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Juhayna: Management Webinar Key Takeaways

  • 2020 main updates

  • New segment and SKUs; 2021 should be healthy

  • Raw materials prices

Al Ahly Pharos Securities Brokerage
14 January 2021

2020 Main Updates

  • The management cannot disclose the actual results of 4Q20.

  • Management projected flat revenues YoY for 2020, which translates into a revenue figure around EGP6.7 billion in 2020, versus EGP5.7 billion recorded in 9M20.

  • The demand normalized starting from May 2020 after the huge surge in demand as a reason of overstocking done during the pandemic and Ramadan. The decline was mainly in the single-use products sold in kiosks as traffic in the streets dropped and universities and schools were closed. The drop in single-use products was 23% YoY in 2Q20.

  • This trend reversed after 2Q20 and demand recovered during 3Q20 and 4Q20. Total demand in 3Q20 was flat YoY and -6% QoQ as people returned to normal lifestyle and the same trend continued in 4Q20.

  • Dairy segment had a slight growth YoY in 2020 compared to 2019. Juice segment is expected to experience a decline YoY.

  • The latest market shares as of November 2020 are 58% for milk, 30% in plain yoghurt, 25% in juice, 53% in drinkable yoghurt and 55% in flavored milk.

  • Due to competition and purchasing power, SG&A as a percentage of revenues increased starting from 2Q20 as the company offered more consumer promotions mainly directed to yoghurt to maintain growth and market share. This reflected in stronger sales of yoghurt compared to 2019. Total marketing expenses amounted to 6.2% of total revenues in 2020 and this percentage is expected to increase by 1-1.5pps in 2021 because there are new products that the management is planning to create brand recognition for through marketing.

  • Juhayna reduced the inventory days on hand by around 17 days compared to 2019 saving costs and reducing debt level from net debt of EGP1.8 billion in 2019 to less than EGP1 billion by end of 2020. This reflects positively in interest payments and bottom-line.

  • Concerning the main costs, exchange rate remained stable which enabled the company to offer more consumer promotions. Raw milk prices were stable in 2020 but increased by 5% in January 2021 but the company has a strategy to handle this increase. Powdered milk prices started to increase by end of 2020. The company’s inventory covers 2 months of powdered milk and has contracts covering 6 months so there will be no problem in the short-term.

  • Capex for 2020 has been around EGP300 million.

  • Regarding profitability, the company achieved growth in all profitability measures during 9M20 and this trend is expected to continue in 2020. EBITDA margin is 16.4% in 9M20 (+1.4pps YoY). NPM is 6.7% in 9M20. Net profit in 9M20 is EGP384 million (+32% YoY). This was a result of the cost optimization strategy which is continuing to date and also a result of the CBE’s 3pps rate cut in February 2020.

  • JUFO maintains 75% utilization of current capacity (overall). 

New Segment and SKUs; 2021 Should be Healthy

  • The company is on track to introduce a whole new segment to the market this month with minimal investments. The management is optimistic regarding the performance of this new segment and more updates will be available regarding this segment very soon.

  • The company recently introduced a new SKU, which is the lactose-free milk. The company produced full cream lactose-free milk and now will start to produce skimmed lactose-free milk. This will allow this category to grow in a faster pace than the current rate.

  • Greek yoghurt, which was introduced earlier this year, constitutes 2% of the whole yoghurt market and contributes c.20% of JUFO’s yoghurt revenues. Currently, JUFO is the leader in the Greek yoghurt market, by quite a solid difference with the one other competitor in that space (Lactel). 

  • Management did not provide specific guidance regarding the expected topline and bottom-line of 2021 but they are overall optimistic and believe that 2021 results will be better than 2020. The main risk that JUFO might face in 2021 is low purchasing power.

Raw Materials Prices

  • Management expects milk prices to increase in March and April 2021, become stable in May and June, then decline by the end of 2021.

  • If the company faces increase in raw material costs, it will pass most of it to the consumer through an indirect price increase, which is done through cutting promotions rather than increasing prices.

  • Domestic milk and imported milk prices are both correlated. During the current period, there is a massive oversupply for milk, which creates comfort on price outlook. Domestic milk is cheaper than imported milk by a single digit percentage difference. Management shuffles between both sources to raise cost efficiency. 

  • One of the main factors that supported the net debt and cash flow is the transition from imported milk to locally sourced milk.

Third-party Distribution Updates

  • JUFO will finalize the deal with Saudi company “Baeshen”, which is the main supplier for Rabea Tea, and this is compatible with the company’s strategy of distribution for third parties.

  • The company had a good deal with them to distribute Rabea Tea.

  • The company has a strong reach compared to previous distributor.

  • By this year, the company is planning to distribute the products after finishing their factory in Egypt. Until today, they distribute Rabea Tea coming from Saudi Arabia which is a niche product.

  • In 2Q21, the company will distribute the product manufactured locally in Egypt which targets mainstream, translating into higher volumes and profitability.

  • Rabea Tea is one of the top 20 Saudi Arabia’s F&B players and present in 16 MENA markets.

  • No planned capex for Rabea Tea so far as there is enough capacity when it comes to vehicles and sales branches.       

  • The company still has more third-party distribution contracts in the pipeline.

Change of Chairman

  • Chairman of JUFO, Safwan Thabet, was detained on 2nd of December 2020 under investigation; however, management assured investors that these are personal allegations that has nothing to do with the company and will not affect the company in any way. They are the exact same allegations that emerged in 2015 and are not new. 

  • Mr. Mohamed El-Dogheim was appointed as chairman of JUFO. He has been a board member at Juhayna since 1983 and he is a member at the Egyptian Saudi Business Council and the Saudi Chamber of Commerce. He also held a variety of positions in Saudi Arabia at the Ministry of Finance and Ministry of Transport. 

  • Business continues to run as usual and company is moving ahead with strategy and expansion plans.