Shikun & Binui Announces Financial Results for the First Nine Months & Third Quarter of 2016

AIRPORT CITY, Israel, Nov. 30, 2016 /PRNewswire/ -- Shikun & Binui Ltd. (TASE: SKBN.TA),a global construction and infrastructure company headquartered in Israel, today reported its financial results for the first nine months and third quarter ended September 30, 2016.

Business highlights during and following the reporting period:

• Nigeria – significant USD 155 million in collections; revenues return to run rate of approximately USD 42 million per quarter
  • During the third quarter reporting period, Nigeria approved its 2016 budget and the Department of Labor paid a large portion of its outstanding debt, including a USD 114 million payment to the Group. Upon receipt of the payment, Shikun & Binui renewed work on most of its civilian projects in the country. After the report date, the Group received a further USD 40 million payment from the Nigerian government.
  • In June 2016, the Nigerian government cancelled the fixed naira/dollar exchange rate, a process which led to a devaluation of the currency from approximately 197 naira/dollar to approximately 305 naira/dollar (as of September 30, 2016). As a result, the Group recorded a USD 25.3 million net loss representing the reduced dollar value of naira-denominated revenues, reduced operational costs (due to the reduced value of various goods and services), and increased financial expenses. The impact of these effects were mitigated by the cancellation of the earlier provision that had been taken for the Nigerian doubtful debt.
• Ashalim – progress is being made in the project's construction; completion expected in mid-2018 as originally planned
  • In August 2016, a deal was completed under which Abengoa, a partner in the project, was replaced by the Noy Fund and the Spanish TSK Group. Under the framework of the deal, Shikun & Binui (Solel Bonei) increased its share of the Building Contractor to 67.5%, while its share of the Concessionaire and Operator remained 50%. Having increased its share of the Building Contractor, the Company is now consolidating the project's contractor activities into its results.
  • Within the framework of the deal, the Company received the required approvals from the government and from the lenders of the project's senior debt, and drew a tranche of funds from the senior debt. The project continues based on the original schedule, with completion projected for mid-2018.
• Financial Closings:
  • Financial Closing of Project SH-288 in Texas: In May, the Company completed the Financial Closing for an express lane project in Houston, Texas for approximately USD 1 billion. The Group holds 21.62% of the project's Concessionaire and 50% of its General Contractor.
  • Financial Closing of Colombia Toll Roads Project: In May, the Company achieved the Financial Closing for its project in Colombia to finance, build, upgrade, operate and maintain toll roads in Bogota, Colombia for approximately USD 650 million.
• Sources of significant cash flow:
  • Collections from international contracting activities – from January to October, the Company received approximately NIS 1.6 billion in payment for its international contracting activities (USD 410 million, including USD 69 million collected after the report date, in October).
  • Sale of holdings in the Colombia Toll Roads Project – in November 2016, the Group signed an agreement to sale of 50% of its holdings in the Developer of the Cundinamarca project to InfraRed, an international investment fund, generating $60 million in cash flow and $35-40 million in net income.
  • ADO's buy-back activities - since the beginning of 2016, the Company has received NIS 177 million from the buy-back activities carried out by ADO (including NIS 29 million received after the report date, in October).
  • Sale of the Hadera Desalination Plant's operating company - in March 2016, the Group sold its holdings in the operating company of the Hadera Desalination Plant for NIS 78 million, generating net income of NIS 87 million.
  • Sale of land from the Hadera Agrobank Project – in June 2016, the Group completed the sale of its rights in the Hadera Agrobank Project, generating net income of NIS 35 million.
  • Sale of holdings in the Gilboa Pumped Storage Project – in September 2016, the Group completed the sale of 49% of its holdings in the Developer of the Gilboa Pumped Storage project, generating NIS 107 million in cash flow and NIS 25.2 million in net income.
  • Sale of PV Projects in Spain – in October 2016, the Group sold its holdings in 13MW of solar projects in Spain (Group share: 50%), generating NIS 90 million in cash flow and NIS 11 million in net income.

• Primary financial activities:
  • Debenture swap - in September 2016, the Group offered to swap NIS 883 million (face value) of Series 8 debentures for NIS 740 million (face value) of Series 5 debentures. The lengthening of the average maturity period of the debentures succeeded in delaying NIS 500 million of repayments due from 2017 to 2022.
  • Ratings updates - in August 2016, Ma'alot updated the Group's rating from A+ with a negative outlook to A with a developing outlook, following the Company's restructuring of the interest rates of its Series 6, 7 and 8 bonds (increasing their interest rates by 0.25%.) In August, Midroog maintained its A1 rating for the Group's Series 6, 7 and 8 bonds, while initiating an evaluation of the rating with a negative outlook.
• Sale and delivery of apartments in Israel by consolidated companies
  (Company's share before VAT):

Financial Results for the First Nine Months of 2016:

Revenues: the Group's revenues for the first nine months of 2016 totaled NIS 3,673 million compared with NIS 3,725 million for the first nine months of 2015, a NIS 52 million decline (1.4%). For the third quarter, the Group's revenues increased by NIS 271 million (22.2%) to NIS 1,489 million from NIS 1,218 million in the third quarter of 2015.

The decrease in revenues for the nine-month period derived primarily from a reduction in the revenues of the International Construction & Infrastructure segment (NIS 451 million), reflecting the decline in its Nigerian activities (NIS 91 million) and the effect of the devaluation of the naira-dollar exchange rate (approximately USD 8 million). After the Nigerian government approved its 2016 budget and paid most of its outstanding debt (approximately USD 114 million), the Group renewed its work on most of its Nigerian civic projects. In addition, the Group's revenues from Togo, Ghana and Kenya declined, while revenues from Uganda, Guatemala and Colombia increased. The rise in revenues from Colombia reflected the Group's initiation of work on the Colombian Toll Roads project. The 1.35% decline in the average US dollar/shekel exchange rate recorded during the quarter as compared with its level in the parallel period of 2015 reduced revenues by a further NIS 14 million. For the third quarter of 2016, the Group recorded an NIS 11 million decline in revenues compared with the third quarter of 2015, reflecting primarily a slowdown in the rate of work in Kenya, Guatemala and Togo, countered by the increase in revenues from Colombia and Nigeria.  The effect of the 4.36% decline in the quarter's average dollar/shekel exchange rate (as compared to that of the parallel quarter of 2015) contributed an additional NIS 18 million to the decline in revenues.

For the Renewable Energy segment, revenues for the nine-month period declined by NIS 112 million, reflecting primarily a decrease in the pace of construction of photo-voltaic installations. This was countered by the Israel Construction & Infrastructure segment, which posted a NIS 557 million revenue increase compared with the parallel period of 2015, including a NIS 216 million contribution from the Tel Aviv Light Rail project and a NIS 164 million contribution from the Ashalim project (due to the consolidation, for the first time, of the project's Building Contractor). In addition, the Group's revenues from its Cementcal Division increased by NIS 105 million compared to the parallel period of 2015, due primarily to its work on the Tel Aviv Light Rail project. During the third quarter, the Group's revenues increased by NIS 208 million compared with the third quarter of 2015, due primarily to the consolidation, for the first time, of the Ashalim Project's Building Contractor (approximately NIS 132 million) and increased activities in a number of other construction projects (NIS 73 million).

In the Israel Real Estate segment, the Group recorded an NIS 11 million increase in revenues, primarily due to increased sales of land and building plots (approximately NIS 93 million), including NIS 70 million of land sales in Haifa and NIS 13 million of land sales in Jerusalem, while during the parallel period of 2015, the Group completed no land sales. This was countered by a NIS 36 million decrease in revenues from apartment deliveries, and a NIS 47 million decrease in revenues from work performed on the Tel Aviv Student Dormitories project. During the first nine months of 2016, the Company delivered 398 apartments compared with 379 apartments in the first nine months of 2015, but at a lower average price (approximately NIS 1.3 million before VAT per apartment compared with NIS 1.46 million for the first nine months of 2015). During the third quarter of 2016, revenues increased reflecting primarily the NIS 90 million sale of land and building plots, as described above, while revenues from apartment deliveries increased by NIS 29 million. During the third quarter, the Group delivered 204 apartments compared with 124 apartments in Q3 2015, at an average price of approximately NIS 1.2 million per apartment compared with NIS 1.74 million for the parallel period of 2015.

The Concessions segment posted a NIS 128 million increase in revenues for the nine month period, reflecting its activities related to the Generi Government Building in Jerusalem (approximately NIS 72 million) and the initiation of construction and operation of the Colombia Toll Roads project (approximately NIS 56 million), as described above.

Gross profit: the Group's gross profit for the first nine months of 2016 totaled NIS 501 million (13.6% of revenues) compared with NIS 691 million for the first nine months of 2015 (18.6% of revenues). The NIS 190 million decline derived primarily from the International Construction and Infrastructure segment (down NIS 165 million, including a decline of approximately USD 32 million from Nigeria), and a decline in the gross margin from 25% to 21%. During the first nine months of 2015, this segment recorded a particularly high gross profit due to final project settlements, and the 1.35% decrease in the average dollar/shekel rate contributed to an additional NIS 4 million decline in the segment's gross profit. In addition, the Israel Real Estate segment recorded a NIS 9 million decline in gross profit during the period and a decrease in its gross margin from 25% to 23%, reflecting the reduced gross profit of residential sales (approximately NIS 37 million), countered partially by a higher gross profit from the sale of land and building plots (approximately NIS 29 million). In contrast, the Israel Construction & Infrastructure segment posted a NIS 10 million increase in gross profit for the nine-month period, reflecting the first-time consolidation of the results of the Ashalim contractor partnership.  

Profit from the Sale of Commercial Real Estate: Profit from the sale of commercial real estate during the first nine months of 2015 totaled NIS 50 million, reflecting, among other factors, the NIS 146 million sale of the Group's rights in the Agrobank Project in Hadera. This compared with NIS 40 million in the first nine months of 2015, reflecting primarily a NIS 40 million land sale in Acre and the completion of a NIS 106 million sale of an asset in Jerusalem. 

General & Administrative Expenses: the Group's general and administrative expenses for the first nine months of 2016 declined by NIS 2 million compared with the first nine months of 2015 to NIS 263 million. During the third quarter, General and Administrative Expenses increased by NIS 7 million, primarily due to a NIS 9 million increase in legal and consulting expenses related to the change in the Ashalim project partners.

Other Income, net: the Group's Other Income, net, for the first nine months of 2016 totaled NIS 208 million compared with NIS 47 million in the first nine months of 2015, reflecting primarily the capital gains related to the sale of several consolidated companies, including the Hadera Desalination Plant, whose sale generated NIS 87 million in net income, and 49% of the Group's holdings in the General Partner of the Pumped Storage Project, whose sale generated NIS 26 million in net income. In addition, during the reporting period, the Group cancelled NIS 47 million in provisions for doubtful debts, including NIS 39 million related to projects Nigeria and NIS 8 million related to projects in Guatemala, having collected the debts owed by these customers. In the parallel period of 2015, the Group had completed the sale of photovoltaic installations for which it recorded other income of NIS 23 million (pre-tax).

Operating Income, net: the Group's operating profit for the first nine months of 2016 totaled NIS 474 million (12.9% of sales) compared with NIS 490 million (13.1% of sales) for the first nine months of 2015, a NIS 16 million decrease related primarily to the decreased operating income of the International Infrastructure & Construction segment (NIS 107 million), countered partially by the cancellation of the provision for doubtful debts, as explained above, and by the NIS 31 million decline of the Environment segment, reflecting losses in the Elcon factory in Ramat Hovev, which launched its operations during the third quarter. In contrast, the Concessions segment recorded a NIS 141 million increase in gross profit, reflecting the capital gain associated with the sale of its holdings in the Hadera desalination plant and of its 49% share of the General Contractor in the Pumped Storage project, as described above.  For the third quarter of 2016, operating income totaled NIS 191 million (12.8%) compared with NIS 130 million (10.7%) in the parallel quarter of 2015, due primarily to the sale of commercial real estate in Hadera (the Agrobank Project), the sale of shares in the Pumped Storage project, as described above, the initiation of work on the project in Colombia, and the revaluation of the investment in subsidiaries (the Building Contractor partnership for the Ashalim Project), as described above, countered by a NIS 9 million reduction in the Environment segment.

Financing Expenses, Net: the Group's net financing expenses for the first nine months of 2016 totaled NIS 400.5 million, compared with NIS 305.2 million for the first nine months of 2015. Financing expenses for the reporting period included NIS 146 million in currency exchange provisions and forward deals, related primarily to currency devaluations in Nigeria and Uganda, compared with NIS 1 million in the first nine months of 2015. NIS 15 million of the increase derived from a rise in the expense of financing the Group's long-term credit, which totaled NIS 209 million (during the first nine months of 2016, there was no change in the CPI, while in the first nine months of 2015, the CPI declined by 0.2% compared with that of the previous year), and an NIS 11 million increase in the Group's expenses for long-term credit related to an increase in the Group's long-term loans. The Group's financing income for the first nine months of 2016 totaled NIS 134 million compared with NIS 191.2 million in the first nine months of 2015. The Group's net financing costs during the first nine months of 2016 totaled NIS 266.7 million compared with NIS 114 million in the first nine months of 2015. In the third quarter of 2016, financing expenses, net, totaled NIS 62 million compared with NIS 4 million in the parallel period of 2015, an increase which derived primarily from losses related to changes in hedging and exchange rates (NIS 24 million) compared to a NIS 37 million profit for such transactions during the third quarter of 2015.

Taxes on Income: the Group's taxes on income for the first nine months of 2016 totaled NIS 60 million compared with NIS 77 million for the first nine months of 2015. The decline derived primarily from a NIS 26 million reduction in the taxes paid by SBI International Construction & Infrastructure because of its decline in profits during the period. This was countered by a NIS 16 million increase in taxes paid during the period by the Israel Construction & Infrastructure segment, due primarily to the deferred tax assets during which it had recorded during the first nine months of 2015. During the third quarter of 2016, the Group recorded NIS 21.4 million in tax expense, compared with NIS 33.7 million in the third quarter of 2015, primarily from a reduction of taxes of the Renewable Energy segment due to the completion of tax assessments, and the reduced tax expense of the SBI International Construction & Infrastructure segment.

Net Profit: the Group's net profit for the first nine months of 2016 totaled NIS 202.5 million compared with NIS 367.2 million for the first nine months of 2015, a decline that derived from the factors explained above. For the third quarter of 2016, the Group recorded net income of NIS 141.3 million compared with NIS 214.3 million for the third quarter of 2015.

Balance Sheet Highlights:

Cash and Cash Equivalents: the Group's Cash and Cash Equivalents as of September 30, 2016 totaled NIS 2,077 million, a NIS 189 million increase compared with its level on December 31, 2015. This reflected a NIS 294 million increase in international activities (primarily due to the significant collections received from Nigerian customers), countered partially by a decrease in activities in Israel (NIS 105 million).

Accounts Receivable: the Group's Accounts Receivable as of September 30, 2016 totaled NIS 1,866 million, a NIS 91 million increase compared with its level at December 31, 2015, including NIS 387 million from Israel activities (primarily from the Tel Aviv Light Rail project in the Israel Building & Infrastructure segment), countered partially by a NIS 296 million decline in international activities (part of the decline is due to NIS 45 million in accounting adjustments). As mentioned above, following the approval of Nigeria's 2016 budget, the Group received USD 114 million in payments from the Nigerian government, with the balance of Accounts Receivable due from Nigeria as of the report date totaling USD 68 million, compared with USD 120 million at the end of 2015. After the report date, an additional USD 77 million was collected, including USD 41 million related to the Group's activities in Nigeria.  

Inventory of Buildings for Sale: the Group's inventory of buildings for sale as of September 30, 2016 totaled NIS 2,603 million, a NIS 470 million increase that included NIS 417 million from activities within Israel and NIS 53 million from international activities. The majority of the increase (NIS 651 million) was related to investment in projects, primarily in Rosh Ha'ayin, Ramat Gan, Pardes Chana, Netanya, Hadera, Petach Tikva and Hod Hasharon, and to land activities that totaled NIS 74 million, countered by the period's delivery of NIS 400 million worth of apartments, especially from projects in Hod Hasharon, Hadera, Netanya and Tirat Hacarmel. The increase in inventory of buildings from international activities derived from investments made in residential projects in Poland and the Czech Republic.

The value of assets held for sale as of the end of the period totaled NIS 522 million, a NIS 92 million increase as compared with the end of 2015. This includes a NIS 52 million investment in a Spanish subsidiary Spain active in the field of photo-voltaic energy, whose sale was completed after the balance sheet date, as well as other assets of consolidated companies totaling NIS 461 million that are intended for sale, whose cash balances have increased due to their receipt of the first tranches of funding from their Financial Closings.

Land Inventory: the value of the Group's Inventory of Lands as of September 30, 2016 increased by NIS 299 million from its level at December 31, 2015 to NIS 1,199 million, of which NIS 107 million derived from activities in Israel (NIS 152 million investment in land in Rishon LeZion and NIS 47 million in Harish) and NIS 192 million international activities (purchase of land for building of residential apartments, primarily in Poland and Serbia).

Obligations Related to Concessions Agreements: the total of the Group's obligations related to concessions agreements as of September 30, 2016 increased by NIS 266 million compared with its level at December 31, 2015, This was due primarily to the reclassification of its NIS 149 million investment in photovoltaic installations from Debt, Loans and Deposits to long-term investments due to the completion of the construction of the Nevatim project and its connection to the electrical grid in June 2016, and from its NIS 146 million investment in a BOT project (the Generi Building Project in Jerusalem).

Investments and Loans Made in Subsidiaries: the value of the Group's investments in and loans to subsidiaries as of September 30, 2016 totaled NIS 1,021 million, down NIS 189 million compared with its level at the end of 2015. This reflected primarily a NIS 148 million decline related to the sale of ADO shares within the framework of its public share offering. This was countered by the recording of a NIS 55 million increase in the Company's share in subsidiary net profits.

Fixed Assets: the value of the Group's fixed assets as of September 30, 2016 totaled NIS 1,064 million, a NIS 50 million net decline compared with their value at the end of 2015. This derived from a NIS 67 million increase in the Group's fixed assets in Israel (primarily for the purchase of equipment for the Tel Aviv Light Rail project), countered by a NIS 117 million decline in the value of international fixed assets (primarily due to ongoing depreciation, countered by the acquisition of new equipment for the Colombia Toll Road project).

Concessions Project Deposits: the balance of the Group's deposits from Concessions projects as of September 30, 2016 increased by NIS 260 million to NIS 569 million. The increase reflects NIS 324 million received for projects in Israel (primarily due to the first-time consolidation of the Ashalim contractor partnerships) countered by a NIS 64 million decrease in deposits from international projects (including USD 10 million from projects in Nigeria).

Advances Received from Apartment Sales Agreements, net: the balance of advances received from apartment sales agreements, net, as of the balance sheet date, increased by NIS 450 million compared with its level at the end of 2015 (including NIS 391 million from Israel), after NIS 516 million of the previous balance was recognized for apartments that had been delivered during the reporting period. The sharp increase derives from the receipt of deposits from customers in line with their payment schedules for apartments that have not yet been delivered.

Provisions: the total of the Group's provisions as at September 30, 2016 declined by NIS 111 million to a level of NIS 294 million, reflecting primarily a NIS 84 million reduction in international activities related to a reduction in the provisions taken for warranty and guarantee periods from Nigerian projects due to the decline in the Group's project volume in the region.

Long-term Debt: the balance of the Group's long-term debt as of September 30, 2016 totaled NIS 6,200 million, a NIS 192 million decline compared with its level at December 31, 2015. The main components of the long-term debt include debentures and loans from financial institutions and other parties, which totaled NIS 5,914 million as of the report date compared with NIS 6,093 million at the end of 2015. During the reporting period, the Group repaid NIS 348 million in long-term loans and retired NIS 176 million of debentures. In addition, the Group reduced the balance of its long-term credit by NIS 129 million, reflecting an increase in the volume of the current maturities of these loans, as described above. This was countered by the Group's success in securing NIS 618 million in new long-term loans.

Shareholders' Equity: the Group's Shareholders' Equity as of September 30, 2016 totaled NIS 1,811 million compared with NIS 1,838 million as at December 31, 2015. The NIS 27 million decrease between the periods derived primarily from adjustments to the financial reports of international subsidiaries, whose results are denominated in Euros and dollars, to reflect fluctuations of the dollar/shekel and Euro/shekel rates (NIS 110 million); the NIS 54 million dividend that was distributed to Group shareholders during the period; from the NIS 23 fund established for hedging transactions; and from the NIS 29 million purchase of shares due to be awarded as compensation for Group managers and workers.

Cash flow: during the first nine months of 2016, the Group recorded NIS 72.7 million in positive cash flow from ongoing activities compared with NIS 285.5 million in negative cash flow during the first nine months of 2015, a positive change of NIS 358.2 million. The main factors that affected the cash flow included a NIS 627 million reduction in Accounts Receivable (net deposits) from customers in the International Construction & Infrastructure segment (primarily due to the collection of debt from Nigeria) and an increase in Accounts Receivable from the Israel Construction & Infrastructure segment (NIS 171 million), countered by increased investment in apartments and land in Israel (NIS 204 million) and in international markets (NIS 245 million). During the third quarter of 2016, the Group reported positive cash flow totaling NIS 384.7 million compared with NIS 28.8 million during the third quarter of 2015, an increase that reflected primarily the payment of most of the debt owed by the government of Nigeria.

Order Backlog: as of September 30, 2016, the Group's order backlog totaled NIS 17.3 billion, including NIS 14.2 billion from the Infrastructure segment, compared with NIS 13.7 billion at the end of 2015. NIS 8.6 billion of the backlog represents international activities, as compared to NIS 8.6 billion in the backlog as of the end of 2015. The USD 0.6 billion reduction of the Group's international backlog reflects the effect of the devaluation of the naira as compared to the dollar on the Group's activities.

The Group's order backlog for the Real Estate segment as of September 30, 2016 totaled NIS 3.1 billion, including NIS 2.6 billion for the sale of residential apartments and NIS 500 million for rental revenues from commercial properties.

Financial Highlights By Segment (NIS millions)

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.