Strauss Group Today Announces Results for Third Quarter 2012
TEL AVIV, Israel, November 21, 2012 /PRNewswire/ --
THE GROUP REPORTS 3.1% SALES GROWTH AND 26.1% NON GAAP OPERATING PROFIT GROWTH THANKS TO STRONG RESULTS IN THE INTERNATIONAL COFFEE SEGMENT AND IN SABRA'S OPERATIONS IN NORTH AMERICA
A one-time net gain of approximately NIS 59 million on the realization of assets contributed to a significant increase in the GAAP profit for the third quarter.
Ofra Strauss, Chairperson of Strauss Group, said today (November 21, 2012): "The third quarter results reflect Strauss Group's capabilities in managing a diverse, international business portfolio. The company continues to invest in developing its international activities and strengthening growth drivers while persevering in streamlining processes, innovation, and providing significant added value to consumers in all markets where it is active, particularly in our home market in Israel."
Gadi Lesin, President and Chief Executive Officer of Strauss Group, said today: "Strauss Group posted 26.1% growth in the non-GAAP operating profit in the third quarter of 2012 thanks to strong performance in the international coffee segment and in Sabra, where sales grew by 34.2% in the quarter. At the same time, the Group continues to contend with challenges in its home market in Israel and is implementing dozens of internal streamlining processes. Strauss Israel has refrained from raising the prices of its products, other than a small number of dairy product categories where a moderate increase was inevitable in line with the increase in the price of raw milk."
Key data on the third quarter[1] and as at September 30, 2012
- Sales totaled NIS 2.1 billion (NIS 2.0 billion last year), an increase of 3.1%; organic sales excluding the effect of changes in exchange rates grew by 4.4%.
- Gross profit totaled NIS 737 million (35.5% of sales) compared to NIS 688 million last year (34.2% of sales), an increase of 7.1%.
- Operating profit totaled NIS 175 million (8.4% of sales) compared to NIS 139 million last year (6.9% of sales), an increase of 26.1%.
- The non-GAAP operating profit in the third quarter was positively influenced by the increase in the non-GAAP operating profit of Strauss Coffee (an increase of NIS 27million, of which NIS 24 million originated in the international coffee segment), by the growth in Sabra's operating profit (an increase of NIS 14 million) and by a decrease in the operating loss of Obela (a positive contribution of NIS 3 million). However, the increase was offset by an increase in the operating loss of the "Other" segment (a negative contribution of NIS 4 million), mainly as a result of the growth in operating expenses related to building the activity of Strauss Water in China and England, a decrease in the Fun & Indulgence segment (a negative contribution of NIS 3 million), and a decrease in the results of operations of the Health & Wellness segment (a decrease of NIS 1 million).
- Net income attributed to the Company's shareholders in the third quarter totaled NIS 69 million (3.3% of sales) compared to NIS 61 million last year (3.0% of sales), an increase of 14.5%.
- Cash flows from operating activities totaled NIS 171 million compared to NIS 57 million in the corresponding quarter last year.
- The net debt as at September 30, 2012 totaled NIS 1,613 million (compared to NIS 1,463 million on December 31, 2011 and NIS 1,671 million on June 30, 2012).
Key data on the first nine months of the year[1]
- Sales totaled NIS 6.1 billion (NIS 5.6 billion last year), an increase of 8.0%; organic sales excluding the effect of changes in exchange rates grew by 8.7%.
- Gross profit totaled NIS 2.1 billion (35.1% of sales) compared to NIS 2.0 billion last year (35.8% of sales), an increase of 5.8%.
- Operating profit totaled NIS 468 million (7.7% of sales) compared to NIS 418 million last year (7.4% of sales), an increase of 11.9%.
- The growth in the non-GAAP operating profit was mainly due to an improvement in the operating profit of Strauss Coffee (an increase of NIS 43 million), growth in the non-GAAP operating profit in Sabra (an increase of NIS 25 million) and a slight growth in the non-GAAP operating profit of the Fun & Indulgence segment (an increase of NIS 1 million). However, this growth was offset by a decrease in the results of the Health & Wellness segment (a decrease of NIS 8 million), an increase in the operating loss of the "Other" segment (a negative contribution of NIS 7 million), mainly as a result of the growth in operating expenses related to building the activity of Strauss Water in China and England, and expenses related to building the international dips and spreads business (Obela) outside of North America (a negative contribution of NIS 7 million).
- Net income attributed to the Company's shareholders totaled NIS 170 million (2.8% of sales) compared to NIS 170 million last year (3.0% of sales).
- Cash flows from operating activities totaled NIS 412 million compared to a negative cash flow of NIS 20 million in the corresponding period last year.
Key data on the first nine months and third quarter (non-GAAP, in NIS millions)[1]:
The Group's Activity in Israel
The Strauss Group is the second-largest company in the Israeli food market and in the first nine months of 2012, according to StoreNext, held 11.9% of the total domestic retail food and beverage market (on 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 the Strauss Group in Israel include the Health & Wellness and Fun & Indulgence Divisions, the coffee business in Israel, Max Brenner in Israel and Strauss Water in Israel (Tami4).
In the first nine months of 2012 the Strauss Group's total sales in Israel amounted to NIS 3,065 million compared to NIS 2,996 million last year, an increase of 2.3%. In the third quarter of the year the Group's total sales in Israel amounted to NIS 1,031 million compared to NIS 1,035 million last year, a decrease of 0.4%.
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1. Based on non-GAAP data, which do not include share-based payment, valuation of the
balance of commodities hedging transactions as at end of period, and other income
and expenses.
The Coffee Business
Following is the scope of sales of the coffee business in the major geographical regions, and growth rates for the quarter and nine months ended September 30, 2012 and 2011 (in NIS millions):
Nine Months Third Quarter
% change % change
Geographical in local in local
region 2012 2011 % chg currency* 2012 2011 % chg currency*
Israel Coffee 538 501 7.6 7.6 172 167 3.8 3.8
International
Coffee
Brazil (1)(2) 1,295 1,152 12.4 20.7 438 454 (3.4) 6.9
Former Yugoslavia
countries 150 172 (12.7) (3.4) 56 56 (0.1) 14.6
Former USSR
countries 608 492 23.5 19.3 210 186 13.2 8.0
Balkan States 189 176 7.2 13.7 65 60 9.2 16.6
Poland and other 301 284 6.0 11.1 108 99 7.1 7.3
Total
International
Coffee 2,543 2,276 11.7 16.9 877 855 2.6 8.4
Total Coffee 3,081 2,777 11.0 15.2 1,049 1,022 2.7 7.6
* The growth rate in the local currency neutralizes the impact of changes in
exchange rates in the different countries in relation to the Shekel on the growth
in the countries' sales.
(1) Brazil sales in the first nine months of 2012 include sales amounting to
NIS 237 million of green coffee and NIS 52 million of corn. In the first nine
months of 2011 sales of green coffee amounting to NIS 220 million and corn
amounting to NIS 52 million were included.
(2) Brazil sales in the third quarter of 2012 include sales amounting to
NIS 66 million of green coffee and NIS 17 million of corn. In the third quarter
of 2011 sales of green coffee amounting to NIS 93 million and corn amounting to
NIS 18 million were included.
Following are the condensed results of business operations (based on non-GAAP management reports) of the Coffee Company by reported sectors for the quarter and nine months ended September 30, 2012 and 2011 (in NIS millions):
Nine Months Third Quarter
2012 2011 % Chg 2012 2011 % Chg
Israel Coffee segment
Net sales 538 501 7.6 172 167 3.8
Operating profit 64 58 11.7 20 17 25.6
% profit 11.9% 11.6% 12.2% 10.2%
EBITDA 74 70 5.8 24 21 16.3
% EBITDA 13.8% 14.0% 14.1% 12.6%
International Coffee segment
Net sales 2,543 2,276 11.7 877 855 2.6
Operating profit 157 120 30.5 66 42 55.9
% profit 6.2% 5.3% 7.5% 4.9%
EBITDA 205 163 25.6 82 56 46.3
% EBITDA 8.0% 7.2% 9.3% 6.5%
Total Coffee
Net sales 3,081 2,777 11.0 1,049 1,022 2.7
Operating profit 221 178 24.3 86 59 46.3
% profit 7.2% 6.4% 8.3% 5.8%
EBITDA 279 233 19.6 106 77 37.3
% EBITDA 9.1% 8.4% 10.1% 7.6%
Sales
Sales by Strauss's coffee business in the first nine months of 2012 totaled NIS 3,081 million compared to NIS 2,777 million in the corresponding period last year, an increase of 11.0%. Excluding the impact of exchange rates differentials, growth in the nine months amounted to 15.2%. Organic growth excluding the impact of exchange rate differentials amounted to 13.4% in the reported period.
Coffee sales in the first nine months of 2012 increased thanks to growth in the coffee category in almost all geographical regions: in Brazil (an increase of NIS 143 million), in the former USSR countries (an increase of NIS 116 million, originating mainly in Russia), in Israel (an increase of NIS 37 million), in Poland (an increase of NIS 17 million) and in the Balkans (an increase of NIS 13 million, originating mainly in Romania). By contrast, the increase was set off by a decrease in coffee sales in the former Yugoslavia countries (down by NIS 22 million).
In the third quarter Strauss Coffee's sales totaled NIS 1,049 million compared to NIS 1.022 million last year, an increase of 2.7%. Excluding the impact of currency exchange rates, growth amounted to 7.6%. Organic growth excluding the impact of exchange rate differentials amounted to 6.3% in the quarter.
Coffee sales in the third quarter of 2012 increased thanks to sales growth in the former USSR countries (an increase of NIS 24 million, originating mainly in Russia), in Poland (an increase of NIS 9 million), in the Balkans (an increase of NIS 5 million, originating mainly in Romania) and in Israel (an increase of NIS 5 million). By contrast, the increase was set off by a decrease in coffee sales in Brazil (down by NIS 16 million).
Gross profit
In the first nine months gross profit in the coffee business totaled NIS 880 million (28.6% of sales) compared to NIS 823 million (29.6%) last year, an increase of 6.9%. The improvement in gross profit was the result of the growth in sales, which was partly offset by the increase in the prices of the Coffee Company's raw materials and other production costs compared to the corresponding period last year.
In the third quarter gross profit amounted to NIS 310 million (29.6% of sales) compared to NIS 276 million (27.0%) last year, an increase of 12.5%. The increase in gross profit and the gross profit rate is due to the growth in sales, the drop in green coffee prices compared to the corresponding quarter last year, the positive impact of the mix as a result of accelerated growth in instant coffee sales in Russia, and the decrease in the production costs of freeze-dried instant coffee thanks to the new coffee production facility in Germany.
Operating profit
In the first nine months the operating profit of the coffee business totaled NIS 221 million (7.2% of sales) compared to NIS 178 million (6.4% of sales) last year, an increase of 24.3%. The increase in the operating profit compared to the corresponding period is the result of the growth in gross profit and because G&A and selling and marketing expenses rose at a lower rate than the growth in sales. Additionally, there was an improvement in the operating profit of Elite Coffee to Go (ECTG).
In the third quarter the operating profit of the coffee business totaled NIS 86 million (8.3% of sales) compared to NIS 59 million (5.8% of sales) last year, an increase of 46.3%. The increase in operating profitability compared to the prior period was mainly influenced by the growth in gross profitability and the improvement in the operating profit of ECTG.
Brazil
In the first nine months of 2012 the Company's sales in Brazil totaled NIS 1,295 million, an increase of 12.4% (20.7% excluding the currency impact). The average market share in roasted and ground (R&G) coffee in the first nine months according to A.C. Nielsen figures reached 20.7%, compared to 20.5% in the corresponding period last year. Growth was expressed in all categories of activity in Brazil, except for corn sales.
In the third quarter of 2012 sales in Brazil decreased by 3.4% (an increase of 6.9% excluding the currency impact). The decrease in the Company's sales in Brazil is due in part to a drop in green coffee sales. The Company's sales in Brazil in the third quarter included NIS 66 million in sales of green coffee compared to NIS 93 million in the corresponding quarter last year. Excluding green coffee sales, the Company's sales in Brazil grew by 3.4% (14.5% excluding the currency impact). Additionally, the average exchange rate of the Brazilian Real versus the Shekel in the third quarter of 2012 weakened by 9.1% compared to the average exchange rate in the corresponding quarter last year, and adversely affected sales growth in Shekel terms.
The former USSR countries
The Coffee Company continues to strengthen its competitive position in Russian coffee market, particularly in instant coffee. The Company's sales in the region in the first nine months of 2012 totaled NIS 608 million, an increase of 23.5% (19.3% excluding the currency impact) in relation to the corresponding period last year. The Company's sales in the third quarter amounted to NIS 210 million, an increase of 13.2% (8.0% excluding the currency impact) compared to the corresponding quarter last year. The growth in sales is mainly the result of the increase in instant coffee volumes.
The former Yugoslavia countries
The Company continues to contend with the challenging market conditions in Serbia. In the first nine months sales in the region decreased by 12.7% (a decrease of 3.4% excluding the currency impact) compared to the corresponding period last year and totaled NIS 150 million. Sales were affected by the slowdown in the coffee market following the recession, by the growing competition, by the material erosion of the Serbian currency in relation to the Shekel and by a shift to the consumption of more basic coffee in the country. The Company's sales in the region in the third quarter of 2012 totaled NIS 56 million, a decrease of 0.1%, but after neutralizing the currency impact sales grew by 14.6%. The change in trend and sales growth in the quarter (in local currency) were mainly the result of volume growth and a price increase versus the corresponding period last year.
In the third quarter this year an expense of approximately NIS 16 million was recorded in respect of the impairment of the residual goodwill attributed to Strauss Coffee's subsidiary in Serbia. The impairment was mainly caused by the increase in the discount rate applied in the valuation, which was based on the DCF model. The increase in the discount rate (from 11.0% to 13.0%) was mainly the result of the increase in the risk-free interest rate in Serbia.
The Balkan States
In the first nine months this year sales amounted to NIS 189 million, an increase of 7.2% compared to the corresponding period last year (13.7% excluding the currency impact). In the third quarter sales totaled NIS 65 million, an increase of 9.2% compared to the corresponding quarter last year (16.6% excluding the currency impact), mainly as a result of the growth in sales volumes.
Poland
In the first nine months of 2012 sales totaled NIS 301 million, an increase of 6.0% compared to the corresponding period last year (11.1% excluding the currency impact). In the third quarter sales totaled NIS 108 million, an increase of 7.1% compared to the prior period (7.3% excluding the currency impact).
The sales growth was mainly expressed in volumes and was the result of the Company's entry to a significant retail chain in Poland at the beginning of the year. Conversely, sales were influenced by the challenging environmental conditions, growing competition and currency erosion.
Israel
In the first nine months coffee sales in Israel grew by 7.6%. Growth in Israel sales was expressed in all coffee categories (instant coffee, Turkish coffee) and in all channels (retail, AFH).
In the third quarter coffee sales in Israel grew by 3.8%, mainly as a result of a growth in volumes.
Activity in Israel
Following are the condensed results of business operations based on non-GAAP management reports of Strauss Israel by activity segments, for the quarter and nine months ended September 30, 2012 and 2011 (in NIS millions):
Nine Months Third Quarter
2012 2011 % Chg 2012 2011 % Chg
Health & Wellness segment
Net sales 1,453 1,421 2.3 511 506 1.0
Operating profit 150 158 (5.3) 59 60 (2.3)
% profit 10.3% 11.1% 11.5% 11.9%
EBITDA 192 195 (1.3) 77 73 4.7
% EBITDA 13.2% 13.7% 15.1% 14.5%
Fun & Indulgence segment
Net sales 745 740 0.6 232 244 (5.1)
Operating profit 81 80 1.9 17 20 (12.2)
% profit 10.9% 10.8% 7.6% 8.2%
EBITDA 101 100 1.4 24 27 (9.2)
% EBITDA 13.6% 13.5% 10.5% 11.0%
Total Israel
Net sales 2,198 2,161 1.7 743 750 (1.0)
Operating profit 231 238 (2.9) 76 80 (4.6)
% profit 10.5% 11.0% 10.3% 10.7%
EBITDA 293 295 (0.4) 101 100 1.0
% EBITDA 13.3% 13.6% 13.6% 13.4%
Sales
Strauss Israel's sales in the first nine months totaled NIS 2,198 million compared to NIS 2,161 million in the corresponding period last year, an increase of 1.7%. Growth was expressed in both activity segments, Health & Wellness (2.3%) and Fun & Indulgence (0.6%). Strauss Israel's sales grew by 2.1% in volume.
According to StoreNext figures, in the first nine months of 2012 the Israeli food and beverage market grew by 1.2% (in financial value). In this period the dairy market decreased by 1.5% (in financial value), mainly as a result of reductions in product prices by the Company and other companies in the market. Strauss's market share of the total food and beverage market in Israel in the first nine months of 2012 was 11.9%, similar to the corresponding period last year.
Israel sales in the third quarter totaled NIS 743 million, compared to NIS 750 million last year, a decrease of 1.0%.
Health & Wellness sales grew in the third quarter by 1.0%. Growth was influenced by an increase in volumes and an improvement in the mix, and was partly offset as a result of a negative price effect compared to the corresponding quarter last year.
Fun & Indulgence sales dropped in the third quarter by 5.1%. Some of the decrease in Fun & Indulgence sales is explained by the timing of the Jewish holidays this year.
Gross profit
In the first nine months gross profit in the business in Israel increased by 0.1% and totaled NIS 864 million (39.3% of sales), compared to NIS 863 million in the corresponding period last year (39.9%).
The gross profit rate dropped mainly as a result of an increase in Strauss Israel's cost platform compared to the first nine months last year: energy and water prices rose; wage costs increased, among other things due to the Company's decision on the early implementation of the increase in the minimum wage, applied by the Company as part of the steps taken to improve the welfare of the Group's employees; the negative effect of currency exchange rates (mainly the strengthening of the Dollar); and an increase in costs due to regulation (e.g. the Packaging Law).
Gross profit in the third quarter amounted to NIS 290 million (39.0% of sales) compared to NIS 295 million in the corresponding quarter last year (39.4%), a decrease of 2.0%.
The gross profit and gross profit rate decreased as a result of the decrease in sales, and also due to the growth in Strauss Israel's cost platform versus the corresponding period last year (similar to the first nine months of 2012).
Operating profit
In the first nine months the operating profit in Israel amounted to NIS 231 million (10.5% of sales) compared to NIS 238 million in the corresponding period last year (11.0% of sales), a decrease of 2.9%. The decrease in the operating profit is due to the increase in selling expenses compared to the corresponding period last year. The increase in selling expenses was primarily the result of an increase in distribution costs following the growth in sales, and also of the increase in fuel costs and in wage costs.
The operating profit in Israel decreased in the third quarter by 4.6% and amounted to NIS 76 million (10.3% of sales), compared to NIS 80 million last year (10.7% of sales). The decrease in the operating profit was mainly the result of the decrease in gross profit.
The International Dips and Spreads Activity (Executed by Sabra and Obela)
Sabra
Sabra's sales continue to grow along with its market shares, and it maintained its leading position in the refrigerated flavored spreads category and in the hummus category.
According to IRI, Sabra's market share in the twelve weeks ended on September 9, 2012 was 25.7% of the total refrigerated flavored spreads category (Number 1 in the market), 56.5% of the hummus category (Number 1 in the market), and 9.1% of the fresh salsa category (Number 3 in the market). Additionally, according to IRI Sabra led approximately 63% of the growth of the refrigerated flavored spreads category.
Following are selected financial data on Sabra's activity (reflecting 100%):
Sales
In the first nine months, Sabra's sales totaled NIS 751 million compared to NIS 576 million last year, an increase of 30.5%. Excluding the currency impact, growth amounted to 18.9%. Most of the sales growth, excluding the currency impact, is explained by a growth in volumes.
In the third quarter sales totaled NIS 273 million compared to NIS 203 million last year, an increase of 34.2%. Excluding the currency impact, growth amounted to 19.6%.
Operating profit
In the first nine months the non-GAAP operating profit totaled NIS 98 million (13.1% of sales) compared to NIS 48 million last year (8.4%), an increase of 102.3%.
In the third quarter the non-GAAP operating profit totaled NIS 47 million (17.1% of sales) compared to NIS 19 million last year (9.3%), an increase of 145.7%.
The growth in operating profit in the nine months and in the quarter is mainly the result of the strong sales growth, which allowed for continued growth in the production capacity utilization rate in Sabra's plants (mainly the plant in Virginia), and of the decrease in G&A expenses as a percentage of sales as well as various operational streamlining accomplishments.
Obela
Obela's activity was launched in Mexico in June 2012 with the opening of its new production facility and is expected to expand into additional countries. Like Sabra's activity, Obela's activity is conducted through a joint venture of the Group and PepsiCo (each party holds 50%). Further to an acquisition in the refrigerated spreads category in Australia from PepsiCo in the second quarter, in the third quarter of 2012 Obela acquired the Australian company Copperpot, which specializes in refrigerated spreads.
Following are selected financial data on Obela's activity (reflecting 100%):
Obela's sales began in the second quarter of 2012 and amounted to NIS 15 million by the end of the third quarter. Sales in the third quarter amounted to NIS 8 million. The non-GAAP operating loss totaled NIS 28 million and NIS 10 million in the first nine months of 2012 and the third quarter, respectively.
Other Operations
In addition to the areas of activity described above, the Group has other businesses, which are included in the financial statements as the "Other Operations" segment. Following is a brief description of developments in these activities in the first nine months and third quarter of 2012:
Strauss Water
In the first nine months Strauss Water's sales amounted to NIS 314 million compared to NIS 305 million last year, an increase of 2.8%.
In the third quarter sales amounted to NIS 112 million compared to NIS 106 million last year, an increase of 5.0%.
Further to the contents of Note 6.8 to the Annual Financial Statements regarding a set of agreements signed by the subsidiary Strauss Water (hereinafter: the Subsidiary) with companies of the Virgin Group to establish a joint venture in England (hereinafter: "Virgin Strauss Water"), in August 2012 the Subsidiary closed the transaction with investment funds of the Virgin Group (the "Funds"). The amounts determined in the investment agreement signed in November 2011 were altered, and during the month of August 2012 the Funds invested the sum of $5 million in Virgin Strauss Water according to a pre-money value of $8 million. The Subsidiary simultaneously invested $3.5 million in Virgin Strauss Water and the Company invested a further $1.5 million on November 1, 2012. Following these investments, the shareholdings in Virgin Strauss Water are 72% held by the Subsidiary and 28% by the Funds. To the extent that Virgin Strauss Water accomplishes certain business objectives by the end of 2012 the Funds and the Subsidiary will each invest an additional $5 million in Virgin Strauss Water. Assuming that both parties indeed make the additional investment, the shareholdings in Virgin Strauss Water will be 64% by the Subsidiary and 36% by the Funds. Should the Funds decide to make the additional investment even in the case where Virgin Strauss Water does not accomplish the abovementioned business objectives, Strauss Water will be obliged to make the additional investment as well.
The board of directors of Virgin Strauss Water comprises three directors appointed by the Subsidiary, and three directors on behalf of the Virgin Group. Virgin Strauss Water will continue to be managed under joint control as aforesaid; however, should the Funds' shareholding remain below 30% as a result of the second investment not being made, or should their shareholding fall below 30% in the future, one of the directors appointed by the Funds will resign.
Max Brenner
Max Brenner applies an operating model that combines branches operated under franchise with branches owned by the Company. During the third quarter the Company sold the five branches in Israel which had been under its ownership. These branches are now operated under franchise. The entire Max Brenner operation in Israel and abroad, including growing the chain, managing the brand, developing the unique products, the Max Brenner factory and the sale of products in shopping malls, will continue to be managed by the Strauss Group.
As a result of the sale of the five branches in Israel (which were owned by a subsidiary of the Group) the Group recorded a capital loss of NIS 13 million.
In the first nine months of 2012 Max Brenner's sales totaled NIS 103 million compared to NIS 99 million last year, an increase of 4.6%. Excluding the impact of the strengthening of the Dollar in relation to the Shekel, sales in the first nine months compared to the corresponding period last year decreased by 0.6%. Organic growth excluding the currency impact and sales by the branches in Israel (which are included for a period of 8 months this year, compared to 9 months in 2011) amounted to 6.6%.
In the third quarter of the year Max Brenner's sales totaled NIS 35 million compared to NIS 36 million last year, a decrease of 3.8%. Excluding the impact of the strengthening of the Dollar in relation to the Shekel, sales in the quarter decreased by 9.7%. Organic growth excluding the currency impact and sales by the branches in Israel (which are included for a period of 2 months compared to 3 months last year) amounted to 1.7%.
At the date of publication of the report, forty-four Max Brenner Chocolate Bars are in operation in Israel and around the world: forty under franchise and four owned by the Company (in the USA: New York, Philadelphia, Las Vegas and Boston). The Max Brenner branches are spread throughout Australia (30), Israel (6), the USA (4), Singapore (3) and the Philippines (1). In the first nine months of 2012 four new branches were opened under franchise, all of them in Australia. The branches were opened in May, July, September and November 2012.
Analysis of the Business Results of the Group*
Following are the condensed financial accounting statements of income (GAAP) for the quarter and nine months ended September 30, 2012 and 2011 (in NIS millions):
First Nine Months Third Quarter
2012 2011 % Chg 2012 2011 % Chg
Sales 6,079 5,629 8.0 2,078 2,015 3.1
Cost of sales excluding impact of
commodities hedging transactions 3,946 3,612 9.2 1,341 1,327 1.1
Valuation of balance of commodities
hedging transactions as at end of
period (22) 26 (6) 12
Cost of sales 3,924 3,638 7.9 1,335 1,339 (0.3)
Gross profit 2,155 1,991 8.2 743 676 9.9
% of sales 35.5% 35.4% 35.8% 33.6%
Selling and marketing expenses 1,346 1,295 4.0 449 449 0.1
General and administrative expenses 332 327 1.6 117 106 10.3
Operating profit before other
expenses 477 369 29.0 177 121 46.2
% of sales 7.8% 6.6% 8.5% 6.0%
Other income (expenses), net 51 (7) 59 (1)
Operating profit 528 362 45.8 236 120 97.0
Financing expenses, net (102) (87) 17.0 (34) (19) 75.7
Income before taxes on income 426 275 54.9 202 101 101.1
Taxes on income (157) (88) 78.4 (73) (31) 137.8
Effective tax rate 36.8% 31.9% 35.8% 30.3%
Income for the period 269 187 43.8 129 70 85.2
Attributable to:
The Company's shareholders 203 128 59.4 105 47 124.8
Non-controlling interests 66 59 10.3 24 23 4.6
* Financial data were rounded off to NIS millions. The percentages change were calculated on the basis of the exact figures in NIS thousands
Following are the adjustments to the Company's non-GAAP management reports (NIS millions):
First Nine Months Third Quarter
2012 2011 % Chg 2012 2011 % Chg
Operating profit - GAAP - after
other income (expenses) 528 362 45.8 236 120 97.0
Share-based payment 13 23 4 6
Valuation of balance of commodities
hedging transactions as at end of
period (22) 26 (6) 12
Other expenses (income) (51) 7 (59) 1
Operating profit - non-GAAP 468 418 11.9 175 139 25.1
Financing expenses, net (102) (87) (34) (19)
Taxes on income (157) (88) (73) (31)
Taxes in respect of adjustments to
the above non-GAAP operating profit 28 (6) 27 (3)
Income for the period - non-GAAP
management reports 237 237 - 95 86 11.2
Following are the condensed results of business operations (based on non-GAAP management reports) for the quarter and nine months ended September 30, 2012 and 2011 (in NIS millions):
First Nine Months Third Quarter
2012 2011 % Chg 2012 2011 % Chg
Sales 6,079 5,629 8.0 2,078 2,015 3.1
Cost of sales 3,946 3,612 9.2 1,341 1,327 1.1
Gross profit - non-GAAP 2,133 2,017 5.8 737 688 7.1
% of sales 35.1% 35.8% 35.5% 34.2%
Selling and marketing expenses 1,346 1,295 4.0 449 449 0.1
General and administrative expenses 319 304 4.8 113 100 12.2
Operating profit - non-GAAP
management reports 468 418 11.9 175 139 26.1
% of sales 7.7% 7.4% 8.4% 6.9%
Financing expenses, net (102) (87) 17.0 (34) (19) 75.7
Income before taxes on income 366 331 10.6 141 120 18.0
Taxes on income (129) (94) 37.1 (46) (34) 35.9
Income for the period - non-GAAP
management reports 237 237 - 95 86 11.2
Attributable to:
The Company's shareholders 170 170 - 69 61 14.5
Non-controlling interests 67 67 0.5 26 25 3.7
Following are the condensed results of business operations (based on non-GAAP management reports) of the major business sectors for the quarter and nine months ended September 30, 2012 and 2011 (in NIS millions):
First Nine Months Third Quarter
2012 2011 % Chg 2012 2011 % Chg
Israel
Net sales 2,198 2,161 1.7 743 750 (1.0)
Operating profit 231 238 (2.9) 76 80 (4.6)
EBITDA[2] 293 295 (0.4) 101 100 1.0
Coffee
Net sales 3,081 2,777 11.0 1,049 1,022 2.7
Operating profit 221 178 24.3 86 59 46.3
EBITDA 279 233 19.6 106 77 37.3
International Dips and Spreads
Net sales 383 288 33.1 140 102 37.8
Operating profit 35 14 145.6 18 1 939.9
EBITDA 50 26 87.6 28 6 370.0
Other
Net sales 417 403 3.3 146 141 3.1
Operating profit (loss) (19) (12) 59.7 (5) (1) 243.4
EBITDA 15 29 (49.6) (3) 13 (126.1)
Total
Net sales 6,079 5,629 8.0 2,078 2,015 3.1
Operating profit 468 418 11.9 175 139 26.1
EBITDA 637 583 9.2 232 196 18.7
2. EBITDA = operating profit plus depreciation and amortization of intangible
assets and deferred expenses.
Sales
In the first nine months of 2012 the Group's sales amounted to NIS 6,079 million compared to NIS 5,629 million last year, an increase of 8.0%. Organic growth in the first nine months excluding the impact of changes in exchange rates amounted to 8.7%. Growth was evident mainly in the International Dips and Spreads sector (the activity of Sabra and Obela), which grew by 33.1%, in the activity of the Coffee Company, which grew by 11.0% in the reported period, and in the activity of Strauss Israel, which grew by 1.7%.
The growth in the Group's sales in the first nine months of 2012 is the result of the growth in the sales of Strauss Coffee (an additional NIS 304 million), growth in the sales of the International Dips and Spreads sector (an additional NIS 95 million), growth in the sales of Strauss Israel (an additional NIS 37 million), and growth in sales by the Other segment (an additional NIS 14 million; excluding sales by the five Max Brenner branches in Israel which moved to a franchise model, the increase amounts to NIS 20 million).
In the third quarter the Group's sales amounted to NIS 2,078 million compared to NIS 2,015 million last year, an increase of 3.1%. Organic growth in the third quarter excluding the impact of changes in exchange rates amounted to 4.4%. Growth in the quarter was evident mainly in the International Dips and Spreads sector (the activity of Sabra and Obela), which grew by 37.8%.
The growth in the Group's sales in the third quarter of 2012 is the result of the growth in sales by the International Dips and Spreads sector (an additional NIS 38 million), growth in sales by Strauss Coffee (an additional NIS 27 million), and growth in sales by the Other segment (an additional NIS 5 million; excluding sales by the five Max Brenner branches in Israel which moved to the franchise model, the increase amounts to NIS 9 million). However, the growth was offset by the decrease in sales by Strauss Israel (a reduction of NIS 7 million).
Further explanations regarding the Group's sales in the first nine months and third quarter are included in the chapter "Analysis of the Business Results of the Group's Major Business Units".
Gross Profit
Gross profit (GAAP) in the first nine months of the year grew by 8.2% and totaled NIS 2,155 million compared to NIS 1,991 million in the corresponding period last year, and its rate increased from 35.4% last year to 35.5% this year.
Gross profit (non-GAAP) in the first nine months grew by 5.8% and totaled NIS 2,133 million compared to NIS 2,017 million in the corresponding period last year, and its rate decreased from 35.8% last year to 35.1% this year.
Gross profit (GAAP) in the third quarter grew by 9.9% and totaled NIS 743 million compared to NIS 676 million in the corresponding quarter last year, and its rate increased from 33.6% last year to 35.8% this year.
Gross profit (non-GAAP) in the quarter amounted to NIS 737 million compared to NIS 688 million last year, an increase of 7.1%. The gross profit rate increased from 34.2% to 35.5%.
Further explanations regarding the Group's gross profit in the first nine months and third quarter are included in the chapter "Analysis of the Business Results of the Group's Major Business Units".
Operating Profit before Other Income (Expenses)
Operating profit (before other income and expenses (GAAP)) totaled NIS 477 million (7.8% of sales) in the first nine months of 2012 compared to NIS 369 million (6.6%) last year, an increase of 29.0%.
Operating profit (non-GAAP) totaled NIS 468 million (7.7% of sales) in the first nine months compared to NIS 418 million (7.4%) last year, an increase of 11.9%. The increase in the non-GAAP operating profit is mainly due to an improvement in the operating profit of Strauss Coffee (an increase of NIS 43 million), growth in the non-GAAP operating profit of Sabra (an increase of NIS 25 million), and a slight growth in the non-GAAP operating profit of the Fun & Indulgence segment (an increase of NIS 1 million). By contrast, this increase was offset by a decrease in the results of the Health & Wellness segment (down by NIS 8 million), an increase in the operating loss of the Other segment (a negative contribution of NIS 7 million), mainly due to the increase in operating expenses related to building the activity of Strauss Water in China and England, and expenses related to building the international dips and spreads activity (Obela) outside of North America (a negative contribution of NIS 7 million).
Operating profit (before other income and expenses (GAAP)) in the third quarter totaled NIS 177 million (8.5% of sales) compared to NIS 121 million (6.0%) last year, an increase of 46.2%.
Operating profit (non-GAAP) in the third quarter totaled NIS 175 million (8.4% of sales) compared to NIS 139 million (6.9%) last year, an increase of 26.1%. The non-GAAP operating profit in the third quarter was positively affected by the growth in the non-GAAP operating profit of Strauss Coffee (an increase of NIS 27 million, of which NIS 24 million were achieved in the International Coffee segment), by the growth in Sabra's operating profit (an increase of NIS 14 million), and by a decrease in the operating loss of Obela (a positive contribution of NIS 3 million). By contrast, the increase was offset by an increase in the operating loss of the Other segment (a negative contribution of NIS 4 million), mainly due to the increase in operating expenses related to building the activity of Strauss Water in China and England, a decrease in the Fun & Indulgence segment (a decrease of NIS 3 million), and a decrease in the results of the Health & Wellness segment (a decrease of NIS 1 million).
Other Income (Expenses), Net
Other income, net totaled NIS 51 million in the first nine months compared to other expenses, net of NIS 7 million in the corresponding period last year.
In the third quarter other income, net totaled NIS 59 million compared to other expenses, net of NIS 1 million in the corresponding quarter last year.
The principal sums constituting the other income, net in the first nine months and the third quarter of 2012 are a capital gain from the sale of a real estate property in Givatayim in an amount of NIS 118 million (NIS 91 million net of tax); and by contrast, amortization in respect of the impairment of investment property in an amount of NIS 23 million, an expense of NIS 16 million in respect of the impairment of residual goodwill attributed to a subsidiary of Strauss Coffee in Serbia, and a capital loss of NIS 13 million from the realization of a holding in the subsidiary Chocolate Bar (in the context of the sale of the five Max Brenner branches in Israel). See also Notes 4.7, 4.8 and 4.9 to the consolidated interim financial statements as at September 30, 2012.
Operating Profit after Other Expenses
The Company's consolidated operating profit (GAAP) in the first nine months of 2012 totaled NIS 528 million compared to NIS 362 million last year, an increase of 45.8%.
In the third quarter the Company's operating profit totaled NIS 236 million compared to NIS 120 million last year, an increase of 97.0%.
Financing Expenses, Net
Financing expenses in the first nine months of 2012 totaled NIS 102 million compared to expenses of NIS 87 million in the corresponding period last year.
The reasons for the increase in financing expenses compared to the corresponding period last year were an increase in interest expenses due to the growth of the gross debt and average life of the debt, and expenses from the revaluation of foreign currency derivatives as a result of the strengthening of most of the Group's operating currencies versus the Dollar, as opposed to a significant weakening in the third quarter last year. By contrast, the increase was offset by financing expenses as a result of income from the revaluation of Index transactions this year and financing expenses relating to interest transactions in the corresponding period last year.
The Consumer Price Index (on the basis of the known Index) to which the Debentures Series B and other loans are linked rose by 2.1% in the first nine months of the year, compared to an increase of 2.7% in the corresponding period last year; however, the increase in the linked debt volume had an offsetting effect.
In the third quarter of the year financing expenses totaled NIS 34 million compared to NIS 19 million in the corresponding period last year.
The main factors that contributed to the increase in financing expenses were expenses entered in the quarter in respect of the revaluation of foreign currency positions due to the strengthening of the Group's operating currencies versus the Dollar, as opposed to high income from the revaluation of foreign currency transactions due to the significant weakening of the currencies versus the Dollar in the corresponding quarter last year, an 0.9% increase in the Consumer Price Index (on the basis of the known Index) to which the Debentures Series B and other loans are linked compared to an increase of 0.6% in the corresponding quarter last year, and an increase in interest expenses in the quarter as a result of the growth of the average debt life.
By contrast, the increase was offset by income entered in respect of interest transactions in the third quarter this year and expenses entered in respect of interest transactions in the third quarter last year.
Net credit as at September 30, 2012 totaled NIS 1,613 million compared to NIS 1,690 million on September 30, 2011 and NIS 1,463 million on December 31, 2011.
Income before Taxes on Income
In the first nine months the Group's consolidated income before taxes on income (GAAP) amounted to NIS 426 million (7.0% of sales) compared to NIS 275 million (4.9% of sales) in the corresponding period last year, an increase of 54.9%.
In the third quarter the Group's consolidated income before taxes on income amounted to NIS 202 million (9.7% of sales) compared to NIS 101 million (5.0% of sales) in the corresponding quarter last year, an increase of 101.1%.
Taxes on Income
In the first nine months taxes on income amounted to NIS 157 million, reflecting an effective tax rate of 36.8%, whereas last year taxes on income amounted to NIS 88 million and the effective tax rate was 31.9%.
In the third quarter taxes on income amounted to NIS 73 million, reflecting an effective tax rate of 35.8%, compared to NIS 31 million in taxes last year and an effective tax rate of 30.3%.
The increase in the effective tax rate in the nine months and the quarter is mainly due to a different mix of the pre-tax profit between the different countries, which is taxed at different rates and affects the weighted tax expenses, and to losses in various businesses, which cannot be set off against profits from other businesses.
Income for the Period
Income for the period (GAAP) in the first nine months totaled NIS 269 million compared to NIS 187 million last year, an increase of 43.8%.
Income for the period (non-GAAP) in the first nine months amounted to approximately NIS 237 million, similar to last year.
In the third quarter income for the period (GAAP) totaled NIS 129 million compared to NIS 70 million last year, an increase of 85.2%.
Income for the period (non-GAAP) in the third quarter totaled NIS 95 million compared to NIS 86 million last year, an increase of 11.2%.
Income for the Period Attributed to the Company's Shareholders
Income attributed to the Company's shareholders (GAAP) in the first nine months totaled NIS 203 million compared to NIS 128 million last year, an increase of 59.4%.
Income attributed to the Company's shareholders (non-GAAP) in the first nine months totaled approximately NIS 170 million, similar to the corresponding period last year.
In the third quarter income attributed to the Company's shareholders (GAAP) totaled NIS 105 million compared to NIS 47 million in the corresponding period last year, an increase of 124.8%.
Income attributed to the Company's shareholders (non-GAAP) in the third quarter totaled NIS 69 million (3.3% of sales) compared to NIS 61 million last year (3.0%), an increase of 14.5%.
Income for the Period Attributed to Non-Controlling Interests
In the first nine months the share of non-controlling interests in the income of subsidiaries (GAAP) totaled NIS 66 million compared to NIS 59 million in the corresponding period last year, an increase of 10.3%.
In the third quarter the share of non-controlling interests in the income of subsidiaries (GAAP) totaled NIS 24 million compared to NIS 23 million in the corresponding quarter last year, an increase of 4.6%.
For further information:
Talia Sessler
Investor Relations Director
Strauss Group Ltd.
+1-972-3-6752545; +1-972-54-5772195
[email protected]
http://www.strauss-group.com
Mirit Cohen
Spokesperson
Strauss Group Ltd.
+1-972-3-6752150
[email protected]
http://www.strauss-group.com
SOURCE Strauss Group Ltd
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