Strauss Group Ltd. (TLV:STRS)
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Apr 29, 2026, 5:24 PM IDT
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Earnings Call: Q2 2022

Aug 16, 2022

Ariel Chetrit
CFO, Strauss Group

Increase in gross profit in the coffee segment. Almost ILS 100 million increase from ILS 264 million- ILS 360 million gross profit. Gross profitability is still a bit lower than what it was last year in the second quarter, but we should remember that this is mainly due to Strauss Coffee Israel, which profitability was eroded due to the green coffee price increase in the last two years and the gross profitability in our coffee activities abroad are improving materially. If we look at the operating profit bridge, we can see again the very significant contribution of the coffee segment. ILS 45 million increase in operating profit this quarter.

35 of this 45 came from Brazil, and the rest came from Central Eastern Europe. Coffee Israel operating profit declined by ILS 6 million due to the erosion in our gross profitability here in Israel. We can see a decline of ILS 20 million in the Israeli activity without the confectionery category, and this is mainly due to the steep input increases during this quarter. As I said, at least for the raw milk prices, it will continue in Q3. Still, we need to see what will be the raw milk prices in Q4 and going forward. Other inputs are starting to stabilize or even go down.

Therefore, in the other parts of the Israeli business, we expect a stabilization in the next few quarters. Strauss Water, an increase of ILS 1 million in the EBIT. A very nice increase in the total first half. We see the momentum in Strauss Water for many quarters now of a nice increase in sales, both sales and operating profit. Even in China, the operating profit grew a little bit, although, as I said before, we've seen there a very significant effect due to the closure. Confectionery, a recall effect, almost ILS 100 million decrease in operating profit this quarter. ILS 42 million, ILS 1 million is due to Obela. ILS 42 million decrease in operating profit in Sabra due to the adjustment plan.

If we look at the net profit, we can see that the net profit for the second quarter was ILS 70 million compared to ILS 126 million in the second quarter of last year. On the right-hand side, we can see, on the one hand, a decrease of ILS 107 million in net profits due to the confectionery recall and the Sabra adjustment plan. On the left side of this page, we can see a very nice increase of 40% in net profit due to the increase from the EBIT contribution of the activities which were not affected by the recall and the Sabra adjustment plan. We can see a very sharp improvement in finance expenses.

It is not due to the reduction of our debt cost. The debt cost is pretty much stable, a bit increasing in the last two quarters due to the rise of the interest rates. This is mainly due to the currency derivatives hedging plans that we have and the devaluations of the Israeli shekel compared to a few other currencies, as I explained before, which contributed positively to the finance expenses. You can regard this as a reduction from an economic point of view, a reduction in our cost of goods sold, which grew significantly this quarter.

Last slide for this part, our net debt to EBITDA ratio grew to 2.3% at the end of the second quarter. This is mainly due to the decrease in the EBITDA result for the quarter, very material decrease, and automatically it causes an increase in the gearing ratio. We expect the peak of this climb in gearing ratio to be at the end of Q3, and then a gradual decrease in the gearing ratio back to normal rates that we are familiar with. I will conclude this part of the presentation now, and we have time. I see that Ofra joined us, so.

Rivka Neufeld
Director of Investor Relations, Strauss Group

Yes. Maybe before we jump onto the Q&A, I'd like to welcome Ofra Strauss, Chairperson of the Board, to say a few remarks. Ofra, please go ahead.

Ofra Strauss
Chairman, Strauss Group

Hi, my partners and colleagues, really, on the journey of Strauss. We thought that after this quarter and releasing our results, it's a very important moment to discuss, you know, how do we feel about the company. Giora and Ariel really took you through all the events that happened during the COVID and during the six months, and their impact. We promised ourselves that we'll take the time to really take you through all the things that we are doing to make sure that things like that will not happen to us.

Our resilience, our culture, our dedication, really, to our purpose, to our strategy, is really a great help, really, when we ask ourselves, "What are things we need to change so a recall like that will not happen again?" Just five minutes are not really enough for that, but it will be really an important moment to share with you all the things that we are doing. I'm here especially to talk with you for a moment and to share with you the last two days' events, which is really the decision of Giora, which he shared with me, to leave the company after those five years, once we have the right person in the chair to replace him, and with a promise that whatever time we need, we have on hand.

This thing is always a surprise, and always a big event in a life of a company. It's a great opportunity to say thank you to Giora, that never from the day he sat on the chair, stopped making sure that we have the right team, the right management to replace him once this day comes. We have spent the last two years, really, with Egon Zehnder, doing assessment, development plans to our top management, which really allows the search committee that is working now to really look at the internal candidate and external candidate to make sure that we have the right person in place.

I think what you saw in the last years, and especially now in this crisis, that we have the right people in place, and it's not a one-person job to really navigate us through this time. Everyone is really dedicated, of course, the board and myself, and Giora, to really make sure that all the things that everyone did in his five years or 24 years of tenure at our company, will continue to actually continue and fulfill and make reality the purpose and the strategy that the company put in place in those turbulent, really last three years. It's not a farewell. It's definitely not a party.

It's just our way, all of us that are here on this call, to assure you that nothing is really left unmanaged or untouched, to make sure that whenever the moment comes when Giora leaves, we have the right people in place, the right plans, and we will not stop for one minute, even if it is a transition plan. Thank you again for sticking with us all this time, and I am looking forward to continuing with you on this journey.

Rivka Neufeld
Director of Investor Relations, Strauss Group

Thank you very much, Ofra. With this, we're gonna start our Q&A session. I'd like to remind all participants that you can post your questions on the Q&A or on the chat box. In the meantime, I'll start with the first couple of questions from Chris Raymer from Barclays. Thank you, Chris. First question. It seems like growth in Health & Wellness slowed a little this quarter, along with reduction in operating margins. Could you provide a little color around the moving parts in that segment?

Ariel Chetrit
CFO, Strauss Group

Yes. First of all, yes, the growth for the first half for Health & Wellness was 2.9%. I suggest in Israel, because due to the holidays, we should look at the first half and not the first and second quarter when we compare to previous quarters. Two point nine percent is roughly the average growth of this segment in previous years, but maybe a bit lower. The lower growth was mainly due to a few shortages that we had in a few products during this period, but these are only temporary shortages.

All in all, you know, on average, we are gaining market share in Health & Wellness categories in the first half, and therefore our average growth has not changed significantly from previous years.

Rivka Neufeld
Director of Investor Relations, Strauss Group

Thank you, Ariel. The second question from Chris: Looking at the coffee segment and considering the high organic growth seen in the international segment, how do you see the outlook for the second half of the year organically in each of the different regions?

Ariel Chetrit
CFO, Strauss Group

We must remember, and we reported the price selling price increases last year and the first quarter of this year that we've done in our coffee activities abroad. We started in Brazil a year and a half ago. We started in Central and Eastern Europe about a year ago. We must remember the platform that we're comparing to when we're looking ahead on our sales rate of growth. The rate of growth abroad is expected to slow down, obviously, because if we compare the first half of 2022 to the first half of 2021, we see a different platform of selling prices, okay?

Because we haven't raised our selling prices that much in the first half of 2021, and now we're in a totally different, much higher selling prices platform. Therefore, we can see the very high double-digit rate of increase in sales. The second half, we will have to compare to the second half of 2021. Second half of 2022, we are with the current selling prices. Second half of 2021, we are with higher selling prices than we've seen in the first half of 2021. Therefore, the rate of increase in sales growth will be lower than what we see in the first half, but still we will see a double-digit increase in sales in the second half in the coffee activities abroad. Coffee Israel, normal growth rates as we see every year. We've seen a six...

a bit higher than 6% growth in the first half of Coffee Israel, and we expect to see normal growth of mid-single-digit, as we see in Coffee Israel for many years now.

Rivka Neufeld
Director of Investor Relations, Strauss Group

Thank you, Ariel. It seems like there are no more further questions, so I would like to thank everybody for joining us today on this call. The materials of the quarter are available on our website, and we are here if you have any further questions. Thank you very much, and see you next quarter.

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