CAIRO: Egyptian ceramics firm Lecico warned 2011 may be its "worst" year yet after second-quarter net profit plunged 80 percent due to weaker demand in European export markets following political instability in Egypt and Libya. Lecico, which also faced a nine-day strike that halted operations at its Alexandria sanitary ware and tile factories, also attributed the decline to eroded margins due to reduced economies of scale. The Khorshid plants in Alexandria account for 30 percent of Lecico's sanitary ware production and 74 percent of its tile production. Lecico's other factories in Egypt were operating normally. "As a result of weaker demand for our established products and complexity coming from offsetting this with new products, our production has reversed some of our economies of scale and increased our unit cost," Chief Executive Gilbert Gargour said in a statement on Monday. "Given all the above and additional costs including higher interest rates and a new corporate tax rate retroactively applied, we expect that 2011 will be our worst financially since coming to the market in 2004," Gargour said. Lecico said net profit in the second quarter fell 80 percent to LE 5.1 million ($855,597). Revenue fell 2 percent to LE 249.7 million, driven by lower volumes due to weaker demand in Lebanon and Libya, which accounted for 11.4 percent of volumes, down from 23.5 percent in 2010. The company said it expects additional tile capacity in the second half of 2011 from its new red body tile plant, which should be fully operational in August. The plant's current annual capacity is 6.4 million square meters. Lecico said it saw a 17 percent decline in sanitary ware volumes largely due to the political unrest in Egypt and Libya and continued dampened demand across Europe, primarily in the UK and France. The margin on earnings before interest and tax slipped 8.1 percentage points to 11.7 percent mainly impacted by a 33 percent increase in energy prices.
