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

Hi, everyone, and thank you for joining us today. Welcome to Strauss Group Third Quarter 2023 Results Virtual Conference. Today, management will be presenting the quarterly results from our salty snacks production site in Sderot in the Southern part of Israel in the area of the Western Negev, which was brutally attacked on October 7. Yehuda Ashash, Operations Manager of the salty snack division will share his experiences during these very difficult times. Following management's formal presentation, we will conduct a Q&A session. [Operator Instructions] As a reminder, this online Zoom conference is being recorded, Thursday, November 30, 2023. Before I start, I'd like to remind everyone that this online webinar may contain projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and may change as time passes. Strauss does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reduced demand for our products, the timely development of our new products and their adoption by the market, increased competition in the industry and price reductions as well as due to risks identified in the documents filed by the company with the Israeli Securities Authority. Online today with me are Mr. Shai Babad, CEO of Strauss Group; Mr. Ariel Chetrit, CFO of the Strauss Group; and Yehuda Ashash, Operations Director of the Strauss Frito-Lay salty snacks plant; and myself, Daniella Finn, Head of Investor Relations. And with that, I'd like to pass on to Shai to open up the session. Shai, please go ahead.

Thank you very much, Daniella. Good afternoon, everybody, and thank you very much for joining today. We thought of starting today differently than what we do usually in our quarterly review of the results. These are very complicated and difficult times in Israel. We're in the middle of the very rigorous and outrageous and brutal war, which we didn't choose and we didn't want, but we're obliged to fight it. And here in Strauss as well, we have been impacted by this war. We have 3 major factories here in the Southern part of Israel around the Gaza Strip. One of them, which we're in today is Sderot, in a second, you'll hear from Yehuda about the experiences him and his team had since the 7th of October. We also have another factory, which is in Bror Hayil, which does the fresh vegetables for us, fresh vegetables packages. And we have Yad Mordechai, who does the -- sorry, the olive oil and honey, but the category is called, I forgot the word, never mind. The olive oil and honey and all those 3 factories got back into operations since 7th of October, Yad Mordechai being the last one who joined us -- joined operations -- started operation last week. Until last week, it was a closed military area. We still have a lot of difficulties with getting back the employees. We have some employees that were murdered. We have some employees that their family members were murdered. We have some employees that their family members are kidnapped. We have a lot of people who were evacuated and a lot of employees who have evacuated from their homes. And we have people who are injured. So you can probably try to understand how complex and how difficult the situation is. With that, we set 2 major targets here in Israel -- in here -- in Strauss, sorry, to make sure that we meet our targets and we meet our mission. One of them is to make sure the business continuity is there, that we continue to produce our products and manufacture our products and deliver our products to all the families and citizens of our state. And business continuity means that getting back Sderot, Bror Hayil, and Yad Mordechai back to operations. And today, all those 3 factories are back to approximately 60%, 70% of their operation. The second mission that we put in front is, of course, taking care of our people, taking care of our employees by assisting them -- by taking -- by making sure that they are secured by making sure that we give them everything that they need in assistance with everything that they need in these very, very difficult times. And third, is to make sure that we contribute our sharing to the Israeli society. We've been dominating a lot of our food products with more than 1.8 million products that we have donated to families who were evacuated, to soldiers and to injured citizens here in Israel since the beginning of the war. We also took a food truck with musicians on it that went through 60 different points of people who were evacuated and soldiers, just to give them -- to have some kind of a fun occasion for them that -- in which we can bring something -- some joy to -- in those very difficult times. And third is that we opened up a fund for all our farmers here in the Gaza Strip. We have more than 30 farmers that we work directly with, that supplies with either potatoes or fresh vegetables. You can understand that from the attack, a lot of them were hurt and the harvest and the fields, some of them were destroyed. And it will take time to recover, but we opened a couple of millions fund in order to help them recover from the nightmare that they went through. And with that, we hope that very soon, the citizens and the farmers will go back -- will get back to the land and that will -- life will get back to normal. Just to give you a little bit of a description of what we went through, I'll have Yehuda now to describe you a little bit what's going on here in Sderot.

Hi, everyone. I'm Yehuda Ashash. I'm the Operations Director of the Strauss Frito-Lay Company here in Sderot. We produce salty snacks for the Israeli market and our products are natural flavors of brands such as Tapuchips, Doritos, and Cheetos. Our company is 50-50 joint venture with PepsiCo. We established the plant here in the Western Negev for 30 years. We're very close by to our potato growers. Potatoes are our main raw materials. For 20 years, the plant has suffered from rockets and missiles attacks and even several missiles fell actually in and around the plant and our warehouses. Up til this year, even with all the rocket attacks, we never actually closed the plant. After the last huge attack on 7th of October, for the first time ever, we had to close the plant for 4 days. Our employees had some very disturbing and shocking experiences and some of our employees lost their loved ones, brothers and sisters, niece and nephews. Employees' homes were damaged by rocket fire. People felt very unsafe and at very high risk for their lives. Our potato growers also experienced some terrible things. Some were injured and some lost family members and some were even kidnapped to Gaza. During the last few weeks, we have focused on 2 main things. The first one, the safety and the security of our employees. This is our top priority. And the second, maintaining business continuity. We gradually return to the plant to activity with partial attendance of the employees. And today, we can say that we're working and fully active. Still, the main challenge is to make sure that all the evacuated workers come back to work. I really appreciate and I'm very grateful to all our dedicated people who come to work and are working even harder than before this began. They show a very high level of commitment. I'd like to thank our owner and management team, who visit us and are supporting us during this difficult times. We hope and pray that all the hostages will be released and our soldiers will return home safely. Thank you.

Thank you very, very much, Yehuda. And this is also the time to thank you and to thank all the team. The plant here -- the factory here went back to work 3 days or 4 days after the attack of 7th of October. There were still missiles being shot at this place. There were still terrorists in the land of Israel. Not all of them were -- not all the area was cleared and the workers under threat and under conditions of war came back to the factory with the obligation of providing food or providing those salty snacks that you see behind us to our citizens, to the families and to the state of Israel. And I think it's remarkable, it's not something that we take for granted and without a big thank you to you and the team, Yehuda. Thank you. And with a drastic move, let's go into Q3 results and what I will do in the next 10, 15 minutes is to just give a general review of the results with some emphasis on the points and the challenge that we have, then Ariel will thoroughly go into the financial analysis. So we finished Q3 results with almost ILS 2.7 billion revenues. It's growth of almost 3% in organic growth and more than 7% in growth compared to 2022. So the stream of continuous growth on the top line is still very strong, and it's still very solid. On the other hand, when we look at gross profit and then the EBIT and then the net profit, we see that there is a substantial improvement in recovery from 2022. But if we compare to 2021 and 2020, and Ariel will show it later on, we have -- the margins have deteriorated and have decreased. And I will talk about this a little bit later of what are the major reasons for that. If we look on yearly -- year-to-date, then you can see that, again, there's very solid growth from the beginning of the year of 7.5% organic growth and 11.5% from 2022. But again, when we look at gross margins, EBIT margins and net margins, the same decrease that we saw in Q3 is still there in the year-to-date. Now there are several reasons for that, but the major reason is the increase in COGS. We still see the inflation impact on our results, we see -- we still see that COGS are continuing to increase, whether it's coffee, green coffee, whether it's Cacao, whether it's sugar and whether it's milk that is still remaining in very, very high prices and all that has a substantial impact on our results, on the one hand. On the other hand, the recovery of Sabra and the confectionery as I will show soon is still very, very slow. We haven't gotten back to the same levels that we were before. And when I go into confectionery and Sabra, we'll see it and I'll discuss it separately. So when we look at Israel, we have 2 segments here, Health & Wellness, and Fun & Indulgence. When we look at Health & Wellness, you can see that there's still very solid growth. The business is continuing to grow on the top line and on margins as well on the operating profit as well. There is a substantial growth from last year. There were a lot of innovations that were down since the beginning of the year, also in the third quarter that helped impact those results. And overall, those 2 units -- the units of the segment of Health & Wellness is performing nicely. When we look at Fun & Indulgence, of course, the major impact on the results is the confectionery. You can see that from last year, there is a substantial improvement, but still the segment is losing money. The reason, the segment is losing money is because we have very high -- we haven't gotten back to the same levels of sales as we had in 2021. We have reached now 25% market share where we were at 27%, 28% market share before the recall in 2022. So we haven't reached back the same sale levels. And on the other hand, Cacao and sugar have increased drastically with 44% increase in Cacao and 26%, 28% increase in sugar. And this has a substantial impact, of course, on the results, taking into consideration also the currency that has an effect on the business. And hence, there is a recovery, if we look and break down the segments of confectionery into the snacking, the sweet snacks, the snack bars and to the tablets, so you can -- so we can see that already in the snacks bar, we have reached the same market shares that we had before, which is more than 40%. Recently, in tablets, we crossed the 50% market share, which is a good way in getting back to those 60% that we had before -- sorry, but there's still a way to go. So overall, in those 2 segments, we saw that the deterioration in Israel is mainly due to the confectionery. When we look at coffee, so again, we can -- when we look at global coffee, we see a substantial decrease from last year. The major decrease from last year is due to Brazil. Also some of it is accounted for Russia. For Russia, we know it was a onetime event because of the war, the impact of the war that we had very, very high profits last year, which we know were not sustainable. But when we look -- sorry, just a second -- sorry, but when we look at Brazil, we see that from last year, there's a huge deterioration in Brazil. What happened in Brazil is that there was expectations in the market that green coffee prices will reduce at the end of the day, they didn't reduce because of the very harsh competition. Prices in the market were reduced where the green coffee prices were not reduced, and hence, everybody suffered decrease in the margins. And hence, we see the huge decrease from the results. This, of course, impacts the whole coffee segments. When we look at Israel, we see that operating profit is still on good margins, and we managed to increase a little bit the operation -- operating profit from last year. So here is Brazil, we can see that they're still in the top line, there's major -- there's still an increase on a major one, but it's still increasing in value. But when we look at -- as I said before, when we look at the operating profit, margins have deteriorated there. Also in Brazil, we have to take into consideration, we have R&G and non-R&G. When it comes to the R&G, which is very, very volatile, here is where we took the hit, here is where green coffee prices did not reduce. Prices in the market were reduced and the margins have decreased. But in the non-R&G category, the margins are still very good. They're double-digit margins. And our strategy in Brazil as was in the last couple of years, but with double down on implementation in the next coming years is to increase the part of a non-R&G in the portfolio so that instant coffee, capsules and machines, [ positive grain ], which is the plant-based corn, which we sell there, the juices that we sell, Frisco juices that we sell, all of those segments will increase and will become much larger part of the portfolio than they're today. The more we'll do that, the more the portfolio will be hedged, the more that we will be less volatile to the decrease of green coffee and the margins will be much, much higher because even when margins in R&G are high, they never reached the double-digit figures as the non-R&G figures reach. And this is part of the work that we look forward in doing and improving the results in Brazil. When we look at Strauss Water. So in China, the activity that we have there with Haier, the partnership that we have there with Haier is growing very, very nicely with very, very good margins. As you can see, the 9.5% here is not EBIT, it's net profit and its net margins, which are very good and very high. And our proforma is growing year-over-year in revenues and in profit. When we look in Israel, there was a little bit of a decrease compared to last year. It has to do also with macroeconomics with a little bit of a decrease of sales of electrician and white goods here in Israel. Also, the foreign currency effect had also an effect here on the results and inventory levels, which were very, very high compared to what was expected, impacted the result, and we see a slightly decrease compared to last year, mainly because of Israel. When we look at Sabra, so the results of Sabra are very good this quarter, but it's kind of a onetime event. It's not the ongoing business. We managed -- if you remember, last year, we had to write off $7 million because of the insurance claim that was posed against us with -- and asked to return claim to us, to return some of the money that we have received. We have been negotiating with the insurance company for the past couple of months. And at the end of the day, we managed to retrieve those $7 million back and also in addition to another $5.5 million, $6 million in addition that we got from the insurance, so that you see at the end of the day, that this year, this quarter saw an impact from the insurance was ILS 48 million, which brought the results to very high positive results. But when we take out the insurance and the onetime recovery from the insurance, the business is still in a recovery phase. Here, we managed to get back to 40% market share, which we're the market leader, but we won't be able to recover to get back to more than 60% that we were before the incidents that happened in 2022. We have been told by the big retailers such as Costco, Walmart, Target and others that they are not going to put all the eggs in one basket. We're not going to be the only one providing them with hummus. Private label has grown to almost 25%, 27% in the market. They also -- most of them take a third player as well. So they're bringing us back to the shelf. We're #1, but we're not going to get as big and we're not going to get a share of the market as we used to get before. That means that we will have to adjust our business to adjust the structure of the costs to do a turnaround of the business in order to meet the new platform and to adjust to the new platform. We still believe we can grow. We still believe we can get a higher market share, but we don't think we're going to get back to the 60% as we were. Hence, we have a very slow recovery. So compared with last year, yes, we did recover and the results are much better than last year. But compared to '21 and '20, we're still far away, and there is a long work and a long way to go with changing, turning around the business, addressing the size of the business to what we can sell in the market and also accurating the taste and improving the taste of the hummus and the variety that we bring into the market in order to get back the share and in order to increase profitability. So just in overall of the segments, as you can see, so in Israel, a huge improvement from last year mainly because of the recovery of the confectionery, but still far from '21 because of the fact that the confectionary haven't been fully recovered and they're recovering slowly. In Strauss Coffee, we can see the big deterioration. A lot of it is because of Brazil. Some of it is because of Russia, which was a one-timer, but Brazil, if we look at the business wise, Brazil has the biggest impact. Sabra, with the insurance, as mentioned before, Strauss Water with good results, yet in Israel, we have place for improvement. And overall, Strauss Group COGS, Sabra, confectionery and Brazil affecting the results compared to '21, but with a huge increase compared to last year because of the recovery that was made in those units. When we look a little bit on the targets that we have set for ourselves this year and the focus is that we -- the different pillars of focuses that we have. So we're working through a yearly plan that has 3 major pillars to it, recovery, transform and perform and from each of them -- in each of them, we have specific plans. So we're working a lot on bringing back the trust with the consumers. We're working a lot as you saw on fixing the underperformance and we still have a long way to do that. We're working a lot on food safety. We have opened up -- and I'll show you in the next slide, we have opened up an operational -- we have initiated an operational division, which unifies all our supply chains and all our factories in one place, setting unified standards, setting all criteria being the same, setting unified KPIs and working under our CEO to make sure that we strive for excellence in quality, excellence in food safety and excellence in productivity. We're still working on the structural change on the one Strauss making sure that instead of the silos that we had before, we're one company with one finance, one HR, one operation team and one consumer centricity team and the work is being done, and the work is continuing to being done as we speak. By the way, we saw in the war, the impact of the new structure, and I'll speak about that in a sec. And in the perform, looking at the growth engines, looking at our strategy, which we're updating these days and hopefully, will be managed to take out in the beginning of next year and show it to the market. We were supposed to finish with it, but because of the war, some of the things we're postponed. Working on business continuity and everything that has happened has postponed some of our plans and working a lot of profitability, which I'll speak in a second. So as I said before, we're continuing to build operational centers with one operation team under our CEO. That means much, much better food safety and food quality. We're working very, very hard to make sure that we have 0 incident outside our plants, 0 incident outside our plants. We know that things can happen inside the factory, but outside the factory, we have 0 tolerance for that. And that means that we have to put a lot of procedures in place. That means we have to put a lot of checks and a lot of controls, a lot of positive release standards that have been put in all our plants in order to make sure that we keep our products on a high quality and very, very, very safe for our consumers. And this, of course, costs a lot of money. The second thing that we're doing under the operations team is making sure that we invest a lot in IT, making sure that we make our organization more data driven. There's a lot of investment done in digitalization. There's a lot of investment done in how we were better with technology, how do we gather the data better from technology, how we analyze the data, how we replace digitalization with working hands. And this will be something that will follow us in the next couple of years. We also work a lot on our supply chain and improving our supply chain now that we have a unified overview of all our businesses so that our supply chain is working under one hand, under one -- under the CEO to be much more productive. Building the OEE team had to do a lot with getting the people engagement, building the right structure so that the people will connect building, as we say, in the military unit pride. So everybody will be very, very proud of the new unit that was formed and will feel that they're connected and engaged to it, and we're putting a lot of efforts into that as well. And last but not least, when we manufacture, we want to have the best standards. We want to have the best highest OEE. We want to make sure that our KPIs and manufacturers are as productive and as efficient as possible. We understand that because our margins erode and because we -- COGS have hit us very, very hard and not everything is covered by price increase that we opened up of a journey on productivity and we boosted up our productivity efforts, defining 10 different streams of working on productivity from procurement working capital, S&OP, manufacturing, logistics, portfolio complexity, making sure that we reduce the complexity of our portfolio. We optimize our portfolio from closing SKUs and for also divesting some of our businesses. And you saw that we already started it. And in 2024, you will see that we're continuing with this to focus on what is core for us and how we invest in that core, design to value in water, design to value in food, promotion & assortment. In each one of those streams we have a methodology of how we want to work. We have -- we're bringing new tools, new skills, training our people to work differently, bringing new digitalization and tools to work with. We set targets for each one of those streams and the savings and the productivity that we want to yield out of it, but it's not only the productivity. It's also changing the way we work and changing the way we do things to make it much, much better and more efficient than we had before. And this is already embedded in our -- will be embedded in our future results and is part of budgeting for us in 2024, 2025 and onwards. And there's a lot of work that is being done with that. So if I look on the general things that we're doing, pushing ahead, so I talked about the productivity and focus on improving profitability. Strategy review, as I said, we managed to work through the last couple of months to review our strategy and to update our strategy. We will hopefully finalize all the approvals in the first quarter of 2024 and then handed out. It was delayed because of the war. And we still, of course, in the middle of this war and there's impact to that, but hopefully, we will conclude that and we'll come out with that. We will continue to work on growth engines and what will be the future growth engines, but also how do we make the current business and what is from the current business, our growth engines. Portfolio optimization, as I said before, closing SKUs, divesting some of the business, making sure that we're focusing on where we should be and also investing in putting CapEx on places where we decide to be and when we see that there is the largest and highest benefit and connection to us. Our digitalized -- digital service, our digital journey is also part of a major journey. There's a lot of transformation that will be done there with a lot of investment and change in the way we work. We're also looking in bringing and embedding AI into our system. We started that in marketing. We started that in call centers and we're going into all the different fields in which we're working to see how we embed the new technologies in AI in our business in order to make us future fit. And of course, last but not least, we still haven't finished all the implications, setting up all the standards and building up all the procedures and the synergies between the different units in our new formation and our new structure. There's still a lot of working S&OP that will be done between the sales and the consumer-centric unit to the operations unit. There's a lot of work that will be done with that. And that is part of the focus of what we're going to do ahead. So this is generally just a big -- sorry, short overview of our results for Q3 with the major focuses and now I transfer it to Ariel for additional analysis.

Thank you very much, Shai. Good morning, good afternoon to everybody. And just a very brief -- a few more financial explanations on the results for this quarter. On the sales, we can see here on a more broader perspective, we can see the 4 last years consecutive quarters. As we can see, we're continuing to grow very nicely in the top line. It's both value and volume over the years. On this specific quarter, we can see 3 phenomenons. One of them is we have the tailwinds of the positive translation effect because of the devaluation of the Israeli shekel against most of the foreign currencies. The second phenomenon is that we see a decrease in sales in 2 geographies. One of them is Brazil. As Shai explained, we decreased our selling prices because we expected the green coffee prices to decrease also. Unfortunately, the green coffee prices did not decrease, but the effect of the decrease in the selling prices affected negatively the top line in Brazil. And in Russia, due to the war effects, the temporary war effect last year. Of course, this quarter, we returned to more normal ongoing sales rate. And therefore, there was a decrease. The third phenomena is that we see a very nice increase in sales in all the other geographies and the businesses, both in volume and in value. In value, also due to the price increases that we have done last year and at the first half of this year. And in volume due to the very nice increase in innovation and creating a very robust demand for our products. And therefore, we can see an increase in most of our market shares in most of our categories in the different geographies. In Israel, all of our categories grew in market share in these past 9 months. If we go to the gross profit, we can see in value that gross profit is ILS 855 million. It is higher more than ever and even higher than what we've seen in the years of -- in the third quarter of 2020 and 2021. So this is, of course shows how we're recovering from the dip that we experienced last year because of the recall in the confectionery and our plant crisis in Sabra. On the other hand, we can see a decrease in our gross margins from roughly around 36%, 37% that we were at in previous years before the recall in 2022 to around 32%. The main reasons for that are 3 reasons. First reason is the continuing increasing climate of input prices. The input prices are still very high. Some of them even increased dramatically during this quarter and in the past 9 months. For example, the cocoa beans, which are at all-time peak, the sugar prices and the Robusta green coffee prices. 2/3 of our green coffee usage is from Robusta. Therefore, it is very significant for us. And still, we can see also the Romania crisis at the peak of -- in the last 12 months, the highest prices ever that we've experienced here in Israel. And we can see also the slow recovery of the Sabra business and the confectionery business, which are helping us to increase our gross margins, but not yet to the rates that we were used to in 2021 and 2020. And as Shai said, we're putting all of our efforts in productivity in order to make sure that we will continue to improve materially these gross margins in the next quarters. And this is what we expect to see -- and we expect to see this improvement going forward to 2024. We can see the same effect going down to the operating profit line, ILS 200 million compared to average rates of around ILS 230 million, ILS 250 million that we were used to in 2021 and 2020. Yes, you can see here the ILS 300 million that we've seen in the third quarter of 2021. But just to remind everybody, this is a specific period includes a onetime effect capital gain that we recorded due to a big fund raise of one of our TKH companies, Aleph Farms that gave us a gain of ILS 72 million this year. So the ongoing rate in the third quarter of 2021 was roughly around ILS 230 million. So we're getting closer to the numbers, at least in values, if not in margins that we were used to in 2021 and before that. But still, we have a lot to catch both -- we'll do that both by increasing gradually, but very firmly our operations and results -- financial results both in Sabra and the confectionery businesses. And again, a lot of productivity and transformational projects and processes that will really make a very substantial effect on our results. And last but not least, the net income, ILS 120 million. We all should remember that below the operating profit, another line that was affected substantially in the past year or so is the interest expenses. Interest rates grew dramatically in all of our geographies. Therefore, we're paying twice the interest roughly on average that we have paid, let's say, in 2021 and before that. And on the other hand, in this quarter, we've experienced an appreciation in our FX hedge positions. Therefore, we saw a nice income of financial expenses that offset a little bit the increase of interest expenses. But we can see again, we're continuing our recovery in our profits also -- in our net profit and we're very positive about being able to return to the net profits that we were used to in 2021 and before that. Last but not least, the net debt to EBITDA gearing, we can see that we're are at 2.7% in -- on the end of the third quarter of 2023. We were in the first quarter and second quarter on around 3% to 3.2% gearing ratio. So we're going down with our gearing ratio, improving our EBITDA. And in the next quarter, we expect to reach around 2% to 2.2% gearing ratio, mainly because of the improvement of our EBITDA. I suggest that we will finish here and allow some time for your questions.

Thank you, Ariel and Shai. And now we will move on to the Q&A session. [Operator Instructions] We have a couple of questions from Chris Reimer from Barclays. Thank you Chris for your questions. Question number one, in coffee. Can you give any color around the trends in Brazil and describe what's behind the slowdown in organic growth and what would it take to see more return to growth? What are your growth plans in the region?

So as was mentioned before, we see that the expectation was that for green coffee to reduce -- green coffee prices to reduce. It didn't reduce at the end of the day. But because of the competition in the market and because of the fact that JDE also bought Maratá or want to acquire Maratá, and the competition is getting more rigorous. Prices were reduced in the expectation of green prices to be reduced and hence margins deteriorated. When we're looking at growth in Brazil, a part of our strategy or a major part of our strategy in growth is to grow in the category, which are adjacent and not in the R&G category, which means in coffee category, which are not R&G and also in the categories in which we play today, which are growing much more than the R&G and which has much higher margins. So that at the end of the day, the portfolio would be more hedged towards non-R&G than R&G. That will -- sorry, that will help us to improve our margins drastically because of the portfolio and the weighted average of the portfolio on the one hand. And on the other hand, to kind of eliminate or decrease the volatility of green coffee prices. So I hope that answers your question.

Thank you. And the second question is what, if any, impact on operations do you see due to the war?

So due to the war, there is a small impact on our operations, as was mentioned before by Yehuda and also with the other managers. The factories here didn't get back to 100% capacity of work. It's between 60% to 80% depending on the factory here. Their impact on the portfolio is relatively small, and the impact that happened within those factories is also relatively small. So it's some -- today, it's still negligible. And if it continues this way, it will be negligible. There is an impact, but it's negligible. Hopefully, the war will be soon as possible over as possible -- the war will be over as soon as possible. And hence, the impact will cease to exist.

Thank you. And the last question is, how should we be looking at investment CapEx through the next year? And will you be publishing a more detailed strategy plan in the near future?

So. Yes to both. The first one, we will see that CapEx have increased this year, that will increase in the next 2 years. We're going through changes in our IT journey, and we will invest much more in IT in the next few years in order to improve digitalization, data-driven organization, our movement to cloud, cybersecurity and other epics of IT that we're working on. We'll also increase our CapEx on our infrastructure and on our -- in our factories on food safety and quality, on bringing new machinery on CIP processes and other things in which we need in order to make sure that our manufacturing process is done in the most efficient way possible. All these investments that we'll do will -- are not forecasted to give a very high ROI, and a part of our growth and part of how we improve our productivity and how we improve our margins. Some of the CapEx will also be invested in growth, which means, as you know, we have invested a lot in our new plant in the dairy for plant-based products, and these investments will go on also next year. So there is also a CapEx that will be invested in growth. So in the next year or 2, you will see increase in investments. Regarding the second question regarding strategy, as I mentioned before, yes, due to the war, it's a little bit delayed. But hopefully, by the first quarter, we will publish our updated strategy. It's taking and revising our strategy and adjusting it to everything that's changed in the past 2 years.

Thank you. And we have a couple of questions from Feng Zhang from Jefferies. Thank you Feng for you questions. Do you expect the decline in Brazil coffee to continue into Q4 and the next year? Why are the volumes weak, given the pricing was lowered? And how much green coffee deflation are you seeing currently in Brazil?

So we don't see prices continuing to decrease on the contrary. Our expectation is that because green coffee haven't increased then -- haven't decreased -- sorry, then that the prices will be increased in the market so that the margins will be higher. Regarding the volumes next year, it's still very early to know, very early to project. We don't expect large volume growth in sales in green coffee next year, but we do expect prices to go back and increase. Hence, the growth will come more from a price increase and getting back to higher margins than a volume increase. And as I mentioned before, the strategy in Brazil is talking a lot about the non-R&G and increasing the categories on the non-R&G, where we have a double-digit figures -- or margins, sorry.

Okay. And another question. How is the SKU measurement progressed so far? Should we expect volumes impact going forward? I presume this is referring to the confectionery business.

So SKU optimization will continue. We've reduced a couple of hundreds of SKUs in our portfolio. We will continue to reduce SKUs. There should be a very, very small negligible effect on the volumes and the growth that we project from the SKUs and the core that remains is much higher and will overcompensate the volume that will be decreased through the SKU reduction. The margins will be much higher, and through this process, will become much more efficient with much higher margins. If we look specifically at confectionery, it's not just the SKU that we're reducing. There were SKUs that we reduced is getting back to the market with the new portfolio. It's getting the factory back in a better and a more efficient way with the better SKUs and better portfolio inside it, and that takes a little bit more time than we planned. But hopefully, in the next quarters, you will see gradually how the improvement is continuing and how from the breakeven result -- it's almost around breakeven result. So far, we will get that profitability and increase profitability with time and with each quarter that goes by.

Thank you, Shai. Those are all the questions that we have for today. I'd like to thank everybody for joining in today. Just as a reminder, a recording of this conference will be available on our website at a later stage. And if you have any further questions, please feel free to contact me after the session. And now I'd like to take it back to Shai for a couple of closing remarks. Shai, please.

Yes. So thank you very, very, very much for joining all of us today. I'll end with what we started. I'll say maybe a word about the quarter. We see that the results, there is an improvement from last year, and there is a good recovery, but there's still a long way to go. We have very, very focused plans on how to increase back product -- how do we increase back margins, how to work on productivity and to -- and hopefully, in 2024, we will already see this increase taking place. And I'll end with what we started. Those are very difficult and complex days in Israel. I wish that all the kidnaps that are now in Gaza will return to Israel safely as soon as possible. I hope that all our soldiers that are now in Gaza would return home safely. And I hope for all of us that better days will come with more peace and less violence.

Thank you, everybody. That ends our call for today. Thank you for joining us.