Juhayna Food Industries S.A.E. (JUFO) Earnings Call Transcript & Summary

Good morning and good afternoon, everyone. Thank you all for joining, and welcome to Juhayna Food Industries Second Quarter 2026 Results Call. From Juhayna's management, we are pleased to be joined by Mr. Tarek Elwan, CFO; and Mr. Karim Ibrahim, Head of Investor Relations. [Operator Instructions] With no further delays, I will now hand over the call to Juhayna's management. The floor is all yours. Thank you.

Good afternoon, everyone, and thank you for joining us today. We are pleased to be with you to discuss Juhayna's second quarter and first half 2026 results. Let me start with the headline numbers. First half revenue grew 25% year-on-year with second quarter revenue up 23%. Net profit grew 23% for the half and 48% for the quarter alone, figures that reflect both strong volume-led growth and resilient profitability in a challenging cost environment. The second quarter extended the strong momentum we saw earlier in the year with record high revenues, continued volume growth across our core categories and disciplined execution of our long-term strategy. Despite a challenging geopolitical and macroeconomic backdrop, we delivered another quarter of exceptional local sales performance and record exports of finished goods supported by strong summer demand for chilled and juice products and the continued expansion of our third-party distribution business. There are 4 things we want you to take away from today's call. Continued volume net growth, market share gains that validate our commercial strategy, resilient profitability despite cost pressure and an improving quality of business as we scale exports, distribution and new categories. Let me start with our financial performance for the quarter and the half. In the second quarter of 2026, Juhayna delivered record high net revenues of $9.1 billion, representing a 23% year-on-year increase. For the first half, net revenues reached EGP 17.7 billion, up 25% year-on-year. This performance was fueled by double-digit volume growth across our fermented and juice segments, supported by single-digit price adjustments and record high export sales of finished goods. Gross profit for the quarter reached EGP 2.2 billion, maintaining a healthy margin of 23.8%. For the first half, gross profit stood at EGP 4.3 billion, with a margin of 24.5%. It's worth putting the year-on-year comparison and context. Concentrate prices were unusually elevated in the first quarter of last year, which lifted the prior year base to a level that wasn't representative of a normal operating environment. So part of this year's margin comparison simply reflects that high was not normalizing rather than any deterioration in our core business. Separately, we did some incremental pressure on input costs during the quarter from broader regional volatility in logistics and foreign exchange, which we factored into our cost planning as we went through the period. Taken together, we view both of these as management, well understood dynamics and our margin base remains healthy. EBITDA for the quarter reached EGP 1.3 billion, up 20% year-on-year at a margin of 14.3%. For the first half, EBITDA reached EGP 2.7 billion, up 15% year-on-year at a margin of 15.1%. The fact that EBITDA growth trailed our 23% revenue growth in the quarter largely reflects a normal timing lag between rising input and logistics costs and the pricing actions we took to offset them. We moved early on pricing during the quarter and as typical following a price adjustment, we saw a brief temporary softening in volume trends as the market absorbed the change before demand normalized within a matter of weeks. We view this as a healthy sign of both our promising power and the underlying resilience of consumer demand for our brands. And we expect the benefit of this pricing action to build further as it fully annualizes through the second half, alongside our continued procurement and cost discipline. At the bottom line, net profit for the quarter reached EGP 713 million, representing a net profit margin of 7.9% and a 48% year-on-year growth. For the first half, net profit reached EGP 1.4 billion at a margin of 7.8%, up 23% year-on-year. On foreign exchange, while the first quarter was impacted by an FX loss, the second quarter benefited from a positive FX movement, resulting in a net FX gain of around EGP 66 million for the first half. Excluding this nonoperational item, adjusting adjusted net profit for the half would have been approximately EGP 1.3 billion still reflecting the strength of our underlying operating performance. This result was achieved despite a meaningful increase in finance cost which reached around EGP 573 million for the half, reflecting higher utilization of bank financing to support our growth initiatives. As a reminder, compared to figures for the first half of 2025 do not include the impact of the merger completed in February 2025. Turning to the operating environment. The second quarter benefited from a seasonal shift in demand with the summer heat driving a significant increase in consumption of Chile, dairy and juice products. This built on the strong Ramadan driven momentum we saw earlier in the year and helped sustain double-digit volume growth across our core categories. We also continued to gain share in several of our priority categories, and I want to spend a moment here because this is important evidence that our growth is coming from execution, not just market expansion. Flavored milk, led the way with our market share increasing 6 percentage points to reach 60%, while spoonable over gained 2 points to reach 32% juice gained 1 point to reach 32%. We did see some share softness in clean milk, down to 60% and then drinkable over to 41%, categories where we are actively recalibrating our commercial approach. I'd also like to highlight one figure in particular, Third-party distribution grew around 176% year-on-year in the quarter. This reflects an important structural shift in our business. Juhayna is increasingly becoming a distribution platform for the region, not solely manufacture our own branded products, and we see this as a meaningful growth lever going forward. Moving to exports, and I want to lead with the quality of this growth rather than the headline number. While total exports remain affected by the normalization of concentrate prices, the underlying trajectory of our finished product export business continues to improve. Export sales reached EGP 787 million during the quarter, up 15% year-on-year and EGP 1.2 billion for the first half, down 6 years down 6% year-on-year. In U.S. dollar terms, exports reached USD 15.1 million in the quarter up 14% year-on-year and USD 23.8 million for the half, down 5% year-on-year. The half year decline in total export revenue was largely attributable to lower concentrate volumes and price, consistent with the trend we [indiscernible] out in the first quarter. but finished product exports, the higher value, more strategically important part of this business continued to grow, with second quarter USD revenues from finished goods rising double digits year-on-year. This shift in our export mix is helping cushion the impact of softer concentrate revenues and reinforces our commitment to building a more diversified and resilient export base. Looking ahead, we expect increasing finished product volumes to further mitigate short-term volatility and enhance Juhayna's presence across international markets and we continue to work on several regional partnerships that we believe will provide an additional boost to finished product exports. Turning to profitability and costs. Our SG&A ratio increased to 11.5% of sales in the quarter, up 0.1 percentage point year-on-year and to 11.4% for the first half up 4.3 percentage points year-on-year. This increase reflects our operational expansion and proactive marketing strategy, including the continued growth of our Turkish Lavina range through the launch of 2 new flavor variants as well as high-profile seasonal marketing campaigns that strengthened brand visibility during the summer season. Despite these minor increases, which are consistent with our strategy to invest in brand equity and market share, we remain focused on cost discipline. Our ability to deliver healthy EBITDA margins while continuing to invest in brand building and distribution capacity demonstrates the effectiveness of our cost management framework. On the investment side, we continue to execute our expansion strategy announced in 2024. During the first half, we invested around EGP 1.3 billion in CapEx directed towards strengthening our capabilities across manufacturing and distribution. Net debt increased from EGP 6 billion at the end of 2025 to EGP 7.2 billion by the end of the first half, a 21% increase. Primarily reflecting higher working capital requirements and the continued execution of our CapEx program. I want to be explicit about the inventory increase. because we expect this to be a natural area of questions. We deliberately increased inventory by 40% during the half to around EGP 8.1 billion. This was a proactive working capital decision, not a deterioration in working capital discipline, taken in response to ongoing geopolitical tensions and the risk of supply chain disruption. And it positions us with stronger inventory coverage entering the second half. Despite the resulting increase in net debt, our financial position remains strong. Our leverage remains manageable, and we continue to generate the cash flow needed to support our growth ambitions. Before turning to the outlook, one brief update. Towards the end of the quarter, [ Tiba ] for trade and distribution, the trading arm of our group entered into an exclusive strategic partnership with Gorilla Energy Drink to officially launch the brand in Egypt. This strengthens Tiba's position as a regional distribution platform and reinforces our strategy of diversifying our portfolio. Looking ahead to the second half of 2026. I want to share what 6 months of execution have taught us and why we entered the second half with confidence. Volume momentum remains strong across our core categories. and early second half trends are consistent with what we saw in the second quarter. Our market share gains in flavored milk, spoonable yogurt and juice, validate that our commercial strategy is working, not just that the market is growing. Finished product exports are accelerating and we expect this trend to continue as our regional partnerships mature. Having moved early on pricing during the first half, we expect that benefit to build further through the second half alongside our continued procurement and cost discipline. And importantly, we entered the second half with stronger inventory coverage giving us confidence in our ability to serve demand without the structure. Regional geopolitical developments continue to create volatility and input costs, logistics and foreign exchange markets. However, we remain confident in our position. [indiscernible] benefits from a highly integrated local supply chain, strong sourcing capabilities, leading brands and one of the largest distribution networks in Egypt. Advantages that provide resilience during periods of uncertainty and give us confidence in our ability to execute through the second half. To summarize, four messages should stand out from today's call. First, strong volume-led growth continues, 25% revenue growth for the first half with 23% growth in the quarter alone. Second, our market share gains, particularly in flavored milk, spoonable yogurt and juice, validate that this growth reflects our commercial strategy, not just market growth. Third, profitability remains resilient despite cost pressure with a healthy 24.5% gross margin and 15.1% EBITDA margin for the, half and net profit up 23% for the half and 48% for the quarter. Lastly, the quality of our business continues to improve through accelerating finished product exports rapid growth in third-party distribution and continued investment in capacity and new categories. This was a record first half for Juhayna and the underlying fundamentals of our business remains strong, supported by resilient consumer demand, continued market share gains and a clear long-term growth strategy. We remain confident in our outlook for the remainder of 2026 and in our ability to continue creating value for our shareholders. Thank you. And now we welcome your questions.

Thank you so much, Karim, for the presentation and for the excellent set of results. [Operator Instructions] So we can start actually with Mariano. Following second quarter results, can you share updated guidance on 2026 full year revenue and net income?

I'm sorry, Updated guidance for?

The guidance for the full year revenue and net income.

I think the run rate speaks for the guidance. I mean I'm saying to the guidance that I've said at the beginning of the year and after we're in the same area, and I think the run rate reflects our trajectory until the end of the year.

Thank you. Another question from Andre had Simari. Congratulations on the results. We noticed concentrate prices remained stable, while revenue increased, implying volume-driven growth, we expect volumes to remain high for the rest of the year. regarding concentrate.

If this is regarding concentrates, there isn't much that happened in concentrates like prices are stable. We're selling more, yes, because we're trying to -- we're pushing as hard as we could to liquidate the stocks we have. And I think it's -- there is a little bit of demand that's increasing, but not as much as we would like to see it. But yes, I expect this to remain until the end of the year.

Thank you, Tarek. We have another question from Ravi Brahim. What price increases have already been implemented and by how much are we planning further price increases in 2026? And if so, what is the expected timing and magnitude? And finally, do you see any moderation in volumes after the recent pricing actions?

Okay. In April, we did some selective price increases, and we also play a little bit with the discounts in the market. And that definitely impacted our volumes in May. That's why actually I think that quarter 3 is going to be even better in terms of volume. Because May witnessed a slow down. I think the market -- it was a bit of reaction to the price increases. However, we recovered in June, and that's a good thing. I mean it just took us 1 month to -- for the market to recover. Because the prices were not really high. We did not push very strong in the prices. We're not planning to have any price increases in 2026, most probably not unless something happens. I'm just talking about business as usual. Nothing should change suppose there are price increases or further price increases in the energy prices. So there shouldn't be any further pricing in 2026. For me, I was more concerned about discounts rather than prices. However, we move both in line with the expense or let the cost increasing or expected the cost to increase Q2.

Thank you so much. We have a question from Yusof Sayed. When is the planned price increase expected to be implemented? I think that's related to what we have been saying. And over what period is the pricing strategy expected to take place and the follow-up, CapEx reached EGP 1.3 billion during the first half of the year. What should we expect for CapEx during the remainder of the year? And finally, regarding the third-party distribution segment, the company plan to continue expanding this business by adding new products to its distribution portfolio.

First question, price increases. Like I said, there isn't any expected price increasing to take place in this year. Additionally, as happened there might be next year, but it's still too early to tell when exactly. The CapEx part, I think there is we are expecting around EGP 1 billion, another EGP 1 billion in the second half of the year. And of course, we're going to see how it goes, but this is around like a rough figure of our expectations. Regarding third-party distribution, yes, this is part of the strategy. We have alluded to that before that this is something that we are planning to continue doing and continue growing and we have a very strong distribution network, and we are trying to capitalize on it as a third-party distributor.

Thank you, Tarek. Another question from Maria sure, given current higher debt levels, do you expect profitability to be impacted from current interest rate environment?