006 in anticipation of China’s growing importance in the global
economic scene. The producer is a vertically integrated facility with fiber extrusion capacities as well as rug
and carpet manufacturing facilities, targeting the Chinese market and neighboring countries.

Oriental Weavers USA
Oriental Weavers USA was established in 1991 based in Dalton, Georgia where it manufactures, markets and
distributes products imported from the company’s Egyptian plants and it also considered as distribution arm in
north America

MAC Carpet ( its capacity 56 million m2)
is one of the largest global producers of custom-printed and tailored tufted rugs with different qualities
targeting residential, commercial and hospitality sectors both the local and export markets with a focus on the
US and European markets mac also includes under its umbrella factory for the production of synthetic fibers

Egyptian Fibers Company ( its capacity 16 million m2)
Egyptian Fibers Company (EFCO) is the group’s polypropylene business and engages in the manufacture of
polypropylene fibers and polyester yarn. It also manufactures and exports different types of non-woven rugs
and carpets and other related polypropylene products. EFCO has a 69% stake in Modern EFCO Fibers
Company, which produces polypropylene, polyester and non-woven carpets

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1-6 Group Brands

OW Hospitality, a division of Oriental Weavers catering to the hospitality and entertainment industry,
produces woven Axminster carpets. Using 80% wool and 20% nylon, Axminster carpets offer an optimum
blend for performance, luxury and comfort. Due to the unique characteristics of the wool, it can also be dyed
to very light or vibrant shades, ensuring that it can be woven into both classic and contemporary designs. OW
Hospitality benefits from a close relationship with its machine manufacturers, allowing the company to
produce unique products such as the 19 mm pile height rugs popular with the royal families of Jordan, Saudi
Arabia and the UAE. Among the company’s numerous clients in the hospitality sector are Hyatt, Kempinski,
Sheraton, InterContinental and the MGM Group. In 2011, OW Hospitality became the preferred supplier for
both Four Seasons and Hilton. The division has established markets in the USA and Europe, with offices in
London in the UK, and in the United States, Dalton, Georgia; New York City, NY; and Las Vegas, Nevada.

La Boutique is developed around the simple concept of customer involvement. La Boutique’s customers can
commission custom rugs and carpets by matching a swatch of fabric or sketch, which is then transformed into
an exquisite rug or carpet. This division caters to higher-end and top-niche markets.

OW Lifestyle is the group’s line of contemporary rugs that includes a large variety of shag carpeting in
various textures, styles and colors. Designed around today’s lifestyle, the company offers only the finest
materials combined with the highest production standards. The OW Lifestyle name has come to be
synonymous with quality and value, bringing a unique and truly distinguishable touch to any decor. Like La
Boutique, Lifestyle provides a brand outlet for Oriental Weavers to market products with specific themes, in
this case the ultra-modern and abstract. The company sells its increasingly popular products locally through its
own retail outlets and also exports to countries around the globe.

OW Gobelin produces high-end, non-polypropylene-based woven tapestries, upholstery and floor coverings
targeting the luxury residential and commercial markets. Fully customized and typically destined for
architectural firms and luxury hotel operators, OW Gobelin is also available to other high-end customers.

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OW Classics is a brand within the Oriental Weavers umbrella focused on selling and promoting handmade
rugs based on traditional designs. OW Classics offers the most prestigious rugs in the global market place
using distinct colour palettes and international appeal.
1-7 Management

Figure (3) – Management
1-8 Dividends per Share, Last 4 Years
Period Type Dividend Value Payment Date
2017 Cash EGP 1.5 19 Apr 2018
2016 Cash EGP 1.4 02 May 2017
2015 Cash EGP 0.5 28 Apr 2016
2014 Cash EGP 0.4 13 May 2015
Table (6) Dividends


Salah Abdel Aziz
Chairman and Chief Executive
Officer
Yasmine
Khamis
Vice
President of
Sales and
Marketing
Ingy El
Diwany
Investor
Relations
Manager
Farida Khamis
Vice President of
Corporate Finance
Madani
Hozaien
Group
Chief
Financia
l Officer
Radwa Mostafa
Kamel
Group Treasury
and Budgeting
Manager
Shehta
Farouk
Group
Financial
Controller
Mohame
d Katary
Director
of
Financial
Affairs
Amr Khamis
Vice President
of
Manufacturing
and Operations
Mahmoud
Amin Saad
Director of
International
Operations
Alaa El-
EbiaryManagi
ng Director
and Human
Resources
Director
mohamed khamis
vice president of
domestic sales

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1-9 Corporate Governance
1-9-1 Functions and Responsibilities of the Board of Directors
The Board of Directors shall be elected every three years by a majority vote of the
shareholders. The Board of Directors shall undertake specific tasks aimed at ensuring that the
management team complies with its duties by monitoring the administrative decisions, Follow
up key performance reports covering full financial aspects and sales, as well as assessment of
production efficiency and knowledge of capital expenditure, Review the data, studies and
analyses from different committees to discuss the long-term strategic objectives and plans of
the management team and approve and follow-up stages of implementation at all stages
Continuing review and updating of the professional code of ethics and labour regulations .
1-9-2 Periodic reports
The Board of Directors of Oriental Weavers has a unique system of full communication with
the management team of the company in order to obtain the required reports in a timely manner
as one of the best ways to ensure the efficient implementation of the tasks of the Board of
Directors The Board of Directors establishes effective rules of communication between all
administrative levels through the participation of managers in their meetings and without
violating the hierarchical hierarchy.
1-9-3 Selection of Board Members
The membership of the Board of Directors includes controls such as the annual review in order
to evaluate the available expertise and the level of absorption of manufacturing, distribution
and financial activities ,The selection of new directors falls under the jurisdiction of the Board
of Directors, which nominates eligible members of the Committee which includes the Chairman
of the Board , The Board of Directors of Oriental Weavers comprises two independent
members, while the rest of the seats are members of the Board, as well as representatives of
financial institutions and shareholders .
1-9-4 Procedures for organizing Board meetings
The agenda of the meetings of the Board of Directors shall be determined by the Chairman of
the Board of Directors in coordination with the members of the Board to ensure Coverage of all
important topics Each board member shall have the right to add items for discussion, provided
that all additional items are accurately recorded in the official record of the meeting.

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1-9-5 Protect the interests of shareholders
The Board of Directors shall examine the accuracy of the participation of shareholders in all
material decisions by convening an extraordinary general assembly to discuss the issues raised
and obtain the approval of the majority of shareholders, The Board of Directors is subject to
the general legal requirements which provide for the equality of all shareholders to access the
available information.
1-10 Social Responsibility
The company believes that following the necessary procedures to protect the environment and
appreciation of the communities that embrace the work and this is a characteristic of successful
companies and the company is making great efforts to formulate the charters of work and the
management of operational processes in accordance with the best international standards and to
reach the commitment of all members of the team from the executive management to the
workers at the outlets
1-10-1 Human rights
The company adheres to the Universal Declaration of Human Rights and prohibits any form of
coercive or compulsory work within the company with the transparency of the human resources
policy and procedures used in the management of mechanisms dealing with the management
staff as well as in dealing with contractors and suppliers of raw materials and services, The
Oriental Weavers Company prohibits the employment of workers under the age of 18 years.
These ethical rules are circulated on the suppliers’ network and subsidiaries and refuse to deal
with any company or supplier that violates this agreement. The company does its best to ensure
that children are not exploited directly or indirectly, A random check of suppliers' sites is
carried out to ensure that children are not exploited at work and the contract is terminated
immediately.

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1-10-2 Employment policies
Oriental Weavers are committed in all countries in which they practice to follow best practices
and policies with respect to wages and other benefits in accordance with and compliance with
the requirements of the current local market or exceeding them to reach better levels There are
specialized committees to review salaries and incentives, and these committees are the basic
guarantee for the non-concealment of any grievance or problem , Oriental weavers offer some
additional benefits to the working environment, such as providing subsidized housing units,
free medical care for employees and their families, annual employee withdrawals and trips for
winners to perform Hajj and Umrah rituals.
1-10-3 Environmental safety
The Oriental Weavers Company pursues a strict policy to follow international environmental
standards. The company has obtained a number of international certificates on environmental
compliance standards including the ISO-9001 quality system certification and ISO 14001
environmental management certificate , The company complies with the standard package of
major international customers for the purchase and use of raw materials. European companies
such as IKEA and MARKS & SPENCER require the compliance of Oriental Weavers with the
EHS standards within the European Union.

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2 Industry analysis
2-1 Industry risk characteristics
- Our industry is considered as high operating leverage because its fixed costs more than its
variable costs and our company reduce the risk by reaching the economies of scale and this
also reduce the fixed cost per unit
- The products of the company are in matured stage which is reduce the risk as demand is
stable and products of the company are well known.
- Our industry is non-cyclical as the company have diversification (products class A;B;C) in
its products which meets each segment needs according to changes in income
- Our industry is a highly concentrated industry as our company is acquires more 85% of
market share Highly diversified base of suppliers and customers inside and outside Egypt
reduce the risk .
2-2 Oriental Weavers’ Value Chain
2-2.1 Firm Infrastructures
Oriental Weavers has a very good infrastructure. Their management is well cooperated with an organized and
well-established vision. They have good corporate governance that works according to the rules and
regulations. One of the key points in their corporate governance policy is the communication with the
shareholders with effective shareholder participation.
2-2.2 Human Resource Management: -
Oriental Weavers have transparent human resources policies and procedures. They have a non-discrimination
policy in which all the employees are being treated equally with not no bias towards any employee. In
addition, the company provides benefits to its employees in a way that guarantees their satisfaction such as
subsidized housing and medical insurance. There is also good communication between the employers and the
employees.
2-2.3 Technology Development:-
Oriental Weavers spend a lot on R&D. They have a very short innovation cycle in which it only takes two
weeks to come up with a new product. They are concerned with product as well as process design. They have
six patents covering technology in the value chain. Recently, they have been using 4 million points-per-
square-meter technologies which are considered a breakthrough in the industry material and market research,
R&D.

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2-2.4 Procurement
Resources are acquired for the success of the business and the manufacturing process. Suppliers of wool in
New Zealand have good relations with Oriental Weavers. They provide the company with discounted prices
because it takes huge volume of these raw materials. In addition, the company has contracts with machine
suppliers in Europe who provide the company with exclusive rights to certain machines. The company tries as
much as possible to reduce the costs of purchasing the needed resources in order to decrease its overall costs
so as not to have unreasonable prices for the final products. Primary Activities They are mainly the activities
that are related to the physical creation of the product itself.
2-2.5 Inbound logistics
Warehousing is very crucial part for the manufacturing process. Oriental Weavers owns warehousing facilities
that are to where the manufacturing process takes place. The storage of raw materials such the polypropylene
used to be imported so the company had to order amounts that cover 4-6 months. However, after producing
the polypropylene, the company stored amounts for 1-2 months.
2-2.6 Operations
Oriental Weavers' operations include all the processes that transform the raw materials into the finished
carpets and rugs. The operations include spinning, weaving, knitting, and dying. All the processes are carried
out in the company efficiently. The company has backward integration in which they produce most of its
inputs such as the polypropylene which is used to get fibers. Then, they do the spinning as well as dyeing yarn
which is followed by weaving to get the finished product.
2-2.7 Outbound Logistics
They have very sophisticated distribution channels through domestic outlets and international facilities.
Globally, they have distributions facilities in the US, UK, Germany, Canada, Italy and Dubai . These facilities
enable the company to reach more markets all over the world.
2-2.8 Marketing & Sales
The Company has around 207 showrooms that allow them to interact with the customers and show and market
their various products. They have the largest showroom in the whole world in 10th of Ramadan city. They
also have well designed websites that are easily accessible and they have a website for Oriental Weavers
Carpets Company as well as MAC and Oriental Weavers US. This allows global distributors, for example, to
locate Oriental Weavers and know more its future dealings. They participate in local and global exhibitions
and fair such as Hannover Floor coverings Fair. They also built partnerships with leading companies such as
National Geographic and Disney.

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2-2.9 After Sales Service
The after sales service is important to keep good relations with the customers which are mainly through their
showrooms. Oriental Weavers handles complains of customers who might have concerns towards the carpets,
showrooms, or other factors that cause dissatisfaction. In addition, the company provides maintenance and
repair services, however they guarantee that most of their products requires low maintenance. The quality of
the products is high with good durability.
2-3 P. E. S .T. E. L Analysis
2-3.1 Political factor:
Most of today’s political changes affect how a company can produce their goods or how much
profit they make, for example. To us, this may seem insignificant, but Political factors decide
the survivability of an organization. The Egyptian society witnessed many political events
starting from the revolution of the 25th of January and through successive events, the latest of
which was announced by the state regarding the encouragement of investment and the issuance
of the new investment law, which has a great impact on pushing the investment wheel. Political
stability and the state has a legal and government framework and an elected parliament.
2-3.2 Economical factor:
The rise of Egypt's foreign exchange reserves amounted to 38.2 billion dollars in February
2018.The annual average inflation rate continued to fall to 13.1% after reaching a level of 33%
in July 2017.Egypt's unemployment rate continues to decline to 12.5%.The rate of tax
calculation in Egypt was 25%, a fixed rate for some time. Gross domestic product (GDP) at
constant prices reached LE 2191.5 billion at a growth rate of 53% over the previous year.
2-3.3 Social factor:
Egypt is one of the most populous countries in the Middle East and the third in the African
countries (Nigeria and Ethiopia). Most of Egypt's population lives in two main regions: Cairo,
Alexandria and the rest along the banks of the Nile and the Red Sea. Density of population
compared to similar in the countries of the world.
2-3.4 Technological Factor:
Technology gives companies the ability to innovate in so many different ways. From
interacting with customers to designing products, technology provides value to organizations
just like ORIENTAL WEAVERS CARPET. Th e carpet industry is one of the most important

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industries that cannot be separated from technology and technological factor is one of the most
important factors that directly affect the adoption of technology in full
2-3.5 Environmental Factor:
The carpet industry is one of the least harmful to the environment as it does not produce solid
waste and the industrial waste is processed through the installation of modern filters for the
purification of fumes and dust.
2-3.6 Legal Factor:
Although the legal factor is causing great concern, especially after the revolution of January
2011 for the emergence of some laws, which may cause some trouble for companies operating
in the Egyptian market, but the carpet industry is currently witnessing support from all sectors
of the state because of the state's tendency to encourage investment and increase the proportion
of exports.
2-4 Porter Five Forces Model
Description Risk degree Characteristics
The bargaining power of suppliers is low because the company has control
over most of the raw materials involved in the production process such as
Polypropylene which is produced by Oriental Petrochemicals Company
(OPC). The company is the sole company producing this material in Egypt.
However, Oriental Weavers imports wool from New Zealand because it is
known for its high quality. But, the company takes care of the spinning
phase. As for the machine suppliers, the company has good relations with
them in which the suppliers provide the company with exclusive rights to
some machines. Although the machines costs a lot as mentioned earlier, the
company gets the machines with a percentage of discount because of the
long-term relation between the supplier and the buyer.
Low Risk
Bargaining
Power
of suppliers

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The bargaining power of customers in OW’s case is high in the export
market, while it is low in the domestic market. In the domestic market, OW
has virtual domination with a market share of 85% and hence raising prices
is relatively easy. Additionally, an import duty of 40% on carpets also
protects OW from competition in the local market the company control the
market (almost monopoly). However, in the export market, OW’s pricing
power is limited due the nature of OW’s major customers in the US and
Europe, which includes large retail chains such as Wal-Mart, IKEA, Kmart,
Carrefour, and others. These retailers tend to enjoy high bargaining power
due to the large size of their orders and the extensive market access they
provide Buyers in the case of Oriental Weavers and there is diversification
of buyers (Individuals, importers and retailers, world-wide corporate and
hospitality chains), As for the individuals, the demand is huge because most
of the people use carpets and rugs. The wide price range in Oriental
Weavers allowed them to reach more people in the different segments.
However, importers, retailers, world-wide corporate and hospitality chains
have more power than individuals because they have more options to buy
from on a global level. However, there is almost no threat from buyers in
terms of producing the industry's product themselves because of the high
costs of production.
high risk
export
Low in the
domestic
market
Bargaining
power
of
Buyers
Domestic: Oriental Weavers has 85 % market share of the Egyptian market,
in carpets and rugs. They have some competitors such as Carpet City and
Moket Center but they are not main players in the market The Competitors
are few in number as well as in the size of their business. Because some of
those competitors do not have the capacity, they had to ask Oriental
Weavers to help in the manufacturing process; use facilities. On the other
hand, the competitors’ in the hand-made carpets and rugs are Al-Kahal and
Al-Assiduity. Rivalry among competitors in carpets and rugs is not fierce in
which Oriental Weavers control the market almost a monopoly. Globally:
there are a few large players dominating the machine-made carpets and rugs
industry. OW’s strength in the export market is focused on rug sales, in
which it commands a market share of 25% in the US and 20% in Europe.
Since the carpets and rugs industry is considered to be a mature industry
with limited growth potential, the competition among existing firms is
high risk
export
low in the
domestic
market
Rivalry Among
Existing Firms

23. O r i e n t a l W e a v e r s G r o u p Page 22

likely to be relatively high especially with the Turkish and Iranian carpets.
OW employs several differentiation strategies—foremost being its focus on
innovative design and technology—to distinguish its products from its
competition.
The barriers to entry are very high and the threat of entry is low for any
company to enter the market, because this requires huge capital. For
example the cost of one machine is around $1.2 Million. The new entrant
will have to enter the market on a large scale. Thus, it is very difficult for
companies to have enough capital to establish itself in the market and face
the 85 % market share of Oriental Weavers and its economies of scale.
Oriental Weavers enjoy supply-side economies of scale in which they
produce large volumes with lower costs per unit because the fixed costs are
divided among more units. This puts pressure on new entrants who need to
enter the market on a large scale. In addition, the company controls some of
the raw materials that are necessary for production of rugs and carpets such
as polypropylene. Other companies would need to buy from them.Another
point which increases the barriers for entry is demand-side benefits of
scale,in which many buyers have the willingness to buy from Oriental
Weavers because of The huge demand from of other buyers towards the
company's products. Thus, the percentage of buyers who might go to a new
comer is low.
Low risk
Barriers To
Entry & Exist
The threat comes from wood, tile and ceramics floorings. They are
considered the main substitutes but with little effect on Oriental Weavers.
Some people prefer other alternatives other to carpets and rugs for different
reasons such as cleanliness or durability. However, those alternatives
cannot work in every place and needs more time to install. People usually
need carpets and rugs in their homes in certain rooms such as living room.
One thing that might face buyers is the switching costs because through
buying carpets or rugs, the initial cost would be the cost of it, However if
using wood floorings or ceramics, the initial cost would include also
workers fees and other supplementary costs.
Low Risk
Substitution
Industries
Table (7) Porter Five Forces Model

24. O r i e n t a l W e a v e r s G r o u p Page 23

2-5 S.W.O.T ANALYSIS
 Strengths :
An innovative culture helps Oriental Weavers Carpet to produce unique products and services that
meet their customer’s needs Strong customer relationships.
Superior technology allows Oriental Weavers Carpet to better meet the needs of their customers in
ways that competitors can’t imitate.
A strong brand name is a major strength of Oriental Weavers Carpet. This gives it the ability to charge
higher prices for their products because consumers place additional value in the brand well-designed
and successful marketing strategies.
Strong management can help Oriental Weavers Carpet reach its potential by utilizing strengths and
eliminating weaknesses.
A strong supply chain helps Oriental Weavers Carpet obtain the right resources from suppliers and
delivery the right product to customers in a timely manner.

 Weaknesses :
Too much stock in inventory and higher inventory costs
Less interest among youths that can’t allow Oriental Weavers Carpet to better meet the needs of their
customers.
Lack of customer’s feedback system.

 Opportunities:
The online market offers Oriental Weavers Carpet the ability to greatly expand their business. it can
market to a much wider audience for relatively little expense Seasonal high demand of the product .
High demand for product or similar merchandise.
International markets offer Oriental Weavers Carpet new opportunities to expand the business and
increase sales.

 Threats :
The availability of substitute products hurts Oriental Weavers Carpet’s ability to raise prices, because
customers can easily switch to another product or service
Intense completion can lower Oriental Weavers Carpet’s profits, because competitors can entice
consumers away with superior products
Politics can increase Oriental Weavers Carpet’s risk factors, because governments can quickly change
business rules that negatively affect Oriental Weavers Carpet’s business.

25. O r i e n t a l W e a v e r s G r o u p Page 24

3 Risks relevant to the company and how to mitigate these risks
There are some risks that can effect on any organization performance these risks consist of two types
3-1 Risks related to the country ( outside risks ) : -
3-1.1 Political risks:
It is difficult to determine their impact on commercial institutions and companies. The political risks occupies
the tenth place in the list of the most dangerous threats to the world`s economies and thus affect the
performance of companies in these countries. This type of risks can be overcome by opening new branches
and factories in other countries with no political problems. Oriental weavers succeeded in doing that by
opening new branches and factories in USA and China.
3-1-2 Interest risks:
The changes in the yields of shares due to changes in interest rate. Because of the relationship
between the price of shares and interest rate is inverse.

3-1-3 Market risks:
The changes that occur in the returns on shares due to changes in the market such as economic stagnation,
wars, or inflation. This kind of risk is difficult to predict and measure. Stock prices are also affected by
political and economic events and are also influenced by psychological factors in the market such as loyalty to
some shares or run behind panic situations in the market and listen to rumours uncertain information, Market
risks can be classified into:
- Equity price risk - Interest rate risk.
- Exchange rate risk - Commodity price risk.

3-1-4 Legal Risk:
Are those related to the controls imposed by the State that affect the business of corporations, such as laws on
import and export operations, The Basel Committee has determined that this type of risk is part of the
Company's operational risk.
3-1-5 Credit Risks:
This type of risk is related to the credit rating of the countries in which Oriental Weavers operates (China,
USA, and Egypt) and it is natural for the company to be affected by the credit rating of those countries. We
can present some financial data and indicators for each of these countries:

3-1-5-1 China:
China is the 2º largest economy by nominal GDP. Its national debt in 2016 was 4,975,155 millions of dollars,
(44.32% debt-to-GDP ratio) and its public debt per capita is 3,598$ dollars per inhabitant The last annual rate
of CPI published in China was on April of 2018 and it was 1.8%.

26. O r i e n t a l W e a v e r s G r o u p Page 25

3-1-5-2 USA :
United States is the first economy in the world by nominal GDP. Its national debt in 2016 was 19,959,114
millions of dollars, ( 107.17% debt-to-GDP ratio) and its public debt per capita is 61,769$ dollars per
inhabitant.The last annual rate of CPI published in United States was on April of 2018 and it was 2.5%.

3-1-5-3 Egypt :
Egypt is holding the 34 position by nominal GDP. Its national debt in 2016 was 322,065 millions of dollars,
(96.84% debt-to-GDP ratio) and its public debt per capita is 3,571$ dollars per inhabitant.The last annual rate
of CPI published in Egypt was on April of 2016 and it was 10.3%.
3-2 Risks related to the company ( inside risks ) :-
3-2-1 Operational risks:
These are the risks associated with the company internal system (systems, employees, misappropriation, and
malfunctions) and The Company can overcome on this type of risks by establishing strong rules and
procedures and working in good systems to avoid any problems.

3-2-2 Management risks:
Risks associated with management functions and practices, lack of awareness, competence and experience,
decision making and problem solving ,These risks can be overcome by attracting excellent management
competencies and recruiting highly skilled staff.
3-2-3 Legal risks:
The risk arising from entering into contractual agreements with other parties with uncertainty regarding the
fulfilment of obligations towards these parties and this type of risk can be overcome by establishing terms and
conditions in the contract guaranteeing the right of the company in case of breach of any of the conditions of
the contract and non-compliance.
3-2-4 Credit risks:
The risk associated with the counterparty`s failure to meet its obligations and not taking adequate guarantees.

3-2-5 Purchasing Power Risk:
It means the expected returns may change as a result of higher rates Inflation, the purchasing power of money
that has been bought investment today differ on the purchasing power of the same amount of money after one
or two years. Fixed-income investments such as bonds are, for example, more affected by lower purchasing
power of money than others investments. If inflation rates rise, the real value of investment returns decreases,
leading to a lower rate of return on investment and nominal rate of return.

27. O r i e n t a l W e a v e r s G r o u p Page 26

3-2-6 Supply Risks:
The company may face some problems in the import of raw materials used in the process of industry. These
problems may be due to some laws in the country or there may be a shortage of raw materials from the origin,
which may affect the fulfilment of the needs of customers and the implementation of their requests and This
type of risk can be overcome by contracting with more than one supplier and alternative source of raw
materials to avoid any problems related to that part of the risk.
3-2-7 Liquidity risks:
The company may be exposed at a certain time to the lack of liquidity, especially in foreign currencies which
may threaten industrial companies not to be able to import raw materials used in the process of industry.
3-3 How to mitigate these risks:
- These risks can be overcome by taking adequate guarantees on debtors and also making provisions
from the company`s profit to meet these risks when they occur.
- Develop policies to implement risk management principles, and following internal controls and
processes to identify risks facing the company.
- Establish an integrated risk management framework to measure and manage all risk aspects.
- Ensure that all employees are fully aware of the risks within their work environment and their
personal responsibilities.
- Implement and monitor any specific risks through regulatory measures.
- Provide regular reports with relevant information, including recommendations to the Executive
Chairman and the Board of Directors that support effective risk management.

28. O r i e n t a l W e a v e r s G r o u p Page 27

4 Financial statement analysis
- The following is an analysis of the Company's financial statements approved by the Chartered Accountant
(Wahid Abdul Ghaffar & Partners) for the years ended 2015, 2016, 2017.
4Q 2017 vs 4Q 2016
Sales (EGP million)
3.395
▲50%
Net income (EGP million)
212
▲40%
ROE
▲6.8%
Dividend payout
EGP 1.4
▲108%
Table (8) comparison between 4Q 2016, 2017
Source: OW website: http://ir.orientalweavers.com/en/results-center

Profitability ratios
31\12\2017 31\12\2016 31\12\2015 year
10173935 6779176 5875149 sales
50.1% 15.4% -- Change in sales %
87.4% 85.3% 88.7% COGS\SALES
12.6% 14.7% 11.3% Gross profit margin
3.2% 3.8% 3.4% S.G&A
8.6% 9.5% 6.4% NOP margin
741751 528947 339108 Net profit
9.1% 10.2% 6.9% Net profit margin
1.40 LE 0.50 LE .40 LE Dividend payout
8.90% 8.33% 9.69% Return on equity (ROE)
5.56% 5.11% 5.34% Return on assets (ROA)
Table (9) Profitability ratios

Figure (4) – sales, net profit and dividend
0
5
10
15
sales net profitDividend payout
2117
2116
2115

29. O r i e n t a l W e a v e r s G r o u p Page 28

- Revenues on 31/12/2017 increased by 50% compared to 31/12/2016 reflecting the increase in the company's
share in the market and the good continuation of the company's activity without any obstacles due to the
importance of the product and the increase in demand. As well as the company's experience in the market in
which it operates.
- The relative stability of the cost of income in terms of revenue and its downward trend during the
comparative periods is a good indicator of the ability of customers to control the cost of sales by passing any
increase in their prices to their end customers, as well as for administrative expenses. Control their costs.
- The company achieved an increase in the rate of return on sales as a result of the increased sales of the
company and its ability to control production costs, which in turn led to a rise in the net profit of the
company.
- The net profit margin reached 9.1% during 2017, which is a very good ratio, which ensures that the
shareholders achieve a good rate of return on equity and contribute to them in meeting their obligations.
- The high rate of return on assets is observed in the last year, which indicates the company's ability and
efficiency in exploiting its assets and notes that the rate of return on assets is much higher than the cost of
borrowing. The higher rate of return on equity and greater rate of opportunity which reflects the ability of
shareholders to achieve a good return on their own resources, encouraging them to expand their activity.
Asset efficiency ratios
31\12\2017 31\12\2016 31\12\2015 Year
4287107 4312886 2101963 Working investment ( W I )
42.1% 63.6% 35.8% WI\SALES
74 92 78 A\R (days)
133 146 111 Inventory (days)
40 50 51 A\P (days)
2 1 1 Accrued expense (days)
207 238 189 Asset conversion cycle (days)
5237906 3940084 2798352 Asset conversion cycle (cost)
Table (10) Asset efficiency ratios

Figure (5) – Working investment
0
2
4
6
W I
2117
2116
2115

30. O r i e n t a l W e a v e r s G r o u p Page 29

- The trend of investment is rising from one year to the next in line with increased sales. This increase is a good
indicator that customers will inject additional funds from their own resources into the activity to finance the
current business cycle.
- The growth in Investment is seen to be lower than sales growth, which is noticed that the percentage of the
working investment to sales in 2017 is lower than in 2016, Which is evidence of the ability and efficiency of
the company in the management and investment of commercial assets and reflect the expansion in the sale of
the future and increase the inventory to increase sales and revenues of the company.
- The average storage period in 2017 is expected to decrease to 133 days. This period is suitable for the
company's activity and allows it to make a good profit by performing several cycles of activity during the
year. This period is in line with the company's storage policy, Collection during the last year due to the
increase of the company's third party receivables.
- The current asset turnover has declined to 207 days in 2017 compared to 2016 which was 238 days, It is a
good indicator of the company's efficiency and achieving a greater number of turnovers during the year.
- There is stability in the turnover rates of total assets and fixed assets, Ranging from once to twice a year,
which is an acceptable indicator due to the activity, depends on fixed assets in the operation mainly.
- The turnover of current assets increased to reach LE 5,237,906,000 in 2017 compared to 2016, which
reached LE 3,940,084,000. This increase in the cost of assets turnover cycle is commensurate with the
increase in sales and investment items.
Liquidity ratios
31\12\2017 31\12\2016 31\12\2015 year
3390147 3134369 1390560 Working capital
1.92 1.90 1.60 Current ratio
0.30 0.90 0.80 Quick ratio
Table (11) Liquidity ratios

Figure (6) – Working capital and current ratio
0
0.5
1
1.5
2
2.5
3
3.5
Working capital Current ratio
2117
2116
2115

31. O r i e n t a l W e a v e r s G r o u p Page 30

- The company achieved good liquidity rates during the comparative periods represented in the current ratio and
quick ratio, reflecting the company's ability to cover the short term liabilities, as well as the difference
between the current ratio and quick ratio, which indicates the company's dependence on its activity on the
stock significantly Consistent with the nature of its activity.
- Net working capital showed positive value during the comparative periods, indicating the integrity of the
company's financing structure and the lack of funding deadlines.
- 56 % short uses - 29 % short source financing
- 44 % long uses - 71 % long source financing
- 100% - 100%

The financial leverage ratios
31\12\2017 31\12\2016 31\12\2015 Year
30 29.5 36.2 Debt/equity %
50.7 45.9 61.1 Liabilities/equity( Leverage ) %
533.1 419 293.3 EBITDA/Financial payments %
Table (12) The financial leverage ratios

Figure (7) – Debt/equity
- The financial leverage during the periods of comparison is suitable, which shows that the dependence of the
company on its own resources mainly in financing the current activity, and bear to market risks significantly.
- The company enjoys credit facilities from banks in addition to a financing leasing company, but it is clear that
it enjoys a good ability to pay any outstanding obligations, which is confirmed by the increase in the interest
coverage and interest coverage of loans and interest (EBITDA\ Financial payments).


0
10
20
30
40
Debt/equity
2117
2116
2115

32. O r i e n t a l W e a v e r s G r o u p Page 31

5 Statement of Cash Flows (EGP million)
2016 2017
Cash flows from Operating Activities:
Net Profit for the Period Before Income Tax 693 922
Adjustments to Reconcile Net Profit to net Cash Provided by Operating Activities
Fixed Assets Depreciation 620 560
Provisions other than Deprecations 100 83
Interest Income (19) (42)
Financing Expenses 111 135
Investment Income (0) (5)
Capital Gain (5) (16)
FX Translation 34 (37)
Operating Profits before Changes in Working Capital 1,535 1,603
Change in Working Capital
(Increase) in Inventory (163) (488)
Decrease (Increase) in Trades & NR and other Debit Accounts 355 176
Decrease (Increase) in Suppliers & NP and other Credit Accounts (98) 229
Cash Flows Provided by Operating Activities 1,628 1,520
Interest Income 21 42
Paid Financing Expenses (110) (135)
Income Tax paid (116) (138)
Net Cash Flows Provided by Operating Activities 1,422 1,289
Cash Flows from Investing Activities
Payments for Purchase of Fixed Assets and Projects in Progress (529) (434)
Payments for Purchase of Available for Sale Investments (115) -
Proceeds from Sale of Fixed Assets 19 27
Proceeds from Sale of Treasury Bills 18 98
Net Cash Flows (used in) Investing Activities (607) (309)
Cash Flows from Financing Activities
Proceeds (Payment) from Banks-Credit Accounts (57) (78)
Dividends Paid (308) (710)
(Payment) Proceeds in Long-Term Liabilities (230) 103

33. O r i e n t a l W e a v e r s G r o u p Page 32

Net Cash Flows (used in) Provided by Financing Activities (595) (685)
Net Change in Cash and Cash Equivalents During the Period 221 294
Cash and Cash Equivalents at Beginning of the Period 431 890
Cash and Cash Equivalents Transferred Due to Merger 12 -
Translation Differences Related to Cash & Cash Equivalents 226 (4)
Cash and Cash Equivalents at End of the Period 890 1181
Table (13) Cash Flows Statement
Source: OW website: http://ir.orientalweavers.com/en/results-center

Figure (8) – Cash and Cash Equivalents at End of the Period
- The Company achieved positive cash flows from the operating activities due to the increasing in cash received
from increasing in its sales.
- Cash flows from financing activities were negative during 2017 as a result of the Company`s dividends
distributions to shareholders.
-During 2016 and 2017, the Company achieved positive net cash flows, which is a measure of the customer's
ability to achieve sufficient liquidity from operating activities to enable it to meet its cash commitments and
cover its financing demanding.






0
1
2
3
4
5
6
7
8
9
cash end of the peroid Operating Activities
2117
2116

34. O r i e n t a l W e a v e r s G r o u p Page 33

6 Asset conversion cycle


Figure (9) – Assets conversion cycle
- ACC = NUM of days inventory + NUM of days of receivables
= NUM of day’s raw material + NUM of days work in process + NUM of days finished goods + NUM of
days of accounts receivable.
63+ 8 + 62 + 74= 207 days

- Net operating cycle
= Num of day’s inventory + Num of days AR – Num of days AP
133 + 74 - 40= 167 Days
That’s means that company OW Generate cash from its assets within 167 Days.

step 1
Raw material
63 days
step 2
work in
process
8 days
step 3
finishied
goods
62 days
step 4
finished goods are sold
selling and account
recivable are crabed
step 5
account
receivable are
collected
ACC
207 DAYS

35. O r i e n t a l W e a v e r s G r o u p Page 34

7 Cost of capital
- Cost of debt:
Interest calculation: (according to balance sheet)
Total loans & over drafts = 1871557064+316521265+245625 = 28188323974
Total interest = 135044784
Interest = 135044784/2188323974= 6.17 %
Tax rate = 19.51 %
Cost of debt = I (1- tax)
6.17% (1-19.51 %) = 4.96 %
- Cost of common stock (CAPM):
Rs = RFR + (Rm-RFR)*Beta
RFR = 18.5% (according to CBE Rate for T-bills)
Rm = 14.56 (Share Price)
Beta = 0.64 (ORWE share risk)
Rs= 18.5 + (14.56-18.5)*0.64= 15.98%
- WACC:
WACC = Weight of Debt X Cost of Debt+Weight of Common Stock X Cost of Common Stock
= 21%*4.96%+79%*14.71%= 12.66%
8 Capital Structure
- Value of the firm
Value of the firm =FCF / (1+WACC)
= 1289 / (1+12.66) = 94.36 LE

36. O r i e n t a l W e a v e r s G r o u p Page 35

References
http://www.orientalweavers.com/
https://www.mubasher.info/countries/eg/stock-prices
http://financials.morningstar.com/ratios/r.html?t=AAPL
https://mec.biz/ar/
https://www.infrontanalytics.com
www.cbe.org.eg/en
www.mof.gov.eg/arabic/pages/treasuryauctionpage_ar.aspx