Just a few months after Delek Group (TASE: DLEKG) bought control of Mehadrin (TASE: MEDN), a grower and exporter of citrus and other produce, the latter reported a loss of NIS 160 million for the third quarter of 2023, mainly stemming from a reduction in the fair value of its assets. Mehadrin also warns in its report that the war in the Gaza Strip that broke out in early October is a having "a material and severe impact on the agricultural sector in Israel in general, and on the Gaza Strip border area and the north of the country in particular," and hence on the company’s business.
The huge write-down was caused by a decline in value of Mehadrin’s assets and the company’s abandonment of loss-making plantations. The company says that its management has formulated a strategy for improving the efficiency of its agricultural activity in Israel, under which it will shed loss-making areas and expand its activity in profitable areas.
As for the damage caused by the war, Mehadrin says that its revenue mainly derives from the citrus and avocado picking season in Israel, and that it fears a material blow in that area. Mehadrin has orchards and plantations amounting to 4,000 dunams in the Gaza Strip border area. The company had no access to these orchards and plantations until the end of November. Access to some of them became possible in December, and considerable damage was discovered - irrigation systems wrecked, storehouses destroyed, and trees uprooted.
The company also says that most of its harvest workers are usually residents of the Palestinian territories and foreign workers. The pool of workers available to the company has declined sharply: some have been drafted into the IDF reserves, foreign workers (mainly from Thailand) have left the country, and Palestinians are not allowed to enter.
As a consequence, at the time of publication of the financials, only half the usual number of people was employed in harvesting, and half of these were unskilled (volunteers and casual workers), which has meant that the harvest is much less efficient. The output of a volunteer is about a tenth of that of a skilled worker. In addition, wages for paid harvest workers have risen by some 40% because of the labor shortage, besides the costing of transporting them from different parts of the country. Delays in harvesting can cause the cancellation of orders and low quality produce sold at lower prices in the local market than in the export market.
Last August, Delek Group, controlled by Yitzhak Tshuva, completed the purchase of 45% of the shares in Mehadrin from Discount Investment Corporation for NIS 250 million. The deal was at a valuation of NIS 560 million for Mehadrin, substantially lower than the company’s shareholders’ equity at the time (NIS 760 million at the end of the first half of 2023). The third quarter loss leaves Mehadrin’s shareholders’ equity at NIS 600 million - much closer to the deal valuation.
In the first nine months of 2023, Mehadrin’s sales turnover was 11% higher than in the corresponding period of 2022, mainly thanks to a rise in citrus fruit prices - sales volume was static. In avocadoes, despite a 15% decline in sales volume, revenue grew, thanks to a 28% rise in prices. Another factor that boosted revenue, adding NIS 53 million, was the depreciation of the shekel. The company posted a net loss of NIS 133 million in January-September 2023, which compares with a loss of NIS 53 million in the corresponding period of 2022.
Mehadrin states in its report that its strategic plan includes rezoning and development of some of its land. The company is also examining collaboration in renewable energy and the use of its land for solar farms.
On September 20 last year, Mehadrin announced the appointment of Dalit Zilber, former director of the Planning Administration in the Ministry of the Interior, as deputy CEO. The CEO is Uri Luft.
Mehadrin’s share price has risen by more than 14% in the first three sessions of 2024 so far, giving it a current market cap of NIS 493 million.
Published by Globes, Israel business news - en.globes.co.il - on January 3, 2024.
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