IAI posts record profits in H1 of 2020 

In its financial statements for the first half and second quarter of 2020, IAI reported its highest profits ever for the halfway point of any year 

IAI posts record profits in H1 of 2020 

IAI CEO Nimrod Sheffer. Photo: Kfir Ziv

Israel Aerospace Industries Ltd., Israel's largest national military and civilian security defense company, issued Sunday its consolidated financial statements for the first half and second quarter ended June 30, 2020.

IAI’s sales in H1 crossed the $2 billion threshold, the highest H1 results in the company’s history. IAI also experienced growth in operating and net income and in gross profit and EBITDA.

The Company's sales in H1 2020 amounted to about USD 2,078 million compared with about USD 1,986 million in H1 2019, an increase of 4.6%.

The sales of the Military Groups in H1 2020 increased by some 18% to about USD 1,706 million compared with about USD 1,448 million in the corresponding period of last year. The sales of the Aviation Group in H1 2020 decreased by about 15% to about USD 612 million compared with about USD 721 million in the corresponding period of last year – a decrease of USD 109 million.

The Company's sales in Q2 2020 grew to about USD 1,060 million compared with about USD 985 million in Q2 2019, an increase of 7.6%.

The sales of the Military Groups in Q2 2020 increased by some 23.4% to about USD 890 million compared with about USD 721 million in the corresponding quarter of last year, an increase of USD 169 million. The sales of the Aviation Group in Q2 2020 decreased by some 20.4% to about USD 289 million compared with about USD 363 million in the corresponding quarter of last year – a decrease of USD 74 million.

The increase in sales mainly arises from the increased sales of the Systems Missiles & Space Group and the ELTA Group, which were partly offset by a decrease in sales in the Aviation Group. The sales of the aircraft MRO subdivision dropped in H1 2020 by about 30% and in Q2 2020 by about 50% compared to the corresponding periods of last year.

Sales for export in H1 2020 accounted for 72% of sales totaling about USD 1,497 million (about USD 581 million, representing 28% of sales, to Israel), compared with 75% in H1 2019, totaling about USD 1,480 million (about USD 506 million, representing 25% of sales, to Israel). Sales for export in Q2 2020 accounted for 73% of sales totaling about USD 773 million (about USD 287 million, representing 27% of sales, to Israel), compared with 76% in Q2 2019, totaling about USD 747 million (about USD 238 million, representing 24% of sales, to Israel).

Gross profit in H1 2020 amounted to about USD 333 million (about 16% of sales), compared with about USD 267 million in H1 2019 (about 13% of sales). Gross profit in Q2 2020 amounted to about USD 163 million (about 15.4% of sales), compared with about USD 145 million in Q2 2019 (about 14.7% of sales). The increase in gross profit stems from the increased sales of the Systems Missiles & Space Group and the ELTA Group.

The gross profit of the Military Groups in H1 2020 increased by some 22% to about USD 292 million compared with about USD 239 million in the corresponding period of last year, an increase of USD 53 million. The gross profit of the Aviation Group in H1 2020 increased by some 12% to about USD 46 million compared with about USD 41 million in the corresponding period of last year. The gross profit of the Military Groups in Q2 2020 increased by some 24.4% to about USD 148 million compared with about USD 119 million in the corresponding quarter of last year, an increase of USD 29 million. The gross profit of the Aviation Group in Q2 2020 decreased to about USD 24 million compared with about USD 25 million in the corresponding quarter of last year.

Operating income in H1 2020 amounted to about USD 127 million (about 6.1% of sales), compared with operating income of about USD 68 million in H1 2019 (about 3.4% of sales), an increase of USD 59 million. Gross profit in Q2 2020 amounted to about USD 66 million (about 6.2% of sales), compared with operating income of about USD 48 million in Q2 2019 (about 4.9% of sales), an increase of USD 18 million.

The operating income of the Military Groups in H1 2020 increased by some 39% to about USD 157 million compared with about USD 113 million in the corresponding period of last year, an increase of USD 44 million. The operating income of the Aviation Group in H1 2020 decreased to about USD 4 million compared with about USD 8 million in the corresponding period of last year. The operating income of the Military Groups in Q2 2020 increased by some 50.9% to about USD 86 million compared with about USD 57 million in the corresponding quarter of last year, an increase of USD 29 million. The operating income of the Aviation Group in Q2 2020 decreased to about USD 1 million compared with about USD 9 million in the corresponding quarter of last year.

Net income in H1 2020 increased by 64% to about USD 82 million (about 3.9% of sales), compared with net income of about USD 50 million (about 2.5% of sales) in H1 2019 - an increase of USD 32 million. Net income in Q2 2020 amounted to about USD 48 million (about 4.5% of sales), compared with net income of about USD 36 million (about 3.7% of sales) in Q2 2019 - an increase of USD 12 million. The net income recorded in this quarter is the highest in IAI history for a second quarter.

The net income of the Military Groups in H1 2020 increased by some 28.7% to about USD 130 million compared with about USD 101 million in the corresponding period of last year, an increase of USD 29 million. The net loss of the Aviation Group in H1 2020 amounted to about USD 8 million compared with a loss of about USD 7 million in the corresponding period of last year. The net income of the Military Groups in Q2 2020 increased by some 65.3% to about USD 81 million compared with about USD 49 million in the corresponding quarter of last year. The net loss of the Aviation Group in Q2 2020 amounted to about USD 6 million compared with net income of about USD 1 million in the corresponding quarter of last year.

EBITDA in H1 2020 amounted to about USD 223 million (about 10.7% of sales), compared with about USD 165 million (about 8.3% of sales) in H1 2019. EBITDA in Q2 2020 amounted to about USD 121 million (about 11.4% of sales), compared with about USD 96 million (about 9.7% of sales) in Q2 2019.

In H1 2020, the Company recorded net financial expenses of about USD 13 million, compared with financial income of about USD 4 million in H1 2019. In Q2 2020, the Company recorded net financial income of about USD 1 million, compared with financial income of about USD 5 million in Q2 2019.

In-house research and development expenses in H1 2020 amounted to about USD 71 million, similarly to the corresponding period of 2019 (accounting for about 3.4% and about 3.6% of sales, respectively). In-house research and development expenses in Q2 2020 amounted to about USD 32 million, compared with about USD 37 million in Q2 2019 (accounting for about 3% and about 3.8% of sales, respectively).

In H1 2020, the Company recorded net tax expenses of about USD 31 million compared with tax expenses of about USD 23 million in H1 2019. In Q2 2020, the Company recorded net tax expenses of about USD 20 million compared with tax expenses of about USD 17 million in Q2 2019. The increase in tax expenses compared to the corresponding periods of last year mostly arises from the improvement in the Company's profits. The Company’s income is subject to the ordinary corporate tax rate in Israel – 23%, and it is not entitled to any tax benefits pursuant to the Israeli Law for the Encouragement of Capital Investments, 1959 as it is a wholly-owned government company. The sale of any interests in the Company, even at a miniscule rate, to a non-government party will render the Company eligible for a reduced corporate income tax rate as per said Law.

The order backlog in Q2 2020 amounted to about USD 13.2 billion, compared to about USD 13.4 billion at the end of 2019. 79% of the order backlog is held for sale to foreign customers that are widely geographically dispersed, based on a large variety of projects and secures about 3.4 years of operation given the current sales volumes.

Negative cash flows from operating activities in H1 2020 amounted to about USD 63 million compared with negative cash flows from operating activities of about USD 18 million in H1 2019. The negative cash flows from operating activities in Q2 2020 amounted to about USD 68 million compared with positive cash flows from operating activities of about USD 73 million in Q2 2019.

Harel Locker, IAI’s Chairman of the Board, said "The excellent business results of the first half of the year, achieved despite the difficulties posed by the global coronavirus crisis, are the outcome of IAI's recent reinvented focus. As a company whose majority of products are exported, we faced various challenges in the supply chain from the beginning of the first half of the year and already in December 2019. Despite these challenges, owing to employee mobilization and careful executive management efforts, IAI was able to reach a historical record in financial results in the first half of 2020. We will continue to lead IAI towards full realization of its immense business and technological potential."

The President & CEO of IAI, Nimrod Sheffer, commented: "In this quarter IAI marks good results despite reduced activities in the Aviation Group. The increase in sales, the improvement in the business parameters of the Military Groups, and the continued provision of services to our customers around the world reflect the unwavering commitment of the company's employees and managers to its success. We are well aware of the serious ramifications of the global crisis on the Aviation Group and have prepared ourselves as an organization to the upcoming challenges in this industry."