Strauss Group Ltd. (STRS) Earnings Call Transcript & Summary

Increase in gross profit in the Coffee segment, almost ILS 100 million increase from ILS 264 million to 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 the profitability was eroded due to the green coffee price -- green coffee increase in the last 2 years. And the gross profitability in our activities, 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, ILS 35 million of this ILS 45 million came from Brazil and the rest came from Central Eastern Europe. Coffee Israel declined profit -- 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. And as I said, at least for the milk raw prices, it will continue in Q3. Still, we need to see what will be the raw milk prices in Q4 and going forward. And 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. And again, we see the momentum in Strauss Water for many quarters now of a nice increase in sales, both sales and operating profit. And 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. And Confectionery recall effect, almost ILS 100 million decrease in operating profit this quarter, and 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 profit due to the Confectionery recall and the Sabra adjustment plan. But on the left side of this bridge, we can see a very nice increase of 40% in net profit due to the increase in -- from the EBIT contribution of the activities, which were not affected by the recall and the Sabra adjustment plan. And we can see a very sharp improvement in finance expenses. It is not due to the reduction of our debt cost. Debt cost is pretty much stable. A bit increasing in the last 2 quarters due to the rise of interest rates. But this is mainly due to the currency derivatives, the hedging plans that we have and the devaluation 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 are net debt to EBITDA. EBITDA to net debt ratio grew to 2.3% at the end of the second quarter. This is mainly to the decrease in the EBITDA result for the quarter, a 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.

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

All right. 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 how do we feel about the company. So Giora and Ariel really took you through all the events that happened during the COVID and during the 6 months and their impact. And we promised ourselves that will 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 when we fix, when we ask ourself what are -- needs ready to change. So a recall like that will not happen again. So price [ management ] 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 2 days events, which is the decision of Giora, which she shared with me. I believe the company, after those 5 years, once we have the right person at the Chair to replace him, and with a promise that whatever time we need we have on our hand. This [ stage ] is always a surprise. It's always a big event in a life of the company, but it's a great opportunity to say thank you to Giora. He had 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 2 years really with a [ contender ], doing assessment, development plans to our top management, which really allows the search committee that is working now to really look at the internal candidates and external candidates to make sure that we have the right person in place. I think what you saw over the last time 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 5 years or 24 years of tenure in our company, will continue to the -- to actually continue and fulfill and make reality, the purpose and the strategy that the company have put in place in those turbulent, really, last 3 years. So I'm not -- it's not a farewell. It's definitely not a party, but 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 development comes, when Giora leaves, we have the right people in place, the right plants and we will not stop for 1 minute even if it is a transition plan. So thank you again for sticking with us all this time. And I am looking forward to continue with you on this journey.

Thank you very much, Ofra. And with this, we're going to start our Q&A session. [Operator Instructions] In the meantime, I'll start with the first couple of questions from Chris Reimer from Barclays. 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?