Flash Report /

Pharos Investor Conference: Meeting Minutes – Consumers

    Farida Salama
    Mohamed Hamza
    Al Ahly Pharos Securities Brokerage
    24 June 2019

    Sector Overview 

    Food & beverage sector is on track to recover to pre-flotation levels. Several companies are currently on an investment mode shifting towards expanding their portfolio with higher margin products to pull up their overall average margins. As a result of the dairy fierce competition and the cheese market saturation, F&B companies are venturing into new segments to expand and diversify their revenue base. As for the poultry industry, margins are on a slow recovery mode following the depletion of the low cost Brazilian frozen poultry, however margins are yet to recover to the pre-flotation levels. 

    Juhayna (FV: EGP12.73, EW)


    • Management has been focusing on new aspects:
      • Innovation: high margin products targeting tier 1 consumers that can absorb price increases. For example, the Lactose-free Milk, Tomato Puree  and ‘ Cinnamon Rayeb’. The company is also capitalizing on the brand equity and loyalty of ‘Bekhereo’ to boost volumes through the affordability of the product (launched 1 Litre  ‘Bekhereo’ juice and on track to launch a new product before back to school season). All new products were produced through utilizing old machines, no new investments were made. 
      • Cost Management: cutting costs through managing SG&As, creating efficiencies through cutting head count by 20% over the past three years and discontinuing products that does not meet the company’s internal KPIs. Also, the company offered in store promotions instead of spending on ads. 


    • 1Q19 volumes grew by 8% YoY and topline by 12% YoY. 
    • Yogurt market share increased by 4pps in Ramadan to reach 30%. 
    • Price increase plan for FY19 is 10%, 5% was planned for 1H19, however only 3.5% was implemented in 1Q19 to avoid pressuring the consumers (yogurt 10%, milk 2% and juice 6%). 
    • Discontinued ‘FLO’ distribution. Utilization rate for the distribution network currently stands at  60-65%, hence the company will capitalize on the available space through distributing non-Juhayna products.
    • White cheese currently holds a market share of 3%. The company met with ‘Arla’ to discuss the status of ‘PUCK’ and the plan going forward. Both companies are studying whether to invest more in PUCK, in terms of productions lines, or to produce a new product under a new brand name owned by both Juhayna and ‘Arla’.
    • The company owns 6,300 cows, of which 3,300 are milking cows. The company covers 10% of its fresh milk needs. 

    FY19 Guidance 

    • Prices: 10% increase
    • Volumes: 12% growth
    • Topline: 18% growth
    • GPM: 29-30%

    Domty (FV: EGP13.07, OW)

    Bakery Segment Updates

    • New line will be received by end of August19 with a capacity of 400,000 pc/day to reach a total capacity of 660,000 pc/day. The new line costs EGP100 million.
    • GPM reached 39.5% in 1Q19.
    • Revenues for the new line will reflect on 4Q19 and is expected to reach 20% of total revenues. 
    • The product is sold on cash basis and currently represents 9% of 1Q19 revenues.
    • New line capacity will allow the company to expand their outreach and serve the demand in other governorates.  

    Cheese Updates

    • GPM: 24-25%
    • Utilization rate: 55%
    • Government provides the company with outreach for 30,000 outlets

    Juice Updates

    • Re-branded and launched in Jun19
    • Market share is currently 7%
    • GPM is c.15% and utilization rate is 50%

    Re-structuring Distribution Strategy

    • The company is currently focusing on re-structuring the distribution strategy through increasing their direct distribution and finding more efficient agents. Direct distribution allows the company to control prices. Currently, 70% of the company’s distribution is direct with a fleet of 550 cars.

    FY19 Guidance 

    • Topline: exceeding EGP3 billion
    • GPM: 28%
    • NPM: 6% in 2Q19, 7% in 3Q19 and 9% by 4Q19

    Obour Land (FV: EGP10.0, OW)


    • OLFI plans to replace the old cheese machinery with new cost efficient ones, machines will be bought over 5 years with a 4.5% interest.
    • Cheese volumes dropped in April and May19. 
    • OLFI exports juice to Africa, Senegal and Chad. Utilization rate for juice and milk is less than 10%.
    • Farm is pending license, once obtained it will operate in 6 months’ time. The farm is expected to operate starting 2Q20. It will provide the company with its raw milk needs and will sell the excess production. 
    • SG&As/revenues increased due to increased number of cars (8.4% in 1Q19), expected to settle at an average of 8% in FY19.
    • The company will announce new higher margin products next year.
    • OLFI sells all its products on cash basis.
    • The company targets revenues of EGP2.8 billion (+10% volume and 5% ASP) and a GPM of 22%


    New Products in 2Q19

    • Freska pops line (Wafer segment)
    • ‘Juice-filled Sticks’ ( Candy segment) 


    • Signed biscuit line and will launch in 2020
    • Construction in Morocco’s factory started in 2Q19 and sales from the Moroccan factory is expected to start in 2Q20. 

     Capex plan

    • FY19 plan amounts to EGP450 million for the biscuit line, Morocco, Candy, Wafer and maintenance 
    • Going forward, capex is planned to be 10% of sales (7% for growth plans and 3% for maintenance). 
    • Delaying price increase due to EGP appreciation. Also, increases in electricity prices did not affect the company since electricity is only 2% of the cost.  


    • The company obtained a loan from the IFC to finance Morocco and biscuit line. 
    • SG&As for FY19 is expected to be 4.5-5% of revenues

    Cairo Poultry ( FV: EGP8.60, OW) 


    • Egypt consumes around 1 million tons of poultry annually, of which 90% is produced locally and the remaining is imported (around 70,000-80,000 tons annually). The government imported approximately 225,000 tons in FY18, which resulted in average poultry prices falling drastically and all market players (farms, small farmers & free-traders) suffering great losses.
    • Unlike every year, the private sector has been mostly responsible for the importation of frozen poultry. Around 30,000 tons of frozen poultry have been imported by May 2019, which is in line with management expectations. 
    • Egypt’s consumption per capita stands at 11.0-11.5kgs, relatively low in comparison to global average of 16kgs.
    • With no immediate capacity growth for POUL, management expect the market to continue suffering from a supply-demand gap of approximately 48,000 tons in FY19, increasing to 61,000 tons in FY20.  
    • Global corn and soya beans prices (which constitute around 50% of COGS) have gone down since FY18-closing and have been pretty stable, which translates in better margins for POUL. In addition, EGP appreciation further supports margin improvements in 2Q19.
    • Sector EBITDA margins stands at 13-15%, while NPM records 5-7%. 


    • From 2008 to 2017, management has been able to maintain strong levels of revenue and EBITDA despite facing the consequences of the global financial crisis, the January 2011 and June 2013 Egyptian revolutions. However, 2018 was an exceptional year where POUL suffered depressed margins as a result of the government’s dumping of low-cost Brazilian frozen poultry (sold at an average price EGP15-20/kg vs EGP30-35/kg for market average price). The government were forced to slash down price as a result of imports close to expiry.
    • Despite poultry sales falling, FY18 results witnessed improved revenue on the back of higher feed volumes as well as minimal price increases. However, margins faced immense pressure, on the back of increased cost pressures.
    • 1Q19 witnessed poultry sales recovery on the back of live bird volumes growth at 8% YoY as a result of depressed market price movements. 
    • Management expects a much-improved 2Q19 due to the increase in processing and live bird volumes and prices (recovering its share since the EGP devaluation and the dumping of imported frozen poultry). Management believe consumers have adapted to the new cost.
    • Farmers are still impacted by the FY18 dumping activities, therefore management expects lower levels of feed sales (contributes around 35% of total sales) in the coming quarter. 


    • Feed and processing segments are not operating at full-utilization.
    • The 30,000 sqm land initially negotiated for with the government has been put on hold as land has already been allocated to another company by the government. However, management are open to other plot lands to increase their parents and grandparents capacities.
    • POUL does not own cattle farms, where it purchases meat from the market and later transforms it into processing products. 

    FY19 Expectations

    • Management expects:
    • Revenues to increase by 5-10% YoY.
    • EBITDA margin to stand at 12-15%.
    • NPM to record 5%.