Shikun & Binui Announces Financial Results For the First Quarter of 2016

Revenue: NIS 1.1B; Net Income: NIS 93M; Total Backlog: NIS 15.6B

Board Declares a Dividend of NIS 30M

AIRPORT CITY, Israel, May 31, 2016 /PRNewswire/ -- Shikun & Binui Ltd. (TASE: SKBN.TA), a global construction and infrastructure company headquartered in Israel, yesterday reported its financial results for the first quarter ended March 31, 2016. The Company's activities focus on large, highly complex projects for private and governmental entities, carried out using a sustainable approach.

Main events during Q1 2016 and following the reporting period:

Concessions:

• Financial Closing of Project SH-288 in Texas: On April 29, 2016, the Company completed fundraising for the SH-288 project to build an express lane in Houston, Texas. The Company holds 21.62% of the project's Concessionaire and 50% of its General Contractor. On May 9^th, the Financial Closing was completed and the first tranche of capital was drawn. The total value of the project is approximately USD 1 billion.
• Financial Closing of the Colombia Toll Roads Project: On May 25, 2016, Financial Closing was achieved for the project to finance, build, upgrade and maintain toll roads in Colombia. The total value of the project is USD 640 million, as of today the Company holds 100% of its Concessionaire and Building Contractor.
• Completion of the Sale of the Operating Company of the Hadera Desalination Plant: On March 31, 2016, the Company completed the sale of its holdings in the operating company of the Hadera Desalination Plant for NIS 78 million. The Company recorded net income of NIS 87 million in respect of the deal.
• An agreement to Sell Part of the Company's Holdings in the Concessionaire of the Gilboa Pumped Storage Project: On March 29, 2016, the Company signed an agreement to sell 49% of its holdings in the Concessionaire of the Gilboa Pumped Storage project. Upon completion of the deal (which is contingent upon fulfillment of certain conditions), the Company expects to receive NIS 87 million for its share and to record NIS 20 million in net profit.

Shikun & Binui Infrastructure Contracting in Israel:

• Backlog: As of March 31, 2016, the project backlog of the Group's infrastructure contracting business in Israel stood at NIS 5.1 billion. The backlog does not include NIS 1.1 billion in additional projects which the Company has won but for which it has not yet signed final contracts. These include Israel Road 77, the RadBinat building, the Jaffa Dormitories and others.

SBI–Shikun & Binui International Infrastructure Contracting:

A number of economic and political events that came about in 2015 continued to have a significant impact on the Group's operation in Nigeria in the first quarter of 2016.

• The fall in global oil prices throughout 2015, the weak economic situation in the country, as well as the change in government which was followed by a freeze in most government economic activities, have led the Group to minimize its activities in the various projects in which it is involved, until the situation becomes clearer.
• During the first quarter of 2016, the 2016 budget was finally approved. It includes significant amounts for infrastructure projects including funds that are aimed for projects in which the Company is performing.
• Colombia & Texas: The Company has initiated preparations for executing the Group's Concessions projects in Colombia and Texas.
• International Backlog: As of March 31, 2016, the backlog of SBI–Shikun & Binui International Infrastructure Contracting stood at approximately NIS 8 billion (approximately USD 2.1 billion). The backlog does not include the two international Concessions projects that were won and reached financial closing after the end of the quarter. These are expected to contribute an additional total of approximately USD 800 million to the backlog.

Shikun & Binui Israel Real Estate:

• Sales Momentum: During the first quarter of 2016, the Company sold 255 apartments for NIS 382 million (Company share) and delivered 137 apartments for NIS 184 million (Company share). See table below.
• Land Acquisitions: During the first quarter of 2016, the Company acquired land for the construction of 207 apartments in Rishon Letzion valued at approximately NIS 152 million.

Shikun & Binui International Real Estate:

• ADO –Tender Offerings: In January and April 2016, ADO executed on two tender offerings from its shareholders, raising a total of NIS 147 million. The Company's share in ADO has gone down to 41.9%.

Renewable Energy:

• Ashalim Project: On April 21, 2016, the Company signed an agreement that formalized the exit of Abengoa Corporation from the Ashalim Project (the Developer, Building Contractor and Operator). Under the new agreement, the Group will hold 67.5% of the Building Contractor. The Company's holding in the project's Concessionaire and Operator will remain unchanged at 50%. The completion of the agreement is contingent upon the fulfillment of certain conditions and receipt of required approvals. The Company believes these developments should not have any negative impact on the Company's ability to complete the project.

Sale and delivery of apartments in Israel (company portion excluding VAT):

Dividend: on May 30, 2016, the Company's Board of Directors declared a dividend distribution totaling NIS 30 million. 

Financial Results for the First Quarter of 2016:

Revenues: the Group's revenues for the first quarter of 2016 totaled NIS 1,114 million compared with NIS 1,394 million for the first quarter of 2015, a decline of NIS 280 million. The decrease was primarily due to the International Construction & Infrastructure segment (NIS 269 million) due to a decline in its activities in Nigeria (NIS 57 million of the decrease). During the reporting period, the Nigerian Government approved its budget for 2016, and on May 6, 2016, it was signed by the country's President. The quarter's 0.9% decline in the average US dollar/shekel exchange rate compared with its level in the first quarter of 2015 contributed an additional NIS 4 million to the decline in revenues. Revenues from the Israel Construction & Infrastructure segment declined by NIS 47 million during the quarter, due primarily to a NIS 37 million decline in revenues from apartments delivered. During the first quarter of 2016, the Company delivered fewer apartments than it did during the parallel period of 2015, amounting to 137 apartments compared to 186 (the Company's portion), but at a higher average price (NIS 1.34 million before VAT for Q1 2016, compared with NIS 1.19 million before VAT for Q1 2015). In addition, revenues from the Renewable Energy segment declined by NIS 44 million as compared with Q1 2015, due primarily to a decrease in the pace of construction of photo-voltaic installations. This was countered by the Israel Real Estate segment, which recorded a NIS 106 million increase in revenues compared with Q1 2015, out of which NIS 87 million was primarily due to the execution of the Tel Aviv Light Rail project, and the Concessions segment, which recorded a NIS 21 million increase in revenues due to activities related to the Government Building project in Jerusalem and the beginning of construction and operation of the project in Colombia.

Gross profit: the Group's gross profit for the first quarter of 2016 totaled NIS 153.5 million (13.8% of revenues) compared with NIS 285 million for the first quarter of 2015 (20.4% of revenues). The NIS 131 million decline was primarily due to the International Construction and Infrastructure segment (a decline of NIS 115 million) because of the slowdown in execution of projects outside of Israel. This segment's gross margin decreased from 29% in the first quarter of 2015 to 19% in the reporting period.

General & Administrative Expenses: the Group's general and administrative expenses for the first quarter of 2016 was lower by NIS 4 million compared with the first quarter of 2015, this was due to, among others, a reduction in wages and benefits paid.

Other Income, net: the Group's Other Income, net, for the first quarter of 2016 totaled NIS 97 million compared with NIS 39 million in the first quarter of 2015, primarily due to the sale agreement executed for the Hadera Desalination Plant, which generated NIS 87 million in net income. In the parallel period of 2015, the Company completed a sale agreement for photovoltaic installation, generating pre-tax net income of NIS 25 million.

Operating Income, net: the Group's operating profit for the first quarter of 2016 totaled NIS 160 million (14.4% of sales) compared with NIS 270 million (19.3% of sales) for the first quarter of 2015, a NIS 110 million decrease due to a NIS 103 million decline in the operating profit of the International Infrastructure & Construction segment and a NIS 49 million decline in the operating profit of the Israel Real Estate Development segment (which during the first quarter of 2015 recorded a NIS 41 million capital gain from the sale of two income-producing properties). The Renewable Energy segment recorded a NIS 29 million decline in operating profit for the reporting period, while in the first quarter of 2015, it recorded a NIS 25 million capital gain from the sale of photovoltaic installations.

Financing Costs:

• Financing Expenses: The Group's financing expenses for the first quarter of 2016 totaled NIS 78 million, compared with NIS 115 million for the first quarter of 2015 which included NIS 43 million related to the currency devaluations primarily in Nigeria and the euro exchange rates. Financing expenses related to long-term credit totaled NIS 56 million in the first quarter of 2016 compared with NIS 33 million in the first quarter of 2015. Most of the Group's long-term credit expenses are linked to changes in the CPI, which declined by 0.9% in the first quarter of 2016 compared with a decline of 1.6% in the first quarter of 2015.
• Financing Income: the Group's financing income for the first quarter of 2016 totaled NIS 32.5 million compared with NIS 23.3 million in the first quarter of 2015.
• Financing Costs, net: the Group's net financing costs during the first quarter of 2016 totaled NIS 45.5 million compared with NIS 91.8 million in the first quarter of 2015.
• Pre-Tax Profit: the Group's pre-tax profit for the first quarter of 2016 totaled NIS 116.2 million compared with NIS 148.7 million for the first quarter of 2015.

Taxes on Income: the Group's taxes on income for the first quarter of 2016 totaled NIS 23.5 million compared with NIS 33 million for the first quarter of 2015, a NIS 10 million decrease. The decline was primarily due to a reduction in the taxes paid by SBI International Construction & Infrastructure because of a decline in profits during the period.

Net Profit: the Group's net profit during the reporting period totaled NIS 92.6 million compared with NIS 115.7 million for the first quarter of 2015.

Balance Sheet Highlights:

Cash and Cash Equivalents: the Group's Cash and Cash Equivalents as of March 31, 2016 totaled NIS 1,609 million, NIS 279 million lower than its level on December 31, 2015. The decrease reflected a NIS 234 million decline in activities in Israel and a NIS 45 million decline in international activities.

Accounts receivable: the Group's Accounts Receivable as of March 31, 2016 totaled NIS 1,893 million, a NIS 117 million increase compared with its level at December 31, 2015, including NIS 86 million from Israel activities and NIS 31 million from international activities. As of the report date, the Group's Accounts Receivable from Nigeria totaled NIS 462 million, compared with NIS 468 million at the end of 2015. The total of advances received from the Nigerian government as of March 31, 2016, totaled NIS 174 million compared with NIS 214 million as of December 31, 2015.

Inventory of Buildings for Sale: the Group's inventory of buildings for sale as of March 31, 2016 increased by NIS 122 million compared with its level at the end of 2015. NIS 99 million of the increase derived from activities within Israel, while NIS 22 million derived from international activities. Most of the increase (NIS 216 million) derived from the execution of projects in Rosh Ha'ayin, Ramat Gan, Pardes Chana, Netanya, Hadera, Petach Tikva and Hod Hasharon. The increase was countered by the period's delivery of NIS 151 million worth of apartments, especially from projects in Hod Hasharon, Hadera and Tirat Ha'Carmel.

Land Inventory: the value of the Group's Land Inventory as of March 31, 2016 increased by NIS 129 million from its level at December 31, 2015, reflecting primarily the Group's investments in land, development costs and other payments in Rishon Letzion, totaling NIS 152 million.

Investments and Loans Made in Subsidiaries: the value of the Group's investments and loans made in subsidiaries as of March 31, 2016 totaled NIS 1,133 million, a reduction of NIS 77 million as compared with its level at the end of 2015. This primarily reflected a NIS 83 million reduction due to acceptance the tender offering of ADO shares.

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 185 million compared with its level at the end of 2015, this is after recognizing NIS 184 million of the previous balance for apartments delivered during the reporting period. The sharp increase reflects the significant rise in the number of sales agreements signed during the first quarter of 2016 compared with the first quarter of 2015 (255 compared with 219 in the first quarter of 2015).

Long-term Debt: the Company's long-term debt as at March 31, 2016 totaled NIS 6,274 million, a NIS 118 million decline compared with its level at December 31, 2015. The decrease derived primarily from a NIS 132 million decline in debentures and loans from financial institutions, reducing their total from NIS 6,093 million to NIS 5,961 million. During the reporting period, the Company retired long-term loans totaling NIS 123 million and debentures totaling NIS 32 million.

Shareholders' Equity: the Company's Shareholders' Equity as of March 31, 2015 totaled NIS 1,788 million compared with NIS 1,838 million as at December 31, 2015. The NIS 50 million decrease between the periods is primarily due to adjustments (NIS9 0million) made in the financial reports of international subsidiaries to reflect fluctuations of the dollar/shekel and euro/shekel exchange rates; a NIS 25 million in dividend; and an increase of NIS 17m due to hedging transaction. The decrease between the periods was countered partially by the NIS 93 million in net profit contributed during the reporting period.

Cash flow: during the first quarter of 2016, the Group recorded NIS 363.9 million in cash flow used for ongoing operation compared with NIS 199.2 million during the first quarter of 2015, an increase of NIS 164.7 million which comes from NIS 108 million increase in the accounts receivable in the Infrastructure & Construction segment (of which NIS 146 million was received after the report date). In addition, the Company recorded a growth in the inventory of apartments, and inventory of land in the real estate development segment in Israel, in the amount of NIS 86 million and NIS 152 million (in Rishon Lezion), respectively, which also contributed to the increase in negative cash flow.

Order Backlog: as of March 31, 2016, the Group's order backlog totaled NIS 15.6 billion. Of this, backlog in the infrastructure segment (including orders received by jointly controlled entities) amounted to NIS 13.0 billion, compared with a backlog of NIS 13.7 billion, as at December 31, 2015. Of this, NIS 8.0 billion is in respect of international activities, compared with NIS 8.6 billion at the end of 2015. The backlog does not include mega projects that had not yet reached financial closure as of the report date, such as the projects in Colombia and Texas. After the report date, financial closing was completed for the Texas project, which is expected to add approximately USD 400 million to the order backlog.

Also, the order backlog in the real estate segment amounted to NIS 2.5 billion, of which the development portion (sale of apartments) amounted to NIS 2 billion and the yielding portion (rentals) amounted to NIS 500 million.

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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.