May 26, 2016 – Israel Aerospace Industries (“the Company” or “IAI“), Israel’s largest defense company, issued its consolidated financial statements for the three months ended March 31, 2016.
The Company reports sales of USDÂ 859 million in the first quarter of the year, with net income of USDÂ 11 million. IAI holds an order backlog of USDÂ 8.6 billion, representing about 2.3 years of operation. The Company’s cash balances amount to approximately USDÂ 1.4 billion against transition to negative cash flows of USDÂ 72 million arising mainly from changes in the Company’s working capital, among others due to delays in signing “mega contracts” and delays in receiving payments.
Rafi Maor, IAI Chairman of the Board.
Photo: IAI
Rafi Maor, Chairman of the Board:
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“The results of the first quarter of 2016 continue to reflect the challenges facing IAI from within and from without. In the past year, the Company’s management has been exercising ongoing efforts in improving the Company’s competitiveness and adapting to fluctuating market terms. Among others, we are working on an enterprise-wide efficiency plan in cooperation with the Workers’ Union and exploring existing and new strategic opportunities as well as collaborations that will focus on economies of scale in order to allow us to continue developing the Company and securing its continued growth.”
Joseph Weiss, IAI President.
Photo: IAI.
Joseph Weiss, Company President & CEO:
“The results of the first quarter reflect IAI’s challenging position. In recent months, the Company’s military divisions successfully completed tests of highly advanced systems and made significant progress in strategic development projects. We are also witnessing a recovery in the aircraft conversion activity in Bedek, a recovery which should be translated into long-term profits in this group. The adverse effect of the ongoing crisis in the global business jets market, however, is still prevalent and reinforces the business and structural challenges we face in the various commercial aircraft divisions.
We are currently taking steps to develop an enterprise-wide efficiency plan with a clear business vision and have recently reached certain understandings with the Workers’ Union regarding this issue. These understandings require the approval of various Government authorities and form the basis for holding negotiations towards signing an updated collective agreement. We are simultaneously continuing to work towards implementing other aspects of the plan from the viewpoint that these steps are critical for ensuring the future of the Company and its employees.”
Main results in Q1 2016
The Company’s sales in Q1 2016 amounted to USDÂ 859 million compared with USDÂ 910 million in Q1 2015, a decrease of 5.6%.
The decrease in sales in Q1 2016 compared with Q1 2015 is mainly a result of the decrease in the revenues of the Military Electronics Segment (ELTA) and the Systems Missiles & Space Segment which was partly offset by the increase in the revenues of the Aircraft Maintenance and Overhaul Segment and the Military Aircraft Segment.
Sales for export in Q1 2016 accounted for 77% of sales (23% to Israel) compared with 80% in Q1 2015 (20% to Israel).
Sales to the military market in Q1 2016 accounted for 75% of sales (25% to the civilian market) compared with 77% (23% to the civilian market) in Q1 2015.
Gross profit in Q1 2016 amounted to USDÂ 115 million (13.4% of sales) compared with USDÂ 126 million (13.9% of sales) in Q1 2015.
Research and development expenses in Q1 2016 totaled approximately USDÂ 36 million compared with approximately USDÂ 40 million in Q1 2015 (accounting for about 4.2% and about 4.4% of sales, respectively).
Expenses for early retirement of employees – as part of the efficiency measures undertaken by the Company, in Q1 2016, 41 employees retired early from the Company at a cost of approximately USDÂ 7 million, compared to 14 employees who retired early with a cost of approximately USDÂ 3 million in Q1 2015. The payment is carried over the years until the employees reach retirement age.
Operating income in Q1 2016 amounted to USDÂ 11 million (1.3% of sales) compared with USDÂ 20 million (2.2% of sales) in Q1 2015. This decrease can be explained by the decrease in gross profit and the increase in expenses for early retirement of employees compared with Q1 2015.
EBITDA in Q1 2016 amounted to USDÂ 38 million compared with USDÂ 44 million in Q1 2015.
Net financial expenses in Q1 2016 amounted to approximately USDÂ 7 million compared with a negligible amount in Q1 2015. The main increase in net financial expenses in Q1 2016 is a result of the decrease in financial income from hedges that are not recognized for accounting purposes.
The Company’s share of earnings/losses of associates in Q1 2016, income of approximately USDÂ 1 million was recorded in respect of the Company’s share of earnings of associates as opposed to negligible losses recorded in Q1 2015.
Net tax income – in Q1 2016, the Company recorded net tax income of USDÂ 6 million compared with net tax expenses of USDÂ 18 million in Q1 2015. The main gap is attributed to accounting income of deferred taxes of USDÂ 15 million arising from a decrease of about 3.5% in the US Dollar exchange rate in Q1 2016 compared with an increase of about 2.3% in the US Dollar exchange rate in Q1 2015 which led to recording deferred tax expenses on exchange rate differences in a total of USDÂ 10 million. Such tax expenses/tax income represent accounting expenses (mostly for deferred taxes) that result from the fact that the Company reports to the Israeli income tax authorities in NIS whereas the functional currency of the financial statements is the dollar. Tax income on exchange rate differences in Q1 2016 were partly offset against deferred tax expenses in respect of changes in tax rate.
Net income in Q1 2016 amounted to USDÂ 11 million (1.2% of sales) compared with net income of USDÂ 2 million (0.2% of sales) in Q1 2015. The increase in net income is mainly a result of the decrease in net tax expenses, as explained above.
The order backlog at the end of Q1 2016 totaled USDÂ 8.6 billion compared with USDÂ 8.7 billion at the end of Q1 2015. 78% 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 2.3 years of operation.
The book to bill ratio in Q1 2016 is 1.
The Company’s positive cash flows from operating activities in Q1 2016 amounted to USDÂ 72 million compared with negative cash flows from operating activities of USDÂ 162 million in Q1 2015. The negative cash flows from operating activities mainly derive from changes in the Company’s working capital items – mainly an increase in receivables from work in progress, a decrease in payables for work in progress and in increase in inventories and inventory in process, among others, due to delays in signing mea contracts. It should be noted that based on the nature of the Company’s operations, a substantial portion of its engagements consist of mega contracts involving complicated development and production projects that span several years. The presale process leading up to these engagements is also lengthy. In this type of projects, once the contract is signed, the Company receives material advances from the customer for setting the project into motion. This type of activity causes fluctuations in the Company’s cash flows from operating activities. The cash flows were also affected by delays in receiving payments.
Material events in Q1 2016
In January 2016, IAI and Formula Systems announced the signing of a definitive agreement for the purchase of TSG – a subsidiary and the military arm of Ness Technologies, engaged in the fields of command and control systems, intelligence, homeland security and cyber security.
Material events after the date of preparation of the report
Condensed balance sheet data (USD in millions)
| Â | March 31, 2016 | Â | March 31, 2015 | |||||
| Amount | Â | % of total balance sheet | Â | Amount | Â | % of total balance sheet | ||
| The Group’s total assets | 4,716 | 100% | 4,701 | 100% | ||||
| Â | Â | |||||||
| Current assets | 3,758 | 80% | 3,657 | 78% | ||||
| Of which: | ||||||||
| Cash and current investments in financial assets | 1,379 | 29% | 1,341 | 29% | ||||
| Income receivable from work in progress, net | 862 | 18% | 825 | 18% | ||||
| Current liabilities | 3,052 | 65% | 3,103 | 66% | ||||
| Of which: | ||||||||
| Payables for work in progress | 1,688 | 36% | 1,743 | 37% | ||||
| Equity | 1,061 | 23% | 924 | 20% | ||||
| Current ratio | 1.23 | 1.23 | ||||||
| Quick ratio | 1.01 | 1.02 | ||||||
Condensed profit and loss data (USD in millions)
| Â | Three months ended
March 31, |
 | Increase (decrease) compared to corresponding period | |||
| Â | 2016 | Â | 2015 | Â | of last year | |
| Sales | 859 | 910 | -6% | |||
| Â | Â | |||||
| Gross profit | 115 | 126 | -8% | |||
| % of gross profit from sales | 13.4% | 13.8% | ||||
| Research and development expenses | 36 | 40 | -9% | |||
| Costs of early retirement | 7 | 3 | 116% | |||
| Â | ||||||
| Operating income | 11 | 20 | -45% | |||
| % of operating income from sales | 1.3% | 2.2% | ||||
| Â | ||||||
| Tax expense | 6 | (18) | -134% | |||
| Â | ||||||
| Net income | 11 | 2 | 442% | |||
| % of net income from sales | 1.3% | 0.2% | ||||
| EBITDA (*) | 38 | 44 | -13% | |||
| % of EBITDA from sales | 4.4% | 4.8% | ||||
(*)Â Â Â Â Operating income before financial expenses (income), net and tax expenses (income), with the addition of depreciation and amortization.
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Israel Aerospace Industries:
IAI Ltd. is Israel’s largest aerospace and defense ompany and a globally recognized technology and innovation leader, specializing in developing and manufacturing advanced, state-of-the-art systems for air, space, sea, land, cyber and homeland security. Since 1953, the company has provided advanced technology solutions to government and commercial customers worldwide including: satellites, missiles, weapon systems and munitions, unmanned and robotic systems, radars, C4ISR and more. IAI also designs and manufactures business jets and aerostructures, performs overhaul and maintenance on commercial aircraft and converts passenger aircraft to refueling and cargo configurations.
In the pictures:
Rafi Maor- Chairman of the Board
Joseph Weiss- President and CEO
For further details:
Eliana Fishler, VP Communications
+972-3-935-8509
efishler@iai.co.il
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