Obour Land for Food Industries - OLFI - Initiation of Coverage

PRIME INVESTMENT RESEARCH

FOOD & BEVERAGE |EGYPT OBOUR LAND FOR FOOD INDUSTRIES – INITIATION OF COVERAGE JANUARY 24TH

2017

SOURCE: BLOOMBERG

OBOUR LAND FOR FOOD INDUSTRIES … SUPERIOR MANAGEMENT COUPLED WITH ORGANIC AND INORGANIC GROWTH OPPORTUNITIES ….

Stock Data Outstanding Shares [Mn] 200 Mkt. Cap [EGP Bn] 1.8 Bloomberg – Reuters OLFI EY, OLFI.CA LOW/HIGH - SINCE INCEPTION 8.61 – 9.80 DAILY AVERAGE TURNOVER (‘000S) 11,605

Ownership SHERIF FAMILY 64.8% NORGES BANK 4.0% LAZARD CAPITAL 2.7% DUET CAPITAL 2.2% PRINCE STREET CAPITAL LTD. 1.8% LOCAL INSTITUTIONS 9.7% FOREIGN INSTITUTIONS 11.6% FREE FLOAT / RETAIL 3.0%

INVESTMENT GRADE “GROWTH”

We initiate our coverage for Obour Land for Food Industries - with a “Buy” rating driven from an upside potential of 38.1%; driven from our estimated Fair Value of EGP 12.43 /share. The company’s P/E Multiple for 2017 would stand at 7.44x. The Egyptian Food & Beverage industry witnessed a lot of changes during 2016. Two main factors shaped the industry during the year; (1) The FX shortage / volatility and (2) The high rates of inflation. In the past, the F&B producers have always been able to secure the FX they needed from the official banking sector, even when the FX shortage started to affect other industries. By April 2016, the F&B companies started to resort to the parallel market to secure some of the required FX, where by June /July 2016, most of the F&B companies announced that they were securing c90-95% of their required FX from the parallel market. After the EGP floatation that took place in November 2016, the large F&B producers announced that they were largely back to securing most of their required FX through the official banking sector, where they only secured a small portion from the parallel market. As for the inflation, the Egyptian economy witnessed very high rates of inflation during 2016. In December 2016, the headline and core inflation recorded the highest rates since 2003, as they stood at 23.3% and 25.9% respectively. Such high rates for the headline inflation were mainly driven by the increase in food prices, the rise in the healthcare costs and the increase in the transportation costs. The high inflation has affected the purchasing power of consumers in many aspects, however, the severity has been different among many

product categories; products that were perceived as cheap and essential were not as affected as products that were perceived to be relatively expensive and non-essential. Other factors that also affected the industry were the rise in the cost of debt, the rise in the cost of most of the utilities; such as water and electricity, the partial removal of the fuel subsidies and the application of the VAT. All the aforementioned factors had a negative effect on the F&B producers, yet the FX crunch and the hike in EGP/USD had the worst effect due to the sector’s huge reliance on imported raw materials, as most of the companies import 50-85% of their raw materials. All the F&B producers faced a huge dilemma which was their inability to pass the increase in the costs to the consumers in a single price hike due to the fear from competition and the fear from the deteriorating purchasing power of the consumers. Consequently, most of the F&B producers preferred to raise their prices gradually over 4-6 quarters, where the consumers would be more acceptable of this sort of price increases. We believe that 2017 is going to be majorly different than 2016. From our perspective, 2017 is going to be the beginning of a new era, with different price levels and consumption patterns. The high rates of inflation is expected to persist in the coming years, where the double-digit rates of inflation are expected to remain at such levels till 2019-2020. Due to the high inflation, consumers will start to adjust their consumption patterns and producers will keep gradually passing the rest of the increase in costs that they were not able to pass in 2016. Obour Land for Food Industries was founded by Eng. Mohamed Hamed Sherif and Mr. Ashraf Hamed Sherif in 1997. The company commenced operations in 1999 with a single production line of plastic tub cheese with an annual production capacity of 4.1 thousand tons (daily production capacity of 400kg). Currently the company has 13 production lines with an annual production capacity of 134.4 thousand tons (daily

production capacity of 400 tons), where 12 of these production lines are Tetra Pak production lines that are used for the production of carton pack cheese and the remaining production line is used for the production of the plastic tub cheese.

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OLFI EGX30 Rebased

Prices as of 23/1/2017

Report Content:

Valuation .................................................….... 3 The Egyptian Cheese Industry ……………... 5 Obour Land for Food Industries ……............ 9

“BUY” MARKET PRICE EGP 9.00 FAIR VALUE EGP 12.43 POTENTIAL 38.1% UPSIDE

UPSIDE

2

PRIME INVESTMENT RESEARCH OBOUR LAND FOR FOOD INDUSTRIES – INITIATION OF COVERAGE

JANUARY, 2017

The company plans to capitalize on its strong brand equity and penetrate new segments, as the company believes that the new segments / products would complement the company’s existing portfolio. The new segments that the company will penetrate are mozzarella cheese, spreadable (processed) cheese, milk and juice. The company will add 9 production lines in 2017, where they are expected to become operational by 2Q2017. The new production lines will be divided between the existing and the new segments; three of the new production lines will be for the carton pack cheese production (annual capacity: 65.3 thousand tpa), 1 production line for the production of the mozzarella cheese (annual capacity: 3.6 thousand tpa), 1 production line for the production of the spreadable cheese (annual capacity: 3.6 thousand tpa), three production lines for the production of juice (annual capacity: 99mn liters) and a single production line for the production of milk (annual capacity: 27mn liters). Obour Land had the largest market share by brand in the carton pack cheese with a share of 39% in the 9M2016, however, by company, it would have had the second largest market share, after Domty’ share of 43% during the same period. The company has a superior performance in the regions of Delta and Upper Egypt, which are Egypt’s two most populous regions. Although consumers in the Delta and Upper Egypt regions have lower purchasing power compared to that of the consumers in the Greater Cairo region, these regions have grown at faster rates in the past and they are expected to have a higher demand for cheese in the coming years, given that cheese is one of the cheapest sources of protein, when being compared to either meat or chicken. Even though Obour Land has the second largest market share, it is worthy to note that Obour Land has shown quiet a robust growth in the past years; Obour Land’s market share grew from 23% in 2013 to 39% in 9M2016, while on the other hand, Domty’s market share was quiet static as it only grew from 39% in 2013 to 43% in 9M2016. The company relies heavily on sales to small retail shops, including indirect sales to small, retail shops through the company’s wholesalers and retailers, which accounted for c97% of the total sales for the nine months ended September 30th, 2016, rather than sales to large, key accounts. It is worthy to note that the management’s preference for the cash basis, rather than the credit basis has been quiet apparent in the market shares by sales channels; Obour Land has the largest market share in the small grocery shops (which mainly depend on cash basis and require less discounts), with a share of 49%, followed by Domty with a share of 36%. Moreover, for the large grocery shops (which requires a mix of cash and credit terms and require somehow relatively larger discounts) Domty has the largest market share of 49%, reflecting Domty’s acceptance of more relaxed payment terms, followed by Obour Land’s market share of 30%. Additionally, as for the supermarkets / key accounts (which mainly depend on credit basis and require the largest discounts), Domty has by far the largest market share of around

60% and Obour Land lags far behind with a quiet small share of 11%, reflecting the company’s reluctance with doing business with key accounts. The company’s management is considered very efficient with regards to its working capital, resulting in a one of the shortest cash conversion cycles in the sector. The management prefers cash sales, rather than credit sales and consequently the company has much lower receivables; either in absolute terms or days on hand, than its competitors. In 2015, the company adopted a strategy for its inventory management, where the company would increase purchases and pile up inventories of raw materials opportunistically when prices are relatively lower and use the stockpiled inventory when the prices are relatively higher. This strategy has helped the company maintain very healthy margins throughout the periods where the competitors’ margins were hit severely.

Obour Land’s IPO took place on December 2016, where the company offered 80,000,000 existing shares (40% of the existing share base) in a combined offering. The offering was entirely a secondary offering. The selling shareholders were Eng. Mohamed Hamed Mohamed Sherif and his direct family members. The institutional offering was 7.38x covered, where the retail offering was 1.94x covered and accordingly the total offering was covered 5.5x. The trading multiples of Obour Land were very attractive at the beginning, as the company had a lower leading P/E multiple of 8x, in comparison to that of Domty and Edita which had leading P/E multiples of 24.19x and 21x respectively at their IPOs. Currently the stock is relatively undervalued, when valued using either the DCF valuation or the multiples valuation methodologies, where they both entail an upside potential of 38.1% and 235% respectively.

3


JANUARY, 2017

Valuation:

- DCF Valuation:

We initiate our coverage for Obour Land for Food Industries - with a “Buy” rating driven from an upside potential of 38.1%; driven from our estimated Fair Value of EGP 12.43 /share. Using the DCF valuation methodology for Obour Land, we utilized an average WACC over our forecasted horizon of 19.01%, an average risk free rate of 12.80%, and a market risk premium of 8%. We used the average F&B Sector Beta which is equivalent to 0.83.

Regarding the perpetual growth rate, we applied a multiple-stage growth model:

- 2017 - 2021: we forecasted full financial statements, as the company will witness hyper growth rates.

- 2022 - 2026: we assumed FCF to grow at a high rate of 10%.

- 2027 - Infinity: the terminal value of the company is based on a perpetual growth rate of 5%.

2017 - 2021 2022 - 2026 2027 - Infinity

Hyper Growth High

Growth Stage

10% Sustainable Growth Stage

5%

Discounted Cash Flow Model (DCF) 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

NOPLAT

250,214 267,577 381,501 504,520 623,091 Depreciation

20,574 26,583 36,075 46,344 57,095

Gross Cash Flow

270,788 294,160 417,576 550,864 680,186 Change in Working Capital

-75,224 -75,505 -31,237 -50,791 -20,030

Capex

-94,915 -121,343 -139,825 -163,311 -178,106 Free Cash Flow

100,649 97,312 246,515 336,762 482,049 530,254 583,280 641,608 705,768 776,345

5,853,160

Terminal Value Total Cash Flow

100,649 97,312 246,515 336,762 482,049 530,254 583,280 641,608 705,768 6,629,506

NPV

85,027 69,706 148,436 170,360 204,655 189,293 175,085 161,866 149,716 1,182,513

Value Of Operations 2,536,656 Add: Excess Cash 58,816 Entity Value 2,536,656 Less: Value of Debt 109,713

Less: Accum. Discounted Minority Interest

Shareholder Value 2,485,759 DCF Value Per Share 12.43

Upside Risks:

- Ability to grow the company’s market share in the cheese industry.

- Success of the new segments; mozzarella cheese, spreadable cheese, milk and juice.

- Ability to raise prices more than our expectations and improve profitability margins.

- Operating at utilization rates that are higher than our expectations.

- Success in exports markets, helping to secure part / all of the required FX.

- Becoming a part of an M&A transaction (either as an acquirer or a target).

Downside Risks:

- Continuation of the FX crunch and the rise in the EGP-USD rate.

- Increase in the prices of raw materials. - Fierce competition from local, regional and foreign

investors and losing market share in any of the company’s segments.

- Failure of any / all of the new product segments; mozzarella cheese, spreadable cheese, milk and juice.

- Loss of the strong relation with Tetra Pak and other suppliers.

- Inflationary pressures weakening the consumers’ purchasing power.

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JANUARY, 2017

SOURCE: BLOOMBERG & PRIME

We believe that a multiple-stage growth model is more appropriate for sectors such as F&B and companies as Obour Land, as these sectors and companies are expected to witness abnormal growth rates before achieving stable perpetual growth rates. Previously, we indicated that our assumed perpetual growth rate is capped by 5%, as it is correlated with Egypt’s real GDP growth rate, and hence we opted to apply a multiple stage growth rate model for Obour Land. - Multiples Valuation:

Value (EGP / Share) Upside Potential

100% DCF 12.43 38.11%

100% P/E Multiple 30.17 235.17%

50% DCF / 50% P/E Multiples 21.3 136.7%

Multiples valuation would imply that Obour Land is considered relatively undervalued and is currently trading at a discount. Obour Land has a lower leading P/E ratio (7.44x) than its global (24.93x), regional (17.78x) and local peers (32.05x). Using the leading P/E multiple for global peers, Obour Land’s FV would stand at EGP 30.17, implying a 235.2% upside potential.

Company Name P/E - 2017

Local F&B

Juhayna Food Industries 26.85

Edita Food Industries 32.30

Arabian Food Industries - Domty - 32.05

Sample Median - Local F&B 32.05

Company Name P/E - 2017

Regional F&B

Halwani Brothers Company 34.13

Almarai Co. 26.96

Agthia Group PJS 19.87

Kuwait Food Co. Americana Group 17.86

Mezzan Holding Co. 17.70

Jordan Dairy 16.83

Sadafco 15.43

Savola 14.95

Sample Median - Regional F&B 17.78

P/E - 2017

Global F&B

The Kraft Heinz Company 50.35

China Huishan Dairy Holdings 48.59

Bright Dairy & Food Co Ltd. 46.82

Prabhat Dairy 38.44

KMG Milk Food Ltd. 32.36

Bega Cheese 29.95

Danone 29.66

Rangpur Dairy & Food Products Limited 28.55

Mondelēz International, Inc. 26.54

Saputo Inc. 26.50

China Modern Dairy Holdings Ltd 26.41

Namyang Dairy Products Co Ltd. 23.44

Dairy Crest Group 22.17

Vietnam Dairy Products 21.93

Dutch Lady Milk Industries Berhad 21.68

Maeil Dairy Industry co 20.76

Fan Milk Limited 17.09

Kri Kri Milk Industry SA 16.35

Morinaga Milk 14.09

Megmilk Snow Brand Co Ltd. 12.75

Lacto Japan Co. Ltd. 8.30

China Dairy Corp. Ltd. 3.10

Sample Median - Global F&B 24.93

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JANUARY, 2017

THE EGYPTIAN CHEESE MARKET - 2015-

SOURCE: OBOUR LAND

THE EGYPTIAN CHEESE MARKET - 2010-2015

SOURCE: OBOUR LAND

CONSUMPTION PER CAPITA (KG/ANNUM) - 2015 -

SOURCE: OBOUR LAND & DOMTY

The Egyptian Cheese Market:

Egypt’s per capita consumption of cheese is considered higher than the global average and the regional average, however, it is considered relatively lower than that of the more developed markets, such as North America and Western Europe.

Cheese is an Egyptian household staple, as it is considered an affordable source of protein. It is the largest segment in the Egyptian dairy market, where it constitutes over 50% of the total dairy market. The Egyptian cheese market can be divided into two major product categories: unprocessed cheese (c84% of the total cheese market) and processed cheese (c16% of the total cheese market). The unprocessed cheese can be further sub-categorized into unprocessed hard cheese (c45% of the total cheese market) and unprocessed soft cheese (c39% of the total cheese market). During the past several years, the unprocessed soft cheese has exhibited the fastest growth among all the cheese sub-categories and it is expected that the unprocessed soft cheese market will grow at the expense of the unprocessed hard cheese market due to the complexities required to produce and distribute the unprocessed hard cheese. The Egyptian cheese industry has enjoyed steady growth, with a CAGR of c13% during 2010-2015, where its value stood at EGP 12.9bn by the end of 2015.

Processed Cheese, 16%

Unprocessed Soft Cheese ,

39%

Unprocessed Hard Cheese ,

45%

EGP Mn. 2010 2011 2012 2013 2014 2015 2010 - 2015

CAGR %

Unprocessed Soft Cheese 2,175 2,555 3,007 3,518 4,137 5,084 18.5%

Unprocessed Hard Cheese 3,598 3,927 4,313 4,702 5,130 5,837 10.2%

Processed Cheese 1,154 1,276 1,422 1,581 1,756 2,008 11.7%

Total 6,927 7,758 8,742 9,801 11,022 12,930 13.3%

y-o-y Growth (%) - 12.0% 12.7% 12.1% 12.5% 17.3%

13.8

9.4

5.7 5.1

3.5 3

2.5 2.3 2.3 1.6

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France Italy USA Egypt Turkey KSA South Africa

UAE Algeria Bahrain

11.4 11.1

5.2 5.1 4.9

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Western Europe

North America

Eastern Europe

Egypt Latin America

Middle East & Africa

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JANUARY, 2017

CHEESE DEMAND IN EGYPT

SOURCE: OBOUR LAND

CARTON PACK MARKET SIZE (‘000S TONS) &

CONSUMPTION PER CAPITA (KG /CAPITA / ANNUM)

SOURCE: OBOUR LAND

The growth in the cheese industry in the last decade has been driven by several factors and we believe that the same factors will lead to the further growth of the industry in the coming years. These factors include:

It is worthy to note that the white cheese market in Egypt is dominated by grocery shops that cater the on-the-go consumption patterns; c90% of Egyptian cheese sales is estimated to have occurred through these traditional retailers in 2015, with approximately 40% being from large grocery shops and 50% being from small grocery shops. However, modern trade channels, including modern grocery retailers with sufficient refrigeration capabilities, remain essential for certain product categories that require special storage conditions, typically fresh cheeses such as mozzarella cheese, spreadable cheese and other plastic pack cheeses.

- Consumer shift from loose to packaged cheese: Most of Egypt’s cheese production has historically been locally produced, non-packaged cheese, referred to as ‘‘loose’’ cheese. Such loose cheese has been scientifically associated with various health and hygiene issues, mainly due to the relatively unregulated production and distribution processes used for it. Cheese consumption has been shifted from loose cheese to packaged cheese products in the last decade to a large extent, due to the rising urbanization and increased consumer awareness. The shift has also been driven by the convergence of the price differential between loose and packaged cheese, where the packaged cheese producers have been able to benefit from huge economies of scale. This has been reflected in the loose cheese market share declining from 72% in 2007 to 25 – 30% of the overall unprocessed soft white cheese market in 2015.

- Innovative product offering: The Egyptian cheese market offers a wide variety of SKUs covering different tastes, sizes and price ranges in order to fulfill the needs of the mass consumers. During the last decade, consumers have shown preference for smaller, more affordable SKUs. Also, the carton pack cheese has contributed to market growth by facilitating the product handling and the storage process for both, retailers and consumers.

- Adoption of western eating habits: During the last decade, Egyptian consumers have been increasingly adopting westernized eating habits. The number of western-style food restaurants has been steadily growing during the past few years and the rising consumption of western-style meals such as pizza, burgers and pasta (where cheese is a key ingredient) has led to an increase in cheese sales.

- Consumption patterns: The urban lifestyle has become increasingly busier as a result of family members spending more time far from home, the growing numbers of students, the

increasing female participation in the workforce and longer commute times, where all of these factors have driven an ‘‘on-the-go’’ consumption trend. Cheese has been marketed as an ‘‘on-the-go’’ snack due to its innovative and small packaging, making it suitable for rapid consumption. Cheese has increasingly been positioned as both a third meal option during the day and a meal-replacement snack because it is an affordable, filling snack with a variety of flavors.

72%

25-30%

28%

70-75%

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20%

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40%

50%

60%

70%

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100%

2007 2015

Loose Cheese Packaged Cheese

61.5

81 96.8

103.5

145.6

171.8 182.1

219.5

252.7

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Carton Pack Market Size

Carton Pack Consumption per Capita

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JANUARY, 2017

UNPROCESSED SOFT CHEESE – EGP MN .

CARTON PACK CHEESE - MARKET SHARES – 9M2016

UNPROCESSED HARD CHEESE – EGP MN .

SOURCE: OBOUR LAND

- Unprocessed Cheese: Unprocessed cheese is the most prevalent type of cheese in the local Egyptian market, where it constituted c84% of the total cheese market in 2015. * Unprocessed Soft Cheese:

* Unprocessed Hard Cheese:

2,175 2,555

3,007

3,518

4,137

5,084

17% 18% 17%

18%

23%

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5,000

6,000

2010 2011 2012 2013 2014 2015

EGP Mn. y-o-y Growth (%)

Unprocessed soft cheese is packaged in either traditional plastic packaging, such as plastic tubs, or carton packs. As the plastic pack cheese is typically sold fresh, it has special handling and storage requirements. Consequently, the plastic pack cheese is typically consumed in homes or restaurants with sufficient refrigeration capacity. On the other hand, the carton pack cheese has a relatively long shelf-

life, making it a better alternative as an easily carried food item that can be consumed anywhere at any time. The unprocessed soft cheese market in Egypt has nearly doubled in recent years, growing to more than EGP 5.1bn by 2015. This growth has largely been driven by rapid increase in carton pack cheese sales due to carton pack cheese’s attractiveness as a convenient on-the-go food and its ability to be sold through a wider array of sales channels than plastic pack cheese.

The competitive landscape of the Egyptian cheese industry has changed significantly during the recent years, as a result of the rapid growth of carton pack cheese products. Major producers, such as Domty and Obour Land had a long-term vision, as they predicted the shift to the conveniently consumed cheese products. Both companies began offering carton pack cheese products in 2007 and they continued to increase their production capacity of carton pack cheese in the following years. As Domty and Obour Land were able to anticipate and capitalize on the increasing consumer demand for carton pack cheese products, they were able to expand their market share for the packaged white cheese and this came at the expense of earlier market leading brands (such as Americana’s Greenland). The largest producers of unprocessed carton pack cheese in Egypt in the nine months ending September 30, 2016 by sales value were Domty (market share: 43%), Obour Land (market share: 39%), Greenland (market share: 5%) and Panda (market share: 4%). On the other hand, the unprocessed plastic pack cheese has more restrictive requirements and thus has grown less rapidly than carton pack cheese during the last years. President has always had the largest market share of the unprocessed plastic pack cheese with a share of more than 50%, followed by Domty with a share of 20-25%.

Domty , 43%

Obour Land, 39%

Americana - Green Land,

5%

Arab Dairy, Panda, 4%

Best - Teama & President ,

2%

Others, 7%

The unprocessed hard cheese is the largest segment of the Egyptian cheese market, where it represents nearly 45% of the total Egyptian cheese market. The unprocessed hard cheese market in Egypt stood at EGP 5.8bn by the end of 2015 and it grew at a CAGR of nearly 10% during 2010-2015. The most common type of Egyptian hard cheese is the unbranded Roumy cheese, where it is manufactured locally and it constitutes approximately 80% of Egyptian hard cheese market with the remainder consisting of more expensive imported hard cheese brands that are typically considered unaffordable to the mass market

customers.

3,598 3,927

4,313 4,702

5,130

5,837

9% 10%

9%

9% 14%

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2010 2011 2012 2013 2014 2015


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JANUARY, 2017

PROCESSED CHEESE – EGP MN .

SOURCE: OBOUR LAND

The unprocessed hard cheese is sold mainly by smaller companies. The management of Obour Land believes that the production process and the sale of unprocessed hard cheese are very complicated. The complexity in production is mainly due to the necessity for manual intervention during the production process. As for the storage and handling, the production of unprocessed hard cheese requires storage of the final product in temperature-regulated warehouses at 15 degrees Celsius for approximately six months prior to sale, which the management believes that it could negatively affect the company’s liquidity and cash conversion cycle. Moreover, since the milk used for unprocessed hard cheese is not pasteurized during the production process, control over quality and consistency of the final product is difficult. - It is worthy to note that Obour Land’s main competitor – Domty – has announced their plans to penetrate the unprocessed hard cheese segment by 2017, through the production of Roumy cheese using pasteurized milk. Production is expected to begin in early 2017, at an estimated cost of EGP 25mn, with a production capacity of 3,000tpa. Even though production is expected to begin by early 2017, the product will not be available for sale before July / August 2017, as the hard cheese must be stored at least for 6 months after production to be suitable for the consumers’ preferences. Sales Channels for Unprocessed Cheese: Since the plastic pack cheese products require chilled storage and distribution facilities, their available sales channels are generally limited to the modern retail stores and similar retail channels with adequate refrigeration capabilities. On the other hand, the carton pack cheese products, which have easier handling and distribution requirements, are distributed through more diverse and flexible sales channels, including traditional grocery stores and kiosks without refrigeration and to more remote locations. Unprocessed hard cheese is sold in both traditional and modern groceries, but they have special storage requirements. It is usually purchased by supermarkets in bulks and then sold to consumers by weight. - Processed Cheese

1,154 1,276

1,422

1,581

1,756

2,008

11%

11% 11%

11%

14%

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0.04

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0.08

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0.14

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500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014 2015


By the end of 2015, the processed cheese constituted c16% of the total Egyptian cheese market, where it stood at more than EGP 2bn. Processed cheese is a more niche product, as it mainly targets consumers with westernized eating habits. The prices of processed cheese have always been relatively high as the target market for this product is less broad. The processed cheese market has also grown in recent years driven by the increase of westernized eating habits in Egypt, but this growth has also been constrained by a limited number of modern sales channels equipped with cold storage capabilities.

As for the market shares for the processed cheese, President has the largest market share of nearly 67.5%, followed by Domty with a share of 15%. Sales Channels for Processed Cheese: As processed cheese products require chilled storage and distribution, the lack of a well-developed retail environment with a cold chain infrastructure has been a huge impediment in the distribution of processed cheese products and the growth of the processed cheese market).

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JANUARY, 2017

SOURCE: OBOUR LAND

OFFERING STRUCTURE

SOURCE: PRIME

Obour Land for Food Industries:

IPO:

The institutional offering was 7.38x covered, where the retail offering was 1.94x covered and accordingly the total offering was covered 5.5x. Relative to other IPOs in the F&B sector during the last several years, Obour Land’s coverage for the institutional tranche was better than most of the previous IPOs, while the retail tranche lagged behind as the coverage was relatively low.

Shares Owned Immediately

Prior to the Offering

Shares Owned Immediately Following the Offering

No. % No. %

Mohamed Hamed Mohamed Sherif 81,000,000 40.5%

48,600,000 24.3%

Ashraf Mohamed Hamed Mohamed Sherif 45,000,000 22.5%

27,000,000 13.5%

Samya Elshafei Sadek Elkafrawy 10,000,000 5%

6,000,000 3%

Ayman Mohamed Hamed Mohamed Sherif 34,000,000 17%

20,400,000 10.2%

Ghada Mohamed Hamed Mohamed Sherif 10,000,000 5%

6,000,000 3%

Rasha Mohamed Hamed Mohamed Sherif 10,000,000 5%

6,000,000 3%

Abeer Mohamed Hamed Mohamed Sherif 10,000,000 5%

6,000,000 3%

Other investors in the combined offering - (Free Float) 0 0%

80,000,000 40%

Total 200,000,000 100%

200,000,000 100%

1.75x

6.79x

0

5

10

15

Institutions Retail

Juhayna Food Industries - JUFO - 2010

13.4x

4.5x

0

5

10

15

Institutions Retail

Edita Food Industries - EFID - 2015

5.5x

10.7x

0

5

10

15

Institutions Retail

Arabian Food Industries - Domty - DOMT - 1Q2016

7.38x

1.94x

0

5

10

15

Institutions Retail

Obour Land for Food Industries - 4Q2016

Obour Land for Food Industries offered 80,000,000 existing shares (40% of the existing share base) in a combined offering. The combined offering was compromised of: (i) An International Offering – (c56,000,000 shares – 70% of the total offering) to institutions in a number of countries, including Egypt, through a private placement and (ii) an Egyptian Retail Offering – (24,000,000 shares – 30% of the total offering) to the public in Egypt. The offering was entirely a secondary offering. The selling shareholders were Eng. Mohamed Hamed Mohamed Sherif and his direct family members. The purpose of the offering was to further institutionalize the business

through the introduction of new shareholders, penetrate the capital market for future possible investments and also to provide a partial exit for the selling shareholders.

Institutional

Offering - 56mn shares -

28% of the share base - 70% of the

total offering

Retail

Offering - 24mn shares -

12% of the share base - 30% of the

total offering

Original

Shareholders - 120mn shares -

60% of the share base

10


JANUARY, 2017

SOURCE: OBOUR LAND

MAJOR F&B STOCKS’ PERFORMANCE – 2016 & 2017

SOURCE: BLOOMBERG

TRANSACTION TIMELINE

It was announced on December 5th that the IPO would have a price range of EGP 9.00-9.68 /share. By the end of the institutional offering, the shares were priced at EGP 9.68 /share, putting it at the top end of the price range and giving the company an initial market capitalization of EGP 1.936bn. Trading commenced on December 15th, at an opening price of EGP 9.70 /share. The trading multiples of Obour Land were very attractive at the beginning, as the company had a lower leading P/E multiple of 8x, in comparison to that of Domty and Edita which had leading P/E multiples of 24.19x and 21x respectively at their IPOs. In addition to the relatively attractive multiples, foreign investors have always showed huge interest in the F&B sector. Such an interest was quiet positive for the IPO, as it took place after the EGP floatation, which witnessed massive appetite from global and regional investors, where they have been considered net buyers since then. On the other hand, the retail offering was not as good as the international offering with respect to the coverage. The low appetite of retail investors was mainly due

to several reasons, including: (i) the poor performance of the major F&B stocks since the beginning of 2016, (ii) the weak financial results of F&B companies during the 9M2016, (iii) the weak performance of the latest F&B IPO of Arabian Food Industries – Domty and (iv) local retail clients have been net sellers since the EGP floatation. The stock’s price has deteriorated since the IPO, reaching EGP 9.00/share, declining by c.7%. Stabilization Fund: There were no stabilization activities for the international offering. Meanwhile, for the retail offering, the selling shareholders financed an amount equivalent to 15% of the gross proceeds of the combined offering (50% of the retail offering) at the offer price and made it available to the IPO’s coordinator one day prior to the commencement of trading. Post the stabilization period, the IPO’s coordinator matched the purchase and sales orders of 9.69mn stocks at the offer price of EGP 9.68/share.

November-16

December-16

Week 1 Week 2 Week 3 Week 4

20th Nov. - 26th Nov. 27th Nov. - 3rd Dec. 4th Dec. - 10th Dec. 11th Dec. - 17th Dec.

Institutional Offering

24th Nov. - 9th Dec.

Management Roadshow - Institutional Book-building

Retail Offering 5th Dec. - 13th Dec.

Retail Offering

Execution and Closing

14th Dec. - 15th Dec.

Execution on the EGX

Commencement of Trading

0

5

10

15

20

25

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17

JUFO EFID OLFI DOMT

EGP Floatation OLFI Price (%)

2016 -6%

2017 +1%

JUFO Price (%) 2016 -21%

2017 -1%

EFID Price (%) 2016 -10%

2017 +2%

DOMT Price (%) 2016 -29%

2017 +2%

EGP

11


JANUARY, 2017

SOURCE: OBOUR LAND

OBOUR LAND – PRODUCTION CAPACITIES - TIMELINE

Company Overview: Obour Land for Food Industries was founded by Eng. Mohamed Hamed Sherif and Mr. Ashraf Hamed Sherif. The company commenced operations in 1999 with a single production line, with the capacity to produce 400kg per day of loose white cheese in plastic tubs, with four plastic tub SKUs. It introduced its first Tetra Pak product in 2007, where it currently operates 12 Tetra Pak production lines producing 350-400 tons of white cheese per day. By the end of 2016, the company had an annual production capacity of 134.4 thousand tons and had 27 different SKUs in its portfolio. The company is currently installing 9 new production lines; 3 carton pack cheese production lines, 1 mozzarella cheese production line, 1 spreadable cheese production line, 1 milk production line and 3 juice production lines, where all these production lines are expected to be operational by 2Q2017. After the capacity additions, the company is expected to have a cheese production capacity of 206.8 thousand tons per annum, a juice production capacity of 99 million liters per annum and a milk production capacity of 27 million liters per annum.

Product Mix: Obour Land began its operations in 1999 with a single production line of loose white cheese. The production line had a capacity of 400kg per day, where all the production was for the plastic tub cheese. In 2007, the company’s management foresaw the change in the consumption patterns, where it introduced its first Tetra Pak carton pack cheese product. Since then, the company focused on expanding its product offerings, through introducing different sizes and flavors. The company began producing carton pack cheese products in 2007 through 2 production lines with 2 SKUs; 500gm and 250gm, which enlarged the annual production capacity for the company to reach 33.3 thousand tons, including 4.1 thousand tons for the plastic tubs. In 2011, the company added 2 production lines; an additional production line for the 250gm SKU and it also introduced the 125gm SKU, increasing the company’s annual production capacity to 50.2 thousand tons. In 2013, the company added 3 new production lines; one line for the 125gm SKU and two lines for the 250gm SKU, increasing the company’s annual production capacity to 80.6 thousand tons. In 2014, the company added a single production line for the 500gm SKU, with aa annual production capacity of 18 thousand tons. In 2015, the company added three production lines; one production line for the 125gm SKU, one production line for the 250gm SKU and a production line for the 80gm SKU which was introduced to the market at that time. By the end of 2015, the company’s annual production capacity reached 120.9 thousand tons. In 2016, the company added a single production line, where it was for the 250gm SKU, increasing the annual production capacity to 134.4 thousand tons. The company currently operates 13 production lines, where it offers 27 different SKUs, including carton pack cheese products ranging from 80gm to 500gm and plastic tubs ranging from 400gm to 12kg. The 13 production lines are operated at the company’s 6,120sqm production facility, which is located on its 26,412sqm land which is owned by the company. The company plans to use the unutilized land to further expand the current production capacities with new and existing products.

Production Line Plastic Tubs

Tetra Pak - Line 1

Tetra Pak -

Line 2

Tetra Pak -

Line 3

Tetra Pak -

Line 4

Tetra Pak -

Line 5

Tetra Pak -

Line 6

Tetra Pak -

Line 7

Tetra Pak -

Line 8

Tetra Pak -

Line 9

Tetra Pak -

Line 10

Tetra Pak -

Line 11

Tetra Pak -

Line 12

Total Capacity - End of

2016

Launch Date 1999 2007 2007 2011 2011 2013 2013 2013 2014 2015 2015 2015 2016

134.4 KTPA Package Size - 500gm 250gm 250gm 125gm 125gm 250gm 250gm 500gm 125gm 80gm 250gm 250gm

Annual Capacity (KTPA) 4.1 18.0 11.3 11.3 5.6 5.6 11.3 13.5 18.0 6.8 4.3 11.3 13.5

12


JANUARY, 2017

EXPECTED ADDITIONAL CAPACITIES – KTPA – WHITE CHEESE

EXPECTED ADDITIONAL CAPACITIES – KTPA –

MOZZARELLA & SPREADABLE CHEESE

EXPECTED ADDITIONAL CAPACITIES – MN LITERS–

JUICE & MILK

SOURCE: OBOUR LAND

Expansion Plans:

During 2017, the company plans to leverage its strong brand and its operational platform. The company targets to further expand its production capacities for the Tetra Pak carton pack cheese, in addition to its plan to penetrate the markets of mozzarella cheese , processed cheese, milk and juice.

White Cheese: the company plans to further expand its white cheese business through adding 3 new production lines; one line for the 250gm SKU, one line for the 500gm SKU and the remaining line would go for a new SKU size of 1kg. The 3 lines would have an annual production capacity of 65.3 thousand tons. In 2016, the company entered into an agreement with Tetra Pak to provide the equipment to build the production lines at a cost of EUR 0.9mn and it has been fully paid. The new production lines have been installed and the production trials are expected to begin in 1Q2017.

Mozzarella and Spreadable (Processed) Cheese: the

company plans to introduce 2 production lines of mozzarella cheese and spreadable cheese with a combined capacity of 7.2 thousand tons (3.6 thousand tons each). Unimac-Gherri SRL will supply the equipment for the mozzarella cheese production line at a cost of EUR 0.35mn and it has been fully paid. Meanwhile, Trepko A/S and Karl Schnell GmbH & Co. will supply the equipment for the spreadable cheese production line, at a cost of EUR 1.35mn and it also has been fully paid. The 2 production lines are expected to become operational by 2Q2017.

Juice & Milk: the company plans to venture into two new

segments; juice and milk, as the company believes that these segments would complement the company’s product offering. The company plans to add 3 new Tetra Pak juice production lines with an annual capacity of 99 million liters and a single Tetra Pak milk production line with an annual production capacity of 27 million liters. It is worthy to note that the 3 juice production lines can be used interchangeably between juice and milk, however, the company plans to initially use the 3 production lines exclusively for juice production and the fourth production line would be used exclusively for milk production. The company entered into an agreement with Tetra Pak in 2016 in order to execute the expansion plans for the juice and milk segments at a cost of USD 7.5mn. The company has already paid c20% to Tetra Pak, while the remaining amount would be paid over 4 years after the commencement of production. The juice and milk production lines are expected to become operational by 2Q2017.

11.3 18

36

65.3

0 10 20 30 40 50 60 70

250gm 500gm 1kg Total White Cheese

Fully Paid - EUR 0.9mn

3.6 3.6

7.2

0 1 2 3 4 5 6 7 8

Mozzarella Cheese

Spreadable Cheese

Total Mozzarella & Spreadable

Cheese

Fully Paid - EUR 1.7mn

9

36

54

99

27

0

20

40

60

80

100

120

Juice 200ml Juice 250ml Juice 1L Total Juice Milk 500ml

Fully Financed - USD 7.5mn

13


JANUARY, 2017

PRODUCTION LINES & PRODUCTION CAPACITIES

SOURCE: OBOUR LAND

LAND PLOTS LOCATION

LAND PLOTS OVERVIEW

SOURCE: OBOUR LAND

After the previously mentioned capacity additions, the company would have a cheese production capacity of 206.8

thousand tons per annum, a milk production capacity of 27 million liters per annum and a juice production capacity

of 99 million liters per annum.

Production Facility and Property:

2013 2014 2015 2016 2017E

Number of production lines 8 9 12 13 22

Carton pack cheese (Thousand Tons) 76.5 94.5 116.8 130.3 195.6

Plastic tub cheese (Thousand Tons) 4.1 4.1 4.1 4.1 4.1

Mozzarella cheese (Thousand Tons) - - - - 3.6

Spreadable cheese (Thousand Tons) - - - - 3.6

Total cheese (Thousand Tons) 80.6 98.6 120.9 134.4 206.8

Milk (Mn Liters) 0 0 0 0 27

Juice (Mn Liters) 0 0 0 0 99

Production Facility: the company owns 7 land plots in

Obour City (East Cairo), with a total area of 26,412sqm.

Only 2 land plots are used for the production of white

cheese and the remaining 5 land plots will be used either for

the production of the new products or storage. The 9

additional production lines will be housed in 3 different

buildings in the main facility. Even after the new expansion

plans, the company would still have an additional land bank

of 14,172sqm, which may be used in the future for further

expansion plans.

Area 12 Area 13 Area 14 Area 15 Area 16 Area 14 (2) Area 7&8

Acquisition Date 2007 2011 2013 1998 2012 2015 2015

Land Area (sqm) 3,060 3,060 3,060 3,060 3,060 5,000 6,112

BUA (sqm) 6,512 7,704 6,453 5,738 4,251 3,074 7,102

Status Fully Utilized Under Utilized Under Construction

Under Construction

Under Construction

Under Construction

Under Construction

Usage

Eight production lines of soft

cheese (125gm, 250gm

and 500gm)

Head Office + four production

lines of soft cheese (80gm, 125gm,

250gm) + three new

production lines of soft cheese

(250gm, 500gm and 1kg)

Will be utilized for the production of

juices (200ml, 250ml and 1l) and milk

(500ml)

Being revamped to be utilized for the production of spreadable

cheese and mozzarella

cheese

Ground floor is used as

storage space


storage space


storage space

14


JANUARY, 2017

SOURCE: OBOUR LAND

DIRECT RAW MATERIALS - CHEESE PRODUCTION - 9M2016

Additional Land: the company also owns a land plot of 3,875sqm in the 6th of October industrial city in West Cairo

and another land plot of 396sqm in the Borg El Arab industrial zone in Alexandria.

Supply & Production

Production Value Chain:

The company’s production value chain consists of six elements; (1) planning, (2) raw materials procurement (3) inspection (4) raw materials inventory management (5) production and (6) warehousing. 1. Planning: This is the step where the company sets the production plan. According to the production plan,

strategic and safety stocks of each raw material are determined and acquired.

3. Inspection: The inspection process occurs at the same time with the on-going purchasing process. Materials are inspected according to the company’s internal standards, in addition to strict international quality standards. Any raw materials that fall below the standards, either the internal or international standards, are returned back to their respective suppliers.

4. Raw materials inventory management: After the inspection, the raw materials are transferred to the storage warehouses and then allocated to the production process depending on the anticiapted demand.

5. Production: The company produces all of its products at its facility at Obour City. Currently, the facility has 13 production lines, where 12 are Tetra Pak production lines that are used for the production of the carton pack cheese and the remaining production line is used for the production of the plastic tub cheese. The facility produces an average of 400 tons of cheese per day, operating 20 hours per day in two and a half, eight hour shifts per day and is generally open six days per week. During busier periods, the facility is operated continuously. During the 9M2016, the company’s production lines operated at a total weighted utilization rate of 79%. The company plans to add 9 new production lines in 2017, where they are all expected to be operational by 2Q2017. The utilization rate for the new production lines in their first operational year will vary, depending on the product category and the SKU size; the highest utiilization rate is expected to be for the 250gm carton pack cheese, as it is the company’s most demanded SKU and the existing production lines for that SKU has operated a very high utilization rate during the 9M2016, 84%. After the first year of operations, the utilization rates for the new production lines are expected to increase at fast rates, yet it would depend on the demand of the exisiting product and the success of the new products.

SMP and MPC , 48%

Butter, 19%

Oils, 18%

GDL, 4% Others , 11%

2. Raw materials procurement: The company uses a diversified group of suppliers from a wide range of local and international sources to satisfy the company’s main raw material requirements. For each raw material, the company has several approved suppliers, in order to ensure better raw material quality and cost effifciency. The company’s main raw materials include (1) the materials required for the production of cheese, namely; the skimmed milk powder (SMP), the milk protein concentrate (MPC), natural butter and palm oil and (2) the materials needed for the packaging of the company’s products. It is worthy to note that the company has a huge FX exposure of c70% and the company’s exports are very minimal (less than 1% over the past several years), so the exports sales barely cover any FX requirements. The company entirely imports skimmed

milk powder, natural butter, milk protein concentrates and the Tetra Pak packaging materials. On the other hand, the company sources palm oil and the outer cartons from the local market.

15


JANUARY, 2017

SOURCE: OBOUR LAND

EXPECTED UTILIZATION RATES FOR THE NEW PRODUCTION LINES

UTILIZATION RATES - 9M2016

6. Warehousing: After the production process is complete, the products are transported to the company’s warehouse for storage prior to their distribution.

Equipment:

The company sources its equipment form leading specialized manufactures, including Tetra Pak. Tetra Pak is the company’s main supplier of packaging and machinery, which the company uses for it’s carton pack cheese products. Since the company’s introduction of the carton pack products in 2007, the company has been able to keep adding and integrating new Tetra Pak lines to its product offerings. In 2016, Obour Land has been awarded a certificate naming it the fastest growing customer in Egypt during 2010-2015. The company enjoys special technical and financial benefits from Tetra Pak, including: Favorable payment terms for equipment; where the company is given the option to purchase new Tetra

Pak machines on preferential terms through installments over several years and they can be set off against receivables due to the company from Tetra Pak and therefore would result in no cash outflow.

Cash discounts and discounts on the packaging materials procured, up to 20%.

Growth support; whereby the company negotiates a discount at the time it purchases new equipment from Tetra Pak, which can be up to 35% of the new equipment’s cost, where the discount arrangement is tied to the

volume of packaging material to be procured for use with the new piece of equipment.

Marketing support payable as a percentage of the company’s related marketing budget, yet it is subject to a cap.

Installation of new Tetra Pak production lines at no cost to the company.

22%

75% 84%

77%

104%

79%

0%

20%

40%

60%

80%

100%

120%

80gm Carton

Pack

125gm Carton

Pack

250gm Carton

Pack

500gm Carton

Pack

Plastic Tub Overall Utilization

Production Line Annual Capacity Operational Year 1 Operational Year 2

250gm Carton Pack 11.3 Thousand Tons 75% --

500gm Carton Pack 18 Thousand Tons 40% --

1kg Carton Pack 36 Thousand Tons 15% 25%

Mozzarella Cheese 3.6 Thousand Tons 20% 30%

Processed Cheese 3.6 Thousand Tons 15% 25%

Milk 27 Million Liters 20% 30%

Juice 99 Million Liters 25% 40%

16


JANUARY, 2017

DELTA – POPULATION SIZE: 32,171,176

UPPER EGYPT – POPULATION SIZE: 26,985,650

GREATER CAIRO – POPULATION SIZE: 22,418,612

Sales & Distribution Network: With regards to the Carton Pack White Cheese, Obour Land is considered to have the largest market share by Brand and the second largest market share by Company. By Brand: Obour Land enjoys the largest market share by brand in Egypt, with a leading position in the country’s two most populous regions; the Delta and the Upper Egypt regions. Even though Obour Land lags behind its main competitor, Domty, in Greater Cairo and Alexandria, it has shown a faster growth since 2013 till September 2016, as Obour Land’s market share grew in Greater Cairo from 12% to 32% and in Alexandria from 7% to 16%. As for the Canal Zone region, Obour Land has been the market leader with a market share of more than 50% in 2013 and it has even been able to enlarge its market share reaching 62% in 9M2016. Obour Land’s brand has become the country’s top carton pack cheese producer in Egypt during 2016 with a market share of 39%.

47%

25%

6% 8% 4%

0% 1%

53%

21%

6% 5% 4% 3% 0%

56%

25%

4% 4% 3% 1% 0%

54%

28%

2% 5% 4%

0% 0% 0%

10%

20%

30%

40%

50%

60%

Obour Land Domty Greenland Panda Gebnety (Domty) Damo (Domty) President

2013 2014 2015 9M2016

19%

26%

13%

9% 12%

1% 1%

24%

28%

12%

4%

12%

2% 0%

27% 30%

8%

2%

14%

3% 0%

35%

29%

4% 3%

12%

2% 0%

0%

5%

10%

15%

20%

25%

30%

35%

40%


2013 2014 2015 9M2016

12%

44%

25%

9%

3% 0%

4%

18%

43%

23%

6% 4% 1% 1%

23%

46%

13%

7% 5% 1% 0%

32%

46%

6% 5% 4% 0% 0%

0%

10%

20%

30%

40%

50%


2013 2014 2015 9M2016

17


JANUARY, 2017

ALEXANDRIA – POPULATION SIZE: 4,901,910

CANAL ZONE – POPULATION SIZE: 2,525,068

TOTAL EGYPT – POPULATION SIZE: 90,086,267

SOURCE: OBOUR LAND

7%

36%

16%

25%

2% 0% 3%

11%

43%

12% 19%

3% 1% 1%

15%

54%

7% 12%

4% 0% 1%

16%

64%

5% 7% 1% 0% 0%

0%

10%

20%

30%

40%

50%

60%

70%


2013 2014 2015 9M2016

54%

7%

17%

6% 4% 1% 3%

60%

12% 17%

4% 2% 0% 0%

66%

20%

8% 1% 1% 0% 1%

62%

25%

8% 1% 1% 0% 0%

0%

10%

20%

30%

40%

50%

60%

70%


2013 2014 2015 9M2016

23%

33%

16%

9% 6%

0% 2%

29%

33%

15%

6% 6%

2% 0%

33% 36%

9%

5% 7%

1% 0%

39% 36%

5% 4% 6%

1% 0% 0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


2013 2014 2015 9M2016

18


JANUARY, 2017

DELTA – POPULATION SIZE: 32,171,176

UPPER EGYPT – POPULATION SIZE: 26,985,650

GREATER CAIRO – POPULATION SIZE: 22,418,612

By Company: When the market shares are analyzed in terms of the producing companies and not brands, Obour Land would be ranked in the second place with a market share of 39%, where Domty would have the largest market share in Egypt, with a market share of 43%. In 2012, Domty launched 2 new fighter brands; Gebnety and Damo, targeting the lower-income consumers, where they have been quiet successful, especially in the regions where citizens usually have lower purchasing power. Even though Obour Land has the second largest market share, it is worthy to note that Obour Land has shown quiet a robust growth in the past years; Obour Land’s market share grew from 23% in 2013 to 39% in 9M2016, while on the other hand, Domty’s market share was quiet static as it only grew from 39% in 2013 to 43% in 9M2016.

47%

29%

6% 8%

1%

53%

28%

6% 5% 0%

56%

29%

4% 4% 0%

54%

32%

2% 5%

0% 0%

10%

20%

30%

40%

50%

60%

Obour Land Domty Greenland Panda President

2013 2014 2015 9M2016

19%

39%

13% 9%

1%

24%

42%

12%

4% 0%

27%

47%

8%

2% 0%

35%

43%

4% 3% 0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


2013 2014 2015 9M2016

12%

47%

25%

9% 4%

18%

48%

23%

6% 1%

23%

52%

13%

7%

0%

32%

50%

6% 5% 0%

0%

10%

20%

30%

40%

50%

60%


2013 2014 2015 9M2016

19


JANUARY, 2017

SOURCE: OBOUR LAND

ALEXANDRIA – POPULATION SIZE: 4,901,910

CANAL ZONE – POPULATION SIZE: 2,525,068

TOTAL EGYPT – POPULATION SIZE: 90,086,267

7%

38%

16%

25%

3%

11%

47%

12%

19%

1%

15%

58%

7% 12%

1%

16%

65%

5% 7%

0% 0%

10%

20%

30%

40%

50%

60%

70%


2013 2014 2015 9M2016

54%

12% 17%

6% 3%

60%

14% 17%

4% 0%

66%

21%

8%

1% 1%

62%

26%

8%

1% 0% 0%

10%

20%

30%

40%

50%

60%

70%


2013 2014 2015 9M2016

23%

39%

16%

9%

2%

29%

41%

15%

6%

0%

33%

44%

9%

5%

0%

39%

43%

5% 4%

0% 0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


2013 2014 2015 9M2016

20


JANUARY, 2017

SOURCE: OBOUR LAND

SALES CHANNELS OVERVIEW

OBOUR SALES CHANNELS BREAKDOWN

SALES CHANNELS BREAKDOWN – WHITE CHEESE MARKET

SOURCE: OBOUR LAND

The company has an extensive sales and distribution network throughout Egypt. As for the distribution network, the company has 11 direct distribution branches (including the company’s headquarters in Obour city) in 11 governorates, where they distribute the company’s products in 24 governorates. In addition to the direct distribution network, the company also relies on indirect distribution through wholesalers covering the entire country’s 27 governorates, including the 3 governorates that are not covered by the company’s direct distribution network.

The company has been a bit reluctant with expanding its sales to key accounts in the last several years, mainly

due to 2 main reasons; key accounts usually purchase goods on credit terms which the company does not prefer and that key accounts usually require a higher discount than that is required by either wholesalers or retailers. Even though the white cheese sales to key accounts represent only around 6% of the total white cheese market and the company perceives that doing business with such accounts as riskier, the company has begun expanding its business with key accounts in order to gain further exposure, however, the management will be very cautious with this business (little credit limits per key account) in the short/medium term.

70% 60%

66% 71%

27% 37% 29%

26%

3% 3% 5% 3%

0%

20%

40%

60%

80%

100%

2013 2014 2015 9M2016

Wholesalers Retailers Key Accounts

Sales Channel Overview Average Discount

Wholesalers

Wholesalers, representing the company's indirect sales, purchase the products from Obour Land's production facility and sell them to smaller groceries and supermarkets.

5%

Retailers

Retailers represent the sales carried out by the company's sales representatives who distribute the products through the company's branches spread across Egypt.

2%

Key Accounts

Key accounts represent the chains and hypermarkets and make up the smallest contribution of the company's sales as it implements a strict policy to control products' pricing and to sell on a cash basis.

10%

The company relies heavily on sales to small retail shops, including indirect sales through the company’s wholesalers and retailers, which accounted for c97% of the total sales for the nine months ended September 30th, 2016, rather than sales to large, key accounts. It is worthy to note that the management’s preference for the cash basis, rather than the credit basis has been quiet apparent in the market shares

by sales channels; Obour Land has the largest market share in the small grocery shops (which mainly depend on cash basis and require less discounts), with a share of 49%, followed by Domty with a share of 37%. Moreover, for the large grocery shops (which requires a mix of cash and credit terms and require somehow relatively larger discounts) Domty has the largest market share of 49%, reflecting Domty’s acceptance of more relaxed payment terms, followed by Obour Land’s market share of 30%. Additionally, as for the supermarkets / key accounts (which mainly depend on credit basis and require the largest discounts), Domty has by far the largest market share of around 60% and Obour Land lags far behind with a quiet small share of 11%, reflecting the company’s reluctance with doing business with key accounts.

Small Grocery

Shops , 54%

Large Grocery

Shops , 40%

Super Markets /

Key Accounts ,

6%

21


JANUARY, 2017

OBOUR LAND WEIGHTED HANDLING AVERAGE EVOLUTION (%)

NUMERIC AND WEIGHTED HANDLING (%) – 9M2016 – BY BRAND

ACCOUNTS RECEIVABLES – EGP MN.

RECEIVABLES DAYS ON HANDS - DOH

SOURCE: OBOUR LAND

As for the presence of the company’s products, the company has a good position relative to its competitors. During the 9M2016, the company had a numeric distribution and weighted distribution of 65% and 90% respectively. Since the company relies mainly on sales to small retail shops and groceries, it is able to complete substantially all of its sales in cash, rather than on credit. Executing most of the company’s operations on cash basis, rather than on credit basis has a positive effect on the company’s balance sheet i.e. accounts receivables and on the company’s cash conversion cycle.

65%

27% 22%

11% 10% 4% 3% 0%

90%

69%

49%

17%

31%

14%

5% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Obour Land Domty Domty Plus Greenland Gebnety President Panda Damo

Numeric Handling Weighted Handling

59%

36%

79%

53%

85%

62%

81%

55%

81% 73%

80% 77%

93%

62%

85% 80%

94% 86%

96%

72%

89% 87% 90% 90%

0%

20%

40%

60%

80%

100%

120%

Cairo Alexandria Delta Upper Egypt Canal Zone Egypt

2013 2014 2015 7M2016

4 7 13 11

77 89 72 85 82

99 83

125 145

197

243

356

0

50

100

150

200

250

300

350

400

2013 2014 2015 9M2016

Obour Land Arab Dairy Juhayna Domty

3 3 4 3

43

52 49

55

9 10 7 9

63 64 63

79

0

10

20

30

40

50

60

70

80

90

2013 2014 2015 9M2016

Obour Land Arab Dairy Juhayna Domty

22


JANUARY, 2017

# OF TRUCKS & VANS

MAXIMUM HANDLING CAPACITY (TONS/DAY)

SOURCE: OBOUR LAND

The company owns a fleet of 201 distribution vehicles, which is comprised of a mix of refrigerated cars, small trucks and large tractor trailers. During 2013-2016, the company’s fleet has grown from 161 vehicles to 201 vehicles, representing a growth of 25%. Moreover, the maximum handling capacity has also grown from 479 tons per day in 2013 to 605 tons per day by September 30th, 2016, achieving a growth of 26% over the same period. One of the company’s main focus points in the near term is expanding its distribution network; the company plans to add 60 new trucks in 2017, where 40 trucks would be used for the distribution of the milk and juice products and the remaining 20 trucks would be used for the distribution of the mozzarella and the spreadable cheese products.

161

191 201 201

0

50

100

150

200

250

2013 2014 2015 9M2016

479

555 605 605

0

100

200

300

400

500

600

700

2013 2014 2015 9M2016

23


JANUARY, 2017

OBOUR LAND – GROSS SALES EVOLUTION

OBOUR LAND – REVENUES

DOMTY – REVENUES

REVENUE CONTRIBUTION BY SKU

SOURCE: OBOUR LAND

Financial Analysis:

Revenues:

Since the company’s inception, it has always had a strong and consistent revenue growth, supported by the addition of production lines. During the company’s first year of operations, 1999, it was able to achieve gross sales of EGP 763k, where the company achieved gross sales of EGP 1,175mn during 2015. Between 2007, when the company first introduced its carton pack cheese products and 2015, the company’s gross sales increased by a CAGR of 54.1%. Over the period of 2011-2015, the company achieved gross sales CAGR of 54.9%. During the 9M2016, the company achieved net sales of 1,054.3mn, showing a growth of 24.6% compared to the same period a year earlier and according to the management’s guidelines, the company achieved sales of EGP 1,450mn during 2016, achieving a growth of 24%. It is worthy to note that Obour Land’s revenues from white cheese (carton pack and plastic tub) has surpassed that of its main competitor, Domty, since 2014 and Obour Land’s revenues grew at a much faster rate than that of Domty during 2013-2015 where they both showed a CAGR of 49% and 21% respectively.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Gross Sales (EGP Mn.) 1 4 6 7 10 13 16 31 37 29 56 89 204 359 532 932 1,175

529

927

1,170

1,054

0

200

400

600

800

1,000

1,200

1,400

2013 2014 2015 9M2016

731 880

1,067 981

111

249

333 259

0

200

400

600

800

1,000

1,200

1,400

1,600

2013 2014 2015 9M2016

White Cheese

Others (Mozzarella, Spreadable, Juice)

2013-2015 CAGR: 49% 2013-2015 CAGR: 21%

842

1,129

1,400

1,240

250gm Carton Pack, 52.40%




Plastic Tub, 5.20%

The company currently produces two types of cheese;

plastic tub cheese and carton pack cheese. The carton pack

is the company’s main product, where it contributed c94.8%

to revenues during the 9M2016, where the plastic tub

contributed a minimal 5.2% to sales during the same

period.

24


JANUARY, 2017

SALES BREAKDOWN BY CHANNEL

SALES BREAKDOWN BY GEOGRAPHICAL DISTRIBUTION

SOURCE: OBOUR LAND

WHITE CHEESE CARTON PACK RETAIL PRICES –JULY 2016 (EGP / KG)

SALES BREAKDOWN – QUANTITIES SOLD & AVERAGE PRICES

SOURCE: OBOUR LAND

The two regions of Delta and Upper Egypt are considered the top regions in terms of sales, where they represented 57% and 18% during the 9M2016 and 9M2015 respectively. The company usually sells its products through wholesalers, where they accounted for 71% and 66% of sales during 9M2016 and 2015. The company minimizes sales through chains and hyper markets, as they typically require high discount and flexible credit terms.

Pricing

Obour Land offers its products at a premium to the market average, reflecting the company’s premium quality products. The

company’s products include a higher percentage of protein and the company prefers to use natural butter and oils over

shortening to ensure superior taste and quality. The plastic tub cheese is usually sold at higher prices than the carton pack

cheese. It is also important to note that the company usually prices the smaller SKUs higher than the large SKUs, in order to

entice the consumers to purchase the larger SKUs.

Greater Cairo - EGP

177.7mn, 17%

Delta - EGP 606.7mn, 57%

Upper Egypt - EGP

195.6mn, 18%

Sinai - EGP 6.1mn, 1%

Alexandria - EGP 33mn, 3%

Canal Zone - EGP 39.5mn,

4%

Exports - EGP 1.4mn, 0.1%

70% 60% 66% 71%

27% 37% 29% 26%

3% 3% 5% 3%

0%

20%

40%

60%

80%

100%

2013 2014 2015 9M2016

Wholesalers Retailers Key Accounts

16.68

16 15.99 15.99

14.93

14

14.5

15

15.5

16

16.5

17

Obour Land Groupe Lactalis - Teama

Americana - Greenland

Domty Arab Dairy - Panda

2013 2014 2015 9M2015 9M2016

Carton Pack Cheese

Quantity Sold (Tons) 38,066 62,158 83,356 59,767 71,100

Average Price (EGP/KG) 13.5 13.9 13.3 13.3 14.1

Plastic Tub Cheese

Quantity Sold (Tons) 890 3,587 3,386 3,282 3,152

Average Price (EGP/KG) 20 19.4 20.6 16 17.9

25


JANUARY, 2017

SOURCE: OBOUR LAND

PRICE HIKES PER SKU - 2016

COGS BREAKDOWN – EGP MN. % OF SALES

During the 9M2016, the company’s sales increased by 24.6%, as it stood at EGP 1,054.3mn. The growth in sales was primarily attributable to an increase in the volume of carton pack cheese sold in each of the 250 gm, 500gm and 125gm package sizes in addition to the full nine months of production of the 80gm package size compared to only a single month of production in the same period a year earlier. Such an increase in the carton pack sales was partially offset by a decrease in the volumes sold of plastic tub cheese. Also the rise in revenues was attributed to a change in prices; beginning 2016, the company gradually started increasing its prices, as a trial to pass to pass a portion of the increase in raw materials’ prices to consumers. The company implemented five price hikes during the 9M2016 and additional two price hikes during 4Q2016.

COGS: The raw materials costs represent the largest portion of the company’s COGS, where it represented 62% and 70% of sales during 9M2016 and 2015 respectively. The company imports c70% of its required raw materials and the remaining portion is

locally sourced. Skimmed milk powder (SMP) and Milk protein concentrate (MPC) are the company’s main raw materials where they represented 47.9% and 51.3% of the raw materials during 9M2016 and 2015 respectively. During 2014, the global prices of most commodities, including SMP and MPC, rose significantly, which affected the company’s margins. Meanwhile, during 2015, the prices of SMP and MPC, in addition to other major commodities, started to decline, which was mainly caused by the excessive supply and the abolishment of the EU milk quotas. The packaging materials constitute the second-largest category in COGS after the raw materials, where it represented 16% and 18% of COGS during the 9M2016 and 2015 respectively. Most of the packaging materials are imported and the paper for the carton pack cheese products are solely sourced from Tetra Pak. The direct industrial expenses are quiet small, as they represented 5% and 2% of sales during the 9M2016 and 2015 respectively. The company is neither an intensive energy user nor a labor intensive business, thus the effect of the recent hike in energy prices and minimum wage laws were not very significant.

Carton Pack (EGP/KG) 1/Mar/16 1/Apr/16 1/May/16 1/Jul/16 1/Aug/16 1/Oct/16 1/Nov/16

500 Grams 13.75 14.08 14.75 15.41 16.08 16.75 19.25

250 Grams 14.00 14.30 14.88 15.63 16.37 16.81 19.30

125 Grams 15.10 15.50 16.00 16.80 17.60 18.00 20.18

2013 2014 2015 9M2015 9M2016

EGP Mn. % of Sales EGP Mn. % of Sales EGP Mn. % of Sales EGP Mn. % of Sales EGP Mn. % of Sales

Raw Materials 385 73% 715 77% 814 70% 605 72% 652 62%

Industrial Expenses 14 3% 19 2% 23 2% 15 2% 52 5%

Change in Inventory -1 0% -5 -1% -2 0% 0 0% -6 -1%

Packaging 86 16% 122 13% 176 15% 116 14% 132 13%

Discounts -17 -3% -17 -2% -27 -2% -24 -3% -7 -1%

Others 1 3% 0 0% 0 0% 1 0% 4 0%

Total 467

836

985

715

827

26


JANUARY, 2017

RAW MATERIALS BREAKDOWN – EGP MN. % OF SALES

SOURCE: OBOUR LAND

OBOUR LAND - GROSS PROFIT ( EGP MN.) & GROSS PROFIT MARGIN (%)

SOURCE: OBOUR LAND

SOURCE: DOMTY

DOMTY - GROSS PROFIT (EGP MN.) & GROSS PROFIT MARGIN (%)

Gross Profit and Gross Profit Margin:

2013 2014 2015 9M2015 9M2016

EGP Mn. % of Sales EGP Mn. % of Sales EGP Mn. % of Sales EGP Mn. % of Sales EGP Mn. % of Sales

SMP & MPC 205 39% 397 43% 417 36% 306 36% 312 30%

Butter 50 9% 80 9% 110 9% 77 9% 124 12%

Oils 66 13% 101 11% 173 15% 123 15% 119 11%

GDL 16 3% 30 3% 29 2% 22 3% 26 2%

Others 48 9% 107 12% 85 7% 77 9% 71 7%

Total 385

715

813

605

652

During the 9M2016, the company achieved a gross profit of EGP 227mn, growing by 73.2%, compared to EGP 131mn during the same period a year earlier. The company’s gross profit margin was 21.5% and 15.5% during the 9M2016 and 2015 respectively. According to the management’s guidelines, during 2016, the company achieved a gross profit of EGP 342mn, versus EGP 178mn during 2015, growing by an outstanding 92%. The company’s GPM for 2016 stood at 23.6%, where it stood at 15.25% during 2015. It is worthy to note that the GPM for 4Q2016 stood at 31%, which shows the company’s superior inventory management of raw materials, coupled with suitable price increases among its different

products.

According to the company’s management, the company has huge

amounts of inventory that was purchased at very favorable prices,

where even if the company does not raise any of its prices, it

would be able to achieve a GPM of 22% during the first 4-5

months of 2017. Usually the company keeps stockpiles of inventory

enough for 3 months of production, however when the prices were

favorable the company increased its stockpiles up to 4-5 months.

The company intends to decrease its stockpiles back to the 3

months levels when the EGP-USD rate stabilizes.

Even though Obour Land sells its products at higher prices

than its main competitor, Domty, it is worthy to note that

it has a lower GPM. This is due to Obour Land’s keenness

on using raw materials of higher quality and higher protein

content.

As for the new segments, the company plans to achieve GPM that

are somehow higher than that of the cheese products. The

company targets GPM levels for the mozzarella cheese,

spreadable cheese, milk and juice of 36-37%, 35-36%,

20% and 17% respectively.

198.8

240.5

366.4

270.1 273.9

0

50

100

150

200

250

300

350

400

2013 2014 2015 9M2015 9M2016

Gross Profit (EGP Mn.) Gross Profit Margin (%)

23.6% 21.3%

26.2%

25.8% 22.1%

61

91

185

131

227

0

50

100

150

200

250

2013 2014 2015 9M2015 9M2016

Gross Profit - EGP Mn. Gross Profit Margin (%)

11.6%

9.9%

15.8%

15.50%

21.5%

27


JANUARY, 2017

SALES & MARKETING EXPENSES (EGP MN. & % OF REVENUES)

SOURCE: OBOUR LAND

Sales, General and Administrative Expenses:

- Sales & Marketing Expenses:

In the past, the company’s well known brand has enabled the company to adopt a relatively efficient approach to media communications and spending. The company mainly focuses on the more expensive “above-the-line” media campaigns. For the 2015 – 2016 football season, the company was the sponsor of the Al Zamalek Football Club. Also in 2016, the company became the premier sponsor of the Egyptian Football Cup and it sponsored the Egyptian Premier League as well. Also during 2016, the company intensified its outdoor advertising, in addition to launching an advertising campaign during the Holy month of Ramadan. During the 3 years between 2013 and 2015, sales and marketing expenses as a percentage of sales had an average of 3.5%. During the 9M2016, sales and marketing expenses grew by 93.3% y-o-y, reaching EGP 71.1mn, where it stood at EGP 36.8mn in 9M2015. During the 9M2016, sales and marketing expenses averaged 6.5% of sales, which is considered quiet higher than that of the previous years. The rise in such expenses in 2016 was mainly due to the new branding of the company’s products, in addition to the expenses of the IPO that took place during late 2016. The company’s management believes that the marketing expenses in the coming period would mainly focus on the new products and the new segments. According to the company’s management, the sales and marketing expenses would have an average of 5.5-6% of sales in the coming years.

- General & Administrative Expenses:

During the 9M2016, the company’s general and administrative expenses grew by 57.7%, reaching EGP 4.9mn, compared to EGP 3.1mn during the 9M2015. The huge increase was mainly due to the increased utility costs, where the government increased the utility costs in mid-2016. In addition to the increased utility costs, G&A expenses increased due to the rise in salaries expenses, due to the increase in the number of employees and the increase in the salaries paid to new and existing employees. It is worthy to note that the G&A expenses represent a very minimal rate of sales, where it had an average of 0.5% during the last years. As a response to the inflationary pressures that occurred post the EGP-floatation, the company raised the salaries and wages of its employees and workers by 15% in November and the management expects to raise the salaries and wages for another time by the end of January by 10%

5.9 4.9

27.6 21.1

48

8.2 13.9

8.4

5.9

3.8

3.4 5

7.8

5.5

12.6

2.4

2.9

2.9

4.2

4.5

3.7%

2.9%

4.0% 4.1%

6.5%

0

10

20

30

40

50

60

70

80

2013 2014 2015 9M2015 9M2016

Advertising & Marketing Expenses Salaries & Wages Other S&M #REF! Sales & Marketing / Revenues (%)

28


JANUARY, 2017

SOURCE: OBOUR LAND

GENERAL & ADMINISTRATIVE EXPENSES (EGP MN. & % OF REVENUES)

Working Capital and Cash Conversion Cycle:

The company’s management is considered very efficient with regards to its working capital, resulting in a one of the shortest cash conversion cycles in the sector. The company relies on a multiple of sources of funding in addition to cash, so it can optimize its cash flows, including bank debt, shareholder loans, accounts and notes payables and supplier funding. As previously mentioned, the management prefers cash sales, rather than credit sales and consequently the company has much lower receivables; either in absolute terms or days on hand, than its competitors. Usually the management also prefers to pay its suppliers in cash or as early as possible, in order to obtain more favorable discounts, leading to lower-than-competitors’ suppliers and notes payables; either in absolute terms or days on hand. In 2015, the company adopted a strategy for its inventory management, where the company would increase purchases and pile up inventories of raw materials opportunistically when prices are relatively lower and use the stockpiled inventory when the prices are relatively higher. This strategy has been implemented in 2015; when the global commodity prices fell to relatively low rates, the company took a shareholder loan of EGP 95mn, in order to take advantage of the low raw material prices and stockpile inventory, in addition to acquire two land plots adjacent to the company’s production facility. During 2016, the company foresaw the deterioration of the local currency and took advantage the low global commodity prices and kept piling up even more inventory of raw materials. This new strategy has led to the rise of the inventory and the inventory days on hand. It is worthy to note that the company intends to maintain this inventory management strategy in 2017, as the company currently has inventory of raw materials that is sufficient for production for 4-5 months, which is higher than the company’s average of 3 months. The management has made it clear that once the EGP-USD rate stabilizes, the company would reduce its inventory levels to its historic levels of 3 months.

1.4

2.4 2.5

1.5 1.9

1.5

1.6

2.2

1.5

2.8 0.6%

0.4%

0.4%

0.4%

0.5%

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2013 2014 2015 9M2015 9M2016

Other G&A Salaries & Wages G&A / Revenues (%)

29


JANUARY, 2017

SUPPLIERS AND NOTES PAYABLES, SUPPLIERS AND NOTES PAYABLES DOH (EGP MN., DAYS) CREDITORS AND ACCRUED EXPENSES, CREDITORS AND ACCRUED EXPENSES DOH

(EGP MN., DAYS)

ADVANCE TO SUPPLIERS, ADVANCE TO SUPPLIERS DOH (EGP MN., DAYS) PREPAID EXPENSES, PRE-PAID EXPENSES DOH (EGP MN., DAYS)

INVENTORY, INVENTORY DOH (EGP MN., DAYS) RECEIVABLES, RECEIVABLES DOH (EGP MN., DAYS)

59 33

95

216

11

12

17

11

4

9

11

17

0 2

9

6

0

50

100

150

200

250

300

2013 2014 2015 9M2016

Raw Materials GIT Finished Goods Spare Parts Days on Hand DoH (Days)

49

83

4

7

13

11

0

2

4

6

8

10

12

14

2013 2014 2015 9M2016

Receivables (EGP Mn.) Days on Hand DoH (Days)

3

12

4

13

21

0

5

10

15

20

25

2013 2014 2015 9M2016

Advance to Suppliers Days on Hand DoH (Days)

3 7

12

40

0

5

10

15

20

25

30

35

40

45

2013 2014 2015 9M2016

Pre-Paid Expenses (EGP Mn.) Days on Hand DoH (Days)

2 3

4

13

45 43

18

101

0

20

40

60

80

100

120

2013 2014 2015 9M2016

Suppliers & Notes Payable (EGP Mn.) Days on Hand DoH (Days)

35 19

7

33

2

1 1

5

0

1

2

3

4

5

6

2013 2014 2015 9M2016

Creditors and Accrued Expenses (EGP Mn.) Days on Hand DoH (Days)

2

0 0

1

58 24

3

4

3

9

2

5

7

30


JANUARY, 2017

CASH CONVERSION CYCLE - DAYS

SOURCE: OBOUR LAND

2013 CAPEX BREAKDOWN (EGP MN) 2014 CAPEX BREAKDOWN (EGP MN)

2015 CAPEX BREAKDOWN (EGP MN) 9M2016 CAPEX BREAKDOWN (EGP MN)

CAPEX:

In the past, the company’s CAPEX has mainly focused on the expansion of the production facility, the maintenance of the production facility (maintenance CAPEX) and the purchasing of new machines, equipment and vehicles. The CAPEX for the 9M2016 stood at EGP 48.4mn and according to management’s guidelines the total CAPEX for 2016 would stand at EGP 142mn. The CAPEX for 2016 was mainly related to the expansion of the production facility to include the new production lines of cheese, juice and milk. The company does not expect that the CAPEX for 2017 would be significant, as the majority of the expansion costs for the production facility expansion were pre-paid in 2016.

36

13

55 71

0

20

40

60

80

2013 2014 2015 9M2016

12.2

1.3 0.6

23.3

37.4

0

5

10

15

20

25

30

35

40

Land Vehicles Others Additions in PUC

Total CAPEX

0.6 0.4 0.2

38.8 40

0

5

10

15

20

25

30

35

40

45

Machinery & Equipment

Vehicles Others Additions in PUC

Total CAPEX

1.6 0.1 0

86 87.6

0

10

20

30

40

50

60

70

80

90

100


Devices & Utilities

Others Additions in PUC

Total CAPEX

0.5 0.1 0.3

82.8 83.6

0

10

20

30

40

50

60

70

80

90


Devices & Utilities

Others Additions in PUC

Total CAPEX

31


JANUARY, 2017

TOTAL CAPEX TO SALES (%)

SOURCE: OBOUR LAND

OBOUR LAND - NET PROFIT (EGP MN.) & NET PROFIT MARGIN (%)

SOURCE: OBOUR LAND

SOURCE: OBOUR LAND

DOMTY – NET PROFIT ( EGP MN.) & NET PROFIT MARGIN (%)

SOURCE: DOMTY

Net Profit and Net Profit Margin:

7%

4%

7%

8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2013 2014 2015 9M2016

19

32

92

68.2

110.1

0

20

40

60

80

100

120

2013 2014 2015 9M2015 9M2016

4%

3%

8%

8%

10% The company achieved net profits of EGP 110.1mn during the 9M2016, growing by 61% when compared to the net profits of the 9M2015, which stood at EGP 68.2 million. The company’s net profit margin was 10.4% and 8.1% in the 9M2016 and 2015 respectively. Even though the Obour Land’s GPM was lower than that of Domty, Obour Land was able to achieve a higher NPM than Domty during the 9M2016.

51.1

28.3

128.7

97.4

54.9

0

20

40

60

80

100

120

140

2013 2014 2015 9M2015 9M2016

6.10% 2.50%

9.20%

9.30%

4.40%

32


JANUARY, 2017

Possible Future Initiatives for Obour Land:

- Exports:

Obour Land has been one of the companies with very minimal exports during the last several years, where exports usually represent less than 1% of the company’s total gross sales. The minimal cheese exports have been mainly due to 3 reasons; 1. Dairy products (including white cheese) are very difficult to export, as most of the countries may either have their own dairy farms or import powder milk and they would produce the dairy products in their own countries, 2. The agreements that were offered to Obour Land from Russian companies in the past were not what the company was looking for; as the Russian companies wanted only short-term agreements for just a couple of years just to fill the supply shortages resulting from the foreign sanctions against Russia, 3. Export sales are usually made through agents and agents usually require very flexible credit terms and huge discounts. The company has mentioned that it may start to export some of its juice products. The company would begin exporting its juice products mainly to African countries. The cheap prices of fruits and fruits’ concentrates (and hence higher margins) have enticed the management to the idea of exporting such products. The management has made it clear that it may reconsider exporting cheese products in the coming period, yet the agreement terms must be appropriate for the company’s strategy to build long-lasting relations and not just temporary agreements.

- Mergers and Acquisitions: We believe that the entire Food & Beverage sector in Egypt would witness extensive M&A activities in the current and the coming few years. This is mainly due to the smaller producers not being able to keep up with the rise in costs. We believe that the cheese industry is of no exception, and we expect that some M&A - mainly acquisitions – would take place in the cheese industry. From our perspective, large-scale producers would benefit from acquiring small-scale producers by

acquiring their market share and expanding their target market as usually the small-scale producers would either target niche markets or consumers from different income levels. Moreover, regional and foreign producers may consider penetrating the Egyptian F&B sector, especially in the staple foods, in order to benefit from the strong demand and the relatively cheap currency.

- Backward Integration:

During the last several years, some of the large companies in the F&B sector gained a competitive edge over their competitors, through backward and forward integration. The importance of backward integration has been heightened in 2016 where most, if not all, prices of raw materials have hiked significantly. We believe that Obour Land may invest in the coming period in backward integration through either a dairy farm for its cheese and milk businesses or through a fruits farm for its juice business.

33


JANUARY, 2017

Financial Statements … Historical & Forecast

Income Statement Brief Hist. Forecast

In EGP Mn 2015 2016F 2017F 2018F

Revenues 1,170 1,546 2,373 3,034

Change 26% 32% 54% 28%

COGS 985 1,165 1,875 2,461

Change 18% 18% 61% 31%

Gross Profit 184.8 380.2 497.7 572.4

Depreciation & Amortization 10 10.9 20.6 26.6

EBITDA 130 267.6 349.6 383.7

Net Income 91.85 129.3 242.7 255.9

Net Attributable Income 91.85 122.8 230.5 243.1

Balance Sheet Brief Hist. Forecast

In EGP Mn 2015 2016F 2017F 2018F

Cash 125.6 58.8 117.7 64.2

Net Receivables 13.1 22.4 35.96 47.2

Net Inventory 131.3 149.6 213.95 280.8

Other Current Assets 29.7 35.2 55.1 71.3

Total Current Assets 299.69 265.95 422.7 463.5

Net PPE 182.5 303.99 387 490.5

Other LT-Assets 34.87 26.15 17.4 8.72

Total Long Term Assets 217.4 330.1 404.5 499.2

Total Assets 517.1 596.4 827.8 963.6

Liabilities

Credit Facilities & CPLTD 144.8 109.7 134.3 112.2

Accounts Payable 17.98 21.3 34.2 44.9

Total Current Liabilities 195.3 146.95 194.2 190.89

Total Long Term Liabilities 38.6 36.99 49.56 66.25

Total Liabilities 233.9 183.9 243.75 257.1

Equity

Paid-in-Capital 200 200 200 200

Reserves 3.1 6.3 4.4 13.03

34


JANUARY, 2017

SOURCE: OBOUR LAND & PRIME ESTIMATES

RE 80.1 212.7 379.6 493.4

Total Equity 283.2 412.5 584 706.4

Financial Ratios Hist. Forecast

2015 2016F 2017F 2018F

Gross Profit Margin – GPM 16% 25% 21% 19%

EBITDA Margin 11% 17% 15% 13%

Net Profit Margin - NPM 8% 8% 10% 8%

EPS 0.46 0.65 1.21 1.28

DPS 0.32 0.61 0.77

P/E 19.60 13.92 7.42 7.03

EV/EBITDA 14.8 7.5 5.9 5.6

ROA 22.27% 22.06% 32.37% 27.14%

ROE 38.32% 32.34% 42.64% 34.62%

Debt / Equity Ratio

Total Assets Turnover

54.85% 26.6% 22.99% 15.89%

2.84 2.78 3.33 3.39

35


JANUARY, 2017

Stock Recommendation Guidelines

Recommendation Target-to-Market Price (x)

Buy x > 15%

Accumulate 5%< x <15%

Hold -5% < x < 5%

Reduce -15% < x < -5%

Sell x < -15%

Strong Buy x > 40%

Investment Grade Explanation

Growth 3 Yr. Earnings CAGR > 20%

Value Equity Positioned Within Maturity Stage of Cycle

Speculative Quality Earnings Reflect Above Normal Risk Factor

36


JANUARY, 2017

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Documents

Obour Land for Food Industries - OLFI - Initiation of Coverage