The prospectus revealed the exceptional profitability of the import giant Diplomat in Israel

The name Diplomat is certainly not familiar to most consumers in Israel, but the brands it imports are sold in every home in the local market, including Kellogg’s, Pampers, Gillette, Dorsal, Kikoman, Heinz, Head & Shoulders, Pantene, Ariel and more. These dominate a wide range of categories including cleaning products, hair care and personal care products, paper products and personal hygiene, food products, canned fish, sweets and other products. In addition, Diplomat imports the Beyond Meat meat brand to Israel.

This is the sixth largest player in the Israeli food market, the results of which to date have not been visible to the public. Now, as part of its transformation into a publicly traded company they are being exposed as part of a prospectus it has published. One of the most interesting data in the prospectus is the one that shows the company’s profitability rates in different countries – looking at the Israeli market, Diplomat shows a 6% growth in sales in the first nine months of 2020 compared to the same period last year to NIS 1.2 billion. This is partly due to the entry of new brands on the one hand, and damage to sales in the institutional market due to the corona crisis on the other hand.

Although Diplomat managed to evade in the prospectus the details of the profitability of the categories in which it operates, the manner in which the data is presented through the division into countries also highlights the relatively high profitability in the Israeli market.

The operating profit of the activity in Israel in the first nine months of 2020 was about NIS 68 million, a jump of 10%, when it accounted for 6% of sales in the local market. With the exception of Cyprus, where the operating profitability rate is 10% over the period, Israel is the market with the highest operating profitability, followed by South Africa and New Zealand with an operating profitability of 3%, and Georgia with 2%. A diplomat explains the high rate of profitability in Cyprus in “the size of the market, which is significantly smaller compared to other sectors”.

In addition, the prospectus reveals annual revenues of NIS 2.7 billion, and an annual salary cost to the CEO of NIS 9 million, and is based on a business strategy based on economies with security challenges neglected by international giants, not only in Israel but also in South Africa. “Including in areas with high unemployment and crime rates“.

Diplomat is interested in issuing the company at a value of NIS 1-1.2 billion “before the money”. In this context, a diplomat wants to raise NIS 250-300 million for about 20% of the company’s shares. The offering is led by the underwriting company Orion, headed by Erez Goldschmidt.

Diplomat was established in 1963 and is engaged in the import, sales and distribution of consumer products and it employs 2,500 workers, of whom nearly 700 are in its operations in Israel. It also owns the Starkist tuna brand, which it has acquired in recent years, through which it controls 40% of the tuna sales in the retail market in Israel.

Global activity: High profitability in the Israeli market

Diplomat is a global player, with its activities divided between Israel, which constitutes the bulk of the company’s revenues (about 58%), alongside South Africa (25%), Georgia (8%), New Zealand (6%) and Cyprus (3%). . In addition to sales activities, Diplomat also provides logistics services for warehousing, packaging and transportation to external companies.

The group’s products are sold to a variety of customers, including large and small retail food chains, pharmacy chains, mini markets, containers, wholesalers, restaurants, catering customers and others. The company’s logistics center in Israel is located in the airport complex.

And what else is hidden in the prospectus? In the first nine months of 2020, Diplomat shows a 3% erosion in its revenues, to a total of NIS 2.02 billion, mainly due to translation differences mainly of the South African rand and the Georgian Larry. When this effect is neutralized, there is an organic growth of about 3.5% that originates in all countries, with the exception of the Georgia diplomat. Accordingly, the company’s gross profit eroded by 4% to a total of NIS 404 million, to a level of about 20% of revenues. Operating profit grew by 10% to NIS 94 million, while net profit in the first nine months of 2020 jumped by 34% compared to the corresponding period last year to NIS 52 million.

 

Partnerships with manufacturers: will also be responsible for regulation

In addition to a long line of brands that Diplomat imports, it has a long-standing partnership with three international manufacturers: Procter & Gamble, which is behind brands such as Gillette’s razors, Pampers diapers and Ariel washing powder; The chocolate world Mondaliz that produces brands like Oreo cookies, Milka chocolate and Cadbury chocolate; And Nestle, with brands like Nescafe, Cherry Cereals and Cheat Kit Kat.

Regarding the agreement with Procter & Gamble, which is the group’s main and most significant supplier that constitutes 55% of its acquisitions in Israel, Diplomat notes that as of the date of the prospectus, it is in negotiations to renew the contract with Procter & Gamble in Israel, when the latest agreement was signed in 2004.

The prospectus also states that under the new agreement, the import of the products will be transferred to a diplomat, including the transfer of responsibility for the regulation for the registration of the products and their import, in contrast to the current situation. This means that a diplomat will receive more power, at the expense of the representation of Procter & Gamble in Israel, as part of a global move by the consumer goods giant in all the countries in which it operates.

Another interesting clause concerning a diplomat’s substantive agreement with Procter & Gamble, which is currently being discussed, concerns CEO Noam Weiman. In the existing agreement, Procter & Gamble has the right to terminate the agreement within 60 days, in case Schwein ceases to be CEO. However, Diplomat notes that in the draft agreement that is being formed between the two, this condition is not included, but it appears, according to Diplomat, that Procter & Gamble will still have the right to terminate the agreement between the parties with 60 days’ notice.

Diplomat expects to end 2020 with sales of NIS 2.79 billion, and a net profit of NIS 72 million. At the same time, Diplomat also presents the net profit excluding extraordinary expenses in the pro forma report, so that excluding non-recurring expenses (including an exceptional provision for doubtful debts in respect of the institutional market due to the corona crisis), the company’s estimated net profit will be NIS 83 million.

Thanks to the effects of the corona crisis, 2020 was a good year for the consumer goods market, which recorded an increase of 9.2%, according to Sterncast data, along with a price increase of about 0.3%. However, in Israel, Diplomat recorded growth of about 5.7%, lower than that of the rest of the market in 2020. In Israel, Diplomat holds a 4% market share, and is the sixth largest company after Unilever, according to Sterncast data.

On the issue of competition, Diplomat mentions among its competitors the parallel import and personal import industry, including from Amazon, noting that “although the above trends do not lead to a significant decrease in sales, these trends may have a significant effect on product prices.” Diplomat clarifies that these trends mainly affect products with a relatively high off-the-shelf price and relatively cheap shipping and import costs, anticipating that these trends of parallel imports and personal imports will intensify.

Noam Weiman - husband of a diplomat / Photo: p

Noam Weiman – Diplomat / Photo: PR

Strategy: Exploits security instability

The company is headed by CEO Noam Weiman, 69, while his son Oren Weiman, is employed as VP of growth and the group’s headquarters. The cost of employing Weiman in his position as CEO of the group amounted to NIS 8.9 million in 2019, while in 2018 it stood at NIS 9.6 million. Such wage levels are recognized mainly by huge international Israeli companies operating in the world, such as NICE, Teva, etc. In any case, Diplomat notes that following the IPO and making the company public, a new employment agreement will be signed with Weiman, but at this stage it does not specify its details.

Incidentally, the salary cost of Oren Weiman, as stated by the CEO and the controlling shareholder, was NIS 1.17 million in 2019, and a similar amount in the year before. The company also employs Noga Weiman, Noam’s wife, who serves as the marketing communications manager of a group employed. In 80% of her job, and her salary cost with her was NIS 459,000 in 2019 (during which her job was reduced).

The prospectus also reveals for the first time the diplomat’s strategy: her specialization is, among other things, utilizing her ability to operate in territories with security instability that international giants sometimes prefer to avoid operating, when it is not just the Israeli market. Thus, a diplomat notes in the draft prospectus that in its operations in South Africa it markets to retail chains and small shops across the country “including in areas with high unemployment and crime rates”, so-called Townships, which “are not directly addressed by suppliers and competitors” for risk reasons. “High and lack of economic viability, which is a competitive advantage for her.”

She also notes that due to the wide geographical spread and high crime rates, most manufacturers and importers prefer to focus on selling to the organized market with the big customers and neglecting the rest of the market. “A South African diplomat has taken advantage of this space,” the prospectus said, “developing a close relationship with the big wholesalers and with the shops on the outskirts of cities in weakened areas.”

The draft prospectus also reveals the volume of dividends that the company has distributed in the last two years, which amounts to NIS 134 million, with the last and highest dividend distributed only last month alone standing at NIS 50 million. In addition to these, Diplomat intends to distribute an additional NIS 100 million dividend near the completion of the offering. Diplomat notes that following the IPO, the annual dividend policy will be updated to a rate of 50% of the net annual profit after tax, and in accordance with the decision of the Board of Directors.

diplomat

Established in 1963 and engaged in the import, sales and distribution of consumer products ● The company is headed by CEO Noam Weiman, 69, with his son Oren Weiman, employed as VP of growth and headquarters of the group ● The company Employs 2,500 employees, Of which close to 700 are active in Israel ● It also owns the Starkist tuna brand, through which it Dominates 40% of tuna sales in the Israeli retail market

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