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El Al Israel Airlines Ltd. Announced Today its Financial Results for the Second Quarter of 2018 and the First Half Year

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El Al Israel Airlines Ltd. Announced Today its Financial Results for the Second Quarter of 2018 and the First Half Year

PR Newswire

LOD, Israel, Aug. 16, 2018 /PRNewswire/ -- The Company's (TASE: ELAL) revenues in the second quarter of 2018 amounted to approx. USD 547 million compared to approx. USD 541 million in the second quarter of 2017, indicating a growth of about 1%;

Gross profit amounted to approx. USD 69 million compared to approx. USD 107 million in the second quarter of 2017;

Loss from operation amounted to approx. USD 13.7 million compared to a profit of USD 27 million in the second quarter of 2017;

Net loss in the second quarter of 2018 amounted to approx. USD 18.2 million compared to profit approx. USD 16.4 million in the second quarter of 2017;

Market share from passenger traffic at Ben Gurion Airport in the second quarter of 2018 decreased to approx. 26.7% compared to approx. 29.5% in the second quarter of 2017;

Aircraft Load Factor in the second quarter of 2018 stood at 83.5% compared to 84.3% in the second quarter of 2017;

The Company's available seat kilometer (ASK) increased by about 3% and revenue Passenger Kilometer (RPK) increased by about 2%;

Average total income per RPK (Yield) dropped by about 1%;

The Company's cash and deposit balances as of June 30, 2018 totaled approx. USD 280 million;

The Company's equity as of June 30, 2018 totaled approx. USD 267 million;

Cash flow from operating activities in the second quarter of 2018 amounted to approx. USD 56 million compared to approx. USD 101 million in the second quarter of 2017;

EBITDA amounted to USD 25.4 million compared to USD 70 million in the second quarter of 2017;

The Company's revenues for the first six months of 2018 amounted to approx. USD 1,007 million Compared to USD 959 million in the first six months of 2017, reflecting a growth of about 5%;

Loss from operation for the first six months of 2018 amounted to approx. USD 66.3 million Compared to USD 7.1 million in the first six months of 2017;

Net loss for the first six months of 2018 amounted to approx. USD 62.1 million Compared to USD 13.6 million in the first six months of 2017.

Gonen Usishkin, El Al's CEO:

"During the second quarter of 2018, EL Al recorded an increase in revenues compared to the second quarter of 2017, while coping with the challenges and the intensified and increased competition posed by foreign airlines, in particular low cost airlines.

During the second quarter of 2018, the Company dealt, among others, with the sharp increase in fuel prices, which was the main reason for the increase in expenses in the second quarter of the year.

We continue implementing our Dreamliner Acquisition Program. Thus far, we have received six aircrafts, the last of which arrived yesterday, and we are about to receive another aircraft by the end of 2018. Our Aircraft Acquisition Program is being implemented as planned, in line with the schedule agreed upon, and the Company continues to take the necessary steps required by the program. The demand for seats on Dreamliners is high and customer satisfaction meets the Company's expectations.

Sales of airline tickets to European destinations commenced in the second quarter for flights starting in October, based on our new sales model of which we have already announced. The new model allows the passenger to choose the flight package best suites to his needs, to all destinations in Europe, and pay for the package based on his choice. This model is expected to enhance EL AL's ability to more efficiently compete with all players in the European market, in particular, low cost airlines.

Once the pilot phase has been completed, we started offering Wi-Fi service on flights to Europe on 15 of the Company's airplanes, and we intend to expand the service to other airplanes and destinations.

EL AL's Frequent Flyer Club, both in Israel and overseas, and in particular the FLYCARD credit card, serve as a significant growth engine, which is translated into an impressive expansion trend. The number of credit card holders currently stands at about 280 thousand and the number of EL AL's Frequent Flyer Club members has now reached the 2 million mark. In the last month we announced a modification to the terms of accumulation and redemption of points by club members and credit card holders, which will be effective as of April 2019.  This modification simplifies the accumulation method, which will now be based on cash expenses, and expands the possibilities to redeem points.

We keep accelerating the optimization of all wide-body aircrafts. To enhance customer service following the acquisition of the Dreamliner fleet, El Al is preparing for an early removal from service of the 767 aircraft fleet by the beginning of 2019."

Dganit Palti, El Al's CFO, noted as follows:

"In the second quarter of 2018, the Company recorded further growth in revenues despite the challenges of increased competition, expressed by the volume of traffic and the number of active players at Ben Gurion Airport. Alongside this, an increase in expenses was recorded, mainly due to the rise in jet fuel prices and the new Dreamliner aircrafts' lease expenses.

In June 2018, the Company took a USD 145 million loan from foreign banks and Japanese investors to finance the acquisition of the 787-9 aircraft received this month.

Furthermore, on August 10, 2018 the Company received another 787-9 aircraft under ownership, which it financed with a USD 125 million loan from a foreign bank, backed by a UKEF guarantee. With this, the Company has six aircraft of this model – three owned and three leased.

The Company's cash balances of USD 280 million and its cash flow from operating activities to be used for the continued implementation of the Acquisition Program."

 

Highlights for the three and six-month periods ended June 30, 2018 (in USD millions):


January-June

April-June


2018

2017

Change

2018

2017

Change

Operating revenues

1,007

959

6%

547

541

2%

Operating expenses

(907)

(810)

13%

(478)

(434)

11%

Gross profit

100

148

(33%)

69

107

(36%)

EBITDA

12

81

(85%)

25

70

(64%)

Profit (loss) before taxes on income

(80)

(17)

(373%)

(23)

22

(207%)

Profit (loss) for the period

(62)

(14)

(359%)

(18)

16

(211%)

 

Profit and Loss Results for the three months periods ended June 30, 2018

1. Operating revenues – operating revenues in the reported period increased by approx. 1.1%, indicating an growth of approx. USD 5.8 million compared to the second quarter of 2018, It should be noted, that passenger revenues in the reported period decreased by 3.4 million USD as a result of the implementation of IFRS-15, according to which payments for compensation to passengers have to be recorded as a revenue reduction instead of an expense within the operating .After neutralizing this revenues from passengers increased by approx. 1.8%, representing a growth  of approx. USD 8.7 million.  This increase in passenger revenues is primarily attributable to the growth in passenger revenue per kilometer (RPK) flown by the Company and a positive impact of exchange rates of currencies in which some of the Company's sales transactions are made, in relation to the dollar, which were partially offset by a decrease in the yield per ton-kilometer. Cargo revenues decreased by approx. 1.1% (about USD 0.4 million) and other revenues decreased by approx. USD 2.4 million.

2. Operating expenses – operating expenses in the reported period increased by approx. USD 43.9 million, indicating a growth of about 10.1% compared to the second quarter of 2017. The increase in operating expenses is primarily attributable to an increase of USD 31.4 million in jet fuel expenses; an increase of USD 9.5 million in aircraft lease expenses, mainly due to lease of three 787-9 Dreamliners that were not included among the Company's aircrafts in the second quarter of 2017; and an increase of USD 5 million in expenses for fees, services and airspace transit fees, mainly due to the increased fee rates paid by the Company to the Israel Airport Authority for its operations at Ben Gurion Airport, and the strengthening of the euro compared to the dollar. It should be noted that the increase in operating expenses was offset by the presentation of payments in respect of passenger compensation as a decrease in income, as mentioned above.

3. Jet fuel expenses - the Company's jet fuel expenses in the second quarter of 2018 increased by approx. USD 31.4 million (an increase of 29.5%) compared to the second quarter of 2017, mainly as a result of the increase in jet fuel prices, offset in part by the change in the results of jet-fuel hedging transactions.

The table below demonstrates the impact of jet fuel expenses on the Company's results for the second quarter of 2018, including the impact of hedging transactions (in USD millions):

 


2018


2017


Difference

Jet fuel expenses for the period (before hedging impact)

147.0


106.3


40.7







Impact of jet fuel hedging transactions on profit and loss

(9.1)


0.2


(9.3)







Total jet fuel expenses (including hedging impact)

137.9


106.5


31.4







 

4. Selling expenses – selling expenses in the second quarter of 2018  increased by approx. USD 2.3 million compared to the second quarter of 2017, mostly due to an increase in the Company's distribution expenses. It should be noted that USD 0.8 million represents an increase in distribution expenses due to the change in the accounting presentation of fees for interline sales, previously presented as a decrease in revenues.

5. Financing expenses – net financing expenses in the second quarter of 2018 amounted to approx. USD 8.7 million, compared to USD 4.6 million in the second quarter of 2017. This increase is primarily attributable to an increase in exchange rate differences in respect of the Company's NIS balances, and the increase in interest expenses following the increase in the amount of loans taken by the Company over the second quarter of 2018 compared to the second quarter of 2017, as a result of receiving a 787-9 Dreamliner under ownership at the end of March (the second aircraft was received by the Company towards the end of the second quarter, without affecting financing expenses).

6. Loss before tax  - loss before tax in the reported quarter totaled approx. USD 23.4 million compared to profit before tax of approx. USD 21.8 million in the second quarter of 2017.

7. Loss for the period – loss for the period amounted to approx. USD 18.2 million compared to a profit of USD 16.4 million in the second quarter of 2017, which constituted 3% of the turnover.

Profit and Loss Results for the six-month period ended June 30, 2018

1. Operating revenues – operating revenues in the reported period increased by approx. USD 48.5 million, indicating a growth of about 5.1% compared to the second quarter of 2017. It should be noted, that passenger revenues in the reported period decreased by 6.8 million USD as a result of the implementation of IFRS-15, according to which payments for compensation to passengers have to be recorded as a revenue reduction instead of an expense within the operating expenses. After neutralizing this, revenues from passengers increased by approx. USD 42.7 million (5.0%) and revenues from cargo increased by approx. USD 6.6 million (9.2%). The increase in passenger revenues is primarily attributable to the growth in passenger revenue kilometer (RPK) flown by the Company, the increase in the yield per ton-kilometer and the positive impact of exchange rates of currencies in which some of the Company's sales transactions are made, in relation to the dollar. The increase in cargo revenues in the reported half year is due to the increase in cargo volume as well as the impact of changes in exchange rates and a change in the implementation of an accounting standard, offset by price reduction.

2. Operating expenses – operating expenses in the reported period increased by approx. USD 103.7 million (a 12.8% growth) compared to the second quarter of 2017. This increase is attributable to a number of factors, including, inter alia, an increase of USD 54 million in jet fuel expenses, as elaborated below as well as increase of USD 18.2 million in aircraft lease expenses, mainly due to the receipt of three 787-9 Dreamliners. Moreover, operating expenses in the first half year were affected by the following factors: the growth in operations, a USD 10 million increase in payroll expenses mainly due to the impact of the strengthening of the shekel compared to the dollar, the Minimum Wage Update and a USD 10.7 million increase in expenses for fees and services, mainly as a result of the increased fee rates paid by the Company to the Israel Airport Authority for its operations at Ben Gurion Airport, among others, due to a decline in the Company's market share at Ben Gurion Airport, which led to a decrease in discount rates obtained by the Company. It should be noted that the increase in operating expenses was offset by the presentation of payments in respect of passenger compensation as a decrease in income, as mentioned above.

The table below demonstrates the impact of jet fuel expenses on the Company's results for the second quarter of 2018, including the impact of hedging transactions (in USD millions):

 


2018


2017


Difference

Jet fuel expenses for the period (before hedging impact)

264.5


197.8


66.7







Impact of jet fuel hedging transactions on profit and loss

(13.5)


(0.8)


(12.7)







Total jet fuel expenses (including hedging impact)

251.0


197.0


54.0







 

3. Loss for the period – loss before tax for the period amounted to approx. USD 80.3 million and loss after tax amounted to approx. USD 62.1 million reflecting 6.2% of the turnover, compared to a loss before tax of USD 17.0 million in the second quarter of 2017, and loss after tax of USD 13.6 million, reflecting 1.4% of the turnover.

Balance Sheet Data as of June 30, 2018:

1. Current assets - amounted to approx. USD 577 million, indicating a growth of approx. USD 58.5 million compared to their balance as of December 31, 2017. This growth mostly resulted from a seasonal increase in accounts receivable and prepaid expenses as well as increase in the fair value of jet fuel derivatives.

2. Current liabilities - totaled approx. USD 1,008 million, indicating an increase of approx. USD 51.7 million compared to their balance as of December 31, 2017. The change is attributable to a seasonal increase in prepaid revenues from sales of airline tickets, offset in part by a decrease in accounts payable balances as well as provisions and liabilities to employees (among othes, due to a payment in respect of the compromise agreement with the Assessment Officer).

3. Working capital - the Company had a working capital deficit of approx. USD 431.1 million compared to a deficit of approx. USD 437.9 million as of December 31, 2017. It should be noted that a substantial part of the working capital deficit does not reflect short-term cash flows, as explained below. As of June 30, 2018, the Company's current ratio increased to 57.2% compared to 54.2% as of December 31, 2017.

As of June 30, 2018, the working capital deficit consists of substantial components included in the current liabilities section and characterized by current business cycle; however, the Company is not required to use cash-flow sources in the short term in order to repay these components: prepaid revenues from sale of airline tickets and the Frequent Flyer Club totaling approx. USD 433 million, to be settled by providing future flight services, and liabilities to employees for vacation pay in the amount of approx. USD 45 million, which are expected to be paid upon retirement but classified as a short-term liability in accordance with accounting principles. Current liabilities also include loans to finance advance payments on the 787 aircrafts, to be repaid through long-term financing obtained upon receipt of aircrafts. As of June 30, 2018, the amount attributable to these loans of the total current liabilities stands at approx. USD 65 million.

4. Non-current assets - amounted to approx. USD 1,531.9 million, showing a growth of approx. USD 198.9 million compared to their balance as of December 31, 2017, mainly due to the receipt of two 787-9 Dreamliners owned by the Company during the reported period and advance payments for the acquisition of the 787 aircrafts that have not yet been received, less current depreciation.

5. Non-current liabilities - totaled approx. USD 834.0 million, reflecting an increase of approx. USD 217.1 million compared to December 31, 2017. This increase was primarily attributable to two loans obtained by the Company to finance the acquisition of two 787-9 Dreamliners.

6. Equity - amounted to approx. USD 266.8 million. The decrease of approx. USD 11.4 million compared to equity as of December 31, 2017 was mainly attributable to the loss for the half year, which was partially offset by a USD 35.7 million increase in equity following the implementation of IFRS 15 - "Revenue from Contracts with Customers" (see note 7.A to the condensed financial statements), and improvement in the cash flow hedge fund, due primarily to jet fuel transactions carried out by the Company.

The contents of this notice do not replace reading the Company's financial statements as of June 30, 2018.

About El Al

El Al Israel Airlines Ltd. National Air Carrier of Israel. In 2017, El Al recorded revenues amounting to nearly USD 2.1 billion. El Al carries about 5.6 million passengers a year. The Company operates flights to about 34 direct destinations around the world and many other destinations by means of cooperation agreements with other airlines, thus it currently operates 45 aircrafts, of which 27 are owned by the Company.
(www.elal.com)

Details of Conference Call

A conference call took place on Wednesday, August 15, 2018, at 12:30 IL. A recording of the conference call will be available to all interested parties from August 15, 2018, until August 22, 2018, via phone number +972-3-9255943, as well as on the Company's Investor Relations website at:  www.elal.com/investor-relations, commencing August 17, 2018.

For further details:

Dafna Cohen            

Head of Group Business Control and Investor Relations

El Al Israel Airlines Ltd.

+972-3-9717439

dafnac@elal.co.il

Amir Eisenberg

Co-CEO

Eisenberg-Eliash Ltd.

+972-3-7538828

amir@pr-ir.co.il

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SOURCE EL AL Israel Airlines Ltd.

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