Ashot Ashkelon: Defense industry success story

The defense contractor's revenue has risen from NIS 17 million to NIS 230 million within seven years.

With an orders backlog of almost NIS 1 billion, the acquisition of a company in the US, and steady growth in revenue and profits, Ashot Ashkelon Industries Ltd. (TASE: ASHO) has become a success story of Israel's defense industry. In its financial report for 2012, published yesterday, the Israel Military Industries Ltd. (IMI) subsidiary reported 6% revenue growth to over NIS 300 million and a net profit of NIS 36 million.

This is the same company which, seven years ago, the Government Companies Authority put up for sale at he ludicrous price of NIS 16.7 million. "In retrospect, it's simply risible. Today, the company's market cap is over NIS 230 million, and its share is hot, after rising 94% in the past year and 230% in the past three years," says an Ashot Ashkelon executive. The company produces transmissions and ignition systems for armored vehicles, and supplies tungsten components to civil aviation manufacturers. In the end, Ashot Ashkelon was not sold, in part because of objections and reservations by IMI executives about the valuation.

Ashot Ashkelon's shareholders' equity at the end of 2012 was almost NIS 200 million, up 20% on a year earlier. It has 490 employees, most of them in production at its Ashkelon plant, and 60 employees at its Chicago plant, following the acquisition of Reliance Gear Corporation. The acquisition was part of the strategy to have US operations and provide better access to defense deals based on US military aid.

"The US company manufactures gears and is fully synergetic with our regular operations in Israel. For us, the acquisition is a base for expanding our marketing in the US," says Ashot Ashkelon president Dan Katz. Last year, the company distributed a NIS 6 million dividend; IMI owns 85% of the company, and the public owns the rest.

While Ashot Ashkelon has shown independence and growth, the heads of its parent, IMI, have had to learn their way around the corridors of the Knesset during their monthly visits to the Finance Committee to obtain owners' loans from the government to pay salaries and procure raw materials. All this takes place while negotiations for the privatization of IMI go up and down and the Ministry of Defense continues to deliberate a proposal for a possible sale that also protects Israel's national interests.

"Ashot Ashkelon's success in recent years is no coincidence," Ashot Ashkelon chairman and IMI CEO Avi Felder told "Globes". "The recovery of Ashot Ashkelon included the creation of a long-term strategic plan, which we applied item by item, including raising NIS 80 million in debt. The capital raised was invested in the procurement of innovative machinery and equipment, which resulted in a phenomenal improvement in the production lines in Ashkelon. The recovery of Ashot Ashkelon is a microcosm of a possible recovery at IMI. The potential for success of IMI is no less than at Ashot Ashkelon," he said.

Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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