Europe's worsening debt crisis is building up a pile of problems for the world's biggest carpet maker. Egypt's Oriental Weavers Carpet has reported a 23 per cent decline in nine-month profit.
Carpet maker has rug pulled from under it
Europe's worsening debt crisis is building up a pile of problems for the world's biggest carpet maker.
Egypt's Oriental Weavers Carpethas reported a 23 per cent decline in nine-month profit amid soaring raw material prices.
Net income for the year to September 30 reached 185.5 million Egyptian pounds, compared with 241.8m pounds in the same period a year earlier, the company said in a statement to the Egyptian Exchange.
Oil trading at above US$110 a barrel on average during the third quarter eroded the company's margins. Oriental Weavers utilises a number of oil-based raw materials in its manufacturing processes. These account for approximately 55 per cent of the total cost of production.
Polypropylene used in the production of synthetic fibres is the major raw material used by the company and comprises between 25 and 30 per cent of the cost of production.
Plastics and other packaging materials manufactured from oil derivatives form an additional 25 per cent of the cost base.
Oriental is the world's largest producer of machine-woven carpets and rugs, with an annual production capacity of 110 million square metres. The company, based in Cairo, is by far the market leader in Egypt, with close to an 85 per cent market share.
Although it has substantial market share in the US and Europe, 25 per cent and 20 per cent, respectively, revenue may fall as a result of the challenging economic situation in both countries, said CI Capital, a brokerage in Egypt.
"We hold a sceptical outlook for 2012 based on challenges arising from uncertainties in the global economy, which may put pressure on revenue growth for Oriental Weavers," said Ingy El Diwany, an analyst at the brokerage.
Ms El Diwany has a "hold" rating on the stock, with a target price of 36.50 pounds.
Oriental's shares have declined 12 per cent so far this year, trading at 30 pounds.