Oil Refineries Haifa, which is set to be floated on the Tel Aviv Stock Exchange (TASE) saw its net profit decrease 40% to NIS 469 million in January-September 2006, its draft prospectus reveals. “Globes” has obtained a copy of the prospectus which discloses a number of details about one of Israel’s most important strategic installations.
Oil Refineries Haifa’s proforma report shows that it ended 2005 with revenue of NIS 19 billion, up 44% on its revenue in 2004. It recorded NIS 16.7 billion revenue in January-September 2006, a 16% increase over the corresponding period in 2005. The higher revenue was driven largely by increases in oil prices, which subsequently had an adverse affect on the company as from the fourth quarter of 2006.
The figures also show that 77% of the oil refinery’s revenue, generated while it still operated jointly with Oil Refineries Ashdod, stemmed from the local market, and 23% of revenue came from exports of refined petroleum products, mainly to Cyprus, Turkey, and Italy. The figures for Oil Refineries Haifa show that its profit was eroded during January-September by rising costs of raw materials for its production activity, the depreciation of the shekel, and a slight fall in refinery activity since the beginning of 2006.
Aside from all these, in light of the fact that Oil Refineries’ refining margin rose by almost 60% January-September 2005, against a small rise of 2% only in the reported period, its gross profit fell significantly in 2006 compared with the corresponding period in 2005. The sharp fall in refining margins in recent months may have made this trend more acute in the fourth quarter of 2006 and at the beginning of 2007.
In the meantime, the figures show that Oil Refineries Haifa’s gross profit margins were eroded by 9.1% in January-September 2005, causing operating profit to fall by 5.7% to NIS 720 million. Also contributing to the fall in operating profit were an increase in management and general expenses, provisions for municipal property taxes, and increases in insurance tariffs on the oil market.
Ohad Marani NIS 140,000 a month in 2005
The prospectus also discloses that Oil Refineries chairman Ohad Marani and CEO Yashar Ben-Mordechai, were each paid a salary costing NIS 1.72 million in 2005, reflecting a monthly salary cost of NIS 140,000. In the first nine months of 2006, the two men received each received a salary costing NIS 1.4 million, or NIS 155,000 a month, a figure that reflects an annualized increase of 10%. The company currently employs 712 people, more than half of whom are aged 51-60, compared with 684 in 2003. Oil Refineries Haifa’s employees will be entitled to a bonus for the privatization, either by way of an allocation of shares before the offering at a 30% discount, or a privatization grant.
Oil Refineries’ proforma balance sheet reveals that it is supported by shareholders’ equity of NIS 2.5 billion, which is leveraging NIS 9.1 billion in assets. The company’s debt, totaling NIS 4.2 billion is mostly short-term, of which NIS 2.4 billion is bank credit.
As to its dividend distribution policy, the company states that in the ten years to 2005 it had a policy of distributing 50% of its annual profits in dividends. It distributed a dividend of NIS 32 million in 2005, and NIS 3.4 billion in 2006, NIS 1.6 billion of which came the profit accrued from the sale of Oil Refineries Ashdod. It has already distributed a further dividend of NIS 20 million since the beginning of 2007.
One of the largest refineries in the Middle East
Oil Refineries Haifa is one of the largest refineries in the Middle East, with a refining capacity of 180,000 barrels a day, and a quality of refining that is classed as high. The company says in its prospectus that is considered a dominant player on the local market, with access to emerging markets such as Turkey, Greece, and Cyprus.
The activity of Oil Refineries Haifa is divided into three fields: oil refining - the key activity at the refinery itself, and which generates most of its profit and revenue; aromatic substance manufacturing, which it transacts through its subsidiary Gadiv Petrochemical Industries, and polymer production, which it transacts through Carmel Olefins, in which it has a 56% stake.
The figures show that refining activity alone generated operating profit of NIS 670 million more than 90% of the oil refinery’s total profit. Gadiv’s aromatic oil manufacturing generated operating profit of NIS 23 million on NIS 1.25 billion revenue, while Carmel Olefin’s activity also generated operating profit of NIS 23 million.
Gadiv itself, whose figures were not included in the prospectus, recorded a net profit of NIS 69 million on NIS 1.65 billion revenue in 2005. It recorded a profit of NIS 29 million on NIS 1.49 billion revenue in January-September 2006, a 59% decrease over the corresponding period in 2005.
Gadiv focuses on the manufacture of aromatic products that serve as basic products and raw material ingredients for the manufacture of petroleum-based products in the textiles, pharmaceuticals, cosmetics, computers, paints, and vehicle manufacturing industries. The company says that aromatic products are a type of commodity that saw strong demand in recent years, especially following the growth in the emerging markets, headed by China. Gadiv sells primarily to overseas markets - 95% of its turnover - and focuses primarily on companies in the chemicals and plastics sectors.
Another item in the prospectus reveals that Israel’s four largest companies, accounted for 60% of Oil Refineries Haifa’s revenue in 2005. The figures show that Paz Oil Company Ltd. (TASE:PZOL) alone purchased NIS 3 billion worth of fuel, amounting to 18% of turnover in that year. This revenue will be deducted from Oil Refinery Haifa’s future figures, due to the acquisition of Oil Refineries Ashdod by Paz.
As to the future, Oil Refineries Haifa states that the Israel fuel economy is likely to undergo significant change and realign itself in 2007, and that the company will review its future activity in light of this. Among other things, the company will spend NIS 1.2 billion on examining methods to boost production capacity at its facilities, a move that is likely to commence in mid-2007 and end by 2009.
Aside from this, with its focus now switching to light fuels and oil derivatives, the company aims to expand its refining capability into heavy fuels, Oil Refineries Ashdod’s field of expertise. To this end it has allocated $500,000 for a feasibility study, which may result in an investment of $50 million in its refining facility.
Published by Globes [online], Israel business news - www.globes.co.il - on January 18, 2007
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