Israel Aerospace Industries, Israel's largest national military and civilian security defense company, issues its consolidated financial statements for the year ended December 31, 2018.
IAI records an annual increase of USD 2.3 billion in order backlog, reaching a record scope of approximately USD 13.5 billion at the end of 2018.
The Company reports sales totaling USD 3.7 billion, representing a 5% increase in sales compared to last year, and a net loss of USD 44 million. The Company has cash balances in the aggregate of approximately USD 1.5 billion and positive cash flows from operating activities totaling USD 313 million.
Nimrod Sheffer, the CEO of IAI, said: "The Company is concluding 2018 with an unparalleled record order backlog which is also expressed in the increase in sales. The loss in the year arises from several non-recurring events, including the provision for the early retirement of employees, write-off of inventory due to the prolongation of a pre-sale process of a material contract and the impairment of an intangible asset in the refueling conversion operation.
“In H2 2018, the Company's management completed the design of an updated business strategy and continued executing a series of significant measures consisting of material business and corporate restructuring. Among others, the Company completed the consolidation of three divisions and another business enterprise into a single division - the Aviation Group - which began operating in early 2018.
“The Company's C-Suite has also undergone critical changes and continues to take extensive steps towards laying the necessary foundations for implementing and achieving the Company's revised business strategy which focuses on growth and profitability.
“There is no doubt that IAI still faces numerous and major challenges in the years to come, both within and without. We have a duty to our employees, customers and partners to exercise all efforts to secure the Company's financial stability, growth and profitability."
Main results in 2018
-- The Company's sales in 2018 amounted to USD 3,682 million compared with USD 3,520 million in 2017, an increase of about 4.6%. The increase in sales in 2018 compared to last year is a result of the increase in the revenues of the Systems Missiles & Space Group and of the Bedek Aviation Group. The increase in sales in the Systems Missiles & Space Group stems from the significant increase in the division's order backlog as a result of signing mega contracts with customers in recent years, which is expected to continue having a positive effect on the scope of the division's revenues in the foreseeable future.
-- Sales for export in 2018 accounted for 74% of sales (26% to Israel) compared with 76% (24% to Israel) in 2017.
-- Sales to the military market in 2018 accounted for 72% of sales (28% to the civilian market), compared with 70% (30% to the civilian market) in 2017. The increase in sales to the military market reflects the growth in the revenues of the Systems Missiles & Space Group.
-- Gross profit in 2018 amounted to USD 494 million (13.4% of sales) compared with USD 538 million (15.3% of sales) in 2017. The decrease of USD 44 million in the gross profit margin mainly arises from the increased payroll costs in USD due to the revaluation of the USD exchange rate in relation to the hedged exchange rate (despite the decrease in payroll costs in NIS) and from recording non-recurring losses consisting of the write-off of inventories in process in ELTA and the loss arising from the derecognition of an intangible asset in the Bedek Aviation Group.
-- Research and development expenses in 2018 totaled approximately USD 180 million compared with approximately USD 182 million in 2017 (about 4.9% and about 5.2% of sales, respectively).
-- Expenses/income in respect of early retirement of employees: in 2018, the Company recorded expenses in respect of recording a provision for early retirement of employees in an amount of approximately USD 13 million, compared with income of approximately USD 9 million in 2017. The expense in 2018 mainly arose from recording a provision for early retirement of employees as a result of the agreement signed between the Company and the Workers' Union regarding the Aviation Group.
-- Operating income in 2018 amounted to USD 12 million (0.3% of sales) compared with operating income of USD 121 million in 2017 (3.4% of sales). The decrease in operating income is mainly a result of the decrease in gross profits and the recognition of an allowance for a doubtful account in the Systems Missiles & Space Group.
-- EBITDA in 2018 amounted to USD 189 million (5.1% of sales) compared with USD 257 million in 2017 (7.3% of sales).
-- Net financial expenses in 2018 amounted to USD 49 million compared with net financial expenses of USD 29 million in 2017. The increase in financial expenses is mainly a result of the erosion of NIS assets, net in view of the strengthening of the USD in relation to the NIS at about 8% in 2018, as opposed to the weakening of the USD at about 10% in 2017.
-- The Company's share of earnings/losses of associates: in 2018, the Company recognized income of approximately USD 8 million in respect of its share of earnings of associates as opposed to a loss of approximately USD 3 million in 2017.
-- Net tax expenses - in 2018, the Company recorded net tax expenses of approximately USD 15 million compared with net tax expenses of approximately USD 8 million last year.
-- Net income/loss - in 2018, the Company recorded a net loss of approximately USD 44 million compared with net income of USD 81 million in 2017 (2.3% of sales).
-- The order backlog at the end of 2018 amounted to approximately USD 13.5 billion compared to approximately USD 11.2 billion at the end of 2017, an increase of approximately USD 2.3 billion in 2018. 81% of the order backlog is held for sale to foreign customers based on a wide range of products and secures 3.4 years of operation.
-- The book to bill ratio in 2018 was 1.47, reflecting significant growth in the volumes of the Company's contracts.
-- Positive cash flows from operating activities in 2018 amounted to USD 313 million compared with positive cash flows from operating activities of USD 301 million in 2017.