Eden Springs toasts return to profitability
After losing NIS 170 million over the past three years, the Eden Springs (Mey Eden) company sent a clear message yesterday that it is on the road to recovery. The company earned NIS 3 million in profits in the second quarter, rebounding from a NIS 40 million loss in the parallel.
The improvement in financial results were due to increased sales and profits of the company's small mineral water bottles, as well as profitability recorded by Danone Springs Eden (DSE), part of the company's European operations. DSE, a joint venture between Eden and the French concern Groupe Danone, sells 11- and 19-liter jugs of mineral water for home and office delivery (HOD).
Eden holds a 42 percent stake in the venture, which earned 2.6 million euro in the second quarter, reversing a 4.8 million euro loss in the parallel. As a result, the venture yielded Eden a NIS 3.8 million profit, compared to a NIS 13.9 million loss in the parallel.
The venture's revenues grew 18 percent over the parallel, to 50 million euros, and turned a 4.4 million euro operational loss into a 2.9 million euro operational profit.
Eden's VP of Finance, Gadi Kunia, said the growth in sales was due to a 3-5 percent increase in domestic sales and DSE's results. He also attributed the growth to DSE's acquisitions, including the Spanish company Montana Azul and British company Thirsty Work Watercoolers, over the past 18 months.
Kunia said all of DSE's subsidiaries improved their bottom lines, primarily its German company, which is set to avoid the red this year after having lost 2.5 million euro in 2004, and its French firm, which should break even after posting losses of 3 million euro last year and 6 million euro in 2003. The French subsidiary had been the main focus of the company's previous woes.
Kunia said DSE has a good chance to meet its 2005 sales target of 185 million euro and record a positive operational balance.
The merger of distribution networks between Eden and Jafora Tabori in the small-bottled mineral water sector, which had drained Eden's profits for several years, had a substantial positive impact on the company's financial results this time around.
Second-quarter mineral water sales in bottles rose to NIS 34 million, 20.6 percent above the parallel.
Kunia said the growth resulted from an 8-10 percent increase in the small bottle category. He estimated that Eden increased its market share at the expense of private labels, and increased revenues due to a five-percent price hike. The company cut its second-quarter losses in this sector to NIS 242,000, from NIS 2.1 million last year.
Sales of canisters in the HOD market suffered as it continued its three-year trend of falling market share.
Operating profit fell 14.2 percent, to NIS 7.5 million, while sales dropped 8.5 percent, to NIS 54 million. Besides losing clientele, the company also reduced the price of its supply package by 5 percent, contributing to the revenue decline.
Kunia stressed that after a series of marketing campaigns, the company finally had stopped losing customers. "July and August were excellent," he said. "We expect to close 2005 with a net gain of 7,000 clients."
The drop in sales and profit will continue in the second half of the year, because clients who left in 2004 still contributed to sales that year, Kunia said. He expects the reversal of the trend to be felt only in 2006.