ArabianFoodIndustries Domty InitiationofCoverageOctober2016

PRIME INVESTMENT RESEARCH
FOOD & BEVERAGE |EGYPT

ARABIAN FOOD INDUSTRIES DOMTY INITIATION OF COVERAGE
OCTOBER 9TH 2016
ARABIAN
FOOD
INDUSTRIES
DOMTY
POISED FOR FURTHER GROWTH IN THE COMING YEARS BACKED BY PRODUCT INNOVATION &
NEW SEGMENTS
BUY
MARKET PRICE EGP 5.80
FAIR VALUE
EGP 6.75
POTENTIAL
16% UPSIDE
INVESTMENT GRADE
GROWTH
S
Stock Data
Outstanding Shares [Mn]
282.6
Mkt. Cap [Bn]
1.619
Bloomberg Reuters
DOMT EY, DOMT.CA
LOW/HIGH - SINCE INCEPTION
5.8 10.64
DAILY AVERAGE TURNOVER (000S)
9,586.8
Ownership
El Damaty Family
Yehia Ben Laden
Trevi Holding
Free Float
29.5%
15.7%
11.5%
43.4%
DOMT
EGX 30 - Rebased
14
12
10
8 GB AUTO, Prime Estimates
ource:
6
4
2
0
Source: Bloomberg
Report Content:
Valuation .. 2
The Egyptian Food & Beverage Sector .. 6
The Egyptian Cheese Industry ...... 9
The Egyptian Juice Industry . 12
Arabian Food Industries ... 14
We initiate our coverage for Arabian Food Industries - Domty - with a Buy rating driven
from a upside potential of 16%; driven from our estimated Fair Value of EGP 6.75 /share
Using the DCF valuation methodology for Domty, we utilized an average WACC over our
forecasted horizon of 15.60%, a risk free rate of 13.14%, and a market risk premium of 8%. We
used the average F&B Sector Beta which is equivalent to 0.6. Currently, the stock is being
traded at a discount to its global and local peers. The company has been trading at a 2016 P/E
of 19.96x, where 2016 P/E for the global and local peers stood at 26.50x and 29.57x
respectively.
Domtys valuation is affected by 2 main factors; the post-tax risk free rate and the minimal
CAPEX expenditure. Since the beginning of 2016, the returns on all government securities
skyrocketed, making most of the stocks seem unappealing to investors. The 1-year post-tax risk
free rate rose by 352bps, reaching 13.14% during October 2016. Using the current post-tax risk
free rate - 13.14% - DOMT would be valued at EGP 6.75/share, where if the post-tax risk free
rate of January 2016 9.62% - were used, DOMT would be valued at EGP 10.23/share. On the
other hand, the minimal CAPEX expenditure is quiet positive for the stocks valuation. We
believe that the company would incur EGP 480mn as CAPEX expenditure over 2016-2020. This
is relatively low compared to the companys competitors, as Domty enjoys benefits as being
Tetra Paks largest packaged white cheese producer. Tetra Pak allows Domty to purchase new
machines on preferential terms, which typically include payment in non-interest bearing
installments over several years that can be offset against receivables, resulting in no actual
cash outflow. We believe that during the coming years, the companys CAPEX would be
directed towards expanding the distribution fleet, capacity expansions in the carton pack
cheese and juice segments, the companys new segments and the geographical expansions.
FX risk is considered one of the biggest threats for Domty, whether regarding the FX availability
or the FX pricing. In 2015, nearly half of the companys raw materials were denominated in FX,
where the non-EGP revenues covered only 8-10% of the required FX. Till May 2016, the
company was able to secure its entire FX requirements from the official banking system;
however starting June the company had to resort to the parallel market. The company secured
90% of its required FX from the parallel market at a rate of 12.6-12.7 EGP/USD, where the
remaining 10% was sourced from the banking system at the official rate. The company would
have a negative exposure to further EGP devaluation, as most of the F&B producers.
Domty is a leading food and beverage company in Egypt and the leading cheese producer,
selling a variety of packaged, processed and unprocessed cheese, as well as a range of juice
products. The company began operations in 1990 and pioneered the production of packaged
white cheese in Egypt. Ever since, Domty has become a household name and it currently holds
the #1 market position in the Egyptian cheese market. The companys market position in the
total packaged cheese market in Egypt as of September 30th, 2015 stood at 40%, where it had a
leading market position across the various product categories.
Since 2012, Domty has been recognized as the worlds largest producer of Tetra Pak packaged
white cheese, making it enjoy special technical and financial benefits from Tetra Pak. These
benefits include preferential terms on the purchase of new machines and packaging materials.
Also, it receives special maintenance and support and it has a maintenance capital expenditure
agreement, where it receives significant annual marketing support from Tetra Pak based on a
percentage
the marketing budget. In 2013, the company decided to penetrate the juice
Source:of
Bloomberg
industry and it has been quiet successful. In less than 2 years, Domty was able to capture c7%
of the entire Egyptian juice market, becoming the fifth largest producer by volume. The
company intends to expand into other market segments in the coming few years, such as
cheese sandwich, hard cheese, flavored milk, whipping cream and custard.

OCTOBER, 2016
The company exports its products to more than 35 countries. In 2015, Domty entered into an agreement to begin exporting cheese to
Russia, benefiting from the supply shortages resulting from the foreign sanctions against Russia. The first deal was made in 2015 and it
amounted to USD 20mn. In 2016, the company reached two new agreements to market its products in Russia, where each agreement
had a value of USD 10mn. The three agreements have a total value of USD 40mn. These agreements are of huge importance, as they will
enable the company to secure much of the required FX to import raw materials.
Valuation:
We initiate our coverage for Arabian Food Industries - Domty - with a Buy rating driven from a upside potential of 16%; driven from
our estimated Fair Value of EGP 6.75 /share Using the DCF valuation methodology for Domty, we utilized an average WACC over our
forecasted horizon of 15.60%, a risk free rate of 13.14%, and a market risk premium of 8%. We used the average F&B Sector Beta which
is equivalent to 0.6.
Hyper
Growth
Stage
Regarding the perpetual growth rate, we applied a multiple-stage growth

model:
-
2016 - 2020: we forecasted full financial statements, as the company will

witness hyper growth rates.
2021 - 2025: we assumed FCF to grow at a high rate of 8%.
2026 - Infinity: the terminal value of the company is based on a

perpetual growth rate of 5%.
High
Growth
Stage
8%
2016-2020
Discounted Cash Flow Model (DCF)
2016
2017
2018
2019
2020
NOPLAT
156,137
104,607
148,125
273,308
373,208
Depreciation
22,950
36,094
38,820
47,370
55,021
Gross Cash Flow
179,087
140,701
186,945
320,678
428,229
Change in Working Capital
-36,390
-62,228
-20,941
-108,383
-18,685
Capex
-157,500
-28,671
-100,694
-90,581
-101,916
Free Cash Flow
-14,803
49,802
65,309
121,714
Total Cash Flow
-14,803
49,802
65,309
NPV
-14,307
41,631
47,333
Sustainable
Growth
5%
2021-2025
2026-Infinity
2021
2022
2023
2024
2025
307,628
332,238
358,817
387,522
418,524
452,006
121,714
307,628
332,238
358,817
387,522
418,524
5,030,843
76,491
167,985
157,260
147,220
137,821
128,972
1,343,819
Terminal Value
Value Of Operations
Add: Excess Cash
Entity Value
Less: Value of Debt
Less: Accum. Discounted
Minority Interest
Shareholder Value
DCF Value Per Share
4,578,837
2,234,226
28,069
2,262,295
354,492
67
1,907,737
6.75
We believe that a multiple-stage growth model is more appropriate for sectors such as F&B and companies as Domty, 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 Egypts real GDP growth rate, and hence we opted to
apply a multiple stage growth rate model for Domty.

OCTOBER, 2016
The DCF Valuation for Domty is relatively appealing as it entails an upside potential of 16%. Moreover, Peer Valuation would imply that
Domty is considered relatively undervalued and is currently trading at a discount. Domty has a lower leading P/E ratio (19.96x) than its
global (26.50x) and local peers (29.57x). Using the leading P/E multiple for global peers, Domtys FV would stand at EGP 7.68, implying a
32% upside potential.
Company Name
Local F&B
P/E - 2015
P/E - 2016
P/B 2015
P/B 2016
32.3
32.3
10.15
10.15
26.85
26.85
3.1
3.1
29.57
29.57
6.62
6.62
P/E - 2015
P/E - 2016
P/B 2015
P/B 2016
Sadafco
27.83
15.43
4.14
3.69
Al Marai Co.
24.36
24.36
3.89
3.89
Agthia Group
19.87
19.87
2.98
2.98
Halwani Bros.
17.47
17.47
3.06
3.06
Savola
14.95
14.95
2.54
2.54
19.87
17.47
3.06
3.06
Company Name
P/E - 2015
P/E - 2016
P/B 2015
P/B 2016
Bega Cheese Ltd.
53.46
29.95
2.11
2.63
Bright Dairy & Food Co Ltd.
46.82
46.82
4.30
4.30
Danone SA
29.66
29.66
3.04
3.04
BD Rangpur Dairy & Food Products Ltd
28.55
28.55
1.29
1.29
Saputo Inc.
23.96
26.50
3.83
4.08
Namyang Dairy Products Co Ltd.
23.44
23.44
0.59
0.59
Edita Food Industries

Juhayna Food Industries
Sample Median - Local F&B
Company Name
Regional F&B
Sample Median - Regional F&B
Global F&B
Vietnam Dairy Products Joint Stock Company
21.93
21.93
7.42
7.42
Maeil Dairy Industry
20.76
20.76
1.52
1.52
Dairy Crest Group PLC
20.58
22.17
2.10
6.48
China Huishan Dairy Holdings Co Ltd.
18.40
48.59
1.15
2.62
17.37
17.37
1.88
1.88
Sample Median - Global F&B
China Mengniu Dairy Co Ltd.
23.44
26.50
2.10
2.63
Arabian Food Industries DOMTY
12.73
19.96
10.35
6.64
Value(EGP / Share)
Potential
100% DCF
6.75
16%
100% P/E Multiple
7.68
32%
50% DCF / 50% P/E

Multiples
7.22
24%
SOURCE: BLOOMBERG & PRIME ESTIMATES

OCTOBER, 2016
Upside Risks:
-
Ability to grow the market share in the cheese industry, beyond our expectations.
Continuation of the successful deals with Russian companies.
Successful penetration in East and Sub-Saharan African countries, enabling it to secure more FX.
Successful penetration in the new segments; cheese sandwich and hard cheese, beyond our expectations.
Successful penetration in the other new segments; custard, flavored milk and whipping cream.
Downside Risks:
-
Further devaluation of the EGP than our expectation.

Continuation of the FX crunch.
Increase in prices of raw materials.
Loss of strong relation with Tetra Pak.
Losing market share in any of the segments, due to the severe competition from local and international competitors.
Inflationary pressures weakening the consumers purchasing power.
Failure of the new product segments; cheese sandwiches and hard cheese.
Failure to penetrate in East and Sub-Saharan African countries.
Financial Statements Historical & Forecast

Income Statement Brief
In EGP Mn
Revenues
Change
COGS
Change
Gross Profit
Depreciation & Amortization
EBITDA
Net Income (Before Minority Interest)
Net Income (After Minority Interest)
Net Attributable Income
NPM
Hist.
2015
1,400
Forecast
2016F
1,743
2017F
2,190
2018F
2,528
24%
24%
26%
15%
1,016
1,313
1,784
2,033
16%
29%
36%
14%
384
430
406
496
23
23
36
39
230
224
175
233
129
82
58
104
129
82
58
104
129
78
55
99
9%
5%
3%
4%
Balance Sheet Brief
Hist.
Forecast
In EGP Mn
2015
2016F
2017F
2018F
28
66
44
66
243
222
269
291
165
211
275
303
90
105
120
125
526
604
708
785
Cash
Net Receivables
Net Inventory
Other Current Assets
Total Current Assets

OCTOBER, 2016
Net PPE
Other LT-Assets
Total Long Term Assets
Total Assets
189
328
326
393
20
15
10
209
343
336
398
735
948
1,044
1,183
Liabilities
STD - incl CPLTD
Accounts Payable
Total Current Liabilities
Total Long Term Liabilities
328
464
459
478
79
102
138
158
502
641
701
754
75
59
42
39
577
Total Liabilities
701
743
793
Equity
Paid-in-Capital
Reserves
RE
Total Equity
Financial Ratios
GPM
EBITDA
NPM
EPS
DPS
P/E
EV/EBITDA
ROA
ROE
Debt / Equity Ratio
50
56.5
56.5
56.5
14.6
30.3
40.3
47
98
165
208
291
158
247
301
390
Hist.
Forecast
27%
24.7%
18.5%
19.6%
16%
13%
8%
9%
9%
5%
3%
4%
0.46
0.29
0.21
0.37
0.04
0.11
12.73
19.96
28.19
15.76
8.7
9.3
12.0
9.0
17.89%
9.27%
5.55%
8.87%
66.56%
33.99%
18.57%
26.77%
24.45%
29.52%
28.22%
29.23%
1.95
2.07
2.20
2.27
Total Assets Turnover
SOURCE: DOMTY & PRIME ESTIMATES

OCTOBER, 2016
The Egyptian F&B Sector:

The Egyptian F&B sector has shown strength and resilience since 2011. The sector was able to withstand the effects of political and
economic instability that occurred during the 2011 and 2013 revolutions. The sector achieved growth rates that were much higher than
that of the overall economy. The strength of the sector is supported by several factors, including, the favorable demographics, the rising
consumption from a very low base and the Egyptians high expenditure on food items. Moreover, the Egyptians preference for
affordable options and the changing lifestyles and consumption patterns have changed some of the market dynamics. During the last
several years, the on-the-go consumption pattern has expanded tremendously, primarily due to the urban lifestyle becoming
increasingly busier, as a result of family members spending more time out of the home, increasing female participation in the workforce,
growing number of students and longer commute times.
On the other hand, during 2016, the sector faced many challenges, most of which were due to macro-economic conditions. The
challenges included:
- High inflation rates:
Egypt has suffered during the last several years from high inflation. The average CPI was a double-digit figure during 2014, 2015 and so
far for 2016. F&B is the largest item on the CPI, where it represents c40% of the total index. The government has tried to curb such high
inflation, through raising the corridor rates by 250bps throughout 2016, yet all these trials have deemed unsuccessful. At the first MPC
meeting in 2016, held on January 28th, the committee decided to keep the overnight deposit rate, overnight lending rate, and the rate of
the CBE's main operation unchanged at 9.25%, 10.25%, and 9.75%, respectively. Meanwhile, at the last MPC meeting, held on September
16th, the committee decided to keep the overnight deposit rate, overnight lending rate, and the rate of the CBEs main operation
unchanged at 11.75%, 12.75%, and 12.25%, respectively.
During June, July and August 2016, the inflation rates were the highest in 8 years, where the CPI rates were 14%, 14% and 15.4%
respectively. The rise in the F&B index was even higher than that of the general index as the F&B basket inflation rates were 17.6%,
18.4% and 19.3%. The rise in the F&B inflation rates can be attributed to many reasons; the EGP devaluation that took place in March,
the FX shortage where most F&B producers started to resort to the parallel market for FX, the 40-45% spread between the official and
the parallel EGP/USD exchange rates, the holy month of Ramadan coinciding in June, supply shortage in some items and usually the
prices of some items, as fruits and vegetables witness price hikes due to the weather conditions. During the coming months, inflation is
unfortunately expected to keep rising, mainly due to the application of the VAT tax, the expected EGP floatation / devaluation and the
austerity measurements / economic reforms that the government is expected to undertake as soon as the IMF funding arrives. Such
inflation rates would affect the Egyptians purchasing power, and even if Egyptians place a very high priority on food items, they would
eventually end up minimizing the purchases of what can be perceived as non-essential / luxurious food items.
CPI INDEX IN 2015 & 2016 INDEX AND F&B INDEX
240
220
200
179
180
160
156
183
159
188
162
190
162
195
164
191
163
192
164
203
194
165
169
207
172
204
172
203
172
203
172
206
174
210
176
214
178
223
184
225
185
227
187
231
190
140
120
100
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16
CPI Index
F & B Index
SOURCE: CBE

OCTOBER, 2016
ANNUAL CHANGE - CPI INDEX IN 2015 & 2016 INDEX AND F&B INDEX
20%
18%
18%
18%
16%
15%
13%
14%
12%
10%
10%
8%
11%
12%
9%
11%
10%
15%
11%
6%
13%
13%
11%
11%
11%
8%
8%
15%
6%
8%
8%
9%
10%
11%
10%
15%
14%
12%
12%
13%
19%
14%
14%
12%
10%
9%
9%
4%
2%
0%
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16
CPI Index - Change y-o-y
F&B Index - Change y-o-y
SOURCE: CBE
- Application of the VAT tax:

Egypt's government has announced on several occasions since 2007 that it is going to implement the VAT in order to increase the
fiscal revenues, but the decision has been repeatedly postponed. During 2016, the government has made it very clear that the
application of the VAT is inevitable and it is on top of the measurements the government will undertake, under what is referred to as
the Economic Reform Program. Moreover, international institutions, such as the IMF and the World Bank, started to make the
enactment of the VAT tax, in addition to other measures, a condition for receiving loans and grants; the IMF made the application of
the VAT one of the conditions for Egypt to receive the USD 12bn, three-year funded facility.
By the end of August, 2016, The House of Representatives approved a baseline rate for the VAT. The VAT will be set at 13% in year 1
and then rise to 14% in year two. At the 13% rate, the government is expected to receive EGP 20bn in FY2016/17. The government
was hoping to collect EGP 32bn in FY2016/2017, yet the 1% cut from the 14% baseline would reduce EGP 8bn, in addition to the fact
that the measure will be in effect for only 10 months of the current fiscal year would further reduce it by EGP 4bn. On Wednesday,
7th of September, 2016, the Egyptian president, Abdel Fattah El Sissi ratified the VAT law. The law provides a list of 57 goods that are
to be exempted from the VAT tax, which makes it one of the largest VAT exemptions lists in the world. Many of these exempted
goods belong to the F&B sector and it shows the governments commitment to shielding the poor. Even though that many
government officials claim that the application of the VAT tax will not raise the general prices, we believe that prices would keep
rising in the coming months due to the application of the VAT tax.
List of Exempted F&B Items from the VAT Tax
-
Infant formula milk and dairy products (including milk).
Baby food products.
Eggs (excluding pasteurized eggs).
Sugar.
Tea and Coffee.
Products produced at mills, except for premium flour.
Bread.
Pasta.
Animals and birds (alive, slaughtered and frozen).
Processed and frozen meat.
Fish and seafood (fresh and frozen).
Agricultural products including seeds and excluding tobacco.

OCTOBER, 2016
-
Honey, molasses, halawa and tehina.
Locally produced fruits and vegetables, excluding potatoes, juice and fruit concentrates.
Legumes, grains, table salt, spices and flavors.
SOURCE: THE OFFICIAL GAZETTE, ISSUE NO. 35, ISSUED 7/9/2016
Increases in the electricity prices:
In August, 2016, the government announced a new tariff list for electricity. The government justified the increase in the prices of
electricity by its cost of production; the cost of producing 1 kWh has increased to EGP 0.63 from EGP 0.47 during the year. The old
prices would have increased the cost of subsidizing electricity to EGP 40bn if the consumer prices were not increased, where only
EGP 30bn were allocated for power subsidies in the FY2016/17 state budget. The announcement was made during August, yet the
new prices were applied retrospectively starting July.
The F&B sector is not considered an energy-intensive sector and most of the F&B companies would lie in the first two trenches in
the commercial consumption tiers where electricity prices only rose by an average of 11%. Even though the utilities costs represent
5-10% of most of the F&B companies COGS, most of the companies would try to pass the increase onto the consumers. On the
other hand, the electricity prices for all the residential consumption tiers rose by an average of 37%, which will affect the purchasing
power of the consumers.
The New Prices per kWh Across the Residential Consumption Tiers
Tier
New Price - (EGP/kWh)
Old Price - (EGP/kWh)
% Change
0- 50 kWh
0.11
0.075
51-100 kWh
0.19
0.145
47%
31%
0-200 kWh
0.215
0.16
34%
201-350 kWh
0.42
0.29
45%
351-650 kWh
0.55
0.39
41%
651-1,000 kWh
0.95
0.68
40%
Above 1,000 kWh
0.95
0.78
22%
The New Prices per kWh Across the Commercial Consumption Tiers
Tier
New Price - (EGP/kWh)
Old Price - (EGP/kWh)
% Change
0-100 kWh
0.35
0.34
3%
101-600 kWh
0.69
0.58
19%
Above 600 kWh
0.96
0.86
12%
SOURCE: AL MAL NEWS
FX shortage and rising rates in the parallel market:
Since 2015, the Egyptian economy has faced many challenges, where the FX shortage and the energy shortage were among these
challenges. During 2015 and till 1Q2016, the F&B sector was not harmed severely by the FX shortage, as the CBE prioritized the F&B
sector, in addition to some other sectors such as the pharmaceuticals sector. However, some major producers had reported that the
lead time lengthened as the banks provided them with the required FX after 4-6 weeks.
During that time, food producers were able to source the required FX entirely from the banking sector at the official rates. Since the
beginning of the 2Q2016, most of the food producers started resorting to the parallel market, were some had to secure from 50-90%
of their required FX from the parallel market.
As for the exchange rates, the CBE adopted more of a contractionary monetary policy since 2015 as it was viewed that an EGP
devaluation was inevitable for economic development and attracting investments. The EGP was devaluated by 9% and 14% in 2015
and 2016 (till date) respectively. Another round of EGP devaluation / floatation is expected to occur during October 2016. On the
other hand, the exchange rates in the parallel market skyrocketed during 2015 and even further in 2016. The EGP lost its value by
c10% and 66% in 2015 and 2016 (till date) respectively.

OCTOBER, 2016
EGP / USD OFFICIAL RATE - 2015 & 2016
EGP / USD PARALLEL MARKET RATE - 2015 & 2016
9.5
15
14
13
8.5
12
11
7.5
10
9
Sep-16
Oct-16
Aug-16
Jun-16
Jul-16
Apr-16
May-16
Jan-16
Feb-16
Mar-16
Nov-15
Dec-15
Sep-15
Oct-15
Aug-15
Jun-15
Jul-15
Apr-15
May-15
Jan-15
Oct-16
Sep-16
Jul-16
Aug-16
Jun-16
Apr-16
May-16
Jan-16
Feb-16
Mar-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-15
Jan-15
6
Feb-15
Mar-15
Feb-15
Mar-15
6.5
SOURCE: BLOOMBERG, REUTERS, AL MAL, ENTERPRISE
All F&B producers were affected negatively by either the EGP devaluation or resorting to the parallel market. Most F&B producers have a
negative exposure to FCY as most of the raw materials are imported and their exports represent less than 10% of their sales.
We expect that during the short-term, the sector would be harmed to a large extent, however in the long-term the sector would be able
to maintain the strong growth, driven by the favorable conditions discussed earlier.
EGYPTIAN CHEESE INDUSTRY
The Egyptian Cheese Industry:
Processed
Cheese, 16%
Hard
Unprocessed
Cheese, 46%
Cheese is a staple of the Egyptian diet. It is considered the largest segment

and constitutes over 40% of the total dairy market. The Egyptian cheese
market is divided into two major categories; Unprocessed Cheese (slightly
more than 80% the total cheese market) and Processed Cheese (c16% of the
total cheese market). Unprocessed cheese can be further subcategorized
into Hard Unprocessed Cheese (c46% of the total cheese market) and Soft
Unprocessed Cheese (c38% of the total cheese market).
Egypts per capita consumption rate of cheese is higher than that of the
global average and that of the regional peers, yet it remains significantly
below that of the more developed markets, such as North America and
Western Europe. Consequently, we believe that there is a significant room
for growth, due to the evolving consumption patterns. The Egyptian cheese
industry has witnessed steady growth more than 10% per annum since
2010, increasing to more than EGP 10bn in 2014. This growth can be
attributed to the changing consumption patterns, as the cheese sector in
recent years has witnessed some structural shifts fueling an increase in
packaged cheese consumption due to several factors. These factors include:
- Favorable Consumption Patterns: The urban lifestyle has become

busier in the last decade, as a result of family members spending more
time out of the home, growing number of students, increasing female
participation in the workforce and longer commute times. All these
factors place a huge importance on On-the-go consumption. Cheese
has been marked as an on-the-go snack due to its innovative and
small packaging, making it more suitable for rapid consumption.
Soft
Unprocessed
Cheese, 38%
CHEESE CONSUMPTION / CAPITA (KG, 2014)
12
11.4
11.1
10
8
5.2
5.1
4.9
2.4
1.4
0.2
0
Western North Eastern Egypt Latin Middle Asia World
Europe America Europe
America East & Pacific
Africa
SOURCE: DOMTY

OCTOBER, 2016
- Innovative Product Offering: The Egyptian cheese market offers a wide variety of SKUs with different tastes, size and price
ranges in order to seem appealing to the mass consumers. There is an increasing trend toward offering smaller and more
affordable SKUs and focusing more on consumers in the lower income segment and rural areas.
- Consumer Shift from Loose to Packaged Cheese: the majority of Egypts cheese production has historically been locally
produced non-packaged cheese Loose Cheese. Loose cheese has been associated with various health and hygiene issues,
mainly due to the unregulated production and distribution process. Governmental campaigns, increased consumer awareness
and rising urbanization has driven a shift from loose cheese to packaged cheese products. The shift has also been driven by the
convergence of the price differentials between loose and packaged cheese. The shift has occurred quiet fast, as the loose cheese
market share declined from 72% in 2007 to only 20% of the overall unprocessed soft (white) cheese in 2014.
- Adoption of Western Eating Habits: during the last years, Egyptian consumers have adopted westernized eating habits. The
number of Western-style food restaurants has grown during the last decade. Cheese is a key ingredient in most of the Westernstyle meals, such as pizza, burgers and pasta.
The cheese market in Egypt is dominated by traditional groceries that cater to on-the-go consumption patterns; as approximately twothirds of Egyptian cheese sales are estimated to have occurred through traditional retailers in 2014. However, some cheeses such as
mozzarella, spreadable cheese and plastic-pack cheeses require special storage where only modern trade channels, including modern
grocery retailers can properly store and sell such products. The market for these products has significant growth potential as modern
trade channels increase their penetration in the Egyptian market.
Unprocessed Cheese:
Unprocessed cheese - the natural cheese - is the most prevalent type of cheese in the local Egyptian market, where it represents more
than 80% of the total cheese market. Unprocessed cheese - soft and hard is prepared using natural ingredients, such as raw milk and
thus it is perceived to have more of a nutritional value. Unprocessed cheese is also considered affordable to the mass consumers and is
currently offered in many sizes, flavors and tastes.
Unprocessed Soft Cheese:

Unprocessed soft cheese is packaged in either plastic packaging plastic tubs or carton packs. Plastic pack cheese is typically sold
fresh and hence it requires special handling and storage techniques with respect to refrigeration. Consequently, plastic pack cheese is
usually consumed in homes or restaurants with sufficient refrigeration capacity. On the other hand, carton pack cheese has a relatively
long shelf-life (some have shelf-life up to one year) and typically does not require refrigeration and thus consumers with busy lifestyles
tend to perceive the carton pack cheese as an ideal option.
The unprocessed soft cheese market has almost doubled in recent years, reaching more than EGP 4bn at 2014. The growth has largely
been driven by the strong demand for carton pack cheese sales, due to the carton pack cheeses attractiveness as a convenient on-the-go
food and its ability to be sold through more diverse sales channels than plastic pack cheese.
The competitive landscape of the unprocessed soft cheese
industry has changed to a large extent in the last decade, where
the producers who foresaw the potential shift of consumers
preferences were able to grasp the fruits of the growing
market. Domty was one of the companies who foresaw the
potential shift towards the conveniently consumed and carried
cheese products, where it began to offer carton pack cheese
products in 2007. Domty and other competitors who were able
to capitalize on the increasing demand for the carton pack
cheese through increasing their production capacity of carton
pack cheese were able to advance and increase their market
share at the expense of earlier market leading brands. As of
September 30th, 2015, Domty had the largest market share of
the unprocessed carton pack cheese with a share of 43%,
followed by Obour Land with a market share of 31%.
UNPROCESSED CARTON PACK CHEESE MARKET SHARES (9M 2015)

Others, 8%
Panda, 8%
Americana
- Green
Land, 10%
Domty, 43%
Obour
Land, 31%
10

OCTOBER, 2016
UNPROCESSED PLASTIC PACK CHEESE MARKET SHARES (9M 2015)
On the other hand, the plastic pack cheese has more

restrictive requirements and thus has grown less rapidly than
carton pack cheese. As of September 30th, 2015 President had
the largest market share for the unprocessed plastic pack
cheese with a share of 52%, followed by Domty with a share
of 23%.
Others, 14%
Panda, 2%
Green
Land, 9%
President,
52%
Domty, 23%
SOURCE: DOMTY
Unprocessed Hard Cheese:

The unprocessed hard cheese is considered the largest segment of the Egyptian cheese market, where it represents almost half of the
total Egyptian cheese market. The unprocessed cheese market in Egypt reached EGP 5bn in 2014, showing an almost 10% annual growth
rate. Unbranded roomy cheese is the most common type of the Egyptian hard cheese and it is produced locally. It represents almost 80%
of the Egyptian hard cheese, where the remaining share is for the more expensive imported hard cheese brands, where their prices are
far beyond the price range of the mass consumers.
Processed Cheese:
Processed cheese represents less than 20% of the total Egyptian
cheese market. It is more of a niche product, as it is targeted at
consumers with westernized eating habits, as they are characterized
as less fatty and less salty. Processed cheese contains more artificial
ingredients with 51% natural cheese, emulsified and held together
with preservatives with some additions of artificial ingredients and
salt. The main two categories of processed cheese are the
mozzarella and the spreadable cheese. The prices of processed
cheese are relatively higher than the unprocessed cheese.
Processed cheese is used intensively in the hotel and restaurant
industries. The deterioration of the tourism industry since 2011 has
impacted the processed cheese market to some extent. The growth
of the processed cheese has been restricted in the past by the
limited number of modern sales channels equipped with cold
storage capabilities. The processed cheese market is estimated to
have reached EGP 1.7bn in 2014. As of September 30th, 2015 the
largest processed cheese producer was President with a market
share of 67.5%, followed by Domty with a share of 15%.
PROCESSED CHEESE MARKET SHARES (9M 2015)

Cheesa, Others , 6%
2.2%
Panda ,
9.6%
Domty ,
15%
President ,
67.5%
SOURCE: DOMTY
11

OCTOBER, 2016
The Egyptian Juice Industry:

Juice is a differentiated product, where it could be divided according to the taste, quality or the fruit concentration level.
There are 3 main juice categories with regards to the concentration level:
-
100% Juice / Pure Juice: This product contains 100% fruit content and it is considered a niche product as it focuses on
quality. It is primarily targeted towards consumers in higher income segments and thus they are priced higher than juices
with lower fruit content.
Nectar Juice: This product contains at least 25% juice content. It is the most prevalent juice product in Egypt as it is
considered relatively cheap in comparison to pure juice.
Drink Juice: This product has juice content ranging between 10-25%. The drink juice is the cheapest alternative and it
primarily targets consumers seeking flavor rather than the level of fruit content.
The juice market in Egypt is still quiet underpenetrated, as the consumption per capita is far below the global average. In 2014 the
average consumption per capita in Egypt stood at 4.6kg/annum, versus a global average of 9.9kg/annum. The juice market has grown in
the past years, reaching EGP 3bn in 2014, exhibiting a growth rate of more than 8% per annum since 2010. The consumer shift from
carbonated soft drinks to juice has been one of the most important growth drivers for the juice industry, where an increasing level of
health awareness is driving a structural shift from carbonated soft drinks towards fruit juice, which is perceived as a healthier alternative.
Nectar is the largest and fastest growing segment of the juice market, as it represents more than two-thirds of the total juice market in
2014, followed by drink (less than half of the nectars market share) and 100% pure juice (less than 5%). The juice industry in Egypt is
very dynamic. One of the biggest threats in the industry is the ease of entrance and the very low barriers to entry. The market is also very
fragmented as it is estimated that there are more than 300 juice producers in Egypt. As for the SKU sizes, sizes ranging 200-250ml were
the most demanded SKUs in 2014.
JUICE CONSUMPTION / CAPITA (KG, 2014)
40
35
30
25
20
15
10
5
0
JUICE MARKET SHARES (9M 2015)
36.2
Coca Cola, 1%
Sakr, 3%
25.5
Others, 10%
Faragalla, 21%
Pepsico, 3%
Best, 4%
19.1
15.3
9.9
5.6
4.9
4.6
Middle
East &
Africa
Egypt
Domty, 7%
Beyti , 20%
North Western Eastern Latin

Asia
America Europe Europe America Pacific
World
Rani, 12%
Juhayna , 19%
SOURCE: DOMTY
In our re-initiation of coverage report on Juhayna Food Industries JUFO published in February 2016, we mentioned that 2015 had
witnessed many M&A transactions. Most of them were in the dairy and juice sectors. 2016 followed suit, where the F&B market
witnessed many huge transactions, where the cheese and juice industries were dominant. The transactions included mergers,
acquisitions, capital increases and listings on the EGX. This implies the huge interest of investors- international and local- in the dairy and
juice sectors, where the competitive landscape will change to a large extent in the coming years.
Dairy & Juice Transactions in 2015

Feb-15
Qalaa announced that it is willing to sell Dina Farms and it put it on the auction block for an estimated value of EGP
700mn. Abraaj, Savola, Al Marai have shown interest.
Mar-15
Pioneers acquired Arab Dairy for EGP 257 mn. The company is best known for its Panda Cheese.
2015
12

OCTOBER, 2016
May-15
Juhayna Food Industries annoucned it will form a VC with Denmark's Arla Foods that will be 51% owned by Juhayna
and managed by Arla. The VC, ArJu Food Industries, will add cheese, butter and infant formula to Juhayna's existing
product lines.
Jun-15
Arabian Food Industry Co. Domty - announced that it is planning to list 40% of its shares on the EGX in 1Q 2016.
Kamal Hagag acquired Misr October for Food Industries (El Misrieen) for EGP 50mn. El Misrieen was owned by
Qalaa Agrifoods Business Unit Gozour
Dec-15
Qalaa announced that it is willing to sell Enjoy.

Danone acquired Halayeb Company for Dairy Products for EGP 120mn. The company owns the Kateelo Milk Brand.
Beyti announced its plans to invest EGP 4bn to build a new juice plant and two dairy farms.
Dairy & Juice Transactions in 2016
Mar-16
Apr-16
Domty's IPO: Domtys public offering closed on 17-3-2016. The company had offered 122.5mn shares. The offering as a
whole was 6x oversubscribed. 12.25mn shares were allocated to Egyptian retail investors and 110.25mn shares were
allocated for international institutional investors. Shares were priced at EGP 9.20 per share and trading began on
Tuesday, 22 March, 2016.
Qalaa's subsidiary Gozour signed a sale and purchase agreement to divest its entire holding in milk and juice
producer Enjoy and El-Aguizy International for Economic Development. The purchaser of both companies is Kamal
Haggag, the same investor who also bought the Gozour subsidiary El-Misrieen in December 2015.
Obour Land announced it will submit its final documentation to the EGX for an IPO.
Jun-16
2016
Aug-16
Juhayna announced its plans to invest EGP 640mn in growth in 2016. Of that amount, EGP 250 mn will be directed
toward manufacturing expansions for the companys juice and dairy lines and EGP 390mn will be earmarked to
expand its animal resources and transportation fleet.
Juhayna lowered its CAPEX guidance for 2016, targeting now EGP500mn, down from EGP640mn previously. The FX
shortage was the main reason behind the CAPEX plans reduction.
EFSA has given the approval for Domty to issue GDRs.
Obour Land filed with the EGX for a listing in advance of an IPO. The company is expecting to list in October, with the
planned offering expected to take place in January 2017 at the latest. Proceeds for the funds to include the launch of
frozen meats and ice cream product lines and the expansion of its juice and dairy production lines. The company is
hoping to raise EGP 100 mn from the IPO.
Sep-16
Domty has begun trial runs of its new juice factory in Sixth of October City.
The EGX approved the conversion of Domtys stocks to GDRs. Trading in Domtys global depository receipts began
on September 21st2016. Domty shareholders can converts up to 21.67% of the companys current outstanding share
capital to GDRs.
SOURCE: PRIME RESEARCH
13

OCTOBER, 2016
Arabian Food Industries Domty:

Arabian Food Industries Domty is a leading food and beverage company in Egypt and the leading cheese producer, selling a variety of
packaged, processed and unprocessed cheese, as well as a range of juice products. The company began operations in 1990 and pioneered
the production of packaged white cheese in Egypt. Ever since, Domty has become a household name and it currently holds the #1 market
position in the Egyptian cheese market. Since 2012, Domty has been recognized as the worlds largest producer of Tetra Pak packaged
white cheese. In 2013, the company decided to penetrate the juice industry and it has been quiet successful. The company succeeded to
further penetrate the mass market through its fighter brands Gebnety and Damo cheese products and in some of its export markets the
Bravo drink juice where all these fighter brands have lower starting price points and would be more affordable to the mass consumers.
The company intends to expand into other market segments in the coming few years, such as cheese sandwich, hard cheese, flavored
milk, whipping cream and custard. The company currently exports its products to more than 35 countries.
Listing on the EGX, IPO and Stock Performance:

In March, 2016, Domty held its IPO on the EGX. The company offered
122.5mn shares, representing 49% of the total shares. The offering
was divided between an international institutional offering and an
Egyptian retail offering. 110.25mn shares were allocated for the
institutional offering, representing 90% of the total offering and the
rest of the shares - 12.25mn shares - were allocated for the retail
offering, representing the remaining 10%. The offering was priced at
EGP 9.2/share, which was the top of the indicative range (EGP 8.8
EGP 9.2 / share). The IPO raised EGP 1.13bn.
The selling shareholders were the Damaty family (65%) and Yehia Bin
Laden (35%). After the IPO was concluded, all the proceeds were
received by the selling shareholders. The selling shareholders agreed
to use a portion of the gross proceeds of the offering to exercise a
Closed Subscription, in order to fuel growth and expansion plans. In
April, 2016, the company raised its issued capital by 32.6mn shares
worth EGP 300mn through Trevi Holding (where the Damaty family
and Yehia Bin Laden are the beneficial owners) at a price of EGP
9.2/share.
OWNERSHIP STRUCTURE PRE IPO
Institutional Offering
Retail Offering
Total Offering
Coverage
Institutional
Retail
Total Offering
Timeline
3 - 14 March 2016
6 - 17 March 2016
6 -14 March 2016
14 March 2016
22 March 2016
7 April 2016
21 August 2016
15 September2016
21 September 2016
No. of Shares (Mn.)

110.25
12.25
122.5
%
90%
10%
100%
5.5X
10.7X
6x
Book Building.
Retail Subscription Period.
Institutional Subscription Period.
Expected Pricing - Was set at EGP 9.2.
Commencement of Trading on the EGX.
The Closed Subscription.
EFSA approval the issuance of GDRs.
EGX approval of GDRs conversions.
Commencement of GDRs Trading.
OWNERSHIP STRUCTURE POST IPO & CLOSED SUBSCRIPTION
Yehia Bin
Laden ,
34.7%
Yehia Bin
Laden , 16%
Free Float ,
43%
El Damaty
Family , 29%
El Damaty
Family ,
65.3%
Trevi
Holding ,
12%
SOURCE: DOMTY & PRIME RESEARCH
14

OCTOBER, 2016
The closed subscription amounted approximately EGP 300mn, where according to management will be used as follows:
1.
2.
3.
4.
The expansion and upgrade of the sales and distribution network: Additional distribution centers and sales staff where the
direct coverage is currently limited will be added. (EGP 173mn)
The installation of a production line of spreadable cheese products in glass jars (EGP 16mn).
The geographic expansion into new markets in selected underpenetrated destinations with dynamics close to that of Egypt,
mainly in East and sub-Saharan African countries. (EGP 70mn).
The establishment of a cash reserve to fund future expansions. (EGP 41mn).
Even though the IPOs timing was very good; the stocks performance
has been relatively poor since its inception. The stocks trading
commenced one week after the EGP devaluation, which was
reflected positively on the EGX. Since its inception, the stock lost 37%
of its opening price (EGP 9.20/share), where the EGX gained 13%
since the stocks inception. Stocks included in the F&B sector on the
EGX had a very poor performance throughout the year as well,
primarily due to the sectors negative exposure to FX. Both, Juhayna
Food Industries (JUFO.CA) and Edita Food Industries (EFID.CA) lost
42% and 41% of their values respectively since the beginning of 2016,
where Domty has followed suit and lost 37% of its value since its
inception and reaching its all-time low price of EGP 5.80/share on
September 5th, 2016.
DOMT
EGX 30 - Rebased
14
12
10
8
6
4
2
0
SOURCE: BLOOMBERG
Later on, the company decided to further penetrate the international markets, through the issuance of GDRs. The trading on the
GDRs started on September 21st, 2016. According to the latest GDR regulations, Domtys shareholders can convert up to 21.67% of the
companys current outstanding share capital to GDRs (based on Domtys current free float of c. 43%). This implies a conversion of
10mn shares (3.5% of the share capital), where 1 GDR will represent 5 local shares.
15

OCTOBER, 2016
Timeline:
Timeline
1984
The company was founded by Omar El Damaty as Al Damaty for Food Industries LLC.
1989
The company's legal form was changed from a Limited Liability Company to a Joint Stock
Company, under the name of "Arabian Food Industries SAE".
1990
Development
Phase
Turnaround
Phase
Growth 1
Phase
Growth 2
Phase
1991
Commercial operations began, with the introduction of the first packaged white cheese
product in the Egyptian market
Beginning of mozzarella cheese production, where Domty was the first company to do so
commercially.
1994
The company was named an approved supplier of Pepsi Co. Middle East and Pizza Hut.
The company started producing spreadable cheese products.
Introduction of "Ultra Filteration" technology.
1999
The company started to export its products to customers in the MENA region.
2006
The company's name was changed to "Domty for Food Industries SAE", then it was changed in
the same year to its current name "Arabian Food Industries Company - Domty SAE"
2007
The carton pack cheese products were introduced.

Tetra Pak was appointed as a key supplier for processing and filling the machines for the
carton pack cheese products.
The company went through a re-branding campaign, where it changed its packaging and logo.
2008
The company introduced its first flavored carton pack cheese product.
2010
The company became Egypt's packaged white cheese market leader.

The company was recognized as the world's largest Tetra Pak packaged white cheese
producer.
The company launched two fighter brands - Damo and Gebnety -, aimed at lower income
consumers.
2012
2013
The company penetrated the Juice industry by first offering a premium quality nectar juice.
2014
The company's annual sales exceeded EGP 1bn for the first time.
The company launched its 100% juice product under the Domty Slim brand.
The company began co-packing for Coca-Cola / Aujan's Rani juice products.
The company acquired its sister company "Tatweer for Food Manufacturing - Tatweer" which
owns and manages the company's warehouse.
2015
The company started optimizing its operational efficiency by installing the Oracle Enterprise
Resource Planning "ERP" system.
The company introduced a new product for the export markets in the "drink" juice category,
under the Bravo brand.
2016
The company was listed on the EGX - DOMT.CA in March 2016.

The company acquired the regulatory approvals to issue GDRs on the London Stock Exchange
and trading started on the GDRs on Sep. 21st 2016
16

OCTOBER, 2016
Business Overview:
REVENUES EGP MN.
Domty has experienced high sales growth over the past 25 years. From
1999 to 2006, sales grew at a CAGR of 12.4% Growth figures hiked since
2007 when the company introduced the carton pack cheese. From 2007
till 2014, sales increased at a CAGR of 29.2%. In 2015, the company was
able to maintain its outstanding growth, as it achieved sales of EGP
1,400mn, showing a growth of 24%. Domtys success in spotting the shifts
in the consumption patterns has enabled the company to increase its
market share in the packaged white cheese from the 4th position with a
market share of 7.9% in 2007 to the 1st position with a market share of
41.1% by the end of September 2015. Initially, the growth was driven by
the introduction of carton pack cheese products, but the sales growth in
later years is mainly attributed to other management initiatives The
outstanding growth that the company was able to achieve in the past
years could be attributed to the companys ability to capitalize on the
changing consumption trends and the introduction of innovative new
products. The company added to its products portfolio smaller SKUs,
such as the 80g SKU that was introduced in 2012 and the 70g SKU that
was introduced in 2015. Also in 2015, the company launched a 1kg carton
pack cheese SKU and a new high cream Feta Plus carton pack cheese SKU.
In addition to the cheese segment, the company penetrated the juice
industry in 2013. The juice portfolio focused initially on the mid-tier
nectar products, however in 2014 the company introduced high quality
100% juice products under the Domty Slim brand and in 2015 the
company launched a lower tier drink product for the use in the export
business under the Bravo brand.
2015
CAGR 24%
2007 - 2014
CAGR29%
1999 2006
CAGR 12%
1600
1400
1400
1129
1200
1000
842
800
660
600
310 348
400
200
402 445
188
129 140 160
74 84 97 95 110
SOURCE: DOMTY
SEGMENT ANALYSIS
Product Segment
Cheese
Product Sub-Segment
Product Category
Year Launched
Brands
Market Share (Sep. 2015)
Market Rank (Sep. 2015)
Contribution to Revenue (2015
/ 2014)
SOURCE: DOMTY
White Cheese
Juice
Processed Cheese
Carton Pack
Plastic Tub
Mozzarella
Spreadable
Nectar
Juice
Drink
2007
Domty - Gebnety Damo
1990
Domty Damo
1991
Domty Gebnety
1994
2013
2014
2015
Domty
Domty - Bravo - Slim
42.60%
23.20%
45.40%
4%
7.10%
#1
#2
#1
#2
#5
66 / 64%
11 / 14%
6 / 7%
1 / 1%
16 / 14%
Business Segments & Products Portfolio:

Cheese Segment:
Domty produces cheese in two main product sub-segments; packaged white cheese and processed cheese, each of which contains two
different categories. The packaged white cheese is divided into carton pack cheese and plastic tub cheese and the processed cheese is
divided into the mozzarella cheese and the spreadable cheese.
Until the introduction of the juice segment in October 2013, the cheese segment was the company only business segment and till date it
remains the companys core business. The cheese segment represented 84% and 86% of the total sales value in 2015 and 2014.
17

OCTOBER, 2016
DOMTY CHEESE SEGMENT
Driven by the success of the carton pack cheese product

category, the cheese segment sales have grown at a CAGR of
26.4% between 2007 (the year the category was launched)
and 2014 and it maintained the high growth level in 2015,
where it grew by 21% y-o-y.
Domty Cheese Segment
Packaged White Cheese
Carton Pack
Processed Cheese
Plastic Tub
Mozzarella
Spreadable
SOURCE: DOMTY
Carton Pack Cheese:

Carton Pack Cheese
Since 2007, the carton pack cheese has become the companys main product
category, contributing 65.7% and 64.4% in 2015 and 2014 respectively to total
sales value and contributing 78.6% and 75.2% in 2015 and 2014 respectively to
total cheese sales.
As carton pack cheese does not require refrigeration, it is ideal as an
affordable, filling snack that consumers can easily carry with them. Domty is
the market leader in the Egyptian carton pack cheese segment, with a market
share of 43% as of September 2015 (up from 31% in 2012), compared to Obour
Land with a 31% market share and Americanas Green Land with a 10% market
share.
The carton pack cheese products compromise 74 SKUs in 10 flavors, offered in
different sizes from 70g up to 1kg. The larger SKUs cater mainly the consumers
in the upper and middle income range and the smaller SKUs targets all the
income levels, mainly the on-the-go consumers. It is also available in multiple
varieties to satisfy a broad spectrum of consumer preferences; feta, istanbolly,
olive, light, baramili, double cream and yellow cheese.
The company launched the Gebnety and Damo brands in 2012 as an affordable
quality product targeting consumers in the lower income segment, with
Gebnety positioned as a mid-range price product between the premium Domty
brand and the Damo brand. These brands usually contribute 25-35% of the
total carton pack cheese sales.
Year of Launching:
2007
Market Rank:
#1
No. of SKUs:
74
Brands
Domty,
Gebnety,
Damo
Market Share:
2012
2013
2014
12 Months Ending Sep. 2015
31%
40%
40%
43%
Contribution to Cheese Revenues - 2015:

Contribution to Company Revenues - 2015:
78.6%
75.2%
65.7%
64.4%
SOURCE: DOMTY
Plastic Tub Cheese:
The plastic tub cheese is Domtys flagship product category, launched in 1990 as one of the first branded packaged white cheese products
in the Egyptian market. With a range of 40 SKUs and nine flavors, all offered under the Domty brand, the plastic tub cheese category
contributed 10.5%% and 13.5% to the companys total sales in 2015 and 2014 respectively, and 12.6%% and 15.8% to cheese sales in
2015 and 2014 respectively. Domty is the second largest producer of plastic tub cheese in Egypt with a market share of 23% as of
September 30th, 2015, behind only Best Cheese Company (President & Teama).
In the plastic tub cheese category, the company focuses on its specialty low salt product, although it also offers a range of other flavors,
including feta, istanbolly, double cream and baramili. Plastic tub cheese product quality is very sensitive to storage conditions, and
constant refrigeration is required (unlike carton pack cheese). Consequently, sales channels are limited to relatively modern trade
channels that have refrigeration capacity, and the product offerings in this category are also larger in size, with relatively big/multi-serve
SKU sizes ranging from 400 g to 12 kg. These factors have an impact on the target consumer base, as the primary consumers for the
larger, more expensive plastic tub cheese (compared to carton pack cheese) are individuals in the upper and middle income range with
adequate refrigeration capacity at home, as well as restaurants and other food industry businesses.
18

OCTOBER, 2016
Plastic Tub Cheese
In order to ensure product quality, Domty directly distributes its plastic tub
cheese products without the use of wholesalers or agents. This allows the
company to ensure adequate storage conditions in order to minimize sales
returns, yet it also limits to some extent the ability to grow this product
category due to the additional investments necessary to increase
distribution capacity in line with production capacity. Consequently, much
of the companys recent growth has occurred in the carton pack cheese
segment, which has less demanding distribution and handling
requirements. Sales growth in the plastic tub cheese category has been
impacted as the increasing popularity of carton packs has shifted
consumption patterns. Sales growth has also been limited by the companys
direct distribution capacity and the penetration of local modern trade
outlets with sufficient refrigeration capacity to properly store the plastic
tub cheese.
Year of Launching:
1990
Market Rank:
#2
No. of SKUs:
40
Brands:
Domty, Damo
Market Share:
2012
33%
2013
39%
2014
28%
23%
12.6%
15.8%
10.5%
13.5%
SOURCE: DOMTY
Mozzarella Cheese:
Domty began producing mozzarella cheese in 1991, the first to do so

commercially in Egypt. A relatively small part of the companys overall
business, the mozzarella cheese category contributed 6% and 6.7% to the
companys total sales in 2015 and 2014 respectively, and 7.2% and 7.8% to
cheese sales in 2015 and 2014, respectively. The mozzarella cheese category
comprises 14 SKUs in three flavors, with sizes ranging from 300 g to 2 kg.
The mozzarella cheese category was launched mainly to foster business-tobusiness and catering sales, where it primarily targeted Egypts tourism and
quick service restaurant sectors, which were booming at the time. Back then,
the catering business represented approximately two thirds of the categorys
sales on average, with the remaining third pertaining to retail sales, primarily
upper income consumers using mozzarella as a cooking ingredient. The
downturn in the Egyptian tourism industry since 2011 depressed sales to the
catering industry, but this has been relatively offset by growth in retail sales
as more consumers were adopting western eating habits. This dynamic has
driven a reverse in the sales mix, with retail sales representing approximately
two thirds of mozzarella cheese category sales in recent years. As a result,
although the mozzarella cheese sales initially declined in 2011, the company
was able to grow the segments sales in the following years on the back of
retail consumption.
Mozzarella Cheese
Year of Launching:
Market Rank:
No. of SKUs:
1991
#1
14
Domty,
Gebnety
Brands:
Market Share:
2012
2013
2014
45%
45%
47%
45%
7.2%
7.8%
6.0%
6.7%
SOURCE: DOMTY
Amongst all the cheeses the company produces, mozzarella cheese is the most demanding in terms of storage and distribution because it
requires the use of freezers. Consequently, as the company does with the plastic tub cheese, the company directly distributes the
mozzarella cheese products to ensure product quality.
Domty is the market leader in the Egyptian mozzarella cheese market, with a market share of 45% as of September 30, 2015. The
companys main competitors in this market include Arab Dairy, with a market share of 36% in the same period, and Cheesa (8%).
19

OCTOBER, 2016
Spreadable Cheese:
Domty launched its spreadable cheese product line in 1994 in order to
diversify its product offering and expand its customer base. Although the
spreadable cheese is a niche product (constituting c1% of both of the total
sales and cheese sales in 2014 and 2015, this category plays an important role
in supporting the companys presence across various market categories. The
spreadable cheese products cater to upper income consumers, primarily
schoolchildren consuming spreadable cheese sandwiches during school time.
Spreadable Cheese
Year of Launching:
Market Rank:
No. of SKUs:
Brands:
Market Share:
2012
2013
2014
The company offers a range of 29 SKUs in eight flavors in the spreadable

cheese category, offered in four sizes ranging from 140g to 400g. Unlike other
competitors, which offer their spreadable cheese products in glass jars, Domty
offers its spreadable cheese products in plastic jars. Consumers usually prefer
glass jars, as they see value in keeping the glass jar for future use. The
company allocated a part of the closed subscription proceeds in order to
install a production line for spreadable cheese to be put in glass jars. The
company also recently started producing spreadable cheese in plastic tubs,
similar to its unprocessed cheese plastic packaging.
1994
#2
29
Domty

2%
21%
7%
4%
1.1%
0.9%
0.8%
0.8%
SOURCE: DOMTY
Like other categories of processed cheese, spreadable cheese products require constant refrigeration and thus are mainly sold in modern
trade outlets. Market growth is held back by the under-penetration of modern trade outlets across Egypt as well as by affordability
considerations that limit spreadable cheese from becoming a mass product. The spreadable cheese market in Egypt is dominated by the
Best Cheese Company (President and Teama), which had a market share of approximately 92% as of September 30, 2015. Domty is the
second largest in this category in the same period with a market share of 4%.
In addition to the sales of branded products, Domty sells certain by-products that are created during the production process, such as
excess cheese scraps and unused cream derived from the raw milk purchases. These by-products represented 0.5% and 0.4% of the
cheese revenues in 2015 and 2014 respectively and 0.4% and 0.4% from the companys sales in 2015 and 2014 respectively.
Juice Segment:
Domty competes in two segments of the juice market in Egypt: nectar
under the Domty brand and since December 2014, 100% juice under the
brand name Domty Slim. In June 2015, the company also began offering
in some of its export markets juice products in the drink category
under the Bravo brand. The companys current juice product range
encompasses 40 SKUs. The company began to produce juice in late
2013 when it launched certain nectar products. In the first full year of
operations in 2014, the juice segment generated 14% of the companys
total sales and it generated 16% of the companys total sales in 2015.
Juice
Year of Launching:
Market Rank:
No. of SKUs:
2013
#5
40
Brands:
Market Share - 12 Months Ending Sep. 2015
Domty,
Bravo, Slim
7%
16.0%
14.0%
SOURCE: DOMTY
Domty entered into the juice segment in October 2013. The juice segment represented an attractive opportunity as a sector in which:
Product quality and taste are of huge importance.
There are significant opportunities for product innovation (categories, flavors, packaging, etc.)
No single player holds more than a 25% share of the market.
20

OCTOBER, 2016
Tetra Pak is one of the largest suppliers in the Egyptian juice market. Since the packaging materials for juice and carton pack cheese are
similar, the companys management saw a potential for operational and commercial synergies between the two segments. Management
believes that the juice segment offers opportunities to penetrate new market segments that use similar sales channels, such as the
snacks market. The management also viewed the launch of a non-dairy segment as a test of the Domty brands adaptability in
anticipation of future product segment expansions.
By the end of September 2015 Domty was able to capture approximately 7% market share of the Egyptian juice market, becoming the
fifth largest by volume and overtaking established companies that had been operating in the market for a long time, including Best,
Tropicana, Sakr and Coca-Colas Cappy. The juice market in Egypt is highly fragmented. This results in part from the low barriers for entry
in the market (some brands are produced in small houses in rural areas). The main competitors in the juice market are Faragella (21.0%),
Beyti (20.3%), Juhayna (18.6%) and Rani (12.1%).
-
Nectar Juice
From the launch of the juice segment in October 2013, nectar juice sold under the Domty brand has been the companys main juice
product. As at December 31, 2014, the Egyptian nectar juice market represented more than two-thirds of the total juice market. Domtys
nectar juice range currently comprises 22 SKUs in 11 flavors, available in both portable 250ml cartons and larger 1L cartons.
-
100% Juice:
Domty introduced Domty Slim, the companys line of 100% juice products, in December 2014. The 100% juice is marketed as a premium
product and the range currently comprises six SKUs in three flavors in both 250ml and 1L sizes. The Egyptian 100% juice market is
currently very small, estimated at less than 5% of the total juice market, but is growing at a higher rate than the overall juice market in
Egypt . The 100% juice products are targeted at consumers in the upper and middle income segments who are health conscious and
willing to pay for a premium product.
29FEB201618402083
Drink Juice
Domty introduced its line of drink juice products under the fighter brand Bravo in certain export markets (Libya and Palestine) in June
2015. The company is planning to start selling the drink juice in the local market by the end of 2016. The Bravo juice range currently
comprises 12 SKUs in six flavors in both 250ml and 1L sizes.
New Products:
-
Cheese Sandwich:
The company plans to introduce a new cheese sandwich product segment in 4Q2016. The production line is currently being installed and
production is expected to commence by the end of 2016. The cheese sandwich is considered a natural complement to the on-the-go
meal replacement SKUs. The cheese sandwich production line has an estimated cost of approximately EGP 13mn and it is expected to
have a production capacity of 66mn packs per year.
-
Hard Cheese:
In February 2016, Domty entered into an agreement with El Emam for Dairy Products El Emam, a local Egyptian producer of
unprocessed roumy hard cheese, to create a VC for the production of branded packaged roumy cheese to be sold under the Domty
brand. The VC will be located in Mahala in the mid-Delta region (known for the abundant raw milk supply) on land owned by El Emam,
close to its existing facilities. It will be 70% owned by Domty and 30% owned by El Emam. Domty will be responsible for the construction
of the production facility, production and distribution of the product. On the other hand, El Emam will be responsible for purchasing the
raw milk supplies and for storing the finished product in its existing storage facilities. Production of the hard cheese 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.
According to the companys management, both products (cheese sandwich and hard cheese) are expected to have gross margins of 3035%, which is relatively higher than that of the cheese products (27%) and juice products (22%). Moreover, hard cheese usually has
higher starting price points than soft cheese.
The company also intends to penetrate other new segments in the coming few years. These new segments include flavored milk,
whipping cream, sour cream and custard.
21

OCTOBER, 2016
Sales & Distribution:

The sales and distribution operations are divided into 3 segments along product lines based on the different handling requirements; fresh
cheese (plastic tub cheese, mozzarella cheese and spreadable cheese), carton pack cheese and juice. Fresh cheese sales and distribution
is carried out by the company due to the products chilled storage and distribution requirements. The carton pack cheese and juice
segments sales and distribution is carried out by agents. When Domty entered the juice segment in 2013, it established a separate sales
unit for the juice segment, focusing on the optimizing sales channels, which is different to a large extent than that of cheese. The juice
sales unit will be a platform for future expansion ventures in the snacks industry, which are typically sold through the same channels as
juice.
-
Sales:
Local Sales:
In Egypt, Domty relies on direct and indirect distribution channels in order to distribute its products over a vast geographical area. The
direct distribution channels include retail sales, wholesale sales and catering sales, where the indirect distribution channels include sales
through third party agents.
LOCAL SALES CHANNELS 10M 2015
- Retail- (Mainly cash basis): Direct retail sales is the companys largest sales
channel, accounting for 44% and 39% of the Egyptian sales during 2014 and
10M2015. It is the main sales channel for the fresh cheese products (plastic tub
cheese, mozzarella cheese and spreadable cheese), as these products are very
sensitive to temperature and require special storage conditions. The company
aims to grow its retail channel and increase its contribution to approximately 60%
of total direct sales by 2020 in order to increase the control over the value chain
and boost its profitability margins.
- Wholesale (45 days on credit): Domty uses wholesalers to help them expand the
geographic reach of the products, covering regions where Domty does not have
sufficient distribution capacity to sell directly to retailers. The use of wholesalers
increased significantly with the introduction of products with fewer distribution
and handling requirements, such as carton pack cheese and juice, which do not
require refrigeration and have longer shelf-lives. The wholesale channel sales
represented 16% and 8% of the total local sales in 2014 and the first 10 months of
2015.
Catering,
14%
Retail,
39%
Agents,
39%
Wholesale,
8%
SOURCE: DOMTY
Agents (60-75 days on credit): In 2010, Domty expanded its sales channels to include indirect distribution channels such as agents.
Agents buy the products from Domty and then resell them to retailers or wholesalers. Sales to agents represent the second largest
sales channel accounting for 27% and 39% of the local sales in 2014 and 2015. Sales through agents represent the main sales
channel for the carton pack cheese and juice products. The company intends to gradually reduce the use of agents in Egypt over the
coming years as the company intends to grow the distribution network and increase its direct reach. Also the company uses agents
for all the export sales.
Catering (98 days on credit): Catering involves direct sales to institutions such as hotels, hospitals governmental institutions and
quick service restaurants. Catering sales have suffered from the disruptions that affected the tourism industry in Egypt in the recent
years. Catering sales represented 13% and 14% of the total local sales in 2014 and the first 10 months in 2015.
EXPORT SALES BY COUNTRY 10M 2015
Export Sales:
Domtys export sales began in 1999 with the export of plastic tub
cheese to Saudi Arabia and mozzarella cheese to Lebanon and Kuwait.
The export sales contributed 8% and 6.5% in 2014 and 2015. Exports
sales is crucial for the company, as it provides a portion of the FX
requirements for raw materials imports, in 2015, the export sales
secured 8-10% of the companys FX requirements. Currently the
company exports to more than 35 countries. The key export markets
are primarily located in the MENA region, namely Jordan, Palestine,
Libya, Saudi Arabia and Kuwait.
Others, 16%
Jordan , 31%
UAE, 3%
Lebanon, 5%
Kuwait, 14%
Saudi Arabia ,
11%
Palestine, 14%
Libya, 6%
SOURCE: DOMTY
22

OCTOBER, 2016
The export sales mainly target the Egyptian consumers living abroad, where the cheese exports are directed to the GCC
countries, while the juice is also exported to certain European and African countries. Agents are typically used in all the export market,
where their credit terms differ depending on the country, but have an average payment term of 75 days.
SALES CHANNELS BY PRODUCT CATEGORY 10M2015
Fresh Cheese
Juice
Carton Pack Cheese
Exports,
7%
Exports,
7%
Catering
, 21%
Catering ,
11%
Catering
, 13%
Retail,
28%
Exports,
4%
Retail,
33%
Wholesa
le, 3%
Wholesal
e, 11%
Retail,
68%
Agents,
4%
Agents,
47%
Agents,
43%
SOURCE: DOMTY
Russian agreements:
In 2015, Domty entered into an agreement to begin exporting cheese to Russia, benefiting from the supply shortages resulting from the
foreign sanctions against Russia. The first deal was made in 2015 and it amounted to USD 20mn. In 2016, the company reached two new
agreements to market its products in Russia. The first agreement in 2016 was a four-year, USD 10mn agreement with the Russian retailer
Magnit and the second agreement in 2016 was a USD 10mn agreement to supply Russkoe Moloko with Tetra Pak packaged white cheese,
where the contract runs till the end of 2017. The three agreements have a total value of USD 40mn. These agreements are of huge
importance, as they will enable to company to secure much of the required FX to import raw materials.
East and Sub-Saharan African countries:
Since 2015, the company has been evaluating high potential markets adjacent to Egypt, primarily in East and Sub-Saharan Africa, to
benefit from the similar demographics and the underpenetrated cheese and juice markets. This will help the company expand
geographically and secure more FX. The company allocated a part of the closed subscription - EGP 70mn for this expansion. According
to management, the negotiations for the expansions in Africa were halted due to the prevailing FX shortage.
-
Distribution:
The company has a solid sales and distribution network. The company has 93 distribution centers (Domtys own distribution centers: 29,
distribution centers of agents: 64) and more than 30 smaller warehouses. The company has a fleet of 732 distribution vehicles (Domtys
own and financially leased vehicles: 265, rented vehicles: 166, vehicles of agents: 301) and a sales force of 873. The company has a very
large consumer base, where in 2014 it sold to over 85,000 retail consumers in the cheese segment and over 22,000 juice consumers,
including consumers common to both segments.
DOMTY DISTRIBUTION NETWORK
Fleet
Distribution Centers
Domty
Agents
Total
Leased
Agents
Total
Fresh Cheese
122
3
125
11
4
15
Carton Pack Cheese

215
143
358
13
34
47
Juice
94
155
249
5
26
31
Total
431
301
732
29
64
93
SOURCE: DOMTY
23

OCTOBER, 2016
Since its inception, Domtys sales have been concentrated in a limited
number of key geographic regions. The company focuses mainly on a
small number of big sales outlets. This consequently led to the
numeric distribution (the percentage of outlets that sell the
companys products out of the total number of relevant outlets in the
market) has historically been smaller than the weighted distribution
(the percentage of outlets that sells the companys products,
weighted according to the sales volume of the relevant outlets for a
particular period). In September 2015, the carton pack cheese had a
weighted distribution of 91%, compared to a numeric distribution of
54% and the fresh cheese had a weighted and numeric distribution of
30% and 3% respectively. On the other hand, the juice had a weighted
and numeric distribution of 45% and 22% respectively. The company
has a very limited penetration in some rural regions, such as the Nile
Delta region, due to the limited capacity of the distribution resources.
FRESH CHEESE REACH SEPTEMBER 2015

60
53
50
40
19
20
99
91
100
98
10
54
60
59
74
57
49
40
40
23
20
0
Egypt
Cairo
Alexandria Canal Zone
Carton Pack Cheese Weighted Handling
4 2
0
Egypt
Cairo
Fresh Cheese Weighted Handling
Delta
Upper
Egypt
Fresh Cheese Numeric Handling
SOURCE: DOMTY
JUICE REACH SEPTEMBER 2015
97
77
80
13
12
CARTON CHEESE REACH SEPTEMBER 2015

120
34
30
30
Delta
Upper Egypt
Carton Pack Cheese Numeric Handling
60
50
40
30
20
10
0
55
45
53
53
51
40
32
31
22
Egypt
35
17
Cairo
13
Juice Weighted Handling
Delta
Upper
Egypt
Juice Numeric Handling
SOURCE: DOMTY
Domty intends to use the largest bulk of the proceeds from the closed subscription to expand and upgrade the sales and distribution
platform. Before the IPO, Domty used to own 200 vehicles and it used to depend on agents in c20% of its local sales. The company seeks
to minimize the reliance on agents in the coming 5 years, so it reaches 8-10% of the local sales. In order to achieve this 8-10% rate, the
company would have to own 1,100 vehicles, requiring additional 900 additional vehicles. The company increased its fleet by
approximately 200 vehicles in 2016 and it intends to add distribution centers and sales staff in areas where its current coverage is
currently limited. The company will focus in the coming period its coverage of the underpenetrated regions along the Nile Delta region.
Supply & Production:

-
Procurement:
Domty purchases its raw materials needs from diverse suppliers, enabling it to reduce the impact of short-term price fluctuations and
enabling it to secure better payment terms and quality. Domtys net direct material costs is the company largest component of as cash
costs as it represented c80% of the companys cash cost in 2015. The companys principal material procurement needs consist of (i) raw
materials for the production of cheese and juice products, primarily powdered milk, shortening, raw milk, protein concentrates and fruit
concentrates; and (ii) materials needed for the packaging of its products. The company typically imports skimmed milk powder, protein
concentrates and Tetra Pak paper and materials. On the other hand, vegetable oil, fruit concentrates, outer cartons and raw milk are
locally sourced.
24

OCTOBER, 2016
CASH COSTS - 2015

Maintenance
Others,
& Spare
2.20%
Parts, 2.30%
Advertising &
Marketing,
2.70%
Industrial
Costs, 5.50%
NET DIRECT MATERIALS COSTS 2015
Vehicles
Rents, 1.20%
Warehousing
, 0.70%
Raw Milk,GDL, 2.40%Sugar, 2.40%

5.30%
Juice Conc. ,
6.80%
SMP, 21%
Milk Protein,
7.70%
Salaries &
Wages,
6.80%
Others,
15.70%
Tetra Pak,
21.40%
Net Direct
Materials
Costs,
78.70%
IMPORTED RAW MATERIALS 10M2015
Juice Conc.,
3.70%
Milk
Protein, 9%
Others,
3.20%
Veg. Oil,
17.30%
LOCALLY SOURCED RAW MATERIALS 10M2015

Milk Protein,
6.70%
Sugar, 4.80%
GDL, 5.10%
Raw Milk,
10.30%
Juice
Concentrates
, 11.10%
SMP, 33.10%
Tetra Pak,
45.90%
Veg. Oil,
32.30%
SMP, 11.10%
Others,
23.60%
SOURCE: DOMTY
In 2015, nearly half of all the raw materials were sourced from local suppliers, where the rest are sourced from international sources to
ensure premium quality. The companys non-EGP revenues cover only 8-10% of the required FX. Till May 2016, the company was able to
source all of its required FX from the official banking market. However starting June, the company had to resort to the parallel market,
where it had to source c90% from the parallel market at a rate of EGP/USD 12.6-12.7, while the remaining the 10% is sourced from the
official banking market.
The company does not hedge any of the raw materials costs. The prices of these raw materials hiked in 2013 and early 2014 as a result of
abnormally tight market conditions. However the prices of most raw materials have declined significantly since late 2014 as a result of
intensive investments in production capacities and favorable weather conditions. Following suit, the prices of the commodities related to
the milk market witnessed severe downtrends, mainly due to the following reasons:
-
Increases in production capacities.

Greater production in major raw milk producing regions (New Zealand and the US).
The abolishment of the milk quotas in the EU.
Decreased Chinese imports due to stock accumulation.
The Russian imports ban on several dairy products from several major exporting countries.
These shifts are expected to hold down raw materials prices in the short to medium term and we expect the dairy raw materials prices to
remain favorable.
25

OCTOBER, 2016
Production:
Domty operates a well invested ISO-certified 6,000sqm factory in Egypt with an annual capacity of 240,369tpa at the end of 2015. The
capacity is divided between cheese and juice, where the total cheese capacity and the total juice capacity stood at 175,369tpa and
65,000tpa respectively. Till the end of 2015, the company currently had 20 production lines (including a production line that is used
interchangeable for both cheese and juice) as compared to only 5 production lines in 2007. The production lines and equipment are
sourced from leading international manufacturers, including Tetra Pak, APV, Primodan, CMT and Trepko, to ensure superior quality and
efficiency. In 2015, the company was operating at an average capacity of 68%. The companys historical average utilization rate has been
c75%, where the peak is usually before Ramadan and during the academic year.
Cheese
Juice
Product Category
Carton Pack Cheese
Plastic Tub Cheese
Mozzarella Chees
Spreadable Cheese
Total Cheese
No. of Production Lines

15
1
1
1
18
Capacity (tpa) - End of 2015

147,169
20,400
6,000
1,800
175,369
1L
250ml
Total Cheese
1
2
3
17,000
48,000
65,000
20*
240,369
Total Company
SOURCE: DOMTY
In order to meet up with the rising demand, the company has historically needed to add production capacity. During 2015, the company
added 4 production lines in the carton pack cheese segment, increasing the cheese capacity by c32%. Also the company expanded its
capacities in the juice segment, adding 12,000tpa to its juice capacity, representing a rise of 24.8%. During 2015, the overall production
capacity rose by 30% reaching 240,369tpa versus 184,946tpa. According to management, during 2016, the total production capacity will
be increased by 31% reaching a capacity of 315 thousand tpa, 215 thousand tpa for cheese and 100 thousand tpa for juice.
CAPACITY ADDITIONS - 2015

Segment (tpa)
2014
2015
% Change
147,169
20,400
6,000
1,800
175,369
41%
32%
Cheese
Carton Pack
Plastic Tub
Mozzarella
Spreadable
Total Cheese
104,645
20,400
6,000
1,800
132,846
1 Litre
250ml
Total Juice
17,000
35,100
52,100
17,000
48,000
65,000
37%
25%
Total Capacity
184,946
240,369
30%
Juice
SOURCE: DOMTY
In January 2016, Domty announced its plan to invest EGP 100mn in a new factory in 6 th of October city on an area of 26,000sqm with a
production capacity of 300mn packs per year. The company has begun trial runs for the new factorys first phase late September, 2016.
The company plans to dedicate the existing factory (old factory) to accommodate only the cheese products, where the new factory will
be used for the production of juice and the production of the new products including cheese sandwich, hard cheese and other products.
The company moved 2 of its existing juice production lines to the new factory, where the third line will stay in the old factory as it is used
interchangeably for cheese and juice. This will free up space for 1-2 additional production lines in the old factory.
26

OCTOBER, 2016
As for the warehousing activities, Domty has a central warehouse with an area of 7,500sqm and it is owned by its subsidiary,
Tatweer. The warehouse is located in close proximity to the old factory and the new factory.
Relationship with Tetra Pak:
Since 2012, Domty has been Tetra Paks largest white cheese producer in the world. Tetra Pack is the main supplier of packaging
materials and machinery. As a result of the strong relationship, Domty enjoys special technical and financial benefits from Tetra Pak and
Tetra Pak benefits from Domtys scale of operations and it perceives Domtys promotions for carton pack cheese as a promotion for itself.
Such a strong relation may act as a barrier to entry for small scale producers and other potential competitors. In the past, Tetra Pak has
offered Domty many technical and financial benefits, including:
-
Packaging material rebates: Domty receives discounts on packaging material volume procured. Such discounts averaged 20%
on the value of Tetra Pak purchases in the last several years.
Credit terms: Domty usually receives favorable credit terms for packaging material purchases (45-60 days on average).
Cash discount: Domty receives a discount for the early payment for packaging materials procured. In the past several years,
Domty has increased its cash payments so it can benefit from such discounts.
Marketing Support: Domty receives annual marketing support from Tetra Pak to support the marketing campaigns of the
Tetra Pak packaged products. Such support is calculated as a percentage of the marketing budget. Between 2012 and 2014,
the support averaged EGP 2.9mn per annum.
Payment terms for packaging machinery procurement: Tetra Pak gives Domty the option to purchase new Tetra Pak
machines on preferential terms, which typically includes payment in non-interest bearing installments over several years,
which helps Domty maintain minimal CAPEX expenditure. Domty is able to set off receivables due from Tetra Pak (mainly the
discounts and the marketing support arrangements) against the machinery payment installments. This leads to the reduction
of receivables due from Tetra Pak and enables Domty to increase its filling capacity with no actual cash outflow.
Special maintenance and support: Domty receives special maintenance and support services from Tetra Pak, including 2 onsite engineers located in Domtys facilities.
27

OCTOBER, 2016
REVENUES EGP MN
Financial Overview:
Revenues:
1600
1,400
1400
Domty has been able to achieve steady growth during the last
several years. From 2012 to 2015, sales grew at a CAGR of 28%.
In 2015, the company achieved sales of EGP 1,400mn, versus
revenues of EGP 1,129mn in 2014, growing by 24% y-o-y. During
the 1H2016, revenues stood at EGP 786.6mn, versus EGP
713.4mn in 1H2015, growing by 10.3% y-o-y.
1,129
1200
1000
842
800
787
713
660
600
400
Till 2013, cheese was the sole product segment for the company,
where since 2013 the company decided to penetrate the juice
market. Cheese remains to be the companys main segment.
Cheese sales represented 84% and 85% of the companys total
sales during 2015 and 1H2016 respectively, where on the other
hand, the juice sales represented 16% and 14% in 2015 and
1H2016 respectively.
200
0
2012
2013
2014
2015
1H2015 1H2016
REVENUES CONTRIBUTION (%)
Carton pack is the companys most successful cheese product,

where it contributed 79% and 80% to the total cheese
revenues in 2015 and 1H2016 and 66% and 68% to the
companys revenues. Plastic tub cheese, mozzarella cheese
and spreadable cheese follow the carton pack cheese with
regards to their revenue contribution, where they contributed
11%, 6% and 1% to the company totals revenue in 2015 and
10%, 6% and 0.6% in 1H2016.
100%
100%
98%
86%
84%
85%
84%
80%
60%
40%
14%
20%
16%
16%
15%
3%
0%
0%
2012
2013
2014
Cheese
2015
1H2015 1H2016
Juice
REVENUES CONTRIBUTION (%)

2014
2015
1H2015
1H2016
Revenues EGP Mn
% of Total
Revenues
Revenues
- EGP Mn
% of Total
Revenues
Revenues
- EGP Mn
% of Total
Revenues
Revenues EGP Mn
% of Total
Revenues
Carton Pack Cheese
727.1
64%
919.3
66%
472.9
66%
536.3
68%
Plastic Tub Cheese
152.7
14%
147.7
11%
74
10%
80.2
10%
Mozzarella Cheese
75.1
7%
84.5
6%
40.2
6%
47.5
6%
Spreadable Cheese
8.6
1%
12.6
1%
1%
1%
By Products
0%
6.2
0%
4.4
1%
1.9
0%
Juice
161.7
14%
229.8
16%
114.9
16%
115.6
15%
Total
1,129.2
100%
1,400.1
100%
713.4
100%
786.5
100%
SOURCE: DOMTY
The growth in revenues has been primarily driven by sales volumes. In the cheese segment, during 2012-2015, the sold volumes grew
at a CAGR of 20%, while the average prices grew at a CAGR of 0.5%. The growth in juice revenues was also driven by an increase in the
sold volumes, where during 2012-2015, the sold volumes grew at a CAGR of 241%, while the average prices dropped by a CAGR of 4%.
28

OCTOBER, 2016
Cheese:
Quantity Sold (Tons)
2012
2013
2014
2015
55,612
69,648
76,806
97,164
25%
10%
27%
11.87
11.78
12.60
12.04
-1%
7%
-4%
660,344
820,367
967,438
1,170,271
24%
18%
21%
y-o-y Change
Average Price (EGP '000s/ton)
y-o-y Change
Sales Value (EGP '000s)
y-o-y Change
Juice:
2012
2013
2014
2015
3,799
30,803
44,176
711%
43%
5.25
5.20

y-o-y Change
5.62
y-o-y Change
-7%
y-o-y Change
21,358
-1%
161,685
229,804
657%
42%
SOURCE: DOMTY
Majority of the companys sales are allocated in the local market (especially Cairo), where on the other hand, exports have always
represented less than 10% of the sales. The local sales represented 93.5% and 95% in 2015 and 1H2016, where the exports
represented 6.5% and 5% in 2015 and 1H2016.
REVENUES BY GEOGRAPHICAL AREAS
2015
1H2016
EGP Mn.
EGP Mn.
Cairo
615,209
44%
377,011
48%
Alexandria
91,627
7%
94,693
48%
Delta
274,881
20%
149,079
19%
Upper Egypt
327,239
23%
126,665
16%
91,143
6.5%
39,117
5%
1,400,098
100%
786,564
100%
Local Sales
Export Sales
Total
SOURCE: DOMTY
Revenues Assumptions:
Cheese:
Carton Pack Cheese:
Plastic Tub Cheese:
Mozzarella Cheese
2016
2017
2018
93,585
103,585
113,585
12
13
14
1,114,416
1,356,847
1,547,350
2016
2017
2018
10,200
11,220
11,220
18
20
21
184,199
222,881
231,796
2016
2017
2018
3,000
3,120
3,300
29

OCTOBER, 2016
Spreadable Cheese
43
127809
By-Products
2017
2018
540
630
720
31
34
35
16,501
21,176
25,169
2016
2017
2018
1,525
1,684
1,830
9,419
10,925
12,465
2016
2017
2018
108,849
120,239
130,654

Total Cheese
Juice
13
15
15
1,452,345
1,758,043
1,977,616
2016
2017
2018
50,000
55,000
60,000

Cheese Sandwich: (100% LOCAL SALES)
49
160835
2016

47
146214
270,504
318,383
357,747
2016
2017
2018
Quantity Sold (Mn Packs)
26
33
Average Price (EGP/Pack)
4,400
52,800
69,300
2016
2017
2018
313
1,200
50
53
15,625
63,000

Hard Cheese: (100% LOCAL SALES)

Total Revenues: (EGP '000s)
1,743,036
2,189,629
2,528,215
Local Sales: (EGP '000s)
1,634,698
2,050,581
2,341,851
% of Total Sales
94%
94%
93%
108,338
139,047
186,364
6%
6%
7%
Export Sales: (EGP '000s)

% of Total Sales
SOURCE: PRIME ESTIMATES
COGS EXCLUDING DEPRECIATION EGP MN.
COGS:
Domtys COGS (excluding depreciation) stood at EGP
1,015.8mn in 2015, versus EGP 872.8mn in 2014, increasing by
16% y-o-y. In 1H2016, COGS stood at EGP 591mn against EGP
525.9mn in 1H2015, growing by 12% y-o-y.
The net direct raw materials is the largest component of the
companys COGS, where it was c.92% of the total COGS in
2015. The total net direct raw materials costs stood at EGP
983mn in 2015, where 82% was for cheese and the remaining
18% was for juice. The company is subject to FX risks, as nearly
half of the raw materials are denominated in FCY, where the
non-EGP revenues cover only a minimal part of 8-10%
1200
1000
1,016
873
800
526
600
591
400
200
0
2014
2015
1H2015
30
1H2016

OCTOBER, 2016
COGS BREAKDOWN - %
Maintenace
IndustrialCosts, 2%
Costs, 6%
The cheese segment is more exposed to FX risks, as the major

raw materials SMP, vegetable oil and milk protein
concentrate - are imported, where the main raw materials in
the juice segment are locally sourced. The Tetra Pak for
cheese and juice are also imported. The company benefits
from a discount from Tetra Pak, where the discount
represents 20% of the entire Tetra Pak costs. Other minor
costs are included in the COGS industrial costs, maintenance
costs and lease costs.
Net Direct
Materials
Cost, 92%
DIRECT RAW MATERIALS - JUICE
DIRECT RAW MATERIALS - CHEESE
Tetra Pak
Cost, 22%
Milk Protein
Concentrat
e, 9%
Tetra Pak
Cost, 42%
Skimmed
Milk
Powder,
24%
Other Raw
Materials ,
17%
Lease Costs ,
0%
Vegetable
Oil, 21%
Juice
Concentrate
s, 39%
Other Raw
Materials ,
7%
Raw Milk,
6%
Sugar, 13%
SOURCE: DOMTY
COGS BREAKDOWN
2012
Total Raw Materials Costs (EGP '000s)
2013
2014
2015
380,000
498,000
668,000
71,000
113,000
176,000
245,000
Tetra Pak Discount (20% of Tetra Pak Costs)
(14,200)
(22,600)
(35,200)
(49,000)
Total Direct Materials Costs (EGP '000s)
436,800
588,400
808,800
926,000
31,000
41,000
49,000
65,000
4.7%
4.9%
4.3%
4.6%
Total Tetra Pak Costs (EGP '000s)
Industrial Costs (EGP '000s)

% of Revenues
Maintenance Costs (EGP '000s)
% of Revenues
5,000
0.8%
Lease Costs (EGP '000s)
5000
Total COGS (excluding depreciation)
477,800
8,000
1.0%
3000
640,400
730,000
12,000
19,000
1.1%
1.4%
3000
872,800
4000
1,014,000
SOURCE: DOMTY
31

OCTOBER, 2016
-
COGS Assumptions:
Direct Raw Materials Costs

Cheese:
2016
2017
2018
268,870
384,061
429,851
2.47
3.19
3.29
221,321
316,141
353,834
2.03
2.63
2.71
57,281
65,805
73,651
0.53
0.55
0.56
98,603
140,848
157,640
0.91
1.17
1.21
171,276
196,766
220,225
1.57
1.64
1.69
231,781
324,654
359,833
2.13
2.70
2.75
1,049,131.84
1,428,275.56
1,595,034.84
2016
2017
2018
73,954
83,790
94,149
1.48
1.52
1.57
26,536
30,357
34,110
0.53
0.55
0.57
24,780
28,348
32,162
0.50
0.52
0.54
101,399
141,433
157,376
2.03
2.57
2.62
226,669.07
283,928.27
317,798.48
Skimmed Milk Powder

Total Cost (EGP '000s)
Cost per Sold Ton (EGP '000s /Ton)
Vegetable Oil
Cost per Sold Ton (EGP '000s/Ton)
Raw Milk
Milk Protein Concentrate
Other Raw Materials
Tetra Pak Cost
Direct Material Costs - Cheese
Juice:
Juice Concentrate
Sugar
Other Raw Materials
Tetra Pak Cost
Direct Material Costs - Juice
Cheese Sandwich
Direct Material Costs - Cheese Sandwich
Hard Cheese
2016
2017
2018
2,640.00
29,040.00
38,115.00
2016
2017
2018
10,156
40,950
1,474,689
Direct Material Costs - Hard Cheese

Total Raw Materials Costs (EGP '000s)
945,261
1,285,313
Total Tetra Pak Costs (EGP '000s)
333,180
466,087
517,210
Tetra Pak Discount (20% of Tetra Pak Costs)
-66,636
-93,217
-103,442
Total Direct Materials Costs (EGP '000s)
1,211,805
1,658,183
1,888,456
78,437
98,533
113,770
Industrial Costs (EGP '000s)
32

OCTOBER, 2016
Maintenance Costs (EGP '000s)
17,430
21,896
Lease Costs (EGP '000s)
5,000
5,000
5,000
1,312,672
1,783,612
2,032,508
Total COGS (excluding depreciation)
25,282
SOURCE: PRIME ESTIMATES

GROSS PROFIT EGP MN.
Gross Profit
In 2015, gross profit stood at EGP 384mn, against EGP 256mn
in 2015, growing by 50%. The huge improvement was the
driven by the continuation of the declining prices of raw
materials, particularly powder milk, where its price declined by
c34% y-o-y. In 2015, the GPM was 27% versus 23% in 2014. In
1H2016, the company achieved a gross profit of EGP 195.5mn,
versus EGP 187.5mn in 1H2015, growing by 4.5% y-o-y. In
1H2016, the GPM was 25%, against 26% in 1H2015.
450
400
350
300
250
200
150
100
50
0
384
256
2014
2015
187
195
1H2015
1H2016
SOURCE: DOMTY
SG&A:
In 2015, the company incurred EGP 172.6mn as SG&A, versus EGP
176.1mn in 2014. The SG&A represented 12.3% and 15.6% of revenues
in 2015 and 2014 respectively. In 1H2016, the company incurred EGP
115.7mn as SG&A, versus EGP 77.6mn in 1H2015, growing by 49% y-oy. The SG&A represented 14.7% and 10.8% of revenues in 1H2016 and
1H2015 respectively.
During 1H2016, the both components of the SG&A sales & marketing
expenses and general & administrative expenses rose, where they
rose by 48% and 61% respectively. The surge can be attributed to the
massive marketing activities during the period and the increased
distribution costs owning to the companys strategy for reducing its
dependence on third-party agents.
SG&A EGP MN.
200
180
160
140
120
100
80
60
40
20
0
176
160
When the company draws foreign currency denominated overdraft

facilities in connection with the purchase of goods denominated in
those currencies, the company becomes subject to FX risks between the
date on which the liability is incurred and the date on which it is repaid.
The resulting exchange rate difference is recognized as foreign
exchange gains and losses. The FX losses skyrocketed in 2015, reaching
EGP 7.2mn versus EGP 1.7mn, rising by 313% y-o-y. The FX losses in
1H2016 was quiet similar to that of the comparable period a year
earlier. FX losses recorded EGP 4.7mn in 1H2016, versus EGP 4.8mn in
1H2015. It is worthy to note that during the 2Q2016, the FX losses rose
by 84%, as it reached EGP 1.06mn against EGP 0.18mn in 2Q2015.
152
116
101
78
20.8
16.6
2014
Total SG&A
FX Gains/ Losses:
173
2015
68
15.1
9.4
1H2015
Sales & Marketing
H2016
General & Admin.
SOURCE: DOMTY
FX LOSSES EGP MN.
8
7
6
5
4
3
2
1
0
7.2
4.8
4.7
1H2015
H2016
1.7
2014
2015
SOURCE: DOMTY
33

OCTOBER, 2016
NET INCOME EGP MN.
Net Income:
Domty achieved a net profit of EGP 128.7mn in 2015, versus EGP
28.3mn in 2014, growing by 355% y-o-y. In 2015 the NPM stood at
9.2%, where it stood at 2.5% in 2014. In 1H2016, the company
achieved a net profit of EGP44.9mn, versus EGP 62.1mn in 1H2015.
In 1H2016, the NPM stood at 5.7%, against an NPM of 8.7% in
1H2015. As previously mentioned, the 49% increase in SG&A is the
main reason behind the huge drop in net profit
128.7
140
120
100
80
62.1
60
40
44.9
28.3
20
0
2014
2015
1H2015
SOURCE: DOMTY
34
1H2016

OCTOBER, 2016
Stock Recommendat ion Guidelines

Recommendation
Target-to-Market Price (x)
Strong Buy
x > 40%
Buy
x > 15%
Accumulate
5%< x <15%
Hold
-5% < x < 5%
Reduce
-15% < x < -5%
Sell
x < -15%
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
35

OCTOBER, 2016
PRIME SECURITIES
Hassan Samir
Managing Director
+202 3300 5611
Hsamir@egy.primegroup.org
RESEARCH TEAM
Head of Research
+202 3300 5724
Eman Negm, MSc
Economist
Mohamed Marei
Equity Analyst
+202 3300 5716
Enegm@egy.primegroup.org
+202 3300 5725
Mmarei@egy.primegroup.org
Ali Afifi
Omneya El Hammamy
Ingy Fahmy
Equity Analyst
Equity Analyst
Equity Analyst
+202 3300 5723
+202 3300 5718
+202 3300 5722
Aafifi@egy.primegroup.org
OelHammamy@egy.primegroup.org
Iashraf@egy.primegroup.org
Taher Seif
Equity Analyst
+202 3300 5719
Tseif@egy.primegroup.org
Mohamed Magdi
Junior Equity Analyst
+202 3300 5720
Mmagdi@egy.primegroup.org
Aboubakr Emam, CFA
Aemam@egy.primegroup.org
SALES TEAM
Mohamed Ezzat
Head of Sales & Branches
+202 3300 5784
mezzat@egy.primegroup.org
Shawkat Raslan
Heliopolis Branch Manager
+202 3300 5110
sraslan@egy.primegroup.org
Amr Saber
Team Head Institutions Desk
+202 3300 5659
asaber@egy.primegroup.org
aalaa@egy.primegroup.org
Amr Alaa, CFTe
Manager
+202 3300 5609
Mohamed Elmetwaly
Manager
+202 3300 5610
melmetwaly@egy.primegroup.org
Emad Elsafoury
Manager
+202 3300 5624
eelsafoury@egy.primegroup.org
HEAD OFFICE
PRIME SECURITIES S.A.E.
Regulated by CMA license no. 179
Members of the Cairo Stock Exchange
2 Wadi El Nil St., Liberty Tower,
7th-8th Floor, Mohandessin, Giza, Egypt
Tel: +202 33005700/770/650/649
Disclaimer
Fax: +202 3760 7543

Information included in this report has no regard to specific investment objectives, financial situation, advices or particular needs of the report
users. The report is published for information purposes only and is not to be construed as a solicitation or an offer to buy or sell any securities
or related financial instruments. Unless specifically stated otherwise, all price information is only considered as indicator.
No express or implied representation or guarantee is provided with respect to completeness, accuracy or reliability of information included in
this report.
Past performance is not necessarily an indication of future results. Fluctuation of foreign currency rates of exchange may adversely affect the
value, price or income of any products mentioned in this report.
Information included in this report should not be regarded by report users as a substitute for the exercise of their own due diligence and
analysis based on own assessment and judgment criteria. Any opinions given are subject to change without notice and may significantly differ
or be contrary to opinions expressed by other Prime business areas as a result of using different assumptions and criteria. Prime Group is under
no obligation responsible to update or keep current the information contained herein.
Prime Group, its directors, officers, employees or clients may have or have had interests or long or short positions in the securities and/or
currencies referred to herein, and may at any time make purchases and/or sales in them as principal or agent.
Prime Group, its related entities, directors, employees and agents accepts no liability whatsoever for any loss or damage of any kind arising
from the use of all or part of these information included in this report. Certain laws and regulations impose liabilities which cannot be
disclaimed. This disclaimer shall, in no way, constitute a waiver or limitation of any rights a person may have under such laws and/or
regulations.
Furthermore, Prime Group or any of the group companies may have or have had a relationship with or may provide or have provided other
services, within its objectives to the relevant companies.
Copyright 2016 Prime Group all rights reserved. You are hereby notified that distribution and copying of this document is strictly prohibited
without the prior approval of Prime Group.
36

ArabianFoodIndustries Domty InitiationofCoverageOctober2016

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ArabianFoodIndustries Domty InitiationofCoverageOctober2016

Uploaded by

Copyright:

Available Formats

PRIME INVESTMENT RESEARCH

FOOD & BEVERAGE |EGYPT

PRIME INVESTMENT RESEARCH

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

2016 - 2020: we forecasted full financial statements, as the company will

2021 - 2025: we assumed FCF to grow at a high rate of 8%.

2026 - Infinity: the terminal value of the company is based on a

Discounted Cash Flow Model (DCF)

Gross Cash Flow

Change in Working Capital

Free Cash Flow

Total Cash Flow

PRIME INVESTMENT RESEARCH

Bega Cheese Ltd.

Bright Dairy & Food Co Ltd.

BD Rangpur Dairy & Food Products Ltd

Namyang Dairy Products Co Ltd.

Edita Food Industries

Sample Median - Local F&B

Sample Median - Regional F&B

Vietnam Dairy Products Joint Stock Company

Maeil Dairy Industry

Dairy Crest Group PLC

China Huishan Dairy Holdings Co Ltd.

Sample Median - Global F&B

China Mengniu Dairy Co Ltd.