Why is the retail price of mineral water in Israel double or more the price in Europe? The answer can be deduced from the financial statements of Kerur Holdings Ltd. (TASE: KRUR), which reveal the extremely high profit margin of the Ein Gedi mineral water company. Kerur owns half of Ein Gedi's shares through the Jafora-Tabori beverages company. Kibbutz Ein Gedi owns the other half.
Ein Gedi's sales were up 4.4% to NIS 84.3 million in the first nine months of the year, but the increase in its profit was steeper. The company's gross profit jumped 13.8% to NIS 53 million, and increased from 57.7% of sales to 63%. This profit margin is especially high in comparison with food and consumer brands generally. For example, the major supermarket chains in Israel have profit margins ranging from 22% to 25%.
The Ein Gedi company produces and markets water from the Ein Gedi springs, a natural resource that belongs to the state and all of its residents. This does not prevent the company from selling its water at a price 2.5-3 times its production cost. According to one retailer, the company sells a six-pack of mineral water for NIS 7-8, plus VAT. In other words, when the company sells a six-pack for NIS 8, it receives NIS 5 more than the cost of producing the water.
The steep rise in gross profit margin is reflected in the middle line: Ein Gedi's operating profit soared from NIS 7 million to NIS 11.9 million in the first nine months of the year, a 70% increase.
These profits come straight from the consumers' pockets into those of the shareholders. Ein Gedi finished January-September with a NIS 9 million net profit - a 76% increase.
Published by Globes [online], Israel business news - www.globes-online.com - on December 1, 2016
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