Osem-Nestlé, one of Israel’s largest food manufacturers, reported this week its net profits for the first quarter of 2002 rose to NIS28.2m (US$5.88m), compared with NIS26.7m – despite a 5.9% drop in sales.

A major factor that contributed to the increase in profits is the intensive efficiency measures taken by the company, including streamlining processing operations in its ten production sites throughout the country and amalgamating administrative functions. Osem-Nestlé Israel produces more than 1,000 different items. Operating profit for its food products soared in the first quarter of 2002 by 22% in real terms to NIS42m, according to a report in Haaretz.

Revenues in the first quarter of 2002 totaled NIS521m, NIS32m lower than for the same period last year. Overall domestic sales grew, despite the current recession, and are estimated to grow by only 2% for the year, compared with 4% annual growth in 2000 and 2001, according to analyst Oz Levy of Bank Hapoalim.

“Domestic sales totaled NIS445m for the quarter, compared with NIS473m a year ago for the period. Domestic sales in both periods accounted for about 85% of Osem-Nestlé’s turnover. The 5.9% decline in domestic sales this quarter will be offset in the next quarter,” according to the report, basing it on an announcement by the firm’s management.

Osem-Nestlé’s exports have also fallen in the first quarter, from NIS80.3m a year ago to NIS76m in the first three months of 2002. Analyst Levy explains that this change “is not surprising since the first half of 2001 saw a rise in the sales of meat substitutes produced by Osem-Nestlé’s subsidiary Tivall, in view of the outbreak in Europe at that period of the foot and mouth disease.

The report says that Osem-Nestlé’s streamlining programme included a merger of its ice cream plants located in central Israel, renegotiated import prices for Nestlé chocolate and coffee, and the sale of real estate.

Nestlé International holds 50.1% of Osem, which has exclusive distribution rights for Nestlé products in Israel. It adds that the cost of marketing, sales and distribution fell by 6.7% from NIS143.8m in the first quarter of 2001 to NIS132.8m in the first quarter this year. General and administrative costs were slashed even more, falling by 11.3% to NIS45.6m.

“Although Osem-Nestlé results were a positive surprise for the analysts, investors appeared unmoved by the company’s reports, and its shares followed at the end of last week the general trend in the Tel Aviv Stock Exchange, dropping by 1.5%,”  according to the report.

Analyst Levy of Bank Hapoalim commented that an earning multiplier of 25 “at which the company was traded on 9 May is slightly excessive, especially if the recession continues and the key interest rate is hiked again,” the report concludes.

By Aaron Priel, just-food.com correspondent