- Record sales of USD 3.83 billion in 2014, representing an increase of 5% compared to 2013
- 9% increase in gross profit compared to 2013 to USD 571 million and a 68% increase in operating income to USD 141 million
- Decrease in net income: USD 27 million compared to USD 75 million in 2013. The increase in all the profit parameters was offset by non-cash deferred tax expenses due to the increase in the U.S. dollar exchange rate
- Order backlog of USD 9.1 billion, representing about 2.3 years of operation
- Negative cash flows from operating activities in 2014 totaling USD 193 million compared to positive cash flows of USD 550 million last year, mainly due to the deferral of a major engagement
Israel Aerospace Industries Ltd. (“the Company” or “IAI”), Israel’s largest commercial aviation and defence company, issues its consolidated financial statements for the year ended December 31, 2014.
The Company presents record sales and an increase in gross profit juxtaposed by the deterioration of Bedek Aviation Group’s activities and by the conversion of passenger aircraft to cargo configurations.
Rafi Maor, Chairman of the Board:
“IAI is concluding 2014 as Israel’s largest Hi-Tech and defence company with record sales of nearly USD 4 billion to the defence and commercial markets. The Company is continuing to take steps for enhancing its business activities, expanding into new markets and products and improving its operating activities.
We are displaying improvement in all the profit parameters, despite the significant decrease in net income, which mainly results from recording deferred tax expenses due to the increase in the U.S. dollar exchange rate. It is important to note that although in the short term the net income has been affected by recording tax expenses for accounting purposes, the increase in the U.S. dollar exchange rate means positive news for IAI in the future, given that the Company focuses mainly on exports with 80% of sales going to global markets.
The improvement in the various profit parameters is juxtaposed by the deterioration in the business results of the aircraft conversion and maintenance activities in the Bedek Aviation Group. The Company’s management, with the help and support of the Board, continues to design strategic steps to explore additional means of improving the Company’s competitive edge and retain its leading position in global markets. In this context there is great significance to the large variety of IAI’s operating segments both in the defence and in the commercial sectors. The diversity of its operations allows IAI to offer its customers comprehensive, wide system solutions and efficiently cope with the challenges in the different segments. The Company is simultaneously continuing to examine the different issues involving the preparations for an IPO of minority shares.”
Joseph Weiss, President & CEO
“We are concluding 2014 with an order backlog at a scope of approximately USD 9.2 billion, representing 2.3 years of operation. In addition to this major volume of transactions, IAI has been performing intense marketing activities for a variety of products and systems to numerous and diverse customers worldwide, which we believe will bear significant fruits in 2015.
The Company has also taken steps in identifying and focusing on several major growth engines for the coming years. For example, the area of unmanned air systems continues to represent a central growth engine and this year we have also entered new and innovative areas in this segment. The air defence and mission aircraft fields have reached major achievements in 2014 which cannot be elaborated upon for security reasons. We estimate that these fields will continue to represent a significant growth engine at the technological front.
IAI also invests resources and focuses on the conversion of defence technologies to commercial markets in order to leverage the vast knowhow and huge accomplishments in the defence market. A noticeable example of this is the groundbreaking and innovative robotic TaxiBot aircraft tractor which is raising a great deal of interest among global investors and aviation companies.
IAI also sees a great deal of potential in its cyber activities that are designed for both the defence and the commercial markets. This year, the Company has conducted major transactions in its target markets based on its innovative and idiosyncratic capabilities in the cyber field.
Alongside the investment in the Company’s future, IAI is required to respond to the continuing deterioration in the aircraft conversion and maintenance segment. The business results in this field reinforce the urgent need to take actions to redirect the Bedek Aviation Group towards growth and profitability. This issue is being tackled by the Company’s management and Board from a strategic mindset that acknowledges the relevant market’s constraints. Accordingly, management has been acting to continue to invest in developing innovative products in this field and adapt the structure of costs to the competitive market’s needs.”
Main data for 2014
The Company’s sales in 2014 amounted to USD 3,827 million compared to USD 3,642 million last year, a 5% increase.
The increase in sales in 2014 arises from the increase in the activities of the majority of the Company’s groups, particularly the activities of the Commercial Aircraft Group and the ELTA Group. This increase was offset by a decrease in the System Missiles and Space Group as a result of the launch of the Amos 4 Satellite in 2013.
Sales for export in 2014 accounted for 78% of sales (22% in Israel) compared with 73% in 2013 (27% in Israel).
Sales to the military market in 2014 accounted for 73% of sales (27% to the commercial market), unchanged from last year.
Gross profit in 2014 amounted to USD 571 million (14.9% of sales) compared with USD 522 million (14.3% of sales) in 2013.
Research and development expenses deducting R&D grants in 2014 totaled approximately USD 165 million (reflecting a total of USD 190 million in gross R&D expenses) compared with approximately USD 180 million in 2013 (reflecting a total of USD 186 million in gross R&D expenses) (representing about 4.3% and 4.9% of sales, respectively).
Other expenses, net in 2014 totaled USD 2 million compared with other income, net of USD 11 million in 2013 (which consisted of a non-recurring gain of USD 19 million resulting from the initial consolidation of an investee in the corresponding period).
Expenses for early retirement of employees – as part of the operational efficiency measures taken by the Company, in 2014, 105 employees retired from the Company at a cost of approximately USD 20 million compared with 178 employees who retired early last year at a cost of USD 38 million.
Operating income in 2014 amounted to USD 141 million (3.7% of sales) compared with approximately USD 84 million (2.3% of sales) in 2013, an increase of 68%, which is explained by the increase in gross profit and the decrease in expenses in respect to the early retirement of employees as opposed to last year.
EBITDA in 2014 amounted to USD 253 million compared with USD 199 million in 2013, an increase of 27%.
Financial expenses, net in 2014 amounted to USD 34 million as opposed to USD 23 million in 2013. The change is mainly attributed to the decrease in the gain from securities due to the decrease in interest and the increase in the U.S. dollar exchange rate.
The Company’s share of losses of associates in 2014, the Company recorded its share of losses of associates at a total of approximately USD 7 million as opposed to losses of USD 10 million last year. The loss is mainly attributed to associates in the aircraft conversion segment.
Tax expenses, net in 2014 totaled USD 73 million compared to tax income, net of USD 24 million in 2013. The gap is mainly attributed to non-cash deferred tax expenses of USD 56 million recorded for accounting purposes as a result of an increase of about 12% in the U.S. dollar exchange rate in relation to the NIS in 2014 as opposed to the decrease of about 7% in the U.S. dollar exchange rate last year which led to recording deferred tax income from exchange rate differences at a total of approximately USD 37 million. The tax expenses represent accounting expenses (mostly for deferred taxes) since the Company files tax returns in NIS whereas its functional currency is the dollar.
Net income in 2014 amounted to USD 27 million (0.7% of sales) compared with USD 75 million (2% of sales) in 2013. The decrease in net income reflects an increase in all the profit parameters which was offset by the high non-cash tax expenses from exchange rate differences.
At the end of the year, the order backlog totaled USD 9.1 billion compared with USD 10 billion at the end of 2013. 83% of the order backlog is designated for sales to overseas customers with a broad geographic dispersal. The order backlog is comprised of a diverse range of products and guarantees 2.3 years of operation.
The book to bill ratio in 2014 is 0.8 as a result of the deferral of a major engagement.
The Company’s negative cash flows from operating activities in 2014 amounted to USD 193 million compared with positive cash flows from operating activities of USD 550 million in 2013. The Company’s transition to negative cash flows from operating activities in 2014 as opposed to last year mainly arises from the deferral of a major engagement.
Results for the fourth quarter of 2014
The Company’s sales in the fourth quarter of 2014 totaled USD 975 million compared with USD 967 million in the corresponding quarter of last year, an increase of 0.8%.
Sales for export in the fourth quarter of 2014 accounted for 79% of sales (21% in Israel) compared with 71% in the corresponding quarter of 2013 (29% in Israel).
Sales to the military market in the fourth quarter of 2014 accounted for 74% of sales (26% to the commercial market) compared with 76% in the corresponding quarter of 2013 (24% to the commercial market).
Gross profit in the fourth quarter of 2014 totaled USD 146 million (15% of sales) compared with USD 145 million (15% of sales) in the corresponding quarter of last year.
Operating income in the fourth quarter of 2014 totaled USD 45 million (4.6% of sales) compared with operating income of USD 8 million (0.8% of sales) in the corresponding quarter of 2013.
Research and development expenses after deducting R&D grants in the fourth quarter of 2014 totaled USD 37 million (3.8% of sales), reflecting an amount of USD 57 million in gross R&D expenses, compared with USD 63 million (6.5% of sales), reflecting an amount of USD 66 million in gross R&D expenses in the corresponding quarter of last year.
Expenses for early retirement of employees – in the fourth quarter of 2014, 5 employees retired from the Company at immaterial cost, compared with 33 employees who retired early in the corresponding quarter of last year at a cost of USD 6 million (0.6% of sales).
Financial expenses, net in the fourth quarter of 2014 totaled USD 12 million compared with financial expenses, net of USD 9 million in the corresponding quarter of last year.
Tax expenses, net in the fourth quarter of 2014 totaled USD 30 million compared to tax income, net of USD 10 million in the corresponding quarter of 2013. The gap is mainly attributed to recording accounting expenses (non-cash) of deferred taxes in respect to exchange rate differences as a result of an increase of about 5% in the U.S. dollar exchange rate.
Net income in the fourth quarter of 2014 totaled USD 2 million compared with net income of USD 7 million in the corresponding quarter of last year.
The positive cash flows from operating activities in the fourth quarter of 2014 totaled USD 405 million compared with positive cash flows from operating activities of USD 39 million in the corresponding quarter of last year. The positive cash flows from operating activities in Q4 2014 derive from the net debt repayment by the Ministry of defence at a total of USD 350 million in the fourth quarter of 2014.
Material events in 2014
- On July 29, 2014, the Company raised debentures (series D) at an amount of NIS 463 million (USD 135 million) with the scope of demands exceeding by 3.5 the total amount raised, reaching a total of approximately NIS 1.6 billion.
- On June 2, 2014, the Company repaid the second and final installment of the principal of debentures (series A) at a total of approximately NIS 500 million (USD 144 million).
- On April 9, 2014, the “Ofek 10” TESCAR satellite was successfully launched into orbit by a multi-stage satellite launcher, both made by the Company.
- On November 3, 2014, IAI received EASA and CAAI certification for Boeing 737 taxing from the gate to takeoff by IAI’s TaxiBot system.
- On November 10, 2014, IAI conducted a successful test of the Barak-8 Air & Missile defence System, which reduced material risks. The success of the test will positively affect the results for 2015.
