-          Recurring net income: EGP95.4mn, -27% Y-o-Y, +32% Q-o-Q, -6% vs. EFGe

-          Revenue: EGP821.7mn, +27% Y-o-Y, +34% Q-o-Q, +15% vs. EFGe

-          EBITDA: EGP171.9mn, -8% Y-o-Y, +31% Q-o-Q, -4% vs. EFGe

Edita reported 4Q16 results, with headline net losses of EGP69.2mn (vs. EFGe of EGP9mn in profit), as results were impaired by FX losses of EGP227mn, as FC liabilities were repriced post the EGP floatation in November 2016. Excluding FX losses and other one-offs, earnings fell c27% (-6% vs. EFGe) on margin pressures. Top-line growth was at a record-high of 27% Y-o-Y (+15% vs. EFGe), driven by broad-based price increases implemented in the quarter, as well as the introduction of new, higher-priced products over the course of the year (Brownies, etc.), with average ex-factory price/pack rising c30% Y-o-Y. Edita began increasing prices from October 2016 to face inflationary pressures from a weaker EGP, VAT, etc., starting with its croissant range (+25-50%), followed by its Todo cake offering (+50%) and then did similar increases across its entire portfolio in December 2016. Segmental performance detailed below:  

-          Cake (c55% of 4Q16 revenue) was the best performing segment and main growth driver, with segment revenue +46% Y-o-Y, mainly as average price/pack rose 34% Y-o-Y. Most notably, volumes reversed a four-quarter decline (that was triggered by the Twinkies upsizing in September 2015 doubling its price point), advancing 14% Y-o-Y

-          Croissant (c30%) revenue saw a first-time decline (-4%), as aggressive price increases (+39%) led to a decline in volumes (-31%)

-          Rusks (c7%) added an impressive 136%, as volumes nearly doubled despite higher prices due to market-wide supply shortages of baked salty snacks, as well as capacity doubling in end-2015

-          Wafer (c4%) + 38% with a new line to be commissioned in 2017

-          Candy (c3%) saw only a 4% Y-o-Y increase (only segment where 13% VAT was levied vs. 5% for other segments, which hurt volumes)

Headline gross margin fell c7.2pp Y-o-Y to 35.1%, mainly as a result of the EGP float that saw direct material costs (80%+ of CoGS) rise 47% Y-o-Y, as well as the impact of VAT implementation (input costs are no longer tax deductible). Accordingly, gross profit only rose 6% Y-o-Y (+4% vs. EFGe). All segments saw their gross margin decline, with the exception of rusks (+1.9pp) and candy (+3.9pp). EBITDA fell 8% Y-o-Y (-4% vs. Y-o-Y), as SG&A costs rose 24% Y-o-Y mainly on a 42% rise in administrative costs. EBITDA margin, thus, declined c7.8pp Y-o-Y to 20.9%.

Edita’s Board of Directors (BoD) has proposed a cash dividend distribution of EGP0.15/share for 2016 (total of EGP108.8mn), above our forecast and last year's EGP0.11/share. The dividend implies a payout ratio of 225% (39% based on recurring earnings) and a dividend yield of 0.9%.

The results come as no big surprise, as fast and aggressive (unprecedented) price revisions took their toll on volumes, which is a trend that could continue for a few more quarters. We are, however, encouraged by the recovery in cake volumes that have been a key drag on performance in the past year. We have a Neutral rating on the stock on valuation grounds. 

Edita Food Industries: EGP17.20 as of 1 Mar. 2017, Rating: Neutral, TP: EGP11.80/share, MCap: USD773mn, EFID EY/EFID.CA