Jufo 26 05 2011 PDF

Juhayna Food Industries
A D a i r y Ta l e
Juhayna Food Industries (JUFO.CA) offers unique exposure to the convergence in per capita consumption of packaged dairy products in Egypt to developed and emerging market averages. Juhayna is Egypt's largest dairy producer with a dominant market share in the majority of its products. Due to intensifying competition, management has adopted a three-pronged strategy based on 1) product and geographic diversification, 2) active logistics management and, most importantly, 3) backward integration. In 2010, the firm went public and raised paid-in capital to primarily finance the backward integration program, via acquiring dairy and fruit farms. In 2011, we expect to see softer growth in revenues and margin compression compared to the previous year mainly due to the contraction in export sales to Libya and increase in raw milk cost. We also expect pressure on free cash flow due to capital expenditure on acquiring farms and expanding the distribution network. Beyond 2011, higher penetration rates in the packaged dairy and juice segments coupled with margins expansion will likely trigger healthy growth in profitability. We reinitiate coverage on Juhayna with a "HOLD" recommendation and assign a weighted average fair value estimate of EGP 6.0 per share. Juhayna produces four products, namely; dairy, yogurt, juice and concentrates. The core dairy segment generates around 60.0% of consolidated revenues whereas the yogurt and juice segments account for the bulk of the remaining 40.0%. By end 2010, Juhayna's captured 68.0% of the dairy market in Egypt. In 2010, local sales accounted for approximately 92.8% of revenues and exports were primarily channeled to Libya. Accordingly, the ongoing civil strife in Libya will likely impinge on export revenues in 2011. Industry growth dynamics are favorable due to the presence of a large consumer base and very low penetration rates particularly in the packaged milk sub-segment, which generated more than half of Juhayna's revenues in 2010. At present, packaged milk account for cc 15.0% of the total milk market size. However, we expect the pace of conversion from loose to packaged milk to accelerate going forward due to health awareness, improvement in affordability and aggressive penetration strategies adopted by local and foreign dairy firms.
Year End (31st December)
Revenues (EGP m) EBITDA (EGP m) EBITDA Margin (%) Pre Tax Profits (EGP m) Net Profits (EGP m) Net Debt (EGP m) Shareholders' Equity (EGP m) PE (x) P/NAV (x) P/CFPS (x) EV/EBITDA (x) D.Yield (%)
*Source: Reuters, Pharos Research.
26 May 2011
Sector Food & Beverage EGP 5.5 EGP 6.0 HOLD 726.4 m
Price per Share (26thMay 2011) Fair Value Estimate Recommendation No. Shares
Market Capitalisation (EGP) 3,995 m Market Capitalisation (US$) Reuters Bloomberg Exchange Rate (US$/EGP) 670.4 m JUFO.CA JUFO EY 5.96
Av. Daily Turnover (12 M) EGP 8.0 m Av. Daily Turnover (12 M) Year High-Low US$ 1.3 m
EGP 6.4 - 4.0
Price Performance (2010-2011)
7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0

0 0 0 0 0 0 0 10 10 1 11 11 11 11 01 01 01 01 01 01 01 0 0 01 0 0 0 0 /2 7/2 8/2 8/2 /8/2 /3/2 5/2 8/2 2/2 2/2 4/2 0/2 /4/2 5/2 5 / 2 /1 /1 / /2 /1 5 5/2 2 1 1 6/ 7 7/ 8/ 9 10 10/ 11 12 1 1 4
EGX30** JUFO.CA
2008A
1,463 124.4 8.5% 14.5 4.9 1,164 252.5 815.6 15.8 30.2 41.5 0.3%
2009A
1,578 388.4 24.6% 206.3 184.8 967.2 576.1 21.6 6.9 8.4 12.8 1.2%
2010A
1,861 438.2 23.5% 255.4 227.8 32.5 1,644 17.5 2.4 15.5 9.2 0.0%
2011E
2,051 414.9 20.2% 265.2 242.4 81.3 1,813 16.5 2.2 10.5 9.8 1.8%
2012F
2,466 502.7 20.4% 340.2 304.5 (149.1) 2,011 13.1 2.0 6.3 7.7 2.7%
2013F
3,045 630.5 20.7% 445.7 398.8 (39.3) 2,231 10.0 1.8 9.9 6.3 4.5%
1 month
JUFO EGX30
3 months (0.4%) (14.2%)
YTD (9.5%) (24.2%)
0.4% 8.5%
*Source: Reuters, Pharos Research. **EGX30 Index rebased to JUFO prices as of 15 June 2010.
Shaymaa El Nemr shaymaa.elnemr@pharosholding.com Nada Sameh nada.sameh@pharosholding.com
Shareholders' Structure Thabet Family Treasury Shares Free Float (Est.) Corporate Calendar H1-2011 Results August 2011 50.75% 2.8% 46.25%
Juhayna relies on external suppliers to secure the bulk of its raw milk and fruit requirements, which account for the bulk of total production cost and expose the firm to pricing, quality and supply risks. Accordingly, management launched a backward integration program to secure roughly 40.0%-50.0% of its raw milk and fruit requirements from captive farms. The program is expected to be completed by 2014 and should reflect on margins starting 2013. We reinitiate coverage of Juhayna with a fair value estimate of EGP 6.0 per share, 9.8% above the current market price. Our fair value estimate is a weighted average of two valuation methods namely, discounted cash flows (DCF) and comparable valuation multiples. Based on 26 May 2011 close, the stock is trading at 16.5x 2011E earnings, compared to a peer group median of 22.1x.
Subject to Attached Disclaimer.

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Contents
Part I: Company Overview I.A. Corporate Structure, Subsidiaries and Associates I.B. Product Range I.C. Evolution of Business Strategy I.D. Product and Geographic Diversification I.E. Active Logistics Management I.F. Backward Integration Part II: Industry Overview Part III: Financial Analysis III.A. Revenues III.B. Costs and Margins III.C. Working Capital Requirements III.D. Capital Expenditure III.E. Indebtedness III.F. Valuation
3 3 3 3 4 6 8 10 21 21 28 30 31 31 32

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I. Company Overview
I.A. Corporate Structure, Subsidiaries and Associates
Juhayna is an established local dairy and juice producer with a dominant market share across the majority of its product range. The company was founded in 1984 and production commenced in 1987 with a capacity of 35.0 tons per day. At present, Juhayna operates through eight subsidiaries, seven of which are majority owned. Six subsidiaries are production facilities whereas the other two operate at both ends of the value chain, primarily in farming and distribution. In 2009, Juhayna ventured into farming activities through setting up Al Enmaa for Agricultural Development Company which in turn acquired 40.0% of Milkes Dairy that owns a modern farm. Product distribution is conducted through the company's fully owned distribution arm, Tiba for Trading and Distribution.
Figure 1: Business Model

Production Entities Support Entities
Dairy
Juhayna Food Industries, (Milk & Cream) Masreya Dairy & Juice Co. (Milk, Cream & Cheese)
Yogurt
Egyptian Food Industries (EgyFood)
Juice
Concentrates
El Marwa Food Industries Company Modern Concentrate Company
Distribution Activity
Tiba for Trading and Distribution
Farming Activity
Al Enma for Agricultural Development
International Company for Modern Food Industries
*Source: Company Reports, Pharos Research.
**Juahyna holds a 99.9% stake in all subsidiaries and fully owns Juhayna Food Industries
I.B. Product Range

The company's operations are segmented across four lines of business namely dairy, yogurt, juice and concentrates. In the core dairy segment, which encompasses milk, cream and cheese, the company is by far the largest producer in Egypt with a share of 68.0% in the plain milk market as of December 2010. The company's product range was limited with only eight stock-keeping units (SKUs) including milk, plain yogurt and juice. Since then, additional capacities and products were added including juice concentrates, cheese and cream. Currently, Juhayna has a combined filling capacity across its four product lines of 2,700 tons per day, excluding concentrates production.
I.C. Evolution of Business Strategy

Over the past 25 years, Juhayna has evolved from a small-scale local dairy, yogurt and juice producer to a market leader. In terms of strategy, Juhayna's history could be divided into three overlapping phases. During the first phase, which lasted from 1987 until 1990, Juhayna started as a small dairy, yogurt and juice producer with a limit production capacity. During the 1990s and up to 2004, the firm pursued an aggressive geographic expansion and product diversification plan. Starting 2005 and up to present, management continued to pursue product and geographic Subject to Attached Disclaimer. 3

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expansion but started to focus on enhancing cost efficiency to increase profitability at the group level and partially ease pressure arising from competition. Product and geographic diversification aims at gaining market share and tapping different income strata, age groups and regional markets, whereas cost efficiency primarily aims at containing the costs of raw milk and concentrates, which collectively accounted for roughly 62.7% of total production cash costs.
Figure 2 : Company Milestones and Evolution of Business Strategy
Phase I (1987 - 1990) The Start
Phase II (1990 - Present) Vertical and Horizontal Expansion

Diversifying product portfolio across existing & new lines
Phase III (2004 - Present) Applying a Backward Integrated Business Model

Acquisition of El Masreya Dairy & Juice Company Acquisition of Egyfood Company Acquisition of El Marwa Food Industries Establishing Tiba for Trading & Distribution
Production capacity 35 tons per day
Production commenced with 8 SKUs
Acquired a dominant market share in Libya
Exporting to Europe, USA and Africa
Commenced B2B activity with McDonalds Egypt
Establishing Enmaa for Agricultural Development which acquired 40.0% of Milkes Dairy Company Establishing International Company for Modern Food Industries ( El Dawleya)
Juhayna's strategy is centered on backward integration. The existing business structure provides the company with presence across the value chain starting with the supply of quality raw milk and fruits passing through production and ending with distribution.
Figure 3 : Business Integration
Strategy
Backward Integration -Raw Milk -Fruits -Fruit Concentrates *Source: Pharos Research.
Product and Geographic Diversification
Active Logistics and Management
I.D. Product and Geographic Diversification

Product and geographic diversification has three primary dimensions, namely 1) expanding the product portfolio to cater for different income strata, age groups and consumer preferences, 2) increasing production capacity and 3) tapping export markets to diversify market risk. In 2009, Juhayna consolidated all of its products under the Juhayna brand name and logo. The motive behind this move was to create consumer awareness of the product's brand quality and grow market share. Subject to Attached Disclaimer. 4

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Product Diversification
Products fall under four business lines namely dairy, yogurt, juice and concentrates. The Dairy Segment is subdivided into milk, cream, and cheese, where milk is the largest contributor to revenues. Juhayna offers 65 SKUs under each dairy sub-segment.
Table 1: Dairy Segment SKUs
Milk Product Juhayna Bekhero Mix (Flavoured) Jino (Flavoured) Halibo Target Market
Urban population, mothers and all income classes A,B, and C Low income segments in class B and C Children between the age of 8-12 Children between the age of 3-7 Low income families
Product Brief
Juhayna's first brand and is the group's largest revenue generator. Launched to compete with the cheaper loose milk. Mix flavored milk is viewed as the first value added product in the milk segment. Flavored milk product launched in Q2-2009. Jino in a short period of time captured market share. Capitalizing on the Bekhero success in the low-income segment, Halibo will cater for the price conscious consumers.
The Yogurt Segment is the fastest growing segment in this industry. In 2010, Juhayna held a 30.0% share in the plain spoonable packaged yogurt market and a 56.0% share in the drinkable fruit yogurt products market. Juhayna offers 60 SKUs in the yogurt segment.
Figure 4 : Yogurt Segment SKUs
Yogurt Product Segment
Spoonable Plain Fruit Light Flavored Sweetened Mix

The segment's largest revenue generator and the company is well positioned in the local market Targets consumers who seek alternative to sweets. Ta r g e ts y o u n g a n d h e a l t h conscious consumers. Targets health conscious customers who are less price conscious Targets health conscious customers who are less price conscious Targets children between the age of 8-12
Drinkable Rayeb Zabado

Rayeb has strong brand recognition and is considered the most designated yogurt drink. Zabado was launched in 2002 targeting the 15-35 age bracket. Juhayna is a market leader in this category.

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The Juice Segment consists of juice packaged in carton packs and bottles. Initially, Juhayna penetrated the juice market by launching nectar drinks in carton packs. In 2009, the company started producing juice in bottles and is planning to introduce it in pouches in order to grow the customer base, through penetrating the low-income strata. Juhayna offers 84 SKUs in the juice segment.
Table 2: Juice Segment SKUs
Juice Product Nectar Pure Target Market Targets urban adults in income class A and B. Targets health conscious customers in income class A and B. Low income families Product Brief
In 2010, Juhayna held a 20.0% market share of the total nectar market. In 2010, Juhayna held a 61.0% market share of the total pure market. The company expanded in this category to cater for the high-income segment. A low price brand that targets rural and urban population.
Bekhero
Geographic Diversification
Juhayna's geographic presence spans out to countries in the Middle East, Africa, Europe and North America. In 2010, export revenues accounted for 7.8% of the top-line figure. The company's future export strategy is to expand in Africa and the Middle East and to phase out markets that pressure profit margins. Notwithstanding that export revenues will likely grow in the future as the company penetrates new markets, we believe exports in 2011 will likely contract due to political turmoil in key export destinations. Dairy and juice sales to Libya, Juhayna's core export market, are expected to languish in 2011 due to rising political tension in the country.
Figure 5: Revenues Breakdown and Exports Contribution by Country (2010A)
Jordan 8.4% Local 92.2%
Ceyan Mauritania 5.4% Others 8.6%
Export 7.8%
Libya 77.6%
*Source: Company Reports, Pharos Research
I.E. Active Logistics Management

Time is a crucial element in the dairy industry due to the short life span of the product. Accordingly, timely delivery of raw materials and end products in and out of the factory is vital. Juhayna has therefore invested heavily in building its own distribution network at both ends of the spectrum through owning a sizable fleet and contracting with sub-distributors in remote areas. The wide

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distribution coverage provides the company with direct interaction with different income and market segments. For example, in rural areas, Juhayna distributes brands targeted at low and middle-income consumers, while in urban areas it markets pricier, high end products. Juhayna's distribution network is comprehensive in terms of its geographic footprint and customer categories, which is considered difficult to replicate by industry peers. We believe that having a wide distribution network and a captive fleet provides the company with a competitive edge due to the company's ability to: Attain continuous brand awareness and lower marketing and distribution expenses, Ensure that customer satisfaction is under the company's supervision and is therefore not compromised, Monitor market trends and changes in consumers' behavior which provides Juhayna with more effective market penetration and customer reach, and Continuously track replacement levels and sales volume.
Figure 6: Juhayna's Distribution Network
Currently, the company has direct access to 26,000 outlets and indirect access to 50,000 outlets through sub-distributors and owns a fleet of 523 vans, both chilled and dry. The company plans to slate roughly EGP 100.0m in 2011 to expand both its distribution fleet and refrigerators extended to distribution outlets as not to compromise on the quality of its products. Juhayna plans to expand its fleet to 766 vans by the end of the year.

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In 2011, management implemented a segmented distribution strategy to improve sales and enhance market penetration. The company has divided its distribution fleet into three sales teams. Each team is responsible to enhance sales volumes and collection period of one segment. In continuous efforts to augment sales across its various segments and expand market share, Juhayna's sales strategy also includes strengthening relationships with major supermarket chains and hypermarkets, which are becoming the company's fastest growing customer base.
Figure 7: Distribution Channels (2010A)
Others Agents & 0.9% Tender 0.3% Distributors 6.3% Special Markets 7.2% Chains and Key Accounts 16.7%
Retail Outlets 39.1%
Wholesalers 29.5%
I.F. Backward Integration

Juhayna plans to satisfy roughly 40.0% - 50.0% of raw milk and juice requirements via captive farms by 2015. Fruits are processed into concentrates, which is the main raw material for juice production. The primary raw materials used in the production of dairy, yogurt and juice segments are raw milk and fruits. Combined, raw milk and concentrates account for 62.7% of Juhaynas total cash cost and accordingly management has focused on acquiring both raw milk and fruit farms. In our view, backward integration will likely improve profitability over the forecast horizon and partly offset the impact of competition on margins. However, we believe the company will remain exposed to supplier risks over the short-term.
Raw Milk
At present, Juhayna secures only 10.0% of its raw milk requirements from captive farms. Raw milk is the main input for dairy and yogurt products, the two largest business segments that collectively generate around 80.0% of consolidated revenues. Raw milk accounts for roughly 55.0% of total production cost thus securing supply of quality raw milk has always been at the top of management's agenda. The strong bargaining power of milk suppliers is one of the main sources of supplier risk in the dairy industry, both in terms of supply interruption and quality inconsistency. Juhayna's strong market presence partially enables it to mitigate these risk factors through maintaining a reliable network of milk suppliers with the appropriate quality standards. Besides working closely with milk suppliers, the company ventured into farming in order to secure its raw milk requirements from within the group. In 2008, Juhayna bought an indirect 40.0% stake

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in Milkes Dairy, which runs a state of the art dairy farm. In our view, the investment reflects positively on the quality of milk supply, which is measured by the average bacterial count per milliliter (TBC/ML). Currently, the ratio of Juhayna's raw milk input secured from farmers is 90,000 TBC/ML, versus a maximum of 50,000 TBC/ML according to international standards. Milkes Dairy's ratio exceeds international standards in terms of quality, as it stands at 20,000 TBC/ML. Juhayna slated a portion of its capital increase to own and operate agricultural farms in an attempt to control the supply of raw milk and fruit requirements. The company's subsidiary, Al Enma for Agricultural Development, has already started to reclaim 2,500 feddans out of its 10,000 feddan fruit and cattle feed farm. Juhayna also acquired 8,500 acres of land to establish its dairy and cattle feed farm.
Juice
Juhayna also relies on external farms to secure the bulk of its fruits requirements. Accordingly Juhayna has also pursued a backward integration strategy to secure fruit for the juice segment. The juice segment generated around 20.5% of total revenues in 2010. Juhayna acquired El Marwa Food Industries Company and established the Modern Concentrate Company to secure its needs of fruit concentrates for the juice business line. Nearly 76.0% of the company's juice concentrates requirements are sourced in-house and the balance is sold to third parties.

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II. Industry Overview

The Egyptian food and beverage industry offers exposure to an attractive per capita consumption convergence story in the MENA region due to 1) large and rapidly growing population, 2) favorable demographic profile, 3) rising per capita income levels, and 4) underpenetrated dairy and juice markets. As of end 2010, Egypt ranked as the most populace country in the MENA region, with a resident population of around 80.3 million. The annual population growth rate has historically hovered above 2.0%, which is significantly higher than the rate observed in developed markets and several high-income emerging markets. Nearly 45.0% of the population is under the age of 18, which creates a sizeable consumer base for dairy and juice producers. From 2004 to 2010, real per capita income grew by a cumulative 24.3%, which was reflected on consumption patterns in real estate, durables, and consumer staples, including food and beverages. Two trends have also reinforced the shift in consumption patterns, namely 1) expansion in hypermarkets and retail outlets, which caters for mid and high-end consumers, and 2) entry of foreign firms operating in the food and beverages industry, which helped support the shift in preferences via aggressive marketing campaigns.
Figure 8: Egypt Convergence Story: Milk, Juice and Yogurt Consumption Statistics (2009A)
Milk
100.0 90.0 80.0
Kg Per Capita
Juice
Yoghurt
94.2
70.0 60.0 50.0 40.0 30.0 20.0 10.0 20.0 46.4 29.0 13.6 3.0 7.0 7.0 5.0
3.0
Developing Avg.
Developing Avg.
Egypt
Developed Avg.
Developed Avg.
Tunisia
Egypt
*Source: Middle East Marketing Research Bureau (MEMRB), Pharos Research.
Dairy
The dairy sector in Egypt remains underpenetrated with annual consumption levels considerably below levels seen in developed and developing markets. Per capita consumption of milk in Egypt stood at 20.0kg per annum in 2009, compared to an average of 94.2kg per annum in developed countries and 46.4kg per annum in developing countries. According to industry experts, affordability has been a primary reason behind the low consumption levels of milk particularly that milk is not subsidized in Egypt. In some other subsidized food items, Egypt is amongst the world largest consumers. For example, Egypt per capita consumption of sugar is amongst the highest in the world, at cc 35.0kg per annum, partially due to the fact that cane sugar is sold at less than half of its international price via the ration card system. Similarly, Egypt ranks the world largest importer of wheat, again due to the fact that bread is heavily subsidized in Egypt. However, the fact that milk consumption is growing from a low base underpins the convergence story. Subject to Attached Disclaimer. 10
Saudi Arabia
Oman
Egypt

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Figure 9: Milk Consumption per Capita vs. GDP per Capita (US$)
120.0 100.0
Milk Consumption Per Capita (kg)
Vietnam
United States
Switzerland
80.0 60.0 40.0 20.0 -
Brazil Ukraine India Algeria Saudi Arabia
Egypt
10,000
20,000
30,000
40,000
50,000
60,000
70,000
GDP per Capita
*Source: MEMRB, International Monetary Fund (IMF), Pharos Research.
Local milk consumption is divided into loose and packaged milk. The bulk of consumption continues to be in loose form as packaged milk currently meets around 15.0% of domestic consumption. Ultra-high temperature processing (UHT) milk forms around 98.0% of total packaged milk consumption because of its durability. The popularity of loose milk is in part due to tradition habits and in part due to higher affordability compared to packaged milk. Over the past four years, growth in milk consumption in Egypt outpaced population growth as it expanded by an average annual rate of 5.5% and is expected to continue growing at an average annual rate of around 7.0% over our forecast horizon. Over the past few years, local and multinational firms penetrated the sector to capitalize on the underlying growth potential in the local market. This has significantly helped in expanding market size, mainly due to aggressive marketing campaigns, new product offerings and competitive pricing strategies. Despite low consumption levels, milk supply is insufficient to cater for local milk demand. The gap between supply and demand is bridged by powder milk in the packaged milk category. Amongst the primary reasons behind the supply/demand gap is the lack the technical knowhow amongst dairy farmers, which results in inefficient raw milk production. For example, the average yield per cow in Egypt is below 3.0kg per day compared to the global average ranging between 30.0kg 40.0kg per day. Dairy producers are therefore opting to have their own dairy farms in order to secure sufficient supply of high quality raw milk. In our view, large-scale dairy players with presence at the different stages of the value chain and in possession of a wide and well diversified product range will be able to take advantage of the foreseen expansion in the overall market size going forward.
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Figure 10: Local Milk Supply and Demand (Tons m)

1.8 1.7 1.6 1.63 1.61 1.5 1.49 1.4 1.42 1.40 1.38 1.3 1.2 2007A 2008A 2009A 2010E 2011F 1.47 1.56 Supply Demand 1.69
*Source: Food and Agricultural Policy Research Institute (FAPRI), Pharos Research.
Based on the above, we believe that Egypt offers exposure to a two-tier convergence story, namely 1) convergence in annual per capita total milk consumption levels, and 2) convergence in annual per capita packaged milk consumption to average levels seen in developed and developing countries. Despite of supply bottlenecks and low affordability amongst a large segment of the population, we believe conversion to packaged milk is inevitable over the medium-term due to the following factors: Better health awareness and concerns over the safety of loose milk, Higher local competition will likely reduce the price differential between both milk types and improve product awareness, Better control of raw milk supply by dairy producers should allow them to competitively price packaged milk compared to loose milk, The introduction of low-end brands to cater for demand by the low-income segment, UHT milk has a longer shelf life compared to loose milk, and Convergence in real per capita income levels. Although packaged dairy products were introduced more than two decades ago in the mid 1980s, the share of packaged products in total dairy consumption was estimated at only 10.5% as of end 2007. We believe higher local competition accompanied by health awareness and change in consumer behavior would accelerate the pace of conversion between both milk types. However, we expect growth in milk conversion rate to be relatively stagnant in 2011 due to current economic conditions, which will likely negatively impact household disposable income and curb corporate spending on awareness and marketing campaigns. Starting 2012 and throughout the forecast period, we expect growth in packaged milk consumption to accelerate.
1.54
12

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Figure 11: Local Milk Consumption and Conversion Rate

Milk Consumption (Tons m)
1.6
1.27 1.31
Milk Conversion Rate (%)

100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
10.5% 10.8% 12.4%
1.2 1.0 0.8 0.6 0.4
1.35
1.42
1.48
1.53
1.4
15.0%
15.2%
17.0%
89.5%
89.2%
87.6%
85.0%
84.8%
0.15
0.16
2007A 2008A 2009A
0.19
2010A
0.25
2011E
0.27
2012F
0.31
0.2
2007A 2008A 2009A
2010A
2011E
2012F
Loose Milk
Packaged Milk
Loose Milk
Packaged Milk
*Source: MEMRB, Pharos Research.
The conversion from loose to packaged milk in Turkey provides precedence given similarities between Egypt and Turkey in population size, demographics and economic growth dynamics. Based on statistics provided by Juhayna's management, Turkey's per capita milk consumption was slightly higher than that of Egypt but significantly lower than the global average at 24.0kg per year back in 2002. Loose milk satisfied around 68.0% of total milk consumption. From 2002 until 2009, the share of loose milk in total consumption fell from 68.0% to 40.0% due to the shift in consumer preferences. The shift followed extensive marketing and health awareness campaigns sponsored by the Ministry of Health and local dairy producers together with Tetra Pak, an established global packaging company.
Figure 12: Milk Conversion Rate in Turkey
100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2002A 2003A 2004A
Loose Milk 68.0% 32.0% 34.0% 38.0% 43.0% 47.0% 50.0%
55.0%
60.0%
66.0%
62.0%
57.0%
53.0%
50.0%
45.0%
40.0%
2005A
2006A
2007A
2008A
2009A
Packaged Milk
*Source: Tetra Pak, Pharos Research.
We believe conversion to packaged milk will likely pick up gradually over the next few years as the price differential between loose and packaged narrows and consumers become more health conscious. Juhayna has already taken a similar initiative as the one taken in Turkey, as it partnered with Tetra Pak and the Chamber of Food Industries along with the Egyptian Health Ministry to boost health awareness. The campaign started in late 2008 and has since assisted in expanding the market size of packaged milk. However, the second phase of the marketing campaign is expected to be shelved in 2011 due to the expected slowdown in the economy. We expect consumption of packaged milk to grow by an annual average rate of 16.0% over the next three years compared to an average annual growth rate of nearly 6.0% for the total milk market size. Subject to Attached Disclaimer. 13
83.0%

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Yogurt
The yogurt market is also divided into loose and packaged products. Yogurt is amongst the fastest growing sub-sectors in the food industry, with packaged yogurt consumption posting an average annual growth rate of 25.5% from 2007 to 2010. However, consumption levels remain low compared to other countries. Egypt's yogurt per capita consumption stands at around 3.0kg per annum, which is considered at the low end of the spectrum compared to both developed and developing averages.
Figure 13: Yogurt Consumption per Capita by Country, Kg (2009A)
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 France Australia Oman Tunisia
30.0
7.0
7.0
7.0
5.0
3.0
Egypt
Saudi Arabia
*Source: MEMRB, FAPRI, Pharos Research.
The yogurt sector is the most penetrated by multinational companies. Entry of foreign competition may have changed the competitive landscape of the local yogurt market but it also assisted in expanding the overall market size of packaged yogurt. This was a result of extensive marketing campaigns launched by multinational companies such as Danone and the Lactalis Group, which led to higher product awareness. Moreover, multinational companies introduced a variety of products that catered for different income and age strata, which further contributed to rapid market growth. The surge in demand for packaged yogurt has been reflected on the significant expansion in its market share versus loose yogurt, as depicted below.
Figure 14: Local Yogurt Consumption and Conversion Rate
Local Yogurt Consumption (Tons 000)
40.0% 45.0%
160.0 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2011F 2012F
Conversion Rate (%)

52.5% 56.0% 61.0%
2012F
100.0
116.2
129.8
120.0 80.0 60.0 40.0 20.0

-
87.7 97.0
89.4
88.4
73.0
87.4
92.1
95.2
148.9
140.0
47.5%
58.5%
2011F
60.0%
44.0%
2007A 2008A 2009A 2010A
2007A 2008A 2009A 2010A
Loose Yogurt
Packaged Yogurt
Loose Yogurt
55.0%
Packaged Yogurt
41.5%
14
39.0%
59.0

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We believe growth in demand for packaged yogurt will be supported by the following factors over the medium-term: A narrow price differential between loose and packaged yogurt. Loose yogurt is sold at retail outlets, unlike loose milk. This increases overhead and distribution expenses, which tightens the price differential between both categories, Packaged yogurt offers more variety compared to loose yogurt. Packaged yogurt is offered as plain or value added (flavored, skimmed, sweetenedetc) and either in the form of spoonable or drinkable. Loose yogurt is only offered as plain in the form of spoonable, and Entry of more foreign firms and intensifying competition. We expect demand for packaged yogurt to continue its upward trend over the forecast period with consumers shifting their consumption preferences towards packaged yogurt. Notwithstanding the negative impact of the current economic slowdown, we expect packaged yogurt to account for around 58.5% of the overall market size in 2011 as the price gap versus loose yogurt continues to shrink. In our view, packaged yogurt will eventually overtake loose yogurt over the mediumterm given the current pace of conversion.
Juice
Similar to the dairy market, the juice market in Egypt is underpenetrated compared to developed and developing markets. As depicted in the chart below, juice per capita consumption stood at around 3.0 liters in 2009, compared to an average of 29.0 liters in developed market and 13.6 liters in developing markets. During the period 2007-2010, the juice market in Egypt grew by an annual average rate of 18.0%, a rate we believe could be sustained over the medium-term due to changing consumption patterns coupled with intensifying local competition. Egypt's hot climate coupled with an underpenetrated soft drinks consumption are key growth factors that are expected to shape future demand for juice related products. The soft drinks market encompasses carbonated drinks (CD), bottled water and juices. The juice market in Egypt is highly fragmented due to low entry barriers with more than 300 active players
Figure 15: Juice Consumption Per Capita by Country (2009A)
60.0 50.0 40.0 30.0 20.0 10.0
Developed Region Average = 29.0 liters Developing Region Average = 13.6 liters
Canada United States Germany Austria Sweden Australia Finland UK Netherlands France Switzerland
*Source: MEMRB, FAPRI, Pharos Research.
Saudi Arabia Oman Bahrain Kuwait Qatar Lebanon Syria Libya UAE Tunisia Algeria Egypt Jordan Morocco
Belgium Norway Japan Denmark Ireland Italy
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Juice products are classified either by packaging type (carton, bottles and pouches) or by fruit content (pure, nectar and drinks). The type of packaging and fruit content determines the product price. Drinks and nectar, which account for the bulk of total market consumption, are low in fruit concentration compared to pure juice and thus have a lower price tag relative to the latter. Accordingly, pure juice directly targets the higher income strata. The same concept is applied for each packaging type. Pouches target the low-income segment due to its low quality packaging type, while cartons and bottles cater for high-income customers.
Figure 16: Juice Consumption By Packaging and Fruit Content
By Packaging Type
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 180.0
By Fruit Content (Tons m)
41.0%
41.0%
43.0%
44.8%
160.0 140.0 120.0 100.0
28.0%
28.0%
27.0%
26.1%
80.0 60.0 40.0
31.0%
2007A
31.0%
2008A
30.0%
2009A
29.1%
2010A
20.0
-
2007A
2008A
2009A
2010A
Carton
Pouches
Bottles
Nectar
Drinks
Pure
*Source: Company Reports Pharos Research.
Risk Factors
The highest risks facing dairy producers in Egypt and globally are 1) poor raw materials quality, specifically of raw milk, and 2) supply interruption. Local dairy producers largely rely on dairy farmers for their raw milk supply, which gives suppliers a strong bargaining power especially given the sensitive nature of the product from social and nutritional standpoints. Falling under the mercy of dairy farmers has a number of negative implications. The first and most important is quality control. The raw milk production industry in Egypt is inefficient and technical skills are still below international standards. The average total bacterial count per milliliter (TBC/ML) globally stands at around 50,000. Egypt's TBC/ML stands at around 70,000 - 90,000 down from 200,000 TBC/ML reported only six years ago. Interruption in milk supplies, on the other hand, could occur due to cattle diseases, logistical bottlenecks or simple lobbying by farmers. With a short life span of both raw milk and the end product, building inventory is not feasible nor is it financially prudent for a business which requires liquidity. Exposure to fluctuations in raw material costs could significantly impact the profitability of dairy producers. Raw milk prices are a function of animal feed prices but could also be manipulated by dairy farmers. Unlike other industries, the ability of dairy farmers to pass on higher costs to end customers is limited and can lead to an immediate loss of market share due to the social importance of the product and the price-sensitive nature of Egyptian consumers. Globally, raw milk price dynamics are positively correlated with livestock prices. Daily feeder cattle prices are available from futures contract traded on the CME. At present, feeder cattle futures are in contango, which suggests that producers' cost base will likely remain elevated over the coming period. In 2011, local raw milk prices are expected to linger above the EGP 3.0/kg mark, compared to EGP 2.55 per kilo reported in 2010. In Q1-2011, the price of raw milk stood at around 2.75/kg up from EGP 2.6/kg reported in December 2010. Subject to Attached Disclaimer. 16

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Figure 17: Supply Chain Risk
Supply Chain Risk

Risk to Raw Milk Supply Lobbying power of suppliers could result in supply interruption and higher prices. Animal diseases are transmitted quickly. Fluctuations in cattle feed costs. Risk of increase in TBC which would impact the quality of end products. Transportation Risks Raw materials must be delivered promptly due to their short life span. Raw milk must be transmitted in specific containers and in a certain manner in order to maintain its quality and avoid waste of raw materials. Short time span of end products such as yogurt highlights the importance of swift delivery.
Distribution Centres
Raw Milk Suppliers
Dairy Producers
Customers
Juhayna's Strategy to Mitigate the Associated Risk Factors

Juhayna took the approach of working closely with raw milk suppliers in order to control quality and reduce TBC. The company pays its raw milk suppliers based on quality. A rating system has been installed and regular inspections are carried out in order to evaluate farms and monitor quality. Juhayna to source its raw milk requirements though captive farms. Managing and owning its dairy farm will allow Juhayna to secure high quality raw milk supply.
The company has its own fleet that enables it to ensure prompt delivery of raw materials. Juhayna has a wide distribution network and sales team to ensure that products are delivered on a timely manner to end users. The company fleet contains chilled vans that preserve the product. The company offers retail clients refrigerators in order not to compromise its quality. On the export front, Juhayna sells directly from its production facilities bearing low transportation risks. Juhayna's products are packaged by Tetrapak and Combibloc to ensure product quality is not compromised.
*Source: Pharos Research.
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Juhayna's Competitive Landscape

Juhayna is well positioned in the local market supported by its long track record, brand recognition and comprehensive product offerings. Juhayna's wide distribution network provides it with a competitive edge compared to other players as it enables the company to reach out for different market segments in an efficient manner. As mentioned earlier, given the growth potential of the Egyptian market, competition is likely to intensify over the medium-term yet competition will simultaneously support growth in overall market size. In the packaged milk segment, Juhayna has a controlling market share. In the plain milk segment, Juhayna's market share stood at 68.0% at the end of 2010. The second largest producer had a market share of 8.3%. In the flavored milk segment, Juhayna's market share stood at 72.0% as of end 2010 compared to 10.7% for the second in line. Market composition remained more or less stable over the past four years. Intensifying competition, nonetheless, has been reflected on a modest decline in Juhayna's market share since 2006. However, given the wide gap between Juhayna's market share and other dairy producers and coupled with company's competitive cost and distribution advantages, it is unlikely that market ranking would significantly change over the next few years. Similarly, in the juice market, strong product innovation and diversity coupled with solid marketing campaigns allowed Juhayna to increase its local blended market share to 23.7% in 2009 compared to 16.0% in 2006.
Figure 18: Milk Market Share
Plain Milk
80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2006A 2007A 2008A 2009A 2010A 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2006A 2007A 2008A Juhayna Enjoy Faragello 2009A Beyti 2010A Others
Flavored Milk
Juhayna
Enjoy
Faragello
Beyti
Others
Figure 19: Juice Market Share

100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
16.0%
23.4% 24.4% 31.0% 8.0% 18.0% 34.0% 8.0% 16.0% 37.0% 8.0% 16.0% 39.0% 6.0% 14.0% 37.3% 5.2% 13.5%
27.0%
26.0%
23.0%
26.0% 21.0%
28.0% 23.7%
2006A 2007A Juhayna - Blended
Fargaello
2008A Best
2009A Enjoy Others
2010A
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In the yogurt segment, Juhayna is well positioned in both the spoonable and drinkable categories, holding a market share of 30.0% and 56.0% in 2010, respectively. In 2010, Juhayna's market share declined as a result of a fire that broke out in the yogurt factory. A limited product range along with lower capacity took Juhayna's blended yogurt market share to 37.8% in 2010 down from 43.5% in 2009. According to management, full capacity will be restored by Q2-2011 and the company is expected to return to the market with its full product range.
Figure 20: Yogurt Market Share
Spoonable
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2007A Juhayna Enjoy 2008A Danone Beyti 2009A 2010A Nestle & Lactel Others 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2007A Juhayna 2008A Labanita 2009A 2010A Lactel/Nestle
Drinkable
Enjoy and Beyti are Juhayna's main rivals in the local market. Enjoy and Beyti are Egyptian companies and both have strong potential to become strong competitors. Following the acquisition of Enjoy by Citadel Capital's (CCAP.CA) fully integrated food subsidiary, Gozour, the company has executed a restructuring plan in order to strengthen its operational and financial position and is expected to benefit from synergies as a Gozour entity. Synergies will be mainly generated by access to raw milk, fruit and sugar requirements from Dina Farms (a Gozour subsidary) along with access to other services, such as distribution and packaging. Beyti, on the other hand, was jointly acquired in 2009 by Pepsico and Saudi based Al-Marai, the largest regional dairy producer. Following the acquisition, Beyti announced aggressive expansion plans to increase its manufacturing capacity and market share. In our view, both companies are likely to see their market share increase over the forecast period. Additionally, Al-Marai entered the Egyptian market separately through offering a wide range of its branded products. At present, Al-Marai product range in the local market is focused on milk and plain yogurt. We believe Al-Marai will likely be successful in penetrating the local market supported by its wide product range, favorable cost structure and technical expertise. In the yogurt segment, Juhayna also faces stern competition from large multinational players such as Danone and Lactalis. Both companies have become increasingly active in the yogurt segment in an effort to capitalize on the rapid growth in market size. Danone's success in capturing a market share followed an aggressive marketing campaign coupled with competitive pricing strategy.
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Figure 21: Local Competitive Landscape
Milk Segment
Cheese Segment
Juice Segment
Yoghurt Segment
Concentrates Segment
Juhayna
Juhayna
Juhayna
Juhayna
Juhayna
Enjoy Beyti Beyti Al-Marai
Enjoy Danone Beyti El Masrieen Enjoy Enjoy
El Masrieen
Lactalis Americana Group Americana Group
Americana Group
Beyti
Farag Group
Farag Group
Lactalis Sakr Group Al-Marai
Farag Group
Arab Dairy
Sakr Group
Sakr Group Domty Siclam (Labanita)
Best Siclam (Labanita) Best
Siclam (Labanita)
Juhayna's strategy to protect its dominant market share is an integral part of its corporate strategy. At the core of the strategy is product diversification through continuous launch of innovative products catering for different age and income segments. For example, in 2010, the company introduced low-end and high-end milk brands. The low-end brand is designed to focus on lowincome consumers. The new product is priced at a discount to Juhayna's milk product range and competes directly with loose milk in an attempt to take advantage of the expected acceleration in conversion rates over the next few years. Packaged dairy and juice products are relatively new to the Egyptian market and Juhayna was the first to introduce them locally. The company has therefore built a long track record which was associated with strong brand recognition amongst local consumers. In our opinion, enforcing brand loyalty in addition to price responsiveness is crucial in maintaining market share going forward. In our view, Juhayna's integrated business model will be critical in maintaining its competitive edge going forward. As the company further integrates its production process backwards into farming activities, it should be able to limit its exposure to supply interruptions and maintain high raw materials quality. This should also optimize costs and hence allow the company to price its products more competitively. At the front end of the value chain, investment in the company's distribution network will likely ensure optimal customer reach. This network, in our view, would be difficult, time consuming and costly to replicate by other players.
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III. Financial Analysis

III.A. Revenues
Revenues are generated by the company's four business lines, namely; dairy, yogurt, juice, and concentrates. In order to capitalize on changing market preferences, Juhayna is positioning its products to cater for demand by 1) health and quality-conscious consumers as well as 2) pricesensitive consumers from amongst low-income strata supported by its wide distribution network. The dairy segment is the largest single source of revenues, generating an average of 60.0% of total revenues between 2007 and 2010. Dairy is expected to remain the largest revenue generator but its contribution is expected to decline over the next few years as the company expands its other product offerings and focus on higher margins products including yogurt and juice.
Figure 22: Revenue Breakdown by Segment
1.2% 19.6% 18.1% 1.3% 18.2% 1.5% 20.7% 1.5% 22.5% 1.4% 22.0%
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2007A
17.3%
17.9%
23.1%
21.6%
23.7%
24.4%
63.1%
62.8%
57.5%
56.9%
52.3%
52.2%
2008A
2009A
2010A
2011E
2012F
Dairy Segment
Yogurt Segment
Juice Segment
Concentrates Segment
In our view, growth in revenues will be supported by the following factors over our forecast horizon Higher income levels, Intensifying local competition and better control of raw milk supply by dairy producers would narrow the price differential between packaged and loose products, Further penetration of the low-income segment through the introduction of low-tier brands, Higher spending on marketing and health awareness campaigns, and Expansion in product offerings. We applied a macro approach to forecast sales volume and revenues. First, we forecasted the market size using 1) historic growth trends, 2) population and economic growth projections and 3) other qualitative factors such as improved health awareness and a change in consumption patterns. Using Juhayna's current market share as the reference share in our projections, we used the aforementioned variables in projecting the market size across the different products over our forecast horizon. We assumed market share compression for Juhayna to account for
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intensifying competition. Accordingly, we were able to forecast sales volume for each product segment after accounting for inter-company sales. Our price assumptions across the various segments were based on the inflation rate over the forecast period.
A. Dairy Segment
The dairy segment is the largest component of revenues yet its contribution has been declining steadily due to the growth in other business segments and competition. In 2010, the segment accounted for 56.9% of total revenues. Segment revenues are generated from three sub-segments namely; milk, cream and cheese.
A.1: Milk
The milk division contributes an average of 87.0% to total dairy segment revenues, while cream and cheese contribute the balance. Milk products are offered in two categories, plain and flavored. Plain milk products are further segmented into low, medium, and top tier brands and each brand is priced accordingly. Milk production caters for both the local and export markets. Milk is primarily sold in the local market due to higher pricing power versus export markets. Exports, which have historically accounted for an average of 15.4% of dairy revenues, are primarily channeled to Africa and the Middle East where the company has a recognized brand name and where the growth outlook remains promising. Export sales include B2B agreements with regional foods chains. Over the next two years, we expect the contribution from the exports market to decline to below the 6.0% mark due to recent political turmoil in the region.
Figure 23: Milk Revenues by Market
Average 2008A-2010A Export Revenues 15.4% 2012F Export Revenues 5.5%
Local Revenues 84.6%
Local Revenues 94.5%
Growth in income and population coupled with an expansion in the packaged milk market helped in driving local milk revenues over the past couple of years. Following a softening in revenue growth to 1.7% in 2009, primarily due to the strategic decision to withdraw from the low-margin school program, revenue growth accelerated to cc 16.4% in 2010 supported by the growth in packaged milk consumption and expansion in the product range. In 2010, Juhayna further penetrated the low-income strata through the introduction of a low-end brand, Halibo, which is priced at a discount to its other milk products. The strategy behind the product launch is to capture direct share from the loose market. In addition to its wide customer reach, Juhayna is currently well positioned in the low-end segment of the market due to its health awareness campaigns launched in partnership with Tetra Pak, the Chamber of Food Industries and the Egyptian Health Ministry. Subject to Attached Disclaimer. 22

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Milk Domestic Revenues Assumptions We expect milk revenues to grow by a modest 0.9% in 2011. The slowdown in revenue growth is mainly driven by the steep contraction in exports, particularly to Libya. However, we expect local milk sales to remain strong due to the demand inelastic nature of the product, which was clearly demonstrated post the global financial crisis in 2009 when milk consumption grew by 4.6% and packaged milk consumption grew by more than 20.0%. In 2011, we expect that growth in the overall market size to slowdown by around 4.5% and assumed conversion rates to remain in the vicinity of 15.0% to reflect current economic conditions. Starting 2012 and throughout the forecast period, milk revenues are expected to show healthy growth attributable to higher conversion rates accompanied by an aggressive market penetration strategy. The somehow primitive local consumption patterns together with its strong growth potential suggest that room for growth is high. In our view, competition will likely intensify over the next few years, which in turn would accelerate the pace of conversion due to higher spending on marketing campaigns, price wars, and more products offerings. Although we expect Juhayna's market share in the local market to come under pressure due to competition, the loss of market share will likely be compensated by a larger market size. We assumed that competition would take Juhayna's blended market share (both plain and flavored milk) to around 52.0% by 2012 down from 56.2% reported in 2010. Our projections, however, are subject to upside risks. Juhayna has a number of solid attributes that may enable it to maintain its dominant market position such as a 1) well recognized brand name, 2) continuous innovation in product offerings, 3) wide product range 4) distribution network, and 5) a plan to become Backward integrated and hence a cost competitive producer.
Table 3: Milk Sales Volume Assumption
Milk Segment Packaged Milk Market Size (ton m) Growth (%) Juhayna's Local Market Share (%) ** Local Sales Volume (ton m)
2007A 0.150
2008A 0.158 5.3%
2009A 0.191 20.9% 62.0% 0.118
2010A 0.251 31.2% 56.2% 0.141
2011E 0.266 6.3% 55.0% 0.146
2012F 0.314 17.9% 52.0% 0.163
70.8% 0.106
72.4% 0.114
**Blended market share representing both flavored and plain milk.
Milk Export Revenues Export revenues on average account for 16.0% of total milk revenues. In 2011, export revenues are expected to decline by 69.1% due to political instability across Juhayna's core markets. Accordingly, we expect exports contribution to total milk revenues to fall to 3.4% in 2011. Starting 2013 and throughout the forecast horizon, we expect exports to gradually recover supported by the company's strategy to expand its geographic footprint and political stability in its core export markets.
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Table 4: Milk Revenues Assumption

2007A Revenues (EGP m) Local Market Contribution (%) Export Market Contribution (%)
2008A 785.0 81.4% 18.6%
2009A 798.1 83.6% 16.4%
2010A 929.0 88.8% 11.2%
2011E 937.2 96.6% 3.4%
2012F 1,127 94.5% 5.5%
591.5 81.7% 18.3%
A.2. Cream and Cheese

Cream and Cheese are the remaining two products of the dairy segment and combined they accounted for 12.3% segment revenues in 2010. Cream is a high margin product which accounts for an average of 8.7% of dairy revenues. Juhayna is well positioned in the local cream market as it was one of the first dairy players to penetrate the segment. Historic growth in cream revenues was largely a function of higher production, which we expect to be the case going forward with a focus on the local market. Meanwhile, cheese has the lowest contribution to dairy sales representing on average 3.9% of total segment revenues. We expect revenues to decline by 8.3% in 2011 due to lower contribution from the exports market.
Table 5: Dairy Revenues Breakdown
(EGP m) Revenues Milk Contribution (%) Cheese Contribution (%) Cream Contribution (%)
2007A 669.3 88.4% 4.2% 7.4%
2008A 918.5 85.5% 6.7% 7.9%
2009A 907.3 88.0% 2.8% 9.3%
2010A 1,059 87.7% 2.0% 10.3%
2011E 1,072 87.4% 1.8% 10.7%
2012F 1,288 87.5% 1.8% 10.7%
B: Yogurt
Yogurt is the second largest revenue generator. The segment is split into spoonable and drinkable. The spoonable category constitutes the bulk of yogurt revenues at roughly 70.0%. Yogurt is only sold in the local market with no exposure to exports due to its short life span. Yogurt revenues enjoyed significant growth of an annual average rate of 30.7% between 2007 and 2010 as a result of the following factors: The overall market of packaged yogurt almost doubled over the past four years following the entrance of multinational companies who applied an aggressive marketing strategy, consequently raising demand for packaged yogurt, Change in consumption patterns from seasonal demand towards constant demand, Higher spending on marketing campaigns, Product repackaging, and Introduction of value added products.
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Juhayna was one of the beneficiaries of the fast growth in the local market alongside multinationals. In order to build a strong market share, Juhayna responded swiftly to the change in market dynamics by introducing a variety of value added products targeted at different market segments in terms of age and income levels. In late April 2010, a fire broke out at the group's primary yogurt factory, Egyfood, resulting in disruption to yogurt production. Despite of the shutdown of its yogurt facility, which was fully insured, Juhayna was able to grow its yogurt sales attributable to its ability to quickly ramp-up production in addition to a 19.8% expansion in the market size of packaged yogurt. Juhayna was able to return to the market gradually through 1) utilizing machineries which have been used to support production during the peak season, 2) recovering one drinkable yogurt production line, and 3) importing new machineries. Consequently, Juhayna maintained some market share (blended), which stood at 37.8% in 2010 compared to 43.5% reported a year earlier. Juhayna is planning to build a state of the art yogurt plant to increase both efficiency and productivity as to competitively capitalize on the underlying growth potential. According to management, construction works at the new facility will commence in Q3-2011 and is scheduled for completion in Q1-2013. The total investment cost of the plant is estimated at EGP 200.0m 300.0m and will be financed through internal financing and insurance proceeds. Nonetheless, Juhayna plans to return to the market with its full product range in Q2-2011 as the company had already installed new machinery at its dairy production facilities bringing its production capacity back to normalcy. In 2011, we expect yogurt revenues to grow by more than 20.0% as the company gradually regains its customers in addition to an estimated 6.0% appreciation in selling prices and an estimated 11.8% increase in demand for packaged yogurt. Although we expect growth for packaged yogurt to decelerate, we do not expect the slowdown to be as substantial as that of packaged milk. This is due to the narrow price gap between packaged and loose yogurt which tends to skew consumption towards packaged products.
Table 6: Yogurt Sales Volume Assumptions
2007A Packaged Yogurt Market Size (ton m) Growth (%) Juhayna's Local Market Share (%) ** Sales Volume (ton m)
2008A 0.073 23.9%
2009A 0.097 32.8% 43.5% 0.042
2010A 0.116 19.8% 37.8% 0.044
2011E 0.130 11.8% 38.5% 0.050
2012F 0.149 14.6% 39.0% 0.058
0.059
46.4% 0.027
43.1% 0.031
**Blended market share representing spoonable and drinkable yoghurt.
Over the forecast period, demand for packaged yogurt is expected to remain healthy underpinned by further expansion in the market size, intensifying competition and improvement in affordability. However, more intense competition from existing and new entrants could impose pressure on Juhayna's market share going forward. We expect the company's blended market share to fall to 36.5% by 2014.
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Table 7: Yogurt Revenue Assumption

2007A Revenues (EGP m) Growth (%) Contribution to Consolidated Revenues
2008A 261.6 42.5%
2009A 364.0 39.2% 23.1%
2010A 402.0 10.4% 21.6%
2011E 486.2 20.9% 23.7%
2012F 600.6 23.5% 24.4%
183.6
17.3%
17.9%
The company's strategy to capitalize on market growth in the yogurt segment entails the following: Management anticipates that future consumption will shift towards value added products such as flavored yogurt rather than plain yogurt. The company is therefore planning to focus its marketing spending on flavored yogurt to increase product awareness. Value added products are sold at a premium to plain products and therefore enjoy higher margins which falls within the company's overall strategy to boost profitability, Further product diversification and innovation in order to cater for the change in consumer preference and different market segments, Higher investments in the yogurt business line in order to enhance quality, and Aggressive advertising and marketing campaigns.
C: Juice
Juice on average generates around 20.0% of total revenues. In 1987, Juhayna entered the juice market first through the introduction of its carton packaged nectar products. Since 2007, Juhayna focused on widening its product portfolio via increasing the segment's SKUs to 84 up from 3 SKUs in 1987. The year 2009 witnessed two distinctive milestones. First, the company was able to source more than 75.0% of its concentrates requirements for its juice business internally through backward integration. Second, Juhayna penetrated the bottled market segment. The juice segment is divided into five main products namely Nectar, Pure, Bekhero, Tingo, and Jump. Nectar and Pure target both urban and health conscious class A and B segments, while Bekhero targets the lower-end of the middle segment in rural and urban areas.
Figure 24: Juice Market Share by Product
70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2007A 2008A 2009A 2010A 15.0% 16.0% 20.0% Pure 56.0% Necter 55.0% 55.0% 61.0%
Due to expansion in the company's product portfolio

20.0%
*Source: MEMRB, Company Reports, Pharos Research.
**Market shares are specific to each SKU.
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Strong product innovation and diversity coupled with solid marketing campaigns amid a fast growing market drove segment revenues. We expect local demand for juice to continue growing in 2011, yet at a slower pace due to lower spending on marketing campaigns and lower affordability. In 2011, we estimated local juice revenues to grow by 20.1% and assumed Juhayna's share to linger in the vicinity of 23.0% throughout the year. The growth in revenues is supported by an 8.1% increase in sales volume as well as price appreciation. Conversely, we expect export sales to plummet by 60.0%. However, growth in local sales should offset the contraction expected overseas.
Table 8: Juice Segment Sales Volume Assumptions
2007A Juice Market Size (ton m) Growth (%) Juhayna's Local Market Share (%) ** Local Sales Volume (ton m)
2008A 0.182 15.2%
2009A 0.218 19.8% 21.0% 0.046
2010A 0.262 20.0% 23.7% 0.062
2011E 0.292 11.5% 23.7% 0.069
2012F 0.336 15.0% 23.0% 0.077
0.158
23.4% 0.037
24.4% 0.044
** Represents Juhayna's blended market share.
Throughout our forecast period, we expect local revenues to shape segment growth given the higher profitability of local sales compared to exports in addition to expansion in the overall market size. We expect market share to hover above the 20.0% range over the coming period reinforced by widening the juice products' portfolio, management's intention to shift to more profitable segments, and continuous investments in efficient marketing campaigns.
Table 9: Juice Segment Revenue Assumptions
2008A 264.4 94.8% 5.2%
2009A 286.8 95.6% 4.4%
2010A 384.6 97.0% 3.0%
2011E 461.8 99.0% 1.0%
2012F 543.2 98.6% 1.4%
207.9 93.7% 6.3%
D: Concentrates
In 2008, Juhayna ventured into the concentrates business as part of its backward integration strategy. Concentrates can be viewed as complementary to the company's juice business. In 2010, roughly 75.0% of the produced volume was consumed by Juhayna's own juice division. The balance is sold both locally and overseas. Currently, Juhayna produces 11 different types of concentrates. The integration between the juice and concentrates segments is expected to further enhance margins for the juice business over the next few years and allow the company to price its products competitively in the market, thus enabling the company to maintain a strong foothold in the local market
Table 10: Concentrates Segment Revenue Assumptions
2009A 19.9 53.5% 46.5%
2010A 27.5 76.3% 23.7%
2011E 31.1 78.0% 22.0%
2012F 34.7 78.9% 21.1%
18.0 100.0% 0.0%
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III.B. Costs and Margins

Juhayna's cost of production is divided into four items namely, raw and powder milk, concentrates costs, packaging material, and manufacturing related expenses that include overheads and transportation costs. Raw milk is the largest cost item and the most volatile in terms of price, which can result in unpredictable gross margin fluctuations. For the dairy (milk) and yogurt segments, raw milk represents roughly 67.0% and 53.0% of the cost base, respectively. For the juice segment, on the other hand, concentrates and packaging costs represent around 75.0% of the cost base.
Figure 25: Cost of Production (Average 2007A-2010A)
Manufacturing 15.8%
Packaging Cost 25.4% Raw and Powder Milk 51.2%
Concentrates Sugar 7.6%
**Excludes concentrates.
In 2009, management implemented a strategy to partially hedge gross margin against likely fluctuations in raw milk and fruit prices. The hedging strategy was based on the following: Juhayna started to source raw milk from small-scaled milk farms and milk collection centers, which offer a discount compared to conventional farms, Secured a portion of its raw milk requirements through its JV farm, Milkes Dairy, A shift to products that consume powder milk rather than raw milk i.e. Bekhero, Halibo. In addition, the yogurt segment, a core driver of consolidated revenues, consumes higher percentage of powder milk, and Nearly 75.0% of the company's concentrates requirements are sourced in-house through its concentrates subsidiaries. By working closely with local suppliers, the company tries to secure high quality and uninterrupted supply. During Q1-2011, raw milk cost stood at EGP 2.7/kg compared to EGP 2.6/kg in December 2010. According to management, the price of raw milk is expected to further spiral to around EGP 3.0/kg as local suppliers pass on higher costs to dairy producers. Globally, raw milk price dynamics are positively correlated with livestock prices, which in turn are a function of feeder cattle prices. Daily feeder cattle prices are available from futures contract
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traded on the Chicago Mercantile Exchange (CME). At present, feeder cattle futures are in contango, which suggests that producers' cost base will likely remain elevated over the coming period. Along with local dairy players, we believe Juhayna's ability to fully pass on the cost to the market is limited due to the high sensitivity of both the government and consumers to changes in the prices of basic food products, given its political and social ramifications. As such, raising dairy product prices in a price sensitive market can result in a loss of market share. In 2011, management expects the selling price of milk and yogurt to increase by roughly 6.0% versus an estimated increase of more than 20.0% in the cost of raw milk. Hence, we expect gross margins to come under pressure to reach 34.0% down from 38.1% reported a year earlier. Although we still believe margins will continue to be exposed to cost fluctuations going forward, we expect market dynamics to slightly change as more dairy producers rely on captive farms to secure raw milk supply in-house. Accordingly, beyond 2012, we assumed that Juhayna's gross margins will expand despite intensifying competition due to the following; Vertical expansions are expected to ease pressure on margins as the company plans to satisfy 40.0% to 50.0% of its raw milk and fruit requirements over the next four years through its captive farms. Hence, we expect margins to gradually improve starting 2012 as the level of backward integration increases, which should partially offset pressure on margins arising from competition, Sector consolidation at both the global and local fronts (ie Almarai-Beyti, Citadel-Enjoy, Lactalis-Nestle, Danone) should strengthen producers' control over raw material supply and prices, thus limiting the bargaining power of suppliers. Based on our projections, we expect gross margins to linger above the 39.0% mark by 2014.
Figure 26: Raw Milk vs. Gross Profit Margin (%)**
In 2008, gross margin was compressed as commodity prices spiraled. In 2009, the crash in commodity prices underpinned margin expansion. 1,300 1,100 900.0 700.0 500.0 300.0 100.0 2007A 2008A 2009A 2010A 2011E 2012F 2013F 2014F 26.1% 23.7% 38.7% 38.1% 34.0% 34.9% 36.8% We assume gross margin expansion post 2011 as the level of backward integration increases.
39.5%
45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
Raw Milk (EGP m)
Gross Profit Margin (%)
**Includes powder milk.
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Concentrates form the largest cost item for the juice segment and currently represents around 36.0% of the total cash cost. At present, Juhayna sources roughly 75.0% of its required concentrates in-house. Packaging is the second largest cost item. The packaging process takes place within Juhayna's production facilities and the company imports its packaging materials. Normally, the company imports sufficient supply in order to hedge against future price appreciations. Similar to dairy, Juhayna plans to further increase the level of backward integration at its juice plant through securing its fruit requirements from captive farms. The company acquired a 10,000 feddan plot of land near its production facility over which it grows the required fruit supply and cattle feed. Accordingly, we expect backward integration to push juice margins to 44.1% in 2014, up from 40.4% estimated in 2011.
Figure 27: Concentrates Cost vs. Gross Profit Margin
2,500 43.3% 2,000 1,500 1,000 500 2007A 2008A 2009A 2010A 2011E 2012F 2013F 2014F 2015F 39.4% 37.0% 40.0% 40.4% 40.6% 42.4% 44.1% 44.9% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
Concentrates Cost (per ton)
Gross Profit Margin (%)
III.C. Working Capital Requirements

Working capital requirements are not excessive in this industry. The largest consumer of working capital is inventory. Inventory days on hand are relatively high with an average turnover of 4.0x. This is due to the effect of seasonality pile up and the importance of building a strategic inventory of imported raw materials, mainly powder milk and packaging material. Going forward, as management increasingly source raw materials from within the group, inventory turnover should gradually start to decline. Receivables days on hand dropped to around 11 days in 2010 compared to a historic average of 15 days which had a positive impact on cash flow. This was due to increasing cash sales as opposed to credit sales. Juhayna has a stringent credit policy with most of its retailers and distributors which helped in easing pressure on cash flow. The company grants credit to large customers and takes cash upon delivery from its smaller customers. Despite of the company's new distribution strategy to improve sales and replacement tracking, we assumed that the company would grant around 12-13 days of credit. In our opinion, the company could start giving favorable credit terms to wholesalers and distributors as competition intensifies in order to protect its market share. Meanwhile, the group enjoys a long term relationships with its suppliers which allows it to obtain favorable credit terms and thus ease working capital requirements. In our forecast, we maintained payables days on hand at around 36 days.
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III.D. Capital Expendture

Juhayna made sizable investments over the past three years in order to increase designed capacity and build the factories' infrastructure requirements. In 2008, consolidated production capacity expanded from 1,700 tons per day to 2,700 tons per day, excluding concentrates. According to management, the entire infrastructure base has been almost completed with only minimal capex requirements for filling machines. Consequently, the company now has the ability to raise its designed capacity in the future by installing filling machines with minimal investments and increasing the number of working shifts. In 2011, capital expenditure is estimated by the company at EGP 359.5m, which will be slated for expanding the distribution network, establishing the first phase of its dairy, cattle feed and fruit farms in addition to maintaining the company's assets. The combined investment cost of Juhayna's fruit and dairy farms stands at around EGP 600.0m, which will be paid down gradually until 2014. The total investment cost of Juhayna's yogurt facility, on the other hand, is estimated at EGP 200.0m - 300.0m, which will be financed from internal sources and through insurance proceeds. We accounted for an additional expense of around EGP 125.0m. We believe that Juhayna's reliance on debt will likely be minimal given that the bulk of the expansion program will be financed through the 2010 IPO proceeds. Future expansions and acquisitions entail 1) replicating the business model in Egypt in other markets, 2) product diversification through expanding the range of existing products, and 3) acquisitions of complementary businesses.
III.E. Indebtedness
In 2008, debt increased considerably in order to finance acquisitions and fund the operations of new group companies. Over the past period, Juhayna opted to accelerate its acquisitions to reap the benefit of the tax holiday granted to target companies. Consequently, financing charges more than doubled during the year and imposed downward pressures on bottom line. By the end of 2008, net debt levels were alarming at 461.0% of equity and 9.4x EBITDA. Towards the end of 2009, paid in capital was raised to EGP 378.0m. Part of the proceeds was used to pay down debt. Together with a recovery in operating profits, debt ratios improved markedly by the end of 2009. Two other capital increases took place in 2010 and collectively raised Juhayna's paid in capital to EGP 726.4m. As of March 2011, Juhayna's debt to equity ratio stood at 0.5x. According to management, Juhayna's ongoing expansion program as well as future acquisitions will be financed through the 2010 IPO proceeds. Over our forecast horizon, we assumed that the level of indebtedness will continue to decline as a function of earnings growth and lower capex requirements.
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III.F. Valuation
We valued Juhayna using two valuation methods, a discounted cash flow and comparable multiples. Using a weighted average of both valuation methods, we derived a fair value estimate of EGP 6.0 per share. We expect pressure on the company's free cash flow (FCF) over the shortterm as a consequence of a hefty capex bill and higher working capital requirements. However, we expect healthy growth in FCF going forward as profitability expands and capital expenditure ease. The business model of each of the companies we used in our multiple comparisons is not perfectly similar to that of Juhayna, however, the core business is dairy products. In the view of that, we assigned a higher weight to the DCF method of 70.0%, while the remaining 30.0% was assigned to the comparable valuation method.
Table 11: Valuation Methods
Valuation Method DCF Multiples Valuation Weighted Avg. Fair Value Estimate (EGP)
Weight (%) 70.0% 30.0%
Value Per Share (EGP) 5.8 6.5 6.0
Discounted Cash Flow

Our discounted cash flow model yielded a fair value estimate of EGP 5.8 per share using a discount factor of 16.0% and a perpetual growth rate of 5.0%. We used a cost of equity of 17.3% and a cost of debt, net of the effective tax rate, of 10.4%. The market risk premium we utilized was 7.0% and we applied a risk free rate of 11.0% based on the after-tax yield on treasury bonds.
Table 12: DCF Valuation Assumptions
(EGP m) FV of FCF WACC (%) Present Value of FCF Sum of Present Value Terminal Growth (%) Terminal Value Present Value of Terminal Value Enterprise Value Plus: Cash (March 2011A) Less: Debt (March 2011A) Equity Value Outstanding Number of Shares (m) Value per Share 2011E 16.8 15.0 2012F 169.2 130.5 2013F 292.9 194.7 2014F 455.8 261.2 2015F 723.9 16.0% 357.6 959.0 5.0% 6,907 3,412 4,372 639.6 778.0 4,233 726.4 5.8
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Table 13: Sensitivity Analysis

Weighted Average Cost of Capital Perpetual Growth (%)
13.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 5.9 6.4 7.0 7.7 8.6 9.7 11.2
14.0% 5.4 5.7 6.2 6.8 7.4 8.3 9.4
15.0% 4.9 5.2 5.6 6.0 6.5 7.2 8.0
16.0% 4.4 4.7 5.0 5.4 5.8 6.3 7.0
17.0% 4.1 4.3 4.6 4.9 5.2 5.6 6.1
18.0% 3.7 3.9 4.2 4.4 4.7 5.0 5.5
19.0% 3.5 3.6 3.8 4.0 4.3 4.6 4.9
Upside and Downside Risks to Valuation Upside Risks Faster-than-expected growth in packaged products consumption in Egypt over the coming period, and Ability to fully pass on higher cost of raw milk to consumers. Downside Risks Higher-than-expected increase in raw milk prices, Delay in the execution of the backward integration program, and Exposure to possible weakness in the EGP via higher cost of imported raw materials.
Peers Analysis
In the peer analysis we used the three most commonly used multiples namely EV/EBITDA, Price/Earnings, and Price/Sales. We arrived to a fair value estimate of EGP 6.5 per share by using a wide sample including companies operating in developed as well as emerging markets. The multiples for the various listed companies used as a reference varied widely depending on their respective markets and company specifics, i.e. product range, margins and expected growth. Accordingly, we assigned a lower weight to the multiples valuation method of 30.0%.
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Table 14: Peer Group

Company Name Emerging Markets: Juhayna Food Industries Al Marai Inner Magnolia Yili Bright Dairy Mengniu Dairy Company Nestle Berhad Nestle India Vietnam Dairy Products Vimm-Bill'-Dann Produkty Pitaniya OAO Emerging Markets Median Developed Markets: Danone Saputo Inc. Dairy Crest Nestle LTD Morinaga Milk Industry Co. Dean Food Developed Markets Median Median Implied Value of the Firm (EGP m) Implied Equity Value (EGP m) Average Equity Value (EGP m) Outstanding Number of Shares (m) Value per Share (EGP) France Canada UK Switzerland Japan USA 49.6 46.6 387.2 54.5 340.0 13.5 17.7 20.5 9.2 18.0 14.2 23.7 17.8 22.1 5,363 5,363 15.8 17.8 8.9 16.6 12.0 17.6 16.2 17.7 5,396 5,396 14.4 16.4 8.5 15.9 10.3 14.9 14.6 15.9 6,360 6,360 1.7 1.6 0.3 2.1 0.1 0.2 0.9 1.6 3,195 3,195 1.5 1.4 0.3 2.0 0.2 0.2 0.9 1.3 3,271 3,271 1.5 1.3 0.3 1.9 0.1 0.2 0.8 1.2 3,559 3,559 11.2 12.4 5.9 11.1 5.4 8.9 10.0 12.2 5,063 4,925 10.4 11.2 5.8 10.4 6.0 8.2 9.3 10.4 5,248 5,109 9.7 10.3 5.6 9.8 5.7 8.3 9.0 8.9 5,638 5,500 4,742 726.4 6.5 Egypt Suadi Arabia China China China Malaysia India Vietnam Russia 5.5 93.0 34.0 8.8 24.5 47.7 3,895 93,500 32.5 16.5 15.2 24.0 35.3 26.7 25.1 37.4 8.7 27.8 25.9 13.1 13.1 20.1 26.5 21.5 22.4 30.8 6.7 23.3 21.9 10.0 11.4 16.0 18.0 17.8 22.1 26.1 5.5 19.3 17.9 1.9 2.7 0.8 0.8 1.2 2.6 5.0 1.5 1.8 1.7 1.6 2.4 0.7 0.7 1.0 2.5 4.1 1.2 1.6 1.4 1.3 2.1 0.6 0.6 0.9 2.4 3.4 1.0 1.4 1.2 9.8 12.1 13.9 12.3 13.2 16.5 24.3 6.6 13.6 13.4 7.7 10.4 11.7 9.1 10.6 16.1 19.9 4.2 11.8 11.1 6.3 8.9 8.4 7.0 9.0 15.2 16.3 3.3 10.4 8.9 Country Price PE PE PE 2011E 2012F 2013F Price/Sales Price/Sales Price/Sales EV/EBITDA EV/EBITDA EV/EBITDA 2011E 2012F 2013F 2011E 2012F 2013F
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Table 15: Summary Income Statement

EGP m (YE 31 Dec) 2008A 2009A 2010A 2011E 2012F 2013F
Revenues Gross Profit Gross Profit Margin (%) EBITDA EBITDA Margin (%) Operating Profit Operating Profit Margin (%) Net Interest Profit Before Tax Minority Interest Tax
Attributable Profit
1,463 346.5 23.7% 124.4 8.5% 69.8 4.8% (51.1) 14.5 0.0 (9.6)
4.9
1,578 610.4 38.7% 388.4 24.6% 291.2 18.5% (124.7) 206.3 (0.1) (21.4)
184.8
1,861 709.1 38.1% 438.2 23.5% 311.8 16.8% (57.3) 255.4 (0.0) (27.6)
227.8
2,051 697.5 34.0% 414.9 20.2% 291.7 14.2% (26.5) 265.2 (0.0) (22.8)
242.4
2,466 861.6 34.9% 502.7 20.4% 365.4 14.8% (25.2) 340.2 (0.0) (35.7)
304.5
3,045 1,121 36.8% 630.5 20.7% 472.0 15.5% (26.3) 445.7 (0.0) (46.8)
398.9
Table 16: Summary Balance Sheet

EGP m (YE 31 Dec) Fixed Assets Current Assets 2008A 1,280 613.5 2009A 1,424 469.7 2010A 1,425 1,303 2011E 1,661 1,095 2012F 1,806 1,233 2013F 2,016 1,183
Cash Debtors Others Total Assets Current Liabilities Creditors Debt Others Long Term Liabilities Debt Others
Total Investment
49.7 71.5 492.3 1,894 1,192 115.1 910.6 166.3 449.3 303.1 146.3
252.5 130.8
66.8 58.9 344.0 1,894 819.6 131.1 611.9 76.5 498.5 422.0 76.4
576.1 378.0
723.9 58.3 520.9 2,728 623.0 105.6 377.1 140.3 461.5 384.3 77.2
1,644 726.4
433.0 73.3 588.4 2,756 609.2 138.1 258.1 213.0 333.4 256.2 77.2
1,813 726.4
515.3 85.0 632.7 3,039 822.0 162.1 238.1 421.8 205.3 128.1 77.2
2,011 726.4
377.4 105.0 699.5 3,198 890.3 188.7 338.1 363.5 77.2 0.0 77.2
2,231 726.4
Paid up Capital Minority Interests Reserves Shareholders' Funds

0.4 121.3 252.5
0.6 197.6 576.1
0.3 917.0 1,644
0.3 1,087 1,813
0.3 1,285 2,011
0.4 1,504 2,231
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Table 17: Summary Cash Flow

EGP m (YE 31 Dec) 2008A 2009A 2010A 2011E 2012F 2013F
Operating Profits Depreciation Change in Working Capital Others Operating C/F Purchase of Fixed Assets Other LT Investments Investment C/F Change in Debt Change in Equity One-off Cash Items Financing C/F Change in Cash Cash Balance B.o.P Cash Balance E.o.P
69.8 59.3 11.2 (8.1) 132.2 (685.4) (78.6) (764.0) 706.8 (56.3) 0.0 650.6 18.8 30.9 49.7
291.2 77.0 93.3 12.1 473.7 (201.3) (19.9) (221.2) (54.8) (209.8) 29.3 (235.4) 17.1 49.7 66.8
311.8 82.1 (136.6) 0.5 257.9 (91.1) 8.5 (82.7) (186.5) 444.0 224.4 482.0 657.1 66.8 723.9
291.7 123.2 (49.9) 17.0 382.0 (359.5) 0.0 (359.5) (180.8) (132.6) 0.0 (313.4) (290.9) 723.9 433.0
365.4 137.3 (32.1) 159.9 630.5 (281.5) 0.0 (281.5) (102.3) (164.3) 0.0 (266.6) 82.4 433.0 515.3
472.0 158.5 (60.9) (166.8) 402.8 (368.4) 0.0 (368.4) 9.5 (181.8) 0.0 (172.3) (137.9) 515.3 377.4
Table 18: Financial Ratios and Share Data

2008A 2009A 2010A 2011E 2012F 2013F
EPS (EGP) DPS (EGP) BVPS (EGP) CFPS (EGP) PE (x) D.Yield (%) P/BVPS (x) P/CFPS (x) EV/EBITDA (x) EV/Sales (x) Gross Profit Margin (%) EBITDA Margin (%) Effective Tax Rate (%) Net Margin (%) RoAE(%) RoAA (%) RoCE (%) Payout Ratio (%) Dividends Cover (x) Interest Cover (x) Debt/Equity (%) Net Debt/Equity (%) Debtor Days Creditor Days Current Ratio (x) Quick Ratio (x) Inventory Turnover (x)
0.01 0.02 0.3 0.2 815.6 0.3% 15.8 30.2 41.5 3.5 23.7% 8.5% -28.7% 0.3% 1.9% 0.3% 0.7% 248.3% 0.4 1.4 480.7% 461.0% 14.7 26.8 0.5 0.3 4.2
0.3 0.1 0.8 0.7 21.6 1.2% 6.9 8.4 12.8 3.1 38.7% 24.6% -7.4% 11.7% 44.6% 9.8% 17.2% 25.8% 3.9 2.3 179.5% 167.9% 15.1 46.5 0.6 0.3 3.6
0.3 0.0 2.3 0.4 17.5 0.0% 2.4 15.5 9.2 2.2 38.1% 23.5% -8.6% 12.2% 20.5% 9.9% 10.8% 0.0% 0.0 4.0 46.0% 2.0% 11.5 37.5 2.1 1.6 4.6
0.3 0.1 2.5 0.5 16.5 1.8% 2.2 10.5 9.8 2.0 34.0% 20.2% -8.6% 11.8% 14.0% 8.8% 11.3% 30.0% 3.3 5.0 28.4% 4.5% 13.0 37.2 1.8 1.2 3.9
0.4 0.1 2.8 0.9 13.1 2.7% 2.0 6.3 7.7 1.6 34.9% 20.4% -10.5% 12.3% 15.9% 10.5% 13.7% 35.0% 2.9 8.4 18.2% -7.4% 12.6 36.9 1.5 1.0 4.1
0.5 0.2 3.1 0.6 10.0 4.5% 1.8 9.9 6.3 1.3 36.8% 20.7% -10.5% 13.1% 18.8% 12.8% 17.3% 45.0% 2.2 12.8 15.2% -1.8% 12.7 35.8 1.3 0.8 4.2
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37
PHAROS SECURITIES
Sales and Trading

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Disclaimer This Report is compiled and furnished solely for informative purposes to be considered by the intended recipients who have the knowledge to assess the information contained herein. Pharos Research ('Pharos') makes no representation or warranty, whether expressed or implied, as to the accuracy and/or completeness of the information contained herein or any other information that may be based on the data/ information enclosed. Furthermore, Pharos hereby disclaims any and all liabilities of any nature relating to or resulting from the use of the contents of this Report. This Report shall not be approached as an investment solicitation nor shall it be considered as legal or tax advises. Pharos highly recommends that those viewing this Report seek the advice of professional consultants. None of the materials provided in this Report may be used, reproduced or transmitted, in any form or by any means, electronic or mechanical, including recording or the use of any information storage and retrieval system, without written permission from Pharos.

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Juhayna Food Industries

EGP 6.4 - 4.0

Price Performance (2010-2011)

7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0

3 months (0.4%) (14.2%)

YTD (9.5%) (24.2%)

Shaymaa El Nemr shaymaa.elnemr@pharosholding.com Nada Sameh nada.sameh@pharosholding.com

Subject to Attached Disclaimer.

Juhayna Food Industries

Subject to Attached Disclaimer.

Juhayna Food Industries

Figure 1: Business Model

International Company for Modern Food Industries

*Source: Company Reports, Pharos Research.

I.B. Product Range

I.C. Evolution of Business Strategy

Juhayna Food Industries

Phase I (1987 - 1990) The Start

Phase II (1990 - Present) Vertical and Horizontal Expansion

Phase III (2004 - Present) Applying a Backward Integrated Business Model

Production capacity 35 tons per day

Production commenced with 8 SKUs

Acquired a dominant market share in Libya

Exporting to Europe, USA and Africa

Commenced B2B activity with McDonalds Egypt

*Source: Company Reports, Pharos Research.

Product and Geographic Diversification

Active Logistics and Management

I.D. Product and Geographic Diversification

Juhayna Food Industries

*Source: Company Reports, Pharos Research.

Figure 4 : Yogurt Segment SKUs

Yogurt Product Segment

Spoonable Plain Fruit Light Flavored Sweetened Mix

Drinkable Rayeb Zabado

*Source: Company Reports, Pharos Research.

Subject to Attached Disclaimer.

Juhayna Food Industries

*Source: Company Reports, Pharos Research.

Ceyan Mauritania 5.4% Others 8.6%

*Source: Company Reports, Pharos Research

I.E. Active Logistics Management

Subject to Attached Disclaimer.

Juhayna Food Industries

*Source: Company Reports, Pharos Research

Subject to Attached Disclaimer.

Juhayna Food Industries

Retail Outlets 39.1%

*Source: Company Reports, Pharos Research

I.F. Backward Integration

Subject to Attached Disclaimer.

Juhayna Food Industries

Subject to Attached Disclaimer.

Juhayna Food Industries

II. Industry Overview

*Source: Middle East Marketing Research Bureau (MEMRB), Pharos Research.

Juhayna Food Industries

80.0 60.0 40.0 20.0 -

Brazil Ukraine India Algeria Saudi Arabia

GDP per Capita

*Source: MEMRB, International Monetary Fund (IMF), Pharos Research.

Subject to Attached Disclaimer.

Juhayna Food Industries