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It deleverages, generates cash flow and strengthens its cash position

Despite a difficult economic environment, dictated by the resurgence of the COVID-19 pandemic, rising inflation and the decline in the purchasing power of the Tunisian consumer, the Délice Group, created by Hamdi Meddeb in 1978 and listed on the stock exchange in 2014, has reached very important milestones in 2021 and has achieved record performances, which consolidate the achievements of previous years. Other facts to the credit of 2021, Délice is starting to rationalize its “CAPEX” and has put in place intra-group financing solutions.

Reducing dependence on subsidized milk

As a result, the Group has entered a phase of debt reduction and cash flow generation that has begun to strengthen its cash position and significantly reduce the weight of its financial charges. The vintage of 2021, which is the result of several years of investment in innovation, expansion of the product range, the increase of processing capacity and in the optimization of operational efficiency, should usher in a new phase of promising growth for the flagship of the dairy industry in Tunisia.

The projects undertaken on the last years should allow the Group to reduce its dependence on the subsidized milk, to consolidate its positioning on the segment of the fresh dairy products, locomotive of profitability for the Group, and to go up in power on the “drinks” by taking the turn of the mineral water.

The current valuation of Délice Holding offers an interesting entry point into a major dairy and juice industry, amid a consolidation/diversification phase and with solid fundamentals. The long-awaited but blind liberalization of semi-skimmed milk prices should release an important potential of revaluation for the share

A sluggish stock market performance

The national champion of the dairy industry has consolidated its gains in 2021 after a euphoric year 2020. Since the beginning of the current year, the share has shown a sluggish stock market performance, despite the Group’s excellent operational achievements for the 2021 financial year. Délice Holding is currently trading at multiples of 11.1x its earnings and 5.8x its estimated EBITDA in 2022; an attractive valuation that offers an interesting entry point for a major dairy and beverage company amid a consolidation/diversification phase, with solid fundamentals and sustainable competitive advantages. The long-awaited but blind liberalization of UHT milk prices should release significant upside potential for the stock.

Water focus

The start of operations of Délice des Eaux Minérales was a real success for the Group. The division capitalized on the strong brand awareness of Délice and on its sales and distribution strength to achieve a 13% market share in its first full year of operation. With the Group’s experience and know-how, the division was able to achieve exceptional performance in fiscal year 2021. Synergy effects had a positive impact not only on the division’s revenues, which reached 57.6 MD in 2021, but also on its results, which largely exceeded the targets set. 2021 was a buoyant year in terms of operating profitability. The achievement of a new level of revenues (scale effects), the shift to higher value-added products thanks to investments in Research and Development and the attention paid to cost control through productivity and energy efficiency programs (such as the cogeneration project started in October 2019 at the STIAL and CLC subsidiary sites) have enabled the Group to improve its profitability and to withstand the inflationary pressures caused by rising production costs and the unprecedented surge in raw material prices and shipping costs, starting in the second half of 2021

Gross margin grew at a faster pace than revenues (+11% to 326.6MD) and the gross margin rate increased by 0.2 percentage points to 27.5%. The same applies to operating profitability, which was able to absorb the increase in overheads (+16.3% to 185.3MD for payroll plus other operating expenses). The EBITDA increased by 4.7% to 141.3MD. Although the EBITDA margin declined by 0.6 percentage points to 11.9% compared to 2020, it remains at a historically high level for the Group.

Since 2020, management has opted for a policy of rationalizing investments after record levels of capital expenditures (CapEx) recorded in 2018 and 2019. In 2021, total investments amounting to t33.5 million have been focused primarily on increasing capacity, controlling energy consumption, respecting the environment and strengthening the distribution division’s fleet of vehicles.

CSR as a strategic focus

In parallel with the rationalization of investments, the Group has worked to implement intra-group financing solutions and centralized cash management, which have resulted in lower financial leverage in 2021 compared to recent years. The Group has indeed started a phase of deleveraging and cash flow generation, with gearing falling from 60.8% in 2020 to 32.2% in 2021.

The reduced recourse to debt in 2021 has resulted in a substantial reduction in the financial charges incurred by the Group (down 46.9% to 9.8MDt, i.e. 0.8% of consolidated revenues). It should be noted that the Délice Group benefits from advantageous borrowing conditions thanks to its good signature with the banking system. Had it not been for the frequent delays in the payment of the State’s operating subsidy for semi-skimmed milk, financial costs would have been much lower.

In the end, the Group closed the last year with a net result group share of 70.4 MD, a growth of 21.7% compared to 2020. With a return on equity (ROE) of 33.2%, Délice is among the most profitable groups on the stock exchange. The Group is always careful to put its social responsibility at the heart of its priorities. The ultimate objective is to build a sustainable business model, while collaborating positively with stakeholders. The creation of value hinges on a better apprehension of sustainable development, and it is for this reason that Groupe Délice chose CSR, as a strategic axis in its own right.


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