Sustainability Report 2016 – Economy
The past three as well as the ongoing devaluation of the Egyptian Pound led to a weak overall economic development and resulted in a consumption decline in Egypt. Hence, SEKEM faced challenging times in 2016 and could not achieve all economic targets, like in the former post- revolution years. The majority of SEKEMs produced goods, 79 percent, were consistently sold in the local market. The initiative kept its strategic focus on financial recovery and debt relief in order to strengthen its resilience. Dealer networks, nationally and internationally, have been extended and new customers were acquired. In addition, SEKEM has begun to strengthen export activities, which helps to counteract the devaluation of the Egyptian Pound (EGP).
However, SEKEM could achieve improvements in terms of its economical dimension. SEKEM increased the minimum basic salary to 1‘300 EGP and improved the ratio of the highest to the lowest annual full-time salary from 1:36 in 2015 to 1:31 in 2016, for instance. Furthermore, due to the positive operational performance, SEKEM was able to invest 10 percent of its annual profit into community development. SEKEM raised the sales value of certifiable products, which have a Demeter certificate (from 43 percent in 2015 to 53 percent in 2016) as well as of products with an Organic certificate (from 56 percent in 2015 to 73 percent in 2016). The challenge to successfully certify the remaining 27 percent of possible organic sales is mainly driven by product quality from SEKEMs suppliers that fight with an immense pesticide pollution via water and air that cause residuals. Another reason is the mandatory transition period for conventional farms that want to become organically certified from which we are committed to take the produce during these three years of transition. Otherwise SEKEM would not be able to convince farmers to enter in an organic production system that usually comes with an initial drop in productivity. Of course, SEKEM is 100% committed not to use any chemical fertilizer or pesticides for its natural raw materials and striving for a fully certified organic product portfolio over the coming years.
Together with Heliopolis University’s Carbon Footprint Center SEKEM continued with assessing its product portfolio and increased its share of sales of products with known product carbon footprint from 56 to 80 percent. The carbon footprints of SEKEM products are based on categories, such as herbal teas, organic baby garments, organic textile dolls, herbs and spices, juices etc. What is not included yet are product categories such as animal products, seeds etc. Furthermore, all product for ATOS Pharma, natural medicines and healthcare products are not applicable for carbon footprint calculation.
SEKEM Consolidated Key Financial Figures
SEKEM and its subsidiaries were able to grow despite the challenges given in the environment, and achieved a consolidated growth of 29% in total sales, reaching EGP 375.7 million. The gross profit grew by 25%, reaching EGP 168.8 million. The devaluation of the Egyptian Pound in November 2016 has had a tremendous impact on SEKEMs consolidated earnings before tax and reduced them accordingly, to EGP 0.5m.
ATOS PharmaAt the beginning of 2016, ATOS Pharma had been affected by the devaluation of the Egyptian pound as well, especially since most of its products are tied to state-regulated prices. Nevertheless, SEKEMs company for phytopharmaceuticals was able to generate EGP 49 million sales and a growth of 26%. This is can be ascribed to investments in a more efficient production as well as expanding the sales team. The newly developed and distributed product BioDiagnostics© showed success on the market and contributed to ATOS Pharma’s revenue with EGP 1.46 million.
The company Lotus is processing herbs and spices and was able to grow in 2016, although the local sales were impacted negatively by its sister company ISIS Organic, which is supplying Lotus with raw materials. At the same time, the devaluation of the Egyptian pound had a positive impact on the export sales of the company which reached almost 60%. There continued to be a high demand for the new and currently popular products Chia, Quinoa and Jojoba. In 2016, Lotus improved its raw material quality as well as the production process that lead to a higher product purity. This was a major driver for SEKEM improving its ratio of total weight of waste per thousand EGP sales from 2.5 in 2015 to 1.4 in 2016. SEKEMs total amount of waste went up from 688 to 793 tons during the last year with a share of 66% and 69% of organic waste respectively. While SEKEM is recycling all its organic waste, only 42% of the non-organic waste was recycled, which represents a major challenge to be increased. Another huge challenge is the very low amount of recycled packaging material. Investigations showed that only Lotus uses some plastic, paper and carton as recycled input material. For all other companies the price and quality are main reasons to not use recycled packaging materials.