DELTA RETURNS TO PROFITABILITY
AN INCREASE IN OPERATING PROFIT TO 2.6 MILLION DOLLARS
20 August 2009
ISAAC DABAH: THE IMPROVEMENT IN PROFITABILITY IN THE SECOND QUARTER WAS ACHIEVED AS A RESULT OF STREAMLINING AND THE RE-ORGANIZATION, DESPITE THE RECESSION IN THE SALES MARKETS AND A SLOW-DOWN IN SALES * DABCH STOPS SERVING AS CHAIRMAN OF THE COMPANY AND CONTINUES AS ITS CEO; DR. GIDEON CHITAYAT IS APPOINTED AS CHAIRMAN

Delta Galil returned to profitability in the second quarter despite a reduction of some 12% in sales, which totaled 135.9 million dollars, compared with 154.7 million dollars in the same quarter last year. The company’s operating profit grew by some 271% to 2 million dollars, compared with 0.7 million dollars in the same quarter last year. The net profit to the company’s share holders totaled some 0.2 million dollars, compared with a loss of some 0.7 million dollars in the same quarter last year.

Isaac Dabah, Chairman and CEO of the company, said that the second quarter results reflect the contribution of the streamlining and the re-organization in the Group’s operations, mainly opposite a principal client in the British market, to improve business results, as well as the continued weakness of sales in the Group’s target markets, the United States and Europe, due to the financial crisis and the slow-down in consumption.

Sales development in the second quarter this year compared to the same quarter last year by geographic areas indicates a reduction of 7% in sales in the United States to 84.2 million dollars, a decrease of 24% in sales in Britain to 18.2 million dollars, a decrease of 14% in sales in Israel to 16.7 million dollars, and a decrease of 19% in sales in Europe to 16.2 million dollars. The decrease in sales matches the company’s expectations, and was derived from the continued recession in all of the sales markets, which also led to a more cautious inventory policy for most of the company’s clients, which also contributed to the slow-down in sales.

At the same time, an assessment of the change in sales in the target markets in the original currency of sale shows a more moderate decrease of some 6%, compared with 12% according to reports made in dollars, due to the strengthening of the dollar against all of the other sales currencies (the pound, the Euro and the shekel). Thus, in Britain, the rate of reduction in the local currency of sale was 9%, compared with 24% in dollar terms. In Europe the rate of reduction was 9%, compared with 19% in dollar terms, and in Israel, there was even an increase of 3% in shekel terms, compared with a reduction of 14% in dollar terms.

It is worth noting that the decrease in sales in Britain resulted from a deliberate exit from non-profitable categories in operations opposite a principal client and due to a reduction of some 21% in the average exchange rate of the pound sterling against the dollar in the second quarter, compared with the average of the same quarter last year. The total sales to the client amounted to 14 million dollars, compared with 20.5 million dollars in the same quarter last year, and Delta estimates that the reduction in sales to this client will continue further into 2009.

The increase in the operating profit in the second quarter this year, compared with the same quarter last year, reflects an improvement in all of the company’s business units, including the operations in Israel in shekel terms. The most prominent is the noticeable improvement that has occurred in the operations of the undergarment unit in the upper market segment in Britain, the United States and Europe, against the background of streamlining steps and a program of reorganization in operations opposite a main client in Britain that was declare at the end of 2008, and which includes, inter alia, a reduction of overhead in London, a move to a new sales method (based on FOB) and additional steps. The completion of the program is expected to end during the third quarter this year.

The improvement in operating results was aided by a reduction in sales and marketing expenses, which shrank by 14.6% and totaled 16.6 million dollars, compared with 19.5 million dollars in the same quarter in 2008, as well as a reduction in management and miscellaneous expenses, which fell by 25.9% and totaled 5.1 million dollars, compared with 6.8 million dollars in the same quarter last year. The reduction in management and miscellaneous expenses resulted partly from the deletion of a bad debt of 1 million dollars in the same quarter last year, as well as streamlining, which led to a reduction in overhead and a shrinkage in expenses in dollar terms.

The cash flow from current operations in the first half of 2009 amounted to 7.9 million dollars, compared with 8.9 million dollars in the first half last year.

Isaac Dabah, controlling owner (53.8%) of the company, today announced the end of his term as Chairman of the Delta Board of Directors, a position he held in parallel with his role as the company’s CEO. Dabah will continue as CEO of the company, and Board member Dr. Gideon Chitayat was appointed Chairman of the Board of Directors. Chitayat (70) serves as Chairman and President of the GMBS Consultants company, and deals with consulting Chairman and CEO’s of leading companies in Israeli industry in the field of business strategy. Dr. Chitayat is a member of a number of Boards of Directors of leading companies in the Israeli market.

Dror Sharvit – Investor Relations
Mail: dror-s@zahav.net.il
Phone: +972-8-915-5919
Fax:: +972-8-915-5920