Arabian Food Industries Company Domty announced today the offering of up to 122,500,000 existing ordinary shares representing 49% of the company’s outstanding share capital listed on the Egyptian Exchange (EGX) currently owned by the selling shareholders.
The total value of the transaction will vary between EGP 1.1bn or 1.2bn
Commenting on the offering, Domty’s chairman and managing director Omar El Damaty said: “For over 25 years, our family has focused on building a business that delivers appealing, high-quality food products for one of the Arab world’s largest consumer markets. We are now transforming into a public company with best-in-class corporate governance practices as we look forward to welcoming both institutional and retail investors as shareholders. An EGP 300m capital injection subsequent to the IPO will be deployed to expand our distribution network, allowing us to widen our national footprint; to introduce new product categories; and to expand our operations to high-growth African markets.”
“From humble beginnings, we have grown to become the nation’s largest cheese producer by market share, with ISO-certified production facilities, a national sales and distribution network and growing export sales,” El Damaty noted.
“This is only the beginning — the first chapter of a story that will see us call on our outstanding brand equity and strong management team to grow in both new and existing segments in Egypt while expanding to very compelling frontier markets with large, fast-growing consumer populations.”
Domty began commercial operations in 1990 and today manufactures, markets and distributes a range of branded white and processed cheeses and juice products. The company is a household name in Egypt with a number-one market position in the local cheese market and a growing market share in the juice segment, which the company more recently entered. Its portfolio of brands includes the flagship Domty brand as well as the ‘fighter’ brands Gebnety and Damo .
Domty holds market-leading positions in unprocessed soft packaged cheese (accounting for more than 35% of the total Egyptian cheese market sales in 2014) as well as processed packaged cheese (a comparatively niche product targeting consumers with westernised eating habits, accounting for more than 15% of the total Egyptian cheese market sales in 2014).
The company presently has plans to penetrate the unprocessed hard packaged cheese segment, which accounted for more than 45% of total Egyptian cheese market sales in 2014. Since 2012, the company has been recognised as the world’s largest producer of Tetra Pak-packaged white cheese.
Leveraging its strong relationship with Tetra Pak as well as its solid brand equity, and laying the groundwork for to capitalize on local consumption trends, the company has become a top five player in the highly fragmented and competitive juice segment less than two years after its entry into the sector in October 2013.
Domty intends to use its juice sales unit as a platform for expansion into snack food categories that rely on similar sales channels.
The Egyptian cheese industry has enjoyed steady growth (more than 10% annually) since 2010, increasing to a retail value of more than EGP 10 billion by 2014, while the local juice market has also grown in recent years to more than EGP 3 billion by 2014 (more than 8% annually since 2010).
Both segments are underpinned by compelling fundamentals including a young, fast-growing populace that comprises the MENA region’s largest population; rising disposable income; and favorable changes in lifestyle trends and consumer preferences.
Domty currently operates a well-invested, ISO-certified 6,000 m2 factory in Egypt, including 20 production lines (including a production line that is used interchangeably for both cheese and juice manufacturing) with a combined annual capacity of 240,000 tons and equipment from leading international suppliers.
The company has historically invested in new production capacity to meet growing market demand for its products. Ongoing expansions will increase the company’s annual production capacity for carton pack cheese and juice.
Domty also controls an extensive sales and distribution network on a national scale.
The company posted sales of EGP 1,129.1m in 2014, while sales in the first ten months of 2015 reached EGP 1,164.3 million (a 26% growth compared to the same period in 2014).
Domty’s sales grew by a CAGR of c. 31% from 2012 to 2014 as the company capitalised on changing local consumption trends and introduced new products. In 2014, the company derived c.92% of its revenue from Egypt through sales to both business and retail customers.
The balance of c.8% sales in 2014 were attributable to more than 35 regional export markets including Jordan, Palestine, Libya, Saudi Arabia, Kuwait, Lebanon and the UAE.
After coming under pressure in 2013 and 2014 due to significant hike in raw material prices, EBITDA margin recovered to 17.8% in 10M 2015 compared with 9% in 2014 on the back of structural changes in both demand and supply side dynamics that resulted in raw materials prices subsiding. In addition, the company’s net profit reached EGP 109m in the first ten months of 2015, an EGP 77m increase from the company’s net profit of EGP 32m for 10M 2014.
Pursuant to approvals received from the Egyptian Financial Services Authority (EFSA) and the EGX, shares will be offered to international institutions (the international offering) with a further offering of shares in a domestic offering in Egypt (the Egyptian retail offering) which together are referred to as the combined offering, to be followed by a rights issue exclusive to the selling shareholders wherein they will inject EGP 300m into the company (the closed subscription).
The combined offering will consist of 122,500,000 ordinary shares, with up to 110,250,000 shares for the international offering and a further 12,250,000 shares in the Egyptian retail offering.
Selling shareholders include members of El Damaty family (c. 65%) and Yehia Bin Laden (c. 35%). All selling shareholders will sell-down on a pro-rata basis through the secondary offering and subsequently subscribe pro-rata to the closed subscription.
EFG Hermes Promoting and Underwriting is sole global coordinator and book runner for the combined offering. Baker & McKenzie LLP is international counsel to the issuer, while Matouk Bassiouny is serving as local counsel.