Shikun & Binui Announces Financial Results For the First Half of 2018

-  Revenues - NIS 2.7B; Net Profit - NIS 203M, Up 228% Compared With H1 2017 -

-  Order Backlog reached NIS 13.3B, Excluding NIS 3.7B in Additional Projects Won up to the reporting period and thereafter–

AIRPORT CITY, Israel, Aug. 28, 2018 /PRNewswire/ -- Shikun & Binui Ltd. (TASE: SKBN.TA), a global construction and infrastructure company headquartered in Israel, today reported its financial results for the first half and second quarter ended June 30, 2018.

Financial highlights for the 1^st half of 2018:

• Revenues totaled ~NIS 2.7 billion, down 20% compared to the first half of 2017. The decrease reflected Solel Boneh's strong performance in 2017, due to the Ashalim and Railroad Tracks projects, coupled with a decline during 2018 in the Company's international contracting activities (excluding the US), due to the slowdown of its activities in Nigeria and Columbia and the completion of projects in Ghana and Togo.  
• Gross Margin for the period was 12% compared with 11% during the parallel period of 2017. Gross Profit for the period totaled ~NIS 325 million, compared with ~NIS 377 million for the first half of 2017.
• Net Profit for the first half of 2018 totaled ~NIS 203 million, compared with ~NIS 89 million for the first half of 2017. The increase reflected primarily a ~NIS 331 million pre-tax capital gain generated by the sale of the Portfolio (45% of the Company's holdings in Carmeltun and 40% of its holdings in North Roads, see below).
• Cash flow from operations, excluding investments in land and rights offerings, was a negative ~NIS 494 million. Cash flow from operations including these investments was negative ~NIS 906 million.

Income Statement highlights:

1. CONSTRUCTION

Solel Boneh

• Progress continues in expanding the Company's construction offerings: revenues for the first half of 2018 totaled ~NIS 1.6 billion.
• Acquisition of Menorah Izu Aharon Group: In February 2018, Solel Boneh completed the acquisition of the Menorah Izu Aharon Group, a privately-held company that engages in the execution, construction and maintenance of complex electrical systems for lighting, railroad crossings, traffic control and other applications. The company employs ~235 workers. The acquisition is in line with Shikun & Binui's strategy to expand its construction offerings and will be complementary and synergistic to its other activities.
• Primary mega projects in process: Gilboa Pumped Storage, Ashalim Thermo Solar power plant, Tel Aviv Light Rail (Western Section), the Tze'elim, the Southern Barrier, and others.

International Building and Infrastructure Contracting Activities (excluding the US)

• Total revenues for H1 2018: ~US$ 183 million ~NIS 643 million.
• In February 2018, the company signed an agreement to build a new airport in Uganda for ~USD 299 million.
• In August 2018, the company received notice of the approval of an expansion for the Shagamu-Ibadan Road project in Nigeria for ~USD 220 million.
• The company has decided to begin reporting its financial results according to the NAFEX exchange rate beginning in the second quarter of 2018, in light of Nigeria's announcement that it will cease publishing the NIFEX exchange rate beginning in January 2019. As a result, a goal has been established to reduce the gap between the NIFEX and the NAFEX exchange rates, in light of the reduction in the flow of foreign currency by the Central Bank (339 as of 30/06/18). As a result, a loss of $5m from exchange rate differences was recorded in the second quarter
• In the second quarter a loss of US$ 16 m (NIS 59m) was recoded due to hedging activity in relation to a construction project in Uganda.
• Segment 1 of the Colombia Toll Roads Project is now moving into operation; completion of Segments 2 and 3 is expected to be delayed and negotiations are currently underway to extend the work period. Regarding Segments 4 and 5, significant changes in the scope of the project may be required due to the discovery of water springs along the original route. As a result of the delays, the project's funders have stopped allowing a further draw-down of funds until a new plan has been approved for the slowdown of work activity. In 2017, a provision of ~USD 5 million was taken in respect of the project's expected loss, and in the second quarter of 2018, another ~USD 5 million provision was taken.
• During the second quarter of 2018, the Company decided to act in order evaluate its indirect holdings in its consolidated company SBI International Holdings AG, whether through a share deal and/or the sale of activities and/or assets (partially or in full). including the solicitation of appropriate offer, and evaluating the potential impact of such activities. No decision has yet been made to sell the International Infrastructure and Construction Division, and there is no certainty, at this stage, regarding the results of the evaluation and/or the feasibility, scope or terms of a deal. At this stage of the process, the process has no effect on the Company's financial results.

US Building and Infrastructure Contracting Activities:

• Total revenues for H1 2018: ~NIS 242 million from construction of the SH-288 road project in Texas.
• Beginning from the first quarter of 2018, the results of the US Building and Infrastructure Contracting Activities division are presented separately in line with Shikun & Binui's strategic processes.

Development of the Backlog (in NIS millions)

* The backlog as of 30.6.18 does not include additional construction projects totaling ~NIS 3.7 billion that the company has won in Israel and in international markets up to or after the report date, including ~USD 150 million in roads projects in Nigeria, ~USD 120 million in roads projects in Ethiopia, ~USD 120 million in roads projects in Guatemala and the construction of a NIS 750 million (our share – 50%) waste sorting and recycling center in Rishon Letzion, a project whose initiation is contingent upon the completion of a financial closing. In addition, the backlog does not include projects completed during the reporting period or after the report date. The decline in the backlog as compared with its level at 31.12.17 derives partially from the effect of the early adoption of the IFRS 15 reporting standard.

2. RESIDENTIAL REAL ESTATE DEVELOPMENT

Apartment Sales

• During the first half of 2018, the company sold ~590 apartments (100% share) totaling ~NIS 612 million, including ~169 units in Israel and ~421 units in Europe.
•  In Europe, the company continued to launch projects and to acquire land for future development:
• Launch of the Zahálka project in Prague, Czech Republic: 790 units including 240 units in Phase 1
• Launch of the Wellport project in Belgrade, Serbia: 570 units including 95 units in Phase 1
• Purchase of partner's share in the City Point project in Romania for the development of ~1,500 units (construction expected to begin in 2019)
• Purchase of land in the Karlin quarter in the Czech Republic for the development of ~220 units (construction expected to begin in 2020)
•  In Israel, the company began planning for the construction of 657 apartments and commercial space in Or Yam in Or Akiva. In addition, it initiated marketing efforts for new projects in Givat Shmuel, Ashkelon, Kfar Yona and Harish, and building began for projects in Rishon Letzion and Givat Shmuel.

Following is additional data regarding the Company's sale of apartments (signed contracts) during the first half of 2018:

Following is data regarding the Company's delivery of apartments to customers during the first half of 2018:

• Implementation of the IFRS Standard: According to the IFRS Standard, the company reports its revenues from Israeli apartment sales over time according to the progress made in the each project's building and sales processes. The policy for revenue recognition from apartment sales in other countries remains unchanged: that is, all revenues are recognized at the time of delivery. 

3. PROJECTS & IGAs (INCOME GENERATING ASSETS)

• Won a Concessions tender for an urban waste sorting and treatment plant: In April 2018, Israel's Tendering Committee selected Shikun & Binui and G.E.S. (equal partners) to plan, finance and construct an urban waste sorting and treatment plant under a 29.5-year concessions framework. Construction costs are projected to total ~NIS 750 million. Solel Boneh holds 50% of the Construction Contractor rights and will build the project together with G.E.S. Launch of construction is contingent upon the completion of Financial Closing.
• Won a Concessions tender for a teleprocessing technology campus in Be'er Sheva: In June 2018, Israel's Tendering Committee announced, in respect to its tender to plan, finance, construct, operate and maintain a 170,000 m² teleprocessing technology campus in Be'er Sheva under a 25-year concessions framework, that it had selected a project company established in equal partnership by the Company and Africa Israel Properties Ltd. as the preferred candidate as part of the defined process in the Concessions agreement. Final approval is conditional upon fulfillment of milestones and conditions set out in the tender.
• The company continues to implement its strategy aimed at realizing value and freeing up cash flow for investment in new projects:
• The company has completed the sale of the Portfolio (45% of its rights in the Carmel Tunnels project and 40% of its rights in the North Roads project). The sale generated a profit of NIS 272 million and cash flow of ~NIS 580 million.
• The company has entered into a process for selling its rights in the Generi 2 Government Campus project. If and when the sale is completed, the company expects to recognize ~NIS 25-30 million in profit and ~NIS 70 million in cash flow. The project will be completed in January 2019 at the earliest.
• The company has entered into a process for selling its rights in an IKEA store. If and when the sale is completed, the company expects to recognize ~NIS 83-88 million in profit. Completion of the project is contingent upon approval by regulatory authorities.
• Significant progress with portfolio of Renewable Energy projects:
• Received conditional license for the conversion of the Etgal power plant to natural gas while expanding its generation capacity from 26MW to 186MW
• Began construction of 6 high voltage PV projects totaling up to 60MW
• Progress towards Financial Closing to construct high voltage PV projects totaling up to 25MW

Sale of Shikun & Binui shares:

• On August 6, 2018, a transaction was consummated for the sale of all shares of Shikun & Binui Ltd. held by Arison Investments Ltd. to Capital Foresight Israel Investments Company LLC, which is controlled by Mr. Naty Saidoff. Subsequent to the consummation of the said transaction, the control over the Company was transferred finally to Capital LLC.
• Capital Foresight Israel Investments Company LLC holds about 46.91% of the Company's issued and paid-up share capital, and about 47.68% of the voting rights in the Company. Capital Foresight Israel Investments Company LLC is held (100%) by the Capital Foresight Limited Partnership, whose General Partner is the partnership Saidoff Foresight LP ("the Partnership"). The General Partner of the Partnership is Naty Saidoff LLC, which is held (100%) by Naty Saidoff.

About the Shikun & Binui Group

The Shikun & Binui Group is a global construction and infrastructure company that operates in Israel and internationally in seven segments: 1) infrastructure and construction contracting outside of Israel; 2) infrastructure and construction contracting within Israel; 3) real estate development within Israel; 4) real estate development outside of Israel; 5) renewable energy; 6) concessions; and 7) water. The Group's activities focus on large, highly complex projects carried out for entities in private and public sectors with a focus on sustainability.

This summary announcement was prepared solely for the convenience of the reader and does not replace Shikun & Binui Ltd.'s (hereafter – "the Company") full report.  The information contained in this announcement is, by its nature, incomplete. All of its contents are provided as a supplement to the Company's report, and are subject to the declarations therein stated.  This announcement includes forecasts, assessments, estimates and other information relating to the Company or its subsidiaries, or to other parties or to future events and matters, the extent of whose realization is not certain and is not under the sole control of the Company (forward-looking information, as defined in the Securities Law-1968).  The key facts and data serving as the basis for this information are facts and data, among others, related to the current status of the Company and its businesses, facts and data relating to the current status of the operating segments in which the Company engages in its areas of operation, and other macroeconomic facts and data known to the Company on the preparation date of this presentation.

It is understood that forward-looking information does not constitute a fact and is based solely on subjective assessments.  Forward-looking information is uncertain and for the most part, is not under the Company's control.  The realization or non-realization of the forward-looking information will be influenced, among others, by the risk factors that characterize the Company's operations, as well as developments in the general environment and external factors that impact the Company's operations.  The Company's future results and achievements could differ significantly from those presented in this presentation.  The Company is not obligated to update or modify the said forecast or assessment, and is not obligated to update this announcement.  This announcement does not constitute an offer to purchase the Company's securities or an invitation to receive such offers.  An investment in securities in general, and in the Company in particular, carries risk.  One must take into account that past data do not necessarily indicate future performance.