G Willi-Food International Ltd (NASDAQ:WILC)
Q2 2014 Earnings Conference Call
August 21, 2014, 11:00 AM ET
Zwi Williger - Chairman
Gil Hochboim - Chief Executive Officer
Ladies and gentlemen welcome to the G Willi Food Shareholders 2014 Second Quarter Earnings Conference Call. During this presentation all participants will be in a listen-only mode. After the presentation, we will have a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today, Thursday, August 21, 2014.
Joining us today are Zwi Williger, Chairman; and Gil Hochboim, CEO. Before we begin, I remind all listeners that throughout this call, the Company and its representatives may make forward-looking statements within the meaning of 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 the successful execution of the Company’s strategic plan and involve risks 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. Important factors that could cause actual results to differ materially from those expressed in the 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 its recent earnings press release.
Zwi will open today’s call and provide an overview of the second quarter and recent events. Gil will then review the financials and return the call to Zwi for concluding remarks. I would now turn the presentation over to Zwi Williger, please go ahead.
Thank you very much. Good morning and good afternoon. Welcome to our call to discuss corporate activity and result of the second quarter of 2014. In the second quarter Willi Food has not delivered excellent margins that we have done in the past. Our margin this quarter came at short and the primary reason is been effected by the sharp decline of the consumption by G Willi consumer.
Although store visits remained steady, consumption of food products by Israeli consumers continued to decline sharply for the second quarter in a row, causing our second quarter sales to decline by 6.2% from the second quarter in 2013. Despite this decline, we were able to remain gross margins of 26%.
Going forward we’re facing an increasing level of uncertainty in the local economy. The Israeli economy has been negatively impacted in the third quarter by Operation Protective Edge, a military action launched by the State of Israel on July 8, 2014 in the Hamas-controlled Gaza Strip. As a result, we expect economic uncertainty to continue which, coupled with other changes in the Israeli market and ongoing consumer pressure for price reductions, will likely negatively affect our results in near future. As a result, we do not expect to meet our budget for the third and fourth quarters of 2014.
We’re facing the challenging environment of increasing competition resulting from the consumer for the customer demanding to reduce price despite the global food commodity purchase price inflation. On May 18, 2014 the Israeli Central Bureau of Statistics announced that the Private Consumption Expenditure per Capita in the first quarter of 2014 decreased by 4% compared to the fourth quarter of 2013 after decreasing by 1% in the fourth quarter of 2013 compared to the third quarter of 2013. Throughout the last year we introduced great tasting higher margin food product developed together with our great supplier. We implemented our plan to increase the awareness of our newly added product by initiating promotion and help sale activities that we believe created broad awareness to our new and old product and broadened our customer base.
This plan has helped us to achieve our goal to strengthen and expand our position in the market due to our broad range of quality kosher food product. We operate in a highly competitive market and brand recognition. High quality and exceptional taste was key element to our success. We distinguish ourselves by continually innovating new product. Our product line up including more than 600 kosher food product distributing exclusivity by Willi Food. This product we distribute under Willi Food brand, specialized and distribute under the customer private limited.
We plan to continue the research and development of a new product which we believe will provide a definitive edge. As we continue developing new innovative food product we tend to launch additional product lines in the near-future. We remain committed to deliver some of the highest margin in the industry and capitalizing our increased demand from the health conscious consumer.
At this point Gil will review the financial and after I will add some concluding remarks.
Good morning and afternoon everyone. I will now review the second quarter 2014 financial results and future trends. I would like to remind everyone that the Company’s reporting in accordance to IFRS and the number of revenue converted from Israeli shekels to U.S. dollars at the exchange rate of NIS3.438 equals US$1. Second quarter sales decreased 6% to $23 million compared to sales of $24.5 million in the second quarter of 2013. Sales decrease in the second quarter of 2014 primarily due to a decline in consumption in food products for the Israeli consumer. Gross profit decreased 5.8% to $6 million in the second quarter of 2014 compared to $6.4 million in the second quarter of 2013.
2014 second quarter gross margins were 26% compared with 25.9% in the second quarter of 2013. The decrease in the gross margins in the second quarter of 2014 was primarily due to the decreased sales. Selling expenses increased 16% for $2 million as compared to $2.6 million in the second quarter of 2013 primarily due to an increase in promotion expenses as well as vehicle and transport expenses.
Selling expenses as a percentage of sales increased to 13.1% in the second quarter of 2014 compared to 10.6% in the second quarter of 2013. G&A expenses as a percentage of sales increased to 5.3% in the second quarter of 2014 compared to 5.5% in the second quarter of 2013, primarily due to an expensive $120,000 related to an option granted to the Company Chairman, President and CEO. Second quarter operating income was $1.6 million compared to $2.4 million in the second quarter of 2013. Net income for the second quarter of 2014 decreased 44% to $1.3 million or 5.5% of sales compared to $2.3 million or 9.2% of sales recorded in the second quarter of 2013.
Earnings per share for the second quarter of 2014 was $0.10 per share compared to $0.17 per share according to second quarter of 2013. Net cash flow operating activities for 2014 second quarter was $6.1 million. Our sales for the first six months of 2014 decreased 0.5% to $50.7 million compared to $50.9 million in the same period of 2013. Operating income during the first six months of 2014 decreased 31% to $3.5 million from $5.1 million in the same period of 2013.
Net income for the first half of 2014 decreased by 28% to $3.3 million of 6.6% of sales from $4.7 million or 9.2% of sales reported in the same period of 2013.
Turning to the balance sheet. At the end of second quarter of 2014 Willi Food had $63.2 million in cash and securities, no short-term debts and $109.8 million in shareholder equity. With that I return the call back to you Zwi.
Thank you Gill. While this period consumer decline continue, our challenge for the foreseeable future to better manage our expenses in particular the cost of our product and selling expenses. In order to provide consumer with the lower cost product desire, in this way we have to maintain our customer base in retail and wholesale market during the difficult time for the food industry. We believe that this period present us an opportunity to utilize the cash on hand to purchase synergetic company in price lawyers and before.
We continue to look for opportunity for create additional value for our shareholders. I would like to thank our shareholder for supporting Willi Food as we continue our mission to supply the market with innovative kosher and healthy lifestyle product. Our platform for which we do this is now stronger than ever and we’re very focused on building Willi Food into a primary company with a bright future and excellent opportunity for return on equity to the shareholder.
We’re very excited by our vision and we due to believe that best is yet to come. We thank the investors for supporting Willi Food.
I would like now to turn the call to the operator for question-and-answer. Operator.
Thank you very much. (Operator Instructions). We’ll take our first question from Russell Con a private investor.
My apologies I missed the beginning of the call so if you talked about this, I am sorry for repeating the question. But can you talk about what you guys are doing with respect to capital allocation and in particular with the stock during a significant discount, U.S. to the implied valuation from BGI from Emblaze what your plans are?
Regarding Emblaze and BGI is nothing to do with us.
No that’s right, clearly a private market those are significantly higher valuation than we see on the U.S. market. How do you think about the opportunity to realize that value?
I didn’t understand what you’re saying.
It seems like the private market is saying that the company’s worth a lot more than the U.S. publicly traded market is.
The U.S. Company is worth more than what?
I would suggest that Willi Foods is worth a lot more than the $7.23 that’s trading.
Yes, that’s for sure. Because the market cap is around $93 million, we have close to $65 million cash and still the Company did around NIS60 million which is close to $4.5 million. I believe that as soon as the war will be over here I think we’re going to end up pretty good year. I hope that we’ll meet our budget, it depends on the situation but we don’t have any problem when it comes to product and inventory. We’re ready for the good time to come and we’re phrasing now little problem in our country which obviously will be over very soon. And we’re the sole Company who doesn’t have any debts and we have lot of cash. We also believe that we want to make some announcement about some synergy companies that we’re almost closing. We’re going to close the deal very soon. So we see a lot of opportunity there, if we show the price of the share.
Is that opportunity, that you are talking about is that investments in U.S. or in Europe?
It’s investment in U.S. and Canada.
How about the opportunities to buy back shares on the U.S. market at these levels?
Yes, we’re going to have a meeting next week about it. I think we’re going to do a buyback program here.
Thank you. (Operator Instructions).
I believe there is no more questions right?
There are no more questions Mr. Williger.
Thank you very much for joining us today and we look forward to sharing our progress in the future call. Thank you everybody. Bye-bye.
Thank you. Ladies and gentlemen, just a reminder that a replay of this conference call will be available for 14 days from 2 o' Clock PM Eastern on August 21, 2014 through 11:59 PM Eastern Time on September 4, 2014 by dialing 1-877-870-5176 from the U.S. or 1-858-384-5517 for international callers. The access code is 1375115. In addition, a recording of the call will be available at viavid.net for one year.
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