Edita Food Industries Company (S.A.E) (EFID) Earnings Call Transcript & Summary

Hello, everyone. This is Hatem Alaa from EFG Hermes and welcome to Edita's Second Quarter 2026 Results Call. I'm pleased to have on the call today from Edita, Hani Berzi, Chairman and Group CEO; Sameh Magdi, Deputy Group CEO; Ahmed Samy, CEO, Egypt; and Omar ElAbhar, our Senior Manager. We will start by some comments from management, and then we'll open the floor for your questions. [Operator Instructions]. Gentlemen, please go ahead.

Good afternoon, ladies and gentlemen. This is Hani Berzi speaking, and thank you for joining our second quarter 2026 result call. Let me first begin by thanking Hatem Alaa from EFG Hermes for hosting us today. And I like exactly like he said, I have with me Sameh Magdi, the Deputy Group CEO; I have Ahmed Samy, the CEO of Egypt; and Omar ElAbhar, our Senior Investor Relations and investment analyst manager. As we closed the first 6 months of the year, we are pleased with the strong momentum sustained year-to-date and what is shaping to be another record year for EBITDA. Revenue grew 30.5% year-on-year in the second quarter to EGP 6.5 billion while net profit increased 31% to EGP 707 million with a healthy margin of 10.9%. For the first half, revenue reached EGP 12.3 billion up 32.5% year-on-year, while net profit increased by a strong 63% to EGP 1.5 billion with net margin widening from 9.9% in first half '25 to 12.2%. This growth was not driven by a single lever, but reflects the combination of stronger demand disciplined price point management and continued execution across segments. Total pack sold increased 16.6% year-on-year in the second quarter, while tons sold grew 23.9% alongside a 12% increase in average price point per pack to EGP 6.14. Underscoring the balanced contribution of volume growth and continued migration toward higher value price points. What gives that additional confidence is that the momentum was growth based across our segment. Cakes and Bakery continued to lead growth with revenue increasing 30% and 42.5% year-on-year, respectively. While Candy and Biscuits also delivered strong growth of 37.3% and 32.4%. Particularly encouraging is the continued development of our frozen segment, where revenue grew 33.6% year-on-year. We are developing further through both B2B and B2C channels with the strategic B2B partnership adding commercial momentum. While on the consumer side, we are refining the proposition for a more focused SBU portfolio, higher value offering and improved packaging based on the market learning we have accumulated since launch and supported by progress across both B2B and B2C channels. Innovation remains at the heart of Edita's continued performance. During the quarter, we produced Molto Gold in Bakery. The Premium Butter Croissant positioned at the category highest price point of EGP 20 per pack. We also launched a new offering in Cake and Wafer further building on our strategy of strengthening our brand, broadening consumer choice and our presence across higher value proposition. Together, this broad-based performance across our segments demonstrate the strength of our core business while highlighting the progress we are making in building additional growth engines across the portfolio. On the industrial side, we continue to bring additional capacity online to support demand. One of the Bakery line acquired in October was fully ramped up by April and reached full utilization during the second quarter. This is the second of the four acquired production lines to become fully operational and fully utilized. Following the Cake like ram up during the first quarter, we served a settlement to the strong demand. Additionally, the third of the 4 acquired lines in October also dedicated to Bakery is currently under installation. In parallel and as part of our planned CapEx program, we have ordered three new production lines for Egypt, one for Morocco and one for Iraq, further expanding our capacity platform across both our home market and regional operations. This addition strengthened capacity in our core category and give us further headroom to capture growth in the market. Regionally, Iraq remains an important pillar of our expansion -- power expansion strategy, local production, our newly introduced segment in the market on toward the end of March and generated EGP 72.5 million in revenue during the second quarter. Following the close of the reporting period, our second local production line in Iraq dedicated to Bakery also commenced operation in July and is running at full capacity. This marks another step in moving our Iraq platform from market development toward the broader local manufacturing presence. Our wide regional platform also continued to progress. Net export sales grew 38.3% year-on-year in the second quarter, while we continue to build our presence in Morocco, with first half revenue increasing 7.2% year-on-year. The combination of export local manufacturing and expanded brand right across Africa give us multiple routes to scale Edita beyond Egypt in a disciplined manner. Sustainability is also becoming increasingly embedded in how we invest and operate. In May, we started installation a rooftop solar photovoltaic system at our Sheikh Zayed headquarter with approximately 390 kilowatts peak installed capacity. In July, we were also awarded ISO 50001:2018 certification for energy management system, our fist ISO certification covering five of Edita's Egypt's six factory. This provides us with an internationally recognized framework to systematically measure benchmark and improve energy performance across our operations. Both of these initiatives support our focus on improving energy efficiency and reducing our environmental footprint as the business scales. Overall, we entered the second half of the year with confidence. We have healthy demand, stronger volume, additional capacity coming online, a broader portfolio and the regional platform that continue to advance. Our focus remains on converting this opportunity into sustainable and profitable growth while maintaining the pricing, cost and execution discipline that has supported our performance. With that, I will now hand over to Sameh to walk you through the financial highlights before we open the floor for questions. Sameh, can you please take the lead.

Thank you, Hani. Good afternoon, everyone. Let me take you through the key financial highlights for the second quarter of 2026. Revenues reached EGP 6.5 billion in Q2 '26 up 30.5% year-on-year, supported by strong underlying volumes, empty demand across our key categories and continued portfolio migration to higher price points. This grows first half revenues to EGP 12.3 billion, up 32.5% year-on-year. Operationally, total packs sold increased 16.6% year-on-year to EGP 1.12 billion in the second quarter. While tons sold rose 23.9% to 44,500 tonnes, average price per tax increased 12% year-on-year to EGP 6.14, demonstrating the balanced contribution of volume growth and continued price point migration. At the segment 11, our core categories remain the main growth engines. Fixed revenues increased 30% year-on-year to EGP 3.4 billion while Bakery revenues rose 42.4% to EGP 1.9 billion. Across our recent segments, Candy grew 37.3%, Biscuits increased 32.4%, Wafers returned to growth with a 14.5% increase and total revenues rose 33.6% year-on-year. Gross profit increased 29.8% year-on-year to EGP 2.1 billion in the second quarter, with gross margin broadly stable at 33% compared to 33.2% in Q2 2025. Direct materials costs stood at 56.1% of revenue, manufacturing overhead at 9.7%, while industrial depreciation declined to 1.2% of sales from 1.5% in the prior year quarter. SG&A remains well controlled relative to the pace of revenue growth. Increasing 29.8% year-on-year to approximately EGP 1.1 billion and representing 16.4% of sales compared to 16.5% in Q2 '25. EBITDA increased 30% year-on-year to EGP 1.2 billion, with margin broadly stable at 18.1% compared to 18.2% in the prior year quarter. Net profit increased 31.1% year-on-year to EGP 707 million in Q2 '26, net margin holding steady at 10.9%. For the first half, net profit reached EGP 1.5 billion, up 63% year-on-year, supported by continued revenue growth, improved operating profitability and significantly higher interest income. On the regional front, net export sales reached EGP 624 million in the second quarter of -- up 38% year-on-year and representing 9.6% of revenues. In Iraq, as Hani mentioned, [ Global ] Cake production commenced towards the end of March and generated EGP 72.5 million in revenues. During the second quarter, Morocco continued to progress as we further develop our presence in the market. From a balance sheet perspective, cash and bank balances stood at with EGP 5.2 billion as of 30th of June 2026. Gross debt stood at EGP 5.7 billion, resulting in a net debt position of EGP 440 million compared to a net cash position of EGP 266 million at year-end 2025. Inventories stood at EGP 2.8 billion at the end of June, compared to EGP 2.3 billion at year-end '25. While [ trading ] loss receivable reached EGP 374 million compared to EGP 243 million at the end of December. Total CapEx for the 6 month period ended fifth of June '26, amounted to approximately EGP 726 million, primarily allocated to planned expansions and production lines. Overall, the second quarter demonstrated the continued strength of demand and our ability to translate volume growth and portfolio migration and to sustain profitability while continuing to invest behind future growth. With that, we open the floor to your questions.

[Operator Instructions]. we'll take the first question from the line of [ Tanashi Ho].

Good afternoon, and thank you for taking the time and also congratulations on strong results. Just two questions from my side. The first one is income statements related. So during, say, late March, April and May, the pound weakened, somewhat. Can you give us a feel of what you guys expect of your GP margins in Q3 and Q4? Are you guys sitting on inventory acquired at a weaker pound that could put pressure on GP margins? Or are you comfortable that the pricing that you have and the volumes that you can achieve that you can pretty much defend and as if you see margin level you delivered in Q2? Then my second question, you mentioned some unutilized capacity in passing during commentary just now, can you give us a reminder to how much headroom you guys have across your key categories or unutilized capacity that should be treating as upside potential? Thank you.

Thank you, Tanashi. Thank you very much for congratulating the team for the strong results. On the income statement point, I will have some comments, but just to give some comfort on the gross profit margin, that's a continuous process that we'll keep on looking with the team. I don't want to say week by week, but whenever we feel that there is an inflation due to depreciation or appreciation of the EGP or whether because of the regional tension that could have additional cost to our raw material, whether in logistics or whether in demand like we have seen or hike in any commodity like we have seen with cocoa powder over the past couple of years. So this is something that we overlook very carefully. Just to make sure that we maintain our margin within the healthy range that we would like them to be in order to be able to deliver, I mean, the net results that we are expecting and what we are budgeting for. Sameh. would you like to shed some light further on what is the expectation for the Q3 and Q4 when it comes to gross profit margin, I don't think there is any changes of what we are seeing today and unless something unusual happened? Correct, Sameh?

Correct. I think what we've seen so far Hani, and Tanashi as well, thank you. But Q2 already reflects the impact of change in material prices and devaluation. We went from 47% in Q1 to ranging somewhere between 49, 51, maybe at a peak of 52. And what we've seen throughout the quarter compared to the same quarter last year, a total increase of 14% in the cost. 12% related to price increases and 2% in relation to CapEx. I think we will continue seeing a currency fluctuation until the end of the year or until you see more stability in the region. But I think our view is we will maintain the 50, 52 max on the FX during the second half of the year. And this will not have a significant impact on our total costs for our gross profit, as we will keep watching and adjusting maybe slightly the weight we maintain the profitability at the 33% currently. I think for the second part in relation to the capacity addition, I leave Ahmed Samy to take this one. Thank you.

Thank you, Sameh. I think just adding to what you've been saying, I mean, definitely, when it comes to gross margins, as you just mentioned, we've seen that late year with all the geopolitical pressures that we've encountered that we've been able to manage perfectly our propositions in order not to get a hit on gross margins whatsoever. And lately, if we look into the projections that we have also from supply chain level on the price of the different commodities. We tend to see that there has been some sort of ease in the projections, and that numbers are [indiscernible]. This capacity increases that are definitely required. We've had a previous acquisition of 4 different lines for Bakery and Cakes from another food conglomerate and that already two of which are already operational, and the third one will get to operate by Q4, which will enable us more -- we'll add another additional capacity of around 10% to 13% on Bakery specifically. And as we're running almost full utilization currently. Moreover, we're planning for 2027 to have another heavy year in terms of investment, in terms of CapEx. We are introducing an extension to one of our existing plants in Polaris and [indiscernible] introducing a new production role that will be able to accumulate around 6 to 7 production lines, out of which four are planned to be effective in 2027. So definitely, we are -- the good news that we are having a very solid plan in order to increase our capacity and that will enable us to continue meeting the demand in the coming half in 2026 and going forward in 2027 [Foreign Language].

Thank you, Sameh. And like you said exactly and both Sameh and Samy, we have preponed on the CapEx this year. We are building the extension of our E8 facility. That's a plot of land of 25,000 square meter to accommodate the new lines, some of the new lines that are will be delivered by Q4 and Q1 2027. Thank you, Tanashi. I hope we covered your question.

We take the next question from the line of [ Waruna Kumaraj ].

Hello. Hi, good afternoon. Good afternoon. This is Carlo [indiscernible]. Congratulations on the results. I have Three questions. The first question is related to the ForEx loss that you reported in the income statement of EGP 73.5 million. I'll be -- I'd appreciate if you can give some color on that. What was the main driver behind that item. So that is my first question, if you can elaborate on that. Secondly, in terms of the Iraqi operation, I want to know what are the -- I mean, do you have any kind of medium-term targets saying where do you want to reach in the next 2 to 3 years? And the last question is on Morocco. In terms of top line, I mean there was a significant ramp-up being '25. But last few quarters, we've kind of tapered off in terms of growth. So what are your expectations in the Moroccan operation? Thank you.

Thank you very much, Waruna. Sameh, can you take the lead on this answering on the product loss issue, then we can elaborate together on the next two and -- the second and third question.

So for the FX loss, we are keeping some currently some dollar balances on our balance sheet have net positive in foreign currency, around $20 million we have this position in anticipation of our regional expansion plan. However, you will see with the up -- with the valuation of our FX exchange rates in Egypt going from the 47 to the 53, 52 rolls out to the 50. We see gains and losses on these amounts. So we have, I think, around EGP 45 million came in Q1 of EGP 73 million loss in Q2. So the position of EGP 25 million, EGP 30 million for H1, which we expect that we will keep on fluctuating until we go into the effective investment in our regional LatAm. So that's the that FX report for Iraq. Hani would you like to start?

No, no, go ahead, Sameh.

For Iraq inventory are quite happy with the stage where we are in now. We have our Cake line and operation, and we started sales and introducing our new brand us locally. In July, as Hani said in the introduction, we have ramped up our production capacity for the Bakery line, and it's on track, and we see significant demand that we still have to serve from the Egyptian operations by export until we can increase our capacity there. We have heavy expansion plans still planned for Iraq with an additional production goal and two additional lines to arrive somewhere between end of this year and end it to complete the capacity and then we will start looking at probably additional lines depending on which segments will grow even faster. We are quite bullish on what we see in the market. The brands are quite strong. our distribution channel is as well when established within the different regions in Iraq. We had a couple of delays because of the regional geopolitical situation. Now things are still a bit difficult but way management, which will allow us to continue our investment parents. Since we see a growing in volume and top line. However, we see as well positively that Egypt as well still growing at even a higher rate. So I think Iraq would remain probably on the within 2, 3 years, at the 7% of our total top line.

We are very pleased with the Iraqi operation. I know it's very challenging country to work in, however, because we have established a brand mainly Molto and Tiger Tail brands many, many years ago, it was much easier to enter the market replacing importation by local production. However, the line is, as we mentioned on the call, the cross online is starting at full capacity, so we produce only one SKU and we serve the market with additional SKUs are needed from Egypt. So eventually crossing finger, we see a great potential in the act like Hani said. So you want to elaborate on Morocco, or Sameh?

Yes, sure. We have seen a drop in 2025. And we see -- we're still growing in the Moroccan market however at slower pace despite the different launches that we had during the year. I think we identified our main challenges on revising and improving our route-to-market strategy, which we are currently in the process of implementation and moving to a better coverage throughout the different regions in Morocco, which will allow to come back with significant and more attractive growth rates for our operation there. We as well look to the expanding to spend in an additional segment that should as well add to the top line locally.

Okay. Just if I may ask one follow-up question related to the ForEx loss. So as you mentioned, it's related to the dollar balance that you keep, you said that's around $20 million. I just want to get an idea as to what's your plan? I mean are you going to maintain this talent? Or are you utilizing this going forward? What's basically your plan regarding this currency?

So we usually do not like to keep foreign currency balances and we refer to what our balance sheet has more or less breakeven on exposure -- on currency exposure. So we maintain usually the foreign currency balances in addition to the total exposure on the balance sheet. Other currently, as we are looking for regional expansion, we need to keep some additional dollars for the planned investments, and this is why we have currently this $20 million.