IAI in Q2 2018: Order Backlog at $12.7 Billion
The Company reports sales totaling USD 895 million, representing an increase of 4.2% in sales compared to the corresponding quarter of last year, as well as net income of USD 10 million
IsraelDefense
| 17/08/2018
By Clandestine Immigration and Navy Museum, Haifa - Clandestine Immigration and Navy Museum, Haifa, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=24297674
Israel Aerospace Industries (IAI) issued today its consolidated financial statements for the quarter ended June 30, 2018.
In the second quarter of 2018, the Company reports sales totaling USD 895 million, representing an increase of 4.2% in sales compared to the corresponding quarter of last year, as well as net income of USD 10 million and operating income of USD 30 million. The Company has cash balances in an aggregate of USD 1.6 billion and positive cash flows from operating activities totaling USD 104 million.
Yossi Weiss, the stepping down CEO of IAI, commented: "IAI concludes the second quarter of 2018 with the largest order backlog in its history, currently reaching almost USD 13 billion, also reflected in an increase in sales in the quarter, which is expected to continue into the next quarters. Concurrently, the growth trend in the various markets in which IAI operates is pursued, with emphasis on North America, Europe, and Southeast Asia, and we continue offering our customers the most advanced tailored solutions for the constantly changing map of threats.
The internal corporate restructuring processes in IAI have also been pursued for the purpose of securing continued growth in business operations, developing the future growth engines in a variety of areas and promoting business development ventures both locally and internationally.
On a personal note, marking the end of my more than six-year tenure as the Company's CEO, I wish to add that I am proud for this period abundant with achievements and challenges. I believe that the Company will continue to be successful in maneuvering its strengths in order to maintain and promote its positioning in the forefront of technology, to the benefit of the citizens of Israel, the Company's employees and the hundreds of its customers worldwide. I wish Nimrod Sheffer who will soon assume his position as CEO, the best of luck.
Main Results in Q2 2018
The Company's sales in Q2 2018 amounted to USD 895 million compared with USD 859 million in Q2 2017, an increase of 4.2%. The increase in sales in Q2 2018 compared to the corresponding quarter of last year is mostly a result of the increase in the revenues of the Bedek Aviation Group and of the Systems Missiles & Space Group.
Sales for export in Q2 2018 accounted for 74% of sales (26% to Israel) compared with 77% (23% to Israel) in Q2 2017.
Sales to the military market in Q2 2018 accounted for 71% of sales (29% to the civilian market), similarly to Q2 2017.
Gross profit in Q2 2018 amounted to USD 148 million (16.5% of sales) compared with USD 121 million (14.1% of sales) in Q2 2017. The improvement in the gross profit margin mainly arises from the increase in sales in the quarter and the impairment loss of an intangible asset recorded in Q2 2017.
Research and development expenses in Q2 2018 totaled approximately USD 45 million compared with approximately USD 44 million in Q2 2017 (about 5.0% and about 5.1% of sales, respectively).
Expenses for early retirement of employees in Q2 2018, the Company recorded income from the adjustment to the provision for early retirement of employees totaling approximately USD 1 million, as opposed to expenses recorded in a negligible amount in Q2 2017. The effects of the continued retirement of employees in the context of the growth plan, including the early retirement agreement signed with the Workers' Committee in 2016, were not reflected in the financial statements as they had been recognized in full as a provision on the date of signing the agreement. As of June 30, 2018, some 853 employees retired in the context of the agreement.
Operating income in Q2 2018 amounted to USD 30 million (3.4% of sales) compared with USD 16 million in Q2 2017 (1.9% of sales). This increase in operating income is mainly a result of the improved gross profit.
EBITDA in Q2 2018 amounted to USD 70 million compared with USD 62 million in Q2 2017.
Net financial expenses in Q2 2018 amounted to approximately USD 17 million compared with financial expenses in a negligible amount recorded in Q2 2017. The increase in financial expenses is mainly a result of recording exchange rate valuation losses due to the erosion of net balances of assets in NIS and the ineffective portion of foreign exchange hedges in view of the appreciation of the USD in relation to the NIS by about 3.87% in the second quarter of 2018 as opposed to a depreciation of 3.74% in the corresponding quarter of last year.
The Company's share of results of associates: In Q2 2018, the Company recognized income of approximately USD 2 million in respect of its share of earnings of associates as opposed to a loss of approximately USD 3 million in Q2 2017.
Net tax expenses: In Q2 2018, the Company recorded net tax expenses of approximately USD 5 million compared with net tax income of approximately USD 8 million in the corresponding quarter of last year. The change in tax expenses arises from the initial adoption of legislative amendments effective from 2018 and thereafter which allow the Company to calculate its taxable income for tax purposes in USD (its functional currency), which significantly mitigates the sensitivity of tax expenses to changes in the USD-NIS exchange rate.
Net income in Q2 2018 totaled USD 10 million (1.1% of sales) compared with net income of USD 21 million in Q2 2017 (2.4% of sales). The decrease in net income mainly arises from the increase in financial expenses and in tax expenses.
The order backlog at the end of Q2 2018 amounted to approximately USD 11.6 billion compared to approximately USD 11.2 billion at the end of 2017. 76% of the order backlog is held for sale to foreign customers with wide geographical dispersion. The order backlog is comprised of a wide variety of products and secures 3.1 years of operation. The order backlog currently amounts to approximately USD 12.7 billion.
Positive cash flows from operating activities in Q2 2018 amounted to USD 104 million compared with positive cash flows from operating activities of USD 208 million in Q2 2017. The positive cash flows from operating activities mainly derive from changes in the Company's working capital items - mainly a decrease in the balance of trade receivables, partly offset by the increase in contract assets and in inventories and inventories in process, and a decrease in contract liabilities and in other payables.
Material Events in Q2 2018
Appointment of a new CEO: on June 21, 2018, IAI's Board decided to appoint Mr. Nimrod Sheffer as the next CEO of IAI. The appointment is pending approval, as required by the Israeli Government Companies Law. The present CEO, Mr. Yossi Weiss, will continue his tenure until the appointment of the new CEO is approved and becomes effective.
Engagement with the Finnish Government: in July 2018, the Company and the Finnish Government signed an agreement according to which Finland will purchase IAI’s Gabriel anti-ship missile systems and related services at a monetary scope of approximately USD 195 million to be carried over several years with an expansion option. The transaction was closed on August 2, 2018.
Engagement with Airbus DS: In June 2018, the Company signed a contract with Airbus DS for leasing and providing maintenance services for IAI's licensed Heron TP Medium Altitude Long Endurance (MALE) RPASs (remotely piloted air vehicle system) to the German Federal Ministry of Defense, with Airbus DS acting as the main contractor. The USD 600 million contract is for a period of nine years. It includes options for expansion of content, including for extension of the lease period by a maximum of another three years. According to the milestones established in the contract, the Company is expected to receive about half of the consideration in the first two years and the balance in installments over the lease term. The agreement became effective in July 2018 following its approval by the German federal budget.
Claim against the Company for the loss of Amos 6 Satellite: in keeping with Spacecom's claims in the context of the arbitration proceeding based on Spacecom's arguments of the alleged damages and expenses incurred to it in a total of approximately USD 138 million as a result of the loss of Amos 6 Satellite, the Company received Spacecom's notice in May 2018 whereby the latter is asking to withdraw the claim for compensation for damages and retain the limited amount of compensation prescribed in the contract at USD 10 million only.
The Company reports sales totaling USD 895 million, representing an increase of 4.2% in sales compared to the corresponding quarter of last year, as well as net income of USD 10 million
By Clandestine Immigration and Navy Museum, Haifa - Clandestine Immigration and Navy Museum, Haifa, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=24297674
Israel Aerospace Industries (IAI) issued today its consolidated financial statements for the quarter ended June 30, 2018.
In the second quarter of 2018, the Company reports sales totaling USD 895 million, representing an increase of 4.2% in sales compared to the corresponding quarter of last year, as well as net income of USD 10 million and operating income of USD 30 million. The Company has cash balances in an aggregate of USD 1.6 billion and positive cash flows from operating activities totaling USD 104 million.
Yossi Weiss, the stepping down CEO of IAI, commented: "IAI concludes the second quarter of 2018 with the largest order backlog in its history, currently reaching almost USD 13 billion, also reflected in an increase in sales in the quarter, which is expected to continue into the next quarters. Concurrently, the growth trend in the various markets in which IAI operates is pursued, with emphasis on North America, Europe, and Southeast Asia, and we continue offering our customers the most advanced tailored solutions for the constantly changing map of threats.
The internal corporate restructuring processes in IAI have also been pursued for the purpose of securing continued growth in business operations, developing the future growth engines in a variety of areas and promoting business development ventures both locally and internationally.
On a personal note, marking the end of my more than six-year tenure as the Company's CEO, I wish to add that I am proud for this period abundant with achievements and challenges. I believe that the Company will continue to be successful in maneuvering its strengths in order to maintain and promote its positioning in the forefront of technology, to the benefit of the citizens of Israel, the Company's employees and the hundreds of its customers worldwide. I wish Nimrod Sheffer who will soon assume his position as CEO, the best of luck.
Main Results in Q2 2018
The Company's sales in Q2 2018 amounted to USD 895 million compared with USD 859 million in Q2 2017, an increase of 4.2%. The increase in sales in Q2 2018 compared to the corresponding quarter of last year is mostly a result of the increase in the revenues of the Bedek Aviation Group and of the Systems Missiles & Space Group.
Sales for export in Q2 2018 accounted for 74% of sales (26% to Israel) compared with 77% (23% to Israel) in Q2 2017.
Sales to the military market in Q2 2018 accounted for 71% of sales (29% to the civilian market), similarly to Q2 2017.
Gross profit in Q2 2018 amounted to USD 148 million (16.5% of sales) compared with USD 121 million (14.1% of sales) in Q2 2017. The improvement in the gross profit margin mainly arises from the increase in sales in the quarter and the impairment loss of an intangible asset recorded in Q2 2017.
Research and development expenses in Q2 2018 totaled approximately USD 45 million compared with approximately USD 44 million in Q2 2017 (about 5.0% and about 5.1% of sales, respectively).
Expenses for early retirement of employees in Q2 2018, the Company recorded income from the adjustment to the provision for early retirement of employees totaling approximately USD 1 million, as opposed to expenses recorded in a negligible amount in Q2 2017. The effects of the continued retirement of employees in the context of the growth plan, including the early retirement agreement signed with the Workers' Committee in 2016, were not reflected in the financial statements as they had been recognized in full as a provision on the date of signing the agreement. As of June 30, 2018, some 853 employees retired in the context of the agreement.
Operating income in Q2 2018 amounted to USD 30 million (3.4% of sales) compared with USD 16 million in Q2 2017 (1.9% of sales). This increase in operating income is mainly a result of the improved gross profit.
EBITDA in Q2 2018 amounted to USD 70 million compared with USD 62 million in Q2 2017.
Net financial expenses in Q2 2018 amounted to approximately USD 17 million compared with financial expenses in a negligible amount recorded in Q2 2017. The increase in financial expenses is mainly a result of recording exchange rate valuation losses due to the erosion of net balances of assets in NIS and the ineffective portion of foreign exchange hedges in view of the appreciation of the USD in relation to the NIS by about 3.87% in the second quarter of 2018 as opposed to a depreciation of 3.74% in the corresponding quarter of last year.
The Company's share of results of associates: In Q2 2018, the Company recognized income of approximately USD 2 million in respect of its share of earnings of associates as opposed to a loss of approximately USD 3 million in Q2 2017.
Net tax expenses: In Q2 2018, the Company recorded net tax expenses of approximately USD 5 million compared with net tax income of approximately USD 8 million in the corresponding quarter of last year. The change in tax expenses arises from the initial adoption of legislative amendments effective from 2018 and thereafter which allow the Company to calculate its taxable income for tax purposes in USD (its functional currency), which significantly mitigates the sensitivity of tax expenses to changes in the USD-NIS exchange rate.
Net income in Q2 2018 totaled USD 10 million (1.1% of sales) compared with net income of USD 21 million in Q2 2017 (2.4% of sales). The decrease in net income mainly arises from the increase in financial expenses and in tax expenses.
The order backlog at the end of Q2 2018 amounted to approximately USD 11.6 billion compared to approximately USD 11.2 billion at the end of 2017. 76% of the order backlog is held for sale to foreign customers with wide geographical dispersion. The order backlog is comprised of a wide variety of products and secures 3.1 years of operation. The order backlog currently amounts to approximately USD 12.7 billion.
Positive cash flows from operating activities in Q2 2018 amounted to USD 104 million compared with positive cash flows from operating activities of USD 208 million in Q2 2017. The positive cash flows from operating activities mainly derive from changes in the Company's working capital items - mainly a decrease in the balance of trade receivables, partly offset by the increase in contract assets and in inventories and inventories in process, and a decrease in contract liabilities and in other payables.
Material Events in Q2 2018
Appointment of a new CEO: on June 21, 2018, IAI's Board decided to appoint Mr. Nimrod Sheffer as the next CEO of IAI. The appointment is pending approval, as required by the Israeli Government Companies Law. The present CEO, Mr. Yossi Weiss, will continue his tenure until the appointment of the new CEO is approved and becomes effective.
Engagement with the Finnish Government: in July 2018, the Company and the Finnish Government signed an agreement according to which Finland will purchase IAI’s Gabriel anti-ship missile systems and related services at a monetary scope of approximately USD 195 million to be carried over several years with an expansion option. The transaction was closed on August 2, 2018.
Engagement with Airbus DS: In June 2018, the Company signed a contract with Airbus DS for leasing and providing maintenance services for IAI's licensed Heron TP Medium Altitude Long Endurance (MALE) RPASs (remotely piloted air vehicle system) to the German Federal Ministry of Defense, with Airbus DS acting as the main contractor. The USD 600 million contract is for a period of nine years. It includes options for expansion of content, including for extension of the lease period by a maximum of another three years. According to the milestones established in the contract, the Company is expected to receive about half of the consideration in the first two years and the balance in installments over the lease term. The agreement became effective in July 2018 following its approval by the German federal budget.
Claim against the Company for the loss of Amos 6 Satellite: in keeping with Spacecom's claims in the context of the arbitration proceeding based on Spacecom's arguments of the alleged damages and expenses incurred to it in a total of approximately USD 138 million as a result of the loss of Amos 6 Satellite, the Company received Spacecom's notice in May 2018 whereby the latter is asking to withdraw the claim for compensation for damages and retain the limited amount of compensation prescribed in the contract at USD 10 million only.
