Water Firm Mei Eden Turns a Profit

After four straight quarters of losses, mineral water company Mei Eden showed a net profit of NIS 3.6 million in the third quarter results it released yesterday.

The company also posted a 40 percent increase in revenues and a 36 percent gain in operating profit.

The company's CEO, Nir Dor, said that a water pollution scare in July - in which the discovery of murky water in the national water carrier caused authorities to order residents of the coastal plain not to drink tap water for several hours, leaving Israelis fighting over bottled water in supermarket aisles - may have influenced some consumers to move to bottled water, but that it was an isolated incident with only a minor effect.

In general, however, the bottled water market in Israel is closing the gap with Europe, where consumption is almost double, he said.

Mei Eden's third quarter report showed improvement in almost all parameters. Net profit was NIS 3.6 million, up from a NIS 1.6 million loss in the parallel quarter last year. Revenues were up 36 percent, to NIS 153 million, compared with NIS 112 million in the parallel.

Dor said that the company's third quarter profit was in line with expectations, as were losses in the previous quarters. He said that the company's results were influenced by seasonal factors, and that the third quarter, which falls in the summer, is always the strongest. Dor added that Mei Eden would also post improved results for the fourth quarter, but that it might not post a profit for the year as a whole.

Dor also said that the company's results were heavily influenced by its strategy of penetration into Europe. The company's business in Israel is profitable and showing constant growth, but operations in Europe are still showing a loss, which has a negative impact on its financial results. He said that because the company moved into most of its European markets at around the same time, the transition to profitability in these countries, expected next year, should also be roughly simultaneous.

Dor said that despite the intense competition in the bottled water market in Israel, the entire market is growing, and Mei Eden is successfully holding on to its market share. Competition in the standard size bottle sector keeps profitability low, but in the 19-liter barrel sector, profits are higher. Dor cited ownership of the entire distribution chain as a reason for the higher profits, whereas with the standard size bottles, part of the profit goes to retailers and wholesalers.

Dor also said that competition in the standard size bottle sector was tougher because purchases of this size are usually impulse buying, whereas barrel sales are often part of long-term decisions. The high profit in the barrel sector is the main reason for Mei Eden's massive efforts to penetrate the European market, which are focused exclusively on this sector.

Dor said that the potential in Europe is enormous, because Europeans are only beginning to use mineral water barrels, which at present account for only 1 percent of the market in Europe. Dor added that European sales currently account for 20 percent of Mei Eden's revenues, but that he expects them to rise to 25 percent next year and 30 percent in the following year.