PETAH TIKVA, Israel – The closure of restaurants, hotels, offices and cafes affected sales of the Strauss Group in the second quarter of 2020. The food group controlled by the Strauss family ended the quarter with a 6.5% decrease in revenue to NIS 1.94 billion ($568.6 million), reflecting 1.5% organic growth excluding foreign currency effects
Strauss Group delivered NIS 4.1 billion, or $1.2 billion in revenue in the first half of 2020, reflecting 4.9% organic growth excluding foreign currency effects. Net profit in the half-year was NIS 306 million ($89.6 million), reflecting an increase of 4.0% compared to the first half of 2019.
Strauss Group CEO, Giora Bardea said in a statement:
“Today we are wrapping up a second quarter that was affected by COVID-19 in its entirety, with solid results achieved in spite of the complex reality. Strauss Group has maintained business stability and financial strength, as reflected in market shares, organic revenue growth, higher gross profit, stronger cash flows and improved cost and structure of debt.
“In general, in the past quarter and half-year, an improvement was noted in our various activities in local currency, with businesses catering to in-home consumption benefiting from significant growth, whereas those focusing on away-from-home (AFH) consumption weakened. Following a challenging month in April, we saw a gradual trend of improvement in results in subsequent months, as social and economic restrictions are lifted in most countries.
“The strong shekel and ongoing weakening of currencies against the shekel, particularly the Brazilian real, significantly eroded the company’s revenue and profits.
“Throughout the crisis, the Group has invested considerably in protecting the safety and health of its employees, in increasing investments in providing help and contributing to the community while maintaining its business operations. This includes new product developments, entry into new categories, acquisitions, ongoing investment in advanced technology and setting up new production sites in Israel and in other countries, as we look forward to emerging from the crisis.”
Strauss Group (TASE: STRS) has wrapped up the second quarter of 2020 with solid results against a backdrop of challenges and positive and negative impacts, most of which are the result of the COVID-19 pandemic.
The Group has maintained its high credit rating and has raised capital at attractive interest rates to ensure business continuity. In its retail business the company reported sales growth in most sectors, but the closure of restaurants, hotels and cafés has had a significant negative effect on the Group’s sales in the AFH market, particularly in the coffee business.
The depreciation of the Brazilian real against the shekel eroded the company’s revenue. In total, the Group delivered NIS 1.94 billion in revenue in the second quarter, while in the half-year revenue was NIS 4.1 billion, reflecting an increase of around 1.5% and 4.9%, respectively (organic, excluding FX effects) compared to last year. As a result of the weakening currencies, the company reported a drop of around 6.5% in revenue in the quarter and of 1.7% in the half-year, compared to the corresponding periods last year
As mentioned, the main impact on the Group’s revenue in the second quarter was the result of the weakening of the various currencies against the shekel. The foreign currency effect on the company’s sales in the quarter amounted to approximately NIS 164 million ($48.1 million), of which NIS 138 million are the result of the depreciation of the Brazilian real against the shekel. In the first half, the foreign currency effect was around NIS 266 million, of which NIS 215 million are due to the weakening of the real against the shekel.
In the second quarter, the Group’s gross profit was approximately NIS 743 million ($217.8 million), down 9.6% compared to the corresponding period last year, mainly due to the drop in revenue as a result of foreign currency effects. The gross profit margin was 38.4%. Operating profit was NIS 223 million ($65.4 million), down 1.6% compared to the corresponding period. The operating profit margin was 11.5%, up 0.5% compared to last year. Net profit (attributed to the shareholders of the company) was NIS 135 million ($39.5 million) in the quarter compared to NIS 121 million in the corresponding period last year, with the increase attributed to a decrease in tax expenses, which was partially offset by the drop in operating profit. Net profit in the half-year was NIS 306 million ($89.7 million), reflecting an increase of 4.0% compared to the first half of 2019.
With the outbreak of COVID-19 the Group formulated a dedicated social program with the aim of helping some of its key stakeholders to cope with the pandemic and its implications. The Group applied a compensation mechanism to strengthen its people who have continued to come in to work despite the complexities involved, with emphasis on “front-line” employees. A loan fund was established to assist the company’s small suppliers. The company also enlarged the scope of its contributions to the community to help populations harmed by the crisis, including donations of food and money to relevant nonprofits as well as through employee volunteering and the distribution of food products to medical teams in Israel, the US, Brazil and Eastern Europe.
The coffee business results were mixed druing the period and were channel dependant. Sales to the large retail chains rose moderately in the second quarter as consumers in most countries of operations stocked up on basic coffee brands, coffee beans and capsules for home consumption in preparation for lockdowns. Online sales were strong as well. However, sales to the traditional sales channel, which includes stores, groceries and open-air markets, were negatively impacted due to restrictions on opening hours and a drop in customer traffic. Sales to the institutional and AFH market dropped significantly following discontinuation of the business of hotels, cafés, restaurants, offices and the points of sale of the Elite Café chain in Israel. The coffee company’s total revenue in the past quarter was approximately NIS 750 million ($219.8 million), 0.8% less than revenue in the corresponding period last year (organic, excluding currency effects), but the erosion of the Brazilian real against the shekel had a material impact on income translated into shekels, which recorded a drop of 17.9%.
A breakdown by country demonstrates high variance: The business in Brazil grew by around 9.5% in local currency, and in the half-year, the market share of the coffee company in Brazil (Três Corações) was 28.0% compared to 28.3% in the corresponding period. In Poland, 16.9% sales growth in local currency was recorded in the quarter, but the weakening of the zloty negatively impacted sales by approximately NIS 6 million, such that growth in the quarter was 6.4%. In Israel and Romania, where AFH business is significant, revenue dropped, whereas in Russia and Ukraine, where AFH activities are on a small scale, revenue in local currency increased.