Rafael Advanced Defense Systems Ltd. reports strong financial performance for 2009. The company almost tripled its net profit in 2009 to $112 million (NIS 441 million) from NIS 166 million in 2008. Sales rose to $1.6 billion in 2009 from $1.5 million in 2008, and new orders totaled NIS 7.3 billion, boosting the backlog to NIS 13 billion by the end of 2009.
Almost a third of Rafael's net profit ( a gross NIS 180 million) came from successful management of the company's securities portfolio.
Operating profit margin rose to 7.1% of revenue in 2009 from 5.8% of revenue in 2008, and the net profit margin rose to 7% in 2009 from 5.9% in 2008. Although Rafael's operating profit margin is less than the 9% of rival Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), Rafael president and CEO Yedidia Yaari told "Globes", "We're narrowing the gap with Elbit Systems. In general, a 7% operating profit margin this year is pretty good compared with the global defense industry."
Rafael was converted from a Ministry of Defense department to a government company in 2002. The Ministry of Finance had by that point already learned from previous failures of converting Israel Military Industries Ltd. (IMI) into a government company, and Rafael's conversion went smoothly, and the question now is about privatizing the company.
Yaari said, "Rafael is not in the decision-makers' focus for privatization, and it apparently won't be on the agenda for several years."
Rafael still basically functions as the R&D department of the Ministry of Defense, investing 8% of revenue in R&D. 65% of R&D expenditure is on internal R&D and the remainder is ordered.
Yaari says that R&D underpins Rafael's strength. "For an R&D-rich company like us, it takes a long time to boost profits. But our 2009 performance was the result of huge investment in R&D over the decade," he said. "A complete products line matured and joined our basket of products, which increased sales."
Yaari added that that the company would invest NIS 560 million in R&D in 2010, not including external funding.
"Globes": Have you felt the global crisis?
Yaari: "On the contrary. Not only haven’t we fired anyone, we've been hiring in order to meet the pace of orders and sales. We hired hundreds of employees during 2009, especially engineers. We also rely on students and people who lost their jobs in high tech. A superb labor force, which we were desperately seeking, was thrown onto the market."
Published by Globes [online], Israel business news - www.globes-online.com - on March 17, 2010
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