Shikun & Binui Announces Financial Results for the Second Quarter & First Half of 2014

AIRPORT CITY, Israel, Aug. 21, 2014 /PRNewswire/ -- Shikun & Binui Ltd. (TASE: SKBN.TA), a global construction and infrastructure company headquartered in Israel, today reported its financial results for the second quarter and first six months ended June 30, 2014.

Main events:

• Win in Colombia: On July 23, 2014, the Company announced that it had been selected, as part of a consortium, by the Colombian government, to build a road on a BOT basis. The value of the overall project is estimated at USD 550 million. This is the Company's first win in Colombia, and SBI (the Company's subsidiary), will be part of the project's EPC (executing contractor).
• Cancellation of commitment to list Shikun & Binui Real Estate: On June 3, 2014, the Company announced that it had signed an agreement cancelling its commitment to institutional investors to list the shares of Shikun & Binui Real Estate for public trading. Under the terms of the agreement, the Company allocated 1.2% (before allocation) of Shikun & Binui Real Estate's shares at face value (approximately NIS 4 million) to these shareholders and paid NIS 7 million in cash. In the Company's financial reports, the transaction was recorded as a NIS 38 million expense before tax.
• "Pumped Storage" transaction ("Ma'aleh Gilboa"): On January 2 and June 16, 2014, the Company completed the transactions to purchase the rights in the Pumped Storage Project. In the Company's financial reports, the transaction was recorded as an investment totaling NIS 91 million.
• Infrastructure segment order backlog: As of June 30, 2014, the order backlog of the Company's Infrastructure segment totaled NIS 9.7 billion, a decline of approximately NIS 0.8 billion compared with that of December 31, 2013. Of this backlog, NIS 6.8 billion is from international activities.
• Financing activities: on April 3 and June 2, 2014 the Company issued Series 7 debentures totaling NIS 274 million and NIS 53 million, respectively. On May 8, 2014, the Company carried out an exchange offer, replacing its short-term Series 4 debentures with a par value of NIS 587 million with long-term Series 6 debentures with a par value of NIS 698 million.

• On August 21, 2014, the Company's Board of Directors declared a dividend totaling NIS 25 million.

Financial Highlights for the First Half of 2014

Revenues: The Group's revenues for the first half of 2014 totaled NIS 2,870 million, a 14.2% decrease compared with the NIS 3,376 million recorded in the first half of 2013.

The NIS 479 million decline was primarily due to:

1. A NIS 155 million decrease in the sales of the International Construction and Infrastructure segment, reflecting erosion due to exchange rates (amounting to NIS 74 million), the completion of projects in Uganda and Tanzania and a slower rate of activity for the Company's projects in Guatemala and Azerbaijan. This was countered partially by the receipt of initial revenues from the Company's first project in Togo;
2. Reduced apartment deliveries in the Israel Real Estate Development segment, resulting in a NIS 426 million decline in revenues;
3. A NIS 116 million decline in the revenues of the Renewable Energy sector due to a reduced number of photovoltaic installations completed; and
4. A NIS 55 million decline in revenues of the Concessions segment due to the North Road Project's transition to the operational phase after completion of its construction phase. The decline was countered partially by a NIS 172 million revenue increase from the Israel Construction and Infrastructure segment, NIS 70 million of which was attributable to execution of the BIG project in Ashdod and NIS 30 million to increased activities of the cement and road work divisions.

Gross profit: The Group's gross profit for the first half of 2014 totaled NIS 446 million (15.4% of revenues) compared with NIS 622 million in the first six months of 2013 (18.4% of revenues). The decline derived primarily from the decreased gross profit of the Israel Real Estate Development segment, as detailed below.

General and administrative expenses: The Group's general and administrative expenses in the first half totaled NIS 183 million, an increase of NIS 15 million compared with the parallel period last year. The increase derived primarily from a NIS 5 million increase in executive compensation (due to the grant of restricted shares).

Other expenses, net: The Group's other expenses, net, totaled NIS 8 million in the reporting period, compared with NIS 56 million of other income, net, in the first half of 2013. The other income in the first half of 2013 reflected a one-time payment of NIS 55 million received in respect of the cancellation of a land purchase transaction by the municipality of Ramat Gan in Israel. In the second quarter of 2014, income of NIS 20 million was recorded to reflect the retirement of a debt and an associated provision after the completion of an arbitration process regarding a project in the Republic of Benin. This was countered partially by a one-time NIS 36 million expense due to the cancellation of the Company's commitment to publicly list Shikun & Binui Real Estate's shares and the agreement that the Company had signed with institutional investors.

Operating profit: The Group's operating profit for the first half of 2014 totaled NIS 242 million compared with NIS 493 million in the first half of 2013, a decrease of NIS 251 million. The decline was primarily due to a NIS 229 million decrease in the Real Estate Development segment's operating profit, including a NIS 147 million decrease in the segment's gross profit. It should be noted that the comparison with the first half of 2013 is compounded due to a one-time income of NIS 55 million in that period, as mentioned above, from the cancellation of the land purchase transaction with the municipality of Ramat Gan.

Net financing expenses: The Group's net financing expenses for the first half of 2014 totaled NIS 83 million compared with NIS 95 million for the first half of 2013.

The decrease was driven mainly by:

1. A 0.2% decrease in the Consumer Price Index (CPI) in Israel during the period, compared with a 0.7% increase in the parallel period of 2013, which reduced the cost of CPI-linked credit by NIS 32 million; and
2. A reduction in the Prime Rate, which reduced the cost of the Company's unlinked long-term loans. This was countered by a NIS 20 million reduction in financing income from loans that were granted to minority interest companies ("Derech Eretz"), that was sold last year.

Taxes on income: The Group's taxes on income for the reporting period totaled NIS 50 million compared with NIS 117 million in the first half of 2013. The decline derived primarily from a NIS 60 million reduction in taxes paid by the Israel Real Estate Development sector due to its reduced profit during the period.

Minority interests: During the first half of 2014, the Company's minority interest companies reported net profit of NIS 3 million, reflecting a NIS 5 million reduction in a provision taken for impairment of the value of Gilatz. This compared with net losses of approximately NIS 28 million recorded during the first half of 2013, which included the NIS 18 million loss of a company in the international real estate segment and a NIS 10 million loss of companies in the Israel Concessions segment.

Net profit: Net profit for the first half of 2014 totaled NIS 112 million compared with NIS 253 million in the first half of 2013, the changes reflecting the factors described above.

International infrastructure and construction:

• Revenues: First half 2014 revenues of the International Infrastructure and Construction segment totaled NIS 1,346 million compared with NIS 1,501 million in the first half of 2013. The NIS 155 decrease reflected the erosion in the shekel-dollar exchange rate, which declined by 5.2% in the period compared to its average value in the first half of 2013, reducing the segment's revenues by NIS 74 million, as well as by the completion of projects in Uganda and Tanzania and the slowing of the project in Guatemala. This was countered partially by revenues from the $80 million roadwork project in Togo, awarded last year.
• Gross profit: The segment's gross profit for the period totaled NIS 291 million compared with NIS 292 million in the first six months of 2013, with the gross margin rising from 19.5% to 21.6% due primarily to the projects in Uganda and Tanzania. Currency effects on the segment's gross profit totaled NIS 19 million.
• Operating profit: The segment's operating profit totaled 243 million (18% of sales) compared with NIS 217 million (14.5% of sales) in the first half of 2013. During the second quarter, the segment recorded NIS 20 million in income related to the cancellation of a provision after the conclusion of the arbitration process for a project in the Republic of Benin.
• Project wins: During the reporting period, the segment was awarded two new hydraulic projects in Guatemala.

Israel Infrastructure and Construction:

• Revenues: First half 2014 revenues in the Israel Infrastructure and Construction segment totaled NIS 1,107 million compared with NIS 935 million in the first half of 2013, an increase of NIS 172 million. The increase was primarily due to an expansion of project execution activities, especially due to execution of the BIG project in Ashdod, which accounted for approximately NIS 70 million of the increase. An additional NIS 30 million in revenues was due to the increased activity of the segment's road and cement divisions.
• Gross profit: The segment's gross profit for the reporting period totaled NIS 55 million compared with NIS 58 million in the first half of 2013.
• Operating profit: The segment's operating profit totaled NIS 18 million (1.6% of revenues) compared with NIS 30 million in the first half of 2013 (3.2% of revenues).
• Project wins: During the reporting period, the segment, together with its partners, was awarded a NIS 270 million project (company's part) for building three railroad segments, and a NIS 300 million project for building the Operations & Maintenance Depot for the light rail's Red Line, which is expected to be carried out over the next few years.

Israel Real Estate Development:

• Revenues: First half 2014 revenues of the Israel Real Estate Development segment totaled NIS 414 million compared with NIS 840 million in the first half of 2013. The decrease derived primarily from the decline in the sale and delivery of apartments, which numbered 294 units in the first half of 2014 compared with 402 units in the first half of 2013. In addition, a change in the mix of units delivered during the reporting period reduced the average apartment sale price to approximately NIS 1.1 million (pre-VAT) from NIS 1.5 million (pre-VAT) in the first half of 2013. In addition, revenues were impacted by: 1) a NIS 37 million decline reflecting the transition of the BOT student dormitory project from the building phase to the operational phase; 2) a NIS 110 million decline in revenues from the sale of non-residential projects as compared to the first half of 2013, when the segment recorded one-time revenues from the sale of 50% of its rights in the 7^th Avenue shopping center in Beer-Sheva and a rights sale for a shopping center in Ramat-Gan.
• Gross profit: The segment's gross profit for the reporting period totaled NIS 79 million (17% of sales) compared with NIS 226 million (29% of sales) in the first half of 2013. The segment's H1 2013 results included the sale of units built on historical lands that had been recorded on the balance sheet at a relatively low cost.
• Operating profit: The segment's operating profit for the reporting period, during which the segment recorded NIS 36 million in operating expenses related to the cancellation of its commitment to list the shares of Shikun & Binui Real Estate, totaled NIS 4 million, compared with NIS 233 million in the first six months of 2013, a period during which the Company recorded NIS 55 million of one-time income related to the cancellation of its land sale agreement with the municipality of Ramat Gan.

Renewable energy:

• Revenues: First half 2014 revenues of the Renewable Energy segment totaled NIS 67 million compared with NIS 183 million in the first half of 2013. The decline was primarily due to a reduction in the number of photovoltaic (PV) facilities built, which are accounted for as financial assets whose construction expenses are recorded as revenues. During the parallel period in 2013, the Company built PV installations at a relatively faster rate.
• Gross profit: The segment's gross profit for the reporting period totaled NIS 22 million compared with NIS 37 million in the first half of 2013.
• Operating profit: The segment's first half operating profit totaled NIS 10 million compared with NIS 21 million for the first half of 2013.

Concessions:

• Revenues: First half revenues for the Concessions segment totaled NIS 27 million compared with NIS 82 million in the first half of 2013. The NIS 55 million decline was primarily due to the completion of the BOT North Road Upgrade and Maintenance Project's construction phase and its transition to the operational phase.
• Gross profit: The segment's gross profit for the reporting period totaled NIS 7 million, unchanged from the first half of 2013.
• Operating profit: The segment's operating profit for the first half of 2014 totaled NIS 2 million compared with NIS 1 million in the first half of 2013.

Conference Call:

The Company will host an interactive conference call on Thursday, August 21, at 10:30am Eastern Time. Tal Raz, Chief Financial Officer, will host the call and will be available to answer questions after discussing the results.

To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, try the international dial-in number.

US: 1-888-668-9141
UK: 0-800-917-5108
Israel: 03-918-0610
International: +972-3-918-0610

At: 10:30am Eastern Time, 7:30am Pacific Time, 3:30pm UK Time, 5:30pm Israel Time

For those unable to participate, the teleconference will be available for replay on the company's website at http://en.shikunbinui.co.il/ beginning 24 hours after the call.

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.