Electra Consumer Products Company
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which imports electrical products and operates the chains of electrical warehouses, Beitan Wines, which will become Carrefour, and more, last week published its financial statements for the third quarter – revenues amounted to NIS 1.68 billion and the company posted a loss of NIS 20.7 million due to the reorganization of its food operations, including the conversion of wine chain branches Carrefour booth. The market liked the reports and especially the forecasts of the company’s management regarding the direction of Carrefour-Beitan wines, But the reports have an “explosive barrel” – a high reputation that is apparently unjustified and requires deletion.
Electra Korema, which purchased Beitan Wines about a year and a half ago, continues to have a goodwill balance of NIS 1.64 billion in the books, but in light of the fact that Beitan Wines, which it owns, is far from the forecasts, declining in operating profits and losing on the bottom line, the question arises as to how the goodwill was not reduced?
In the valuation that referred to the end of 2021, the valuers relied on future results of Beitan wines to keep the reputation on the books. They provided a forward forecast based on the company’s management forecast. If you open the forecast of the valuer, you will see that the company does not meet this forecast. Neither the top nor the bottom line.
In such a situation, the company’s accountants – Ernst & Young, EY, should wake up. They see an indication of a decline in value and they should require an appraiser’s inspection. Maybe it was done, maybe the company’s management convinced them that it wasn’t necessary, but it should have been done and not wait for the annual report.
Electra’s exercise should
At the same time as the obvious decrease in value in Beitan wines, Elektra needs to talk about an improvement thanks to Carrefour and they are, apparently, trying to postpone the reputation test in order to come and tell the valuer – look at our food retail sector, look at the forecasts going forward, and evaluate now. From the valuer, a high value will be determined given the company’s forecasts and thus the company will maintain the reputation of NIS 1.64 billion alive and well on the balance sheets.
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Accounting does allow for a reputation to be defined on an activity – for example the food retail sector and not on an acquired company – Beitan Wines, but there needs to be contiguity to this activity, although, we must admit that the appraiser would probably have “surrendered” to the company’s rosy forecasts even if he had made the assessment The valuation in the third quarter – after all, he knows who and for what the valuation is given and who it serves and he also knows who pays him.
Tell us a little about the food sector in Elektra Konva
– Establishment of Carrefour branches in Israel It is a long process whose cost is estimated at hundreds of millions of shekels and has already resulted in damage to the company’s profitability.
– The sales per square meter In the food business, prices dropped from NIS 2,243 to NIS 2,111 per square meter in the last quarter – a 5.9% decrease.
– Sales in stores are the same which were fully operational in the third quarter decreased by approximately 4.6% compared to the corresponding period last year due to the closure of branches for renovation.
– Sales turnover and segmental profit totaled approximately NIS 738 million and NIS 13 million, respectively, compared to revenue turnover and segmental profit of approximately NIS 760 million and approximately NIS 28 million, respectively, last year.
The decreases in these figures and the increase in losses are necessarily considered a decrease in the value of the company even if their goal is to improve the value of the company in the future with the full assimilation of the “Carrefour” brand in Israel. Still, it is not at all certain that Carrefour will compensate for the losses of Beitan wines. Beitan Wines is a company in retreat, it is a second line player in the retail market, it has a long way to go until it becomes dominant in the market. Waving a Carrefour might be nice, but a strong Carrefour private label does not guarantee business success and profits.
Electra Consumer claims that the prices in the network will be lower than the other networks. But even if Carrefour succeeds in obtaining certain products at lower prices, it will not be sweeping and it is not certain that it will be very significant, because Beitan Wines has burdened itself with expenses that others do not have – franchise fees and expenses that are required to meet Carrefour’s standard. And that is quite a lot (for more information – Beitan wines – the real story: Carrefour is a smoke screen for the problematic situation of the chain).
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