Strauss Group wraps up Q3 2022 with NIS 2.5 billion in revenue, 7% organic growth[1] and a decline in operating profit

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Nov 28, 2022, 01:51 ET

While achieving strong growth in the coffee business in Brazil and Europe as well as all other businesses in Israel excluding confectionery, the Group has contended with ongoing significant increases in raw material prices, which have eroded margins;

The chocolate production site in Nof Hagalil has restarted manufacturing and the Company is preparing to restock shelves;

Sabra has resumed full production and is growing its market share in the USA

PETAH TIKVA, Israel, Nov. 28, 2022 /PRNewswire/ -- This morning, Strauss Group (TASE: STRS) published its financial statements for the third quarter of 2022. In the quarter, the Company recorded an increase of 7%¹ in revenue, which amounted to NIS 2.5 billion. In the first nine months of 2022, revenue totaled NIS 7 billion, up 7.6%¹. The increase is largely due to sales growth in the coffee company in Brazil and Eastern Europe as well as continued growth in the water company but was offset by the drop in sales by the Confectionery Division and Sabra, both of which operated partially in the past several months.

The consequences of the confectionery recall and the adjustment plan in Sabra, as well as the rising costs of raw materials, mainly raw milk, green coffee, packaging materials and shipping and transportation costs, led to a 9.9% drop in gross profit, which was NIS 746 million in the quarter (gross margin of 30%). These circumstances also caused a drop in operating profit, which amounted to NIS 111 million, down 63.3% compared to the corresponding period last year. Income attributable to shareholders in the quarter was NIS 35 million, reflecting a drop of 82.4% compared to the corresponding quarter of 2021.

In an immediate report issued this morning, the company updated the estimated damage to its net profit for 2022 due to the recall event and the shutdown of the plant to a range of NIS 290-310 million.

Giora Bardea, Strauss Group CEO: "Strauss Group delivered growth in most of its businesses, other than the confectionery category in Israel and International Dips & Spreads. At the same time, coping with inflation and considerable increases in raw material prices, as well as Sabra's gradual return to the market and the suspension of confectionery operations have led to margin erosion. Strauss Coffee posted a quarter of strong performance, Strauss Water is growing admirably, and Strauss's food and beverage business in Israel, excluding confectionery, is maintaining market share and continues to grow nicely. In recent weeks, we have continued to implement the strategic plan we announced last March. We also announced the extension of our partnership agreement with the Lima family in Brazil for another twenty years and kicked off the Group's restructuring plan in the Israel geography. I am currently handing over leadership of the Group to Shai Babad and will assist him in assuming the position."

Strauss Israel wrapped up the quarter with NIS 871 million in revenue, down 10.7%, largely the result of a 47% drop in sales by the Fun & Indulgence segment, which amounted to NIS 143 million in the quarter due to the confectionery recall.

The Company's market share in the dairy, fresh foods, salty snacks and Yad Mordechai categories grew in the first nine months of 2022. Sales by the Health & Wellness segment were up 3.2% in the quarter and amounted to NIS 728 million, mainly due to growth in sales of dairy products and dairy alternatives. Rising raw material prices, notably the "target price" of milk, eroded the segment's operating profit, which amounted to NIS 66 million, and the operating margin was 9% compared to 13.6% in the corresponding period last year.

Strauss Coffee delivered an outstanding quarter, with NIS 1.3 billion in revenue and 37.3% growth across all geographies. In Israel, the coffee company's revenue was NIS 200 million, reflecting 15.7% growth compared to the corresponding period last year. In Brazil, sales soared 33.6%[2] to NIS 697 million, largely the result of a price update introduced this year. The Três Corações coffee company holds a 32.5% share of the roast & ground coffee market in Brazil, compared to 30.6% in the corresponding period. An agreement was recently signed with the partners in the joint venture to extend the successful partnership, which has created exceptional shareholder value throughout the years, for a further twenty years. The coffee business in Europe delivered an especially strong quarter, with sales growth² of 67% in Russia and Ukraine and 23.5% in Poland.

Sabra continues its growth process after the implementation of the adjustment plan at the plant in Virginia. The company, whose activity was largely suspended in the first half of 2022, has resumed full-scale manufacturing operations and has recently regained a 34.8% share of the hummus market in the USA, whereas in the corresponding period last year its market share was 61%. Sales in the third quarter amounted to NIS 82 million (reflecting 50% ownership), down 47.6%, and the operating loss was NIS 36 million (50% ownership). The Company estimates that Sabra will reach operating break-even by the end of the fourth quarter. Obela, which is active in dips and spreads in other regions, wrapped up the third quarter with NIS 22 million in revenue (50% ownership), reflecting 8.2% growth.

Strauss Water continued to grow commendably in the third quarter as well. The company's sales amounted to NIS 210 million - an increase of 9.1% - largely thanks to growth in the installed base and in sales of new appliances. The business in China continues to be impacted by COVID-19 but grew² 4.7% to NIS 161 million (reflecting 100% ownership) in the quarter. The business in the U.K. is expanding, and the company recently launched the new and advanced "edge" water bar series.

The Kitchen FoodTech Hub launched its second incubator in October. In addition, as of September 30, 2022, the total value of investments in the FoodTech incubator, as stated on the company's balance sheet, amounted to NIS 138 million. The fair value[3] of these investments on the above date was NIS 556 million, compared to NIS 326 million on September 30, 2021.

Non GAAP Figures ⁽¹⁾

Third Quarter
	2022	2021	Change
Total Group Sales (NIS mm)	2,493	2,297	8.5 %
Organic Sales Growth excluding FX	7.0 %	6.9 %
Gross Profit (NIS mm)	746	828	-9.9 %
Gross Margins (%)	29.9 %	36.0 %	-610 bps
EBITDA (NIS mm)	211	389	-45.8 %
EBITDA Margins (%)	8.4 %	16.9 %	-850 bps
EBIT (NIS mm)	111	300	-63.3 %
EBIT Margins (%)	4.4 %	13.1 %	-870 bps
Net Income Attributable to the Company's Shareholders (NIS mm)	35	204	-82.4 %
Net Income Margin (Attributable to the Company's Shareholders) (%)	1.4 %	8.9 %	-750 bps
EPS (NIS)	0.31	1.75	-82.4 %
Operating Cash Flow (NIS mm)	75	304	-75.3 %
Capex (NIS mm) ⁽²⁾	111	72	54.2 %
Net debt (NIS mm)	2,517	1,926	30.7 %
Net debt / annual EBITDA	2.9x	1.4x	1.5x
(1) The data in this document are based on the company's non-GAAP figures, which include the proportionate consolidation of jointly controlled businesses and do not include share-based payment, mark-to-market at end-of-period of open positions in the Group in respect of financial derivatives used to hedge commodity prices and all adjustments necessary to delay recognition of gains and losses arising from commodity derivatives until the date when the inventory is sold to outside parties, other income and expenses, net, and the tax effect of excluding those items, unless stated otherwise. (2) Investments include the acquisition of fixed assets, investment in intangible assets and proceeds from the sale of fixed assets. Note: Financial data were rounded to NIS millions. Percentages changes were calculated on the basis of the exact figures in NIS thousands.

Non GAAP Figures ⁽¹⁾

	Third Quarter
	Sales (NIS mm)	Sales growth vs. prior year	Organic sales growth excluding FX	EBIT (NIS mm)	NIS Change in EBIT	% Change in EBIT	EBIT margins	Change in EBIT margins vs. 2021
Sales and EBIT by Operating Segments and Activities
Strauss Israel:
Health & Wellness	728	3.2 %	3.2 %	66	-31	-31.8 %	9.0 %	-460 bps
Fun & Indulgence ⁽²⁾	143	-47.0 %	-47.0 %	-77	-93	-550.1 %	-53.3 %	-5960 bps
Total Strauss Israel	871	-10.7 %	-10.7 %	-11	-124	-109.5 %	-1.2 %	-1280 bps

Strauss Coffee:
Israel Coffee	200	15.7 %	15.7 %	24	-11	-31.0 %	11.8 %	-800 bps
International Coffee ⁽²⁾	1,108	42.2 %	37.3 %	122	61	95.6 %	10.9 %	+290 bps
Total Strauss Coffee	1,308	37.3 %	33.5 %	146	50	51.0 %	11.1 %	+100 bps

International Dips & Spreads:
Sabra (50%) ⁽²⁾	82	-47.6 %	-50.3 %	-36	-49	-367.1 %	-43.0 %	-5150 bps
Obela (50%) ⁽²⁾	22	8.2 %	14.3 %	-1	-1	-588.4 %	NM	NM
Total International Dips & Spreads	104	-41.4 %	-43.6 %	-37	-50	-380.0 %	-35.4 %	-4280 bps

Strauss Water ⁽²⁾	210	9.1 %	9.5 %	26	0	0.3 %	12.2 %	-100 bps
Other	0	NM	NM	-13	-65	-124.1 %	NM	NM
Total Group	2,493	8.5 %	7.0 %	111	-189	-63.3 %	4.4 %	-870 bps
(1) The data in this document are based on the company's non-GAAP figures, which include the proportionate consolidation of jointly controlled businesses and do not include share-based payment, mark-to-market at end-of-period of open positions in the Group in respect of financial derivatives used to hedge commodity prices and all adjustments necessary to delay recognition of gains and losses arising from commodity derivatives until the date when the inventory is sold to outside parties, other income and expenses, net, and the tax effect of excluding those items, unless stated otherwise. (2) Fun & Indulgence figures include Strauss's 50% share in the salty snacks business. International Coffee figures include Strauss's 50% share in the Três Corações joint venture (3C) – Brazil – a company jointly held by the Group (50%) and by the local São Miguel Group (50%). International Dips & Spreads figures reflect Strauss's 50% share in Sabra and Obela. Strauss Water EBIT figures include Strauss's share in Haier Strauss Water (HSW) in China (49%). Note: Financial data were rounded to NIS millions. Percentages changes were calculated on the basis of the exact figures in NIS thousands. Total figures for International Dips & Spreads were calculated on the basis of the exact figures for Sabra and Obela in NIS thousands.

Non GAAP Figures ⁽¹⁾

First Nine Months
	2022	2021	Change
Total Group Sales (NIS mm)	7,041	6,490	8.5 %
Organic Sales Growth excluding FX	7.6 %	5.6 %
Gross Profit (NIS mm)	2,099	2,435	-13.8 %
Gross Margins (%)	29.8 %	37.5 %	-770 bps
EBITDA (NIS mm)	606	1,058	-42.7 %
EBITDA Margins (%)	8.6 %	16.3 %	-770 bps
EBIT (NIS mm)	315	801	-60.6 %
EBIT Margins (%)	4.5 %	12.3 %	-780 bps
Net Income Attributable to the Company's Shareholders (NIS mm)	148	536	-72.3 %
Net Income Margin (Attributable to the Company's Shareholders) (%)	2.1 %	8.3 %	-620 bps
EPS (NIS)	1.27	4.61	-72.4 %
Operating Cash Flow (NIS mm)	91	612	-85.0 %
Capex (NIS mm) ⁽²⁾	287	199	44.2 %
Net debt (NIS mm)	2,517	1,926	30.7 %
Net debt / annual EBITDA	2.9x	1.4x	1.5x
(1) The data in this document are based on the company's non-GAAP figures, which include the proportionate consolidation of jointly controlled businesses and do not include share-based payment, mark-to-market at end-of-period of open positions in the Group in respect of financial derivatives used to hedge commodity prices and all adjustments necessary to delay recognition of gains and losses arising from commodity derivatives until the date when the inventory is sold to outside parties, other income and expenses, net, and the tax effect of excluding those items, unless stated otherwise. (2) Investments include the acquisition of fixed assets, investment in intangible assets and proceeds from the sale of fixed assets. Note: Financial data were rounded to NIS millions. Percentages changes were calculated on the basis of the exact figures in NIS thousands.

Non GAAP Figures (1)

	First Nine Months
	Sales (NIS mm)	Sales growth vs. prior year	Organic sales growth excluding FX	EBIT (NIS mm)	NIS Change in EBIT	% Change in EBIT	EBIT margins	Change in EBIT margins vs. 2021
Sales and EBIT by Operating Segments and Activities
Strauss Israel:
Health & Wellness	2,069	3.0 %	3.0 %	212	-49	-18.5 %	10.2 %	-270 bps
Fun & Indulgence ⁽²⁾	550	-35.9 %	-35.9 %	-249	-338	-377.9 %	-45.2 %	-5560 bps
Total Strauss Israel	2,619	-8.6 %	-8.6 %	-37	-387	-110.5 %	-1.4 %	-1360 bps

Strauss Coffee:
Israel Coffee	595	9.1 %	9.1 %	91	-29	-23.7 %	15.4 %	-660 bps
International Coffee ⁽²⁾	2,939	46.5 %	42.9 %	287	135	87.6 %	9.8 %	+220 bps
Total Strauss Coffee	3,534	38.5 %	35.9 %	378	106	38.8 %	10.7 %	--

International Dips & Spreads:
Sabra (50%) ⁽²⁾	233	-49.3 %	-50.0 %	-79	-121	-288.0 %	-33.7 %	-4270 bps
Obela (50%) ⁽²⁾	63	-0.7 %	6.2 %	-6	-1	34.0 %	NM	NM
Total International Dips & Spreads	296	-43.5 %	-44.0 %	-85	-122	-331.1 %	-28.7 %	-3570 bps

Strauss Water ⁽²⁾	592	8.0 %	8.3 %	74	4	6.1 %	12.5 %	-20 bps
Other	0	NM	NM	-15	-87	-120.4 %	NM	NM
Total Group	7,041	8.5 %	7.6 %	315	-486	-60.6 %	4.5 %	-780 bps
(1) The data in this document are based on the company's non-GAAP figures, which include the proportionate consolidation of jointly controlled businesses and do not include share-based payment, mark-to-market at end-of-period of open positions in the Group in respect of financial derivatives used to hedge commodity prices and all adjustments necessary to delay recognition of gains and losses arising from commodity derivatives until the date when the inventory is sold to outside parties, other income and expenses, net, and the tax effect of excluding those items, unless stated otherwise. (2) Fun & Indulgence figures include Strauss's 50% share in the salty snacks business. International Coffee figures include Strauss's 50% share in the Três Corações joint venture (3C) – Brazil – a company jointly held by the Group (50%) and by the local São Miguel Group (50%). International Dips & Spreads figures reflect Strauss's 50% share in Sabra and Obela. Strauss Water EBIT figures include Strauss's share in Haier Strauss Water (HSW) in China (49%). Note: Financial data were rounded to NIS millions. Percentages changes were calculated on the basis of the exact figures in NIS thousands. Total figures for International Dips & Spreads were calculated on the basis of the exact figures for Sabra and Obela in NIS thousands.

Condensed financial accounting (GAAP)
Third Quarter
	2022	2021	Change
Sales	1,608	1,546	4.1 %
Cost of sales excluding impact of commodity hedges	1,076	933	15.3 %
Adjustments for commodity hedges	0	10
Cost of sales	1,076	943	14.1 %
Gross profit	532	603	-11.7 %
% of sales	33.1 %	39.0 %
Selling and marketing expenses	348	332	4.9 %
General and administrative expenses	101	106	-4.0 %
Total expenses	449	438	2.8 %
Share of profit of equity-accounted investees	14	62	78.4%-
Share of loss of equity-accounted incubator investees	-13	52	124.4%-
Operating profit before other expenses	84	279	-69.9 %
% of sales	5.2 %	18.1 %
Other expenses, net	-3	-3
Operating profit after other expenses	81	276	-70.5 %
Financing expenses, net	-31	-25	27.4 %
Income before taxes on income	50	251	-80.0 %
Taxes on income	-12	-42	-70.9 %
Effective tax rate	24.4 %	16.8 %
Income for the period	38	209	-81.8 %
Attributable to the Company's shareholders	27	189	-85.7 %
Attributable to non-controlling interests	11	20	-46.3 %

Condensed financial accounting (GAAP)
First Nine Months
	2022	2021	Change
Sales	4,540	4,513	0.6 %
Cost of sales excluding impact of commodity hedges	3,051	2,686	13.6 %
Adjustments for commodity hedges	-4	-1
Cost of sales	3,047	2,685	13.5 %
Gross profit	1,493	1,828	-18.3 %
% of sales	32.9 %	40.5 %
Selling and marketing expenses	1,012	981	3.1 %
General and administrative expenses	314	313	0.4 %
Total expenses	1,326	1,294	2.5 %
Share of profit of equity-accounted investees	86	150	42.9%-
Share of profit of equity-accounted incubator investees	-12	75	115.5%-
Operating profit before other expenses	241	759	-68.2 %
% of sales	5.3 %	16.8 %
Other expenses, net	-34	0
Operating profit after other expenses	207	759	-72.7 %
Financing expenses, net	-25	-47	-46.1 %
Income before taxes on income	182	712	-74.4 %
Taxes on income	-44	-134	-67.3 %
Effective tax rate	24.1 %	18.8 %
Income for the period	138	578	-76.1 %
Attributable to the Company's shareholders	96	522	-81.6 %
Attributable to non-controlling interests	42	56	-24.8 %
Financial data were rounded to NIS millions. Percentages changes were calculated on the basis of the exact figures in NIS thousands.

Conference Call

Strauss Group will host a Zoom conference call in Hebrew on Monday, November 28, 2022 at 14:00 (Israel time) with the participation of company management to review the financial statements of the company for the third quarter of 2022. Following is information for those wishing to join the conference:

Meeting URL:	https://strauss-group.zoom.us/j/95818760545?pwd=ZFRSQ1g0ZjU0Tm1SOUxtbkc5R3REQT09
Meeting ID:	958 1876 0545
Password:	370628

Strauss Group will also host a Zoom conference call in English on Monday, November 28, 2022 at 15:30 (Israel time) (13:30 UK, 08:30 EST) with the participation of company management to review the financial statements of the company for the second quarter of 2022.

Meeting URL:	https://strauss-group.zoom.us/j/93411159282?pwd=SVUwM0ViUnZZVjI2ZjJISk5yNE5UUT09
Meeting ID:	934 1115 9282
Password:	572773

A recording of the calls will subsequently be available on the company's website at:
http://ir.strauss-group.com/phoenix.zhtml?c=92539&p=irol-conferencecalls

The financial statements of the company for the fourth quarter and full year 2021 and the presentation that will accompany the conferences will be available prior to the conference calls on the following websites:
http://www.tase.co.il
http://www.magna.isa.gov.il
http://ir.strauss-group.com/phoenix.zhtml?c=92539&p=irol-irhome

For further information, please contact:

Osnat Golan

VP Communications, Corporate Brand & Sustainability

Strauss Group Ltd.

972-52-828-8111

972-3-675-2281

[email protected]

Daniella Finn

Director of Investor Relations

Strauss Group Ltd.

972-54-426-2636

972-3-675-2545

[email protected]

Shlomi Sheffer

External Communications Director

Strauss Group Ltd.

972-50-620-8000

972-3-675-6713

[email protected]

Organic growth excluding foreign currency effects.
Data in this document are based on the company's non-GAAP figures, which include the proportionate consolidation of jointly controlled entities and do not include share-based payment, mark-to-market at end-of-period of open positions in the Group in respect of financial derivatives used to hedge commodity prices and all adjustments necessary to delay recognition of gains and losses arising from commodity derivatives until the date when the inventory is sold to outside parties, other net income and expenses, and the tax effect of excluding those items, unless stated otherwise.
Organic growth excluding foreign currency effects.
The fair value of each of the companies is based on the data of the most recent funding round completed multiplied by the Company's actual holding in that company, other than two companies, where a decision was made to write off the investment. Companies in which respect certainty as to future fundraising is low were zeroed out or included at their most up to date fair value proximate to the date of publication of the report.

SOURCE Strauss Group Ltd.