Despite the slowdown that has characterized the local market recently, food manufacturer Osem Investments Ltd. (controlled by Nestlé SA (SWX:NESN)) (TASE: OSEM) concluded a successful first half, with growth in its ongoing business and improved profitability.
As for its bottom line, the company reported a 7% increase in profit in the first half of the year, which totaled NIS 197.5 million. Osem attributes the increase in net profit to improved operational activity and a significant decrease in financing expenses.
A comparison of the two largest publicly traded food companies, shows that despite the fact that Strauss Group Ltd. (TASE:STRS) (most of whose operations are abroad) has double Osem’s sales turnover (close to NIS 4 billion), Osem’s gross profit and operating profit margins are both higher. In terms of bottom line, Osem’s profit is higher than that of its Strauss-family owned competitor.
Osem’s total sales rose by a modest 1.1% in the first half, to a total of NIS 2.1 billion. Osem’s operations abroad improved significantly: overseas sales increased 4.4% to NIS 337 million, discounting currency fluctuations, 6.9% compared with the corresponding half.
Osem’s sales in Israel - its primary market, which accounts for roughly 85% of sales - were up by a modest 0.5% and totaled nearly NIS 1.8 billion. This, despite the condition of the local food market, which was down 0.7% in the first half, according to StoreNext data.
Osem manufactures more than 2,000 food items in the culinary segement (pastas, soups, etc.), snacks and cereals, baked goods and beverages, prepared food, baby food (formula), and more. In the overseas market, most of Osem’s operations are in salads and vegetarian meat substitutes.
Osem CEO Itzik Tzaig said yesterday, “The improvement in operations abroad, in Europe and the US, led to most of the growth during the half. At the beginning of the year, we established an international division and we made the overseas market a central target market, which I believe will grow in the coming years. We improved our marketing operations, we introduced new products, we abandoned activities that were losing money, and we put out management focus there.”
With regards to the impact of Operation Protective Edge on the company, Tzaig explained, “What was hurt was primarily activity outside of the home. Home consumption, where most of our operations are, was impacted less, so I believe the damage for us will be less significant than for other companies.”
In the second quarter, Osem’s net profit grew by 9% to NIS 98 million, with the company benefiting from improved operating margins in the period as well. Second quarter revenue was down by 3.2% and totaled NIS 1.03 billion.
Osem succeeded in reducing its finance expenses, and its finance income increased in parallel, so its total financing costs shrunk by nearly 90%, to NIS 1.1 million in the first half.
Osem is traded at a market cap of NIS 8.75 billion, following an 8% rise in its share price over the past year.
Published by Globes [online], Israel business news - www.globes-online.com - on September 1, 2014
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