The Electra Consumer Products share has jumped 70% since the beginning of the year • Zvika Schwimmer, the CEO of the company that operates in the field of domestic electrical consumer products tells Globes about the change in consumer tastes during the corona crisis, about the fruits of Golan Telecom's sales to Cellcom and about expansion plans for the future
Aviv Levy, October 23,2010
The importer and distributor of electrical products, Electra Consumer Products (ECP), is one of the few companies on the Tel Aviv Stock Exchange that the corona crisis is helping to grow, and in line with the performance of the company's share, which has jumped more than 70% since the beginning of the year.
In addition to the growing business activity, as evidenced by the latest financial results it has published, ECP, controlled by the Elco Investment Company headed by the brothers Daniel and Michael (Mikey) Salkind, has made headlines in recent months thanks to the impressive deal regarding Golan Telecom, which was sold to competitor Cellcom, a move that generated a total profit of about half a billion shekels for ECP.
Looking ahead, ECP CEO Zvika Schwimmer is optimistic about the dominance of the company's traditional operations during the corona months, as he points out, alongside plans of future expansion - centered on an agreement it signed with the international industrial concern Bosch, and its improved financial position after the sale of Golan Telecom .
According to him, "Even though the skies are stormy, ECP, as a consumer goods company, is in a good position for the future. ECP is the largest and most powerful electrical consumer goods company in Israel, the sectors in which we are currently operating are very strong, and each of them has organic engines of growth.
"Despite the corona crisis, we are achieving our targets, which are reflected in growth in all sectors, after completing several transactions in the past year, the most significant of which is the sale of Golan Telecom."
We Will Further Increase Our Dominance in the Air-Conditioning Sector"
Schwimmer, 42, wraps up two years as CEO of ECP, having previously served in senior management positions at the fashion companies Delta and Fox. Shortly after his appointment, ECP reported negative financial results at the end of the year 2018, following significant losses incurred as a result of a dispute with Chinese cellular company Huawei, as well as weakness in its core business of importing and distributing electrical products, particularly in the air conditioning sector.
Following Schwimmer's appointment as CEO, ECP announced the implementation of an efficiency plan and changes in its organizational structure, less than four years after announcing a similar program following the appointment of former CEO Zeev Klimi (whom Schwimmer replaced).
ECP’s main activity is, as stated, the import and distribution of electrical consumer products and the operation of retail marketing chains for the sale of electrical consumer products, under the brands "Mahsaney Hashmal" and "Shekem Electric".
Schwimmer refers to the changes in consumption habits that ECP recognized, which occurred following the corona crisis: “The motto has become ‘my home is a my castle’- out of necessity, people have switched to buying more home related products. This is reflected in extensive growth both in our electricity retail activity and in the trade activity. We have clearly seen the increase in sales of small electrical appliances, and also air conditioners, following the prolonged period of confinement. In terms of service, we also received many inquiries which we knew how to leverage. "
What were the buying trends you identified during the crisis?
"The increase in on-line purchases is very sharp, especially during the confinement period, and what amazed us was that this increase did not hurt our brick and mortar store activity. Our on-line activity more than tripled this year, and compared to about 4% of sales before the crisis, it now reaches approximately 13% of sales. "This constitutes about NIS 200 million out of about NIS 1.6 billion in sales between January and August."
Even though the corona crisis has severely affected commercial real estate in Israel, Schwimmer insists that ECP also experienced a positive period in brick and mortar stores: "We opened an additional 4,000 sqm, in the Arab sector as well as in Eilat, in addition to the approximate 55 thousand sqm of stores we had”.
Schwimmer explains that “there are still a great many customers who come to the brick and mortar stores, even with pots, to check if they are suitable for the product they are interested in purchasing. Electrical stores are also an experience, and once they are viewed that way, then the customers arrive. Websites sell more small and cheap products, but the higher the price, the greater the customer's desire to physically see the product. Therefore, we can see a combination of increase in sales, and the industry is growing."
The electrical products sector is very competitive, how can we create an advantage in it?
ECP is today the largest electrical products company in Israel. We know how to combine the logistical advantages we have, marketing and advertising, as well as management and trade, and our capabilities are reflected in all parameters. There are significant advantages to size - the Electra brand is one of the fastest growing in Israel in the field of electrical products, and the site of Mahsaney Hashmal has the most entries in the industry.
How dominant are the air conditioner sales in your business?
"Very dominant, about 40% of sales and operating profit. In the air conditioners market, there are 2 prominent players in Israel - Electra and Tadiran. Air conditioner sales for domestic consumption are rising, and what additionally contributes to us in that field, is that we are a significant player in the institutional, construction-dependent market. There we maintain a fruitful cooperation with our affiliate company Electra. As part of our collaboration with the "Bosch" concern, we will increase our dominance in the air conditioning sector."
"The financial situation makes it possible to consider acquisitions and mergers"
As stated, ECP has seized most of the headlines in recent months following the sale of Golan Telecom to Cellcom, in a transaction that generated a pre-tax capital gain of approximately NIS 230 million and cumulatively, including the withdrawal of ECP's share of Golan's profits from its acquisition in 2017 until the date of completion of the translation last August, for approximately half a billion shekels.
Following the completion of the transaction, ECP announced a dividend of approximately NIS 300 million to its shareholders, led by the parent company Elco, which was distributed last month.
What do you plan to do with the balance of the money that resulted from the sale of Golan Telecom?
"We distributed the dividend to the shareholders, and this year we distributed a total of approximately NIS 360 million, a very nice amount, certainly in this current year, as part of our understanding of fulfilling the company's goals. In addition, the balance will help us find opportunities to grow in the consumer products sector in areas that are close to our operations, and there are many things that are on the agenda and are being examined.
"The company's financial situation allows it to consider acquisitions and mergers over the coming year, which will continue to improve the balance sheet, and it can be estimated that in the coming year there will be interesting things happening at ECP. ECP is a consumer goods company, not a holding company, and even when we look at other activities, if we expand to them, it will be with the full interface of ECP, so that we can improve them within the framework of our logistical advantages and trade relations. "
Schwimmer further adds that "overall we have tremendous financial capacity, and we end the year with a financial asset of more than NIS 360 million, without debt. I do not know how many public companies have such a strong balance sheet, and this allows us to grow in the consumer products sector, which is a broad category."
Along with the announcement of the distribution of dividends, ECP published a summary of financial statements as at the end of August, on which the board's decision to distribute the exceptional amount was based. The reports revealed a particularly hot summer for the company, with significant improvement in its results compared to July and August 2019, inter alia in the support of air-conditioners sales, while significantly improving profitability.
These results supported a 10% increase in ECP revenues in the first eight months of 2020, which reached NIS 1.6 billion, along with a jump of more than 60% in its net profit for this period to NIS 267 million. The positive direction in the results also supports performance of the share, which, as mentioned, with a jump of more than 70% since the beginning of the year – is leading the company's value towards record levels, which have been hovering around approximately NIS 2 billion for several months.
The main beneficiary of the increase in value is the controlling shareholder, Elco, which in recent weeks has decided to take advantage of the high stock levels and exercise about 3% of ECP's capital it holds, for close to NIS 60 million, remaining with approximately 51% of the capital, at a current value of approximately NIS 1 billion.
Land near the "Elef Compound" in Rishon Lezion
In addition to the activity of electrical products, there is significant potential for future value flooding at ECP contained in a land of 55 dunams it owns in West Rishon Lezion, near the "Elef Compound", a business center which is under construction. In this regard, Schwimmer says that we hold one of the best lands in Israel, but we will not manage the ventures therein. In the next year or two, we will select a suitable partner to lead the project that can be built there."
What are you expecting for the future?
"The electricity industry will continue to grow in the coming years. Following the corona crisis people started staying more at home, they invest more in the house and consume more therein. This is reflected from the beginning of the corona crisis in all our sectors of activity, in the air conditioning sector as well as in retail and in trade, and this trend will also continue in the coming years. The corona crisis will not end in one day, it will be a process, and even when it passes, the trend of people who are more at home will remain, because new habits and perceptions have been formed. Accordingly, we continue to think where we can develop in these areas."
The joint venture with "Bosch": "We will be a prominent player in the climate solutions sector, both for cooling and heating"
One of ECP's most notable moves in recent times, on which the company places great emphasis, is the cooperation it has formed with the giant "Bosch" concern, for the establishment of a joint venture to develop and manufacture heat pumps and advanced air conditioning systems. Signature of cooperation agreement between the parties were signed in August of this year.
As part of the collaboration, the establishment of a plant in Ashkelon is planned, at an estimated cost of approximately NIS 100 million for the manufacture of the products that the companies will offer, as part of the "Climate Treatment Technological Park", where a development center will also operate and collaborate with Ben Gurion University. The products to be offered by the companies, which will be sold mainly in Europe, will be offered under the BOSCH brand as well as other brands.
ECP has high hopes for the future growth of the joint venture. According to the data presented after the signing of the agreements, they expect sales of NIS 100 million as early as next year, which will reach approximately NIS 600 million in 2027. ECP further showed, as part of the data that have been published, its ambition to reach a market share of about 10% of the amount of heat pumps to be sold in Europe by 2024 - a year in which they expect sales of about NIS 320 million.
Schwimmer says on the subject that "The deal with Bosch connects us to the subject of innovation, we have invested a lot in it and it leads us to become one of the most prominent players in the world in terms of companies specializing in climate solutions, both for cooling and heating. This partnership will help us break into new places."
In the past, Elco, ECP’s controlling shareholder, got badly burned by entering the air conditioner business in Europe through Airwell, a company that produces domestic air conditioners. This activity was severely damaged by the global economic crisis in the previous decade, and Elco's losses in that regard amounted to huge sums amounting to millions of shekels.
Aren’t you afraid of the group's negative experience in the sector abroad?
Schwimmer: "There is a big difference between the two cases. So, when it comes to setting up factories and marketing abroad, we were at the front and we were alone. Today we are teaming up with the leading players in Europe, who have chosen us to be their partners.
"It also shows great faith, and also divides the risks in such a way that we continue to do what we know best - develop climate solutions, and they know best how to sell them in the markets where they are operating, with regard to sales people, regulation, finance, all the subjects that are more complex when operating abroad.
"The benefits of this project also address the existing risks, and are much smaller in such a cooperation," he concludes. "We worked hard to get to that, and we are lucky that Bosch decided to join us."
Electra Consumer Products
Area of activity: Import and marketing of electrical consumer products, and operation of the distribution chains "Mahsaney Hashmal" and "Shekem Electric" for the sale of electrical consumer products ● Prominent brands: Electra, Elco, Philips, Whirlpool, Sauter, Daikin ● Number of stores (as of the end of 2019): 58 ● CEO: Zvika Schwimmer ● Chairman: Daniel Salkind ● Number of employees (as of the first half of 2020): about 1,720 ● Market value: NIS 2 billion