On the ground update
4Q20 is a good quarter with a low double-digit growth YoY in topline with significant recovery across all segments. This came on the back of Egyptian traffic coming back to the street as well as the seasonality of the business.
This growth was mainly driven by the core segments which are the bakery and the cakes segments. The bakery segment was an outperformer mainly driven by the higher value propositions at higher price points, such as the Molto sandwich and the magnum. The growth was also driven by the increased average price per pack.
EFID gained 9% market share in the bakery segment since the beginning of the year.
Cake segment, which is around 40% of total revenues, did well in 4Q20 especially the rolled cakes. Also, EFID was able to defend its market share specifically in the layer cake where competition was seen over the past few years. EFID gained around 3% market share in the whole cake segment since the beginning of the year.
Concerning wafers segment, the company is expanding its capacity and it has currently a new line under installation. This will double the total capacity of the wafers. Freska sticks, despite being a new launch, makes around 30% of total wafers revenues. EFID managed to grow the market share or wafers to around 10% compared to 7% last April.
The wafer is one of the fastest growing segments in Edita. It has a very acceptable value proposition for the consumer and acts as a substitute for chocolates with attractive pricing.
Edita entered biscuit segment last year through the brand Oniro and achieved higher revenues of biscuits in 4Q20 compared to the previous quarter.
Volumes are slightly down YoY in 4Q20 but there is a growth coming from the price increases.
Regarding profitability, it is largely improved driven by growth in volumes and higher price points.
Financing strategy is to benefit from a low interest rate environment and moving from USD to EGP debt.
The company expanded its fleet and invested in distribution capabilities which gave it higher reach for POSs.
2021 guidance and highlights
Going forward in 2021, a continuation of recovery is expected, supported mainly by a growth in the sweet and savory bakery segment as well as the cake segment with new products and innovations in the pipeline, and continue the strategy of portfolio optimization.
Although back to school season is postponed, 2021 numbers are promising with double digit growth YoY in January.
Edita’s strategy is to push the consumer to higher price points to support long term profitability and introducing Oniro as a new revenue stream which is expected to contribute to 3% of total revenues in 2021.
The company should see a recovery in the smaller segments, like rusks, which were lagging in the last period.
Capex budgeted for 2021 is around EGP400 million for the expansion and of the industrial operations either by doing capacity expansions or installing new lines.
The company is expecting to gain market share specifically in the bakery and wafer segments with further capacity expansions and new innovations and products in the pipeline.
Stable margins are expected in the cake segment (around 40%) in 2021 and this has the highest GPM across all segments.
Edita’s target is to remain above 35% of group GPM.
SG&A as a percentage of revenues is budgeted at 20% in 2021. Marketing and advertising budget is expected atv 4-4.5% of revenues. This is close to 5.5% in 2020.
The company sees acquisition opportunities in 2021 versus 2020.
Current pricing strategy is to do more indirect price increases especially in the bakery and cakes sectors. In case VAT law got approved, the company might consider some direct price increases.
Edita expects to reap the fruits of the recent investments in logistics, marketing, and new lines in 2021 and 2022.
Dividends distribution strategy is to maintain a dividend payout ratio of 35-50%.
There is a probability that the parliament will approve the proposed bill to increase the VAT on snack food from 5% to 14%. 14% is already applied on the candy segment but it will be applied to all the segments if this law is approved. This will have a negative impact on the topline of the company. The company will either increase prices indirectly through introducing new products with higher price points or direct price increases for existing products. In all ways, the company is planning to pass this increase to the consumers.
Cost base of EFID is relatively diversified so it’s a kind of natural hedge. However, higher commodity prices in general are expected. The company is mitigating against this rise by the movement in average price per pack through indirect price increases.
Concerning Morocco, the construction of the factory is completed and the company will start installation of the first line this month and should be operational by the end of 1Q21. Pricing of products in Morocco is slightly higher.
Edita currently exports wafer to Morocco but once it operates the factory, there will be production on the ground in Morocco.
Export market is not doing very well given the current environment of the pandemic.
The products that are currently considered to be produced in Morocco are wafers and cakes.