Financial highlights 2012
• Operating profit in 2012 totaled $541 thousand, compared to an operating loss of $3.5 million in the same period last year. • EBITDA (earnings before interest, tax, depreciation and amortization) in 2012 totaled $5.8 million (5.1% of sales), compared to EBITDA of $2.7 million (2.3% of sales) last year. • Cash flow from operating activities in the fourth quarter 2012 totaled $3.3 million, compared to a negative cash flow from operating activities of $1.5 million last year. • Gross profit in 2012 amounted to $20.3 million (17.9% of sales) compared to $18.1 million (15.3% of sales) in 2011.
Results for the fourth quarter and fiscal year ended 31 December 2012:
Sales for the fourth quarter of 2012 totaled $28.2 million, a decrease of 10.6% compared to $31.5 million in the fourth quarter of 2011. Sales in 2012 amounted to $113.5 million, a decrease of 4.2% compared with sales of $118.4 million in 2011. In the "seamless" segment, the Company recorded a decrease of 3.4% in the fourth quarter of 2012, compared to the final quarter of 2011. However, for the full year of 2012 sales in the "seamless" segment grew 2.3%. This increase reflects the success of the Company's sales team in managing the transition of Nouvelle customers to Tefron, as well as the strategic success in penetrating the retail market in North America. Given that Tefron was among the first companies to introduce seamless technology to the global apparel industry, both the management and the sales team have the deepest knowledge of the technology.The cost of sales in the fourth quarter of 2012 were $22.7 million (80.7% of sales) compared to $27.2 million (86.3% of sales) in the fourth quarter of 2011, a decrease of about 16.4%. Cost of sales for the full year of 2012 amounted to $93.2 million (82.1% of sales) compared to $100.3 million (84.7%) in 2011. The decrease in cost of sales in the fourth quarter and in 2012 compared to 2011 is mainly due to efficiency measures implemented during the second quarter of 2012 which include, among other things, a reduction in the administrative staff, as well as a reduction in the cost of goods as a result of increased competition among suppliers, primarily in southeast Asia. Gross profit for the fourth quarter of 2012 totaled $5.4 million (19.3% of sales) compared to gross profit of $4.3 million (13.7% of sales) in the last quarter of 2011. Gross profit for the full year in 2012 was $20.3 million (17.9% of sales) compared to $18.1 million (15.3% of sales) in 2011. The increase in gross profit and gross profit margin was mainly due to efficiency measures and locating alternative suppliers, as well as by the strengthening exchange rate of the dollar against the shekel. Operating profit for the fourth quarter of 2012 was about $14 thousand compared to operating income of about $250 thousand in the same quarter last year. Operating profit in 2012 amounted to $541 thousand compared to an operating loss of $3.5 million in the same period last year. The reversal of the operating loss to an operating profit in 2012 for the first time in five years, can be attributed to the following factors: a reduction in the costs of goods in the Far East; the growth of sales in the seamless sector for the year (although that was slightly offset by a decrease in the sales segment Cut & Sew general and swimwear, in particular); continued streamlining of the company, a decrease in the depreciation of fixed assets as a result of changes in the estimates carried out in 2011 and 2012; a decrease in marketing and sales expenses as a result of synergies from the activities acquired from Novell, including the merger of the marketing teams from Novell and Tefron; cessation of fee payments in accordance with the acquisition agreement with Novell, and lower costs of depreciation in 2012. EBITDA (earnings before interest, tax, depreciation and amortization) in the fourth quarter 2012 totaled $1.3 million (4.5% of sales), compared to EBITDA of $1.1 million (3.4% of sales) in the fourth quarter of 2011. EBITDA for the full year of 2012 totaled $5.8 million (5.1% of sales), an improvement of $3.1 million compared to EBITDA of $2.7 million (2.3% of sales) in 2011. Cash flow from operating activities in the fourth quarter 2012 totaled $3.3 million, compared to a negative cash flow from operating activities of $1.5 million in the last quarter of 2011. Cash flow from operating activities in FY 2012 amounted to $2.3 million, compared with a negative cash flow from operating activities of $8.6 million in 2011. The company recorded an annual positive cash flow from operations for the first time since 2007. Improvement in cash flow and the transition to a positive cash flow can be attributed to the improvement in the Company's financial results, as well as to obtaining suppliers credit on the procurement activities of off-shore production in China, as part of the agreement with Asia Socks. The loss in the fourth quarter 2012 was $470 thousand compared with a profit of $305 thousand in the fourth quarter of 2011. The loss per diluted share was $0.1 per share in the fourth quarter 2012 compared to earnings per diluted share of $0.01 per share in the fourth quarter of 2011. The loss in 2012 was $458 thousand, compared with a loss of $4.3 million in 2011. The loss per diluted share was $0.1 during the full year of 2012, compared with a loss per diluted share of $0.7 in the full year of 2011. Material events during the reporting period
- Tefron signed a cooperation agreement with the Italian company Cifra SPA in January 2012 to develop and jointly sell a new line of unique lingerie, bodyshapers, swimwear and sportswear products based on seamless warp knitting technology.
- Tefron entered a service agreement with Mr. Mike Gao through his company, Asia Socks, in which Mr. Gao will provide Tefron with trading and credit services in Asia including, but not limited to identifying suppliers and assistance in negotiations on price, quality, and delivery date of goods. The Company expects that the execution of this agreement will result in further decreases of the Company's procurement costs especially in the procurement of raw materials and auxiliary materials and will increase competition among suppliers.
- In August 2012, Tefron began negotiations with a private company incorporated in China with the objective of establishing a long-term joint venture to produce seamless apparel. There is no certainty that the negotiations between the parties will culminate in a binding agreement and/or to any other cooperation between the parties.
- On September 27, 2012, Tefron approved a licensing agreement with X-Technology Swiss R&D AF ("XTS") in which Tefron has been granted exclusive rights to manufacture, market and distribute XTX sportswear brands in North America. According to the agreement, XTS appoints Tefron to be the exclusive manufacturer and distributor of its sportswear and socks in North America and gives Tefron limited license to use its intellectual property to manufacture the products. Tefron assumes responsibility for all sales and distribution operations including advertising, marketing and promotion of products under the trademarks of XTS and will be responsible for managing and training sales representatives and training retailers. The agreement leaves open the possibility for future manufacture of other XTS products by Tefron.
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