December Profit Strategies for the Construction & Energy Industries. Newsletter Topics

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1 Bathroom News December 2011 Profit Strategies for the Construction & Energy Industries Newsletter Topics Germany: Austria: Germany: Germany: UAE: UK: Ukraine: UK: Egypt: HAGEBAU Publishes Third Quarter Results BAUMAX Opens Fifth Store In Turkey OBI Opens 34 th Store In Austria PRAKTIKER Starts Restructuring Programme RAK CERAMICS Third Quarter Results Fall By Half KINGFISHER Q3 Results EPICENTRK With Two New Locations OURS SANITARY WARE Acquires IDEAL STANDARD Site LECICO s Profits Down

2 1 HAGEBAU Publishes Third Quarter Results The HAGEBAU Group continued its growth in Q3 of The cooperation of European building materials, wood and tile retailers as well as DIY markets increased its centrally invoiced group turnover in the first nine months of 2011 by 18.2% compared with the same period last year to 4.06 billion. Turnover of HAGEBAU Germany, which also includes Switzerland and Luxemburg as well as the Austrian wood and DIY retailers increased by 18.8% to 3.83 billion. The retail segment of HAGEBAU (290 HAGEBAU DIY markets, 24 professional building material outlets, 31 other DIY outlets and 50 Austrian outlets) grew by 7.7% compared with the centrally invoiced turnover of last year. Source Baumarktmanager: 28th October BAUMAX Opens Fifth Store In Turkey BAUMAX opened its fifth store in Turkey in November. The new outlet in Turkey s capital Ankara has a sales area of around 15,000m² and is the 155 th market in the BAUMAX portfolio. The opening of the store in Ankara is seen as a milestone on the company s way to expand further in Turkey. Customers of the new BAUMAX outlet can expect the following services: advice, delivery and assembly. Trade customers have their own area in the store. The store employs 150 staff. Source Baumarktmanager: 17 th November OBI Opens 34th Store In Austria The German DIY chain OBI Group, the market leader in the domestic market, opened its 34th Austrian store in Vienna on 17th November. The new store in Vienna St. Marx is its fifth store in the Austrian capital. With a retail area of over m2 it is regarded as the flagship store of the DIY store operator in Austria. Source DIY Global: 17th November PRAKTIKER Starts Restructuring Programme German DIY store operator PRAKTIKER is going back to its cheap and cheerful set-up for its ailing namesake brand and will raise more than 300 million as part of a three-year investment programme to return to profitability. PRAKTIKER shares have plunged 68% this year after a move away from its popular, yet not very profitable, "20% off everything" promotions that turned customers off and resulted in a profit warning and the departure of its chief executive. New Chief Executive Thomas Fox confirmed that the group would look at closing 30 loss-making stores which could affect around 1,400 employees in Germany.

3 As part of the restructuring, the management board will shrink from five to three members and it will move its group headquarters to Hamburg, where its MAX BAHR brand is based. "This is not because MAX BAHR is the better company, it is because our category and product management is stronger there and that's a cornerstone of the restructuring," turnaround expert Fox said. He admitted however that efforts would focus on PRAKTIKER Germany, which presently has 236 stores, as MAX BAHR was developing more positively. PRAKTIKER said it will cease operations in Albania and also review its other international operations. PRAKTIKER stores will, from now on, focus on a discount offering, while MAX BAHR will expand the services it provides. Fox said that this meant the group was aiming for industry average pretax margins of between 1.5 and 2% by The company did not provide details of how it would raise the funds needed. Finance chief Markus Schuerholz said the group had appointed external advisors to look at the options. Fox added the group was considering whether or not to stick with tennis star Boris Becker for future advertising campaigns. Source Reuters: 24 th November RAK CERAMICS Third Quarter Net Falls By Half RAK CERAMICS said their third quarter net profits fell by more than half and 'nine months' profits fell by a third against the previous year, as higher costs comprised the rise in revenues. The world s biggest ceramic product company, based in Ras Al Khaimah (UAE), said it made AED 40.5 million ( 8.3 million) for the last quarter, down from AED 87.6 million ( 17.9 million) last year, despite a rise in revenue to AED million ( million). Cost of sales and finance costs rose during the period. Over nine months the company has seen net profit sink 33.5% to AED 181 million ( 37 million) from AED million ( 48.5 million), despite gaining almost double in other income, aside from sales against the same period last year. Revenue rose slightly to AED 2.58 billion ( million) though finance costs leapt to AED 115 million ( 23.5 million). Source Construction Week Online: 15 th November 2011

4 6 KINGFISHER Q3 Results The unseasonal autumn weather and the closure of rival FOCUS DIY have helped ease the sales pressure at B&Q owner KINGFISHER. The retailer, which operates 536 B&Q and SCREWFIX stores in the UK and Ireland, said like-for-like sales were down 0.7% in the 13 weeks to 29th October, an improvement on the 1.3% decline in the previous quarter. B&Q's profits were up 20% at 46 million as trading benefited from the closure of FOCUS DIY and the subsequent conversion of 27 of its stores to the B&Q format. The autumn weather also boosted sales of garden furniture, helping it sell more barbecues in the last week of September than in the whole month of June. Like-for-like sales at B&Q were down 0.9% despite a 68% rise in garden furniture sales, but at the same time B&Q saw a 78% increase in demand for winter grit and snow shovels, as households prepare for the possibility of another Arctic onslaught. Non-seasonal sales were down 4%, reflecting the "generally weak consumer backdrop". Its 179 SCREWFIX stores saw total sales increase 7% as the opening of four outlets and new ranges, such as safety and workwear, helped it offset a "challenging" market for its customer base of self-employed traders. The chain's profits rose 27% to 10 million. A further 35 SCREWFIX stores will open by the end of January as part of a drive to expand its trade supply arm and create 1,200 new jobs. The group's overseas stores put in a stronger sales performance. In France, where the group operates CASTORAMA and BRICO DEPOT, like-for-like sales rose 1.9% and profits lifted 18.8%, while losses in China were reduced. Total group profits rose 13.9% to 273 million, on sales up 4.6% to 2.8 billion. Source The Press Association: 1 st December EPICENTRK with two new locations EPICENTRK has opened a new large-scale store in the city of Sevastopol, Crimea Peninsula (379,000 inhabitants). Another big box store will follow at the end of November in Dnepropetrovsk (1.05 million inhabitants). Thus, the DIY retailer, established in 2003 in Kiev, will operate 33 stores nationwide with a total sales area of 660,000m2. Early next year, two more new sites in Kremenchug and Simferopol will be realised in the Crimea. Source European DIY Retail Association: 30 th November 2011

5 8 OURS Acquires IDEAL STANDARD Facility The acquisition by OURS SANITARY WARE LTD of the former IDEAL STANDARD Middlewich site presents a major shift in the dynamics of the British bathroom industry giving IMPERIAL SANITARY WARE LTD a manufacturing foothold in Europe. OURS SANITARY WARE is a sister company to the UK based IMPULSE BATHROOM PRODUCTS LTD and both are members of IMPERIAL SANITARY WARE LTD which is itself a member of the Hong Kong based multi-national HKR INTERNATIONAL LTD. The acquisition of the factory in Cheshire is another solid step in IMPERIAL SANITARY WARE S role of being an upmarket OEM supplier. The company holds an enviable second place in the Australian market with its IMPERIAL brand and is owner of the quickly growing IMPULSE BATHROOMS brand in the UK, but the future for the manufacturing division is seen in the further development as an OEM player for large global accounts. The company s Chinese plant will be utilised as a supply entity to the current Australian / South East Asian and Pacific Rim markets. Managing Director Jan Klomp explained that the market and economy has changed greatl y o ver the last 15 year s to an extent that sanitar y ware manufacturing will again be made on a Local for Local basis reversing the trend of all those manufacturers who went to Asia because of the so called cheap labour and shifted their lower end product ranges to those entities in Asia. But that also caused the demise of a lot of the Western European (UK) manufacturing plants as the remaining volume of mid-market and upper market products simply did not suffice to keep the manufacturing plants going. Now the industry is faced with fast rising wages in Asia, high energy charges in China and very high transport costs - making it possible for a piece of sanitary ware to be made in the UK at almost the same cost as in the Far East, but without all the add on costs such as transport. In addition it enables order lead times to be cut by at least six weeks for transport and reduces costs for items such as extended financing of the stock during transit. H.J. Klomp commented: "With the acquisition by OURS SANITARY WARE LTD of the previous IDEAL STANDARD manufacturing facility in Middlewich IMPERIAL SANITARY WARE LTD have launched their presence in the UK market. Through its subsidiary OURS SANITARY WARE it will re-start the facility over the next few months leading to a total of about 150 Jobs by May This deal will restore a manufacturing facility and many employment opportunities in a community that has served this business site for many generations. It will bring back skill requirements that were thought to have left the North West many years ago." Source Plumbingpark: 10 th November 2011

6 9 LECICO's Profits Down LECICO has continued to face an extremely challenging operating environment in the third quarter with demand from the company s main regional and European exports remaining weak and production negatively impacted by an extended strike and lower productivity in the month of Ramadan. These demand and capacity constraints led to a significant erosion in margins as a result of reduced economies of scale, which were compounded by increases in energy prices and salaries and a general inflation in goods and service inputs to production as a result of the ongoing political and economic instability in Egypt and the region. Revenue decreased 6% year-on-year in the third quarter to reach LE million ( 29 million). The drop in sales was due to a 16% decrease in sanitary ware volumes and a 3% decrease in tile square metres, largely as a result of political upheavals in Egypt and Libya, continued weakness in demand across Europe, primarily in the UK and France, and lower local pricing as a result of sales incentives offered to Egyptian distributors. The third quarter was also negatively impacted by production constraints in Egypt. The workers strike at the company s Khorshid location closed down the sanitary ware and tile plants for a total of nine days during the period from 27th July through to 3rd August. In addition, August sanitary ware productivity in all Egyptian locations was reduced throughout the month of Ramadan as a result of limited casting times. Libya, LECICO s largest regional export market, has effectively been closed since mid-february due to political instability and conflict in the country. In Q3 2010, Libya accounted for 8% and 18% of the company's sanitary ware and tile sales volumes respectively. Gross profit decreased by 28% to reach LE 65.7 million ( 8 million), gross profit margin was down 8.3 percentage point s year-on-year at 27.5%. The decrease in gross profit was mainly attributed to the decrease in sales and production volumes which reduced the company's economies of scale in addition to lower local prices and increased labour and energy costs. In absolute terms, D&A expenses increased by 3% to LE 43.9 million ( 5.3 million) year-on-year on the back of the effect of a weaker Egyptian pound. Proportional distribution and administration (D&A) expenses were up 1.5 percentage points to 18.3% of net sales compared to 16.8% in the third quarter of Other operating expense was LE 1.8 million ( 218,000) net compared to a LE 1.5 million ( 181,700) income in the same period last year. EBIT fell by 60% year-on-year to reach LE 20.0 million ( 2.4 million) for the third quarter of 2011 as a result of the drop in gross profits, with the EBIT margin decreasing 11.2 percentage points to 8.4% compared to 19.6% in the third quarter of 2010.

7 Financing expenses were up 94% year-on-year during the third quarter of 2011 to reach LE 24.8 million ( 3 million) compared to LE 12.8 million ( 1.6 million) for the same period in Results for the quarter included a foreign exchange loss of LE 6.3 million ( 736,000) compared to a loss of LE 0.23 million ( 28,000) in the third quarter of These exchange differences arose due to the sudden weakening of the Euro and Sterling due to the Euro zone financial crisis. The company reported a net loss of LE 3 million ( 364,000) with a negative 1.2% margin, compared to a profit of LE 30.9 million ( 3.7 million) with a 12.2% margin in the same period last year. Source LECICO: 14 th November 2011