It was a very hot day on Wednesday, July 20th, the day SAH LILAS Group was holding its AGM in Zriba (50 kilometers from Tunis) somewhere amid the three main LILAS buildings “Azur Paper”, “Azur Detergents” and “Lilas” the historical site producing handkerchiefs, kitchen rolls, and napkins. Lilas has organized the trip for its shareholders starting from 8.30 am with a gathering in front of the company’s main office. We all rushed into the bus to get seated comfortably and enjoy the air conditioning inside while the temperature outside has already reached 35 degrees Celsius. We cruise in the mainland from Tunis to Zriba amid the thousands of olive trees planted on both sides of the road. A few kilometers before we arrive in Zriba we start to see the splendors of the Roman aqueduct that emperor Hadrian had built 2,200 years ago to bring water from Zriba to Carthage. In the bus, many of the participants are local fund managers, some are financial analysts, and some others are small individual shareholders looking to meet with the company’s CEO and ask her what has gone wrong in 2021 for Tunisia’s leading personal care group? The meeting started at 11 am with an extensive presentation by Mr. Mohamed Amine Ben Malek -CFO- then a Q&A session with the CEO which started before the lunch pause and continued until 4 pm in the afternoon. It was basically the one question that Madam Jelila Mezni, founder, and CEO of the company had to answer about 2021: I quoted Madam Mezni verbatim in the AGM, and here are her answers:
Our competitors: If you want to understand what has gone wrong in 2021 you have to look at our competitors. Some of them have shut down their plants. They have no raw material deliveries anymore. We were used to price hikes on raw material, but things are worse now: we have to face a new reality of shortages. Our suppliers have become extremely selective, they accept to deliver the raw material only to the healthy groups, those who pay cash. All our competitors are suffering, the local ones like Sancella but also the multinationals like Henkel and Unilever. The latter has closed its plants and left the market altogether. We have taken a considerable market share from our competitors, and we have reached an all-time high. We currently have 80% market share on all the products, across the board.
SAH LILAS GROUP Handled a major crisis in 2021 thanks to the huge commitment of its staff
août 8, 2022
SAH LILAS GROUP Handled a major crisis in 2021 thanks to the huge commitment of its staff
Raw material prices soaring: Take the superabsorbent for example (the basic component that absorbs liquid in the baby diapers), we used to pay 1,730 US Dollars, now we pay 2,650 USD. The fluff has gone up from 500 US Dollars to 1,500 USD. Some of the smaller components have simply disappeared from the market. Our R&D teams have to review the whole formulae to take into account the changing products and adapt the substitute. Paper has also become extremely scarce. Our paper subsidiary “Azur Papier” has saved us from stopping the activity. We are the only company that continues to produce paper. The Russian pulp suppliers have stopped producing paper. If you go to the supermarket today you won’t find handkerchiefs, Kitchen-rolls, and napkins. Only Lilas paper products are still available on the shelves. The war on the “Speculators”: The current government has launched a pitiless war on the distributors who constitute large inventories of goods to speculate on sale prices. Our wholesalers are worried lest the government should come to them and confiscate their goods. They have spent the whole year selling their inventories and many of them have closed their offices. The war on the speculators has created a big confusion between strategic inventories to regulate the market and other inventories that a number of distributors are using to manipulate prices. “The war on the speculators” has created major disruptions in the market and a number of bankruptcies among our wholesalers. On passing the price rise from the supplier to the end consumer. In 2022- year to date- we have increased our sale prices 50% in staggered periods over the first half. But there is a psychological tolerance level in the consumers’ mind. We can not continue to raise our sale prices each time we have a price hike in the raw material markets. Part of the price hike eats from our margins some of its we can pass on to the consumer price.
We reduced our marketing budget considerably As our market share keeps rising, we don’t feel the need to invest in marketing. We keep our historical contracts with the media. Some of the billboards have interesting location spots so we keep them. But the major contracts with the media (mainly TV spots) we have cancelled them in 2022. As you may have noticed it, SAH LILAS has made no adverts during last Ramadan. Historically, a big chunk of our marketing budget is disbursed during Ramadan. We have also kept the commission rebates to the supermarkets because the rebates are contractual. The government keeps reducing its subsidies on energy (15% every year) which hurts our cost structure We continue to build our own energy but the investment in co-generation must be profitable which is not an easy equation. We use co-generation on our AZUR site and now we use it for our Detergents plant. We are planning to raise our energy production from 9 megawatts currently to 15 megawatts in 2023 The shortage of engineers also hurts The brain drain from Tunisia to France and Germany has intensified in the last couple of years. Hundreds of engineers prefer to start a career in France and Germany. It is hard to find engineers in Tunisia today which poses many challenges. In our group, we have managed to keep most of our engineers, and I would like to take this opportunity to thank them for staying although the temptation to immigrate is big. Lilas has done the right thing to address the crisis and it’s largely thanks to the huge commitment of its staff. It makes me proud of you all
We stay the course despite the rough seas SAH Lilas will most likely make a strong rebound in 2022, or at least we will stay the course. The worst is behind us, hopefully. We continue to take market share from competitors, our products are very much appreciated by our clients and that’s the most important thing. Our numbers are strong, our fundamentals are robust, the market is there, the demand is strong despite the harsh side of this crisis. All this makes us optimistic for the future.
By Issam Ayari
Director : Foreign Institutional Investors’ Division