Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) has reported record revenue of $4.1 billion in 2019, up 12% from 2018. At the same time IAI has warned that continued restrictions on activity in Israel and abroad because of the coronavirus crisis create uncertainty regarding 2020 business activity.
Operating profit amounted to $121 million in 2019, 2.9% of sales, compared with $12 million, 0.3% of sales, in 2018. IAI attributed the increase in operating profit to higher gross profit and lower managing and general, marketing, and sales expenses, partially offset by a rise in R&D expenses. The cost of R&D, both within the company and commissioned by it, totaled $909 million in 2019, 12% more than its $813 million total in 2018.
IAI chairman Harel Locker said, "The business turnaround undergone by IAI in recent years has already yielded fruit, as evident in the financial results of 2019. IAI's groundbreaking and unparalleled capabilities and technologies, management's strict and precise adherence to the new business strategy, the entity-wide restructuring, efficiency measures, business prioritization efforts, and above all the deployment and commitment of the company's excellent human capital to the business restructuring, have led to the accomplishments recorded in 2019 and to a turning point in the company's business ventures."
Commenting on the coronavirus crisis, Locker said, "Global events offer a variety of business opportunities for inorganic growth in the technological homeland security industry. Continuing to adhere to the strategic plan and completing the business restructuring process along with our valuable and unrivaled human capital and world leading technological foundations will allow us to fully capitalize on our business potential."
IAI CEO Nimrod Sheffer said, "2019 has been the first trial year of implementing our new business strategy and the positive results reflect the hard labor of all of IAI's employees and key management personnel. The record revenues recognized by IAI, the largest net income since 2010, and the increase in all other business parameters are a testimony of the renewed business focus and the all-encompassing corporate efficiency measures." Sheffer added, "The challenges facing the Israeli and global economies in these difficult times are intricate and their extent cannot be currently assessed with certainty… Throughout its years of operation, as well as in 2019, IAI has constantly proven that there is no challenge that it cannot withstand and it’s this very mindset and spirit that will accompany us during the current challenges for the benefit of Israel’s homeland security and economy."
Reduction in activity because of the coronavirus
IAI's reports indicate that the coronavirus crisis has thus far not affected its agreements. Continuation of the restrictions in Israel and abroad, however, is liable to have a negative impact on future compliance with, and meet the targets in, agreements in the coming year. "In view of the uncertainty involving the global continuation and spread of COVID-19 and the ensuing ramifications, IAI is unable to accurately predict the effect on its business, cash flows, and financial results in the interim and long term," IAI stated in its announcement.
As a result of the spread of the virus, IAI cut back on its activity, starting on March 18, in accordance with instructions to the public by government ministries. As part of this reduction in activity, it was decided to focus on very important and urgent projects. In its announcement, the company stated, "IAI maintains close contact with its existing and prospective customers, with its suppliers, and with various government officials to identify solutions for the disruptions to its ongoing business activity, to allow the continued scheduled performance of its projects, and to maintain its marketing activity… IAI is also preparing for all possible scenarios and is taking measures to reduce to a minimum the effects of the outbreak on the company and the possible impairment of its financial results, including close monitoring and supervision of expenses, and their minimization, to be able to adapt to the possible changes in operating volumes."
IAI said that as of this date, it was unaware of any canceled contracts or significant delays in the supply of raw materials or its fulfillment of milestones.
Published by Globes, Israel business news - en.globes.co.il - on March 27, 2020
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