Following the halving of Schnapp Ltd.'s (TASE: SHNP) share price over the past year, the controlling shareholders in the car batteries company, the SKY private equity fund and the Rosenshein family, have decided to streamline the company, and have announced a restructuring of its batteries business. "It will be necessary to eliminate most of the production processes in the company's plant," the company said. Schnapp, which has several dozen employees, will henceforth focus on importing batteries from overseas. At the end of 2017, 54 of Schnapp's 116 employees worked in production.
Schnapp's board of directors decided on restructuring because of high production costs "in comparison with the costs of buying batteries imported from overseas." On the other hand, the company reported "a steep fall in procurement costs and a fall in sale prices of batteries in the competitive market environment in Israel."
Schnapp added that despite the measures taken by the company "to make the production processes for batteries more efficient and reduce costs," intensifying competition and falling profits had led to "a substantial increase in the proportion of imported batteries sold by the company."
Schnapp said that its restructuring "would have a number of important consequences for the company," including a higher gross profit, "because of higher profit margins on the sale of imported batteries and substantial personnel cuts in the company's production facilities."
Before any improvement occurs, Schnapp's results will be hit by a one-time loss on the sale of its manufacturing equipment, which was reported at a reduced cost of NIS 15 million in the company's recent financial statements. The company estimates the proceeds on the sale of the equipment at "a few million shekels."
Schnapp's factory is located on a 15,000-square meter site in the northern Netanya industrial zone. The company owns 7,000 square meters of the site and rents 8,000 square meters under a lease ending at the end of 2019. Annual rent is NIS 1.25 million.
The controlling shareholders in Schnapp are SKY Fund, controlled by Zvi Yochman and Nir Dagan; Schnapps CEO Uri Rosenshein; and sisters Tamar Ben Ozilio and Puah Amir. Schnapp is one of Israel's largest battery companies. The company's share price plunged 50% in the past year, erasing gains from previous years and pushing its market cap down to NIS 190 million, despite a 4% rise in the share price today.
Schnapp reported a 20% jump to NIS 131 million in battery sales in the first nine months of 2018, "because of higher sales of imported batteries," but its gross profit from this activity remained unchanged at NIS 32 million. Its operating profit on this activity was also steady at NIS 9 million.
In addition to its batteries business, Schnapp has expanded to other fields of business in recent years. Since early 2017, it has been active in vehicle accessories, following the acquisition of half of ADI Systems, currently Schnapp's largest activity.
Schnapp entered the auto tires sector in 2012 by acquiring a 50% stake in the Kislev company, controlled by Zvi Greenberg. Kislev is the distributor in Israel of Continental Tires, and also markets tires made by other manufacturers. Schnapp also acquired from Alliance the Israeli Agricultural Tires Company, which distributes and sells tires, mostly for agriculture, and heavy equipment.
Schnapp is about to expand this activity, after signing an agreement in recent months to merge its tire activity with that of brothers Yoel and Rony Weiss, former partners in Kamor Motors, which imports BMW cars to Israel. Through two import and distribution companies, the Weiss brothers import and distribute Dunlop, Fulda, and Nexen tires; Chinese tires; and tires for agriculture and trucks. The parties will have equal shares in the merged activity, which will create one company with NIS 200 million in annual sales. Completion of the deal is contingent on a number of conditions.
Schnapp's revenue dipped 5% to NIS 413 million in the first nine months of 2018, and its net profit was down 11% to NIS 15 million, with a decline in revenue and stable profits from accessories and lower revenue and profits from tires activity.
Published by Globes, Israel business news - en.globes.co.il - on December 27, 2018
© Copyright of Globes Publisher Itonut (1983) Ltd. 2018