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Inflation and interest rates pile on hurt for Egyptian F&B majors

Post a commentBy RJ Whitehead , 09-Aug-2017

© iStock
© iStock

Food businesses have been suffering in Egypt, where rising interest rates and spiking inflation have caused a squeeze on consumer purchasing power.

Among the food and beverage companies to show poor second-quarter results, Edita Food Industries saw profits fall by nearly nine tenths.

One of Egypt’s biggest snack producers, its earnings dropped from EGP47.4m (US$2.7m) to just EGP5.7m over the same period last year, despite an 11.2% increase in sales.

Juice and dairy major Juhayna Food Industries, meanwhile, reported an 8.6% drop in second-quarter net profits despite also seeing a rise in sales—of 18.27%. 

According to analysts, these companies’ growth came from product price rises, not actual sales volumes.

"The increase in production inputs are because of the increase in inflation... which had directly affected the companies profitability," Ahmed Adel, senior analyst at Beltone Financial, told Reuters. 

Food and beverage companies have meanwhile increased their spending on sales and distribution to maintain market share, which has been hit by a drop in demand due to price rises. 

The current soaring inflation and rising interest rates stem back from sweeping economic reforms introduced last year in exchange for an International Monetary Fund loan worth US$12bn over three years. 

The programme demanded that Cairo float its currency and cut subsidies to attract foreign investment. Many overseas investors had flex the country after a 2011 uprising. 

Analysts say these measures have contributed to inflation at over 30%, leading consumers to forego all but the staples.

The central bank has also raised key interest rates by 700 basis points since November, when the Egyptian pound floated. 

This swift increases has led to a massive increase in financing expenses for Edita in the second quarter of 137% to EGP25.4m. Meanwhile, Juhayna’s cost of borrowing grew by 67% to reach EGP99m, the companies revealed in their earnings reports. 

"Companies will continue to suffer from weak profits as they try not to raise prices again to maintain their market shares," Adel said.

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