The Electra Group, which completed 2020 with an increase in revenues of more than 10%, is looking for new growth engines. Itamar Deutscher, the CEO of Electra stated that: “The sectors that grew in 2020 compensated for the negative impact of the corona crisis in other sectors. Our business model enables the company to deal with extreme scenarios".
The Electra Group, controlled by the Salkind family, concluded 2020 with an increase of more than 10% in revenues – reaching NIS 7.7 billion, and is now preparing to expand into the transportation sector with the acquisition of Afikim as well as expand its operations in the US. "Like everyone else, when the corona crisis fell upon us around March, we were bracing ourselves for many scenarios, but Electra's business model is such that it allows the group to deal with scenarios that are even more extreme than the one that actually happened," says Itamar Deutscher, the CEO of Electra.
According to Deutscher, "If you look at the results, you see a 10% increase in the turnover. This indicates that Electra's business model included sectors that are able to compensate for other sectors that are affected, as happened with the corona crisis. First and foremost, the infrastructure sector, which, in Israel, has a remarkably high volume of activity, but also the residential development sector, as well as other projects in the electro-mechanics sector, and projects located abroad. At the end of the day, even the sectors that we thought would be affected have been affected in a very minor way."
Electra is currently operating in five sectors: construction and infrastructure projects in Israel; constructions and infrastructure projects abroad; operation, service and maintenance; development and construction of entrepreneurial real estate; and, the franchise sector. Revenues from the construction and infrastructure projects segment in Israel increased by 14% in 2020 reaching NIS 4.22 billion, compared with NIS 3.69 billion in 2019. Operating profit in this segment jumped by about 104% in 2020 reaching about NIS 150 million, compared to about NIS 73 million in 2019.
Infrastructure companies benefit from upgrading and construction programs for various infrastructures in Israel, ranging from transportation to energy. According to the "Infrastructure for Growth" program - which coordinates the infrastructure projects of government ministries, its units and government companies which are under construction or whose construction will begin by 2024 - there are about 230 projects, whose total construction cost is estimated at more than NIS 220 billion.
According to Deutscher, the capital market’s participation, in recent years, in financing projects constitute a great help in the promotion of infrastructure in Israel. "The involvement of the capital market in the sector allows to close the gap between the funds needed to invest in infrastructure as part of the annual budget and the funds needed to invest in infrastructure so that the quality of life in Israel would again be reasonable. The involvement of the capital market, at the end of the day, brings a large influx of money that allows to complete building the infrastructure in a shorter period of time.
Integration of Afikim into Electra's Strategy
Electra's strategy is to be active in all areas of a particular sector. For example, in the real estate sector, the company is active in the field of entrepreneurship, construction as well as operation of the building after completion of the construction; in the transportation sector, Electra is active in the field of entrepreneurship, contractor work and franchises in various infrastructure enterprises – but as of now, Electra has not been active in the area of operation.
"The transportation sector does not end with buses. It also includes the operation of trains and autonomous vehicles. Our goal is to be active in all means of transportation."
This is where the Afikim deal comes into the picture. At the beginning of the year, Electra acquired control of the Afikim transportation company (51%) at a company value of NIS 154 million. The company has a fleet of about 850 buses and has franchises to operate five clusters of public transportation service lines throughout the country. The company also owns 25% of Nativ La'ir.
"We saw it fit to complete Electra's initiate-build-operate business model in the field of transportation with Afikim," says Deutscher. "We found that Afikim is a good deal, economically, and we plan to have the closing already in this quarter. We have more ideas with regard the world of transportation, and this is going to be one of the company's biggest growth engines."
He said that "The transportation sector does not end with buses. There also is the operation of trains, where we are participating in the tender for the Nazareth-Haifa line. The autonomous vehicles, which will arrive in years to come, will also need an operation infrastructure, because, at the end of the day, the vehicle must be in areas of demand and someone has to operate it. Once you make a strategic decision to get involved in transportation operations, the goal is to get involved in all means of transportation. That's where we aim at and this is how we organize the company."
Additional Growth Channels
Electra is active in identifying other growth engines, in addition to acquiring growth channels. The company is currently also operating in the sector of renewable energies by means of the pumped storage project at Gilboa and the pumped storage project that it will establish at Menara Cliff for Ellomay Capital for NIS 1.1 billion.
The sector of renewable energy has become one of the hottest sectors on the Tel Aviv Stock Exchange, with the segment of energy storage being an integral part of the tenders for solar energy supply. "We went to battery storage tenders," Deutscher says, noting that "battery storage is still more expensive and has a shorter term, but if you look at the last few years, the direction is that the price of batteries will go down and their lifespan will go up. I imagine that whoever won the photovoltaic tenders took into account the prices of the batteries in two years, and not their current prices. Something similar is happening here with these tenders: the former were priced at NIS 2 per kilowatt, and the latter were priced at about 20 cents per kilowatt. Battery prices have decreased by about 15% in recent years, in year".
The Electra Group - Areas of Activity
Entrepreneurship and development of real estate projects
Company: Electra Residence
Projects: Midtown Tel Aviv, Hayam Neighborhood in Achziv
Franchising in the sector of infrastructure and national projects
Company: Electra Franchise
Projects: Agora pumping in Gilboa, the Bahadim city, sewage treatment plants
Construction contracting, infrastructure and electromechanical systems
Companies: Electra Infrastructure, Electra Construction, Electra Elevators
Projects: The high-speed line to Jerusalem, the Lev Hamifratz transportation complex
Operation and maintenance
Companies: Electra FM, Electra Afikim, Electra security
Projects: The President's Residence, IKEA, Assuta Hospital
Electra's strategy is to be active in all areas of a particular sector. For example, in the real estate sector, the company operates in the entrepreneurship, construction and operation of buildings.
Two additional sectors that Electra regards as growth engines are its overseas operations and the operations of the buildings carried out by its subsidiary Electra FM (Facility Management – Management of Installations and Assets). We entered the US market two years ago with strategic acquisitions, and, at the present, we are the third largest electro-mechanical contractor in the state of New York. For us, to be at the top is to be one of the three biggest players in the field. To be a leader is not only a matter of numbers, it also has a strategic significance in being able to act correctly and efficiently - and achieve what you wish to achieve if you are part of the top league."
Electra M&E also operates in the electro-mechanical sector in Europe, including together with the major car manufacturers in Germany, such as Audi, Mercedes and Volkswagen, and is also taking part in the establishment of Tesla's Giga Factory near Berlin – which is a battery production factory. "In my opinion, it will be one of the largest factories for the automotive industry and also for batteries in general," says Deutscher. "In our work with German car manufacturers, we see the transition to electric cars, where a large part of the work is the conversion of 'regular' car factories into electric car factories. The manufacturers are investing huge sums in this transition. Looking at that, one understands that the electrical vehicle is able to reach very high-volume markets.
Electra FM was established in 2009 as a part that complements the company's activities in the field of contracting and entrepreneurship. "The idea was to create an arm that would produce medium- or medium-long-term contracts. In the contracting world, the projects are short-term, and we decided that once the building was completed - we wanted to continue to operate and maintain it," says Deutscher.
"We built three families of services, which actually cover all maintenance and operation activities: we have comprehensive management services (IFM) where we are act as the main contractor of the operation; property management; and electromechanical services (elevators, air conditioning, generators, etc.) as well as security, cleaning services, etc. In total, we manage more than 12 million square meters of buildings.