Juhayna Food Industries

Transcription

1 Company note Juhayna Food Industries MENA research Prospects priced in EGP1.2bn CAPEX plan to pressure free cash flows and earnings in the short term, for which consensus is not fully accounting, in our view Longer term benefits from strong demographics and a reduced CAPEX bill already priced in by the market We raise our TP 36% to EGP7.42/share on decreased T bill rates but downgrade the stock to Underweight on stretched valuation as it currently trades at a c42% premium to its historic forward P/E In January, Juhayna announced a EGP1.2bn investment plan for 2013e, which, coupled with an estimated 2014e CAPEX bill of EGP650m, is likely to strain the company s cash generation abilities temporarily. We do not expect Juhayna s e top line CAGR of to filter through to net profit as, due to increased borrowing to finance the anticipated CAPEX, net interest charges are forecast to jump 6 to 28% of operating profit in 2014e from an estimated c14% in 2012e. We do not believe consensus is accounting for this fully and expect a downward revision to earnings projections in the short term. Our 2013e and 2014e EPS estimates are an average of c22% below those of consensus. Juhayna s fundamentals remain intact; we expect continued double digit revenue growth on sturdy volume gains supported by (1) Egypt s favorable demographics, (2) a continued trend of shifting to packaged from loose products, and (3) an increase in per capita consumption, particularly in the yogurt and juice segments. That said, we expect free cash flows to rise at a e CAGR of c29% and yields to leap to 14.4% by 2017e from 0.2% in 2014e as expansion CAPEX subsides. However, we believe this is largely priced in by the market. We raise our TP c36% to EGP7.42/share but downgrade the stock to Underweight from Overweight, mainly on lower T bill rates. In our view, the stock is currently expensive, trading at a 2013e P/E of 19.6x, which represents a c42% premium to its historical average 1 year forward P/E and is c23% higher than the multiple implied by peers. The stock outperformed the market by 72% over the last 6 months. Key upside risks include increased cost savings from integration, lower than expected CAPEX, higher than forecast volumes and selling prices, and decreased raw material prices. Key indicators e 2013e 2014e EPS (EGP) P/E 27.5x 20.3x 19.6x 19.3x FCF (EGPm) (209) (187) (659) 12 Source: Company data, HC Underweight Target price (EGP) 7.42 Current price (EGP) 8.60 Potential return 13.7% Bloomberg Reuters JUFO EY JUFO.CA Mcap (EGPm) 6,072 Mcap (USDm) 900 Free float 46% Daily volume (USDm) 4.6 Note: All prices as of 11 February 2013 Price performance F M A M J J A S O N D J F JUFO EY EGX30 Mohamed Zein Analyst mohamed.zein@hc si.com Noha Baraka Analyst nbaraka@hc si.com Please refer to important disclosures and analyst certifications on pages of this report.

2 Cash generation to be strained by hefty CAPEX bill in the short term We expect Juhayna s free cash generation ability to suffer as a result of an estimated cegp1.8bn in capital spending over e. This year alone, the company plans to spend cegp1.2bn, to be allocated as follows: (1) EGP400m for the installation of utilities and equipment for its yogurt plant, (2) EGP300m for the construction of its dairy farm and the continued reclamation and cultivation of its agricultural land, (3) EGP150m for the expansion of its milk and juice processing and production capacities, (4) EGP150m for the launch of new sales and distribution centers and the continued development and expansion of existing ones, (5) EGP100m for the purchase of new vehicles, and (6) the balance for maintenance expenditures. We expect Juhayna to incur an additional EGP650m in CAPEX in 2014e on continued capacity additions and investments before spending reverts to normal levels starting in 2015e (cegp275m annually, c5% of sales on average). CAPEX and CAPEX/sales FCF and FCF yield to pick up after 2014e EGPm 1,400 1,200 1, % 23% 1,179 18% 15% 15% 16% % 404 5% 4% CAPEX CAPEX/sales (RHS) 35% 3 25% 15% 5% EGPm 1, (200) (400) (600) (800) 14.4% 11.3% 8.6% % 0.4% (209) (187) 0.2% 3.4% 3.1% (659) 10.9% FCF FCF yield (RHS) 15% 5% 5% 15% which will require additional borrowing Accounting for repayments in e, we forecast additional debt of cegp500m (cegp833m excluding repayments), which would bring the company s total debt balance to cegp1.4bn in 2014e from cegp908m in 2012e. We estimate a net debt/equity ratio of 26% as of the end of 2012e, which implies that the company still has significant room to borrow. 2

3 Net debt and net debt/equity EGPm 1,400 1,200 1, , % 1, % 56% 37% % 79 2% 19% 12% 3% Net debt Net debt/equity (RHS) and squeeze net margins due to consequent mounting interest charges As the additional debt will increase the company s interest burden, we expect its net margins to come under pressure, dropping 180 bps to 9% in 2013e and a further 140 bps to 7.6% in 2014e from 10.8% in 2012e. Despite the anticipated margin compression, we expect net income to remain largely flat in e thanks to a revenue CAGR of. After 2014e, margins should expand as the company gradually pays down its debt and interest becomes less of a burden. Interest charges build up on increased debt Net profit and margin 45% 4 35% 3 25% 15% 5% 38.3% 18.2% 12.4% 14% 25% 28% 22% 12% 6% EGPm % 12.2% 10.8% 10.1% % % 10.9% % 12% 8% 6% 4% 2% 0 Net interest expense/ebit Net profit Net margin (RHS) 3

4 No dividends expected in the short term due to cash constraints Juhayna is in a growth phase and has been largely retaining its profits to use for expansions, except in 2012, when it paid out a DPS of EGP0.15 (DPO of c47%) for In light of the company s announced CAPEX plans, we do not expect it to distribute any dividends in the short term. However, we believe the company will resume dividends payouts starting in 2015e as its cash generation improves due to normalized CAPEX spending. We forecast an average annual DPO of 55% over e and expect Juhayna s dividend yield to leap to 9.1% in 2017e from the previous distribution s c3.4% (as of the day it was announced). DPS and dividend yield EGP (0.1) 9.1% % % 1.7% e 2013e 2014e 2015e 2016e 2017e DPS Dividend yield (RHS) 9% 8% 7% 6% 5% 4% 3% 2% 1% 1% Fundamentals remain intact We expect Juhayna to sustain a robust revenue CAGR of 18% over e, driven mainly by sturdy volume growth across all segments and supported by (1) Egypt s favorable demographics (average annual population increase of c1.7m), (2) the ongoing wave of conversion to packaged from loose dairy and yogurt products, and (3) an increase in consumption per capita, especially in the yogurt and juice segments, due to growing health awareness and distribution reach. Changing consumption patterns to boost Juhayna s volumes We believe the company s dairy volumes will increase at a e CAGR of c13%, due more to the continuing shift to packed products than to an increase in consumption per capita. We expect per capita consumption to remain largely flat, supported by the fact that consumption of fluid milk has been growing at a 10 year historical CAGR of only c1.5%, according to the Food and Agricultural Policy Research Institute. 4

5 At 2 kg, per capita consumption of yogurt in Egypt is very low compared with an average of 9 kg in the MENA region, which implies large growth potential. Accordingly, we expect Juhayna s yogurt volumes to grow at a e CAGR of c19%, supported by a c23% rise in per capita consumption, which should outweigh an estimated 17% cumulative decline in the company s blended market share by 2017e resulting from heavy competition and the fact that packaged yogurt already constitutes 8 or more of the market. Per capita consumption of juice has been growing at a 4 year CAGR of c28%. This should remain in the double digits ( e CAGR of c18%), but, due to strong competition and the fact that the market is fragmented by over 300 players, we expect Juhayna s blended market share to fall to c13% in 2017e from c17% in 2012e (versus a 4.4% decline since 2009), leading to decreased volume growth of c15%. To accommodate anticipated growth in demand for its products, Juhayna plans to expand its milk production capacity 25% this year to c313,000 tons from c250,000 as it is currently running at full capacity, especially in Bekhero. We believe the company will have to raise its milk capacity further by the end of 2014e to meet an expected increase in demand. A new 700 1,000 ton/day yogurt factory is under construction and is scheduled to start operations by 3Q13. Additionally, Juhayna plans to raise its juice capacity 45% to c174,000 tons from c120,000 in 2013e, which, in our view, would suffice to meet demand until at least 2017e. According to management, raising capacities requires relatively small investments (cegp150m during 2013e for milk and juice expansions) and takes only weeks for importation and installation. Consumption per capita Population (m) Increase in population (m) Consumption per capita Dairy (kg) Yogurt (kg) Juice (liter) Juhayna s market share of packaged products Dairy 76.8% 76.1% % 64.6% 62.7% 61.2% 60.1% 59.1% Yogurt 82.7% 60.9% % 47.8% 43.2% 40.6% 38.1% 36.1% Source: Juhayna, Bloomberg, HC 5

6 Revenue growth to remain in double digits mainly on sturdy volume growth EGPm 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Revenue to grow at a year CAGR of 18% , , , , , ,037 1,135 1,443 1,741 2,055 2,397 2,767 3, Dairy Yogurt Juice Concentrates Agriculture '000 metric tons e 2013e 2014e 2015e 2016e 2017e Dairy Yogurt Juice driven by steady conversion to packaged milk and to packaged yogurt % 13% 13% 17% 23% 26% 29% 32% % 87% 87% 83% 8 77% 74% 71% 68% % 73% 8 86% 9 95% 96% 97% 97% 3 Loose milk Packaged milk 3 33% 27% 15% 5% 4% 3% 3% Loose yogurt Packaged yogurt Dairy to remain largest contributor to revenue and to gross profit 10 1% 2% 3% 3% 4% 4% 4% 3% 3% 10 1% 1% 5% 4% 4% 5% 4% 4% 3% % 21% 19% 19% 18% 17% 17% 17% 17% % 22% 21% 19% 19% 19% 19% % 22% 27% 28% 28% 29% 3 32% 33% 57% 56% 51% 51% % 48% 47% Dairy Yogurt Juice Others % 23% 29% 3 31% 32% 33% 34% 36% 53% 52% 44% 45% 45% 44% 44% 43% 42% Dairy Yogurt Juice Others 6

7 We maintain our margins on average across the board The cost of raw milk increased c6% (to EGP3.46/kg in September from EGP3.28 in May and EGP3.13 in January) to an average of EGP3.29/kg in 2012e from EGP3.1 in 2011 due to a rise in global feed prices. We expect the cost of raw milk to increase slightly in 2013e, which, along with the EGP s recent and ongoing depreciation against the USD, should increase cost pressures as c25% 3 of Juhayna s cost base is denominated in USD. Management expects cost side pressures to subside over the medium to long term as it believes that the company will be able to pass all raw material and forex cost increases on to consumers eventually and that its margins will expand gradually through a combination of (1) price increases (even if Juhayna bears the costs for the first few months, according to management) and (2) cost savings resulting from gradual backward integration (dairy farm to start operations in 2013e and to reach target capacity by 2017e, supplying 5 of raw milk needs internally versus the current ). Global corn and soybean prices are expected to remain high in 1Q13 on tight global supplies but to average below 2012 levels for the full year as global production recovers, supported by a significant rebound in production in South America and the US in response to the high prices reached in 2012 and 1Q13, according to global commodity outlook reports. Corn price Soybean price USD/metric ton Up 13% y o y in 2012, though prices started softening in November USD/metric ton Up 19% y o y in Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Kansas corn gluten meal feed Soybean spot 7

8 Powdered milk price (1) Corrugated paper price (1) 4, ,000 3, USD/metric ton 3,000 2,500 2,000 1,500 Down 16% y o y in 2012 USD/metric ton Down 11% y o y in , Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Milk powder (26% butterfat) Note: (1) Powdered milk purchase orders are placed every 6 months at spot prices; powdered milk represents c of Juhayna s total milk usage and c6 of yogurt content German corrugated paper index Note: (1) Juhayna s corrugated paper packaging cost is based on an annually renewable agreement with Tetra Pak; packaging makes up c25% of its total cost of goods sold Price of feed to ease over the medium term 600 Gross margin 45% % 38.7% 38.1% 34.5% % % 36.7% 37.1% USD/metric ton % 15% e 2014e 2015e 2016e Corn Soybean 5% Source: Bloomberg consensus, HC Estimate revisions reflect increased sales and borrowing costs (EGPm) 2013e 2014e 2015e 2016e Old New %Δ Old New %Δ Old New % dev Old New %Δ Revenue 3,311 3, % 3,943 4, ,701 4, % 5,616 5, % EBITDA % 1,030 1, % 1,279 1, EBITDA margin 20.3% % % 0.5% 21.9% 20.9% % 21.3% 1.5% Net income % % % % Net margin 9.7% % 10.7% 7.6% 3.1% 12.6% % 14.4% 10.9% 3.5% Source: HC 8

9 HC versus consensus (EGPm) 2013e 2014e HC Consensus % dev HC Consensus % dev Revenue 3,467 3, % 4,141 3, % EBITDA % % EBITDA margin % 0.9% 20.5% 21.6% 1.2% Net income % Net margin % 1.9% 7.6% 11.5% 3.9% Raise TP c36% but downgrade to Underweight We raise our TP c36% to EGP7.42/share (which implies 13.7% downside) as we revise the after tax 1 year T bill downward (to c11.2% from 12.7% in our previous note) but downgrade the stock to Underweight from Overweight as it has rallied 138% since the beginning of We value Juhayna using a DCF methodology and apply a WACC of 13.8% (down from 15.2% in our previous note), a terminal growth rate of 3.5%, and an equity risk premium of 7.5%. We expect Juhayna s cash generation abilities to improve after 2014e on decreased capital spending, and, as a result, free cash flows should increase at a e CAGR of c29%. We believe the company s long term prospects are already factored into the current share price; the stock is trading at a c42% premium to its historical average forward P/E. 9

10 Juhayna valuation summary (EGPm) 2013e 2014e 2015e 2016e 2017e EBIT ,019 Taxes (54) (57) (73) (93) (117) Depreciation and amortization Appropriations (29) (30) (30) (42) (60) Change in working capital (66) (73) (89) (101) (115) CAPEX (1,179) (652) (282) (274) (270) Free cash flows (659) Risk free rate 11.2% Beta 0.8 Equity risk premium 7.5% Cost of equity 17.3% Equity weight 6 Cost of debt 11.5% Tax rate 25% After tax cost of debt 8.6% Debt weight 4 WACC 13.8% Terminal growth rate 3.5% Present value of free cash flows 650 Terminal value 9,611 Present value of terminal value 5,029 Enterprise value 5,678 Excess cash 425 Debt 909 Net debt 483 Investments 44 Total equity value 5,238 Number of shares (m) 706 Total value/share (EGP) 7.42 Current price (EGP) 8.60 Upside (downside) (13.7%) Source: HC Sensitivity of valuation to WACC and terminal growth rate (EGP/share) Terminal growth rate Source: HC WACC 11.8% 12.8% 13.8% 14.8% 15.8% 1.5% % % % %

11 Juhayna s performance versus the market and other stocks 9 Juhayna has outperformed the EGX30 by 72% over the last 6 months Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Juhayna Eastern Company EGX30 Bisco Misr Delta Sugar The stock is currently trading at a 2013e P/E of 19.6x, which represents a c23% premium to the multiple implied by its global peers (adjusted for e EPS growth), and at a 2013e EV/EBITDA of 10.6x, a c6% premium to the implied multiple e EPS CAGR versus 2013e P/E e EBITDA CAGR versus 2013e EV/EBITDA 2013e P/E 20x 19x 18x 17x 16x 15x 14x 13x 12x Nestle Switzerland Morinaga Milk Industry Dairy Crest Danone Saputo Glanbia Goodman Fielder Vietnam Dairy Saudia Dairy & Foodstuff Juhayna Dean Foods 5% 15% 25% e EPS CAGR 2013e EV/EBITDA 14x 12x 10x 8x 6x 4x 2x Saputo Saudia Dairy & Foodstuff China M. Dairy Dairy Crest Glanbia Danone Vietnam Dairy Nestle Switzerland Goodman Fielder Emmi Parmalat Dean Foods IMYI Juhayna 5% 5% 15% 25% e EBITDA CAGR 11

12 Juhayna trades at a c42% premium to its historical average forward P/E 20x 18x 16x 14x 12x 10x 8x Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 1 year average forward P/E Average 12

13 Juhayna Food Industries financial statements and ratios EGPm e 2013e 2014e 2015e 2016e 2017e Income statement Sales 2,244 2,858 3,467 4,141 4,896 5,762 6,751 Growth 21% 27% 21% 19% 18% 18% 17% Cost of goods sold (1,470) (1,829) (2,234) (2,652) (3,118) (3,647) (4,246) Gross profit 774 1,029 1,233 1,489 1,778 2,115 2,505 Gross margin 34.5% % % 36.7% 37.1% SG&A expenses (360) (469) (555) (656) (773) (906) (1,058) Export subsidies EBITDA ,023 1,228 1,469 EBITDA margin 18.8% % 20.9% 21.3% 21.8% Growth 2% 36% 21% 23% 21% Depreciation (139) (152) (201) (329) (359) (387) (416) Other expenses (17) (35) (34) (38) (43) (48) (54) Other revenue Associate income EBIT ,019 EBIT margin 12.8% 13.9% 13.5% 11.9% % 15.1% Net interest expense (36) (54) (117) (139) (137) (99) (63) Forex gains (losses) (3) 8 EBT Taxes (23) (40) (40) (41) (57) (82) (110) Net income before minorities Minority interest (0) 0 (0) (0) (0) (0) (0) Reported net income Extraordinary loss (1) (41) Net income after extraordinary loss Clean net income (2) Net margin 9.9% 10.5% % % 12.5% Growth 5% 35% 4% 1% 41% 42% 34% EPS (EGP) DPS (EGP) DPO 47% 45% 55% 65% Balance sheet Cash and equivalents Inventory Receivables Other current assets Total current assets 1,278 1, ,357 1,766 2,295 Goodwill Net fixed assets 1,543 2,054 3,032 3,354 3,277 3,164 3,018 Other noncurrent assets Total noncurrent assets 1,683 2,195 3,175 3,500 3,425 3,313 3,170 Total assets 2,961 3,264 4,011 4,445 4,782 5,080 5,465 Short term loans , Payables Other current liabilities Total current liabilities ,474 1,033 1,416 1,724 2,121 Long term debt Other long term liabilities Total noncurrent liabilities Total liabilities 1,149 1,321 1,788 1,937 2,073 2,148 2,317 Shareholder equity (3) 1,812 1,943 2,224 2,508 2,709 2,932 3,148 Note: (1) Extraordinary loss due to yogurt factory fire incident; represents difference between book value of damages and recovered amount net of tax (2) Excludes nonrecurring items (3) Issued and paid in capital reduced to EGP706m after adjustment for treasury stock cancellation 13

14 Juhayna Food Industries financial statements and ratios (continued) EGPm e 2013e 2014e 2015e 2016e 2017e Cash flow statement Net income before minorities Noncash items and others Change in working capital (181) (4) (66) (73) (89) (101) (115) Operating cash flows ,055 1,270 CAPEX (404) (662) (1,179) (652) (282) (274) (270) Other investments 18 (86) Investing cash flows (386) (747) (1,178) (651) (281) (273) (269) Proceeds from capital increase Change in debt (145) (170) (145) Dividends and appropriations paid (106) (29) (30) (30) (241) (406) Other 42 (7) (151) (157) (155) (139) (122) Financing cash flows 126 (66) 223 (69) (330) (550) (673) Change in cash (36) (263) (359) Key price ratios EV/EBITDA 14.9x 11.5x 10.6x 8.8x 6.9x 5.4x 4.2x Clean P/E 27.5x 20.3x 19.6x 19.3x 13.7x 9.6x 7.2x P/B (1) 3.5x 3.3x 2.9x 2.5x 2.3x 2.1x 2.0x Dividend yield 1.7% % 5.7% 9.1% FCF yield 3.4% 3.1% 10.9% 0.2% 8.6% 11.3% 14.4% Key financial ratios Net debt/equity 0.1x 0.3x 0.6x 0.6x 0.4x 0.2x 0.0x Net debt/ebitda 0.5x 0.8x 1.8x 1.6x 0.9x 0.4x 0.1x ROAA (1) % 8.8% 7.6% 9.8% % ROAE (1) 13.6% 16.8% 15.6% 13.8% 17.6% 23.1% 28.7% Note: (1) Adjusted for nonrecurring items and intangibles 14

15 Disclaimer HC Brokerage, which is an affiliate of HC Securities & Investment (referred to herein as HC ) a full fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services is exclusively responsible for the content of this report. The information used to produce this document is based on sources that HC believes to be reliable and accurate. This information has not been independently verified and may be condensed or incomplete. HC does not make any guarantee, representation, or warranty and accepts no responsibility or liability for the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and the use of specific financial techniques that reflect the personal opinion of the authors of the commentary and is subject to change without notice. The information in these materials reflects HC s equity rating on a particular stock. HC, its affiliates, and/or their employees may publish or otherwise express other viewpoints or trading strategies that may conflict with the views included in this report. Please be aware that HC and/or its affiliates, and the investment funds and managed accounts they manage, may take positions contrary to the included equity rating. This material is for informational purposes only and is not an offer to sell or the solicitation of an offer to buy. Ratings and general guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment, or other objectives or needs of, and may not be suitable for, any particular investor or client. Investors and clients should consider this only a single factor in making their investment decision, while taking into account the current market environment. Foreign currency denominated securities are subject to fluctuations in exchange rates, which could have an adverse effect on the value or price of, or income derived from, the investment. Investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. Neither HC nor any officer or employee of HC accepts liability for any direct, indirect, or consequential damages or losses arising from any use of this report or its contents. Copyright No part or excerpt of this research report s content may be redistributed, reproduced, or conveyed in any form, written or oral, to any third party without prior written consent of the firm. The information within this research report must not be disclosed to any other person until HC has made its information publicly available. Issuer of report: HC Brokerage Building F15 B224, Smart Village KM28 Cairo Alexandria Desert Road 6 October 12577, Egypt Telephone: Fax: Website: si.com IMPORTANT DISCLOSURES Analyst certification: We, Mohamed Zein and Noha Baraka, certify that the views expressed in this document accurately reflect our personal views about the subject securities and companies. We also certify that we do not hold a beneficial interest in the securities traded. Analyst disclosures: The analyst or a member of the analyst s household does not have a financial interest in the securities of the subject company (including, without limitation, any option, right, warrant, future, long or short position). The analyst or a member of the analyst s household does not serve as an officer, director, or advisory board member of the subject company. The analyst s compensation is not based upon HC s investment banking revenue and is also not from the subject company in the past 12 months. 15

16 HC disclosures: Company name: Juhayna Food Industries Disclosure: None 1. HC or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. 2. HC or its affiliates have managed or co managed a public offering of securities for the subject company in the past 12 months. 3. HC or its affiliates have received compensation for investment banking services from the subject company in the past 12 months. 4. HC or its affiliates expect to receive or intend to seek compensation for investment banking services from the subject company in the next 3 months. 5. HC has received compensation for products or services other than investment banking services from the subject company in the past 12 months. 6. The subject company currently is, or during the 12 month period preceding the date of distribution of this research report was, a client of HC. 7. HC makes a market in the subject company s securities at the time this report was published. The HC rating system consists of 3 separate ratings: Overweight, Neutral, and Underweight. The appropriate rating is determined based on the estimated total return of the stock over a forward 12 month period, including both share appreciation and anticipated dividends. Overweight rated stocks include a published 12 month target price. The target price represents the analysts best estimate of the market price in a 12 month period. HC cautions that target prices are based on assumptions related to the company, industry, and investor climate. As such, target prices remain highly subjective. The definition of each rating is as follows: Overweight (OW): Estimated total potential return greater than or equal to Neutral (N): Estimated total potential return greater than or equal to and less than Underweight (UW): Estimated total potential return less than NR: Not Rated SP: Suspended Stocks rated Overweight are required to have a published 12 month target price, while it is not required on stocks rated Neutral and Underweight. Distribution of HC ratings Rating Count Percent Percent provided investment banking services in past 12 months Overweight (OW) Neutral (N) Underweight (UW) Juhayna Food Industries as of 10 February Date Recommendation Target price 21 Jun 2011 Overweight EGP Feb 2012 (1) Neutral EGP Aug 2012 Overweight EGP Feb 2013 (1) Underweight EGP7.42 Note: (1) Change of analyst 16

17 All HC employees and its associate persons, including the analyst(s) responsible for preparing this research report, may be eligible to receive non product or service specific monetary bonus compensation that is based upon various factors, including total revenues of HC and its affiliates, as well as a portion of the proceeds from a broad pool of investment vehicles consisting of components of the compensation generated by directors, analysts, or employees and may affect transactions in and have long or short positions in the securities (options or warrants with respect thereto) mentioned herein. Although the statements of fact in this report have been obtained from and are based upon recognized statistical services, issuer reports or communications, or other sources that HC believes to be reliable, we cannot guarantee their accuracy. All opinions and estimates included constitute the analysts judgment as of the date of this report and are subject to change without notice. HC may affect transactions as agent in the securities mentioned herein. This report is offered for information purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. Additional information available upon request. 17