Strauss Group: ends 2021 with 7.4 percent growth

Petach Tikva / IL. (sg) Israel’s Strauss Group Limited has wrapped up 2021 with solid results. The company’s financial statements reflect growth in most categories and a stable operating margin, despite the sharp increase in raw material prices and gross profit erosion, due to the revision of coffee sales prices in Brazil and CEE, ongoing efficiency enhancement and mitigation processes, and profits arising from capital gains in a number of startups in The Kitchen Hub FoodTech incubator.

The company’s revenue in 2021 amounted to NIS 8.75 billion, reflecting 7.4 percent organic growth excluding foreign currency effects. The improvement is largely due to growth in sales volumes and an increase in the coffee company’s sales prices in Brazil and CEE, business growth in the water company and sales growth and market share gains in Israel, mostly in the dairy and dairy alternatives category. Gross profit was NIS 3.2 billion, whereas the gross margin eroded to 36.9 percent compared to 38.7 percent last year following rising input and raw material prices – notably green coffee, milk, and shipping and packaging costs. Growth in sales volumes offset the gross profit erosion.

All in all, Strauss generated NIS 980 million in operating profit in 2021 and has maintained an operating margin of 11.2 percent, similar to last year, thanks to gains on its investments in its FoodTech business. Income attributable to shareholders amounted to NIS 639 million, with net profit growth largely due to the increase in operating profit and a significant drop in financing expenses.

Strauss Group President and CEO, Giora Bardea: «We have successfully ended another challenging year and are already well into a new year, with challenges that are no less significant. In 2021, in many locations we experienced a return to normal due to the accelerated pace of vaccinations worldwide, but recent events, including the waning pandemic and the war in Ukraine, have been accompanied by global increases in the prices of commodities, energy and shipping. These increases are impacting the world economy in general, and the food industry in particular. This year once again, our category diversity, geographic dispersal and, no less important, the first fruits of the incubator’s FoodTech activities, have enabled us to deliver good results.

«Along with tightly managing the challenges posed by Covid-19, looking ahead, we continued to allocate resources to ensure that the company is able to realize future opportunities. In the past two years, we crafted a new purpose for the Group, and we have now completed the definition of our strategy for the next few years. This morning, in line with our practice, we also published the Group’s Annual Sustainability Report, which contains information the company’s environmental, social and economic impacts in the past year, as well as a description of the sustainability strategy and objectives we have defined looking ahead to the next decade, with the goal of creating a positive long-term impact on people and the planet.

«Regarding the situation in Ukraine, and the devastating war being waged there, our business in the country is paralyzed. However, we are working at reinstating business partially where possible. We are closely supporting our employees in Ukraine and providing them with financial and humanitarian aid. We are also working with Israeli and international humanitarian relief organizations and helping Ukrainian refugees who have fled the terror of war with food donations and others. Strauss condemns Russia’s brutal attack on its neighbor, and we hope that there will be a stop to the war as soon as possible.»

Strauss Israel has wrapped up 2021 with 4.2 percent sales growth and, according to StoreNext, holds a 12.4 percent share of the Israeli food market (the barcoded market). The increase in revenue is the result of sales growth in the dairy and dairy alternative category, as well as in the salty snack category, the food category and in Yad Mordechai products (honey, olive oil, jams and sauces).

The coffee business in Israel grew 2.3 percent, largely due to the recovery of the away-from-home (AFH) sales channels, including the Elite Café chain, which has resumed operations.

In Brazil, Strauss Coffee’s sales grew by 23.2 percent in local currency in 2021, mainly as a result of the acquisition of Mitsui Alimentos and higher sales prices. Apart from Poland, sales growth was delivered in all CEE countries due to price increases as well as growth in volume.

Sabra reported stability in sales in local currency with USD 184 million in revenue (representing 50 percent) and a 42 percent drop in operating profit to USD 11 million (50 percent), the result of an increase in manufacturing costs due to the partial shutdown of the plant in December as well as increased labor costs.

Obela delivered revenue of NIS 85 million in 2021 (representing 50 percent), an increase of 4.9 percent, and recorded an operating loss of NIS 6 million (50 percent), similar to the corresponding period last year.

Strauss Water grew by 10.2 percent with sales of NIS 736 million thanks to growth in the customer base and in sales of new appliances. The water business in China (Haier Strauss Water (HSW)), delivered RMB 1.3 billion in revenue, reflecting 15.3 percent growth, largely due to the opening of stores and the recovery of the local economy following the pandemic.

FoodTech activities through The Kitchen Hub are, and in 2021 continued to be, a strategic activity for the Group. During the year, cultured meat producer Aleph Farms, established by Strauss, raised USD 105 million, and other startups in the incubator, including Bio-Fence and others, completed funding rounds. As a result of these rounds, last year Strauss recorded a profit of NIS 71 million.

Additionally, on the reporting date, the fair value of the Group’s holdings in the portfolio companies was NIS 375 million, compared to NIS 111 million in the corresponding period. Furthermore, on February 22, 2022, The Kitchen was informed that it had won a tender by the Israeli Innovation Authority for the establishment and operation of a second FoodTech incubator. The five-year concession period will begin by no later than September 1, 2022, and there is an option for a further three-year extension. The company has committed to investing up to NIS 225 million in the startups within the incubator.

The data in this document are based on the company’s non-GAAP figures, which include the proportionate consolidation of jointly controlled businesses and do not include share-based payment, mark-to-market at end-of-period of open positions in the Group in respect of financial derivatives used to hedge commodity prices and all adjustments necessary to delay recognition of gains and losses arising from commodity derivatives until the date when the inventory is sold to outside parties, other income and expenses, net, and the tax effect of excluding those items, unless stated otherwise.

Strauss presents its strategy for the next five years, derived from the Group’s purpose: Nourishing a Better Tomorrow

The Group’s purpose: Nourishing a Better Tomorrow

Several weeks ago, the Group launched a new purpose, «Nourishing a Better Tomorrow». The company has undertaken a challenging mission and commitment to nourish and be a partner in building a better tomorrow. Among other things, to leave a positive mark on the world through food and beverages as well as in other ways. A tomorrow and a world in which people live longer, live better, live in a society that is inclusive, equal and supportive. Life in a sustainable environment that will continue to flourish for generations to come. Strauss is committed to caring for people and for the planet, to reviewing and improving its processes and long-term impacts, with the aim of creating a positive influence and driving sustainable growth.

The strategic plan: Taste the Future

It is the Group’s practice to review its strategic plans from time to time, and to revisit its goals according to developments among consumers, changes in the competitive landscape and the retail environment, as well as macroeconomic effects. The Group maintains a strategic planning processes aimed at adapting the Group’s activities to the changing markets, as well as strengthening and renewing core competencies that will constitute a competitive advantage for the group.

On March 21, 2022, the Group’s board of directors approved a new 5-year strategic plan – Taste the Future – in alignment with the Group’s new purpose, Nourishing a Better Tomorrow, its long-term aspirations and evolving trends.

The Group has set growth as its main strategic goal, with a long-term ambition to grow at an average annual rate of about 5 percent. For this purpose, the company will increase its total investments in the coming years, both organically, investing in existing activities in the company today, and by allocating NIS 1 billion or more towards mergers and acquisitions, with an emphasis on sustainable growth in accordance with the Group’s mission statement.

The strategy consists of three main pillars: (1) Renewal and expansion of the business core (2) Building new horizons (3) Business transformation in the way the company operates

  • Renew and Expand the core
    • Adapting the group’s value propositions to people in the changing world of food
      • Meeting the needs of the new generations (Generation Y and Z) and audiences with unique requirements
      • Renew and refresh products and brands: nutritional improvement, packaging upgrades, providing solutions for convenient culinary solutions, increasing the scope of unique brands to different communities
      • Quick access to specialized and online channels, development of D2C and FOOD AS A SERVICE channels, access to new specialized channels and expansion of the Away
    • Expansion of the Homebase
    • Leveraging the group’s major international anchors
      • Sabra – The company will work to restore Sabra to rapid growth levels through innovation, leveraging the Sabra brand and entering tangent categories.
      • Brazil – Strengthening the competitive status and accelerating the growth of activity in Brazil.
      • China – Growing online activity and strengthening the status as leaders in this channel.
  • Building new horizons
    • Expand operations in the United States, among other things through the acquisition of a local platform that caters to communities and offers future fit food. The company will strive to reach revenues of NIS 1 billion
    • Leverage and increase investments in Foodtech startups in order to increase the faire value of its portfolio of companies
    • iii. Increase international water activity – develope new markets in addition to those that exist today, whether through acquisition, or the establishment of activity in new geographies.
  • Business transformation of the way the company operates The company will carry out a number of transformations in the coming years, which require, among other things, an increased level of CAPEX investments, which may constitute about 4 percent or more of sales turnover. The key components of the transformation include:
    • Culture and people
    • Capabilities
    • Optimization in resource management and cost structure:
    • Assimilation of the commitment to sustainability in all of Strauss’ scope of operation, in accordance with the group’s mission statement, as a core area, while constantly improving the indicators of sustainability, social responsibility and corporate governance. The group’s goals in this area for 2030 will include, among others:
  • Providing the best offer in each category – focus on nutrition and health
  • Sustainable supply chain:
    • 100 percent biodegradable or recycled packaging
    • Minimize food waste
    • Sustainable supply chain
  • Climate:
    • 100 percent use of renewable energy sources at the company’s sites in Israel
    • Halfway to Net Zero (balance in the group’s greenhouse gas emissions)
  • Water:
    • Reducing group water use by 20 percent
    • Clean water supply to an additional 10 million people
  • Communities and people:
    • 50 percent women in management roles
    • 10 percent Diversity population in management positions
    • Promoting human rights issues throughout the value chain
    • Global Social Impact Programs

2021 Sustainability Report

Heads of the Corporate Governance Report
81 percent recyclable packaging in Israel NIS 21.6 million were donated in products and money as well as volunteer work by Strauss employees 58 percent women on the board of directors
Reduction of 18.6 percent in greenhouse gas emission intensity compared to 2016 26 percent of employees in Israel are from the Arab communities 723 suppliers have been evaluated in terms of their environmental or social impacts
986 tons of food were donated as part of initiatives to reduce food waste 14,218 employee volunteer hours 100 percent of employees have received training on the Code of Ethics
92 percent of waste was not sent to landfill 593 products are gluten free, marketed by Strauss Israel. Over 80 hours of management meetings on sustainability issues
100 percent of our cowsheds participate in sustainable cowshed programs 47.1 percent of management positions are filled by women USD 222 million were raised by portfolio companies in The Kitchen Hub (on the date of publication of the report)
In Romania and Serbia, solar energy systems were built. In Israel, construction of a plant conforming to the LEED standard was announced 3 new startups joined our FoodTech incubator

The Sustainability Report also presents the Group’s ESG targets for 2030.