Share analysis: Edita Food Industries - Consumer Goods

Edita Food Industries (Edita) is one of the leaders in the growing Egyptian packaged snack food market and in the Middle East, with an overall packaged snack food market share of 12% in 2014. Edita, a holding company that owns three subsidiaries, offers a wide range of high quality affordable snack food products that cater to various tastes and a broad spectrum of consumers in terms of age and disposable income.

Diversified Output

The firm is the largest producer of cakes in Egypt, with a 68% market share in 2014, and croissants (69%). It is ranked second within rusks through its Bake-branded products (42%). In 2012, Edita diversified its portfolio to include wafers and confectionary and candy products. The company provides sizeable marketing support for its distributors in its key export markets, and accordingly, has been able to capture considerable market share across several product categories in Jordan, Syria, Libya, the West Bank and Palestinian territories, and Iraq (6% of its consolidated 2014 revenue). Total revenue grew 16% year-on-year (y-o-y) in 2014 to LE1.9bn ($258.9m), mainly on the back of higher volumes in both the croissant (up 25%) and cake segments (9%), thanks to increased utilisation on more effective production planning, which has reduced waste and time.

The company has adopted a vertical integration strategy, which allows it to smooth and optimise its costs and increase its control over its supply chain process. It ensures that planning, purchasing, and logistics work streams are synchronised, streamlined, and carried out in tandem. The company currently produces 71 stock-keeping units (SKUs), has an annual production capacity that is expected to reach 137,000 tonnes by the end of 2015, and delivers products from its 18 distribution centres spread across 16 Egyptian governorates to more than 63,000 wholesale and retail customers via its 539 vehicles.

In 2014, 77% of all raw materials used were sourced from a broad spectrum of local suppliers that allow for absorbing short-term cost hikes. Edita’s attributable net profit climbed approximately 5% y-o-y, due mostly to a 16% rise in revenue, a 40 basis point increase in EBITDA margin, and a 99% drop in net interest expense. Edita has started to implement a new commercial strategy focused on launching larger sized SKUs and delisting the smaller ones.

Development Strategy

With a approximately 12% overall market share, we believe Edita’s penetration growth rate will continue to gain momentum given the ongoing growth in Egyptian demand for snack foods in an under-penetrated market with a growing population. Over the last couple of years, the company’s cake and croissant segments have been operating at their peak capacity. Edita has a flexible production capacity, which allows it to quickly respond to market conditions given the short lead time. In early 2015, Edita adopted a new expansion strategy in the local market to deal with increasing demand. This included the start-up of the extension at the E07 factory (hall B) where two new lines came into production, namely a cake line with an additional capacity of 7600 tonnes/annum and two croissant lines with additional capacity of 24,200 tonnes/ annum. The company also managed to increase production capacities in the rusks segment 25% y-o-y through production line enhancement and the addition of new packaging capacities.

In May 2015, the firm bought a 55,000-sq-metre plot in Sixth of October City near the E07 factory for LE54m ($7.4m) to construct a new plant to increase production capacity. The new plant is expected to be operational by the end of 2016. Edita signed two contracts with Hostess Brands for the firm to include 12 countries in the MENA region and for the acquisition of know-how and technical assistance for 11 cake products from Hostess in the expanded region. A new SKU for Todo Hazelnut was also introduced, bringing the total number of SKUs to 71 during the 2Q2015.

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The Report: Egypt 2016

Capital Markets chapter from The Report: Egypt 2016

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