PHOTO
By Ehab Farouk
CAIRO, Aug 1 (Reuters) - Egypt's rising interest rates and soaring inflation have hit second-quarter profits at some of the country's food and drinks companies, providing evidence that consumers' purchasing power is being squeezed.
Second-quarter net profits at Edita Food Industries
EFID.CA
, one of Egypt's largest snack food producers, fell 88 percent to 5.73 million Egyptian pounds ($319,888.27) from 47.42 million in the same period last year, even though sales rose 11.2 percent.
Juhayna Food Industries
JUFO.CA
, Egypt's biggest listed producer of packaged juice and dairy products, has reported an 8.6 percent drop in second quarter net profits despite an 18.27 percent rise in sales.
Analysts said Edita's and Juhayna's results, published last week, showed that sales growth resulted from product price increases rather than actual sales volumes.
"The increase in production inputs are because of the increase in inflation ... which had directly affected the companies profitability," Ahmed Adel, senior analyst at Beltone Financial, said.
Egypt introduced sweeping economic reforms last year as part of a three-year $12 billion International Monetary Fund loan programme, floating its currency and cutting subsidies to attract foreign investment that fled after a 2011 uprising.
But these measures have contributed to an increase in inflation above 30 percent which has reduced people's purchasing power. The central bank has also raised key interest rates by 700 basis points since November when it floated its currency.
Edita's financing expenses jumped by 137 percent to reach 25.42 million pounds, while Juhayna's expenses increased by 67 percent to reach 98.98 million pounds, the companies said in their earnings statements last week.
Food and beverage companies have increased spending on sales and distribution to maintain their market share, which has been hit by a drop in demand due to price rises.
Last month, the government increased electricity prices by up to 42 percent this fiscal year for households. Also in July, it raised fuel prices by up to 50 percent to help meet the terms of its IMF loan agreement.
"Companies will continue to suffer from weak profits as they try not to raise prices again to maintain their market shares," Adel said.
($1 = 17.9000 Egyptian pounds)
(Editing by Jane Merriman) ((amina.ismail@thomsonreuters.com; +20 2 2394 8114;))
CAIRO, Aug 1 (Reuters) - Egypt's rising interest rates and soaring inflation have hit second-quarter profits at some of the country's food and drinks companies, providing evidence that consumers' purchasing power is being squeezed.
Second-quarter net profits at Edita Food Industries
Juhayna Food Industries
Analysts said Edita's and Juhayna's results, published last week, showed that sales growth resulted from product price increases rather than actual sales volumes.
"The increase in production inputs are because of the increase in inflation ... which had directly affected the companies profitability," Ahmed Adel, senior analyst at Beltone Financial, said.
Egypt introduced sweeping economic reforms last year as part of a three-year $12 billion International Monetary Fund loan programme, floating its currency and cutting subsidies to attract foreign investment that fled after a 2011 uprising.
But these measures have contributed to an increase in inflation above 30 percent which has reduced people's purchasing power. The central bank has also raised key interest rates by 700 basis points since November when it floated its currency.
Edita's financing expenses jumped by 137 percent to reach 25.42 million pounds, while Juhayna's expenses increased by 67 percent to reach 98.98 million pounds, the companies said in their earnings statements last week.
Food and beverage companies have increased spending on sales and distribution to maintain their market share, which has been hit by a drop in demand due to price rises.
Last month, the government increased electricity prices by up to 42 percent this fiscal year for households. Also in July, it raised fuel prices by up to 50 percent to help meet the terms of its IMF loan agreement.
"Companies will continue to suffer from weak profits as they try not to raise prices again to maintain their market shares," Adel said.
($1 = 17.9000 Egyptian pounds)
(Editing by Jane Merriman) ((amina.ismail@thomsonreuters.com; +20 2 2394 8114;))
