The Strauss Group Today Announces Results for First Quarter 2012
TEL AVIV, Israel, May 28, 2012 /PRNewswire/ --
The Group Reports 16.5% Sales Growth and 9.1% Ebit(*) Growth, Alongside an Erosion of Gross and Operating Margins
Ofra Strauss, Chairperson of the Strauss Group, said today (May 28, 2012): "The Strauss Group continues to invest in future growth engines, strengthen the company's competitive position and grow market shares, as streamlining processes, improvements and organizational adjustments to the company continue."
Gadi Lesin, President and Chief Executive Officer of the Strauss Group, said today: "In the first quarter of 2012 the group has posted 16.5% growth in sales and 9.1% growth in EBIT(*). At the same time, the group's gross and operating margins have eroded, due, among other things, to the rise in raw material prices compared to the corresponding period last year, and to the continuing increase in the prices of production inputs and energy, which are translated into annual incremental costs of tens of millions of shekels. Meanwhile, Strauss is further enhancing operational efficiency and deepening commercial activities in Israel. The group is presently preparing for the launch of activities in dips and spreads in Mexico and in an additional geographical region with PepsiCo, and for a consumer launch in Strauss Water U.K. with the Virgin Group which we announced in November 2011."
Key data on the first quarter of 2012 (based on non-GAAP, based on management reports in NIS millions):
In Q1'12, the group's sales totaled NIS 2,065 million compared to NIS 1,773 million in Q1'11, an increase of 16.5%; organic growth amounted to 15.6%. Growth is evident primarily in the activity of Strauss Coffee, which grew in Q1'12 by 26.1%, and in dips and spreads, which grew by 30.5%.
Q1'12 gross profit grew by 7.4% and totaled NIS 731 million compared to NIS 680 million in the corresponding quarter last year; gross margins decreased from 38.4% in Q1'11 to 35.4% in Q1'12. The erosion of gross margins was driven primarily by Strauss Israel and Strauss Coffee, following the increase in the prices of raw materials and production inputs compared to the corresponding period last year.
Q1'12 EBIT totaled NIS 168 million (8.1% of sales) compared to NIS 154 million (8.7% of sales) in Q1'11, an increase of 9.1%. The erosion of EBIT margins in the quarter was the result of the erosion of gross margins in Israel and in Coffee, as well as the incremental costs related to building Strauss Water's operations in China and in the U.K. and the expansion of the international dips and spreads operations to Mexico.
Net income attributed to the shareholders of the company in the first quarter totaled NIS 65 million (3.2% of sales) compared to NIS 70 million last year (3.9% of sales), a decrease of 7.2%. The decrease in net income resulted from the increase in net financing expenses, and in tax expenses due to higher effective tax rate.
(*) Based on non-GAAP management reports.
Key data on the first quarter of 2012 (based on non-GAAP management reports in NIS millions):
First Quarter
2012 2011 % Chg
Sales 2,065 1,773 16.5
Gross Income 731 680 7.4
% of sales 35.4% 38.4%
Operating income - management accounting [1] 168 154 9.1
% of sales 8.1% 8.7%
Net income [2] 65 70 (7.2)
% of sales 3.2% 3.9%
(1) Before other income (expenses)
(2) Attributed to the shareholders of the company
Analysis of areas of activity (based on non-GAAP management reports in NIS millions)
The group's activity in Israel
The Strauss Group is the second-largest company in the Israeli food and beverage market and in the first quarter of 2012, according to StoreNext, held 12.5% of the total domestic retail food and beverage market in Israel (on a yearly average, in financial value terms). The Israeli market is the group's home market, in which it is active in various categories.
The operations 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 in Israel (Tami 4).
In the first quarter, the Strauss Group's sales in Israel totaled NIS 1,097 million compared to NIS 1,016 million in the corresponding quarter last year, an increase of 8.0%. Growth is evident in the business divisions: Health & Wellness, Fun & Indulgence and Israel Coffee.
The coffee business
The Coffee Company has posted strong sales growth, driven primarily by the international activity.
Sales by Strauss's coffee business totaled NIS 1,048 million in the first quarter of 2012 compared to NIS 831 million in the corresponding period last year, an increase of 26.1%. Excluding the impact of currency exchange rates, growth in the quarter amounted to 27.6%. Organic growth (excluding M&A and the impact of currency exchange rate) grew by 25.1% in the reported period. Growth was apparent in almost all geographies where the company is active.
Gross profit in the coffee business in the first quarter totaled NIS 304 million (29.0% of sales) compared to NIS 278 million (33.5%) last year, an increase of 9.4%. In the first quarter of 2012 the prices of most commodities remained higher than in the corresponding quarter last year. Additionally, prices of energy and other production inputs continued to rise. The increase in sales prices compensated only partially for the rise in the prices of commodities, raw materials and other production inputs. As a result, the company's gross margins eroded.
The operating profit of the coffee business totaled NIS 77 million (7.3% of sales) in the first quarter compared to NIS 67 million (8.0% of sales) last year, an increase of 15.3%. The erosion of the operating profitability versus the corresponding period was mainly influenced by the erosion of gross margins.
The business in Israel
Strauss Israel concluded a quarter of growth in sales coupled with an increase in the operating profit. Sales by the Israel area of activity in the first quarter totaled NIS 772 million compared to NIS 728 million in the corresponding quarter last year, an increase of 6.0%. Growth was expressed in the sales of both units, Health & Wellness and Fun & Indulgence, and was evident in most categories.
According to StoreNext figures, in the first quarter of 2012 the Israeli food and beverage market grew by 4.1% in financial value. Growth in the food market in Israel and in the company's sales was partly due to the timing of Passover (holiday sales were mostly included in the first quarter this year, whereas in 2011 most of the holiday sales were included in the second quarter). Additionally, the company has continued to invest in product innovation in order to deliver added value to consumers.
Gross profit in the business in Israel totaled NIS 303 million in the first quarter (39.3% of sales) compared to NIS 301 million in the corresponding period last year (41.4% of sales). The erosion of gross margins was due to the increase in the price of raw materials and production inputs in the first quarter of this year compared to the corresponding quarter last year, attractive offers and extensive campaigns for consumers, and increase in compensation of low-wage employees.
The operating profit in Israel increased in the first quarter by 2.3% and amounted to NIS 92 million (11.9% of sales) compared to NIS 90 million in the corresponding period last year (12.4% of sales). The erosion of the operating profitability was the result of the erosion of gross margins, which was partly offset by the continued streamlining of G&A and marketing expenses.
The international dips and spreads activity (executed in the reported period by Sabra)
In the first quarter of 2012 Sabra's sales continued to grow, as did its market shares, and it maintained a leading position in the refrigerated flavored spreads category. Sabra's average market share in the quarter reached 55.5%.
Following are selected financial data on Sabra's activity (reflecting 100%):
In the first quarter, Sabra's sales totaled NIS 224 million compared to NIS 172 million last year, an increase of 30.5%. Excluding the currency impact, growth amounted to 24.6%.
Operating profit in the first quarter totaled NIS 14 million (6.1% of sales) compared to NIS 9 million in the corresponding quarter last year (5.4%), an increase of 47.5%.
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 active in Israel (through the Tami4 brand), in the U.K. through the Strauss Water brand, and in China, through the brand Haier Strauss Water, further to the establishment of a 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 four cities - Beijing, Shanghai, Qingdao and Shenzhen.
On November 17, 2011 Strauss Water signed a series of agreements with companies of the Virgin Group for the establishment of a joint venture, Virgin Strauss Water, through Strauss Water U.K. Ltd., which will engage in the marketing, sale and servicing of Strauss Water products in Great Britain and Ireland, with an option to expand the joint activity to France, Australia and South Africa.
Strauss Water's sales amounted to approximately NIS 99 million in the first quarter compared to approximately NIS 99 million last year, a decrease of 0.2%.
Strauss Water plans to expand to additional geographical regions in the future, while continuing to develop innovative water purification and treatment technologies based on a long-term commitment to its customers and care for people, water and the environment.
Max Brenner
The unique concept of a chain of "Chocolate Bars" continues to expand, and this year two new branches were opened to date (in Australia and in Singapore).
In the first quarter Max Brenner's sales totaled NIS 35 million compared to NIS 30 million last year, an increase of 17.4%. Excluding the impact of currency exchange rates, sales growth in the first quarter compared to the corresponding quarter last year was 11.1%.
As at the date of the report, 41 Max Brenner Chocolate Bars are in operation around the world: 6 in Israel, 4 in the USA, 1 in the Philippines, 3 in Singapore and 27 in Australia. Nine branches are owned by the company (in Israel and the USA), 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, and in the course of 2012 plans to open additional stores.
Financial results
Sales
In the first quarter the group's sales amounted to NIS 2,065 million compared to NIS 1,773 million last year, an increase of 16.5%; organic growth in the group's sales was 15.6%. Growth was evident mainly in the activity of the Coffee Company, which grew by 26.1% in the quarter, and in the international dips and spreads activity, which grew by 30.5%.
Gross profit
Gross profit (GAAP) in the first quarter grew by 10.3% and totaled NIS 733 million compared to NIS 664 million in the corresponding quarter last year, and its rate decreased from 37.5% last year to 35.5% this year.
Gross profit (non-GAAP) in the first quarter grew by 7.4% and totaled NIS 731 million compared to NIS 680 million in the corresponding quarter last year, and its rate decreased from 38.4% last year to 35.4% this year.
The erosion of the gross margins in the quarter was driven by the activity in Israel and in the coffee business, following the increase in the prices of some raw materials and production inputs compared to the corresponding period last year.
Operating profit before other income (expenses)
Operating profit (before other income and expenses (GAAP) totaled NIS 166 million (8.0% of sales) in the first quarter compared to NIS 133 million (7.5%) last year, an increase of 24.8%.
Operating profit (non-GAAP) totaled NIS 168 million (8.1% of sales) in the first quarter compared to NIS 154 million (8.7% of sales) last year, an increase of 9.1%.
The erosion of the quarterly operating margin was the result of the erosion of gross margins in Israel and in coffee, as well as the incremental costs related to building Strauss Water's operations in China and in Britain and the expansion of the dips and spreads operations outside North America.
Other expenses, net
Other expenses, net totaled NIS 9 million in the first quarter compared to other expenses, net of NIS 2 million in the corresponding quarter last year.
Operating profit after other expenses
The company's consolidated operating profit in the first quarter of 2012 totaled NIS 157 million compared to NIS 131 million last year, an increase of 19.3%.
Net financing expenses
Net financing expenses in the first quarter of 2012 totaled NIS 40 million compared to expenses of NIS 26 million in the corresponding period last year.
The factors that contributed to the increase in financing expenses compared to the corresponding period last year were an increase in net debt and debt duration, an increase in expenses in respect of the revaluation of foreign currency positions due to the significant strengthening of part of the group's operating currencies in relation to the dollar in the quarter compared to the corresponding quarter and the inclusion of profit from the revaluation of interest transactions in the corresponding quarter last year.
The increase in financing expenses was offset by the non-revaluation of Index-linked liabilities in the quarter (0% change in the known Index) compared to the revaluation of these liabilities in the corresponding quarter last year (0.9% increase in the known Index).
Net credit as at March 31, 2012 totaled NIS 1,746 million compared to NIS 1,446 million on March 31, 2011 and NIS 1,463 million on December 31, 2011.
Income before taxes on income
In the first quarter the group's consolidated income before taxes on income amounted to NIS 117 million (5.7% of sales) compared to NIS 105 million (5.9% of sales) in the corresponding quarter last year, an increase of 11.5%.
Taxes on income
In the first quarter taxes on income amounted to NIS 43 million, reflecting an effective tax rate of 37.1%, whereas last year taxes on income amounted to NIS 31 million and the effective tax rate was 29.9%. The increase in the effective tax rate 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 costs that are not recognized for tax purposes in countries where the group is developing new businesses.
Income for the period
Income for the period (GAAP) in the first quarter totaled NIS 74 million compared to NIS 74 million last year.
Income for the period (non-GAAP) in the first quarter amounted to NIS 84 million compared to NIS 93 million last year, a decrease of 9.1%.
Income for the period for the shareholders of the company
Income for the period for the shareholders of the company (GAAP) in the first quarter totaled NIS 57 million compared to NIS 55 million last year, an increase of 4.1%.
Income for the shareholders of the company (non-GAAP) in the first quarter totaled NIS 65 million (3.2% of sales) compared to NIS 70 million last year (3.9% of sales), a decrease of 7.2%. Income for the period for non-controlling interest holders
In the first quarter the share of non-controlling interest holders in the income of subsidiaries totaled NIS 17 million compared to NIS
19 million in the corresponding period last year, a decrease of 12.0%.
Table 1 -
The condensed financial accounting statements (GAAP) of income for the quarters ended March 31, 2012 and 2011 (in NIS millions):
First Quarter
2012 2011 % Chg
Sales 2,065 1,773 16.5
Cost of sales 1,332 1,109 20.1
Gross income 733 664 10.3
% of sales 35.5% 37.5%
Selling and marketing expenses 456 425 7.0
General and administrative expenses 111 106 5.5
Operating income before other expenses 166 133 24.8
% of sales 8.0% 7.5%
Other expenses, net (9) (2) 503.9
Operating income 157 131 19.3
Financing expenses, net (40) (26) 49.6
Income before taxes on income 117 105 11.5
Taxes on income (43) (31) 38.5
Effective tax rate 37.1% 29.9%
Income for the period 74 74 0.1
Income attributable to the shareholders of the Company 57 55 4.1
Income attributable to non-controlling interest 17 19 (12.0)
Table 2 -
The condensed results of business operations (based on non-GAAP management reports) for the quarters ended March 31, 2012 and 2011 (in NIS millions):
First Quarter
2012 2011 % Chg
Sales 2,065 1,773 16.5
Cost of sales 1,334 1,093 22.1
Gross income 731 680 7.4
% of sales 35.4% 38.4%
Selling and marketing expenses 456 425 7.0
General and administrative expenses 107 101 6.7
Operating income - management accounting 168 154 9.1
% of sales 8.1% 8.7%
Financing expenses, net (40) (26) 49.6
Income before taxes on income 128 128 (0.2)
Taxes on income (44) (35) 26.0
Income for the period - management accounting 84 93 (9.1)
Income attributable to the shareholders of the
Company 65 70 (7.2)
Income attributable to non-controlling interest 19 23 (18.9)
Table 3 -
The condensed results of business operations (based on non-GAAP management reports) of the major business sectors for the quarters ended March 31, 2012 and 2011 (in NIS millions):
First Quarter
2012 2011 % Chg
Israel
Net sales 772 728 6.0
Operating income 92 90 2.3
Coffee
Net sales 1,048 831 26.1
Operating income 77 67 15.3
International Dips and Spreads
Net sales 112 86 30.5
Operating income 3 2 47.9
Other
Net sales 133 128 4.6
Operating income (loss) (4) (5) 3.1
Total
Net sales 2,065 1,773 16.5
Operating income 168 154 9.1
For further information:
Talia Sessler
Investor Relations Director
Strauss Group Ltd.
Tel. +972-3-6752545
Mobile: +972-54-5772195
Email: [email protected]
Mirit Cohen
Spokesperson
Strauss Group Ltd.
Tel. +972-3-6752150
Mobile: +972-54-5772929
Email: [email protected]
SOURCE Strauss Group Ltd
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