About 50% of Rafael's sales revenue originates from the defense budget, which causes the company to be heavily dependent on the budget, which may harm the company's business results, this is in light of the budgetary instability, according to the State Comptroller's report by Matanyahu Engelman on the subject of "Rafael's" financial statements. The state of the company and its risks.
Rafael is one of the largest government companies in the State of Israel, dealing in the fields of security.
It develops and manufactures weapons for the IDF and sells products in the defense fields around the world. The State Comptroller examined Rafael's business and financial situation in the years 2017-2021.
Rafael company in an experiment with the Iron Dome system (for illustration), photo: Ministry of Defense spokespeople
The report shows that along with revenues of approximately NIS 46.5 billion in the years 2017-2021 and accumulated profits of approximately NIS 4.5 billion, the company is facing difficulties, including a decrease in its revenues, a decrease in operating profit relative to 2020, forecasts for an operating loss in several projects and non-compliance in some of its business destinations.
Thus, in the years 2020 and 2021, the revenues from sales in the Rafael Group decreased.
In these years, the Rafael Group did not fully meet the budget targets.
Rafael's revenues from sales in the years 2021-2017 were in the amount of approximately 9.3 billion shekels per year on average, an amount approximately 38% lower than that of Elbit Systems Ltd., and approximately 33% of that of the Israel Defense Forces and approximately 10% of that of the military sector of the TAA.
In the years 2021-2017, the volumes of orders from abroad that Rafael received averaged about 53% of the total volume of orders it received - a rate that is 7% lower than the stabilization target set in Rafael's strategic plan for the years 2021 to 2030, which was 60%. In 2021, there was a decrease in the relative rate of the volume of orders from abroad by 12% compared to 2020, and the average of orders from abroad in 2020 - 2021 decreased by 9% compared to 2019.
Also, in 2021, salary costs and the average salary cost per employee increased by approximately 3.6% and approximately 2.5%, respectively.
An increase in the wage cost index in relation to sales revenue has a direct impact on the company's profitability and competitiveness.
Rafael I-Derby missiles (for illustration), photo: Rafael
In addition, in the years 2017-2021, Rafael declared current dividends of 663 million shekels, out of a net profit of more than 2 billion shekels and a revenue volume of more than 46 billion shekels.
Rafael's board of directors did not have a procedure for determining the amount of the current dividend and the date of its payment in the years 2019 - 2021 in accordance with the Authority's circular on the subject and the Government Companies Authority did not confirm the existence of this procedure.
It was also found that the government's decisions to receive special dividends from government companies were not fully implemented.
Auditor Engelman recommends that the company's management act to update its strategic plan, also in light of the findings of this report and in accordance with its recommendations and in accordance with the financial goals that will be agreed upon with the Government Companies Authority, and that the plan be brought to the board of directors for consideration and approval, and also that the Government Companies Authority monitor the process of formulating the plan and after its implementation.
Sources in the company claim that 2021 was a record year for Rafael's contracts with parties in Israel and abroad. "Raphael has a strategic plan and is working to increase its activities abroad and it is succeeding in doing so and will continue to increase its activities in Israel and abroad as much as possible. In 2020 there was no state budget and therefore a large part of the Ministry of Defense's orders skipped a year and entered 2021," the source said.
To update Rafael's strategic plan, Matanyahu Engelman (archive), photo: Oren Ben Hakon
"The desire is to increase the share in sand and reduce the dependence on the Ministry of Defense and reach a 60% market share in sand by 2030. However, when the Ministry of Defense wants to buy from Rafael, the Rafael company does not refuse to sell," it was reported.
Marfael said in response:
"The auditor's report examined the results of the company's activities in 2020-2021.
In 2022, Rafael broke its all-time order backlog record, with a total amount of NIS 33 billion, which reflects about 3 years of activity.
During the period, the corona epidemic raged and affected Rafael's business and operational activities.
Despite the conditions of uncertainty, Rafael maintained a good level of income and profitability, as it has done since 2000, about two years before it became a government company.
In addition, despite and in spite of the challenges, Rafael managed to create new records in order backlog and sales.
"Like most companies in its field as well as in the technological fields, Rafael also faces difficulties in the worlds of the supply chain and the increase in the prices of raw materials as well as challenges in the field of human resources. All these and more, lead to a certain erosion in profitability, along with expectations for significant growth in revenues in the coming years in light of the volume of the order backlog and continued Receiving orders at a high rate even in 2022, a year that was not reviewed by the auditor.
"We will also point out that Rafael is a government company, about half of its activity is with the defense establishment, and the conduct for most of the period of the report was in a reality where the State of Israel operated without an approved state budget with all the implications derived from that."
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