Positive expectations for food industries in 2023, despite inflation, high interest rates

Fatma Salah
6 Min Read

Food producers expect positive performance during the current year, despite the high inflation and interest rates, but the food sector is always defensive in crises. In spite of the unfavourable conditions, food companies have succeeded in recording significant growth rates over the past year with expectations of continued positive performance during the current year.

Menna Shams El Din, Director of Investor Relations at Edita Food Industries, told Daily News Egypt that the company was able to maintain its profit margins during the current year, by adopting a new pricing policy after increasing the prices of raw materials.

She added that the company absorbed the market movement very quickly, and maintained its profitability over the past year.

Edita achieved consolidated net profits that exceeded EGP 1bn during the fiscal year ending last December, compared to EGP 528.870m in the corresponding period, an increase of 92.9%.

Marina William, a financial analyst at Al Ahly Pharos for Securities Brokerage, said that the food sector companies benefited greatly from inflation and their profits increased last year, starting from the second quarter of 2022 until now, especially since the companies quickly absorbed the rise in raw materials, and put in place new policies to maintain corporate profit margins.

She explained that the companies passed the increase in raw materials to consumers to avoid affecting their profit margins, in addition to offering new products at different prices.

William told Daily News Egypt that the rise in interest rates affected the expansions of food companies in light of the high cost of borrowing for companies that want to expand, especially those companies that rely on bank financing in the expansion process.

She added that some companies have benefited from the increase in exports, especially those working in dairy products and juices, with an increase in export demand for these commodities, and the increase in exports varies between companies listed in the food sector.

The total sales of Juhayna Food Industries increased by 29% during 2022, to record EGP 11.36bn, compared to EGP 8.8bn during the previous year.

Iman Marei, a basic resources sector analyst at the Arab African International Securities, said that the increase in costs for food sector companies did not affect their profit margins, especially since they passed the cost increases on product prices to the final consumer.

She stressed that the raw materials that enter the manufacturing process by companies have witnessed a significant increase during the recent period, as a result of inflation, and the decline in the value of the pound against the dollar, which increased the burden of importing raw materials on the companies of the sector, especially the bulk of the raw materials used in food companies such as palm oil and powdered milk.

Marei added that the company had increased the prices of its products to the final consumer, with an average increase of about 30%, at the level of products of companies such as Juhayna Food Industries and Obour Land, to preserve profit margins from erosion.

The results of Obour Land for Food Industries’ consolidated business for the past year showed an increase in net profits by 31.9%, to record EGP 462.63m, compared to EGP 350.67m in 2021.

The company’s consolidated sales grew by 51.69% to reach EGP 4.56bn in 2022, compared to EGP 3.006bn in the previous year.

Marei stated that high-interest rates directly affect the company’s expansions, and the profits of the already borrowed companies due to the high cost of financing, explaining that the food sector does not have great export power compared to the rest of the sectors, and cheese and dairy companies are not large exporting companies such as the petrochemical, fertilizer, iron and aluminium sectors to provide dollar income.

She indicated that companies are adopting a new strategy in the current period by pumping a group of new products into the market, such as Juhayna Food Industries, to contribute to the companies’ sales growth in the long term.

Marei stressed that this strategy will not be feasible for all companies, citing the example of Obour Land, whose cheese sector represents about 90% of its sales, which means that any new product will not significantly affect sales.

It expected the food sector companies listed on the stock exchange to continue to grow, and maintain profit margins, after the companies succeeded in achieving a boom in sales and profits last year, despite the unfavourable conditions.

The profits of Arabian Food Industries (Domty) tripled over the past year, achieving more than EGP 265.7m, compared to about EGP 72.4m in 2021.

The company’s sales grew during the previous year by about 55.3%, to record about EGP 5.217bn, compared to EGP 3.36bn in 2021.

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