Shikun & Binui Announces Financial Results For the Third Quarter & First Nine Months of 2018

AIRPORT CITY, Israel, Nov. 26, 2018 /PRNewswire/ -- Shikun & Binui Ltd. (TASE: SKBN.TA), a global construction and infrastructure company headquartered in Israel, today reported its financial results for the third quarter and first nine months of 2018.

Financial highlights for the first nine months of 2018:

• Revenues totaled ~NIS 4.2 billion, a decrease of 14% compared with the first nine months of 2017. The decrease was primarily due to the decline in Solel Boneh's execution in Israel during the period as compared to the same period last year, mainly in the Ashalim, Railroad Tracks and Polynam projects. In addition, there was a decline in the Company's international contracting activities (apart from in the United States), due to a slowdown of activities in Nigeria and Columbia and the completion of projects in Ghana and Togo.  
• Gross margin for the period was ~13% compared with 11% during the same period in 2017. Gross profit for the period totaled ~NIS 555 million, compared with ~NIS 543 million for the first nine months of 2017.
• Net profit for the first nine months of 2018 totaled ~NIS 217 million. This is compared with ~NIS 148 million for the same period last year. The increase primarily reflected a ~NIS 331 million pre-tax capital gain generated from the sale of the Portfolio (45% of the Company's holdings in Carmeltun and 40% of its holdings in North Roads). This was offset partially by significant one-time expenses of SBI during the period, which totaled 37 million dollars, or 131 million shekels.
• Cash flow from operations, excluding investments in land and rights offerings, totaled ~NIS (698) million. Cash flow from operations including these investments totaled ~NIS (1,179) million.

Income statement highlights:

1. CONSTRUCTION

Solel Boneh

• Continued strong execution and expansion of the Company's construction offerings: revenues for the first nine months of 2018 were ~NIS 2.2 billion.
• Primary "Mega Projects" in execution during the first nine months of 2018: Gilboa Pumped Storage, Ashalim Thermo Solar power plant, the Tel Aviv Light Rail (the Red Line Western Section), Tze'elim, the Southern Barrier, and others.
• 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 accordance with Shikun & Binui's strategy to expand its construction offerings and will be complementary and synergistic to its other activities.

International Building and Infrastructure Contracting Activities (excluding the US)

• Total revenues for the first nine months of 2018: NIS 954 million.
• In February 2018, the company signed an agreement to build a new airport in Uganda for ~USD 299 million.
• In July 2018, the company received notice of the approval of an expansion for the Shagamu-Ibadan Road project in Nigeria for ~USD 220 million (NIS 803 million).
• Segment 1 of the Colombia Toll Roads Project is now in the process of delivery; 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, a force majeure agreement was signed with the customer, which may result in significant changes to the scope of the project due to the discovery of water springs along the original route. As a result of the delays, the project's financers have decided to stop the continued further draw-down of funds until a new plan has been approved to move forward the construction work. In 2017, a provision of ~USD 5 million was taken in respect of the project's expected loss, and in the first nine months of 2018, a further ~USD 12 million provision was included.
• During the second quarter of 2018, the Company decided to take action to examine its indirect holdings in SBI International Holdings AG, including the possibility of a transaction in shares and/or sale of activities and/or assets; and to seek appropriate proposals. On November 20, 2018, the Company's Board of Directors decided to discontinue this examination of its indirect holdings in SBI International Holdings.
• The company decided to translate its financial results based on the NAFEX exchange rate beginning in the second quarter of 2018. This is in light of Nigeria's announcement that it will cease publishing the NIFEX exchange rate beginning in January 2019. In addition, the gap between the NIFEX and NAFEX exchange rates has been narrowing, and there has been a reduction in the flow of foreign currency into the Nigerian Central Bank. As a result, the Company has recorded a USD 5 million loss related to fluctuations in exchange rates.

US Building and Infrastructure Contracting Activities:

• Total revenues for the first nine months of 2018: ~NIS 364 million from the construction of the SH-288 toll road project in Texas.

Development of the Backlog* (in NIS millions)

*The backlog as of September 30, 2018 does not include additional construction projects which total ~NIS 2.2 billion that the Company won in Israel and in international markets, up to or after the reporting date. These include  ~USD 120 million in roads projects in Ethiopia, ~USD 120 million in roads projects in Guatemala and the construction of a NIS 750 million (the Company's  share of which is 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 December 31, 2017, was due partially from the effect of the early adoption of the IFRS 15 reporting standard.

RESIDENTIAL REAL ESTATE DEVELOPMENT

Apartment Sales

• During the first nine months of 2018, the Company sold 953 apartments (100% share) totaling ~NIS 985 million, including 297 units in Israel and 656 units in Europe.

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

Data regarding the Company's delivery of apartments to customers during the first nine months of 2018:

• 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.
• Implementation of the IFRS Standard: According to the IFRS Standard, the Company reports its revenues from apartment sales in Israel 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 with respect to the previous policy.

3. PROJECTS & IGAs (INCOME GENERATING ASSETS)

The Company continues to implement the strategy of increasing value and freeing up cash flow for 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 Northern 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. 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.

The Company announced the win of a number of new significant projects:

• Won a tender for an urban waste sorting and treatment plant: In April 2018, Israel's Tendering Committee awarded Shikun & Binui and G.E.S. (as equal partners) a project to plan, finance, construct and operate an urban waste sorting and treatment plant. The project costs during the construction phase are projected to total ~NIS 750 million. Solel Boneh holds 50% of the rights of the Construction Contractor and will build the project together with G.E.S. Launch of construction is contingent upon the completion of Financial Closing. The length of the concession period is 29.5 years.
• Won a Concessions tender for a ICT center campus in Be'er Sheva: In June 2018, the Tendering Committee of the State of Israel announced, with regard to its tender to plan, finance, construct, operate and maintain a 170,000 m² ICT (information and communications technology) campus in Be'er Sheva under a 25-year 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. The final approval is conditional upon fulfillment of milestones and conditions set out in the tender.

Agreements between the shareholders of the ADO Group:

• On September 20, 2017, a shareholders' agreement was signed between the Company and Dune International S.A.R. (hereinafter: "Dune") and funds managed by companies related to Apollo Global Management LLC (hereinafter: "Apollo"), in connection with holdings of the parties in the A.D.O. Group Ltd. (hereinafter: "A.D.O."). Since the preconditions for the entry into force of this agreement were not complied with, the agreement was canceled. 
• On September 20, 2018, the Company and Dune signed a letter of consent in connection regarding how the parties would vote on the appointment of the directors at the upcoming annual general meeting of ADO. On the same day, another letter of consent was signed between the Company, Dune and Apollo, which established a right of first refusal mechanism in the event of the transfer of ADO shares for a period of 20 months from the date of signing the letter.

Sale of Shikun & Binui shares: On August 6, 2018, the transaction for the sale of all the shares of Shikun & Binui Ltd. held by Arison Investments Ltd. to Capital Foresight Israel Investments Company LLC, under the control of Mr. Naty Saidoff, was completed. After completion of the transaction, the control of the Company was finally transferred to Capital Foresight Israel Investments Company LLC, which holds approx. 46.91% of the Company's issued and paid up capital stock and approx. 47.68% of the voting rights in the Company. Capital Foresight Israel Investments Company LLC is held (100%) by the limited partnership The Capital Foresight Limited Partnership, in which the general partner is Saidoff Foresight, LP. The general partner in the partnership is Naty Saidoff, LLC, which is 100% held by Naty Saidoff.

Investors Conference Call

Shikun & Binui will host a conference call on November 27, 2018 starting at 10am Eastern Time to discuss the financial results. Management will also be available to answer investor's questions, after presenting the results.

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

At: 10am Eastern Time, 7am Pacific Time, 3pm UK Time, 5pm 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 (excluding the United States); 2) US infrastructure and construction contracting; 3) infrastructure and construction contracting within Israel; 4) real estate development within Israel; 5) real estate development outside of Israel; 6) renewable energy; and 7) concessions. The Group's activities focus on large, highly complex projects carried out for entities in private and public sectors with a focus on sustainability.

Safe Harbor Statement

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.