Juhayna, Egypt's largest producer of packaged juice and dairy products, expects its profits to recover next year after an increase in the cost of raw materials squeezed margins this year, its chairman said.

Safwan Thabet said in an interview for the Reuters Middle East Investment Summit that 2014 had been a "difficult year" for the company, which saw its profits tumble 67 per cent from a year earlier in the second quarter.

"We faced a rise in the cost of raw materials and were unable to pass this increase on to the consumer, but I believe that 2015 will be good after the cost of raw produce fell again," said Thabet. "Costs increased by almost 100 per cent..."

Established in 1983, Juhayna makes and exports juice, milk and yoghurt products across Africa and the Middle East, and sells a limited range into European and US markets too.

Its seven factories make 200 products and it supplies major clients including Egyptair, luxury hotels and fast food chains.

Juhayna's net income shrank to 40 million Egyptian pounds ($5.6 million) in the second quarter because of an increase in the price of milk and more spending on sales and distribution.

Thabet said he expected profits to improve this quarter and show a stronger recovery by the first quarter of 2015.

Juhayna made 400 million pounds of investments in 2014 and expects to plough a similar amount into its business next year, he told Reuters at his office on the outskirts of Cairo.

"Egypt's foodstuffs market is estimated to be worth around 300 billion pounds and its average growth reached about 12.5 per cent in the first half of this year. We work in a sector that offers opportunities for growth."

Juhayna is not looking to grow through acquisitions, however, and turned down an offer to buy Bisco Misr, one of the country's largest producers of biscuits and cakes.

"We did not consider acquiring Bisco Misr but...the majority owner of Bisco Misr offered for us to buy it last year," Thabet said.

Bisco Misr said in August that Kellogg Co, the world's top cereal maker, as well as the United Arab Emirates' Abraaj Capital, were both interested in buying a controlling stake.

FACTORIES AND FARMS

Thabet said Juhayna's export markets had been hard hit in recent years by the violence and political turbulence that engulfed nearby countries such as Libya, Syria, Yemen and Iraq.

More than 10 per cent of the production at its juice plant was destined for export before 2011, but this fell to five to six per cent this year, Thabet said.

Despite that, the company is pushing ahead with new factories and farms as it sees strong growth potential in Egypt.

Thabet said a factory destroyed by fire in 2010 had been rebuilt and started production at 70 to 80 per cent capacity over the summer, after the company received 93.5 million pounds in insurance payments.

Juhayna's Assiout factory, which opened in 2013 and specialises in yoghurt production, now accounts for 20 per cent of the firm's total yoghurt output and supplies southern Egypt. Juhayna plans to make new investments in the Assiout factory in 2016 but has yet to decide how much, Thabet said.

In the meantime, the company has finished infrastructure work on a new dairy farm. "We are in the first phase of the farm and will provide it with about 4,000 head of livestock in the next 18 months to two years, with cattle being supplied from the first quarter of 2015.

"If the average growth in the market is sustained at above 10 percent in the next period, we will continue to expand the farm until it covers 15-20 per cent of Juhayna's dairy needs."

Juhayna claims 70 per cent of the dairy market in Egypt, a third of the yoghurt market and 26 per cent of the juice market.

"Juhayna has been present in the Egyptian market for 28 years...and Egypt is the 14th largest food market in the world," Thabet said. "I expect the Egyptian foodstuffs market to continue growing and we will definitely benefit from this growth...That is why I am optimistic about the future." - Reuters