Strauss: stable revenues of NIS 2.06 billion and an increase in profit to NIS 30 million

Strauss Group published its GAAP and non-GAAP financial statements for the first quarter of 2021. Similar to the results for FY 2020, the results for the current quarter were largely impacted by the COVID-19 pandemic, which transformed the patterns of our lives, the economy and consumption everywhere in the world. Like other international food corporations, the first quarter of 2020 was marked by increased consumption of food products as large parts of the world were subjected to lockdowns. By contrast, the first quarter of 2021 was marked by great variance – in some countries where the Group operates the impact of the pandemic had already declined, whereas in other regions, such as Europe and America, we continue to witness its effects on economic activity and consumption.

Despite the record sales in the first quarter last year, which were the result of a sharp temporary increase in March sales following the outbreak of coronavirus, Strauss Group’s revenues in Q1 2021 remained stable and amounted to approximately NIS 2.06 billion, reflecting an organic decrease (excluding foreign currency effects) of around 0.4% compared to the first quarter last year. The stability in sales was, on the one hand, the result of growth in Strauss Water’s revenues in Israel and in China and stable revenues in Strauss Israel and Strauss Coffee in local currency, and a decline in sales at Sabra in the US, largely as a result of the impacts of COVID-19.

Organic EBIT rose 11.8% and amounted to approximately NIS 289 million – 14.0% of revenues. The Company has concluded the first quarter with a net profit of approximately NIS 206 million to its shareholders, reflecting an organic increase of around 25.6% compared to the corresponding quarter in 2020 – 10.0% of revenues.

Excluding foreign currency effects and the profits of the investees in the Group’s incubator, organic growth in operating profit and net profit attributable to shareholders was 0.5% and 7.8%, respectively.

In the quarter, three of the companies in the Group’s FoodTech incubator, The Kitchen, completed funding rounds at an aggregate amount of approximately NIS 40 million. As a result of these rounds, in the current quarter the Company recognized gains on the decrease in holding rate and on loss of control, at a total of NIS 30 million. One of the companies, Flying SpArk, completed an IPO on the Tel Aviv Stock Exchange in the quarter. On March 31, 2021, the total value of the Company’s investments in the incubator investees on the financial statements was approximately NIS 44 million (according to the equity method). The fair value of these investments is around NIS 149 million.

In the first and second quarters, the prices of raw materials, spare parts and packaging materials used in manufacturing the Group’s products rose. Among others, the prices of green coffee (on global exchanges and in Brazil in particular) increased, as did the prices of sugar, raw milk (the “target price”), energy, plastic packaging, metals and others. Furthermore, sea freight costs rose sharply in this period, impacting all world trade.

In addition to the above, as a result of worldwide crises in the international transportation of goods, many companies are dealing with availability and production challenges. The company has defined the maintenance of business continuity and the regular functioning of its supply chain as a primary goal. The company is also monitoring the effects of the increase in the prices of the different inputs on its business and reviewing plans and courses of action, including product development and improvement, working capital management, operational and logistic efficiency enhancement, commodity price hedging policy, expansion and diversification of suppliers and raw materials, pricing policy, etc.

Strauss Group President & CEO, Giora Bardea, referred to the results this morning. “All things considered, we have wrapped up a satisfying quarter. This is the fifth sequential quarter in which our results are affected by the COVID-19 pandemic and its impacts on sales channels, products and consumer behavior. The first quarter of 2020, when the pandemic began, and the month of March in particular, was marked by exceptional sales by all food companies. Now, however, there is a disparity: in the first quarter this year some geographical regions, first and foremost Israel and China, already showed signs of the end of the pandemic, in regions such as North America and Europe a gradual emergence is evident, and in regions like South America the pandemic is still raging and affecting society and the economy.

“In this quarter too, we see that our broad global dispersion, category diversification and business flexibility, product development and innovation have enabled us to maintain stable revenues, and even improve our profit and profit margins. As part of this innovation concept, in Israel we recently launched new, advanced IOT water bars of the Edge series; FoodTech startups in The Kitchen incubator raised tens of millions of shekels in the quarter; and in early May, the water company’s manufacturing facility in China became operational, and we expect it to contribute to growth in the Group’s business going forward.

“Israeli society has recently experienced events involving incitement and violence that have ripped the delicate fabric of co-existence between Jews and Arabs in the country. We profoundly believe in the business sector’s role, responsibility and impact on the communities in which we operate, not only in Israel but everywhere we do business. Strauss has for many years championed a diversity and inclusion discourse and actions and employs people of all population segments, religions and beliefs. Strauss will continue to be a company that is a symbol of partnership, cultural diversity and the advancement of a shared language and way of life. We have a commitment and aspirations to create a company where there is no segregation or differentiation between people on the grounds of religion, nationality, race or gender.”

Strauss Israel grew its market share in the quarter, which rose to around 12.5% of the food and beverage market in Israel, reflecting 0.3% market share growth. In the first quarter this year the company recorded approximately NIS 974 million in revenues, a decline of around 0.9% compared to the corresponding period last year, which was marked by a sharp rise in sales due to the COVID-19 outbreak. Most of the growth was observed in dairy products and dairy alternatives, including yogurts, milk and milk beverages, and since we began to distribute Alpro products. The products of the confectionery division recorded a decline in sales in the quarter, largely as a result of a decrease in impulse product purchases away from home. The company’s operating profit grew by about 3.8% to NIS 129 million, around 13.2% of sales.