Prices drive performance; Biscuits gaining momentum
EFID recorded a solid 1Q22 top-line of EGP1,559, 33.7% higher YoY and 1.3% higher QoQ. The high YoY growth was achieved by the support of both prices and volumes, where selling prices climbed by a full 15.9% YoY to reach EGP2.0/pack, and volumes remained broadly flat to reach 28,600 tons, a growth of 0.4% YoY. The growth in the number of tons is minimal while the growth in the number of packs is way higher of 15.6% YoY, supporting the company’s strategy of relying heavily on indirect price increases of shrinking package sizes while maintaining the same price point or higher. However, the sequential rise in revenues is solely supported by growth in average prices, rising by 6.3% QoQ, while volumes dropped by 9.5% QoQ.
The second half of the year is usually when volumes witness their revival, due to seasonality, compared to the first half. However, with current inflationary pressures and with the ongoing rise in selling prices, concerns arise about the consumer’s ability to absorb such rises and proceed with the usual rate of consumption, especially for the non-essential items.
The cake and bakery segment continues to be the major contributor to revenues, accounting for 74.7% of the total revenue for the quarter. Cake segment revenue came in at EGP704 mn, an impressive 40.5% rise YoY and 8.4% higher QoQ. The bakery segment recorded EGP460 mn, climbing by 14% YoY, yet dropping QoQ by 17.7%. The Rusks segment reached EGP93 mn in revenues, rising by 51.5% YoY and dropping by 8.1% QoQ. The wafers segment continues its fast track of growth supported by newly introduced products, recording EGP243 mn, a climb of 60.7% YoY and 29.4% QoQ. Candy segment revenues reached EGP44 mn (+11.9% YoY, +16% QoQ). Finally comes the biscuits segment that is starting to gain momentum after the introduction of the new brand “Oniro Lava”, recording EGP14 mn, a rise of a major 307.3% QoQ from the previously recorded EGP3 mn, and a YoY rise of 57.1%.
Edita Morocco started their first quarter of operations by recording revenues of EGP20.5 mn.
When it comes to volumes, biscuits witnessed the highest growth in volumes by 110.1% YoY, followed by the wafer segment, recording 21.5% rise in tons sold. The bakery segment witnessed the highest rise in average prices, a 35.5% increase YoY, leading to a drop in tons sold by 10.7% YoY.
Margins in the green, thanks to prices
Despite the current cost inflation, EFID recorded gross profit of EGP557 mn, a YoY growth of 39.9% and 6.9% QoQ, leading to a GPM of 35.7%, versus 34.1% in 1Q21 and 33.8% in 4Q21. Margin expansion was driven by the migration to higher-price points and efficiently managing costs. Manufacturing overheads (MOH) declined to 10.6% as a percentage of sales in 1Q22 compared to 13.2% in 1Q21 on the back of economies of scale.
A healthy top-line trickled down to a solid EBITDA of EGP293.4 mn, a YoY rise of 71.2% YoY, yet dropped QoQ by 16.1%. Changes in EBITDA were pushed by SG&A movements, where SG&A/revenues came in at 18.8% for the quarter, compared to 22% in 1Q21 and 15.1% in 4Q21, leading to an EBITDA margin of 18.8% in 1Q22, versus 14.7% in 1Q21 and 22.7% in 4Q21.
Net profit recorded EGP148 mn, climbing by a full 83.5% YoY, but dropping by 41.4% QoQ. Bottom-line was pressured by the recording of FX losses of EGP27.5 mn in 1Q22 due to the devaluation of the Egyptian pound in March 2022.
EFID’s total borrowings and loans in March 2022 stood at EGP1,057.6 mn, down from EGP1,195.2 mn in December 2021. Bank overdrafts recorded EGP211.9 mn in March 2022, versus EGP400.7 mn in December 2021. The company recorded EGP70.2 mn in net cash as of 31 March 2022, compared to EGP189.3 mn in net debt at year-end 2021.
Indirect price rise might cushion volumes; Maintain Overweight
While EFID was able to improve performance annually, the sequential decline in volumes and margins raises concerns when it comes to the remainder of the year. Direct and Indirect price increases are currently the only tools to maintain healthy margins, but the toll on volumes is already showing.
The 1H21 was relatively weak when it comes to volumes, leaving room for YoY growth in 1H22. However, 2H21 recorded one of the highest volumes the company ever recorded, leaving little room for growth if the current economic conditions prevailed.
It is worth noting that during the previous currency devaluation of 2016-2017, with its effect on inflation and purchasing power, EFID managed to maintain healthy levels of gross margins despite the severe downturn in volumes sold.
Since management is already taking steps to deleverage the balance sheet, pressure on the bottom line will be alleviated along with efforts to control expenses through raising efficiencies.
EFID is currently trading at a FY22 P/E of 9.3x and an EV/EBITDA of 5.3x.