Strauss Group Reports its Third Quarter & First Nine Month 2011 Results and Reports Sales Growth With Profit and Margin Erosion
By Strauss Group Ltd, PRNETuesday, November 15, 2011
TEL AVIV, Israel, November 16, 2011 -
OPERATING PROFITS AND MARGINS ERODED FOLLOWING THE CONTINUED INCREASE IN RAW MATERIAL AND INPUT COSTS, AND
INVESTMENTS IN GLOBAL EXPANSION;
STRAUSS GROUP SALES TOTAL NIS 5.6 B, UP 11.5%, SALES GROWTH IS EVIDENT IN ALL ACTIVITIES AND ALL GEOGRAPHIES.
Strauss Group (STRS.TA) today reported its results for the third quarter and first nine month of 2011.
Ofra Strauss, Chairperson of Strauss Group, said today: “Strauss continued with its strategic plans of international expansion, while emphasizing the adjustments necessary in Israel as a result of public dialogue and the social protest that has erupted over the high cost of living in the country. While investing in international markets and the company’s growth engine, Strauss continues to review all work plans to provide appropriate solutions to the new reality.”
Gadi Lesin, President & CEO of Strauss Group, said today: “Strauss Group reports Third Quarter results with a 13.8% growth in sales, with growth evident in all activities and geographies. In Israel, the Group home base, we continue to grow in volume and value with continued investment in innovation.”
“While Group sales experienced growth, operating income and profitability eroded due to the increase in raw material, input costs and energy prices. Net profit increased by 7% following the decrease in finance expenses. The Group continues to invest in developing its international activities, emphasizing investment in water and refrigerated dips and spreads through strategic international partnerships.”
Third Quarter Financial Highlights[1]:
- Sales totaled NIS 2.0 billion (NIS 1.8 billion last year), up 13.8%;
Organic sales growth net of exchange rates effect totaled 12.2%.
- Gross profit totaled NIS 688 million (34.1% of sales), compared to
NIS 642 million last year (36.3% of sales), up 7.3%.
- Operating profit totaled NIS 139 million (6.9% of sales), compared to
NIS 161 million last year (9.1% of sales), down 13.6%.
- Net profit to shareholders totaled NIS 61 million, compared to
NIS 54 million last year, up 13.7%.
Nine Months financial Highlights[2]:
- Sales totaled NIS 5.6 billion (NIS 5.0 billion last year), up 11.5%;
Organic sales growth net of exchange rates effect totaled 10.2%.
- Gross profit totaled NIS 2.0 billion (35.8% of sales), compared to
NIS 1.9 billion last year (38.5% of sales), up 4.0%.
- Operating profit totaled NIS 418 million (7.4% of sales), compared to
NIS 479 million last year (9.5% of sales), down 12.7%.
- Net profit to shareholders totaled NIS 170 million, compared to
NIS 209 million last year, down 18.7%.
Main pro-forma data (in NIS million):
Nine Month Third Quarter
2011 2010 % Chg 2011 2010 % Chg
Sales 5,629 5,047 11.5 2,015 1,771 13.8
Gross
Profit 2,017 1,941 4.0 688 642 7.3
Operating
Profit (1) 418 479 (12.7) 139 161 (13.6)
Profit for
the Period 237 286 (17.0) 86 81 7.9
Net Profit
(2) 170 209 (18.7) 61 54 13.7
(1) Before other income (expenses)
(2) Attributed to the shareholders of the Company
Home base
Strauss Group is the second-largest company in the Israeli food industry and in the first nine months of 2011, according to StoreNext, held 11.3% of the domestic retail food and beverage market (on a quarterly average, in financial value terms). The Israeli market is the Group’s home market, in which it is active in various categories. The sales of the entire business of Strauss Group in Israel include the Health & Wellness and Fun & Indulgence Divisions, the coffee business in Israel, Max Brenner in Israel and Strauss Water Israel (Tami4).
In the first nine months of 2011, Strauss Israel sales totaled NIS 2,996 million compared to NIS 2,770 million in the corresponding period last year, an increase of 8.2%. In the third quarter the Group’s total sales in Israel amounted to NIS 1,035 million compared to NIS 953 million last year, an increase of 8.5%.
Growth in the first nine months and in the third quarter was evident in all business divisions, Health & Wellness, Fun & Indulgence, Israel and Israel Coffee.
The Coffee Sector
In the global coffee business the Group develops, manufactures, markets and sells branded coffee products in Israel and in various emerging markets; Central and Eastern Europe and Brazil. This business area comprises two segments of activity - Israel Coffee and International Coffee.
Sales
In the first nine months of 2011 sales by the coffee business totaled NIS 2,777 million compared to NIS 2,465 million in the corresponding period last year, an increase of 12.6%. After neutralizing the impact of currency exchange rates, growth amounted to 12.5%. Organic growth in the period (after neutralizing the acquisition of businesses and the impact of exchange rate differentials) amounted to 11.1%.
Coffee sales were positively influenced by the strong growth in activity in Russia, Brazil and Israel, but were negatively influenced by the weakness in some of the markets in Eastern Europe, by changes in the exchange rates of the various operating currencies, by the sharp rise in raw material prices coupled with the difficulty in increasing prices in the prevailing macroeconomic conditions in some of the countries, and by the growing competition.
Sales by Strauss’s coffee business in the third quarter of 2011 totaled NIS 1,022 million compared to NIS 868 million in the corresponding period last year, a strong growth of 17.7%. After neutralizing the impact of currency exchange rates, growth amounted to 18.1%. Organic growth (after neutralizing the acquisition of businesses and the impact of exchange rate differentials) amounted to 16.4%. In the third quarter growth in most of the regions was strong, especially in Russia, Brazil and Israel. The Coffee Company continues to invest in expansion, and during and after the reported period announced acquisitions in Brazil in Russia and in Israel.
Gross Profit
In the first nine months, the gross profit totaled NIS 823 million (29.6%) compared to NIS 813 million (33.0%) last year, an increase of 1.2%. The gross profit in the third quarter amounted to NIS 276 million (27.0%) compared to NIS 261 million (30.1%) last year, an increase of 5.9%.
The increase in gross profit in the first nine months and in the third quarter was positively influenced by the growth in sales, but was negatively influenced by the sharp rise in raw material prices and the difficulty in transferring the entire increase in these prices to the consumer.
Operating Profit
In the first nine months of the year, the operating profit of the coffee business totaled NIS 178 million (6.4% of sales) compared to NIS 205 million (8.3% of sales) last year, a decrease of 13.3%.
In the third quarter the operating profit amounted to NIS 59 million (5.8% of sales) compared to NIS 64 million (7.4% of sales) last year, a decrease of 7.9%.
The decrease in the operating profit in the nine months and in the quarter was influenced mainly by the growth in operating expenses, particularly marketing and sales.
The Israel Sector
The Company in Israel completed nine months of growth in sales coupled with a decrease in the operating profit. Sales of the Israeli sector in the first nine months totaled NIS 2,161 million compared to NIS 2,012 million in the corresponding period last year, an increase of 7.4%. Growth was expressed in the sales of both units, Health & Wellness and Fun & Indulgence, and is evident in most categories. The growth was influenced mainly by a 4.9% increase in volumes.
In the third quarter sales of the Israeli sector amounted to NIS 750 million compared to NIS 688 million last year, an increase of 9.0%. The growth was influenced mainly by a 5.0% increase in volumes.
According to StoreNext figures, in the first nine months of 2011 the Israeli food market grew by 6.3% in financial value terms. During the third quarter the social protest against the cost of living in Israel grew stronger, and the Company, in an attempt to provide a response to consumers, announced various special offer campaigns in order to maintain a low price level. After the end of the quarter the Company announced that these campaigns would continue until the end of the year, and also announced a reduction in the list prices of selected products.
In its activity in Israel, the Company is committed to the consumer and will continue to address this issue in the coming months in order to find possible solutions with the aim of making life easier for the consumer, and will also continue adapting its offerings to the new reality. A process such as this necessitates changes, adjustments to work processes and long-term investments, and cannot be made posthaste.
Gross Profit:
The gross profit in the Israeli sector totaled NIS 863 million in the first nine months (39.9% of sales) compared to NIS 838 million in the corresponding period last year (41.6%), an increase of 3.0%.
The gross profit in the third quarter amounted to NIS 295 million (39.4% of sales) compared to NIS 278 million in the corresponding quarter last year (40.4% of sales), an increase of 6.2%.
The gross profit in the period was positively influenced by the growth in sales, and was negatively influenced by the significant increase in the prices of some raw materials and energy.
In the first nine months, the pro-forma operating profit in Israel amounted to NIS 238 million compared to NIS 243 million in the corresponding period last year, a decrease of 1.9%, with slight erosion of the operating profitability rate, down from 12.1% last year to 11.0% this year.
Operating Profit
In the third quarter, the pro-forma operating profit in Israel amounted to NIS 80 million compared to NIS 87 million last year, a decrease of 7.9%, with erosion of the operating profitability rate, down from 12.6% last year to 10.7% in the third quarter this year. The operating profit in the third quarter was influenced by the increase in selling and marketing expenses further to the Company’s decision to hold a large number of discount campaigns prior to the holiday season.
The International Dips and Spreads SECTOR (Presently Executed by Sabra Dipping Company)
In this activity the Group develops, manufactures, markets, distributes and sells hummus and refrigerated Mediterranean salads, presently through the Sabra Dipping Company, throughout North America. Sabra is jointly controlled by the Group and PepsiCo (each party holds 50%). Sabra’s activity is proportionately consolidated (50%). This area of activity includes the expenses of Strauss North America’s head office.
In the first nine months Sabra’s sales continued to grow, as did its market shares, and it maintained a leading position in the refrigerated flavored spreads category. In the quarter, Sabra’s market share reached 54.0%.
During the first quarter of 2011 the Company reported that Strauss Group and PepsiCo had announced the conclusion of principles for the establishment of a jointly-held global company which will manufacture and market fresh salads, dips and spreads in major international markets. Each of the partners will hold 50% of the new company. After the reported period the final joint venture agreement was signed, and the company PepsiCo Strauss Fresh Dips & Spreads International GmbH was established.
Sales (100%):
In the first nine months Sabra’s sales totaled NIS 576 million compared to NIS 428 million last year, an increase of 34.3%. After neutralizing the currency impact, growth amounted to 43.9%. Organic growth excluding the currency impact was 21.0%. In the third quarter Sabra’s sales amounted to NIS 203 million compared to NIS 159 million last year, an increase of 27.4%. After neutralizing the currency impact, growth amounted to 36.2%. Organic growth, excluding the currency impact, amounted to 15.5%.
The operating profit (100%) in the first nine months totaled NIS 46 million (8.0%) compared to NIS 47 million in the corresponding period last year (10.9%), a decrease of 1.8%. The decrease in the operating profit in the first nine months is the result of the simultaneous operation of two production sites (the old plant was shut down at the end of the first quarter of 2011). In the third quarter, the operating profit amounted to NIS 16 million (8.0% ) compared to NIS 14 million last year (8.8%), an increase of 16.6%.
Strauss Water
Strauss Water engages in the development, manufacture, marketing and sale of systems for the purification, filtration, heating and cooling of drinking water for the home market and away-from-home consumption, on the basis of a long-term commitment to its customers. Strauss Water developed the Maze technology, a breakthrough in the purification and treatment of water. Strauss Water is presently active in Israel (through the Tami4 brand) and in the UK (through the T6 brand). During the quarter the Company launched the water business in China (through the brand Haier Strauss Water) further to the establishment of the joint venture in point-of-use water solutions in that country between Strauss Water and the Haier group, the Chinese home electronic appliances giant. In the first stage the products were launched in three cities - Beijing, Shanghai and Qingdao. In the second stage, the products will also be marketed in Shenzhen and Guangzhou.
Strauss Water’s sales in the first nine months totaled NIS 305 million compared to NIS 279 million in the corresponding period last year, an increase of 9.5%. In the third quarter sales amounted to NIS 106 million compared to NIS 107 million last year, a decrease of 0.5%.
Strauss Water plans to expand into additional geographical regions in the future, while continuing to develop innovative technologies for the purification and treatment of water, in a long-term commitment to its customers, caring for people, water and the environment.
MAX BRENNER
In the first nine months of 2011 Max Brenner’s sales totaled NIS 99 million compared to NIS 78 million last year, an increase of 27.3%; after neutralizing the impact of the erosion of the Dollar in relation to the Shekel, sales in the nine months grew by 31.0%.
In the third quarter Max Brenner’s sales amounted to NIS 36 million compared to NIS 29 million in the corresponding quarter last year, an increase of 24.4%. After neutralizing the impact of the erosion of the Dollar versus the Shekel, sales in the quarter grew by 27.9%.
As at the date of this report, 38 Max Brenner Chocolate Bars are in operation around the world: 6 in Israel, 4 in the US, 2 in the Philippines, 1 in Singapore and 25 in Australia. Nine branches are owned by the Company, and all other branches are operated under franchise.
The Company continues to invest in the development of core infrastructure for the Max Brenner business in Israel and abroad.
Financial Results:
Sales
The Group’s sales in the first nine months of 2011 amounted to NIS 5,629 million compared to NIS 5,047 million in the corresponding period last year, an increase of 11.5%. After neutralizing the currency impact, growth amounted to 11.8%. Organic growth after neutralizing the impact of changes in exchange rates in the period amounted to 10.2%. Growth was evident in all activities of the Company, mainly the activity in Israel, which grew by 7.4% in the nine months; in the coffee business, which grew by 12.6%; in Sabra’s activity in North America, where growth amounted to 34.3%; and in the water business, which grew by 9.5% in the first nine months of 2011.
The Group’s sales in the third quarter amounted to NIS 2,015 million compared to NIS 1,771 million in the corresponding period last year, an increase of 13.8%. After neutralizing the currency impact, growth amounted to 14.4%. Organic growth after neutralizing the impact of changes in exchange rates in the third quarter amounted to 12.2%. Growth in the quarter was evident in most activities - the global coffee business, which grew by some 17.7%; the activity in Israel, which grew by 9.0%; in Sabra’s activity in North America, where growth amounted to 27.4%; while the water business dropped by 0.5% in the quarter.
Gross Profit
The financial accounting gross profit in the first nine months amounted to NIS 1,991 million compared to NIS 1,942 million in the corresponding period last year; the gross profit rate dropped from 38.5% last year to 35.4% this year. The pro-forma gross profit increased in the nine months by 4.0% and amounted to NIS 2,017 million compared to NIS 1,941 million last year; its percentage dropped from 38.5% to 35.8%.
In the third quarter the financial accounting gross profit increased by 6.9% and amounted to NIS 676 million compared to NIS 633 million in the corresponding period last year; the gross profit rate dropped from 35.7% last year to 33.5% this year. The pro-forma gross profit amounted to NIS 688 million in the quarter compared to NIS 642 million last year, an increase of 7.3%; the gross profit rate dropped from 36.3% to 34.1%.
The gross profit in the nine months and in the quarter was positively influenced by the growth in sales across all activities of the Company; however further to the increase in raw material prices profitability was eroded.
Operating Profit before Other Income (Expenses)
In the first nine months of 2011 the financial accounting operating profit (before other income and expenses) totaled NIS 369 million (6.6% of sales) compared to NIS 471 million (9.3%) last year, a decrease of 21.6%.
The pro-forma operating profit totaled NIS 418 million (7.4% of sales) in the first nine months compared to NIS 479 million (9.5% of sales) last year, a decrease of 12.7%.
The operating profit in the nine months was negatively influenced by the growth in expenses relating to building Strauss Water’s activity in China and England, by the simultaneous operation of two production sites in the USA, and by the decrease in profit in the coffee business and in the activity in Israel.
In the third quarter the financial accounting operating profit (before other income and expenses) totaled NIS 121 million (6.0%) compared to NIS 149 million (8.4%) last year, a decrease of 18.8%.
The pro-forma operating profit totaled NIS 139 million (6.9% of sales) in the third quarter compared to NIS 161 million (9.1% of sales) last year, a decrease of 13.6%.
The quarterly operating profit was negatively influenced by the growth in expenses relating to establishing Strauss Water’s activity in China and England, and by the decrease in profit in the coffee business and in the activity in Israel.
Income for the Period
Income for the period in the first nine months totaled NIS 187 million compared to NIS 250 million last year. The pro-forma income for the period in the first nine months amounted to NIS 237 million compared to NIS 286 million last year, a decrease of 17.0%.
Income for the period in the third quarter totaled NIS 70 million compared to NIS 66 million last year. The pro-forma income for the period in the third quarter amounted to NIS 86 million compared to NIS 81 million last year, an increase of 7.9%.
Income for the Period for the Shareholders of the Company
The financial accounting income for the period for the shareholders of the Company in the first nine months totaled NIS 128 million compared to NIS 178 million last year, a decrease of 28%.
The pro-forma income for the shareholders of the Company in the first nine months amounted to NIS 170 million (3.0% of sales) compared to NIS 209 million last year (4.1% of sales), a decrease of 18.7%.
The decrease in the net financial and pro-forma operating profit is mainly the result of the decrease in the operating profit and of the increase in financing expenses compared to last year.
In the third quarter the financial accounting income for the shareholders of the Company amounted to NIS 47 million compared to NIS 42 million last year, an increase of 12.7%. The management accounting income for the shareholders of the Company in the third quarter amounted to NIS 61 million (3.0% of sales) compared to NIS 54 million last year (3.0% of sales), an increase of 13.7%.
The increase in the net financial and pro-forma operating profit in the third quarter is mainly the result of the decrease in the financing expenses compared to last year.
Income for the Period for Non-Controlling Interest Shareholders
In the first nine months the share of non-controlling interest shareholders in the income of subsidiaries totaled NIS 59 million compared to NIS 72 million in the corresponding period last year, a decrease of 17.8%.
In the third quarter the share of non-controlling interest holders in the income of subsidiaries totaled approximately NIS 23 million compared to approximately NIS 24 million in the corresponding period last year, a decrease of 2.9%.
Table 1
Following are the condensed financial accounting statements of income for the quarter and for the nine months ended September 30, 2011 and 2010 (in NIS millions):
Nine Months Third Quarter
2011 2010 % Chg 2011 2010 % Chg
Sales 5,629 5,047 11.5 2,015 1,771 13.8
Cost of sales
not including
impact of
hedging
transactions 3,612 3,106 16.3 1,327 1,129 17.5
Revaluation of
the balance of
hedging
transactions
on commodities
as at end of
period 26 (1) 12 9
Cost of sales 3,638 3,105 17.2 1,339 1,138 17.7
Gross Income 1,991 1,942 2.6 676 633 6.9
Selling and
marketing
expenses 1,295 1,177 10.0 449 391 14.9
General and
administrative
expenses 327 294 11.4 106 93 14.3
Operating
income before
other expenses 369 471 (21.6) 121 149 (18.8)
Other expenses,
net (7) (32) (77.4) (1) (5) (85.3)
Operating
Income 362 439 (17.5) 120 144 (16.4)
Financing
expenses, net (87) (72) 21.9 (19) (43) (54.5)
Income before
taxes on income 275 367 (25.2) 101 101 (0.4)
Taxes on income (88) (117) (25.3) (31) (35) (14.1)
Effective tax
rate 31.9% 32.0% 30.3% 35.1%
Income for the
period 187 250 (25.1) 70 66 7.0
Income
attributed to
the
shareholders of
the
Company 128 178 (28.0) 47 42 12.7
Income
attributed to
non-controlling
interest
holders 59 72 (17.8) 23 24 (2.9)
* Financial data were rounded off to NIS millions. The percentages of change were calculated on the basis of the exact figures in NIS thousands
Table 2
Following are the condensed results of business operations (based on the Company’s pro-forma statements) for the quarter and for the nine months ended September 30, 2011 and 2010 (in NIS millions):
Nine Months Third Quarter
2011 2010 % Chg 2011 2010 % Chg
Sales 5,629 5,047 11.5 2,015 1,771 13.8
Cost of sales 3,612 3,106 16.3 1,327 1,129 17.5
Gross Income 2,017 1,941 4.0 688 642 7.3
Selling and
marketing
expenses 1,295 1,177 10.0 449 391 14.9
General and
administrative
expenses 304 285 6.9 100 90 11.6
Operating
income -
pro-forma 418 479 (12.7) 139 161 (13.6)
Financing
expenses, net (87) (72) 21.9 (19) (43) (54.5)
Income before
taxes on income 331 407 (18.8) 120 118 1.2
Taxes on income (94) (121) (23.1) (34) (37) (13.2)
Income for the
period -
pro-forma 237 286 (17.0) 86 81 7.9
Income
attributed to
the
shareholders of
the Company 170 209 (18.7) 61 54 13.7
Income
attributed to
non-controlling
interest
holders 67 77 (12.4) 25 27 (3.6)
Table 3
Following are the condensed results of business operations (based on the Company’s pro-forma statements) of the major business segments for the quarter and for the nine months ended September 30, 2011 and 2010 (in NIS millions):
Nine Months Third Quarter
2011 2010 % Chg 2011 2010 % Chg
Israel
Net sales 2,161 2,012 7.4 750 688 9.0
Operating
income 238 243 (1.9) 80 87 (7.9)
Coffee
Net sales 2,777 2,465 12.6 1,022 868 17.7
Operating
income 178 205 (13.3) 59 64 (7.9)
International
Dips and
Spreads
Net sales 288 214 34.3 102 80 27.4
Operating
income 14 19 (24.1) 1 6 (72.9)
Other
Net sales 403 356 13.7 141 135 5.1
Operating
income (loss) (12) 12 (203.7) (1) 4 (154.0)
Total
Net sales 5,629 5,047 11.5 2,015 1,771 13.8
Operating
income 418 479 (12.7) 139 161 (13.6)
Table 4
Consolidated Balance Sheet (in NIS million):
September 30 September 30
2011 2010
(Unaudited) (Unaudited)
Current assets
Cash and cash
equivalents 324 803
Marketable
securities and
deposits 483 123
Trade receivables 1,161 1,057
Income tax
receivables 94 87
Other receivables
and debit balances 217 201
Inventory 893 717
Total current assets 3,172 2,988
Investments and
non-current assets
Other investments
and long-term debt
balances 168 140
Assets designated
for the payment of
employee benefits,
net 6 7
Fixed assets 1,601 1,451
Intangible assets 1,720 1,541
Deferred expenses 25 28
Investment property 24 5
Deferred tax assets 9 7
Total investments
and non-current
assets 3,553 3,179
Total assets 6,725 6,167
Current liabilities
Current maturities
of debentures 265 261
Short terms loans
and credit and
current maturities
of long term loans
and credit 420 263
Trade payables 720 642
Income tax payables 23 46
Other payables and
credit balances 575 560
Provisions 39 37
Total current
liabilities 2,042 1,809
Non-current
liabilities
Debentures 1,034 1,265
Long-term loans and
credit 778 170
Long-term payables
and credit balances 39 40
Employee benefits,
net 36 30
Deferred taxes 128 138
Total non-current
liabilities 2,015 1,643
Equity
Share capital 243 243
Share premium 622 622
Translation reserve (235) (184)
Treasury stock (20) (20)
Reserve for
available for sale
financial assets 2 3
Retained earnings 1,196 1,196
Total equity
attributable to the
Company's
shareholders 1,808 1,860
Non-Controlling
interests 860 855
Total equity 2,668 2,715
Total liabilities
and equity 6,725 6,167
1,2 Third quarter and First Nine month figures are pro-forma neutralizing the employees options , hedging transactions, non- recurring other income and expenses
For additional information:
Investors Contact
Yaffa Cohen-Ifrah
Director of Investor Relations
Strauss Group Ltd.
Tel: +972-3-6752545
Mob: +972-54-5772195
Email: yaffa.cohen-ifrah@strauss-group.com
www.strauss-group.com
Media Contact
Osnat Golan
VP Corporate Communications
Strauss Group Ltd.
Tel: +972-3-6752281
Mob: +972-52-8288111
Email: osnat.golan@strauss-group.com
www.strauss-group.com
.
Tags: Israel, November 16, Strauss Group Ltd, Tel aviv
