The reform in the Israel Electric Corporation (IEC) (TASE: ELEC.B22) is being delayed, and meanwhile the company's debts are growing. IEC finished the first half of 2014 with a NIS 1.1 billion loss, almost double its NIS 616 million loss in the first half of 2013.
IEC's loss grew despite 2% growth in its revenue, which totaled NIS 12.5 billion. In addition, the company benefited from a 40% drop to NIS 3.6 billion in fuel costs during this period resulting from the switch to the use of natural gas from the Tamar reservoir.
This saving did not reach IEC's bottom line, however, for two main reasons. The first is a 78% leap to NIS 1.8 billion in financing expenses caused by exposure to foreign currency. The second is a rise in management and general expenses, which soared 64% to NIS 656 million. IEC noted that the increase in this item was due to a rise to NIS 182 million in the provision for doubtful debts, among other things.
In this context, it should be noted that at the end of the first half of 2014, the debts of the Palestinian Authority and the Jerusalem District Electricity Company to IEC totaled NIS 1.2 billion (compared with NIS 835 million in the corresponding period last year, after an allowance for doubtful debt).
Liabilities down, leverage up
IEC's operating profit was up 11% to NIS 242 million in the first half of 2014, but its financial situation continues to be shaky. Its equity continues to slide, amounting to NIS 13 billion at the end of the first half, and its working capital deficit totaled NIS 2.1 billion. The company's liabilities totaled NIS 70 billion, down from NIS 73 billion, but its leverage rose to 85%.
IEC finished the second quarter of 2014 with a 9% drop to NIS 5.7 billion in revenue and a quarterly loss of NIS 777 million (compared with a NIS 361 million loss in the corresponding quarter last year.
IEC chairman Gen. (res.) Yiftach Ron-Tal said, "IEC is coping with a drop in revenue, due mainly to the entry of private producers, and continues to cope with its commitment to a stable electricity sector alone." IEC CEO Eli Glickman added, "We regard as very important the improvement in cash flow from current activities, which will enable the company to upgrade its debt structure and lead to a higher rating for IEC's international debt." At the beginning of July, Standard & Poor's upgraded IEC's international rating to BBB+ and its domestic rating to AA, both with a stable outlook.
Published by Globes [online], Israel business news - www.globes-online.com - on August 24, 2014
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