INVESTORS

A Letter to the Shareholders

Dear Shareholders,

The past year was different than any other. Covid-19 hit humanity across the globe and disrupted the lives and economies of almost all countries. This included lockdowns and severe depression of economic activity across many sectors. This unique event forced us to look long and hard at our various businesses and find ways to secure the future of our employees and companies.

In spite of this exceptional environment, I’m happy to report that we managed to overcome these challenges and not only secure our businesses but even expand them in these difficult times. This is a year in which we laid the foundations for strong strategic developments within our core companies a fact that is well reflected in the financial results for the year. On a consolidated basis, we ended the year with sales of over 3.4 billion USD versus the  3 billion we had in 2019, a previous record year. Shareholders profit totaled 89 m USD with an EBITDA of 321 m USD. NAV of the Group stood at 2 billion USD and our market cap closed the year at 1.36 billion USD with over 13,000 employees.

The resilience and strength of our group stood out and enabled us to perform well in this very complicated environment.

Let me quickly capture some highlights for the year in each of our main subsidiaries:

Electra Ltd.: Continued growth, new horizons in transportation

Electra Ltd., our comprehensive business unit for property development, end-to-end contracting, electromechanical systems and facility management services, continued to post strong growth and favorable results in 2020.

In addition to winning significant construction and infrastructure contracts both in Israel and abroad, Electra made a significant new entry into the world of public transportation. Electra recently entered into a controlling 51% stake in Afikim with 900 buses in operation. Like other franchise business within Electra, the idea of operating assets under long term secured agreements fares well within our comprehensive Facility Management business.

During 2020, Electra achieved a net profit of NIS 181 million. Its backlog continued to expand reaching 17 b NIS compared to 14.3 b the year before and this with the Covid epidemic in the background.

Electra Consumer Products Ltd: Record Year

Electra Consumer Products (ECP) continued to maintain its leading position in the Israeli consumer appliances market during 2020 and expanded across all segments of its business. During the year, ECP achieved a net profit of NIS 292 million – compared with NIS 185 million last year. ECP managed to navigate extremely well though the turbulent environment and overcame significant logistical and other challenges associated with lockdowns and decline in economic activity. All the while, serving clients efficiently and creating a huge gap from its competitors in its online business.

In August, ECP sold its entire stake in Golan Telecom to one of its local competitors, Cellcom. Acquired just three years prior, this sale resulted in a net cash flow of 574 m NIS, an impressive IRR of 84% and a return on equity of 9.5 times! in just three years. Following the sale, ECP paid out a special one-time dividend of 300 m NIS to its shareholders.

Here are some highlights from the strong year enjoyed by our subsidiaries:

Electra Ltd.

The company continued to consolidate its Israeli and international market leadership through various strategic operations in 2019, including:

Electra Consumer Products Ltd.

The largest electrical appliances company in Israel.

Winning in all markets:

Electra Real Estate

In the same month of August, the company completed a JV agreement with Bosch Thermotechnik (a division of the Bosch Group) for the establishment of a new facility for the R&D, Design and Production of Heat Pumps (HP) and a/c systems. Bosch invested 8 m Euros in this JV taking a 40% stake in the business. This JV is focusing very much on exporting HP products to the European markets where a strong multi-year trend for the transfer from fossil fuels to HP is well underway.

In November, the company signed a Term Sheet with 7 Eleven to establish a franchise in Israel. Over the coming years the plan is to rollout a significant presence in the market.

In December, the company entered into a 50/50 JV for the sale of electrical appliances in the Ben Gurion International Airport, further strengthening its number one position in the market-place via a new channel.

Electra Real Estate (ERE): From Turnaround to Exceptional Growth

2020 was a very strong year for Electra Real Estate (ERE) our realty investment arm in the opportunity-filled, multi-family unit rental market in the Southeastern US. Starting this business in Elco back in 2008, ERE follows a well-conceived strategy of targeting under-performing residential complexes that are purchased at attractive prices, renovated and then enhanced for brand repositioning.

The trends impacting ELR’s target market are very favorable for investment. As the Southwest region of the US continues to surge past expectations, the multi-family sector presents itself as a most attractive option for young middle-class families.

The pandemic contributed to the model in that rentals are on the rise and the uncertain job market requires people to move unexpectedly and often. These factors cause families to seek safe, high-quality and affordable rentals in the type of self-contained, mini-community environments that ERE offers in lieu of settling into the uncertainty of a long-term mortgage commitment.

ERE currently manages 34,895 apartments in 106 housing complexes and 255 single family houses for rent. In 2020, the company raised 760 m USD through its Equity Funds for deployment.

In addition to our Equity Funds, this year saw the introduction of a new product in the form of a Debt Fund. This first-time fund managed to raise 200 m USD and by the end of the year invested  93.7 m USD in13 separate transactions.

In light of the trend in the housing market from own to rent (which is usual in difficult times), the company decided to also expand its portfolio of products to the Single Family (SF) rental market in the same geographies where it is already present and operates.

With the backdrop of the hard hit hotel market in the midst of Covid-19, the company has announced its intent to also actively pursue opportunities in this space aided with a hook-up to AKA, a top quality hotel and apartment management company active in the US for over a century.

During the year, total assets increased from $281 million to $309 m by the end of 2020. Profit totaled $30 m compared with $28 million the year before. Shareholder equity currently stands at $131 m and the market cap increased 34% to $445m.

SuperGas: Latest addition to the Group

Acquired in November 2019 at an equity value of 450 m NIS, Supergas is the latest addition to our group as a foundation to our entry into the huge energy sector with a long-term vision and emphasis on renewables.

In June 2020, in spite of the Covid crisis and the economic uncertainty around it, we successfully IPOed the company on the Tel-Aviv Stock Exchange at a valuation of 970 m NIS. The company raised 270 m NIS and significantly strengthened its balance sheet while creating significant value for its shareholders.

In July we issued a new series of bonds raising 208 m NIS at an interest rate of 1.7% thus reducing significantly the financial costs of the company.

DREAM GROUP: On the road to recovery

Of all our businesses DREAM GROUP was the clear outlier for the year hit hard with its sector by the pandemic. With 110 screens across 11 locations the company has literally been shut down throughout the crisis till now. Due to social distancing and regulatory restrictions, the company has been unable to function normally throughout the period and focused all its attentions and efforts on maintaining the business platform for the future while minimizing its costs to the greatest extend possible.

After a strong improvement in its performance in 2019, the company eagerly waits to relaunch its operations and spring back into life during 2021.

As always, I wish to express my gratitude to the dedicated managers and employees whose contributions are instrumental in driving Elco forward and reaching new heights.

Sincerely yours,

Danny Salkind                 Michael Salkind
Co CEO, Elco Ltd.          Co CEO, Elco Ltd.

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AVI  ISRAELI

Co-Chief Executive Officer, Director

Mr. Avraham Israeli has served as Vice President of Business Development of Elco Holdings Ltd since March 24, 2004. He has served with the Company since January 1, 2000. He received his Bachelor degree in law from the Hebrew University of Jerusalem, his MBA from Insead, France.

AVI  ISRAELI

Co-Chief Executive Officer, Director

Mr. Avraham Israeli has served as Vice President of Business Development of Elco Holdings Ltd since March 24, 2004. He has served with the Company since January 1, 2000. He received his Bachelor degree in law from the Hebrew University of Jerusalem, his MBA from Insead, France.

AVI  ISRAELI

Co-Chief Executive Officer, Director

Mr. Avraham Israeli has served as Vice President of Business Development of Elco Holdings Ltd since March 24, 2004. He has served with the Company since January 1, 2000. He received his Bachelor degree in law from the Hebrew University of Jerusalem, his MBA from Insead, France.

AVI  ISRAELI

Co-Chief Executive Officer, Director

Mr. Avraham Israeli has served as Vice President of Business Development of Elco Holdings Ltd since March 24, 2004. He has served with the Company since January 1, 2000. He received his Bachelor degree in law from the Hebrew University of Jerusalem, his MBA from Insead, France.

AVI  ISRAELI

Co-Chief Executive Officer, Director

Mr. Avraham Israeli has served as Vice President of Business Development of Elco Holdings Ltd since March 24, 2004. He has served with the Company since January 1, 2000. He received his Bachelor degree in law from the Hebrew University of Jerusalem, his MBA from Insead, France.