Edita Food Industries S.A.E.: IPO Decision

Abstract

This case study is about a large fast-moving consumer goods (FMCG) company, Edita Food Industries, in the Egyptian market. The case’s main theme is a finance one, about the decision to go for an initial public offering (IPO) along with the pros of cons of that decision. In addition, the case discusses what it takes to be listed on a foreign stock exchange. The case also addresses other issues such as the influence of the currency devaluation, potential growth opportunities, along with the trade-off between being listed and retaining a family business.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Resources

Exhibit 1: Price per Product in Each Segment

EGP/Pack

Q1–15 Average

Cakes

0.86

Croissants

1.09

Rusks

1.00

Wafers

1.00

Candy

1.80

Source: Pharos Holding

Exhibit 2: Segment Reporting

Cake

Croissant

Bake

Freska

MiMix

Other

Total

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

Revenue

1,142,057

1,034,613

563,995

450,073

88,556

78,059

63,833

58,252

52,520

19,277

7,600

7,215

1,918,561

1,647,489

Gross profit

439,900

391,670

226,041

180,824

22,127

20,937

23,160

24,589

6,267

(2,022)

3,294

3,205

720,789

619,203

Profit from ops.

257,627

255,556

136,051

106,347

5,641

8,282

(4,401)

4,921

(2,668)

(12,623)

2,161

2,320

394,411

364,803

Debit interest

(13,872)

(14,680)

(6,851)

(6,387)

(1,077)

(1,108)

(775)

(827)

(2,500)

(2,939)

(92)

(102)

(25,167)

(26,043)

Credit interest

14,238

4,431

7,031

1,927

1,104

334

796

250

-

(131)

95

30

23,264

6,841

Income tax

(81,232)

(64,137)

(42,848)

(26,682)

(2,062)

(2,061)

80

(1,220)

102

486

(668)

(578)

(126,628)

(94,192)

Net profit

176,761

181,170

93,383

75,205

3,606

5,447

(4,300)

3,124

(5,066)

(15,207)

1,496

1,670

265,880

251,409

Source: Edita Prospectus

Exhibit 3: Cost of Goods Sold

For the year ended December 31,

2013

2014

Amount

% of total

Amount

% of total

Period to Period
Change (%)

(EGP millions, except percentages)

Raw materials expenses

834.3

81.1%

944.8

78.9%

13.2%

Labor expenses(1)

72.9

7.1%

93.6

7.8%

28.4%

Utilities expenses

16.2

1.6%

23.5

2.0%

45.1%

Depreciation

27.8

2.7%

36.2

3.0%

30.2%

Other(2)

77.1

7.5%

99.7

8.3%

29.3%

Total

1,028.3

100.0%

1,197.8

100.0%

16.5%

Exhibit 4: Edita Financial Statements

EDITA FOOD INDUSTRIES (S.A.E.) AND ITS SUBSIDIARIES
Consolidated statement of income – For the year ended 31 December 2014

(All amounts in Egyptian Pounds)

Note

2014

2013

Sales

1,918,561,386

1,647,488,499

Cost of sales

28

(1,190,558,470)

(1,022,722,491)

Gross profit

728,002,916

624,766,008

Selling and marketing expenses

28

(205,785,594)

(183,654,547)

General and administrative expenses

28

(118,811,269)

(85,195,841)

Other income

23

18,101,753

32,701,318

Other expenses

24

(15,546,470)

(8,821,004)

Net profit from operation

405,961,336

379,795,934

Finance income/(cost), net

25

4,021,396

(20,430,516)

Net profit before tax

409,982,732

359,365,418

Income tax expense

26

(126,628,100)

(94,191,730)

Net profit for the year

283,354,632

265,173,688

Distributed as follows:

Shareholders’ equity

283,558,211

268,764,445

Minority interest

(203,579)

(3,590,757)

Net profit for the year

283,354,632

265,173,688

Earning per share (Basic and Diluted)

27

0.78

0.73

There are three semicircles forming three corners of an inverted triangle. The data are tabulated below.

Shareholders

Africa Samba (Actis)

Berco Limited (Berzi Family)

Exoder (Chipita)

Ownership Percentage

30%

42%

28%

Figure 1 Ownership Structure FY 2013.

An illustration shows a comparison of the ownership percentage of different shareholders of Edita.

Source: Edita financial statements 2013

The data are tabulated below.

Edita Food Industries S.A.E.

Digma S.A.E.

Edita Participation Cyprus Ltd

Edita Confectionary Industries S.A.E.

99.8%

100.00%

77.70%

Figure 2 Subsidiaries FY 2013.

An illustration shows a comparison of the percentage of Edita’s subsidiaries.

Source: Edita website

The graph is titled Factory Utilization Continues to be Close to Maximum Capacity superscript 2. The horizontal axis lists the years and ranges from 2012 to 2014. The data from the graph tabulated below.

Year

2012

2013

2014

Percentage

81.5%

87.50%

100.1%

Figure 3 Factory Utilization.

A bar graph shows a comparison of the company’s production capacity from 2012 to 2014.

Source: Investor Relations Presentation

The illustration is titled Egypt’s Snack Food Market Estimated Sales by segment. The data are tabulated below.

EGP bn

2010

2011

2012

2013

2014

CAGR 2010–2014

Salty Snacks

3.1

3.5

5.0

5.1

5.8

16.4%

Biscuits, Gum and Chocolates

1.8

2.4

3.5

4.2

5.6

33.4%

Cakes

0.6

0.8

1.1

1.3

1.4

22.1%

Wafer

0.6

0.8

1.2

1.3

1.3

20.5%

Croissant

0.2

0.3

0.5

0.6

0.8

36.7%

Candy

0.3

0.3

0.5

0.6

0.6

23.3%

Total

6.7

8.1

11.7

13.1

15.5

23.6%

Figure 4 Egypt’s Snack Food Market by Segment.

An illustration shows a comparison of Edita’s CAGR from 2010 to 2014.

Source: Pharos Holding

The data are tabulated below.

For the

2014

 

Sales

% of total (EGP mn)

Product:

 

Cakes

1,142.1

59.5%

Croissants

564.0

29.4%

Rusks

88.6

4.6%

Wafers

63.8

3.3%

Candy

52.5

2.7%

Imports

7.6

0.4%

Total revenue

1,918.6

100.0%

Figure 5 Revenue of Each Product for Year Ending 2014.

An illustration shows a comparison of Edita’s various snack products sales and percentage of total EGP mn in 2014.

Source: Edita prospectus

The data are tabulated below.

(EGP mn)

2012

2013 superscript 1

2014

Maintenance Capex

26.5

56.5

63.2

% of Revenue

2.0%

3.4%

3.3%

Expansion Capex

64.8

44.8

187.1

Other One-Time Expansion Capex

42.3

53.4

4.4

Total Capex

133.5

154.7

254.7

Figure 6 Capital Expenditure.

An illustration shows a comparison of Edita’s capex from 2012 to 2014.

Source: Edita annual report

The data are tabulated below.

Production Lines

21

Plus 1

Plus 2

Plus 1

25

2014 Capacity

Cake

Croissant

Rusks

2015 Capacity

Production Capacity Additions (000 Tons)

101

7.6

24.4

3.7

137

Figure 7 Future Production Lines.

An illustration depicts Edita’s production capacity additions from 2014 to 2015.

Source: Edita Investor Presentation

The horizontal axis depicts the percentages and ranges from minus 15% to 90% with increments of 15%. The vertical axis lists the various sectors. The data are tabulated below.

Sector Indices Performance in 2014

Sectors

Percentage

Healthcare and Pharmaceuticals

74%

Real Estate

61%

Personal and Household Products

58%

Banks

48%

Financial Services excluding Banks

44%

Construction and Materials

25%

Industrial Goods and Services and Automobiles

1%

Travel and Leisure

minus 2%

Telecommunications

minus 3%

Chemicals

minus 9%

Basic Resources

minus 10%

Food and Beverages

minus 11%

Figure 8 Sector Indices Performance.

A horizontal bar chart depicts a comparison of the percentage contribution from different sectors in 2014.

Source: Egyptian Stock Exchange

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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