Osem ended 1996 on stable net profit, after posting 6.5% growth in sales turnover to NIS 1.15 billion (net sales). The situation was similar in Q4 ’96, with 15% growth in sales and a slight 4.5% decline in net profit, compared with the corresponding period in 1995.
Look inside the report and there is more problematic data to be seen. Gross profit margins did not manage to stay stable; by the time they were factored into operating profit margins the situation was grim, with 7.7% operating profit margins for all of 1996, compared with 9.6% in 1995. Q4 ’96 operating profit margins declined to 6.1% compared with 9.2% in Q4 ’95.
Osem’s growth last year did not manage to express itself in improved profits, even though Osem does not hesitate to describe 1996 as a successful year. The reason is that most of the damage to operating profit was attributed to the new acquisition of Tnuva’s ice cream company, which manufactures the Snowcrest and Tene Noga brand names.
The ice cream company, a Tnuva-Osem partnership, of which Osem owns 51%, was intended to serve as an additional tool to penetrate Nestle brands into the Israeli market. Nestle is Osem’s controlling shareholder. Nestle manufactures ice cream under the Motta brand name.
The ice cream company was acquired in early August, but the deal was signed only in December, therefore the ice cream company’s financial results were consolidated with Osem’s once, retroactive to August 1, 1996. The acquisition’s timing, it should be noted, was after the peak ice cream season had passed. This served to make the ice cream company data within Osem’s balance sheet seem even worse; fixed expenses are all there, but summer revenues are reflected only in part.