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PRESENTATION OF INFORMATION
In this annual report on Form 20-F (“Annual Report”),
references to the “Company”, “we” and “us” refer to G. Willi-Food International Ltd. and its consolidated
subsidiaries. References to “Willi-Food” refer to Willi-Food Investments Ltd., our controlling shareholder.
The Company presents its consolidated financial statements in
New Israeli Shekels, the currency of the State of Israel. Unless otherwise specified or the context otherwise requires, references to
“$”, “US$”, “Dollars”, “USD” and “U.S. Dollars” are to the United States Dollars
and references to "NIS" are to New Israeli Shekels.
Solely for the convenience of the reader, this Annual Report
contains translations of certain NIS amounts into U.S. Dollars at specified rates. These translations should not be construed as representations
that the translated amounts actually represent such dollar or NIS amounts, as the case may be, or could be converted into U.S. Dollars
or NIS as the case may be, at the rates indicated or at any other rate. Therefore, unless otherwise stated, the translations of NIS into
U.S. Dollars have been made at the rate of NIS 3.519 = $1.00, the representative exchange rate on December 31, 2022.
CAUTIONARY STATEMENT WITH
RESPECT TO FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Annual Report that
are not historical facts, including, without limitation, certain statements made in the sections hereof entitled “Information on
the Company,” “Dividends,” “Operating and Financial Review and Prospects,” and “Quantitative and Qualitative
Disclosures about Market Risk” are statements of future expectations and other forward-looking statements that are based on management’s
current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events
to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from
those in such statements due to, without limitation, the risks set forth in "Item 3. Key Information – D. Risk Factors", including
the following:
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payment default by, or loss of, one or more of our principal clients; the loss of
one or more of our key personnel; |
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termination of, or changes in, arrangements
with our key customers; |
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market risks of our portfolio of marketable securities, such as changes affecting
currency exchange rates; |
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termination of arrangements with our suppliers; |
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increasing levels of competition in Israel and other markets in which we do business;
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increase or decrease in global purchase
prices of food products; |
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our inability to accurately predict consumption of our products or changes in consumer
preferences; |
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product liability claims and other litigation
matters; |
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interruption to our storage facilities; |
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our insurance coverage may not be sufficient; |
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our operating results may be subject to variations from quarter to quarter;
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our inability to successfully compete with nationally branded products; |
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our inability to successfully integrate our acquisitions; |
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our inability to protect our intellectual property rights; |
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significant concentration of our shares are held by one shareholder; |
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we are controlled by and have business relations with Willi-Food Investments Ltd.
and its management; |
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the price of our ordinary shares may be volatile; |
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our inability to meet the Nasdaq Capital Market (“Nasdaq”) and the TASE
listing requirements; |
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our inability to maintain an effective system of internal controls; |
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cyber-attacks on the Company's information systems; |
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changes in laws and regulations, including those relating to the food distribution
industry, and inability to meet and maintain regulatory qualifications and approvals for our products; |
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economic conditions in Israel; |
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changes in political, economic and military conditions in Israel, including, in particular,
economic conditions in the Company’s core markets; |
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our international operations may be adversely affected by risks associated with international
business; and |
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the COVID-19 pandemic. |
The Company is under no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information or for any other reason.
PART
I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIME TABLE
Not applicable.
ITEM 3.
KEY INFORMATION
A.
Reserved
B.
CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D.
RISK FACTORS
You should carefully consider the risks we describe below, in
addition to the other information set forth elsewhere in this Annual Report, including our financial statements and the related notes
beginning on page F-1, before deciding to invest in our ordinary shares (the “Ordinary Shares”). The risks and uncertainties
described below in this Annual Report are not the only risks facing us. We may face additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial. Any of the risks described below or incorporated by reference in this Annual Report
could materially adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of
your investment.
Risks Related to Our Business
and Industry
We depend
on a small number of principal clients who have in the past bought our products in large volumes. Our
business may be materially affected if any of our major clients default on their payments to us.
Financial instruments that potentially subject us to concentrations
of credit risk consist principally of trade receivable. Despite our large number of clients (approximately 1,500 customers, 3,000 selling
points in Israel and abroad), a major part of our sales is made to a limited number of customers. Our largest customer which owns, among
other things, supermarkets which accounted for approximately NIS 65 million (which represents 13.3%) of our sales revenue during 2022.
We generally do not require collateral from our big supermarket chain customers, although we do require collateral from most of our remaining
clients in Israel to ensure security in collecting payments that are due to us. In addition, we buy credit insurance for many of our customers.
We maintain an allowance for doubtful debts based upon factors surrounding the credit risk of specific customers, historical trends and
other information which our management believes adequately covers all reasonably anticipated losses in respect of trade receivable. There
can be no assurance that this allowance will be adequate. In the event that any of our major clients default on their payment obligations
to us, we will not possess sufficient security to collect the entire debt.
We cannot assure that our principal clients or any other client
will continue to buy our products in the same volumes, on the same terms or at all.
We do not have long term purchase contracts with our clients,
including our major clients, and our sales arrangements do not have minimum purchase requirements. We cannot assure that our major clients
will continue to buy our products at all or in the same volumes or on the same terms as they have in the past. Losing one or more of them
may adversely affect our business results. In addition, we cannot assure that we will be able to attract new customers. Our failure to
do so may significantly reduce our sales.
Our results of operations may be impacted by monetary risk. Our
portfolio of marketable securities is subject to various market risks.
We are exposed to fluctuations in the rate of the United States
Dollar and Euro versus the NIS. Most of our income is in NIS, whereas most of our purchases are in United States Dollars and in Euros.
A significant depreciation in the NIS vis-à-vis the United States Dollar and/or Euro could have a material adverse effect on our
results of operations and financial condition.
We strive to minimize market risks arising from exchange rate
fluctuations and the cost of imported goods, especially by opening documentary credit arrangements (a/k/a letters of credit) for suppliers
abroad, holding foreign currency reserves and initiating forward transactions and foreign currency options.
As a method of investing cash reserves, we hold a portfolio
of marketable securities traded on the Tel Aviv Stock Exchange as well as other stock exchanges. This portfolio of marketable securities
is subject to various market risks resulting from fluctuations in interest rates, exchange rates, price fluctuations and other market
risks in Israel and abroad.
In order to reduce these risks, the Board has adopted the procedure
of regularly removing available funds in the Company's accounts for management by internal investment manager. In addition, the Board
has revised the Company's investment policy, has appointed members of the Board to the investment committee and has added both Co-Chairman
of the Board to the investment committee.
Our financial instruments consist mainly of cash and cash equivalents,
trade receivable, current trade payable and accruals. In view of their nature, the fair value of the financial instruments, included in
working capital, is usually identical or close to their book value.
We work
with a limited number of key suppliers. If these suppliers raise prices or terminate their engagement with us, our operating results could
be adversely affected.
Although no one company supplies the majority of any of our
products, we work with a limited number of key suppliers. If one or more of our key suppliers raises their prices, our operating results
may be adversely affected. See risk factor below - "Increases or decreases in global product prices have in the past, and in the future,
may continue to have a material adverse effect on our profitability". We believe that there are alternative suppliers for purchasing our
products; however, we cannot assure that the products of the alternative suppliers will become immediately available and that the terms
of purchase will be similar to those provided by current suppliers.
We may not be able to successfully compete with larger competitors
who have greater operations, financial, marketing, labor and other resources than we have.
The food distribution business in Israel is highly competitive.
We face competition from existing competitors in respect of imported as well as locally manufactured food products. Local producers are
not subject to the financial risks of importing food products or to governmental policies regarding taxation of imported food products
to which we as importers are subject. We may also face competition from potential newcomers to the local food manufacturing business as
well as from existing importers and/or manufacturers not currently offering the same lines of products as us. In addition, in the event
we further expand our activity in international food markets, we will also face competition from manufacturers and/or distributors in
those markets. Certain of our current and potential competitors are substantially more established, benefit from substantially greater
market recognition and have greater financial, marketing, labor and other resources than we have. If any of our competitors materially
reduces prices, we may be required to reduce our prices in order to remain competitive. Such reductions, if effected, could have a material
adverse effect on our financial condition and results of operations.
Increases or decreases in global product prices have in the past,
and in the future may continue to have a material adverse effect on our profitability.
The cost of food commodities and other food products is cyclical
and subject to other market factors and may fluctuate significantly. As a result, our cost in securing these products is subject
to substantial increases over which we have no control. In addition, fuel costs, which represent the most significant factor affecting
both utility costs at our facilities and our transportation costs, are subject to wide fluctuations. Although we are making best efforts,
we cannot assure that we will be able to pass on to customers any increased costs associated with the procurement of these products. Moreover,
there has been, and there may be in the future, a time lag between the occurrence of such increased costs and the transfer of such increases
to customers. To the extent that increases in the prices of our products cannot be passed on to customers or there is a delay in
doing so, we are likely to experience an increase in our costs which may materially reduce our margin of profitability.
Further, there is an additional lag time from the date we purchase
inventory from our suppliers situated outside of Israel (or commit to purchase inventory from such suppliers) and the date we sell the
inventory to our customers in Israel. To the extent that the price we are able to sell such inventory to customers decreases from the
time that we purchase it (or commit to purchase it), our margin of profitability may be materially reduced.
Increases or decreases in global product prices in the future
may have a material adverse effect on our profitability.
We purchase most of our inventory from countries outside the
State of Israel. This inventory is transported through shipping companies and other forwarders until the inventory arrives to the various
port in the State of Israel. We are dependent on shipping companies and other forwarders, and we are exposed to changes in inventory
transportation prices and the ability of the shipping companies and forwarders to move the volume of inventory required by our business
in a timely manner. As of December 31, 2022, and until the approval of the Annual Report, most of the restrictions imposed due to the
COVID-19 pandemic which affected ports worldwide have been lifted, except in several ports in China. Therefore, we do not experience any
material delays in importing inventory that are caused by the COVID-19 effects. Lifting the restrictions due to the COVID-19 outbreak
in Israel and worldwide resulted in a decrease in sea freight costs from most ports worldwide, after a long period of material increase
in sea freight costs.
COVID-19 may also materially affect our business, revenues,
results of operations and financial condition in other ways. The extent of the impact of the disruptions to our business, including our
manufacturing capabilities and commercial sales, as a result of any additional outbreak, will depend on future developments, which are
highly uncertain and cannot be predicted with confidence. Any resurgence of the continuation of the COVID-19 pandemic,
or any other pandemic, could materially disrupt our business and operations, hamper our ability to raise additional funds or sell our
securities, slow down the overall economy, curtail consumer spending and make it hard to adequately staff our operations. Due to the fact
that the current times still holds uncertainty regarding COVID-19, from time to time, we analyze any possible effects of COVID-19 on our
business activity, and as required, we take the necessary precautions.
Our results of operations may be adversely affected if we do not
accurately predict the rate of consumption of our products.
We hold inventory of basic foodstuffs (such as preserved food,
dairy and dairy substitute products, edible oils, pasta and rice (and other food products, and we accumulate inventories of these products
based on our prediction of the rate of consumption of these products by our customers. If actual consumption does not meet our expectations,
and the shelf life of such products expires or we cannot otherwise sell such products, this may materially and adversely affect our financial
condition and results of operations. On the other hand, to the extent we do not have adequate inventory of our products to meet demand
(for example, due to consumer conditions that create unexpectedly high demand or our failure to accurately predict the rate of consumption
of our products), we will not be able to meet the needs of our customers and our revenues may be adversely affected.
We may be unable to anticipate changes in consumer preferences,
which may result in decreased demand for our products.
Our success depends in part on our ability to anticipate the
tastes and eating habits of our consumers and to offer products that appeal to their preferences. Consumer preferences change from time
to time and our failure to anticipate, identify or react to these changes could result in reduced demand for our products, which would
adversely affect our operating results and profitability.
We may be subject to product liability claims for misbranded, adulterated,
contaminated or spoiled food products.
We sell food products for human consumption, which involves
risks such as product contamination or spoilage, misbranding, product tampering, and other adulteration. Consumption of contaminated,
spoiled, misbranded, tampered with or adulterated products may result in personal illness or injury. We could be subject to claims or
lawsuits relating to an actual or alleged illness or injury, and we could incur liabilities that are not insured or that exceed our insurance
coverage. Even if product liability claims against us are not successful or fully pursued, these claims could be costly and time consuming
and may require management to spend significant time defending the claims rather than operating our business. In addition, a product that
has been actually or allegedly misbranded or becomes adulterated could result in product withdrawals, product recalls, destruction of
product inventory, negative publicity, temporary plant closings, and substantial costs of compliance or remediation. Any of these events,
including a significant product liability judgment against us, could result in a loss of confidence in our food products, which could
have an adverse effect on our financial condition, results of operations or cash flows.
Our insurance coverage may not be sufficient to cover our losses
in the event our products are subject to product liability claims or our products are subject to recall. In such event, it could have
a material adverse effect on us.
Our products may become the subject of product liability claims
and product recalls, and there can be no assurance that our product liability insurance coverage limits will be adequate or that all such
claims will be covered by such insurance. A product liability claims or product recall, even one without merit or for which we have substantial
insurance coverage, could result in significant expenses, including legal defense costs, thereby lowering our earnings and potentially
resulting in additional losses. Successful product liability claims or other judgments against us in excess of our insurance coverage
could have a material adverse effect on us and our reputation.
We may be adversely affected by any interruption to our storage
facility.
We store most of our products to be distributed to customers
in one main location – a logistics center warehouse situated in Yavne, Israel. Any interruption to this storage facility, whether
by power failure, flooding or otherwise, would have a material impact on our ability to trade in the ordinary course of our business.
Our operating results may be subject to variations from quarter
to quarter.
Our operating results may be subject to variations from quarter
to quarter depending on, among other things, the timing of sales campaigns and special events initiated both by us and our customers,
the major Jewish holidays (such as the Jewish New Year and Passover), our ability to manage future inventory levels in line with business
opportunities and anticipated customer demand, competitive developments in the market, changes in government regulations, periodic work
stoppages or disruptions, changes in the rates of inflation in Israel and fluctuations in NIS/dollar and NIS/euro exchange rates. There
can be no assurance that our sales or net income (if any) in any particular quarter will not be lower than the preceding and/or comparable
prior-year quarter or that our sales or net income (if any) in a particular quarter will be indicative of our results of operations for
the entire year. The trading prices of our ordinary shares may fluctuate significantly in response to variations in our quarterly operating
results.
Our branded products may not be able to compete successfully with
nationally branded products.
Competition to obtain shelf space for our branded products with
retailers is primarily based on the expected or historical performance of our product sales relative to our competitors. The principal
competitive factors for sales of our branded products to consumers are brand recognition and loyalty, product quality and price. Most
of our branded product competitors have significantly greater resources than we do and may have a competitive advantage over our products
due to greater brand name recognition.
Competitive pressures or other factors could cause us to lose
market share, which may require us to lower prices, increase marketing expenditures, and/or increase the use of discounting or promotional
programs, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability.
The failure to attract
and retain key personnel could adversely affect our business.
Our success depends in large part on our ability to continue
to attract, retain, develop and motivate highly skilled professional personnel. Competition for certain employees, particularly top management,
is intense. We may be unable to continue to attract and retain sufficient numbers of highly skilled employees. Our inability to attract
and retain additional key employees or the loss of one or more of our current key employees could adversely impact our business, financial
condition and results of operations.
In particular, we depend on the management services provided
to us by Mr. Zwi Williger and Mr. Joseph Williger, as a director and Chairman of the Board and as a director and chief executive officer,
respectively through management companies that they control. See Item 7. Major Shareholders and Related Party Transactions – A.
Major Shareholders". We do not have any key-man life insurance policy on either Mr. Zwi Williger or Mr. Joseph Williger. The loss of either
or both of Mr. Zwi Williger and/or Mr. Joseph Williger could adversely impact our business, financial condition and results of operations.
If we are unable to protect our intellectual property rights, our
competitive position could be compromised.
We market certain products under the trademarks “Willi-Food”,
"Euro European Dairies", "Donna Rozza", "Manchow", “Gold Frost”, "Tifeeret", "The Chef Dish", "Art Coffe", "Mr Chang", "Muchi",
"Euro Butter", "Euro Spread", "Euro Cheese", Euro Cream", "Euro Dessert", "Euro Veg", "Ha-Bulgaria ", "Gelato", "Pinukim", "Emma", "Better
Food", "Kidoos" and "TenBo". Although we have registered trademarks for these brands, we cannot assure that the degree of protection from
this registration will be sufficient to protect our rights in these trademarks.
One shareholder owns a majority of our shares.
As of March, 22, 2023, Willi-Food Investments Ltd., an entity
controlled by Messrs. Zwi Williger and Joseph Williger, owned approximately 59.14% of our outstanding shares. Our Articles of Association
do not provide for cumulative voting rights with respect to the election of directors and every resolution in a general meeting of shareholders
is deemed duly passed if passed by a simple majority of the shareholders present and voting unless another majority is required by the
Israeli Companies Law (the “Companies Law”) or by our Articles of Association. Therefore, our controlling shareholders are
able to control the outcome of matters requiring shareholder approval that do not require a special majority.
We have business relations with Willi-Food and its management.
Willi-Food, our controlling shareholder, is a holding company
whose main asset is the ordinary shares it owns in our company. Willi-Food currently does not directly conduct any material business,
excluding investments in securities portfolio.
Certain of our key personnel also serve in management positions
in Willi-Food. By serving in dual capacities, these persons may experience conflicts of interest involving the two companies. Israeli
law imposes procedures, including a requirement of shareholder approval for certain material transactions, as a precondition to entering
into interested party transactions. These procedures may apply to transactions between Willi-Food and us. However, we cannot assure that
we will be able to avoid possible detrimental effects of any such conflicts that may arise.
We previously
failed to comply with Nasdaq’s requirement to hold an annual meeting of Shareholders no later than one year after the end of the
Company's fiscal year-end and
although we regained compliance within the grace period, we may fail to comply with Nasdaq’s, we may fail to comply with the requirement
to hold an annual meeting timely or any other listing requirements, and our shares may be delisted if we are unable to regain compliance
with Nasdaq rules within the applicable grace periods
On January 4, 2023,
we received a notification letter (the “Notification Letter”) from The Nasdaq Capital Market advising us that we have not
yet held an annual meeting of shareholders within twelve months of the end of our fiscal year ended December 21, 2021 as required for
continued listing under Nasdaq Listing Rule 5620(a) (the “Annual Meeting Rule”). We were provided 180 calendar days to regain
compliance with the Annual Meeting Rule. On February 7, 2023, we were informed by Nasdaq that we regained compliance with the requirement
to hold an annual general meeting timely under the Annual Meeting Rule after we informed Nasdaq of our plan to regain compliance and holding
a general shareholder meeting on March 14, 2023
However, we may in the future fail to comply with Nasdaq Listing
Rule 5620(a) to hold an annual meeting of Shareholders no later than
one year after the end of the Company's fiscal year-end again or any other listing requirements under the Nasdaq Capital Market regulations
and listing requirements such as to minimum share price, minimum net income, minimum number of shareholders and public float and other
requirements. In addition, under Nasdaq’s Listing Rules, any company whose shares have a closing bid price less than $1.00 for 30
consecutive business days may be subject to a delisting proceeding by Nasdaq.
If we fail to meet the continued listing criteria under Nasdaq
rules, our ordinary shares may be delisted from trading on the Nasdaq Capital Market and the TASE under dual-listing requirements.
Delisting from the Nasdaq Capital Market and/or the TASE could
have an adverse effect on our business and on the trading of our ordinary shares. If a delisting of our ordinary shares from Nasdaq were
to occur, our shares would trade in the over-the-counter market in the U.S. such as on the OTC Bulletin Board or on the “pink sheets”.
The over-the-counter market is generally considered to be a less efficient market, and this could diminish investors’ interest in
our ordinary shares as well as significantly impact our share price and the liquidity of our ordinary shares. Any such delisting may also
severely complicate trading of our shares by our shareholders, or prevent them from re-selling their shares at/or above the price they
paid. Furthermore, relatively low trading volumes may make it difficult for shareholders to trade shares or initiate any other transactions.
Delisting may also make it more difficult for us to issue additional securities or secure additional financing.
Our inability to win
tenders on tax exempt import quotas published by the Ministry of Finance could negatively impact our business and harm our financial condition.
The Company participates in tenders for the importation into
Israel of certain food products on a duty-free basis which are published from time to time by the Ministry of Finance. Our competitors
also participate in these tenders and may offer better bids than those of the Company, thereby resulting in the Company losing the competitive
processes to acquire the quotas. The winners of these tax-exempt import quotas commit to selling preset quantities of the products at
a relatively low price to the final consumer. Violation of the terms of the tenders may cause forfeiture of bank guarantees granted against
compliance with the tender terms, and non-issuance of tax-exempt import quotas in the competitive proceeding for up to five years. Our
inability to win such tenders or any Company violation of the terms of the tenders could negatively impact our business and harm our financial
condition.
We may not successfully integrate our acquisitions.
We have made acquisitions in the past and may do so in the future.
Our success will depend in part on our ability to manage the combined operations of any acquired company, to integrate the operations
and personnel of such company together with our other subsidiaries into a single organizational structure, and to replace those subsidiary
managers who have departed or may in the future leave our employ. There can be no assurance that we will be able to effectively integrate
the operations of our subsidiaries and our acquired businesses into a single organizational structure. Integration of operations could
also place additional pressures on our management as well as on our other key personnel. The failure to successfully manage any integration
could have an adverse material effect on results of our operations.
Risks Related to Our Location
in Israel
We are subject to regulations and other policies of the Israeli
government and of other countries from which we import and into which we export. If we are unable to obtain and maintain regulatory qualifications
or approvals for our products, our business may be adversely affected.
Regulatory,
licensing and quotas: The import, export, storage, marketing, distribution and labeling of some major food products are subject
to extensive regulation and licensing by various Israeli government and municipal agencies, principally the Ministry of Health, the Ministry
of Economy, the Ministry of Agriculture and the Ministry of Finance. To the extent that we have imported and exported, or will import
and export, food products outside of Israel, we may be subject to quotas and other import and export laws and regulations which may limit
our ability to sell or buy certain of our food products into or from these countries. We are required to maintain our distribution processes
in conformity with all applicable laws and regulations. In the event that such laws and regulations change, or we fail to comply with
such laws and regulations, we may be prevented from trading within Israel or other parts of the world.
Tariffs:
The Ministry of Finance and the Ministry of Economy of the State of Israel may increase the levels of tariffs on importing goods. This
would have a direct impact on us and our financial performance by increasing our costs which we may not be able to pass on to our customers.
Kosher
Licenses: Under kosher regulations, we are required to ascertain that the food products which we offer for sale bear kosher certification
approved by certain authorities such as the Chief Rabbinate of Israel. There is a risk that the relevant authorities in Israel or other
areas of the world responsible for issuing kosher licenses may change the criteria for obtaining such licenses. In such circumstances,
we may be prohibited from obtaining kosher licenses for various products that we sell into the various kosher markets. Failure to comply
with such applicable laws and regulations in relation to kosher licenses could subject us to civil sanctions, including fines, injunctions,
recalls or seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on us and our financial
performance.
Economic conditions in Israel affect our financial performance.
A major part of our sales is made in Israel, and consequently
our financial performance is dependent to a significant extent on the economy of Israel. A deterioration of the economic situation in
Israel, or periodic work stoppages or disruptions, may erode the real wages and lower the buying power of our potential customers. This
in turn may adversely affect our activities and business results.
We may be affected by political, economic and military conditions
in Israel and the Middle East.
We are incorporated under the laws of the State of Israel, our
principal offices are located in central Israel and all of our officers, employees and directors are residents of Israel. Accordingly,
political, economic and military conditions in Israel have a direct influence on us. Since the establishment of the State of Israel in
1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption
or curtailment of trade between Israel and its present trading partners could materially and adversely affect our operations. During 2012,
2014, 2021 and 2022, Israel was engaged in armed conflicts with Hamas, a militia group and political party operating In the Gaza Strip.
This conflict involved missile strikes by Hamas against civilian targets in various parts of Israel and negatively affected business conditions
in Israel. Ongoing or revived hostilities related to Israel may have a material adverse effect on our business and on our share price.
The political uncertainty in surrounding countries, including Syria, is affecting the political stability of that country. This instability
may lead to deterioration of the political relationships that exist between Israel and neighboring countries and has raised concerns regarding
security in the region and the potential for armed conflict. In addition, Iran is believed to have a strong influence among extremist
groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. The tension between Israel and Iran and/or these groups may escalate
in the future and turn violent, which could affect the Israeli economy generally and us in particular.
Many of our executive officers and employees in Israel are obligated
to perform annual military reserve duty in the Israeli Defense Forces and, in addition, may be called to active duty under emergency circumstances
at any time. If a military conflict or war arises, these individuals could be required to serve in the military for extended periods of
time. Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or key employees
or a significant number of our other employees due to reserve duty. Any disruption in our operations may harm our business.
Our commercial insurance does not cover property, asset or operational
losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government
currently reimburses for the value of direct damages that are caused by terrorist attacks or acts of war, and if certain conditions are
met covers indirect damages (up to limited amounts) as well, we cannot assure you that this government coverage will be maintained. Any
losses or damages incurred by us could have a material adverse effect on our business.
Additionally, several Arab countries restrict business with
Israeli companies and these restrictions may have an adverse impact on our operating results, financial condition or the expansion of
our business. From time to time pro-Arab organizations in various locations around the world promote local boycotts of products from Israel.
Prompted by political, religious or other factors, these and other restrictive laws or policies directed towards Israel and Israeli businesses
may affect our financial condition and results of operations.
It will be extremely difficult to acquire jurisdiction and enforce
liabilities against us, our officers and directors who are based in Israel.
We are organized under the laws of the State of Israel. The
majority of our officers and directors reside outside of the United States and most of our operations and assets, and the assets of these
persons, are located outside the United States. As a result, it may not be possible for United States investors to enforce their legal
rights, to effect service of process or to enforce judgments of United States courts against us, our directors or our officers under federal
securities laws of the United States. Further, it is unclear if extradition treaties now in effect between the United States and Israel
would permit effective enforcement of criminal penalties under such securities laws. It may also be difficult to enforce civil liabilities
under such securities laws in actions initiated in Israel.
Our international operations may be adversely affected by risks
associated with international business.
We purchase food products from over 150 suppliers located in
Israel and around the world, including the Far East (China, India, the Philippines and Thailand and more), Eastern Europe (Poland, Lithuania
and Latvia and more), South America (Ecuador), the United States, Canada, Western and Central Europe (the Netherlands, Belgium, Monaco,
Germany, Sweden, Switzerland, Denmark, and France) and Southern Europe (Spain, Portugal, Italy, Turkey and Greece) and more. Therefore,
we are subject to certain risks that are inherent in an international business. These include the adverse effects on our operations from:
War, such as the current war between Russia and Ukraine, terrorism
and public health crises, such as pandemics and epidemics, including the COVID-19 pandemic;
varying regulatory restrictions on sales of our products to
certain markets and unexpected changes in regulatory requirements;
tariffs, customs, duties, quotas and other trade barriers;
global or regional economic crises;
difficulties in managing foreign operations and foreign distribution
partners;
longer payment cycles and problems in collecting trade receivable;
fluctuations in currency exchange rates;
political risks;
foreign exchange controls which may restrict or prohibit repatriation
of funds;
export and import restrictions or prohibitions, and delays from
customs brokers or government agencies;
seasonal reductions in business activity in certain parts of
the world; and
potentially adverse tax consequences.
Depending on the countries involved, any or all of the foregoing
factors could materially harm our business, financial condition and results of operations.
Pandemics, such as COVID-19 may adversely
affect our business, revenues, results of operations and financial condition.
In the first quarter of 2020, the corona virus began to spread
around the world, an event declared by the World Health Organization as a global pandemic. (the ”crisis”). Most of the
restrictions implemented in Israel to deal with the crisis have been removed, but the Israeli economy and the world economy are still
in the process of recovery, with epidemiological developments and various waves of illness slowing down from time to time.
The Company purchases its goods from about 150 suppliers around
the world, including the Far East, Europe, the United States, South America and Israel. The rate of exit from the crisis varies from country
to country so that different restrictions on the production of products by some of the company’s suppliers may apply, which may
make it difficult for it to import goods in sufficient quantities from those suppliers. The company is also facing an increase in the
prices of the raw materials it purchases, the unavailability of containers in the world and significant increases in sea freight costs,
which, in the company’s estimation, are due to the corona crisis in the world. The company works to the best of its ability to maintain
the rate of receipt of goods on a regular basis in order to reduce the effects of the situation on sales to its customers. At this stage
the company is unable to estimate when this situation will change due to the recurring waves of illness, so the current time is still
characterized by uncertainty. This is a variable event whose scope and period of duration are not under the control of the Company and
therefore it is unable to assess the full extent of the economic effects on its activity.
The ongoing Russia-Ukraine war or any other war may adversely affect
our business, revenues, results of operations and financial condition.
On February 2022, a military conflict began between Russia and
Ukraine ("the conflict in Ukraine"), which as of the date of this report is still ongoing. According to the Bank of Israel's updated macro
division forecast1, the energy crisis in Europe and the
ongoing war in Ukraine, together with the high inflation and monetary tightening and slowdown in China, contributed, among other things,
to a moderation in economic activity in the world in 2022 and will continue to do so in 2023, due to a significant increase in energy
and commodity prices, as well as to disruptions in supply chains. At the time of the report, a trend of moderation in price increases
in the world has begun, but it is not possible to estimate what the consequences of the ongoing conflict in Ukraine will be, if any, on
the markets and economic activity in Israel and the world.
1See the Bank of Israel
website, "The Monetary Policy Report for the Second Half of the Year 2022", which was published on January 18, 2023 https://www.boi.org.il/publications
The company is not aware of any effects of the conflict in Ukraine
on it and its results beyond the above. At the same time, the company's management follows the developments, and will take actions as
necessary.
It
is emphasized and clarified that as of the date of approval of the report, this is still an 'unfolding' event, characterized by a certain
degree of uncertainty. Therefore, the company's estimates regarding the possible consequences of the conflict in Ukraine constitute forward-looking
information, as defined in the Securities Law, 5578-1968. These estimates may not be realized or may be realized in a different way from
the company's estimates, and this, among other things, due to circumstances, is beyond the company's control. The company continuously
monitors the developments and examines the consequences for its activities.
General Risk Factors
The market price of our ordinary shares on either Nasdaq or the
Tel Aviv Stock Exchange could fluctuate significantly.
The market price of our ordinary shares on the Nasdaq Capital
Market or the Tel Aviv Stock Exchange (the “TASE”) has in the past fluctuated significantly and may be affected by our operating
results, changes in our business, changes in the products we market and distribute, and general market and economic conditions which are
beyond our control. In addition, the stock market in general has, from time to time, experienced significant price and volume fluctuations
that are unrelated or disproportionate to the operating performance of individual companies. These fluctuations have affected stock prices
of many companies without regard to their specific operating performance. For these reasons, the price of our ordinary shares may fluctuate
significantly in the future.
Also, the financial markets in the Unites States, Israel and
other countries have experienced significant price and volume fluctuations, and market prices of public companies have been and continue
to be volatile. Volatility in the price of our ordinary shares may be caused by factors outside of our control and may be unrelated or
disproportionate to our results of operations. In the past, following periods of volatility in the market price of a public company’s
securities, shareholders have frequently instituted securities class action litigation against that company. Litigation of this kind could
result in substantial costs and a diversion of our management’s attention and resources.
If we fail to maintain an effective system of internal controls,
we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ordinary
shares may be adversely affected.
Our reporting obligations as a public company make significant
demands on our management, operational and financial resources and systems. We implemented financial and disclosure control procedures
and corporate governance practices that enable us to comply, with the Sarbanes-Oxley Act of 2002 and related Securities and Exchange Commission,
or the SEC, rules. For example, we developed accounting and financial capabilities, including the establishment of an internal audit function
and development of documentation related to internal control policies and procedures. Failure to establish the necessary controls and
procedures would make it difficult to comply with SEC rules and regulations with respect to internal control and financial reporting.
We need to take further actions to continue to improve our internal controls. If we are unable to implement solutions to any weaknesses
in our existing internal controls and procedures, or if we fail to maintain an effective system of internal controls, we may be unable
to accurately report our financial results or prevent fraud and investor confidence and the market price of our ordinary shares may be
adversely impacted.
Our results of operations may be impacted by cyber-attacks on the
Company's information systems.
Suspension or malfunction of internal or third-party information
systems, or unauthorized access, misuse, computer viruses and cyber-attacks affecting such systems, could impact our results of operations.
Our businesses rely on secure processing, storage, transmission and reception of personal, confidential and proprietary information on
our systems. We may become the target of attempted unauthorized access, computer viruses or malware, and other cyber-attacks designed
to access and obtain information on our systems or to disrupt and cause other damage to our services. Although these threats may originate
from human error or technological failure, they may also originate from the malice or fraud of internal parties, such as employees, or
third parties, including foreign state actors and extremist parties. Additionally, we could also be adversely impacted if any of the third-party
vendors, exchanges, clearing houses or other financial institutions to which we are interconnected are subject to cyber-attacks or other
informational security breaches. Such events could cause interruptions to our systems, reputational damage, client dissatisfaction, legal
liability, enforcement actions or additional costs, any and all of which could adversely affect our financial condition and operations.
While we continue to devote significant resources to monitor and update our systems and implement information security measures to protect
our systems, there can be no assurance that any controls and procedures we have in place will be sufficient to protect us from future
security breaches. As cyber threats are continually evolving, our controls and procedures may become inadequate and we may be required
to devote additional resources to modify or enhance our systems in the future.
ITEM
4. INFORMATION ON THE COMPANY
A. HISTORY
AND DEVELOPMENT OF THE COMPANY
The Company was incorporated in Israel in January 1994 under
the name G. Willi-Food Ltd. and commenced operations in February 1994. It changed its name to G. Willi-Food International Ltd. in June
1996. The Company's corporate headquarters and principal executive offices are located at 4 Nahal Harif Street, Northern Industrial Zone,
Yavne 81106, Israel. The Company's telephone number in Israel is +972 8-9321000 and its e-mail address is willi@willi-food.co.il. The
Company’s website address is www.willi-food.com. The information contained in its website, or that can be accessed therefrom, does
not constitute a part of this Annual Report and is not incorporated by reference herein. We have included our website address in this
Annual Report solely for informational purposes. The SEC maintains an Internet site that contains reports, proxy and information statements,
and other information regarding issuers, such as we file electronically, with the SEC at www.sec.gov.
The Company completed its IPO in the United States in May 1997,
at which time its ordinary shares began trading on the Nasdaq Capital Market, where they currently trade under the symbol “WILC”.
On June 15, 2020, our ordinary shares began trading on the Tel Aviv Stock Exchange under the symbol “WILC”.
CAPITAL
EXPENDITURES
Our capital expenditures were $3.8 million, $2.0 million and
$0.9 million for the three years ended December 31, 2022, 2021 and 2020, respectively. For more information, see "Item 4. Information
on the Company – D. Property, Plants and Equipment".
B. BUSINESS
OVERVIEW
Overview
The Company is an Israeli-based company specializing in high-quality,
great-tasting kosher food products. The Company is engaged, directly and through subsidiaries, in the design, import, marketing and distribution
of a wide variety of over 650 food products world-wide. In the year ended December 31, 2022, substantially all of our revenue was generated
in Israel, with less than 1% of our revenue resulting from exports outside Israel.
The Company purchases food products from over 150 suppliers
located in Israel and throughout the world, including from the Far East (China, India, the Philippines and Thailand), Eastern Europe (Poland,
Lithuania and Latvia), South America (Ecuador), the United States, Canada, Western and Central Europe (the Netherlands, Belgium, Monaco,
Germany, Sweden, Switzerland, Denmark, and France) and Southern Europe (Spain, Portugal, Italy, Turkey and Greece) and more.
The Company's products are marketed and sold to approximately
1,500 customers and 3,000 selling points in Israel, including to supermarket chains, wholesalers and institutional consumers. The Company
markets most of its products under the brand name “Willi-Food,” and some of its chilled and frozen products under the brand
name “Euro European Dairies”. Certain products are marketed under brand names of other manufacturers or under other brand
names. In addition, the Company distributes some of its products on an exclusive basis, as described further below. Less than 1% of the
Company’s sales come from product sales in countries other than Israel.
Following changes in management in recent years, the Company
continues to re-evaluate its strategic position and consider other business opportunities. As part of this re-evaluation, the Company
is considering forming strategic alliances with or entering into different lines of business, expanding its product lines, and increasing
product sales with existing customers while adding new customers. In addition, the Company is examining MA opportunities to further
increase its market presence.
As of March, 22, 2023, the Company’s principal shareholder,
Willi-Food, held approximately 59.14% of our ordinary shares. See “Item 7. Major Shareholders and Related Party Transactions –
A. Major Shareholders”. Willi-Food’s securities are traded on the Tel Aviv Stock Exchange.
Business Strategy
The Company’s principal business strategy is:
|
• |
to promote the “Willi-Food” brand name and other brand names used by the
Company (such as " Euro European Dairies") and to increase market penetration of products through marketing efforts and advertising campaigns;
|
|
• |
to expand our current food product lines and diversify into additional product lines,
as well as to respond to market demand; |
|
• |
to increase our refrigerated and frozen storage space by expanding our refrigerated
and frozen logistic center; |
|
• |
to enter new fields of activity/operating segments; |
|
• |
to expand the Company's activity in the international food markets; and |
|
• |
utilizing management’s expertise in identifying market demand and preferences,
as well as its supplier sourcing abilities to: |
|
• |
continue to locate, develop and distribute additional food products, some of which
may be new to Israeli consumers; |
|
• |
penetrate new food segments within Israel through the establishment of food manufacturing
factories or the establishment of business relationships and cooperation with existing Israeli food manufacturers; |
|
• |
increase its inventory levels from time to time both to achieve economies of scale
on its purchases from suppliers and to more fully meet its customers’ demands; |
|
• |
further expand into international food markets, mainly in the U.S. and Europe, by
purchasing food distribution companies, increasing cooperation with local existing distributors and/or exporting products directly to
customers; and |
|
• |
penetrate new markets in other countries through the establishment of business relationships
and cooperation with representatives in such markets, subject to a positive political climate. |
The Company has developed certain trade relationships locally,
as well as in areas administered by the Palestinian Authority, although current sales volumes to Palestinian-administered areas remain
small.
Principal Products
We and Euro European Dairies import a broad variety of over
600 food products, which are sold, marketed, and distributed by us in Israel. A small percentage of our products are purchased from suppliers
in Israel.
We aim to broaden the variety of products we import, and expect
to launch additional imported products in the near future while continuing to develop new and innovative food products internally.
The principal products in our import segment product line are
as follows:
|
• |
Canned Vegetables and Pickles: including mushrooms (whole and sliced), artichoke (hearts
and bottoms), beans, asparagus, capers, corn kernels, baby corn, palm hearts, vine leaves (including vine leaves stuffed with rice), sour
pickles, mixed pickled vegetables, pickled peppers, an assortment of olives, garlic, roasted eggplant sun and dried tomatoes. These products
are imported primarily from China, Greece, Thailand, Turkey, India, and the Netherlands. |
|
• |
Canned Fish: including tuna (in oil or water), sardines, anchovies, smoked and pressed
cod liver, herring, fish paste and salmon. These products are primarily imported from the Philippines, Thailand, Greece, Germany and Sweden.
|
|
• |
Canned Fruit: including pineapple (sliced or pieces), peaches, apricots, pears, mangos,
cherries, litchis and fruit cocktail. These products are primarily imported from China, Monaco, the Philippines, Thailand, Greece and
Europe. |
|
• |
Edible Oils: including olive oil, regular and enriched sunflower oil, soybean oil,
corn oil and rapeseed oil. These products are primarily imported from Belgium, Turkey, Italy, the Netherlands and Spain. |
|
• |
Dairy and Dairy Substitute Products: including hard and semi-hard cheeses (parmesan,
edam, kashkaval, gouda, havarti, cheddar, pecorino, manchego, maasdam, rossiysky, iberico and emmental), molded cheeses (Brie, Camembert
and Bloose), feta, Bulgarian cubes, goat cheese, fetina, butter, butter spreads, margarine, melted cheese, cheese alternatives, condensed
milk, whipped cream, yogurt, frozen pizza and others. These products are primarily imported from Greece, France, Lithuania, Denmark, Germany,
Italy and the Netherlands. |
|
• |
Dried Fruit, Nuts and Beans: including figs, apricots and organic apricots, chestnuts
organic chestnuts, sunflower seeds, walnuts, pine nuts, cashews, banana chips, pistachios and peanuts. These products are primarily imported
from Greece, Turkey, India, China, Thailand and the United States. |
|
• |
Other Products: including, among others, instant noodle soup, frozen edamame soybeans,
freeze dried instant coffee, bagels, breadstick, coffee creamers, lemon juice, halva, Turkish delight, cookies, vinegar, sweet pastry
and crackers, sauces, corn flour, rice, rice sticks, pasta, organic pasta, spaghetti and noodles, breakfast cereals, corn flakes, rusks,
rusks, tortilla, dried apples snacks, deserts (such as tiramisu and pastries), ice cream and light and alcoholic beverages. These products
are primarily imported from the Netherlands, Germany, Italy, Greece, Belgium, the United States, Scandinavia, Switzerland, China, Thailand,
Turkey, India, and South America. |
Product Information
The products that generated the largest sales volume for the
year ended December 31, 2022 were dairy and dairy substitute products (37.8% of sales), canned vegetables (14.1% of sales), cereals, rice
and pastas products (12.3% of sales) and fish products (12.5% of sales).
The allocation mentioned above does not include the product
line "Other Products" in the import segment, as this product line includes products that have no characteristic definition.
Most of the products that we import and market are approved
as kosher by, and/or under the supervision of, various supervisory institutions, including the Chief Rabbinate of Israel, Badatz Edah
HaChareidis, Badatz Beit Yosef, Chug Chatam Sofer, certain Jewish organizations administering Kashrut procedures and certifications (such
as the Union of the Orthodox Jewish Congregation of America (referred to as OU), Badatz Igud Harabanim Manchester, OK, Circle K and Triangle
K) and rabbis of local Jewish congregations abroad. For more information, see “– Government Regulation” in this section
below.
Our products are packaged by various manufacturers and suppliers
abroad and labeled in Hebrew, English and, in certain cases, Arabic and Russian, in accordance with our instructions and applicable law.
For more information, see “– Government Regulation” in this section below.
Suppliers
We purchase food products from over 150 suppliers all over the
world.
In addition, we actively maintain contact with our suppliers
world-wide through which we assess, on an on-going basis, world market trends, fluctuations in prices, and other issues relevant to our
business. Our management and personnel visit food trade fairs world-wide on a regular basis and endeavor to create new business relationships
with potential suppliers.
Certain of the products we import are seasonal agricultural
products, such as artichokes, cherries, mushrooms, eggplants and peaches. In order to ensure a continued supply of these seasonal items,
we generally make arrangements with the producers of such products at the beginning of the season for the terms of purchase of such items
for the upcoming year.
Major purchases from our suppliers outside of Israel are made
in U.S. Dollars and Euros, with the remaining purchases made in other foreign currencies. Supply is generally made to us against letters
of credit for a period of up to 90 days. No single supplier provides us with the majority of our products, most of which we purchase from
several suppliers.
In 2022, we purchased several products from two suppliers, each
of which accounted for more than 10% of our total purchases in 2022.
The average volume of our credit balance with our suppliers
in 2022 was NIS 23 million (US$ 6.5 million) consisting of 26 days of supplier's credit on average.
Customers
The Company's products are marketed and sold to approximately
1,500 customers and approximately 3,000 selling points throughout Israel and outside of Israel.
The Company's customers generally fall within one of the following
three groups:
|
• |
large retail supermarket chains, |
|
• |
small retail supermarket chains, and |
|
• |
other customers, including small private grocery shops, government institutions, wholesalers,
restaurants, hotels, and hospitals. |
The first group of customers above includes the large retail
food marketing chains: Shufersal Ltd., Yenot Bitan, Rami-Levy Ltd, Osher-Ad, Viktory, Yohananof, Mahsanei Hashuk, Hazi Hinam, Freshmarket
and others. Large retail food marketing chains usually have dozens of stores with nationwide deployment.
The Company contracts with large retail supermarket chains through
the buyers in the head office, after which the Company receives orders from the supermarket chain's logistics center or directly from
individual stores. Merchandise is then delivered directly to each branch or to the supermarket chain’s distribution centers. Simultaneous
with closing of sale prices with the buyers at the chains’ central offices, quantities of the products to be supplied to the branches
are routinely determined directly with the branches.
A number of provisions the Israeli "Promoting Competition in
the Food Industry" law (the "Food Law") apply to the Company, including a prohibition on any interference on the part of a supplier in
a retailer’s determination of the consumer price that such retailer will collect on another suppliers’ merchandise, or the
terms of such sale; a prohibition on retailers interfering in any way with a supplier’s determination regarding what products to
sell other retailers and what prices to charge for those products, or the terms of such sale; a ban on suppliers transferring payments
(in cash or cash equivalents) to a large retailer, other than by lowering the price per unit of a product, subject to certain exceptions;
a prohibition on interfering in any way in the price per product collected by a retailer for that supplier’s products, the allocation
of any share of sales space for that supplier’s products, the purchase of products provided by that supplier on any scale in proportion
to the retailer’s purchase of the product from alternative suppliers; and a prohibition on interfering in the purchase or sale of
products provided to a retailer by another supplier, including quantities and purchase targets, sales space allocated to another supplier
in stores and other commercial terms. In 2022, the Company had one retail customer, that is considered a large retailer according to the
Food Law. The Company’s sales to this customer exceeded 10% of its income in 2022. As a result, the Company's interaction with this
customer is required to meet certain principles for engagement, including those impacting commercial agreements, logistics and monetary
collection.
The second group of customers includes small retail supermarket
chains of up to 15 stores, usually in a regional deployment.
Generally, the Company’s engagement with small retail
chains does not involve exclusivity, or other obligatory terms of operations. Prior to entering into an engagement with such customer,
the Company gauges the customer's financial stability and determines the scope of credit to assign to and the sureties to obtain from
such customer. Small retail chains are generally requested to provide deferred checks as sureties, and some are requested to provide additional
sureties, including promissory notes, personal guarantees and bank guarantees. In addition, the Company insures most of its small retail
chains with credit insurance.
With some small retail supermarket chains not subject to provisions
of the Food Law, the Company pays a fixed incentive in the form of a percentage of sales of our products, or other incentive payment in
the event the scope of sales exceeds the scope agreed upon between the parties. Towards a small number of small retail supermarket chains
the Company provides discounts for the inclusion of new products, limited-time discounts for the opening of new stores, and participates
in payments for certain of such customers’ advertisements at rates determined in negotiations between the parties, and subject to
the actual execution of the advertisements in various media, including in print newspapers, or in specific advertisement placed inside
a customer's stores.
The sale prices to small retail chains are determined in negotiations
that occur frequently, usually on a monthly basis, owing to the lack of uniformity in the purchase terms for different products from different
manufacturers, and to variable market conditions.
The Company's sales by customer group for the years ended December
31, 2022, 2021 and 2020 were as follows:
|
|
|
Percentage of Total Sales
Year Ended December 31 |
|
|
Customer Group |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Large retail supermarket chains |
|
|
54 |
% |
|
|
50 |
% |
|
|
53 |
% |
|
Other customers |
|
|
46 |
% |
|
|
50 |
% |
|
|
47 |
% |
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
The table below shows the Company's revenues from major groups
of products that contributed 10% or more to the Company's total revenues in the years 2020 to 2022:
|
|
|
Year ended December 31, |
|
| |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2022 |
|
| |
|
NIS |
|
|
NIS |
|
|
NIS |
|
|
US Dollars |
|
|
Canned Vegetables and Pickles |
|
|
70,398 |
|
|
|
59,844 |
|
|
|
67,275 |
|
|
|
19,999 |
|
|
Dairy and Dairy Substitute Products |
|
|
188,738 |
|
|
|
196,589 |
|
|
|
188,675 |
|
|
|
53,619 |
|
|
Canned Fish |
|
|
62,270 |
|
|
|
56,064 |
|
|
|
53,547 |
|
|
|
17,690 |
|
|
Cereals, rice and pastas |
|
|
61,350 |
|
|
|
62,712 |
|
|
|
63,514 |
|
|
|
17,429 |
|
|
Non-banking credit |
|
|
- |
|
|
|
276 |
|
|
|
719 |
|
|
|
- |
|
|
Oils |
|
|
44,241 |
|
|
|
23,025 |
|
|
|
16,216 |
|
|
|
12,568 |
|
|
Other |
|
|
71,328 |
|
|
|
55,703 |
|
|
|
64,148 |
|
|
|
20,265 |
|
| |
|
|
70,398 |
|
|
|
59,844 |
|
|
|
67,275 |
|
|
|
19,999 |
|
The average aggregate receivable balance of the Company's customers
with the Company in 2022 was NIS 149.4 million (USD 42.4 million) and the average time period within which our trade receivable was paid
was 93 days.
In the event that a small retail supermarket chain or other
customer does not respect its financial commitments, the Company may elect to foreclose on the collateral or the promissory note provided
by such customer. The Company has not made significant use of this foreclosure power since 2008. The Company strives to minimize its credit
risk by constantly reviewing the credit it extends to customers versus the security it receives. As a result of such review, the Company
has ceased selling products to certain customers and considerably reduced sales to other customers, and may continue to do so.
Distribution, Marketing and Sales
The Company principally distributes and markets its products
using internal sales agents, although with sales of certain products to clients situated in different areas of Israel, the Company utilizes
external distributors, with whom it does not have exclusivity agreements.
The Company generally has no written agreements with its customers,
nor are its arrangements with its customers on an exclusive or binding basis. The Company generally extends its customers approximately
60-90 days credit, and in limited cases up to 110 days credit, beginning at the end of the month in which the sale took place. Most of
the large retail supermarket chains generally effect payment by wire transfers or cash payments on the due date, while other customers
are generally required to provide post-dated promissory notes at least one month prior to the date of the expected payment. The Company
does not require large retail supermarket chains to provide any kind of security for payments; however, other customers may be required
to provide security, including personal guarantees.
Sales are made by the placement of customers’ orders (except
for part of the dairy and dairy substitute products), which are directed to the Company’s regional office and placed by the sales
personnel or directly by the customers. Orders are delivered by the Company’s transport network (including 8 refrigeration trucks
and 3 regular trucks) and by independent transporters. In certain cases, the Company transports products directly from port to customers,
utilizing the services of independent transporters. In some instances, the Company transfers the merchandise to the logistics centers
of the supermarket chains, and the supermarket chains themselves are responsible for the distribution of the merchandise to their chain
stores for a commission charged to the Company.
The sale of most of our dairy and dairy substitute products
is performed by external distributers, although some of these sales are made by “van sale” sales agents using small terminals.
The sales agents supply these products immediately from the stock of products in the refrigeration trucks in which they travel.
Some of the marketing and distribution to institutional clients
in the private sector (such as hotels, police, prisons, the Ministry of Defense and "kibbutz" collective settlements) is done by winning
tenders, direct distribution or by wholesalers.
With imported products, the Company generally holds an inventory of products which the
Company believes to be sufficient to meet market requirements for a period of up to 70 days. Occasionally, the Company may take advantage
of low-priced merchandise and purchase larger amounts than usual of a product with long shelf life. In those cases, the inventory may
be sufficient to meet market requirements for more than 70 days. Products ordered by customers in full container loads are generally forwarded
directly to the customers’ facilities without being stored in the Company’s facilities. The Company does not regularly maintain
a significant backlog of orders from customers; orders received by customers are generally filled within one week. The Company’s
inventory as of December 31, 2022 amounted to NIS 71.9 million (USD 20.4 million) compared with NIS 59.5 million (USD 19.1 million) as
of December 31, 2021.
The Company maintains close contact with its consumers in an
effort to be attentive to market needs, market trends, and demand for certain products in various markets. The Company also regularly
gathers information on new products manufactured world-wide, including by attending food exhibitions and maintaining close relations with
manufacturers and suppliers world-wide.
The Company is responsible for the products it markets in Israel
under the Israeli Law of "Liability for Defective Products Law, 1980" and it has also purchased an insurance policy for product liability
claims.
Seasonality
Each year as the Jewish holidays of Pesach (Passover, celebrated
in March-April), Shavuot (celebrated in May) and Rosh Hashana (celebrated in September-October) approach, the Company normally increases
its inventories in order to meet the expected increase in market demand prior to such holidays. Despite the impact of the holiday season
on the Company’s activities, the Company’s quarterly sales are not materially affected as a result of these changes.
Competition
The food distribution business in Israel is highly competitive
with respect to imported, as well as locally manufactured, food products. The Company faces direct competition both from local manufacturers
and from a number of importers of food products, and the food market in Israel is very price sensitive. The Company’s competitors
include Shemen, Tomer, Taaman, Solbar and Y.T.V Foods Industries Ltd with respect to edible oils; Fodor (Starkist and Yona), Posidon and
Williger of the Neto Group, Filtuna, Vita Pri HaGalil and Shastowits with respect to fish products; the Vita Pri HaGalil, Yachin-Zan laKol,
Williger of the Neto Group, and Tomer with respect to canned fruit and vegetable products; Osem, Barila, Vita Pri HaGalil, Williger of
the Neto Group, Taaman and Tomer with respect to pasta products; and Tnuva, Tara, Strauss, Seyman, and Gad Dairy with respect to dairy
and dairy substitute products.
For each of the categories of products distributed by the Company,
there exists competition from dozens of local manufacturers and importers. The barriers to entry in the food market are low, and new potential
competitors are constantly joining the market. In addition to new-comers to the food business, the Company faces competition from existing
importers and/or manufacturers currently not offering the same lines of products as the Company.
For example, certain of the products imported by the Company,
such as canned fish, corn flakes, edible oils, certain pickles, olives, pasta, cereal, sweet pastry and crackers and certain dairy products,
are also produced by local manufacturers in Israel. Local producers are not subject to the financial risks of importing food products
or to governmental policies regarding taxation of imported food products to which the Company is subject.
To the Company's knowledge, several of its competitors are substantially
more established, have greater market recognition and have greater financial, marketing, human and other resources than those of the Company.
If any of the Company’s major competitors materially reduces prices, the Company would experience significantly more competitive
pressure and a decrease in profitability. The Company cannot predict whether it could successfully compete with these pressures and, if
it were unable to do so, the Company’s business would be adversely impacted.
Intellectual Property Rights
The Company markets certain products under the trademark “Willi-Food,”
which was approved for registration in Israel in May 1997 for certain uses relating to the food industry. In 2015, the trademark's validity
was extended for an additional ten years. The Company markets certain products under the trademark “Gold-Frost,” which was
registered in Israel in February 2002. The company markets certain product under the trademark "Euro European Dairies", which was approved
for registration in Israel in September 2019.
The Company also markets cheeses and cheese substitutes
such as "Ha-Bulgaria", which was registered in Israel in June 2009, and "EMMA", which was registered in Israel in December 2014.
The Company also markets ice cream products such as "Muchi-Ice",
which was registered in Israel in November 2019, and "Gelato", which was registered in Israel in May 2013.
The Company also markets a line of products under the trademark
"Pinukim," which was registered in Israel in June 2020.
The Company markets a line of products with kosher supervision
by Badatz Edah HaChareidis under the trademark "Tifeeret", which was registered in Israel in September 2010 for different uses in the
food industry.
The Company also markets pasta and sauces under the trademark
"Donna Rozza," which was registered in Israel in December 2005 for different uses in the food industry.
The Company also markets coffee products under the trademark
"Art Coffee," which was registered in Israel in January 2020.
The Company also markets other products which are in the process
of being registered in Israel, such as "Super Kidos", "Better Food", "Lucky Cat Ice-Cream", "Muchi Ice-Dessert" and "Super Kidoos".
Other products marketed by the Company under their original
brand names are “Completa”, "Del Monte", "Danesita", "Fiorentini", "Pils", "Wyke", "Muratbey", "Nobeleza Gaucha", "Sera",
"Daawat", "Zanetti", "Ferro", "Hahne", "Pastor", "Valio", "Ten bo" and "Kolios".
The Company imports several products for the Shufersal chain
under the brand name “Shufersal”.
The Company imports several products for the "Rami Levy" chain
under the brand name “Rami Levy”.
There can be no assurances as to the degree of protection registration
of the Company’s trademarks will afford.
The Company's investment in registering these trademarks was
insignificant.
Government Regulation
The import, export, storage, distribution, manufacturing, marketing
and labeling of food products is subject to extensive regulation and licensing by various Israeli government and municipal agencies, principally
the Ministry of Health, the Ministry of Finance and the Ministry of Economy. Failure to comply with these applicable laws and regulations
could subject us to civil sanctions, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of
which could have a material adverse effect on us. We believe that we comply in all material respects with the above-mentioned requirements.
To the extent that the Company exports food products outside of Israel, we may be subject to quotas and other laws and regulations of
the country to which we export which may limit our ability to sell certain of our food products into these countries.
In 1978, the Israeli government issued the free import decree,
which exempted the import of most food products from the requirement to obtain a license. However, preliminary permits from the Ministry
of Health or the Ministry of Agriculture are still required. These preliminary permits are granted based on laboratory analysis reports
and other data.
Customs duties and charges are levied on a portion of the Company’s
products imported into Israel. In addition, the Company is required to obtain import licenses for the import of certain food products
from the Ministry of Economy. The Company has also obtained the necessary authorization required by the Ministry of Health (Food Authority)
for the import of all of its food products to Israel. The Company’s products are packaged by various manufacturers and suppliers
abroad and labeled in Hebrew, English and, in certain cases, Arabic and Russian, according to the Company’s instructions and the
requirements of the Israeli authorities. In the past, the Company has occasionally been found to have mislabeled packages, as a result
of which it was required to pay an immaterial amount of fines.
Customs duty applies to various food products in Israel, including
cheese, butter, frozen vegetable, oils, tinned goods and other food products imported by the Company. In May 2014, the Ministry of Finance
published a notice regarding a government decision in connection with increasing the tax-exempt import quotas of hard cheese and butter
(hereafter – “Tax Exempt Import Quotas”) whereby importers undertake to sell the products to the end customer at a relatively
low price. Further to the aforesaid resolution, the Ministry of Economy published, for the first time, a competitive process in which
companies can win Tax Exempt Import Quotas. The Company participated in this process and won some of these quotas while committing to
sell the products to the end customer at a relatively low price. In subsequent years, the Ministry of Economy has continued to publish
annual tenders for Tax Exempt Import Quotas against winners undertaking to sell the imported products at a relatively low price to the
end customer and to meet a minimum sale target in respect of the goods in question. The Company has participated in these annual tenders
and won some of these quotas. As part of the tender process, the Company was required to provide financial guarantees and participate
in audit procedures on behalf of the Ministry of Economy for the purpose of assessing its compliance with its undertakings. The Company
successfully passed most of the audit procedures, apart from immaterial breaches in which immaterial amounts, which were provided by the
Company, were forfeited, and an import quota which the Company was supposed to received was cancelled. Pursuant to the terms of the tenders,
a breach of undertakings in the tender process may result, among other things, in forfeiture of guarantees and in the imposition of sanctions
in the form of non-issuance of tax-exempt import quotas as part of the competitive process for a period of no more than five years.
On February 26, 2020, a temporary order was issued by the Ministry
of the Economy whereby the butter market will be opened for tax-exempt importation through December 31, 2020. On December 17, 2020 the
Ministry of the Economy extended the order until December 31, 2021. On December 31, 2021 the Ministry of the Economy deleted the
import tax on butter.
During December 2021, the Minister of Finance signed a free
import order for yogurts, dairy delicacies and cheeses, up to 5% tax-exempt to Israel until December 31, 2022.
During September 2022, the Minister of Finance signed an order
to cancel the customs duty on the import of food products. The plan includes, among other things, the cancellation of the customs duty
on oils, canned fish, sauces, dried fruits, pastries, jams and snacks.
During January 2023, the Minister of Finance signed an order
to cancel the customs duty on a variety of cheese products. As part of the decree, an exemption applies, among other things, to the import
of soft cheeses with a fat percentage exceeding 5%, an exemption to the import of fresh soft mozzarella cheese, an exemption to the import
of haloumi cheese, and more.
Most of the products which the Company imports and markets are
approved as kosher by and/or under the supervision of various supervisory institutions including the Chief Rabbinate of Israel, Chug Chatam
Sofer, Badatz Edeh HaChareidis, certain Jewish organizations administering Kashrut procedures and certifications (such as the Union of
the Orthodox Jewish Congregation of America (OU), Badatz Igud Harabanim Manchester, OK, Circle K and Triangle K) and rabbis of local Jewish
congregations abroad. Such procedures include, in certain cases, personal supervision by a Kashrut supervisor sent by such institutions
to the manufacturing facilities from which the Company purchases products, who is present at the plant during the processing of the product.
Under Israeli law, the Company is required to ascertain that the kosher foodstuffs which it offers for sale bear kosher certification
approved by certain authorities, such as the Chief Rabbinate of Israel, and also bear the name of the individual authorized to certify
such product. Not all products marketed by the Company have been so certified, although they do bear certain kosher certifications from
other certification bodies.
C. ORGANIZATIONAL
STRUCTURE
The Company has three wholly-owned active subsidiaries, each
of which is an Israeli corporation:
|
• |
W.F.D. (Import, Marketing and Trading) Ltd. ("WFD") |
|
• |
W. Capital Ltd. (“W. Capital”) |
|
• |
Euro European Dairies Ltd. |
WFD
WFD was incorporated in 1995. Its activities are engaging in
occasional importation of food products and extending credit.
W. Capital
W. Capital was incorporated in 2014 and engages in capital market
investments.
Euro European Dairies Ltd.
Euro European Dairies was acquired in 2001 and is engaged in
designing, developing and distributing frozen and chilled food products for private and institutional customers. Products are labeled
in Hebrew, English, and in certain cases, Arabic and Russian. Euro European Dairies is working towards broadening the variety of products
that it develops and distributes.
D. PROPERTY,
PLANTS AND EQUIPMENT
The Company's principal executive offices are situated at a
logistics center in the northern industrial zone of Yavne, at 4 Nahal Harif St., Israel. The logistics center, which is owned by Company,
is 8,526 square meters (approximately 92,000 square feet).
In addition to the current logistics center, the Company makes
use of so-called "free" warehouse services, mainly in the area of the Ashdod seaport. For such services, the Company is charged only for
storage per container or pallet (i.e., there is no charge for rental when containers or pallets are not stored there). The Company's expenses
for usage of free warehouses services were NIS 4,489 thousand (USD 1,275 thousand) for the year ended December 31, 2022 and NIS 3,703
thousand (USD 1,191 thousand) for the year ended December 31, 2021.
As of December 31, 2022, the Company owned 10 refrigeration
trucks (each with a capacity of 12 tons), twelve refrigeration trucks (each with a capacity of 15 to 26 tons), three combined trucks (each
with capacity of 26 tons) and four private cars. As of December 31, 2022, the depreciated total cost of such vehicles amounted to approximately
NIS 919 thousand (USD 261 thousand).
During 2021, the Company began obtaining the approvals and permits
required for the expansion of its own logistics center located in the Yavne industrial zone. On march 2023, the company received the building
permit. The estimated start date of development work in the field is in the second half of year 2023, the estimated duration of work is
approximately 20 months and the start date of the new logistics center activity is expected to be end of 2024. Once completed, the logistics
center expansion will provide the Company with additional storage of approximately 12,000 cooled / frozen surfaces compared to 8,500 dry
/ cooled / frozen surfaces currently available to the Company. The estimated cost of the entire project is approximately NIS 115 million
(NIS 0.5 million invested during 2021 and NIS 9.4 million invested during 2022). Schedule and costs estimates may vary as a result of
events beyond the Company's control and changes in commercial terms.
ITEM
4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements
and related notes included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis includes
forward-looking statements that involve risks and uncertainties. You should review the sections titled “Cautionary Note Regarding
Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
The Company is engaged, directly and through its subsidiaries,
in the design, import, marketing and distribution of a broad range of food products purchased from over 150 suppliers worldwide and marketed
throughout Israel and abroad. The products imported by the Company are marketed in Israel and sold to approximately 1,500 customers and
3,000 selling points, including supermarket chains, mini-markets, wholesalers, manufacturers and institutional consumers. The Company
also sells its products outside Israel to a variety of customers world-wide.
Critical Accounting Policies
Management’s discussion and analysis is based upon the
consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB for all reporting periods presented.
The use of IFRS Standards requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting accounting periods presented. These estimates include, among other things, assessing the collectability of trade
receivable and the use of recoverability of inventory. Actual results could differ from those estimates. The markets of the Company’s
products are characterized by intense competition and a rapid turnover of products and frequent introductions of new products, all of
which may impact future ability to value the Company’s assets.
The following critical accounting policies may affect significant
judgments and estimates used in the preparation of the consolidated financial statements.
Recognition of income
IFRS 15 – “Revenue from Contracts with Customers”
is mandatory for reporting periods starting on January 1, 2018.
Revenue is measured and recognized in accordance with the fair
value of the entire amount of proceeds receivable under the terms of the contract, net of the amounts collected on behalf of third parties
(such as taxes).
Revenue is recognized in the consolidated statements of profit
or loss at a point in time when control of the goods has transferred to the customer. This is generally when the goods are delivered to
the customer.
The Company is engaged mainly in the sale of food products in
the Israeli market. Revenue from sale of goods is recognized when control of the goods has transferred to the buyer, generally being when
the goods arrived to the buyer’s specific location. Upon receipt of the goods, the buyer has full discretion over the distribution
channels and price to sell the goods; the buyer has principal responsibility upon sale of the goods and it bears the risks of obsolescence
and/or loss of the goods. After delivery of the goods, the Company recognizes receivables in respect of the sale since as of that point
in time the consideration is unconditional. In most cases, the Company enables specific customers to return products which they have not
sold, despite that there is no agreement between the Company and its customers regarding such returns and the Company does not have a
formal policy regarding such returns. Accordingly, the Company recognizes a provision for return of goods against a decrease in revenues
and a corresponding inventory asset against the right to return the goods. The amount of the asset is determined based on the lower of
cost and net realizable value. Past experience is used by the Company to estimate the number of returns. Based on past experience, the
Company estimates, with a high level of probability that no significant portion of revenue recognized in respect of sale of goods will
be reversed.
Inventories
Inventories are assets held for sale in the ordinary course
of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process
or in the rendering of services.
Inventories are stated at the lower of cost and net realizable
value. Cost of inventories includes all the cost of purchase, direct labor, fixed and variable production overheads and other cost that
are incurred, in bringing the inventories to their present location and condition.
Net realizable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Cost is calculated using the weighted average cost method.
The Group records a provision for slow moving inventory in respect
of inventory items estimated by management not to be realized due to expiration date. The slow-moving inventory is based on the historic
realization rate of the respective item as well as on management's estimate with respect to its future realization rate.
Contingent liabilities and legal proceedings
In estimating the likelihood of the outcome of legal claims
filed against the Company and its investees, management considers the facts and circumstances, as well as the opinion of Company's legal
counsel. These estimates are based on professional judgment, taking into account, inter alia, the stage of proceedings and legal precedents
in respect of the different issues. Since the outcome of the claims will be determined in court, the results could differ from these estimates.
A. RESULTS
OF OPERATIONS
The following table sets forth for the periods indicated the
correlation (in percentages) between items from the Company’s statements of operations to its total sales for such periods:
|
|
|
Year Ended
December 31,
2022 |
|
|
Year Ended
December 31, 2021
|
|
|
Revenues |
|
|
498,325 |
|
|
|
454,213 |
|
|
Cost of Sales |
|
|
355,228 |
|
|
|
315,920 |
|
|
Gross Profit |
|
|
143,097 |
|
|
|
138,293 |
|
|
Selling Expenses |
|
|
74,106 |
|
|
|
65,869 |
|
|
General and Administrative Expenses
|
|
|
24,117 |
|
|
|
23,299 |
|
|
Other Income |
|
|
(222 |
) |
|
|
(230 |
) |
|
Operating profit
|
|
|
45,096 |
|
|
|
49,355 |
|
|
Financial Income, Net |
|
|
8,878 |
|
|
|
8,465 |
|
|
Profit before taxes on
income |
|
|
53,974 |
|
|
|
57,820 |
|
|
Taxes on income |
|
|
(12,410 |
) |
|
|
(12,719 |
) |
|
Net Income |
|
|
41,564 |
|
|
|
45,101 |
|
Year Ended December 31, 2022 compared with Year Ended December 31,
2021
Revenues
for fiscal year 2022 increased by 9.7% to NIS 498.3 million (USD 141.6 million) from NIS 454.2 million (USD 129.0 million) recorded
in fiscal year 2021. Sales increased mainly due to (i) increasing the range of the Company's products. (ii) proper inventory management.
(iii) improving presence of the Company’s line of products in stores and (iv) advertising and promotional campaigns.
Cost
of sales for fiscal year 2022 increased by 12.3% to NIS 355.2 million (USD 100.9 million), or 71.2% of revenues, from NIS 315.9
million (USD 89.7 million), or 69.6% of revenues, recorded in fiscal year 2021. The increase in cost of sales was primary due to increased
costs of the Company’s imported products and due to significant increases in shipping costs.
Gross
profit for fiscal year 2022 increased by 3.4% to NIS 143.1 million (USD 40.7 million), or 28.7% of revenues, from NIS 138.3 million
(USD 39.3 million), or 30.4% of revenues, recorded in fiscal year 2021. The increase in gross profit was mainly due to increased sales
that overcome the increased costs of the Company’s imported products.
Selling
expenses for fiscal year 2022 increased by 12.5% to NIS 74.1 million (USD 21.0 million), or 14.9% of revenues, from NIS 65.9 million
(USD 18.7 million) or 14.5% of revenues, recorded in fiscal year 2021. The increase in selling expenses was mainly due to a growth in
advertising and sales promotion.
General
and administrative expenses for fiscal year 2022 increased by 3.5% to NIS 24.1 million (USD 6.8 million), or 4.8% of revenues,
from NIS 23.3 million (USD 6.6 million), or 5.1% of revenues, recorded in fiscal year 2021. The increase in General and administrative
expenses was primarily due to an increase in management compensation as a result of grants made under the Company's option plan.
Operating
profit for fiscal year 2022 decreased by NIS 4.3 million (USD 1.2 million), to NIS 45.1 million (USD 12.9 million),
or 9.0% of revenues, from NIS 49.4 million (USD 14.0 million), or 10.9% of revenues, recorded in fiscal year 2021. The decrease in
operating profit was primarily due to an increase in selling expenses.
Financial income, net, for fiscal
year 2022 amounted to NIS 8.9 million (USD 2.5 million), compared to NIS 8.5 million (USD 2.4 million) recorded in fiscal year 2021. Financial
income, net for fiscal year 2022 comprised mainly of income from interest and dividend income from the Company’s portfolio of securities
in an amount of NIS 9.0 million (USD 2.6 million) and exchange rate differences in an amount of NIS 4.4 million (USD 1.3 million), offset
by expenses from revaluation of the Company’s portfolio of securities to fair value in an amount of NIS 3.8 million (USD 1.1 million)
and other finance expenses in an amount of NIS 0.7 million (USD 0.3 million).
Profit
before taxes on income for fiscal year 2022 decreased by NIS 3.8 million (USD 1.1 million), to NIS 54.0 million (USD 15.3
million) from NIS 57.8 million (USD 16.4 million) recorded in fiscal year 2021. The decrease in profit before taxes on income was
due to an increase in selling expenses.
Taxes on Income for fiscal
year 2022 decreased by 2% to NIS 12.4 million (USD 3.5 million) from NIS 12.7 million (USD 3.6 million) recorded in fiscal year 2021.
The decrease in taxes on income in fiscal year 2022 compared to fiscal year 2021 was mainly due to decrease in profit before taxes. For
more information see Note 10 (Taxes on income) of our financial statements for the year ended December 31, 2022 included in this report.
Net profit for the year
for fiscal year 2022 was decreased by 7.8% to NIS 41,564 thousand (USD 11,808 thousand), or NIS 3.00 (USD 0.86) per share from NIS 45,101
thousand (USD 12,813) or NIS 3.25 (USD 0.92) per share recorded in fiscal year 2021.
Year Ended December 31, 2021 compared with Year Ended December 31, 2020
This analysis can be found in Item 5 of the Company’s Annual
Report on Form 20-F for the year ended December 31, 2021.
B. LIQUIDITY
AND CAPITAL RESOURCES.
The Company’s operations are funded mainly through its
own equity and cash flows from its operating activities. In addition, the Company has unutilized bank credit lines.
As of December 31, 2022, cash and cash equivalents were NIS
150.6 million (USD 42.8 million), compared to NIS 195.7 million (USD 55.6 million) as of December 31, 2021.
As of December 31, 2022, financial assets at fair value through
profit or loss were 116.8 million (USD 33.2 million), compared to NIS 154.1 million (USD 43.8 million) as of December 31, 2021.
Net cash provided by operating activities
During the fiscal years ended December 31, 2022 and 2021, net
cash from operating activities was approximately NIS 14.1 million (USD 4.0 million) and 45.5 million (USD 12.9 million), respectively.
The change was primarily a lower profit from the company, net of non-cash items, losses on marketable securities, increase in trade receivables
and other receivables, increased trade and other payables and increase in depreciation and amortization.
Net
cash from investing activities
During the fiscal year ended December 31, 2022 net cash provided from investing activities
was approximately NIS 8.3 million (USD 2.4 million) compared to net cash provided by investing activities NIS 15.4 million (USD
4.4 million) in fiscal year ended December 31, 2021. The Company’s investing activities consist primarily of proceeds from sales
of marketable securities, net and acquisition of property plant and equipment mainly from investing in the new logistic center
Net
cash used in financing activities
During the fiscal years ended December 31, 2022 net cash used
to finance activities was approximately NIS 57.1 million (USD 16.2 million) compared to net cash used to financing activities of
approximately NIS 62.1 million (USD 17.7 million) in fiscal year ended December 31, 2021. Financing activities in 2022 was primarily
due of dividend distribution.
Cash
requirements
The Company’s cash requirements, net, during the years
ended December 31, 2022 and 2021 were met primarily through its working capital. As of December 31, 2022, the Company had working
capital of NIS 470.6 million (USD 133.7 million) compared to working capital of NIS 503.9 million (USD 143.1 million) as of December 31,
2021. The Company believes that its working capital is sufficient for its present requirements.
Trade
receivables
The Company’s trade receivable balance as of December
31, 2022 and 2021 was NIS 165.8 million (USD 47.1 million) and NIS 134.0 million (USD 38.1 million), respectively. The average time period
within which our trade receivable was paid was 93 days in 2022 compared to 92 days in 2021.
Impact of Inflation and
Devaluation on Results of Operations, Liabilities and Assets
The exchange rate of the U.S. Dollar was NIS 3.52 on December
31, 2022 compared to NIS 3.11on December 31, 2021.
The annual rates of inflation in Israel during the year ended
December 31, 2022 was 5.3% while during such period the revaluation of the NIS against the U.S. Dollar was approximately 13.2%.
A revaluation of the NIS in relation to the U.S. Dollar
has the effect of increasing the U.S. Dollar value of any assets of the Company which consist of NIS or receivables payable in NIS.
Such a revaluation also has the effect of increasing the U.S. Dollar amount of any liabilities of the Company which are payable in NIS (unless
such payables are linked to the Dollar). Conversely, any decrease in the value of the NIS in relation to the U.S. Dollar has the
effect of decreasing the U.S. Dollar value of any linked NIS assets of the Company and the U.S. Dollar amount of any linked NIS liabilities
of the Company.
The dollar cost of the Company’s operations in Israel
is influenced by the extent to which any increase in the rate of inflation in Israel over the rate of inflation in the United States is
offset by the devaluation of the NIS in relation to the U.S. Dollar.
Guarantees and Pledges
Other than letters of credit granted by the Company to some
of its suppliers, the Company has no obligation or use credit lines to the banks or to other party. The outstanding amount of such letters
of credit as of December 31, 2021 was approximately NIS 3.1 million (USD 0.9 million).
The Company provides bank guarantees which most of it for the
purpose of securing its obligations to sell products at a subsidized price to the end consumer as part of the procedure for obtaining
import quotas from the Ministry of Economy for various products, mainly cheeses. The total bank guarantee that the Company provided as
of December 31. 2022 was NIS 10.2 million.
C. RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES
D. TREND
INFORMATION
In recent years, there has been an increase in the number of
small private supermarket stores that have opened in Israel, which has resulted in greater price competition in the stores and in our
business. The increased price competition resulted in an increase in our cost of sales as a percentage of total revenues. In order to
maintain our gross margin at its high levels, in the past we were able to change our product mix and introduce new products with higher
margins to increase our gross profit.
The food industry is characterized by a high level of competition
and limited consumer loyalty. The sector is dynamic, responding to the demands, needs and various tastes of an audience numbering millions
of Israeli consumers.
Recent years have seen a strengthening of private brands marketed
by the large supermarket chains Shufersal Ltd. (“Shufersal”) and Rami Levi Hashikma Marketing Ltd. (“Rami Levy”).
The marketing of these private brands strengthens competition; however, it also allows the Company to integrate into this market by marketing
its products as private brands to the large supermarket chains.]
In addition, various macro-economic factors impact the food
industry, including the macro-economic environment in Israel, which includes the following:
Local activity –
Israel has scaled back various COVID related restrictions and is expected to continue to do so. According to the Bank of Israel, GDP is
expected to grow at the rate of 2.8% and 3.5% in the years 2023 and 2024, respectively. This growth is expected to be driven by accelerated
private consumption, continued investment in assets and the continuation of extensive export activity. At the same time, the rate of inflation
continued to rise.
Labor
market activity – There was a decline in the unemployment rate from 7%% at the end of 2021 to 4.3% at the end of 2022.
Inflation
environment - The annual inflation rate in Israel in 2022 was 5.3%. However, the rate of inflation in Israel is lower than its
rate in most developed countries. Inflation expectations for longer terms (over two years) continue to be anchored in the target area.
The company's activity is exposed to risks arising from changes in the inflation rate. As of the date of this report, the company has
not entered into agreements and/or index-linked loans in 2022.
Fiscal
policy - In 2022 there was a surplus in government activity at a rate of 0.6% of GDP. This is due to the continued significant
increase in tax collection and a decrease in government spending
Monetary
policy – In 2022, monetary restraint was carried out by raising the interest rate. As part of four interest decisions made
in the second half of 2022, the committee decided to raise the interest rate to 3.25% at the end of 2022. In the beginning of the year
of 2023 the interest rate increased to 4.75%.
In addition, the Company's management is evaluating the financial
stability of its customers by entering into agreements with companies for providing business data, examining bank accounts, conducting
inquiries, and following negative publicity regarding its customers or other signs indicating financial difficulties.
E. CRITICAL
ACCOUNTING ESTIMATES AND INDICATE
N/A as the Company prepared its financial statements under IFRS
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS
AND SENIOR MANAGEMENT
The directors, executive officers and key employees of the Company
as of the date of this Annual Report are as follows:
|
Name |
Age
|
Position with the Company
|
|
Joseph Williger |
66 |
Director, and Chief Executive Officer |
|
Zwi Williger |
68 |
Director, Chairman of the Board |
|
Victor Bar (1) (2) |
58 |
Director |
|
Erez Winner |
54 |
Senior Officer (business development logistic operation and building) |
|
Yitschak Barabi |
38 |
Chief Financial Officer |
|
Ran Asulin |
39 |
Chief Trade and Selling Officer |
|
Lior Laser |
48 |
Deputy Chief Executive Officer |
|
Einav Bar (1) (2) |
51 |
External Director |
|
Idan Ben-Shitrit (1) (2) |
48 |
External Director |
|
(1)
(2) |
Member of the Audit Committee
Member of the Compensation Committee |
The Directors are elected at the annual general meeting of shareholders
and hold office until the next annual general meeting of shareholders and until their successors have been elected. Officers serve at
the discretion of the Board, subject to the terms of any agreement between officers and the Company.
The business experience of each of the Directors, executive
officers and key employees of the Company is set forth below:
Joseph
Williger has served as the Company's Chief Executive Officer since March 2023, as a director of the Company and as a director
of Willi-Food the controlling shareholder of the Company since June 2017. From January 1994 until September 2011, he served as the Chief
Executive Officer of the Company and from September 2011(when he ceased serving as Chief Executive Officer of the Company) until
January 2016 he served as President of the Company. Mr. Williger has also served as a director of the Company from January 1994 until
January 2016 and the chairman of the company's subsidiaries, WFD and Gold Frost, from 1996 and 2001, respectively, until January 2016.
Mr. Williger attended Business Administration studies in California State University, Northridge, Los Angeles and attended Business Administration
studies in Bar Ilan University, Ramat-Gan, Israel.
Zwi
Williger has served as the active Chairman of the board of the and as a chairman of the board of Willi-Food, the controlling
shareholder of the Company, since August 2017 and June 2017, respectively. In addition, From January 1994 until January 2016 he served
as an active Chairman of the board of the Company and a director and a CEO of Willi-Food. Prior to that and from inception of the Company
in 1994 until 1997, he served as a director and Manager of Marketing Development of the Company. In addition, Mr. Williger served as Chief
Operating Officer of the Company from 1997 until 2011. Mr. Williger attended Fresno University in California.
Erez Winner has served
as Senior Officer (business development logistic operation and building) from January 2023. Prior to his appointment Mr. Winner served
as the Acting Chief Executive Officer of the Company and then Chief Executive Officer of the Company from March 2021 until January 2023.
Prior to his appointment as Acting CEO, Mr. Winner served as the Company Operations Manager from February 2020. Before joining the Company,
Mr. Winner served as CEO of Jerusalem Wineries Mr. Winner holds a Bachelor’s degree in Political Science and in Middle East Studies
from the Hebrew University of Jerusalem and a Master’s degree in Political Science from the University of Haifa. In addition, Mr.
Winner is a graduate of the National Security College, the Inter-Armed College of Command and Staff, the Board Members’ Course of
the Israeli Center for Management and the Financial Management course for executives of the Tel Aviv University. Mr. Winner has previously
held a number of command positions in the IDF, including Assistant Chief of Staff, and as an independent consultant in the fields of security,
society and education, as a partner in start-ups in the security and commercial fields and is a volunteer in the "Connect" organization.
Mr. Winner continues to provide his services to the company in the field of business development, logistic operation and leading the establishment
of the company's new logistic center.
Yitschak
Barabi has served as Chief Financial Officer of the Company and Willi-Food since September 2019. Prior to his appointment as CFO,
Mr. Barabi served as the Company’s Controller and Deputy CFO since October 15, 2017. Mr. Barabi is certified public accountant (Israel)
and holds a BA (Accounting Economic) from the Hebrew University.
Ran
Asulin has served as Chief Trade and Selling Officer of the Company and Willi-Food since September 2019. Prior to his appointment
as CSO, Mr. Asulin served as the Company’s other senior positions since December 2010. Mr. Asulin is holding a BA in Business Administration
from the college Law and Business in Ramat Gan.
Lior
Laser has served as the Deputy Chief Executive Officer of the Company since January 2023. Prior to his appointment as Deputy
Chief Executive Officer of the Company since September 2010., Mr. Laser served as Chief
Trade and Selling Officer at "Baladi" a company that specializing
in the import and marketing of meat products. Mr. Laser is holding a BA in Business Administration from the College of Management Academic
in Tel Aviv.
Einav
Brar has served as external director of the Company since August 2018. Since 2015, Ms. Brar has served as owner and CEO of TLV
Medical Center, and from 1994 until 2015, she served as founder and former CEO of DPL - Disposable Hygienic Products LTD. Ms.
Brar earned a bachelor's degree in Business Administration from Ruppin Academic Center in Emek Hefer, Israel.
Idan
Ben-Shitrit has served as external director of the Company since August 2018. From 2009 to 2016, he served as a portfolio manager
at Meitav Co. Altris Co. Since 2017, he has served as a self-employed hedge fund manager, a wealth management advisor for private
clients and as an advisor in the finance and investment sector. Mr. Idan earned a bachelor of arts degree in Mathematics and
Economics from Tel-Aviv University and an MBA in Finance from IDC in Herzliya, Israel.
Victor
Bar has served as independent director of the Company since June 2017. In addition, Mr. Bar is director at his wholly-owned company,
Victor Bar Consultant Ltd, where. since 2015 he has provided financial services including value estimations for companies and other entities.
Between 2014 and 2016, Mr. Bar served as CFO of Edriel Israel Assets Ltd, a real estate company traded on Tel Aviv Stock Exchange. Mr.
Bar holds a B.A. in accounting and economy from Bar Ilan University and C.P.A license in Israel since 1992.
B. COMPENSATION
The table below reflects the compensation granted to our five
most highly compensated office holders (as defined in the Companies Law) during or with respect to the year ended December 31, 2022. We
refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.” For purposes of the table
below, “compensation” includes amounts accrued or paid in connection with management fees, salary cost, consultancy fees,
bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits
and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized
in our financial statements for the year ended December 31, 2022, plus compensation paid to such Covered Executives following the end
of the year in respect of services provided during the year. Each of the Covered Executives was covered by our DO liability insurance
policy and was entitled to indemnification and exemption in accordance with applicable law and our articles of association.
|
Name and Principal Position |
Salary
(1) |
Management
Fees
(2) |
Bonus
(3) |
Options
(4) |
Total |
|
|
NIS thousands |
|
Zwi Williger (4)
Chairman of the Board |
311 |
1,200 |
2,065 |
- |
3,576 |
|
Joseph Williger (4)
CEO and Former Co-Chairman of the Board |
244 |
1,200 |
2,065 |
- |
3,509 |
|
Yitschak Barabi
Chief Financial Officer |
669 |
- |
125
|
161 |
955 |
|
Ran Asulin
Chief Trade and Selling Officer |
642 |
- |
135 |
161 |
938 |
Erez Winner
Senior officer (business development logistic operation and building)
and Former CEO |
648 |
- |
273 |
- |
921 |
|
(1) |
Includes car and mobile phone benefits.
|
| |
|
|
(2) |
Includes tax gross-up payments. |
| |
|
|
(3) |
Represents annual bonuses granted to the Covered Executive based on formulas set forth
in the Company's compensation policy approved by shareholders in June 2021 (the "Amended Compensation Policy") and the agreements with
each of the Covered Executives which was replaced by the Company's current compensation policy in March 2023. |
Terms of Service of Each
of Mr. Zwi Williger and Mr. Joseph Williger
On June 4, 2020, the shareholders approved
an amendment to the Management Services Agreements pursuant to which each of Mr. Zwi Williger and Mr. Joseph Williger will act as an active
co-Chairman of the Board of Directors in a 100% full-time position. Pursuant to the amendment, as of January 1, 2020 and for a period
of three years, the maximum annual Measurable Bonus to be paid to a co-chairman will not exceed the amount set forth in the Company’s
Revised Compensation Policy, NIS 2.5 million (currently approximately USD 0.8 million), provided that the Company’s annual minimum
operating profit before bonuses exceeds NIS 30 million (currently USD 9.33 million).
The main terms and conditions of each of the Management Services
Agreements, as amended on June 4, 2020, are as follows:
(a) Monthly
service fees of NIS 100,000 (currently approximately USD 31.1 thousand) (excluding VAT).
In addition to the monthly service fees, the co-Chairman will
be entitled to annual remuneration, remuneration for participation in meetings of the Board of Directors and/or its committees according
the “minimum amount” as set forth in the Israeli Companies Regulations (Rules Regarding Compensation and expenses of an External
Director), 5760-2000 (the “Compensation Regulations”) and in accordance with the level of equity of the Company as defined
in the Compensation Regulations (as amended from time to time).
(b) Profit
Related Bonus - an annual bonus determined according to measurable quantitative criteria:
Payment of the Measurable Bonus will be subject to achieving
an operating profit target before bonuses to all Company’s officers (the “Bonuses”) of at least NIS 30 million (currently
approximately USD 9.33 million) (the “Minimum Operating Profit before Bonuses”).
Achieving or exceeding the Minimum Operating Profit before Bonuses
the co-Chairman will entitle to receive a bonus in the following manner: (i) a Bonus of 2% of the actual operating profit before Bonuses
up to and including NIS 10 million (currently approximately USD 3.11 million); (ii) a Bonus of 3% of the actual operating profit before
Bonuses above NIS 10 million and up to and including NIS 15 million (currently approximately USD 4.66 million); (iii) ) a Bonus of 4%
of the actual operating profit before Bonuses above NIS 15 million and up to and including NIS 20 million (currently approximately USD
6.22 million); (iv) a Bonus of 5% of actual operating profit before Bonuses exceeding NIS 20 million.
The maximum annual Measurable Bonus to be paid to the co-chairman
will not exceed NIS 2.5 million (currently approximately USD 0.78 million).
(c) The
Company may terminate the Management Service Agreements at any time, and for any reason, by prior written notice of at least three months
in the first year of acting as co-Chairman and by prior written notice of at least four months after the first year.
The co-Chairman may terminate their respective Management Service
Agreement at any time, and for any reason, by prior written notice of at least three months.
During the notice period, the co-Chairman must fulfill his duties
in order to ensure the continued and smooth operation of the Company, unless the Board decides to conclude his service before the end
of the Notice Period.
(d) Upon
termination of Management Services Agreement by the Company, the co-Chairman will be entitled to a retirement grant in an amount equal
to six (6) monthly service fees (provided that the Company did not terminate the Management Services Agreement in circumstances specified
in the agreement), and three (3) monthly service fees following termination of the Management Services Agreement by the applicable co-Chairman.
The co-Chairman will be entitled to a retirement grant described
above, provided the co-Chairman has been acting as co-Chairman the Company for at least one (1) year.
(e) The
Company will provide the co-Chairman with use of a vehicle, the value of which will not exceed the amount of NIS 400,000 (currently approximately
USD 124,417). The Company will cover all the operating expenses of the Company car (excluding fines), including grossing up the related
tax. In case, at the request of the co-Chairman, the value of the vehicle will exceed the amount of NIS 400,000, the co-Chairman will
reimburse the Company with any amount exceeding NIS 400,000.
(f) Benefits
in general, including the social benefits of the co-Chairman and income tax payments, national insurance payments and other payments due
to employees in respect of their employment, are to be paid for at the sole expense of the co-Chairman’s Management Company. The
co-Chairman’s Management Company has undertaken to indemnify the Company with respect to any claims against the Company with respect
to employer/employee relations.
On March 14, 2023, the Company's shareholders approved new terms
of service for each of Mr. Zwi Williger and Mr. Joseph Williger, commencing as of January 1, 2023 as follows:
(a) Monthly
service fees of NIS 108,300 (USD 31.2 thousand) (excluding VAT).
(b) Profit
Related Bonus - an annual bonus determined according to measurable quantitative criteria:
- Payment
of the Measurable Bonus will be subject to achieving an average of the minimum operating profit of the Company before bonuses during the
last three (3) years (i.e., the year in which the bonus is granted and the previous two (2) years) (the “Bonuses” and
"Average Operating Profit Before Bonuses", respectively) of at least NIS 40 million (USD 11.5 million) (the “Minimum Average Operating
Profit before Bonuses”).
- Subject
to the Company's Aachieving or exceeding the Minimum Average Operating Profit before Bonuses, the Chairman/ CEO shall be entitled to receive
a bonus in the following manneras follows: (i) a Bonus of 2.5% of the Average Operating Profit Before Bonuses for the amount exceeding
above NIS 10 million (USD 2.9 million) and up to and including NIS 15 million (USD 4.3 million); (ii) a Bonus of 3% of the Average Operating
Profit Before Bonuses for the amount exceeding above NIS 15 million and up to and including NIS 25 million (USD 7.2 million); (iii) a
Bonus of 4.15% of Average Operating Profit Before Bonuses for the amount exceeding NIS 25 million and up to and including NIS 40 million
(USD 11.5 million); (iv) a Bonus of 5% of the Average Operating Profit Before Bonuses for the amount exceeding above NIS 40 million
and up to and including NIS 55 million (USD 15.8 million); and (v) a Bonus of 5.5% of the Average Operating Profit Before Bonuses for
any amount exceeding above NIS 55 million.
- The
maximum annual Bonus to be paid to the Chairman / CEO will not exceed an amount of NIS 2.4 million (USD 690.8 thousand).
(c) The
Company will provide the Chairman/ CEO with use of a vehicle, the value of which shall not exceed NIS 400,000 (USD 115.1 thousand). The
Company shall allow the Chairman/ CEO to use a vehicle exceeding the value of NIS 400,000, upon the Chairman's/ CEO 's request provided
that the Chairman/ CEO will reimburse the Company with any amount exceeding NIS 400,000. The Company will cover all the operating expenses
of the Company car (excluding fines), including grossing up the related tax. The Company estimates the annual amount of the Company car
benefits in the total amount of NIS 300,000.
(d) Benefits
in general, including the social benefits of the Chairman/ CEO and income tax payments, national insurance payments and other payments
due to employees in respect of their employment, are to be paid for at the sole expense of the Chairman and CEO 's Management Company.
The Chairman and CEO 's Management Company has undertaken to indemnify the Company with respect to any claims against the Company with
respect to employer/employee relations.
(e) The
Chairman/ CEO will be included in the DO insurance policy available to the Company and its subsidiaries under the same terms as other
officers of the Company, and he will be entitled to an exemption and indemnification letter, which is identical to the form of exemption
and indemnification that was approved by the General Meeting of Shareholders on July 20, 2005 for all directors and officers of the Company.
It is hereby clarified, that the exemption does will not be valid regarding apply to any decision or transaction of the Company, in which
a controlling shareholder or other officer of the Company, (including a different officer than the officer that has been granted the exemption
letter) has a personal interest.
Terms of Office and Employment of Mr. Erez Winner, Senior Officer at the Company (business
development logistic operation and building).
Mr. Winner served as Acting Chief Executive Officer of the Company
and then Chief Executive Officer of the Company from March 2021 until January 2023. Since his position as CEO of the Company ended, Mr.
Winner has continued to provide his services as senior Officer and is entitled to a monthly salary in accordance with the terms of his
employment agreement as approved by the certified organs of the Company, including salary, car, mobile phone. In addition, he also entitled
to exemption and indemnification from the Company. Pursuant to his employment agreement, Mr. Winner is entitled to a bonus based on the
Company's operating profit. Each party may terminate the agreement by giving 60 days advance notice.
Terms
of Office and Employment of Yitschak Barabi, Chief Financial Officer of the Company
Mr. Barabi has served as Chief Financial Officer of the Company
since September 1, 2019. Mr. Barabi is entitled to a monthly salary in accordance with the terms of his employment agreement as approved
by the certified organs of the Company, including salary, car, mobile phone and accepted social conditions. In addition, he also entitled
to exemption and indemnification from the Company. Pursuant to his employment agreement, Mr. Barabi is entitled to a bonus based on the
Company's operating profit. Each party may terminate the agreement by giving 60 days advance notice.
Terms
of Office and Employment of Ran Asulin, Chief Trade and Selling Officer of the Company
Mr. Asulin has served as Chief Trade and Selling Officer of
the Company since February 24, 2020. Mr. Asulin is entitled to a monthly salary in accordance with the terms of his employment agreement
as approved by the certified organs of the Company, including salary, car, mobile phone and accepted social conditions. In addition, Mr.
Asulin also entitled to exemption and indemnification from the Company. Pursuant to his employment agreement, Mr. Asulin is entitled to
a bonus based on the Company's sales and gross profit. Each party may terminate the agreement by giving 60 days advance notice.
Aggregate Compensation of Directors and Officers
The aggregate compensation paid by the Company to its directors
and officers as a group for the fiscal year 2022 was approximately NIS 5.7 million (USD 1.6 million), excluding bonuses in an aggregate
amount of approximately NIS 4.7 million (USD 1.3 million) paid to Messrs. Joseph and Zwi Williger and other officers. These amounts include
all contingent or deferred compensation payable to directors or officers during fiscal year 2022. These amounts also include payments
to non-executive directors in the aggregate amount of approximately NIS 0.5 million (USD 0.1 million) during fiscal year 2022.
Compensation
Policy
Pursuant to the Companies Law, a compensation policy must be
reviewed and re-approved every three years, whether or not it has been amended. The Company’s Compensation Policy was most recently
approved by shareholders on March 14, 2023. The objective of the Compensation Policy is to achieve the goals and work plans of the Company,
including its long-term best interests by: (i) creating a reasonable and appropriate set of incentives for the Company’s executives;
(ii) providing the tools necessary for recruiting, motivating and retaining talented and skilled executives; (iii) putting an emphasis
on performance based compensation; and (iv) creating proper balance between the various compensation components (such as fixed versus
variable components and short-term versus long-term).
C. BOARD
PRACTICES
Terms of Office
Except as to External Directors, who are discussed below, Directors
are elected by the shareholders at the annual general meeting of the shareholders, except in certain cases where Directors are appointed
by the Board of Directors, and their appointment is later ratified at the first annual general meeting of the shareholders thereafter.
Except for External Directors, Directors serve until the next annual general meeting of the shareholders.
Alternate Directors
The Articles of Association of the Company provide that any
director (except for External Directors) may, by written notice to the Company, appoint another person to serve as an alternate director.
Under the Israeli Companies Law, the directors of the Company cannot appoint an incumbent director or an incumbent alternate director
as an alternate director. The term of appointment of an alternate director may be for a specified period or until notice is given of the
termination of the appointment. A Director who is member of a Board Committee may appoint anyone to be his alternate on that committee
provided that the candidate for appointment as alternate is not a member of such committee.
Audit Committee
Nasdaq
Requirements
Our ordinary shares are listed for quotation on the Nasdaq Capital
Market, and we are subject to the rules of the Nasdaq Capital Market applicable to listed companies. Under the current Nasdaq rules, a
listed company is required to have an audit committee consisting of at least three independent directors, all of whom are financially
literate and one of whom has accounting or related financial management expertise. Einav Brar (Chair), Idan Ben-Shitrit, and Victor Bar
qualify as independent directors under the Nasdaq requirements and are members of the Audit Committee. The role of the audit committee
for Nasdaq purposes includes assisting the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity
of the Company's accounting, auditing and reporting practices.
Israeli
Companies Law Requirements
Under the Israeli Companies Law, the board of directors of a
public company must appoint an audit committee, comprised of at least three directors including all of the external directors, with a
majority of independent directors but excluding a:
|
• |
The Chairman of the board of directors;
|
| |
|
|
• |
A controlling shareholder or his relative;
|
| |
|
|
• |
Any director employed by or who provides
services to the company on a regular basis. |
| |
|
|
• |
Any director employed by the controlling
shareholder or by any corporation controlled by the controlling shareholder or who provides services to the controlling shareholder on
a regular basis; and |
| |
|
|
• |
Any director whose principal livelihood
comes from the controlling shareholder. |
The Chairman of the audit committee must be an external director.
The responsibilities of the audit committee under the Israeli
Companies Law include, among others, identifying irregularities in the management of the company’s business, approving related party
transactions as required by law, approving “actions” or “transactions” (as such terms are defined in the Israeli
Companies Law), identifying deficiencies in the business management practices of the Company in consultation with the Company’s
internal auditor or independent auditors and recommending to the Board ways to improve such practices and approving transactions with
affiliates. In addition, the audit committee has certain powers with regard to transactions with controlling shareholders or with persons
or entities in which the controlling shareholder has a personal interest, including the power to require a competitive procedure or in
some cases other procedure prior to entering into such transactions and the power to establish a procedure for approving such transactions
in cases they are not de minimis to the Company.
Compensation Committee
Israeli
Companies Law Requirements
Idan Ben-Shitrit (Chair), Einav Brar and Victor Bar are members
of the Board’s Compensation Committee. All of our Compensation Committee members have been determined to be eligible to be members
of a compensation committee in accordance to the Israeli Companies Law.
Under the Israeli Companies Law, the compensation committee
of a public company is required to consist of at least three members, all the external directors must be members of it and one of them
must be appointed as chairperson, and the majority of the members must be independent. The remaining members must be directors who qualify
to serve as members of the audit committee as defined in the Israeli Companies Law. The roles of the compensation committee include, among
others:
|
• |
Recommending the board of directors, the compensation policy for the company's office
holders to be adopted by the company and to recommend to the board of directors, once every three years, regarding any extension or modification
of the current compensation policy which had been approved for a period of more than three years; |
| |
|
|
• |
From time to time, recommending to the board of directors regarding updates required
to the compensation policy and examining the implementation thereof; |
| |
|
|
• |
Determining whether to approve the company’s office holders’ terms of
office and employment in situations that require the approval of the compensation committee in accordance with the Israeli Companies Law;
and |
According to the Israeli Companies Law, the terms of service
and employment of a public company’s office holders (including cash and equity-based compensation, exemption from liability, indemnification,
DO insurance and other benefits and payments related to service and employment) are usually approved by the board of directors, while,
the terms of service and employment of the directors and the CEO are usually approved also by the company's shareholders in accordance
with the majority requirements of the Israeli Companies Law.
Independent Directors
The Company is a “Controlled Company” within the
meaning of the Nasdaq rules since more than 50% of its voting power is held by Willi-Food. As a Controlled Company, the Company is exempt
from certain Nasdaq independence requirements, such as the requirement that a majority of the Board of Directors be independent and the
rules relating to independence of directors approving nominations and executive compensation.
External Directors under the Israeli Companies Law/Financial Experts
The Israeli Companies Law requires that the Company have at
least two external directors on its Board of Directors. The nomination of an external director under the Israeli Companies Law must be
approved by a general meeting of shareholders provided that either: (a) the majority of shares voted at the meeting, including at least
a majority of the shares of non-controlling shareholders and who do not have a personal interest in the appointment (excluding a personal
interest which does not result from the shareholder's relation with the controlling shareholder) voted at the meeting, vote in favor of
such arrangement (not including abstentions) or (b) the total number of shares voted against such arrangement does not exceed two percent
of the aggregate voting rights in the company.
A “Controlling Shareholder” is defined in the Israeli
Companies Law as a shareholder with the ability to control the actions of the Company, whether by majority ownership or otherwise, and
for the purpose of transactions with related parties, the definition may include a shareholder who holds at least 25% of the voting rights
in the Company, provided that there is no other shareholder who hold more than 50% of the voting rights in the company; if two or more
shareholders who hold voting rights in the Company have a personal interest in the approval of a transaction with a related party will
be seen as holding together. The Israeli Companies Law further requires that at least one external director have financial and accounting
expertise, and that the other external director(s) have professional competence, as determined by the company’s board of directors.
A director having financial and accounting expertise is a person who, due to his or her education, experience and talents is highly skilled
in respect of, and understands, business-accounting matters and financial reports in a manner that enables him or her to understand in
depth the company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented.
Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business
administration, accounting, law or public administration or an academic degree in an area relevant to the company’s business, or
has at least five years' experience in a senior position in the business management of a corporation with a substantial scope of business,
in a senior position in the public service or a senior position in the field of the company’s business.
An external director is appointed for a period of three consecutive
years and may be re-appointed for two additional three-year periods only, subject to certain conditions (including approval by shareholders
at a general meeting) as provided under Israeli regulations. Under the Israeli Companies Law, any committee of the Board of Directors
to which the Board of Directors has delegated its powers in whole or in part must include at least one external director. Under the Israeli
Companies Law, the Audit Committee and the Compensation Committee must include all the external directors.
The External Directors of the Company are Ms. Einav Brar and
Mr. Idan Ben-Shitrit. Ms. Brar was elected by the Company shareholders on August 19, 2021 to serve for a period of three years, and was
determined by the Board to have “financial and accounting expertise” under Israeli Companies Law. Mr. Ben-Shitrit was elected
by the Company shareholders on August 19, 2021 to serve for a period of three years, and was determined by the Board to have “professional
expertise” under the Israeli Companies law.
Internal Auditor
Under the Israeli Companies Law, Israeli companies whose securities
are publicly traded are also required to appoint an internal auditor, as recommended by the audit committee. The role of the internal
auditor is to check, among others, the integrity of the company's operations in terms of compliance with the law and proper business practice.
Mr. Doron Yunisy, the Company’s internal auditor, works in accordance with an annual audit plan approved by the Audit Committee.
Indemnification
In accordance with the Israeli Companies Law and the Company’s
Articles of Association, the Company has undertaken to indemnify and insure its directors and senior officers against certain liabilities
which they may incur in connection with the performance of their duties. Under the terms of such indemnification provisions, the Company
may, to the extent permitted by law, indemnify its directors or officers for legal expenses incurred by him/her in connection with such
liabilities.
Exemption
In May 2005, the Board of Directors and Audit Committee of the
Company approved an exemption in advance to any director or officer from any liability to the Company attributed to damage or loss caused
by breach of the director or the officer’s duty of care owed to the Company, except for such breach in distribution (as such term
is defined in the Israeli Companies Law). Also, the Board of Directors, the Audit Committee and the shareholders approved an irrevocable
indemnification of the Company officers with respect to any liability or expense paid for by the officer or that the officer may be obligated
to pay.
In accordance with the Israeli Companies Law, an agreement with
a controlling shareholder, such as the Company's exemption and indemnification letter to its controlling shareholders, must be approved
every three years by the Company’s Audit Committee or Compensation Committee (as the case may be), the Board of Directors and a
special majority of the Company shareholders.
All current officers and directors of the Company are parties
to indemnification agreements.
Directors and officer's liability insurance policy
In accordance with the Israeli Companies Law, an agreement with
a controlling shareholder, such as the Company's directors' and officers' liability insurance policy for its controlling shareholders,
must be approved every three years by the Company’s Audit Committee or Compensation Committee (as the case may be), by the Board
of Directors and by a special majority of the Company shareholders, unless it is approved in accordance with Article 1B(5) of the Israeli
Companies Regulations (Relief with Respect to Transactions with Interested Parties), 5760-2000 (the “Relief
Regulations”). On March 14, 2023 the Company shareholders approved an insurance policy for Messrs. Zwi Williger and Joseph
Williger for a three-year period on the same terms such policy applies to the other directors and officers of the Company.
The company decided not to renew the insurance policy for directors
and officers for the years 2021-2023.
Approval of Related Party Transactions under the Israeli Companies
Law
Office Holders
The Israeli Companies Law codifies the fiduciary duties that
office holders owe to a company. An office holder is defined as a general manager, chief executive officer, deputy general manager, vice
general manager, any other person assuming the responsibilities of any of these positions regardless of that person’s title and
a director or manager directly subordinate to the general manager. Each person listed in the table under "Item 6. Directors, Senior Management
and Employees – A. Directors and Senior Management” is an office holder under the Israeli Companies Law.
Fiduciary duties. An
office holder’s fiduciary duties consist of a duty of loyalty and a duty of care. The duty of loyalty requires the office holder
to act in good faith and for the benefit of the Company, and includes, among other things, the duty to avoid any conflict of interest
between the office holder’s position in the Company and his/her personal affairs. In addition, the duty of loyalty proscribes any
competition with the Company or the exploitation of any business opportunity of the Company in order to receive personal advantage for
him or herself or others. This duty also requires disclosure to the Company of any information or documents relating to the company’s
affairs that the office holder has received due to his or her position as an office holder. The duty of care requires an office holder
to act with a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes
the duty to use reasonable means to obtain information regarding the advisability of a given action submitted for his or her approval
or performed by virtue of his or her position and all other relevant information pertaining to these actions.
Compensation. The Israeli Companies Law requires
that the terms of service and engagement of the chief executive officer, directors or controlling shareholders (or a relative thereof)
receive the approval of the compensation committee, board of directors, and shareholders, subject to limited exceptions. Similarly, the
terms of service and engagement of any officer other than the CEO must receive the approval of the compensation committee and board of
directors. However, shareholder approval is only required if the compensation of such officer other than the CEO is not in accordance
with the compensation policy. This compensation policy is required to take into account, among other things, providing proper incentives
to directors and officers, taking into account the risk management of the Company, the officer’s contribution to achieving corporate
objectives and increasing profits, and the function of the officer or director. Following the approval of the Compensation Committee and
Board, a newly revised Compensation Policy was approved by the Company shareholders on March 14, 2022, for a period of three years commencing
on January 1, 2023. For more information on the Company's Compensation Policy, see "Item 6. Directors, Senior Management and Employees
– B. Compensation". In accordance with the Israeli Companies Law the compensation policy must be re-approved every three years,
in the manner described above. The Compensation Committee is responsible for reviewing from time to time the compensation policy and determining
whether or not there are circumstances that require adjustments to the current compensation policy.
The Israeli Companies Law provides that a compensation policy
requires shareholder approval by a special majority vote. Notwithstanding the above, the compensation committee and the board of directors
may approve the compensation policy of a company, even if the shareholders do not approve such terms, provided that:
1) the compensation committee and after the Board decided, on
the basis of detailed reasons and re-discussion of the compensation policy, the approval of the compensation policy despite the shareholders'
objection is in favor of the company; and
2) the Company is not a "Public Pyramid Held Company", which
is a public company controlled by another public company (including by a company that only issued debentures to the public), which is
also controlled by another public company (including a company that only issued debentures to the public) that has a controlling shareholder.
Disclosure
of personal interest. The Israeli Companies Law requires that an office holder promptly disclose to the company any personal interest
that he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction
by the company. “Personal interest”, as defined by the Israeli Companies Law, includes a personal interest of any person in
an act or transaction of the company, “Personal interest” does not apply to a personal interest stemming merely from the fact
that the office holder is also a shareholder in the company. "Personal interest" also includes (1) the personal interest of a person who
votes via a proxy for another person, even if the other person has no personal interest, and (2) the personal interest of a person who
gives a proxy to vote even if the person who votes on his or her behalf has no personal interest, regardless of whether the discretion
of how to vote lies with the person voting or not.
The office holder must make the disclosure of his or her personal
interest promptly and, in any event, no later than the first meeting of the company’s board of directors that discusses the particular
transaction. This duty does not apply to the personal interest of a relative of the office holder in a transaction unless it is an “extraordinary
transaction”. The Israeli Companies Law defines an extraordinary transaction as a transaction not in the ordinary course of business,
not on market terms or that is likely to have a material impact on the company’s profitability, assets or liabilities, and defines
a relative as a spouse, sibling, parent, grandparent, descendent and spouse’s descendant, and includes a sibling, parent and spouse
of any of the foregoing.
Approvals. The Israeli
Companies Law provides that a transaction with an office holder or a transaction in which an office holder has a personal interest may
not be approved if it is averse to the company’s interest. In addition, such a transaction generally requires board approval, unless
the transaction is an extraordinary transaction or the articles of association provide otherwise. If the transaction is an extraordinary
transaction, or if it concerns exculpation, indemnification or insurance of an office holder, then in addition to any approval stipulated
by the articles of association, approval of the company’s audit committee or compensation committee (as the case may be) and board
of directors, in that order, is required, and may also require special majority approval by shareholders. In accordance with the Israeli
Companies Law, approval by both the compensation committee and the board of directors is required for all arrangements regarding terms
of service, including cash and equity-based compensation, exemption from liability, indemnification, DO insurance and other benefits
and payments related to the service and employment of an office holder. Except for certain specific exemptions under the Israeli Companies
Law, matters referred to herein with respect to the CEO of a public company or a director of a company (including engagement with respect
to employment terms of a director in a position other than as a director) also require shareholder approval.
With respect to the CEO of a public company, or with respect
to a director who is a controlling shareholder, shareholder approval must be by a special majority vote. With respect to transactions
described above with the CEO, the compensation committee may determine that such transaction does not require shareholders' approval,
provided that: (i) the CEO is considered to be "independent" based on criteria set forth in the Companies Law; (ii) the compensation committee
determined, based on detailed reasons, that bringing the transaction to the approval of the shareholders may compromise the entering into
the transaction; and (iii) the terms of the transaction are consistent with the company's compensation policy.
In order to be approved, the terms of employment of Office Holders
of a public company must be consistent with the company's compensation policy. However, the compensation committee and the board of directors
may, under special circumstances, approve terms of employment which are not in accordance with the company's compensation policy if:
|
1) |
the compensation committee and the board of directors have taken into consideration
the mandatory considerations and criteria which are specified in the Israeli Companies Law for a compensation policy and the respective
employment terms include such mandatory considerations and criteria; and |
|
2) |
the company's shareholders approved such terms of employment, subject to a special
majority requirement. |
Notwithstanding the above, the compensation committee and the
board of directors may approve terms of employment of Office Holders (other than CEO or directors) that are not in accordance with the
company's compensation policy, even if the shareholders' do not approve such terms, provided that:
|
1) |
both the compensation committee and the board of directors re-discussed the transaction
and decided to approve it despite the shareholders' objection, based on detailed reasons; and |
|
2) |
the Israeli company is not a "Public Pyramid Held Company", which is a public company
controlled by another public company (including by a company that only issued debentures to the public), which is also controlled by another
public company (including a company that only issued debentures to the public) that has a controlling shareholder. |
Under the Israeli Companies Law, changes of the terms of a current
arrangement regarding service and employment terms of an office holder (other than a director) may require only the approval of the compensation
committee if the compensation committee determines that such changes are not material.
A director who has a personal interest in a matter that is considered
at a meeting of the board of directors, compensation committee or audit committee may not attend that meeting or vote on that matter.
However, if the chairman of the board of directors or the chairman of the compensation committee or audit committee determines that the
presence of an office holder with a personal interest is required for the presentation of a matter, such officer holder may be present
at the meeting. Notwithstanding the foregoing, a director who has a personal interest may be present at the meeting and vote on the matter
if a majority of the board of directors, compensation committee or audit committee also has a personal interest in the matter. If a majority
of the board of directors, compensation committee or audit committee has a personal interest in the transaction, shareholder approval
also would be required.
Shareholders
The Israeli Companies Law imposes the same requirements regarding
disclosure to the company of a personal interest, as described above, on a controlling shareholder of a public company that it imposes
on an office holder. For these purposes, a controlling shareholder is any shareholder who has the ability to direct the company’s
actions, including any shareholder holding 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights
in the company. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder.
Unless approved in accordance with the Relief Regulations, approval
of the audit committee, board of directors and shareholders, in that order, is required, among others, for:
|
• |
extraordinary transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest; and |
|
• |
the terms of an engagement by the company, directly or indirectly, with a controlling
shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding
the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder
of the company, regarding his or her terms of employment. |
The shareholder approval must include the majority of shares
voted at the meeting. In addition, either:
|
• |
the majority of the shares of the voting shareholders who have no personal interest
in the transaction must vote in favor of the proposal (shares held by abstaining shareholders shall not be considered); or |
|
• |
the total shareholdings of those who have no personal interest in the transaction
and who vote against the transaction must not represent more than 2% of the aggregate voting rights in the company. |
Furthermore, any extraordinary transaction with a controlling
shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned
approval every three years, unless, with respect to transactions not involving the receipt of services or compensation, the audit committee
or compensation committee (as the case may be) determines that a longer term is reasonable under the circumstances.
In accordance with amendments to the Israeli Companies Law,
approval by both the compensation committee and the board of directors is required for all arrangements regarding terms of service. Except
for certain specific exemptions under the Companies Law, matters referred to herein with respect to the CEO of a public company or a director
of a company (including engagement with respect to employment terms of a director in a position other than as a director) also require
shareholder approval. With respect to the CEO of a public company, or with respect to a director who is a controlling shareholder, shareholder
approval must be by a special majority vote, provided that either:
|
1) |
such majority includes a majority of the total votes of shareholders who have no personal
interest in the approval of the transaction (and in case of a CEO, who are not a controlling shareholder) and who participate in the voting,
in person, by proxy or by written ballot, at the meeting (abstentions not taken into account); or |
|
2) |
the total number of votes of shareholders mentioned above that vote the transaction
do not represent more than 2% of the total voting rights in the company. |
The Israeli Companies Law requires that every shareholder who
participates in person, by proxy or by voting instrument in a vote regarding a transaction with a controlling shareholder must indicate
either in advance or on the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate
will result in the invalidation of that shareholder’s vote.
Under the Israeli Companies Law, a shareholder has a duty to
act in good faith towards the Company and other shareholders and to refrain from abusing his or her power in the company including, among
other things, when voting in a general meeting of shareholders or in a class meeting on the following matters:
|
• |
any amendment to the articles of association; |
|
• |
an increase in the company’s authorized share capital; |
|
• |
approval of actions and transactions that require shareholder approval. |
A shareholder has a general duty to refrain from depriving any
other shareholder of their rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that he/she possesses
the power to determine the outcome of a shareholder vote, and any shareholder who has the power to appoint or prevent the appointment
of an office holder in the company is under a duty to act with fairness towards the company. The Israeli Companies Law does not describe
the substance of this duty of fairness except to state that the remedies generally available for breach of contract would also apply in
the event of a breach of the duty to act with fairness toward the company.
D. EMPLOYEES
As of December 31, 2022, the Company, including its subsidiaries,
employed a total of 185 persons (all of them are located in Israel), six of whom were in management, 41 of whom were in accounting and
importing positions, 43 of whom were involved in the Company's sales and marketing departments and 95 of whom were employed in logistics
networks (warehousing and transportation).
All the Company's employees are party to written employment
contracts.
The Company has complied with and is in compliance with all
material respects with all laws and other legal requirements relating to the employment of labor (including, without limitation, provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social pension benefits and the payment
or withholding of payroll or similar taxes for employees, or any other applicable law or regulation concerning the employees of the Company).
The Extension Order for Mandatory Pension Insurance and the
Extension Order for Increasing the Allocations to Pension Insurance (the "Extension Orders") that
apply to the Company, require the maintenance of pension insurance for the benefit of its employees (the "Pension
Insurance"). The Extension Orders settle the contribution of certain percentages of the employee's monthly insured salary to a
Pension Insurance that may be one of the two following types: pension fund or insurance fund. The contribution is made by both the Company
and its employees.
Each month, the employee contributes an amount equals to 6%
of his insured salary, and the Company contributes an additional amount equals to 12.5% or 14.83% of the employee's insured salary. The
contributions made by the Company to the pension fund cover 72% or 100% of the Company's severance liability towards its employees in
case of termination (the differences in coverage depends on the amount the Company contributes to the severance part of the Pension Insurance).
In the event that the Company contributes amounts to the severance part of the pension insurance that cover only 72% of the Company's
severance liability, then in the case of termination of employment relations that entitle the employee to a payment of full severance
pay under the law, the Company shall pay to the employee a supplementary amount. Furthermore, Israeli employees and employers are required
to pay predetermined sums to the Israeli National Insurance Institute (which is similar, to some extent, to the United States Social Security
Administration). The payments thereto range from 6.95% to 18.75% of wages; the employee’s share range from 3.5% to 12% (depending
on the marginal level of wages) and the employer’s share range from 3.45% to 6.75%.
E. SHARE
OWNERSHIP
For information regarding the share ownership of Directors and
Officers of the Company see “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders”.
2022
Share Award Plan
On May 3, 2022, the Company’s Board of Directors adopted
an options plan for Company officers and employees (the “Options Plan”). The Options Plan is intended to advance the interests
of the Company and its shareholders by attracting and retaining the best available personnel for positions of substantial responsibility,
providing additional incentive to employees, officers, directors, advisors and consultants and promoting a close identity of interests
between those individuals and the Company and/or its Affiliate.
The number of shares that may be issued under the Options Plan
is subject to adjustment if particular capital changes affect our share capital or such other number as our board of directors may determine
from time to time. If an award expires or becomes non-exercisable without having been exercised in full, the non-purchased shares
which were subject thereto shall, unless the Option Plan shall have been terminated, become available for grant or sale under the Option
Plan. Shares issued under the Option Plan and later repurchased by the Company pursuant to any repurchase right which the Company may
have, shall be available for future grant under the Option Plan. As of March 1, 2023, we had an aggregate of 136000 ordinary shares available
for issuance under the Plan (including ordinary shares underlying outstanding options and restricted share units).
Our board of directors, or a duly authorized committee of our
board of directors, administers the Option Plan. The administrator has the authority, to grant awards, determine and amend the terms of
awards, including the exercise price of an option award, the fair market value of an ordinary share, the time and vesting schedule applicable
to an award or the method of payment for an award, accelerate or amend the vesting schedule applicable to an award, prescribe the forms
of agreement for use under the Option Plan and take all other actions and make all other determinations necessary for the administration
of the Option Plan.
The administrator also has the authority to amend and rescind
rules and regulations relating to the Option Plan or terminate the Option Plan at any time before the date of expiration of its ten-year
term (unless extended by the administrator pursuant to the provisions of the Option Plan).
Participants who are employees of the Company may be granted
options subject to Section 102 of the Israeli Income Tax Ordinance (New Version) (the "Ordinance"), 1961, or the Israeli Tax Ordinance.
Section 102 of the Israeli Tax Ordinance allows employees, directors and officers who are not controlling shareholders (as defined for
those purposes under the Israeli Tax Ordinance) and are considered Israeli residents to receive favorable tax treatment for compensation
in the form of shares or options. Our non-employee service providers and controlling shareholders may only be granted options under another
section 3(i) of the Israeli Tax Ordinance, which does not provide for similar tax benefits. Section 102 includes two alternatives for
tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional
alternative for the issuance of options or shares directly to the grantee. The Board shall make an election with respect to either Section
102 Capital Gain Track or Section 102 Employment Income Track in accordance with the provisions of Section 102(g) of the Ordinance.
The Option Plan provides for the grant of options, ordinary
shares, restricted shares, restricted share units, stock appreciation rights, performance units, performance shares and other share or
cash awards as the administrator may determine.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
A. MAJOR
SHAREHOLDERS
The following table shows the beneficial ownership of ordinary
shares as of March 22, 2023 by:
|
• |
each person known by the Company to beneficially own more than 5% of the outstanding shares of ordinary
shares; |
|
• |
each of the Company’s named executive officers and directors; and |
|
• |
all of the Company’s named executive officers and directors as a group. |
Unless otherwise indicated, the Company believes that all persons
named in the table have sole voting and investment power with respect to all shares beneficially owned by them. Except as otherwise noted
herein, the number and percentage of ordinary shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act,
and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership
includes any ordinary shares as to which the holder has sole or shared voting power or investment power and also any ordinary shares which
the holder has the right to acquire within 60 days of March 22, 2023 through the exercise of any option, conversion or any other right.
As of March, 22, 2023, there were 13,867,017 ordinary shares outstanding.
Unless otherwise noted, the business address of each beneficial
owner is c/o G. Willi-Food International Ltd., 4 Nahal Harif Street, Northern Industrial Zone, Yavne 81106, Israel.
|
Name and Address |
|
Number of
Ordinary Shares Beneficially Owned |
|
|
Percentage of Ordinary Shares |
|
|
Willi-Food Investments Ltd. |
|
|
8,200,542 |
|
|
|
59.14 |
% |
|
B.S.D. Crown Ltd. (1) |
|
|
8,971,617 |
|
|
|
64.7 |
% |
|
Joseph and Zwi Williger (2) |
|
|
9,788,830 |
|
|
|
70.59 |
% |
|
Brian Gaines (3) |
|
|
806,604 |
|
|
|
5.82 |
% |
|
The Phoenix Holdings Ltd. (4) |
|
|
1,047,312 |
|
|
|
7.55 |
% |
|
(1) |
Includes (i) 8,200,542 Ordinary Shares held by Willi-Food, and (ii) 771,075 Ordinary
Shares held by B.S.D. Crown Ltd. (“BSD”). Willi-Food is controlled by its majority shareholder, BSD, and BSD may be deemed
to beneficially own all of the shares owned by Willi-Food. |
| |
|
|
(2) |
As of the date hereof, JW directly owns though a wholly-owned company 13,251 Ordinary
Shares and ZW directly owns though a wholly-owned company 803,962 Ordinary Shares. JW and ZW together own 100% of B.S.D shares and each
be deemed to beneficially own 9,788,830 Ordinary Shares (comprised of 8,200,542 Ordinary Shares held directly by WIL, 771,075 Ordinary
Shares held directly by B.S.D, 13,251 Ordinary Shares held directly by JW and 803,962 Ordinary Shares held directly by ZW), or approximately
70.59% of the outstanding Ordinary Shares. Thus, as of the date hereof, each of JW and ZW may be deemed to have the shared power to vote,
or direct the voting of, and the shared power to dispose of, or direct the disposition of, all such shares. |
| |
|
|
(3) |
Based on a Schedule 13G filed February 13, 2023, this amount consists of 638,054 Ordinary
Shares (representing approximately 4.6% of our total shares outstanding) directly held by Springhouse Capital (Master), L.P. (the “Fund”),
and 128,959 Ordinary Shares owned by Mr. Gaines for his own account and an additional 39,951 Ordinary Shares held by immediate family
members in accounts Mr. Gaines controls, and that Mr. Gaines may be deemed to beneficially own (in total representing approximately 1.2%
of our total shares outstanding). Mr. Gaines serves as managing member of Springhouse Capital Management G.P., LLC (“Springhouse”)
and as a director of Springhouse Asset Management, Ltd. (the “General Partner”) and, as a result, may be deemed to beneficially
own shares owned by the Fund. Springhouse is the general partner of Springhouse Capital Management, L.P. (“Management”) and,
as a result, may be deemed to beneficially own shares owned by the Fund. Management is the investment manager of the Fund and as a result,
may be deemed to beneficially own shares owned by the Fund. The General Partner is the general partner of the Fund, and, as a result,
may be deemed to beneficially own shares owned by the Fund. |
|
(4) |
Based on a Schedule 13G filed February 14, 2023, these shares are beneficially owned
by various direct or indirect, majority or wholly-owned subsidiaries of the Phoenix Holdings Ltd. (the “Subsidiaries”). The
Subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded notes or various insurance policies,
members of pension or provident funds, unit holders of mutual funds, and portfolio management clients. Each of the Subsidiaries operates
under independent management and makes its own independent voting and investment decisions. |
Holdings by U.S. Shareholders
As of December 31, 2022, one U.S. record holder held in the
aggregate 0.3% of our ordinary shares.
B. RELATED
PARTY TRANSACTIONS
Management Service Agreements.
See “Item 7. Major Shareholders and Related Party Transactions
– B. Related Party Transactions – Management Service Agreements”.
Services to Willi-Food
The Company provides certain services to Willi-Food on an on-going
basis, including office space and certain management, financial and administrative services, pursuant to a services agreement effective
May 19, 1997, as most recently amended on June 4, 2020 and as extended on March 14, 2023.
Pursuant to this agreement, Willi-Food is entitled to manage
its operations from the Company’s executive offices in Yavne, including use of an office space and facilities and certain management,
financial, accounting, legal, administrative and secretarial services.
Pursuant to this agreement, Willi-Food is to pay the Company
a monthly amount of NIS 10,000 for these services and for external services that are provided at the same time to the Company and to the
subsidiary by the same third party, such as legal services, auditing services, etc., but excluding unique and specific services that are
provided to the Company or to Willi-Food.
Under the Companies Law, an agreement with a controlling shareholder
must be approved every three years by the Audit Committee, Board of Directors and by a special majority of the General Meeting of Shareholders.
On March 14, 2023 following the approval of the Company's Audit Committee and Board of Directors, the General Meeting of Shareholders
of the Company approved the extension of the above service agreement, for a three-year period ending December 31 2025.
C. INTERESTS
OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
The financial statements required by this item are found at
the end of this report, beginning on page F-1.
Dividend Policy
Pursuant to a dividend distribution policy adopted in August
2021, the Company will distribute to its shareholders a dividend at a cumulative annual rate of at least 40% of the Company's annual net
profit according to its most recent audited or reviewed consolidated financial statements.
Any future determination relating to our dividend policy will
be at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, our financial condition,
operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our Board
of Directors may deem relevant.
Legal Proceedings
On February 24, 2016, a motion to certify a derivative action
(hereinafter - the “Motion”) was received at the parent Company’s offices. The Motion was filed with the District Court
(Economic Department) in Tel Aviv by Yaad Peer Management Services Ltd. (hereinafter - the “Applicant”), that holds shares
of the parent Company. The motion was filed against all directors and office holders in the Company. The parent Company and the Company
were added as respondents to the Motion. The Motion deals with the Applicant’s claim for damages suffered by the parent Company,
which is estimated by the Applicant, as of the filing of the Motion, at approximately $ 3 million, due to an alleged violation of
the directors’ and officers’ fiduciary duty, duty of care and duty of expertise towards the parent Company in connection with
a $3 million investment in a company registered in the Czech Republic and which holds an inactive hotel in the Czech Republic. According
to the Applicant, the investment is not related in any way to the activity of the Company and is probably used to assist the controlling
shareholder of the parent Company in other matters or to cover his other obligations.
On August 16 2018, the Company filed a notice whereby it intends
to lodge a lawsuit against the office holders in connection with the events which are the subject matter of the motion and therefore it
is no longer needed to discuss the motion to approve a derivative action. In view of Company's notice, the said motion was stricken out
and by a court ruling on October 4, 2018 and the case was closed.
On November 4, 2018 the Company filed a NIS 4,183,208 lawsuit
against the Company’s former controlling shareholder – Mr. Gregory Gurtovoy and against five (former) Company directors and
senior office holder - Israel Joseph Schneerson, Pavel Buber, Iram Ephraim Graiver. Ilan Menachem Admon and Zalman Vigler (hereafter jointly:
the “Defendants”). According to the Company, the Defendants conspired to cause the use of millions of NIS of the Company funds
as collaterals to loans extended to foreign private companies related to the Company’s controlling shareholders on dates which are
relevant to the lawsuit without obtaining the required approvals from the Company’s directors and without issuing the required report
to Company’s shareholders. The lawsuit is based on the claim that an agreement signed by the Company, whereunder it has allegedly
invested in the bonds of a Czech company, is not a genuine agreement; rather, it is claimed, the purpose of the agreement was to assist
the then controlling shareholders (Gregory Gurtovoy and others) to secure private loans extended by the Austrian bank Meinl, while using
the company's funds for their concealed and inappropriate purposes. The Company demands that the Defendants compensate it for the funds
that were not refunded to the Company (in NIS values) plus a compensation at the rate of the alternative yield and a compensation equal
to the amounts paid by the Company to enable the refund of the funds.
On January 24, 2019, the Defendants filed statements of defense,
various motions (to dismiss in limine and/or delay the proceedings) and a counterclaim against Willi-food and against the Company as part
of this proceeding. In their counterclaim the Defendants claims that they are entitled for funding of their legal defense and/or
for indemnification and exemption from the Company in respect of the lawsuit and request the Court to order the Company to fund their
legal defense against the Company’s lawsuit. Since the Defendants are accused of breaching their fiduciary duty to the Company,
Company’s management is of the opinion that their claims on this matter will be rejected.
On December 25, 2019, the Court issued a resolution which approves
an application to give a Court ruling status to a compromise agreement signed between G. Willi-Food and Mr. Ilan Admon; according to the
said compromise agreement, the mutual claims lodged on behalf of the parties in this filed were rejected without issuing an order for
court costs.
On April 10, 2022, was issued confirming the agreements between
G. Willi-food and Mr. Pavel Buber and according to which the mutual claims filed on behalf of the parties in the case were rejected. The
proceedings relating to the other defendants shall continue as planned.
On July 23, 2017, Mr. Iram Graiver, former CEO of the Company
and Willi-Food (hereinafter - “Mr. Graiver”) filed a lawsuit to the Regional Labor Court in Tel Aviv Jaffa (hereinafter -
“the Labor Court”) claiming payment of social rights and different compensations at the total amount of NIS 2,377,305.
On November 26, 2017, the Company filed a statement of defense. On July 27, 2017, the Company filed a lawsuit to the Labor Court against
Mr. Graiver, demanding that he repays funds that he has taken unlawfully from the Company, amounting to NIS 1,694,325. According
to the Company, throughout his term of employment as an office holder in the Company, the defendant has unlawfully taken from the Company
salary, bonus in respect of 2016 and reimbursement of expenses. According to the Company, Mr. Graiver has done so while breaching his
fiduciary duty and his duty of care towards the Company as well as the cogent provisions of the Companies Law, 5759-1999, whereby it is
mandatory that payments of the type taken from the Company by Mr. Graiver are approved by the General Meeting of the Company’s shareholders;
according to the Company, Mr. Graiver has not obtained such an approval. On November 2, 2017, a resolution was issued to join the hearings
pertaining to the two proceedings described above. On November 26 2017 statements of defense were filed by the Company and Mr. Graiver
and on March 7 2018 a preliminary hearing was held. The parties are in the process of document discovery and review. Proof hearing was
held on January 15 2020. Second Proof hearing was held on June 7 2020. Third Proof hearing (and last) held on October 31 2021. On March
17, 2022, summaries were submitted on behalf of Mr. Graver, on July 7, 2022, summaries were submitted on behalf of the Company.
On August 14, 2022, response summaries were submitted on behalf of Mr. Graver. A judgment was given on November 27, 2022 and it was ruled
that the Company must pay an immaterial amount to Mr. Graver. The Company
filed a request for a temporary stay order against the payment of the stipulated amount received on December 29, 2022. In light of the
above, the company's management estimates that the registration, in the financial statements and in the notes to the financial statements
regarding the procedure, is satisfactory.
A lawsuit and a motion to approve it as class action was filed
on May 7, 2020, against the Company and 2 other respondents to the central district court. The applicant claimed that the Company marketed
several products as products approved by the chief rabbinate of Israel before the actual rabbinate approval was obtained. Thus, the applicant
alleges a violation of various laws. On February 27, 2022 the position of Chief Rabbinate was submitted to the court. On November 13,
2022, a pre-trial hearing was held, at the end of which it was agreed that the parties would submit within 30 days an agreed request to
withdraw from the approval request. On December 4, 2022, a judgment was issued confirming the withdrawal arrangement signed between the
parties. Accordingly, the claim was dismissed and the request for approval has been removed.
A lawsuit and request for approval as a representative was submitted
to the Central District Court on June 24, 2020, against the Company, Euro Dairy Europe Ltd. and another respondent. According to the applicant,
the Company marketed a number of products with misleading labeling and contrary to the provisions of the law and the relevant standards.
A hearing to hear the request was scheduled for June 14, 2023. At this stage, the Company and its legal advisors cannot assess the chances
of the lawsuit.
A lawsuit and a motion to approve it as class action was filed on September 8, 2020,
against Euro European Dairies to the Haifa district court. The applicant claimed that Euro European Dairies violated its obligations to
import and market Gaude cheese in the quantities and prices it undertook as part of duty-free tenders. The applicant claims that he and
the members of the group suffered damages in the amount of NIS 57 million. On March 15, 2022, the court granted the request for discovery
of documents submitted on behalf of the applicant. The company submitted a request to delay the proceedings and postpone the date of the
hearing. A mediation meeting was held on February 26, 2023. At this early stage, the company and/or its legal advisors are unable to assess
the chances of the lawsuit.
A lawsuit and a motion to approve it as class action was filed
on August 2, 2021, against G. Willi-Food and another 5 respondents to the District Court. The applicant claimed that the Company marketed
several products with misleading captions and contrary to the provisions of the law and the relevant regulations. The applicant claims
that he and the members of the group suffered financial damages in amount of NIS 100 million and Non-financial damages in amount of NIS
378 million. A pre-trial hearing is scheduled for May 14, 2023. At this early stage, the Company and/or its legal advisors are unable
to assess the chances of the lawsuit, however experience shows that most lawsuits of this type do not proceed to the end and usually end
in settlement agreements.
A lawsuit and a motion to approve it as class action was filed
on November 8, 2021, against the Company to the District Court. The applicant claimed that the Company marketed several products with
misleading captions and contrary to the provisions of the law and the relevant regulations. The applicant claims that he and the members
of the group suffered damages in amount of NIS 57 million. A response was submitted on February 9, 2022. On November 14, 2022, a pre-trial
hearing was held, at the end of which it was decided that the parties must reach agreements by December 15, 2022. On January 24, 2023,
an agreed notification was submitted according to which the parties were unable to reach an agreement. At this preliminary stage, it is
difficult to assess the chances of the application and prosecution.
On May 25, 2022, a request for a lawsuit and a request for approval
as a representative was submitted to the Central District Court against the Company. According to the applicant, the Company marketed
a product with a misleading label and contrary to the provisions of the law and the relevant standards. The applicant claims that he and
the other members of the group suffered monetary and non-monetary damage in the amount of NIS 2.5 million. A request for outright dismissal
was submitted. A hearing for the request was scheduled for March 12, 2023. The court recommended to the parties an outline of a compensated
withdrawal. On March 19, 2023, the parties announced their agreement to withdraw.
On February 20, 2023, the Euro European Dairies (the Company)
received, from the Ashdod Customs House, a notice of a charge for a deficit of NIS 1.75 million, which includes interest and fine. In
the letter of demand, it is claimed that the Company imported soft cheeses in a salt water solution and paid duty only for the weight
of the cheese without the weight of the salt water solution. According to the customs house, customs must also be paid for the salt water
solution. The Company intends to file an appeal to the customs house about the deficit and if necessary, will resort to legal proceedings
at a higher court. According to the advice of its legal advisors at this stage the chances of success of the appeal are about 50% and
accordingly the Company has registered a provision in its books.
B. SIGNIFICANT
CHANGES
We are not aware of any significant changes bearing upon our
financial condition since the date of the audited consolidated financial statements included in this Annual Report.
ITEM 9.
THE OFFER AND LISTING
A. OFFER
AND LISTING DETAILS
Our ordinary shares have been traded on the Nasdaq Capital Market
since May 19, 1997 and currently have the ticker “WILC”. Our ordinary shares have been traded on the Tel Aviv Stock Exchange
since June 15, 2020 under the ticker symbol “WILF”.
B. PLAN
OF DISTRIBUTION
Not applicable.
C. MARKETS
In May 1997, our ordinary shares began trading on the Nasdaq
Capital Market under the symbol "WILCF". On March 25, 2005, the Company's Nasdaq ticker symbol was changed to "WILC". Our ordinary shares
have been traded on the Tel Aviv Stock Exchange since June 15, 2020 under the ticker symbol “WILC”.
D. SELLING
SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES
ON THE ISSUE
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
A. SHARE
CAPITAL
Not applicable.
B. MEMORANDUM
AND ARTICLES OF ASSOCIATION
Purposes and Objects of the Company
We are an Israeli public company registered under the Israeli
Companies Law as G. Willi-Food International Ltd.; registration number 52-004320-9.
On March 20, 2014, shareholders approved an amendment to Article
6 of our articles of association changing the objectives of the Company from engaging in importing, exporting and marketing of products
and other commodities to engaging in any lawful activity. Our Board of Directors is empowered to embark on or withdraw from any business
in which we deal. Under our articles of association, our Board of Directors is entitled to donate reasonable amounts to worthy causes,
even if such donation is not within the framework of our business considerations.
The Powers of Directors
The powers of a Director to vote on a proposal, arrangement
or contract in which such Director is materially interested is limited by the relevant provisions of the Israeli Companies Law. In addition,
the power of the Directors to vote compensation to themselves or any members of their body requires the approval of the Compensation Committee,
the Board of Directors and, unless approved in accordance with the Relief Regulations, the shareholders at a general meeting. Compensation
and indemnification of expenses of External Directors must be in accordance with the applicable provisions of the Israeli Companies Law.
The Israeli Companies Law and our Articles of Association require
that a director or Office Holder promptly disclose, either at a board meeting or by way of a general notice, any personal interest that
he or she may have and all related material information know to him or her in connection with any existing or proposed transaction by
the Company. In addition, if the transaction is an extraordinary transaction (as defined in the Israeli Companies Law), the member of
the Board of Directors or Office Holder, must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents,
descendants, spouse’s descendants and the spouses of any of the foregoing.
Once the Director or Office Holder complies with the above disclosure
requirements, the Company may approve the transaction in accordance with the provisions of the Articles of Association. If the transaction
is with a third party in which the member of the Board of Directors or Office Holder has a potential interest, the approval must confirm
that the transaction is not averse to the Company’s interest. Furthermore, if the transaction is an extraordinary transaction, then,
in addition to any approval stipulated by the Articles of Association, it also must be approved by the Audit Committee and then by the
Board of Directors, and, under certain circumstances, by a meeting of the shareholders of the Company. See “Item 6. Directors, Senior
Management and Employees - C. Board Practices – Approval of Related Party Transactions under the Israeli Companies Law”.
Directors with respect to whom the foregoing matters are brought
for Board of Directors or Audit Committee approval are not entitled to be present during discussions of, nor to participate in the vote
for approval of, such matters at Board and/or Audit Committee meetings, unless a majority of Audit Committee or Board members, as the
case may be, have a personal interest in such matter or the matter involves non-extraordinary transactions between the Company and either
a Director or a third party in which a Director has a personal interest. The Israeli Companies Law further provides that in the event
that a majority of board members have a personal interest in such a matter, shareholder approval is also required.
The Articles of Association provide that the Board of Directors,
subject to the Israeli Companies Law, may, at its discretion from time to time in accordance with the needs of the Company, make decisions
to borrow and/or obtain credit facilities in any amount and to secure the repayment thereof either by mortgage, charge or other security
on the Company’s undertakings or on its property, in whole or in part (both existing and future) including the share capital of
the company which is, at the time, uncalled.
Subject to applicable provisions of the Israeli Companies Law
regarding matters that the Board of Directors may not delegate to a committee or matters for which a committee may only make recommendation
to the Board of Directors, the Board of Directors may delegate its powers to committees consisting of at least three (3) Directors, including
at least one External Director. A resolution passed or an action taken by a directors’ committee has the same validity as a resolution
passed or an action taken by the Board of Directors, unless otherwise specifically expressed in the resolution of the Board of Directors
that established said committee.
Rights Attached to Shares
The Company is authorized to issue 49,893,520 Ordinary Shares,
par value NIS 0.10 and 106,480 Preferred Shares, par value NIS 0.10, each ranking pari passu. The Company may alter the share capital
of the Company in accordance with the provisions of the Israeli Companies Law and the Articles of Association. The rights attached to
the Company’s Shares are as follows:
Dividend Rights
Holders of Ordinary Shares are entitled to participate pari
passu with all other shareholders of the Company’s Ordinary Shares in any distribution of a dividend, whether in cash, assets, or
in any other legal form, declared, as well as the right to participate pari passu with all other holders of our Ordinary Shares in the
distribution of bonus shares resolved by the Company. The Articles of Association note that a shareholder shall not be entitled to receive
a dividend or bonus shares as above, and shall not be entitled to exercise any right as a shareholder unless he has paid in full all notices
of call delivered to him, together with linkage differences, interest and expenses owed, as applicable, on calls which have not been paid
by him on time.
Voting Rights
Holders of Ordinary Shares of the Company have the right to
receive notices of general meetings of the Company, to be present, and to participate and vote therein. Each holder of Ordinary Shares
in the Company has the right to one vote per share in the general meetings of the Company on all matters submitted to a vote of shareholders.
A shareholder may vote in person, via proxy, or by means of a written form (“Voting Instrument”) described in the Articles
of Association. Any resolution of the Company in a general meeting shall be deemed duly passed if passed by a simple majority of registered
shareholders present and voting, unless a different majority is required by the Israeli Companies Law or the Articles of Association.
Under the Articles of Association, the Directors (who are not
External Directors) are elected annually by the shareholders at the annual meeting. Such directors hold office until the conclusion of
the next annual meeting or until their earlier removal or resignation. In addition, at least two (2) External Directors who comply with
the qualifications described in the Israeli Companies Law must serve on the Board of Directors. External Directors are appointed by a
majority vote at a general meeting, provided that: (i) the majority vote includes at least a majority of the shares of non-controlling
shareholders who do not have a personal interest in the appointment (excluding a personal interest not resulting from the shareholder's
relation with the controlling shareholder), as described in the Israeli Companies Law, voted at the meeting, with abstentions not taken
into consideration in calculating the total number of the non-controlling shareholders, and (ii) the total number of shares of such non-controlling
shareholders referred to in clause (1) voting against the resolution appointing an External Director is not more than two percent (2%)
of the overall voting rights in the Company. External Directors are appointed for a term of three (3) years and their office may be extended
by a resolution of the general meeting passed by special majority as mentioned above, for an additional two-three (3) years. An External
Director may be removed from office only in accordance with the relevant provisions of the Israeli Companies Law.
If no Directors are elected at an annual meeting, then the persons
who served as Directors immediately prior to the annual meeting will continue to serve as directors unless otherwise determined by the
annual meeting or by the Board of Directors. A Director who has ceased to serve in office is eligible for reelection. The Board of Directors
has the power to appoint additional Directors to fill a vacancy, so long as the number of directors will not exceed a number of Directors
approved at a general meeting. Any Director so appointed will hold office until the conclusion of the next annual meeting unless he is
removed or resigns earlier.
Rights in the Company’s Profits
The shareholders of the Company have the right to share in the
Company’s profits distributed as a dividend and any other permitted distribution. See “– Dividend Rights” above.
Rights in the Event of Liquidation
Holders of Ordinary Shares are entitled to receive any return
of capital, pari passu, with all other ordinary shareholders, upon the dissolution of the Company. Holders of Ordinary Shares are also
entitled to participate, pari passu, with all other Ordinary Shareholders in the distribution of the surplus of the Company’s assets
available for distribution in the event of dissolution of the Company which remain after the Company has paid the holders of Ordinary
Shares all amounts payable as return of capital.
Liability to Further Capital Calls by the Company
If the terms of allotment of any shares of the Company do not
specify a particular date for the payment of all of the consideration which is to be paid therefore, or any part thereof, our board of
directors may, from time to time, as it deems fit, make calls on the shareholders in respect of the amounts not yet paid for their shares,
whether on account of the par value of the shares or on the account of the premium, and each shareholder shall be obligated to pay the
Company the amount so demanded from him not later than the date of payment set forth in the notice containing the call. Shareholders shall
be given prior notice of at least fourteen (14) days in respect of any call. In the event that amounts set forth in the call have not
been paid in whole or in part as of the date of payment set forth in the call, the shareholders shall be obligated to pay linkage differences
or interest (or both) on the outstanding amounts, as determined by the Board of Directors.
Changing Rights Attached to Shares
Under the Articles of Association, the Company may, by resolution
of a general meeting, vary the rights attached to any class of shares on the Company’s stamp or its printed name (unless otherwise
determined in the terms of issue of the shares of such class), after obtaining the written consent of the holders of the majority of the
issued shares of said class or with the approval of a resolution duly passed at a class meeting of the holders of such class of shares.
Annual and Special Meetings
The Board of Directors must convene an annual meeting at least
once every calendar year, within fifteen months of the preceding general meeting, at a place prescribed by the board so long as it is
in the State of Israel. Per the Articles of Association and subject to the provisions of the Israeli Companies Law, notices to shareholders
regarding the convocation of a general meeting are to be published in two daily Hebrew language newspapers circulated in Israel. Notice
need not be served to our shareholders on an individual basis.
The Board of Directors will convene a special meeting upon receipt
of a written request from either (i) two directors or 25% of the total number of directors; (ii) one or more shareholders holding at least
5% of the issued share capital and at least 1% of the shareholders’ voting power; or (iii) one or more shareholders holding no less
than 5% of the Company’s issued voting shares. If the Board is required to convene a special meeting, it shall convene it at a time
which is at least 21 days, but not longer than 35 days after the date of the notice of convening such meeting. In the event that the board
of directors does not convene a special meeting within the timeframe set forth above, those that submitted the request for such meeting,
or part of them representing more than one-half of the voting rights of all of them, may convene the special meeting themselves, provided
that such meeting is held within three months of the time when the special meeting was requested.
Limitations on the Rights to Own Securities
The Articles of Association do not place limitations on the
rights to own securities. Under the Articles no limitations apply to the transfer of shares in the Company and the number of shareholders
is unlimited.
Changes in the Company’s Capital
Changes in the capital of the Company are subject to the approval
by ordinary majority of the shareholders at a general meeting, Shareholders may resolve to increase the authorized share capital; consolidate
our share capital and divide it into shares of greater value than existing shares; divide existing shares into shares of lesser value;
cancel any authorized share capital which has not yet been allotted (provided there is no undertaking to allot such share capital); or
reduce the capital by way of a distribution if such distribution has been approved by a court, in accordance with the relevant provisions
of the Israeli Companies Law. If the shareholders resolve to increase the share capital, the new shares will be subject to the same provisions
applicable to the shares of the original capital.
Neither the Memorandum of Association nor Articles of Association
of the Company nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by non-residents of
Israel, except with respect to citizens of countries which are in a state of war with Israel.
C. MATERIAL
CONTRACTS
For information with respect to the Company’s material
contracts, see “Item 6. Directors, senior management and employees – B. Compensation.
D. EXCHANGE
CONTROLS
There are currently no Israeli currency control restrictions
on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of our ordinary shares,
except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation
remains in effect, pursuant to which currency controls can be imposed by administrative action at any time and from time to time.
E. TAXATION
The following is a discussion of certain material Israeli tax
consequences to purchasers of our ordinary shares. The discussion also contains a description of certain relevant material provisions
of the current Israeli income tax system applicable to companies in Israel, with special reference to its effect on us. To the extent
that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot
assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.
This discussion applies to shareholders that hold our ordinary
shares as capital assets and does not address all of the tax consequences that may be relevant to holders of our ordinary shares in light
of their particular circumstances or certain types of holders of our ordinary shares subject to special tax treatment. Because individual
circumstances may differ, shareholders should consult their tax advisor to determine the applicability of the rules discussed below to
them, including the application of Israeli or other tax laws. The discussion below is not intended, and should not be construed, as legal
or professional tax advice and is not exhaustive of all possible tax considerations.
Potential investors are urged to consult their own tax advisors
as to the Israeli or other tax consequences of the purchase, ownership and disposition of the Shares including, in particular, the effect
of any foreign, state or local taxes.
Taxation of Israeli Companies
General Corporate Tax Structure
Israeli companies are generally subject to corporate tax on
their taxable income at the rate of 23 % for the 2022 tax year.
Capital Gains Tax on Sales of Our Ordinary
Shares
Israeli law generally imposes a capital gains tax on the sale
of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including
shares in Israeli resident companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between
Israel and the shareholder’s country of residence provides otherwise. In calculating capital gain, the law distinguishes between
real gain and inflationary surplus. The inflationary surplus is the portion of the total capital gain equal to the increase in the
relevant asset’s value that is attributable to the increase in the Israeli CPI between the date of purchase and the date of sale. The
real gain is the excess of the total capital gain over the inflationary surplus. A non-resident that invests in taxable assets with foreign
currency, or any individual who holds securities the price of which is stated in foreign currency, may elect to calculate the amount of
inflationary surplus in that foreign currency.
Taxation of Israeli Residents
An individual is subject to a tax at a rate of 25% on real capital
gains derived from the sale of shares, as long as the individual is not a “substantial shareholder” (generally a shareholder
with 10% or more of the right to profits, right to nominate a director or voting rights) in the company issuing the shares.
An individual who is a substantial shareholder is subject to
tax at a rate of 30% in respect of real capital gains derived from the sale of shares issued by the Company in which he or she is a substantial
shareholder. The determination of whether the individual is a substantial shareholder will be made on the date that the securities are
sold. In addition, the individual will be deemed to be a substantial shareholder if at any time during the 12 months preceding this date,
he or she had been a substantial shareholder.
An additional income tax at a rate of 3% will be imposed on high
earners individuals whose annual income or capital gain in 2022 exceeds NIS 698,280 (USD 198,295).
Israeli companies are generally subject to the corporate tax
rate (see above) on capital gains derived from the sale of shares listed on a stock market.
Different taxation rules may apply to shareholders who purchased
the Shares prior to January 1, 2009 or prior to the listing on the Tel Aviv Stock Exchange or the Nasdaq Global Market. Such Shareholders
should consult with their own tax advisors for the tax consequences upon sale.
In general, a partnership will be a transparent entity for tax
purposes and the investors will be subject to tax with respect to their share in accordance with the tax rate applies individually.
In general, under the Israel Tax Ordinance, public institutions
are exempt from tax.
Taxation of Non-Israeli Residents
Non-Israeli residents are exempt from Israeli capital gains
tax on any gains derived from the sale of shares in an Israeli corporation publicly traded on the Tel Aviv Stock Exchange and/or on a
foreign stock exchange, provided such gains do not derive from a permanent establishment of such shareholders in Israel and that such
shareholders did not acquire their shares prior to the issuer’s initial public offering. However, non-Israeli corporations will
not be entitled to such exemption if Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation,
or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly
or indirectly. Such exemption would not be available to non-Israeli residents dealing in securities in Israel which would be subject to
Israeli tax at the rates applicable to business income (at the corporate tax rate for a corporation (23% in 2019 and 23% in 2020) and
the marginal tax rate, of up to 50% for an individual in 2019 and in 2020.
Additionally, a sale of securities by a non-Israeli resident
may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the Convention Between
the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended,
or the United States-Israel Tax Treaty, the sale, exchange or other disposition of shares by a shareholder who (i) is a U.S. resident
(for purposes of the treaty); (ii) holds the shares as a capital asset; and (iii) is entitled to claim the benefits afforded to such person
by the treaty, is generally exempt from Israeli capital gains tax. Such exemption will not apply if, among other things: (i) the capital
gain arising from such sale, exchange or other disposition is treated as industrial or commercial profits attributed to a permanent establishment
in Israel, subject to certain conditions; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting
capital of the corporation during any part of the 12-month period preceding the disposition, subject to certain conditions; (iii) the
capital gain arising from such sale, exchange or disposition is treated as royalties; or (iv) such U.S. resident is an individual and
was present in Israel for 183 days or more during the relevant taxable year. In such case, the sale, exchange or disposition of our securities
would be subject to Israeli tax, to the extent applicable; however, under the United States-Israel Tax Treaty, the taxpayer would be permitted
to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject
to the limitations under U.S. law applicable to foreign tax credits. The United States-Israel Tax Treaty does not relate to U.S. state
or local taxes.
In some instances where our shareholders may be liable to Israeli
tax on the sale of their ordinary shares, the payment of the consideration may be subject to Israeli withholding tax.
Taxation of Dividends Paid on Our Ordinary
Shares
Taxation of Israeli Residents
The following Israeli tax consequences shall apply in the event
of actual payment of any dividends on the Shares.
As of January 1, 2012, dividends, other than bonus shares (stock
dividends), paid to Israeli resident individuals who purchased our Shares will generally be subject to income tax at a rate of 25% for
individuals, or 30% if the dividend recipient is a Significant Shareholder (as defined above) at any time during the 12-month period preceding
such distribution. Dividends paid to Israeli resident companies will not be included in their tax liability computation.
Taxation of Non-Israeli Residents
Non-residents of Israel are generally subject to Israeli income
tax on the receipt of dividends paid on our ordinary shares at the rate of 25% unless the recipient is a significant shareholder at any
time during the 12-month period preceding the distribution in which case the applicable tax rate will be 30%. The Company distributing
the dividend is required to withhold tax at the source at the rate of 25%.
A non-resident of Israel who has dividend income derived from
or accrued in Israel, from which tax was withheld at source, is generally exempt from the duty to file tax returns in Israel in respect
of such income, provided such income was not derived from a business conducted in Israel by such non-Israeli resident.
Taxation of Residents of the United States under the US Treaty
Residents of the United States generally will be subject to
withholding tax in Israel on dividends paid, if any, on Shares. Generally, under the Convention Between the Government of the United States
of America and the Government of the State of Israel with Respect to Taxes on Income (the “US Treaty”), the maximum rate of
withholding tax on dividends paid to a holder of Shares who is a resident of the United States (as defined in the US Treaty) will be 25%.
Under the US Treaty, the withholding tax rate on dividends will be reduced to 12.5% if (i) the shareholder is a U.S. resident corporation
which holds during the portion of the taxable year which precedes the date of payment of the dividend, and during the whole of its prior
taxable year, at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and (ii) not more
than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year consists of certain types of interest
or dividends.
The US Treaty exempts from taxation in Israel any capital gains
realized on the sale, exchange or other disposition of Shares provided that the following cumulative conditions are met: (a) the seller
is a resident of the United States for purposes of the US Treaty; (b) the seller owns, directly or indirectly, less than 10% of our voting
stock at all times during the 12-month period preceding such sale, exchange or other disposition; (c) the seller, being an individual,
is present in Israel for a period or periods of less than 183 days during the taxable year; and (d) the capital gain from the sale was
not generated through a permanent establishment of the seller in Israel.
Subject to the exemptions from capital gains prescribed in the
Israeli Income Tax Ordinance (as described above), purchasers of Shares who are residents of the United States and who hold 10% or more
of the outstanding ordinary shares at any time during such 12-month period will be subject to Israeli capital gains tax. However, under
the US Treaty, residents of the United States (as defined in the US Treaty) generally would be permitted to claim a credit for this tax
against US federal income tax imposed on the sale, exchange or other disposition, subject to the limitations in US laws applicable to
the utilization of foreign tax credits generally.
The application of the US Treaty provisions to dividends and
capital gains described above is conditioned upon the fact that such income is not effectively connected with a permanent establishment
(as defined in the US Treaty) maintained by the non-Israeli resident in Israel.
United States federal income taxation
The following is a description of the material United States
federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares. This description addresses only
the United States federal income tax consequences to holders of our ordinary shares and that will hold such ordinary shares as capital
assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including:
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financial institutions or insurance companies; |
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real estate investment trusts, regulated investment companies or grantor trusts;
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dealers or traders in securities or currencies; |
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certain former citizens or long-term residents of the United States; |
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persons that received our shares as compensation for the performance of services;
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persons that will hold our shares as part of a “hedging” or “conversion”
transaction or as a position in a “straddle” for United States federal income tax purposes; |
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holders that will hold our shares through a partnership or other pass-through entity;
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U.S. Holders (as defined below) whose “functional currency” is not the
U.S. Dollar; or |
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holders that own directly, indirectly or through attribution 10.0% or more, of the
voting power or value, of our shares. |
Moreover, this description does not address the United States
federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of our ordinary shares.
This description is based on the United States Internal Revenue
Code, 1986, as amended (the “Code”) existing, proposed and temporary United States Treasury Regulations and judicial and administrative
interpretations thereof, in each case as in effect and available on the date hereof. All of the foregoing is subject to change, which
change could apply retroactively and could affect the tax consequences described below.
For purposes of this description, a “U.S. Holder”
is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is:
|
• |
a citizen or resident of the United States; |
|
• |
a corporation (or other entity treated as a corporation for United States federal
income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia;
|
|
• |
an estate the income of which is subject to United States federal income taxation
regardless of its source; or |
|
• |
a trust if such trust has validly elected to be treated as a United States person
for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over
its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust.
|
A “Non-U.S. Holder” is a beneficial owner of our
ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership for United States federal income
tax purposes).
If a partnership (or any other entity treated as a partnership
for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership will generally
depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor
as to its tax consequences of acquiring, owing and disposing of our ordinary shares.
Distributions
Subject to the discussion below under “Passive foreign
investment company considerations,” if you are a U.S. Holder, the gross amount of any distribution made to you with respect to your
ordinary shares, before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, of our ordinary
shares distributed pro rata to all our shareholders, will be includible in your income as dividend income to the extent such distribution
is paid out of our current or accumulated earnings and profits as determined under United States federal income tax principles. Subject
to the discussion below under “Passive foreign investment company considerations,” non-corporate U.S. Holders may qualify
for the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term capital gains (i.e., gains from the
sale of capital assets held for more than one year), provided that certain conditions are met, including certain holding period requirements
and the absence of certain risk reduction transactions. Moreover, such lower rate of taxation shall not apply if we are a PFIC for the
taxable year in which we pay a dividend, or if we were a PFIC for the preceding taxable year. However, such dividends will not be eligible
for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to the discussion below under “Passive
foreign investment company considerations,” to the extent, if any, that the amount of any distribution by us exceeds our current
and accumulated earnings and profits as determined under United States federal income tax principles, it will be treated first as a tax-free
return of your adjusted tax basis in your ordinary shares and thereafter as capital gain. We do not expect to maintain calculations of
our earnings and profits under United States federal income tax principles and, therefore, if you are a U.S. Holder, you should expect
that the entire amount of any distribution generally will be reported as dividend income to you.
If you are a U.S. Holder, Israeli tax withheld on dividends
paid to you with respect to your ordinary shares may be deducted from your taxable income or credited against your U.S. federal income
tax liability. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor
to determine whether and to what extent you will be entitled to this credit. Subject to certain exceptions, dividends paid to you with
respect to your ordinary shares will be treated as foreign source income, which may be relevant in calculating your foreign tax credit
limitation. However, for periods in which we are a “United States-owned foreign corporation”, a portion of dividends paid
by us may be treated as U.S. source solely for purposes of the foreign tax credit. We would be treated as a United States-owned foreign
corporation if more than 50% of the total value or total voting power of our stock is owned, directly, indirectly or by attribution, by
United States persons. To the extent any portion of our dividends is treated as U.S. source income pursuant to this rule, the ability
of a U.S. Holder to claim a foreign tax credit for any Israeli withholding taxes payable in respect of our dividends may be limited. A
U.S. Holder entitled to benefits under the United States-Israel Tax Treaty may, however, elect to treat any dividends as foreign source
income for foreign tax credit purposes if the dividend income is separated from other income items for purposes of calculating the U.S.
Holder’s foreign tax credit. U.S. Holders should consult their own tax advisors about the impact of, and any exception available
to, the special sourcing rule described in this paragraph, and the desirability of making, and the method of making, such an election.
The limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive
category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign
taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements.
Subject to the discussion below under “Backup withholding
tax and information reporting requirements,” if you are a Non-U.S. Holder, you generally will not be subject to United States federal
income (or withholding) tax on dividends received by you on your ordinary shares, unless you conduct a trade or business in the United
States and such income is effectively connected with that trade or business (or, if required by an applicable income tax treaty, the dividends
are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
Sale,
exchange or other disposition of ordinary shares
Subject to the discussion below under “Passive foreign
investment company considerations,” if you are a U.S. Holder, you generally will recognize gain or loss on the sale, exchange or
other disposition of your ordinary shares equal to the difference between the amount realized on such sale, exchange or other disposition
and your adjusted tax basis in your ordinary shares. Such gain or loss will be capital gain or loss. If Israeli tax is imposed on the
sale, exchange or other disposition of our ordinary shares, a U.S. Holder's amount realized will include the gross amount of the proceeds
of the deposits before deduction of the Israeli tax. The adjusted tax basis in an ordinary share generally will be equal to the cost of
such ordinary share. Except as discussed below with respect to foreign currency gain or loss, if you are a non-corporate U.S. Holder,
capital gain from the sale, exchange or other disposition of ordinary shares is generally eligible for the preferential rate of taxation
applicable to long-term capital gains if your holding period for such ordinary shares exceeds one year (i.e., such gain is long-term capital
gain). The deductibility of capital losses for United States federal income tax purposes is subject to limitations.
Any such gain or loss that a U.S. Holder recognizes generally
will be treated as U.S. source income or loss for foreign tax credit limitation purposes. Because gain for the sale or other disposition
of our ordinary shares will be so treated as U.S. source income; and you may use foreign tax credits to offset only the portion of U.S.
federal income tax liability that is attributed to foreign source income; you may be unable to claim a foreign tax credit with respect
to the Israeli tax, if any, on gains. You should consult your tax advisor as to whether the Israeli tax on gains may be creditable against
your U.S. federal income tax on foreign-source income from other sources.
Subject to the discussion below under “Backup withholding
tax and information reporting requirements,” if you are a non-U.S. Holder, you generally will not be subject to United States federal
income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
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• |
such gain is effectively connected with your conduct of a trade or business in the
United States; or |
|
• |
you are an individual and have been present in the United States for 183 days or more
in the taxable year of such sale or exchange and certain other conditions are met. |
Passive foreign investment company considerations
A non-United States corporation will be classified as a “passive
foreign investment company,” or a PFIC, for United States federal income tax purposes in any taxable year in which, after applying
certain look-through rules, either
|
• |
at least 75% of its gross income is “passive income”; or |
|
• |
at least 50% of the average value of its gross assets (which may be determined, in part, by the market
value of our ordinary shares, which is subject to change) is attributable to assets that produce “passive income” or are held
for the production of passive income. |
Passive income for this purpose generally includes dividends,
interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of
assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of
our ordinary shares. If a non-United States corporation owns at least 25% by value of the stock of another corporation, the non-United
States corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation
and as receiving directly its proportionate share of the other corporation’s income.
We believe that we were not classified as a PFIC for the taxable
year ended on December 31, 2022. Because PFIC status is based on our income, assets and activities for the entire taxable year, it is
not possible to determine whether we will be characterized as a PFIC for the 2023taxable year until after the close of the year. Moreover,
we must determine our PFIC status annually based on tests which are factual in nature, and our status in future years will depend on our
income, assets and activities in those years. In addition, because the market price of our ordinary shares is likely to fluctuate and
because that market price may affect the determination of whether we will be considered a PFIC, there can be no assurance that we will
not be considered a PFIC for any taxable year.
If we were a PFIC, and you are a U.S. Holder, then unless you
make one of the elections described below, a special tax regime will apply to both (a) any “excess distribution” by us to
you (generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distributions received
by you in the shorter of the three preceding years or your holding period for our ordinary shares) and (b) any gain realized on the sale
or other disposition of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary
income and will be subject to tax as if (i) the excess distribution or gain had been realized ratably over your holding period, (ii) the
amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such
year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at
the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest change discussed below),
and (iii) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in
those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long-term
capital gains discussed above under “— Distributions.”
Certain elections are available to U.S. Holders of shares that
may serve to alleviate some of the adverse tax consequences of PFIC status described above. If we agreed to provide the necessary information,
you could avoid the interest charge imposed by the PFIC rules by making a qualified electing fund (a “QEF”) election, in which
case you generally would be required to include in income on a current basis your pro rata share of our ordinary earnings as ordinary
income and your pro rata share of our net capital gains as long-term capital gain. We do not expect to provide to U.S. Holders the information
needed to report income and gain pursuant to a QEF election, and we make no undertaking to provide such information in the event that
we are a PFIC.
Under an alternative tax regime, you may also avoid certain
adverse tax consequences relating to PFIC status discussed above by making a mark-to-market election with respect to your ordinary shares
annually, provided that the shares are “regularly traded” on a “qualified exchange.” Shares will be marketable
if they are regularly traded on certain United States stock exchanges (including Nasdaq) or on certain non-United States stock exchanges.
For these purposes, the shares will generally be considered regularly traded during any calendar year during which they are traded, other
than in negligible quantities, on at least 15 days during each calendar quarter. U.S. Holders should be aware, however, that if we are
determined to be a PFIC, the interest charge regime described above could be applied to indirect distributions or gains deemed to be attributable
to U.S. Holders in respect of any of our subsidiaries that also may be determined to be a PFIC, and the mark-to-market election generally
would not be effective for such subsidiaries.
If you choose to make a mark-to-market election, you would recognize
as ordinary income or loss each year in which we are a PFIC an amount equal to the difference as of the close of the taxable year between
the fair market value of your ordinary shares and your adjusted tax basis in your ordinary shares. Losses would be allowed only to the
extent of net mark-to-market gain previously included by you under the election for prior taxable years. If the mark-to-market election
were made, then the PFIC rules described above relating to excess distributions and realized gains would not apply for periods covered
by the election. If you do not make a mark-to-market election for the first taxable year in which we are a PFIC during your holding period
of our ordinary shares, you would be subject to interest charges with respect to the inclusion of ordinary income attributable to each
taxable year in which we were a PFIC during your holding period before the effective date of such election.
If we were a PFIC, a holder of ordinary shares that is a U.S.
Holder must file United States Internal Revenue Service Form 8621 with respect to the company for each tax year in which the U.S. Holder
owns the ordinary shares, generally with such U.S. Holder’s federal income tax return for that year. If we were a PFIC for a given
taxable year, then you should consult your tax adviser concerning your annual filing requirements.
Backup withholding tax and information reporting requirements
United States backup withholding tax and information reporting
requirements generally apply to certain payments to certain non-corporate holders of stock. Information reporting generally will apply
to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the United States, or by
a United States payor or United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a corporation,
a payee that is not a United States person that provides an appropriate certification and certain other persons). A payor will be required
to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares
within the United States, or by a United States payor or United States middleman, to a holder, other than an exempt recipient, if such
holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from,
such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit
against the beneficial owner’s United States federal income tax liability, if any, provided that the required information is timely
furnished to the IRS.
Certain U.S. Holders who are individuals (or certain specified
entities) are required to report information relating to an interest in our common shares by attaching a complete United States Internal
Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, to their tax return for each year in which they hold our common
shares, subject to certain exceptions (including an exception for our common shares held in accounts maintained by financial institutions
in which case the account may be reportable if maintained by a foreign financial institution). U.S. Holders are urged to consult their
tax advisers regarding the effect, if any, of this legislation on their ownership and disposition of our common shares.
3.8% Medicare Tax On “Net Investment Income”
Certain U.S. Holders who are individuals, estates or trusts
are subject to the requirement to pay a 3.8% tax on, among other things, dividends and capital gains from the sale or other disposition
of shares of common stock.
The following description is not intended to constitute a complete
analysis of all tax consequences relating to our prior units and our ordinary shares. You should consult your own tax advisor concerning
the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local,
foreign or other taxing jurisdiction.
F. DIVIDENDS
AND PAYING AGENTS
Not applicable.
G. STATEMENTS
BY EXPERTS
Not applicable.
H. DOCUMENTS
ON DISPLAY
We are subject to the information reporting requirements of
the Exchange Act, applicable to foreign private issuers, and under those requirements, we file reports with the SEC. Our filings with
the SEC are available to the public through the SEC’s website at http://www.sec.gov and
as of June 2021 also at the TASE's website at http://maya.tase.co.il and
at the Israeli Securities Authority's website at http://www.magna.isa.gov.il.
As a foreign private issuer, we are exempt from the rules under
the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are
not required under the Exchange Act, to file annual, quarterly and current reports and financial statements with the SEC as frequently
or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we are required to comply with the informational
requirements of the Exchange Act, and, accordingly, file current reports on Form 6-K, annual reports on Form 20-F and other information
with the SEC.
I. SUBSIDIARY
INFORMATION
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange rate risk: The
Company regularly assesses currency rate risks to minimize any adverse effects on the Company’s business as a result of currency
fluctuations.
The Company's foreign currency exposure gives rise to market
risk associated with exchange rate movements of the NIS, the Company functional and reporting currency, against the USD and Euros. Most
of the Company’s purchases are denominated in USD and Euros, whereas its income and other expenses are denominated mostly in NIS.
Consequently, devaluation of the NIS against the other currencies may cause a negative impact on the Company profit margins.
The Company strives to minimize market risks arising from exchange
rates and the cost of imported goods, especially by holding foreign currency surpluses, and initiates forward transactions.
The Company engages, from time to time, in activities to protect
against changes in exchange rates by holding some of its excess liquidity in foreign currency and making forward transactions in foreign
currency.
The table below details the sensitivity analysis in respect
to exposure relating to exchange rate risk:
|
|
Gain (loss) from exchange rate change NIS
thousands |
Fair net NIS thousands |
Gain (loss) from exchange rate change NIS
thousands |
|
Change in exchange rate
USD |
(10%)
(2,694) |
(5%)
(1,347) |
26,939 |
5%
1,347 |
10%
2,694 |
|
Change in exchange rate
EURO |
(10%)
640 |
(5%)
320 |
(6,399) |
5%
(320) |
10%
(640) |
Credit risk: Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivable. Despite the
Company's large number of clients (approximately 164,819) a major and significant part of its sales are made to only a limited number
of customers (mainly in large retail supermarket chains). The Company generally does not require and does not receive collateral from
those major customers. However, it does require and receive collateral from most of the remainder of its clients to ensure security of
collecting payments. The Company maintains an allowance for doubtful debts, based upon factors surrounding the credit risk of specific
customers, historical trends and other information which management believes adequately covers all anticipated losses in respect of trade
receivable. There can be no assurance that this allowance will be adequate. In the event that any of the Company's major clients defaults
on its payment obligations to us, the Company will not possess sufficient collateral to collect the entire debt. The Company strives to
minimize the credit risks by constantly reviewing the credit it extends to customers versus the collateral it receives. As a result, the
Company has ceased selling products to certain customers and considerably reduced sales to other customers, and may continue to do so
in the future.
Interest rate risk: The
Company invests part of its cash reserves in instruments that bear fixed interest rate. The Company, as part of its investing policy,
invests part of its cash reserves in bonds and convertible debentures that bears fixed interest rate; as a result, the Company is espoused
to changes in interest rates.
The table below details the sensitivity analysis in respect
to exposure relating to investments in instruments with fix interest rates:
|
|
Gain (loss) from interest change NIS thousands
|
Fair value NIS thousands |
Gain (loss) from interest change NIS thousands
|
|
Change in Interest as % of interest rate
|
(10%) |
(5%) |
|
5% |
10% |
|
Increase\decrease in financial Income
|
(9,036) |
(4,518) |
90,360 |
4,518 |
9,036 |
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15.
CONTROLS AND PROCEDURES
| |
(a) |
Disclosure Controls and Procedures |
Our Chief Executive Officer, or CEO, and Chief Financial Officer,
or CFO, are responsible for establishing and maintaining our disclosure controls and procedures (as defined in Rules13a-15© and 15d-15(e)
under the Securities Exchange Act of 1934, as amended). These controls and procedures were designed to ensure that information required
to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive
and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required
disclosure. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of December 31, 2022. Based
on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective.
| |
(b) |
Management’s
Annual Report on Internal Control over Financial Reporting. |
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those policies and procedures that:
|
• |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; |
|
• |
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and directors; and |
|
• |
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Our management recognizes that there are inherent limitations
in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention
provide only reasonable assurance with respect to financial statement preparation and presentation, and may not prevent or detect all
misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management (with the participation of the CEO and CFO) assessed the effectiveness of our internal control
over financial reporting as of December 31, 2022. In conducting its assessment of internal control over financial reporting, management
used the criteria established in "Internal Control - Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Our management has concluded, based on its assessment, that our internal control over financial reporting
was effective as of December 31, 2022.
(c) This Annual Report does not include an attestation
report of our independent registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation
by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to
provide only management's report in this Annual Report.
(d) Changes in Internal
Control over Financial Reporting.
There were no changes in the Company’s internal
control over financial reporting that occurred during the year ended December 31, 2022 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 16.
[RESERVED]
ITEM16A. AUDIT
COMMITTEE FINANCIAL EXPERT
The Company’s Board of Directors has determined that Einav
Brar, Idan Ben-Shitrit, and Victor Bar are the “Audit Committee Financial Experts” for the Company, as such terms are defined
under SEC rules. Ms. Brar, Mr. Ben-Shitrit, and Mr. Bar each serve on the Company’s Audit Committee and are “Independent Directors”
as defined in the Nasdaq listing standards applicable to us.
ITEM 16B. CODE
OF ETHICS
We have adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A
copy of the Code of Ethics will be provided upon request without charge to any person who requests such copy from Yitschak Barabi, Chief
Financial Officer, at cfo@willi-food.co.il or +972-8-932-1099.
ITEM 16C. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The following table presents the aggregate fees for professional
services and other services rendered by BDO Ziv Haft ("BDO"), the Company’s independent public accounting firm, in 2022. BDO’s
address is 48 Menachem Begin Rd. Tel-Aviv
|
|
NIS 2022 |
USD 2022 |
NIS 2021 |
USD 2021 |
|
Audit Fees and Tax Fees (1)(2) |
441,909 |
125,542 |
343,715 |
97,646 |
|
All Other Fees (3) |
- |
- |
3,110 |
884 |
|
TOTAL |
441,909 |
125,542 |
346,825 |
98,530 |
(1) Audit Fees consist of fees billed for the annual audit services engagement and
other audit services, which are those services that only the external auditor can reasonably provide, and include the Company audit; statutory
audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC.
(2) Tax Fees include fees billed for tax compliance services, including the
preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection
with tax audits, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing
authority.
(3) All Other Fees include attestation services.
During fiscal year 2022, the external auditor performed
additional services, other than auditing and tax services, which amounted to NIS 3.6 thousand. These services did not exceed 45% of the
total fee of the external auditor and the audit fee for accounting represents more than 50% of the external auditor's total revenue from
the Company.
Audit Committee Pre-Approval Policies and Procedures
Our audit committee’s specific responsibilities in carrying
out its oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company include the approval
of audit and non-audit services to be provided by the external auditor. The audit committee approves in advance the particular services
or categories of services to be provided to the Company during the following yearly period and also sets forth a specific budget for such
audit and non-audit services. Additional non-audit services may be pre-approved by the audit committee.
ITEM 16D. EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES
OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGES
IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE
GOVERNANCE
The following are the significant ways in which our corporate
governance practices differ from those followed by domestic companies under the listing standards of the Nasdaq:
|
• |
Executive Sessions – Under Nasdaq rules,
U.S. domestic listed companies, must have a regularly scheduled meeting at which only independent directors are present. We do not have
such executive sessions. |
|
• |
Compensation of Officers - Under Nasdaq rules,
the Company must adopt a formal written compensation committee charter addressing the scope of the compensation committee's responsibilities,
including structure, processes and membership requirements, among others. We do not have such a formal written charter. |
|
• |
Nominations of Directors - Under Nasdaq rules,
U.S. domestic listed companies, must have a nominations committee comprised solely of independent directors and must have director nominees
selected or recommended by a majority of its independent directors. Our directors are not nominated in this manner. |
|
• |
Nominations Committee Charter or Board Resolution
- Under Nasdaq rules, U.S. domestic listed companies, must adopt a formal written charter or board resolution, as applicable, addressing
the nominations process and such related matters as may be required under the federal securities laws. We do not have such a formal written
charter or board resolution. |
|
• |
Quorum - Under Nasdaq rules, U.S. domestic
listed company's by-laws provide for a quorum of at least 33 1/3 percent of the outstanding shares of the company’s common voting
stock. According to our articles our quorum should be at least 25 percent of the outstanding shares of our common voting stock.
|
|
• |
Review of Related Party Transactions: Under
Nasdaq Listing Rules, domestic listed companies must conduct an appropriate review and oversight of all related party transactions for
potential conflict of interest situations on an ongoing basis by the company’s audit committee or another independent body of the
board of directors. Although Israeli law requires us to conduct an appropriate review and maintain oversight of all related-party transactions
similar to the Nasdaq Listing Rules, we follow the definitions and requirements of the Companies Law in determining the kind of approval
required for a related-party transaction, which tend to be more rigorous than the Nasdaq Listing Rules. |
|
• |
Shareholder Approval of Certain Equity Compensation:
Under Nasdaq Listing Rules, shareholder approval is required prior to an issuance of securities in connection with equity-based compensation
of officers, directors, employees or consultants. The Company has indicated that it will receive shareholder approval as required by Israeli
law, including upon issuance of options to directors or to controlling shareholders. |
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
PART II
ITEM 17.
FINANCIAL STATEMENTS
We have responded to Item 18 in lieu of this Item.
ITEM 18.
FINANCIAL STATEMENTS
The financial statements required by this item are found at
the end of this annual report, beginning on page F-1.
ITEM 19.
EXHIBITS
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Exhibit
Number |
Description
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2.1 |
Specimen of Certificate for ordinary shares (1) |
2.2
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101.INS |
XBRL Instance Document |
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101.SCH |
XBRL Taxonomy Extension Schema Document |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
|
101.INS |
XBRL Instance Document |
|
† |
Informal English translations from Hebrew original. |
|
(1) |
Incorporated by reference to the Company’s Registration Statement on Form F-1,
File No. 333-6314. |
|
(2) |
Incorporated by reference to the Company’s Annual Report on Form 20-F for the
fiscal year ended December 31, 2005. |
|
(3) |
Incorporated by reference to the Company’s Registration Statement on Form F-3,
File No. 333-138200. |
|
(4) |
Incorporated by reference to the Company’s Annual Report on Form 20-F for the
fiscal year ended December 31, 2013. |
|
(5) |
Incorporated by reference to the Company’s Annual Report on Form 20-F for the
fiscal year ended December 31, 2019. |
|
(6) |
Incorporated by reference to the Company’s Annual Report on Form 20-F for the
fiscal year ended December 31, 2020 |
|
(7) |
Incorporated by reference to Form 6-K disseminated with the Securities and Exchange
Commission, dated February 7, 2023. |
|
(8) |
Incorporated by reference to the Company’s Registration Statement on Form S-8,
File No. 333-266312. |
|
(*) |
Filed Herewith |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this
Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
G. WILLI-FOOD INTERNATIONAL LTD.
By: /s/ Joseph Williger
Joseph Williger
Chief Executive Officer |
Date: March 23, 2023
