Earnings Report /
Egypt

EDITA: 2Q22 – Positive performance despite seasonality backed by price increases

  • Top-line soars annually; Sequential performance lags due to seasonality

  • Gross profit margin pressured by raw material costs; Bottom line pushed by investment income

  • Commodity pressure will ease off; Margins will recover; Maintain Overweight

Al Ahly Pharos Securities Brokerage
17 August 2022

Top-line soars annually; sequential performance lags due to seasonality

EFID booked a healthy top-line of EGP1,573 mn for 2Q22, compared to EGP1,151 mn recorded in 2Q21 and EGP1,559 mn recorded in 1Q22 (+36.7% YoY, +0.9% QoQ). The rise was achieved by an increase in volumes and prices, with the latter having the highest contribution. ASP/pack during the quarter reached EGP2.1, a rise of 18.1% YoY and 3.9% QoQ. Volumes sold reached 746 mn pack with a rise of 15.8% YoY and a decline of 3.1% QoQ. Volumes sold in tons however, dropped both annually and sequentially by 3.9% and 6.3%, respectively, an indicator of the company’s reliance on indirect price increases through shrinking package sizes while maintaining the same price point or higher. 1H22 revenues reached EGP3,132 mn, a rise of 35.2%, backed by a 16.8% increase in ASP/pack and 15.7% rise in volumes sold to reach 1,516 mn pack.

The annual revenue growth achieved was backed by increased revenues across all six segments primarily driven by higher prices. Yet, when it comes to the sequential segmental performance, most segments lagged behind QoQ, taking into consideration Ramadan when snacks consumption is relatively low compared to other quarters.

The cake segment continued to account for the largest contribution to revenues, recording revenues of EGP789 mn during the quarter, growing by 65.2% YoY and 12.1% QoQ. Growth in the cake segment was supported by an increase of 46.8% YoY in packs sold coupled with a 12.5% YoY increase in average price per pack. Sequentially, packs sold climbed 12.7% QoQ and ASP dropped by 1.2%.

The bakery segment recorded revenues of EGP507 mn (+14.8% YoY and 10.2% QoQ) on the back of a 44.5% YoY increase in ASP/pack, which cushioned the drop of 20.5% YoY in volumes sold. QoQ change in bakery volumes came flat with a rise in prices by 10.4%.

Revenues from the wafers segment recorded EGP143.8 mn for 2Q22 (+11% YoY, -40.8% QoQ), where the annual rise was pushed by a 35% YoY increase in prices offsetting a 1% YoY drop in packs sold. Wafers ASP climbed sequentially by nearly 38.6% QoQ, but the rise was not enough to soften the drop in volumes by 74.2% QoQ.

The rusks segment recorded revenues of EGP85 mn during 2Q22 (+33.6% YoY, -8.1% QoQ). ASP for the rusks climbed by 24.8% YoY and remained flat QoQ, while packs sold dropped by 11% YoY and climbed by 54.8% QoQ. Candy revenues recorded EGP38 mn (+10.4% YoY, -14% QoQ), where the sequential dop was driven by a decline in ASP by 5.5% QoQ as well as a decline in volumes by 12.5% QoQ. Meanwhile, candy ASP climbed YoY by 145.6%, and volumes declined by 55%. The biscuits segment recorded revenues of EGP9 mn (+194.1% YoY, -33.8% QoQ), ASP climbed YoY by 19.6% and dropped QoQ by 2.5%, while volumes picked up YoY by 170.9% and dropped QoQ by 33.3%.

It is worth mentioning that the last wave of direct price increases happened in 1Q22, leaving 2Q22 with only indirect price increases in the cake segment through product sizing. The rusks segment consumers migrated to the EGP3.0 price point as products priced at EGP2.0 per pack were discontinued.

Gross profit margin pressured by raw material costs; bottom line pushed by investment income

Gross profit for 2Q22 came in at EGP526 mn with a margin of 33.5%, compared to EGP345 mn in 2Q21 with a margin of 30% and compared to EGP563 mn in 1Q22 with a margin of 36.1% (+52.4% YoY, -6.5% QoQ). The annual increase in gross profit and margins was made possible by the price increases whether directly or indirectly applied to all segments. The sequential drop was caused by prices nearly remaining the same, with costs rising at the same time. 1H22 gross profit reached EGP1,089 mn compared to EGP743 mn in the previous period, a rise of 46.5%, reflecting a margin of 35% versus 32% achieved in 1H21.

EBITDA recorded EGP282 mn for 2Q22, (+82.5% YoY, -9.3% QoQ). The sequential decline came due to the trickling down of a similar trend from gross profit, along with an increase in G&A expenses by 14% QoQ, despite the decline in distribution expenses by 12.4%. EBITDA margin reached 17.9%, versus 13.4% in 2Q21 and 20% in 1Q22. 1H22 EBITDA recorded EGP593 mn, compared to EGP326 mn in 1H21, hiking by 82%, leading to a margin of 18.9% versus 14.1% (+4.9pps YoY).

Attributable net profit for the quarter reached EGP180 mn, climbing by 90.8% YoY and 10.9% QoQ despite other income statement accounts declining sequentially, however, the steep decline of other expenses by 84.6% QoQ and a rise in other income to reach EGP9 mn supported bottom line performance. Growth was also backed by Edita Morocco was consolidated starting May 2022 resulting in EGP30.9 mn in gains from associated for the quarter. The company also reported a gain on sale of fixed assets of EGP7.5 mn was realized during the quarter. NPM recorded 11.5% during 2Q22, versus 8.2% in 2Q21 and 10.4% in 1Q22. 1H22 net profit reached EGP342 mn compared to EGP176 mn, a YoY remarkable increase of 94.5% YoY. Reflecting a margin of 11% versus 7.6% in 1H21 (+3.4pps YoY).

Another support for bottom line is the drop in net interest expenses by 51.3% YoY and 15.3% QoQ to reach EGP3 mn during 2Q22. Net debt dropped in June22 to reach EGP406 mn, compared to EGP991 mn in June21 and EGP829 in March22.

Commodity pressure will ease off, margins will recover; maintain Overweight

EFID managed to show a strong performance during the quarter despite weak seasonality and heightened costs. As global commodities slowdown towards 2H22, margins are expected to pick up gradually as cost pressures start to wane off.

EFID has started operations at its new bakery production line that cost EGP135 mn. The new line will increase the annual capacity for the segment by 11 thousand tons (+20% YoY). This marks the company’s eighth production line for the baked goods segment and comes amid rising demand for its Molto range. The company declared earlier a capex budget of EGP400 mn dedicated mainly to new production lines for its baked goods and wafers segment.

EFID is currently trading at a FY22 P/E of 11.5x and an EV/EBITDA of 5.9x.