G. Willi Food-International Ltd.
Q2 2013 Earnings Conference Call
August 6, 2013 11.00 AM ET
Zwi Williger – Chairman
Gil Hochboim – CEO
Jeff Graf – Springhouse Capital
G. Willi Food-International Ltd Q2 2013 Earnings Call August 6, 2013 11:00 AM ET
Ladies and gentlemen welcome to the G Willi Food Shareholders 2013 Second Quarter Earnings Conference Call. During this presentation all parties will be in a listen-only mode. After the presentation, we will have a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded today, Tuesday, August 6, 2013.
Joining us today are Zwi Williger, Chairman and Gil Hochboim, CEO. Before we begin, I would remind all listeners that throughout this call, the company and its representatives may make forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Legislation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or a successful execution of the company’s strategic plan and involved risk and uncertainties that could cause actual results to differ materially from such statements. Actual results may differ materially from those expressed in the forward-looking statements. For the factors that could cause actual results to differ materially from those expressed in forward-looking statements are described in the company’s periodic filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 20-F as well as in our recent earnings press release. Mr. Zwi will open the call today and provide overview of the first quarter and recent events. Gil then will review the financials and return the call to Zwi for concluding remarks. I would now like to turn the presentation over to our host Zwi Williger, please go ahead, sir.
Thank you very much. Good morning and good afternoon. Welcome to our call to discuss corporate activity and results of the second quarter of 2013. We are very pleased with our results in the second quarter as it continues to be on a strong momentum of our business.
During this quarter, we organically increased sales and operating income by approximately 27% and 50% respectively compared to the same period of last year. In addition, we nearly doubled our net income and further expanded market. The growing demand for quality kosher food products revenues continues to drive our business and we have demonstrated both domestically and internationally to capitalize on these trends.
In Israel, the aftermath of the national focused against rise in food price in 2012 continues to benefit our business and market position. By offering high quality food products at a competitive price, we are not only growing leadership position in the kosher segment but also we are gaining shares from the leading brand. Our strategy is to organically grow both our customer base and product line combined with our shift in consumer behavior have improved our financial results over the last four quarters.
As we've seen, consumer demand for kosher food continues to increase. We are confident that our focused marketing strategy and the deduction of higher margin food products target the health conscious and conscious consumers to continue to support our growth in the remainder of 2013.
We believe the strong foundation in our business and the position for a continuous strength. Our focus on high margin products produces strong revenue and growth over the past year. We are pleased to see this momentum continue so far and in the third of 2013 as July sales was more than 40% over July 2012 sales. We foresee organic revenue and profit gross in the third quarter compared to the first quarter of 2012, driven by our distinct higher margin policy kosher products and our improved distribution capability.
Moving forward, we intend to continue deliver market demand in order to maximize our revenue and sales, expand margin. We seek to capitalize increasing demand for both kosher and health conscious consumer and try to deliver some of their highest margins in the industry.
We intend to reinvest in the development of the company into effort to maximize profitability and increase long-term value for our shareholders. At this point, Gil will review the financial and afterwards I will add some concluding remarks.
Thank you. Good morning and afternoon everyone. I will now review the second quarter 2013 financial results. I would like to remind everyone that the company is reporting in accordance to the IFRS and the numbers are being converted from Israeli shekel to U.S. Dollars at an exchange rate of 3.61 shekel equal to one dollar.
Second quarter sales increased 27% to $23.3 million, compared to sales of $18.3 million in the second quarter of 2012. As we outlined before, this growth was a result of growing market demand as well as a shift in consumer behavior by health conscious consumers who recognized productivity with benefit to the more expensive driven trends. Gross profit increased 32% to $6 million in second quarter of 2013 compared to gross profit of $4.6 million in same period last year. Gross margins were 25.9% compared to 24.9% in the second quarter of 2012. The gross margin improvement resulted from a favorable revenue product mixture during the quarter. Selling expenses increased to 28% to $2.5 million compared to $1.9 million in the second quarter of 2012. This includes alternative to high promotion vehicle in terms of transportation expenses resulting for the incremental increase in volume. Selling expenses as a percentage of sales increased to 10.6% in the second quarter of 2013 compared to 10.5% in the same period of 2012.
G&A expenses as a percentage of sales decreased to 5.5% in the second quarter of 2013 compared to 6% in the same period of 2012. Second quarter operating income was $2.3 million compared to $1.5 million in the same period of 2012. Net income for the second quarter increased 90% to $2.2 million with 9.2% of sales compared to $1.1 million and 6.2% of sales in closing the second quarter of 2012.
Earnings per share for the second quarter was $0.17 per share compared to $0.09 per share according to same period of 2012. Net cash from operating activities for the second quarter was $3.4 million or $0.26 per share.
All sales for the first six months of 2013 increased 25% to $48.4 million compared to $38.7 million in the same period of 2012. Operating income through the June for the first six months of 2013 increased 70% to $4.8 million from $2.8 million in the same period of 2012.
Net income for the first half of 2013 increased 80% to $4.4 million and 9.2% of sales from $2.5 million or 6.4% of sales reported in the same period of 2012.
Turning to the balance sheet with the end of the second quarter of 2013, it is compared $67.8 million in cash and securities with no short term debt and $96.7 million in shareholders equity. The continued strength in our balance sheet, accuracy compared to the growth of our overall gross business. With that I will return the call to back Zwi.
Okay, thank you, Gil. We are also riding in a highly competitive market with the brand recognition, high quality and exceptional base of key elements to our success. We are distinguishing ourselves from the competitor while continuously innovating new products. Our firm product line up including more than 400 innovative quality kosher products, is used exclusively by Willi Food, this product is distributed under Willi Food brand, often be specialized and distribute under international brand. It brought back strength of our business as everlasting leader, excellent resulted product. We've expanded our customer base while continuing to deliver improved margin by focusing on the reduced production cost and general expenses. We are confident in the measures taken to position Willi Food from the difficult of 2013; we are excited about the opportunity we see for us in the kosher market in our businesses.
I would like to thank our shareholders for supporting Willi Food both to implement our strategy of supplying the market with healthy and innovative kosher product at competitive prices. We believe that we are strong, will accomplish this stronger than ever and we remain focused on building our business into good companies that return strong equity to the shareholder. We will continue to look for opportunity to create additional value for our shareholders.
I would like to turn the call over the operator for question-and-answers. Operator?
Thank you very much. (Operator Instructions). And our first question comes from the line of Jeff Graf, Springhouse Capital, please go ahead.
Jeff Graf - Springhouse Capital
Hi, I wanted to see if you had an outlook for sales growth and gross margin in the third quarter.
Yes, I believe we are going to include outlook when you compare to last year by at least 20% to 25%. And I believe that our gross margin will be over 25%.
Jeff Graf – Springhouse Capital
Great, okay. That’s obviously a very high degree of sales growth. How long do you think you can maintain that level of sales growth and what is your longer- term outlook for longer term growth rate for the business?
Yes, really, what we did really we got into a category where all the big companies are. And because of what happened in our domestic market, that people today are looking for product with high quality and they would like to pay less prices if they are paying for high brands like Nestle, Unilever and Heinz. And really for the Israeli is serving their need. And because of the quality of the product we have seen a very big demand from the supermarket by giving us now much more share space. And also internationally, in early July we increased our business internationally compared to July last year but almost 55%. So we also see a very big demand from the international market as well as from the domestic market. Just for your knowledge, market of Israel increased this year 1.8% that’s all. And we are increasing our business in the last year already this is the first quarter that we are showing an increase of revenue of almost more than 20% and also we issued a very good gross margin. And this is because of the only product that we developed in the last three years. And also because of the demand from customers.
Jeff Graf – Springhouse Capital
Okay. And do you have any update on your plans to do any acquisitions or at this point are you focusing on more organic growth?
We have always something on our table because you can understand we have a lot of cash in our company, and we are looking forward to expand our business in one of the things that we believe that we should expand our business not only organically also by doing some acquisition. But something now we didn’t find really, well we are very conservative people and we are looking very careful what we're going to do because we don’t want just to do business because we have stationed in our company. We would like to do it in a very careful especially in this market. And I’m sure the opportunity will come and we will get success.
(Operator Instructions) And our next question comes from line of Chris Vincent with [Stillwater], please go ahead.
Hey, good afternoon. Question on just top line growth. Is it possible for you guys to separate out how much of that growth is attributed to the launch of new products versus just the overall shift in consumer behavior and related some of the products you had around for more than a year or so.
What is the gross margins coming from the organically from the product which we developed in the last year.
In the last year
From the new products our gross margin is much less because as you know when you are penetrating a new product we have a lot of expenses like listing fees, and also you need to do some marketing activity below the line above the line. Even if on the new products the gross margin is not very much and that also we are spending all the money in the beginning we believe that the gross margin will grow because then some of the products are catching.
How long is the ramp up rate in terms of margin for your typical new product that you guys launched?
It depends on the products, but usually exactly at least six months.
And then just in terms of the $58 million in cash and securities, can you just go over what the asset allocation is amongst the marketable securities, and what those are invested in and I guess has that changed much since your annual filing for 2012? I was wondering if you could just breakout the asset allocation of your marketable securities.
As all the cases where we can very stake within the bonds and usually its in the American bonds, treasure bonds and something like that we are not really taking any risk here. We are very conservative, we are not making lot of money on the cash that we have now in the company I can tell you but on the other hand we don’t want to take any risk by investing in the stock market and losing a lot of money.
Because I know there was I think at the end of 2012 I remember about I believe 50% of your cash and marketable securities was in a mutual fund I was wondering if you could just provide some clarity in terms of what that mutual fund is, if there were several different funds what they are invested in.
The mutual fund is that we have invested, its really it’s very good, it belongs to the insurance company, we are getting a little bit higher interest that we are getting as a bank but its very high security, its not really any risk.
There are no further questions. I would now like to turn the call back over to Mr. Williger.
Okay, thank you very much for joining us today. And we look forward to sharing with you our progress in the future call. Thank you very much. Bye, bye.
Thank you ladies and gentlemen. Just a reminder that a replay of this conference will be available for 14 days from 2 PM Eastern Standard Time on August 6th, 2013 through 11:59 PM Eastern Standard Time on August 20th, 2013 by dialing 1-877-870-5176 from U.S. or 1-858-384-517 for international callers. Access code - 4630851. In addition, a recording of the call will be available at viavid.net for one year. Thank you ladies and gentlemen.
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