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TRANSCRIPT
Israel Electric Corp.
Investor
Presentation
Business update as of 06/30/2020
September 2020
Disclaimer
Investor Relations 2
The Company is a public company, with all it entails, and this information provided to you, all or part of it, may constitute “Inside Information” in
accordance with Israel’s Securities Law, 1968 (hereinafter: “Securities Law”), and making use of this information (including, but not only, by way of
carrying out a transaction in a security of IEC, and/or delivering this information, or an opinion regarding a security of IEC, to any third party who
may use this information for purposes of such transaction) may constitute a criminal offence pursuant to Securities Law.
Please treat this information as CONFIDENTIAL and do not disclose, publish or deliver all or any part of this information, directly or indirectly, to
any third party, except for your employees, officers and any person acting for you or on your behalf, strictly on a “need to know” basis, and only
after you have notified the person receiving any of this information that the information is confidential and that making use of this information may
constitute a criminal offence as specified above
This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer to buy or
acquire, securities of the Company. This Presentation is solely for informational purposes. The information contained in this presentation regarding
the Company's operations is concise and presented for convenience purposes only. To get a complete picture of the Company's operations, please
refer to the immediate and timely reports of the Company to the Israeli Securities authority and the Tel-Aviv Stock Exchange.
This presentation includes forward-looking information, as per its definition in the Securities Law, including forecasts and other information whose
realization is uncertain and depends on factors that are not under the control of the Company. These factors are based, among other things, on
data that is in the possession of the Company as of this date, internal estimates and expectations of the Company regarding trends in the
Company's fields of activity and regarding the implementation of the company's plans. The Company's forecast and expectations included in this
presentation may not be realized, in whole or in part, or may be realized in a different manner than expected, inter alia due to factors that some of
them are not under the control of the Company, including changes in the market conditions and the Company's business environment, regulatory
changes, or the realization of any of the risk factors of the Company.
The information contained in this presentation is provided as of the date of this presentation. The Company is not under any obligation to
update the information in this presentation or to update the forward-looking statements contained in it.
Executive Summary
3
Gas turbine (internal
combustion) /
Combined-cycle
(internal combustion
and steam)
Steam (dual
purpose)
400 kV lines
161 kV lines
Israel Electric Corp. at a Glance
IEC Power Grid Established in 1923, 97 years of operation, the Israel Electric Corporation Limited (“IEC”) is the
sole vertically integrated electric utility company in Israel and generates, transmits, distributes and
supplies the majority of the electricity used in Israel
IEC is appx. 99.85% owned by the State of Israel
IEC had total assets of NIS 87.5 billion and 11,514 employees as of June 30, 2020
As of December 31, 2019, IEC serve 2.9 million residential, commercial, agricultural and industrial
customers throughout the State of Israel, including East Jerusalem and the Palestinian Authority
Total electricity sales of 24,083 GWh for the period ended June 30, 2020
12.8 GWInstalled capacity
16Power stations
Generation (1)
5,661 kmHigh and ultra-high voltage
transmission grid
215 (2)
Switching stations &sub-stations
Transmission (1)
66,670 kmMedium and low
voltage lines
2.9 mnCustomers
Distribution (1)
H1-2020 Key Financials Credit Ratings as of June 30, 2020
Revenues
NIS 11.1 billion
EBITDA
NIS 3.4 billion
IEC GlobalBaa2 / BBB
Positive / Stable(Moody’s / S&P)
IEC Local Aa2 / AA+
Positive / Stable(Midroog / Maalot S&P)
State of Israel (3)
A1 / AA- / A+Stable / Stable / Stable
(Moody’s / S&P / Fitch)
Source: IEC Financial Statements for 2019FY and for H1-20201) As of December 31, 2019.2) 57 substations are privately owned.3) A State of Israel guarantee for the existing loans of IEC are negligible compared to the company’s overall financial debt.
Denotes USD figures USD/NIS exchange rate of 3.47 as of June 30, 2020.
Investor Relations
$3.2 $1.0
4
Israel - a Modern Economy
Source: The Israeli Central Bureau of Statistics, Bank of Israel.1) Credit rating refers to long-term foreign currency debt only. A State of Israel guarantee for the existing securities of IEC are negligible compared to the company’s overall Financial debt 2) The Israeli Ministry of Finance and Bank of Israel.
Denotes USD figures USD/NIS exchange rate of 3.46 as of December 31, 2019.
Israel Public Debt to GDP(2)
Israel Rating History(1)
Inflation Environment
1
2
3
2011 2013 2015 2017 2019Moody's S&P Fitch
Nov 2016
Fitch upgrade
Israel to A+
Sep 2011
S&P upgrade
Israel to A+
A2 / A
A1 / A+
Aa3 / AA-
68.567.1
65.863.7
62.160.5 61.0 60.0
50
55
60
65
70
75
80
2012 2013 2014 2015 2016 2017 2018 2019
(% of GDP)
1.6% 1.8%
-0.2%-1.0%
-0.2%
0.4%
0.8% 0.6%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2012 2013 2014 2015 2016 2017 2018 2019
(YoY Inflation %)
1%-3%
Government
Inflation Target
1.1%
Average inflation in
the last decade
Investor Relations
Key Figures
5
$376 bn
$42,508
Aug 2018
S&P upgrade
Israel to AA-
Area 22,072 km2
Population (July 2020) 9.2 million
GDP (2019) NIS 1.3 trillion
GDP per Capita (2019) NIS 147,078
Avg. GDP Growth (2012-2019) 3.6%
Unemployment (July 2020) 4.6%
Foreign Currency LT Debt Ratings
(Moody’s / S&P / Fitch) (1)A1 / AA- / A+
Essential
Service Provider
Owned by the
State of Israel
Robust Growth in
Electricity Demand
Fully Regulated
Across all Segments
Efficiency and
Reliability
Financial
Robustness
Natural Gas
Fuel
Independence
IEC is an essential service
provider of electricity in Israel
and the sole vertically
integrated provider in the
electricity chain
Appx. 99.85% owned
by the State of Israel
(A1/AA-/A+)
Strong electricity demand
growth in the Israeli market
Tariff is based on costs and
return on equity
Set by the Electricity Authority
Continuous improvement of
efficiency & reliability
IEC has over 97 years of experience in
developing and managing the electricity
sector in Israel
Rated investment grade by both
S&P (BBB) and Moody’s (Baa2)
IEC total liquidity(1) of NIS 5.6 bn
as of December 31, 2019
Natural gas from Tamar,
Leviathan and other significant
natural gas discoveries in
Israel have paved the way
towards potential fuel
independence
Key Investment Highlights
Investor Relations
1) Source: IEC Financial Statements for 2019FY.IEC defines “Liquidity” as cash and equivalents, short term investments and available credit facilities.
6
Key Strategic Targets
Investor Relations 7
Israel's
Electricity Supplier•Continuing to guarantee reliability of the
electricity supply and maintaining
adequate electricity reserves
Operational Overview
8
Source:1) IEC Financial Statements for 2016FY-2019FY and for H1-2020, IEC Statistical Report for 2009FY.2) The Israeli Central Bureau of Statistics.
Denotes USD figures at USD/NIS exchange rate of 3.85, 3.47, 3.75, 3.46, 3.57 & 3.47 for the end of period of 2016FY, 2017FY, 2018FY, 2019FY, H1-2019 & H1-2020, respectively.
Historical Performance
Comparison of Key Metrics
22.723.4 23.6
24.7
11.4 11.1
0
10
20
2016 2017 2018 2019 H1-2019 H1-2020
NISbn
$6.7
$7.1
$3.2 $3.2
IEC Revenues
IEC continues to provide most of Israel’s energy requirements
as the sole vertically integrated electric utility in Israel
Investor Relations
$5.9
9
$6.312/31/2009 12/31/2019
%
Change
Population (mn) (2) 7.6 9.1 19.7%
Number of
Customers (mn)2.5 2.9 16.0%
Electricity Sales
(GWh)48,947 53,119 8.5%
National Peak
Demand (MW)10,280 13,568 32.0%
IEC Installed
Capacity (MW)11,824 12,752 7.8%
Israel Generation Capacity and Demand
Israel Generation Capacity and Demand
Source: IEC’s Financial Statements (2016FY-2019FY) 1) Installed Generation Capacity of Independent Power Producers (“IPPs”)
13,617 13,617 13,335 12,752
3,060 3,199 3,334 4,148
911 946 1,303 2,023
17,588 17,762 17,972
18,923
12,624 12,746 12,921 13,568
5,000
8,000
11,000
14,000
17,000
20,000
2016 2017 2018 2019
(MW)
IEC's Installed Generating Capacity Gas Fired IPPs Renewable Energy IPPs National Peak Demand
Investor Relations 10
(1) (1)
Demand for Electricity
National Electricity Peak Demand & Total Electricity Produced in the Entire Sector
Trends
Source: IEC’s Annual Financial Statements (1990FY-2019FY), IEC’s Statistical data.
Investor Relations
The demand for electricity in
Israel is growing at a fast and
steady pace
Demand is driven by both
population growth and the
increase in electricity
consumption per household
IEC’s demand forecast,
which is used for long term
planning of the generation
segment, anticipates an
average annual increase of
3.0% in peak demand in the
years 2020 to 2050
11
Seasonality in Electricity Demand - Average Consumption of Households
0
200
400
600
800
1,000
Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
Q4-2017
Q1-2018
Q2-2018
Q3-2018
Q4-2018
Q1-2019
Q2-2019
Q3-2019
Q4-2019
(KWh)
Base Heating Cooling
54 54 53
58 6064
62 6165
67 68 7073
40
45
50
55
60
65
70
75
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
(TWh)(MW)
Total Electricity Produced in the Sector National Electricity Peak Demand
Multiplied by 3.6 in 29 years
The IEC Electricity Chain
Source: IEC Financial Statements for 2019FY
Notes
1) 57 substations are privately owned.
Investor Relations 12
Generation DistributionTransmission
2.9Million
Customers
37,981 kmLow Voltage
Lines
28,689 kmMedium
Voltage Lines
204Substations(1)
5,661 kmUltra-High & High
Voltage lines
11Switching Stations
58 Generation Units in 16
Power Stations
The IEC Generation Segment
IEC Generation Facilities
Fuel Mix by Electricity Generated(4)
Source: IEC’s Financial Statements for 2019FY and for H1-20201) As of December 31, 20192) Units 1-4 at the Orot Rabin Power Station will be transferred to preservation by June 1, 2022.3) In accordance with the Minister of Energy's policy principles, which was published on the Ministry of Energy’s website on November 24,2019, it was decided that units 5-6 at Orot Rabin Power Station and units 1-4 at Rutenberg Power
Station will gradually converse using natural gas in order to stop routine coal use until 2025 and no later than 2026.4) As of December 31, 2019, 25.13% of IEC revenues are associated with IEC's coal fired units located in 2 sites.
Electricity Generation Sites(1)
January 1 - December 31, 2019
Coal46.9%
Diesel oil & Fuel oil
0.4%
Natural gas & LNG 52.7%
January 1 - June 30, 2020
Investor Relations
No. of
units
Installed
Capacity (MW)
Steam (dual purpose) (coal and fuel oil) (1;2;3) 10 4,840
Steam (dual-purpose) (natural gas and fuel / diesel oil) 6 1,340
Gas turbine (internal combustion) (industrial gas) 13 1,350
Gas turbine (internal combustion) (jet engine) 16 504
Combined cycle (internal combustion and steam) 13 4,718
Total 58 12,752
13
16Power stations
sites
12,752Megawatts of
generation
Orot Rabin(2)
7 units / 2,605 MW
Rutenberg
6 units / 2,290 MW
Eshkol
7 units / 1,693 MW
Haifa
4 units / 828 MW
Gezer
6 units / 1,336 MW
Hagit
4 units / 1,394 MW
- Mainly powered by coal
- Mainly powered by gas
Gas turbine (internal
combustion) /
Combined-cycle
(internal combustion
and steam)
Steam (dual purpose)
Coal45.8%
Diesel oil & Fuel oil
1.1%
Natural gas & LNG 53.1%
The IEC Transmission and Distribution Segments(1)
Total Electricity Consumption by Customer Type
Transformation
System
11Switching stations
Power Lines
147Substations
Transmission
57Private substations
769 km400 kV lines
4,850 km161 kV line (includes
underground lines)
42 km115 kV lines
66,670 kmMedium and low
voltage lines
51,203Distribution
Transformers
2.9 mnCustomers
Distribution
Source: IEC’s Financial Statements for 2019FY
Notes
1) As of December 31, 2019
Residential38%
Industrial17%
Public, commercial, East-Jerusalem &
Palestinaian Authority39%
Water pumping
4%
Agriculture2%
(kWh)
Investor Relations
Diversified Customer Base
14
IEC’s Human Capital
Streamlining of IEC’s Workforce
Source: IEC’s Financial Statements for 2014FY-2019FY and for H1-2020
12,754
12,371
11,908 11,902
11,476 11,391
11,514
11,000
11,500
12,000
12,500
13,000
2014 2015 2016 2017 2018 2019 H1-2020
IEC’s employees’
Investor Relations 15
As part of the reform in the electricity sector, an efficiency program is resuming
for the years 2020-2025
The Sector Reform
16
Source : IEC ‘s Financial Statements for 2019FY and for H1-2020
Notes:1. In accordance with the IEC’s undertakings adopted by the IEC's BOD on May 10, 2018, to the extent that the Government resolutions and/or the legislative amendments and/or the administrative decisions and/or the arrangements of the
Electricity Authority and/or the aforesaid licenses given by the State of Israel, that will correspond to the (insofar as these are needed according to the State of Israel position), or that the collective agreement IEC and the employeesrepresentatives will not be in force, then all IEC’s undertakings, according to the IEC’s undertaking document, will not be in force and the State of Israel will not be able to file claims and/or complain against IEC with respect to thoseundertakings. On June 3, 2018, the required Government Decision was received, on July 19, 2018 the Knesset approved the Amendment to the Law, and on May 17, 2018, the Principles of the policy of the Minister and the ElectricityAuthority’s Regulation as aforesaid were published. In addition, on November 4, 2018, the Collective Agreement came into effect after all the contingent conditions detailed therein were fulfilled. For the purpose of implementing the fullstructural change outline, it will be required the approval of the regulatory agencies, decisions and regulations of the Electricity Authority and granting licenses which, as of this date, have not yet been received and there is no certaintyregarding the date of determining the agreements or the granting of such licenses and their final terms. As of this date, IEC is unable to reliable estimate the exact implications of the additional regulations and approvals that have not yetbeen formulated or received on its financial position and results.
2. Except of the above, IEC or its generation subsidiary will not construct, replace, operate, plan, strengthen or engage in development of power stations in Israel, whether by itself or as a contractor for a third party, nor will it engage inelectricity generation, including in the framework of micro-generation or renewable energies in Israel, during the years of the reform and afterwards. IEC has undertaken to the State of Israel not to act to obtain new generation licenses or toconstruct new electricity generation stations and replace existing stations, and not to act to obtain permits for the operation of power stations for other parties in Israel.
Investor Relations
Sale of generation sites
and increased
competition in the
generation segment
Transfer of the system
Management and
additional units to a
separate Government
company
Opening the supply
segment market to
competition from other
entities
Essential service
provider in the
transmission and
distribution segments
Organizational change,
efficiency plan and
administrative flexibility
Construction &
operation of two
combined cycle gas
turbines at the ‘Orot
Rabin’ site (2)
Assets arrangement Compliance with
financial targets
Strengthening the
financial stability of IEC
Value added services,
installation of smart
meters, construction
and operation of
storage facilities
Main points of the reform (1)
The Sector Reform Timeline(1)
17
Source : IEC ‘s Financial Statements for 2019FY and for H1-2020
Notes:1. In accordance with the IEC’s undertakings adopted by the IEC's BOD on May 10, 2018, to the extent that the Government resolutions and/or the legislative amendments and/or the administrative decisions and/or the arrangements of the Electricity Authority and/or the
aforesaid licenses given by the State of Israel, that will correspond to the (insofar as these are needed according to the State of Israel position), or that the collective agreement IEC and the employees representatives will not be in force, then all IEC’s undertakings,according to the IEC’s undertaking document, will not be in force and the State of Israel will not be able to file claims and/or complain against IEC with respect to those undertakings. On June 3, 2018, the required Government Decision was received, on July 19, 2018 theKnesset approved the Amendment to the Law, and on May 17, 2018, the Principles of the policy of the Minister and the Electricity Authority’s Regulation as aforesaid were published. In addition, on November 4, 2018, the Collective Agreement came into effect after all thecontingent conditions detailed therein were fulfilled. For the purpose of implementing the full structural change outline, it will be required the approval of the regulatory agencies, decisions and regulations of the Electricity Authority and granting licenses which, as of thisdate, have not yet been received and there is no certainty regarding the date of determining the agreements or the granting of such licenses and their final terms. As of this date, IEC is unable to reliable estimate the exact implications of the additional regulations andapprovals that have not yet been formulated or received on its financial position and results.
2. Part of the area at the Rutenberg power station (that was designated for Project D) will be transferred pursuant to the arrangement agreements as defined in Note 1f in the FY2019 Financial Statements’, by December 3, 2019. The area has not yet been transferred, and itis noted that the Ministry of Energy, and Electricity Authority, and the Israel Land Authority intend to make decisions concerning the manner of the area’s transfer, while noting its future intended use, clearing various infrastructures from the site, and manner of financingthe vacation costs, which the Company is entitled to receive. Following this, an appropriate agreement will be signed between the Company and the State, for the purpose of transferring the area in accordance with the resolutions made, as aforesaid.
3. The Company is working in coordination with relevant government entities to complete all the activities required to separate and remove the system management activity to the responsibility of the System Management Company. At the same time, in discussions heldwith the relevant parties and regulators, it was decided to postpone the separation implementation date, which was decided originally to December 3, 2019, and therefore, on December 3, 2019 the Electricity Sector Order (Postponement of System ManagementLicensing Date) - 2019 was published, according to which the date was postponed to no later than June 3, 2020. This date was again postponed, and on June 3, 2020, the Electricity Sector Order (Postponement of System Management Licensing Date) (Amendment) -2020, was published, according to which the date for the operation of the System Management Company was postponed to no later than December 3, 2020. On June 17, 2020, the Electricity Authority decided to consent to the request of the System ManagementCompany of May 14, 2020, and to grant a license to the System Management Company, which was approved on June 25, 2020 by the Minister of Energy. The license specifies the various duties and responsibilities of the System Management Company, and inaccordance with its terms, the system management activity will enter into force as soon as possible, and no later than December 3, 2020, subject to the approval of the Authority and the Minister of Energy that the Company is prepared to commence operation of theactivity.
4. As of this date, the issue of Reading's sale was brought to the attention of the relevant parties in Israel and no decisions have yet been made regarding the future of the site, which include, among other things, the site's promotional format, the creation regulation thatsupports this process and the various alternatives to ensure a regular power supply to the Tel-Aviv metropolitan area and at the same time, it is necessary to promote the relevant legislation in the context of the issue of asbestos removal and to adjust the operating datesof the power station. To the best of the Company's knowledge, the Ministry of Energy and the Ministry of Environmental Protection are promoting the distribution of a memorandum of law requiring the dismantling and removal of brittle asbestos by January 1, 2024. In lightof the above, there is no certainty regarding the possibility of the sale of the Reading site on time.
5. The company is examining, per the request of the Ministry of Energy, the possibility to bring forward the schedule for the sale of part of the Hagit generation site (including two E-type CCGTs) to early 2022 (instead of June 3, 2022, the deadline for holding this site).
Investor Relations
Israeli Electricity Sector
18
The Israeli Electricity Sector
Investor Relations
Nearly 100% of the Switching
Stations and the Ultra-High & High
Voltage lines are owned & operated
by IEC
As of 12/31/2019,
67% of total generating
capacity
Expected to reach
54.7% by the end of
2020
Generation, Transmission and Distribution
IEC’s Main Regulators IEC’s Fuel Suppliers
The Electricity Authority (EA)
Government Companies Authority (GCA)
Antitrust Authority
Israel Securities Authority
Ministry of Energy
Ministry of Finance
Ministry of Interior
Ministry of Environmental Protection (MoEP)
The Concentration Committee
TASE
Natural Gas - Currently from the Tamar & Leviathan Reservoirs.
More reservoirs in the Israeli waters have been discovered
Liquid Natural Gas - Imported from international suppliers
Coal - Imported from international suppliers
IPPs
Source : IEC’s Financial Statements for 2019FY
IEC reached 2.9 million customers
(as of December 31, 2019)
TransmissionGeneration Distribution
19
As of 12/31/2019,
33% of total generating
capacity
Expected to reach
45.3% by the end of
2020
158 of 204 Substations are owned &
operated by IEC
(as of December 31, 2019)
The Electricity Tariff
In accordance with the Electricity Sector Law, the electricity tariff is set by the Electricity Authority (EA) and reformulated from time to time. The outline of the
formula is as follows:
Actual costs are examined every 2 weeks by
the EA (at the time of CPI and fuel prices
changes)
Discrepancies between forecasted costs and
actual cost are reconciled on the earlier of:
A difference of 3.5%, provided that 3
months
have passed since the last update
A difference of 5.5%
The Annual Update
Once a year, The current year's
costs are updated based on
forecasts as well as on previous
years' reckoning - the gap
between the previous year's
forecast components and the
actual costs of the previous year
On November 23, 2019, the EA issued a hearing regarding the
annual 2020 tariff update. According the EA’s decision, the average
household electricity tariff will fall by approximately 4%, as of 1/1/20,
mainly due to:
Decline in the coal prices
Decline of NG price following future entry of Leviathan reservoir
The sale of Alon Tavor Power Station
Egyptian Gas Agreement
The above was partially offset by:
Increased renewable energy consumption
Past cost refunds
Offsetting the excise tax reduction on coal last year
Investor Relations
Recognized costs per segment (e.g. fuel costs, operational
costs, depreciation costs and financial costs). Some of the
recognized costs are also attributed to funding the reform costs+ Fair rate of return on equity
per segment
Electricity Tariff
Ongoing Update Annual Update Tariff update as of November 23, 2019
Tariff Structure
Source: IEC’s Financial Statements for 2019FY, Electricity Authority's decision No. 7 (57207) from meeting no. 572 on November 23, 2019 - Annual Update 2020 electricity tariff to IEC’s consumers
20
The Electricity Tariff - Cont’d
Source:
1. World Bank Commodity Price Data (Pink Sheet), August 2020; Calculated as average price of Australia and South Africa coal. Russia is not included in World Bank information, even though it is a significant source
of coal for IEC. The general and Residential Tariffs do not include VAT.
2. The Electricity Authority - Report on State of Electricity Sector Year of 2019.
Tariff vs. Coal Price Development(1)
Investor Relations
0.40
0.45
0.50
0.55
0.60
40
60
80
100
120
140
($/t)
Coal Average General Tariff Residential Tariff
NIS
21
Structure of the Residential Tariff as Divided into Segments(2)
Production and fuel
61%
Transmission 5%
Distribution 17%
Supply 6%
System Management tariff
11%
Financial Overview
22
1.7 1.8 1.3 2.9
1.8 0.7
0.5 0.7 0.9
1.1
0.5
0.4
1.3 1.3 1.5
1.8
0.8
0.6
3.493.88 3.73
5.94
3.18
1.72
0
1
2
3
4
5
6
7
2016 2017 2018 2019 H1-2019 H1-2020
NISbn
Generation Transmission System Manager Distribution Supply
$0.9 $1.7
$0.9
Financial Highlights
Revenues EBITDA(1)
Historical Investments by segments (CAPEX) Net Financial Debt/EBITDA(2)
7.7 8.1 8.0 8.1
3.5 3.4
0
3
6
9
12
2016 2017 2018 2019 H1-2019 H1-2020
NISbn $2.0
$1.0 $1.0
$2.3
22.7 23.4 23.6 24.7
11.4 11.1
0
10
20
30
2016 2017 2018 2019 H1-2019 H1-2020
NISbn $6.7 $6.3
$3.2 $3.2
$7.1
Source: IEC’s Financial Statements for 2016FY-2019FY and for H1-20201. IEC defines “EBITDA” as profit (loss) before income taxes, financial expenses, depreciation and amortization.2. IEC defines “net financial debt” as credit from banks and other credit providers, total long-term debt (including debentures, long-term liabilities to banks, including hedge transactions, lease liabilities, debentures to the State of
Israel and liabilities to the State of Israel), less cash and cash equivalents, short-term investments and other receivables (including receivables for forward contracts and swap transactions, MTM and long-term deposits andregulatory deferral account assets with respect to linkage differentials).
3. In annualized terms, calculation based on LTM EBITDA.
Denotes USD figures at USD/NIS exchange rate of 3.85, 3.47, 3.75, 3.46, 3.57 & 3.47 for the end of period of 2016FY, 2017FY, 2018FY, 2019FY, H1-2019 & H1-2020, respectively.
5.1x 5.2x 4.8x 4.4x 4.8x 4.3x
0.2x
5.3x 5.2x 4.8x4.4x
4.8x4.3x
0
2
4
6
8
2016 2017 2018 2019 H1-2019 H1-2020State guaranteed Net Financial Debt / EBITDA without State guarantees
Investor Relations
$2.3 $2.1
$1.1 $1.0
23
$5.9
$0.5
Historical Cash Flow
Source: IEC’s Financial Statements for 2016FY-2019FY and for H1-2020
1. Investment activities excluding repayment (or deposits) of bank deposits. Total cash from investment activities figures as reported for 2016FY, 2017FY, 2018FY, 2019FY, H1-2019 & H1-2020 are NIS (2.8) bn, NIS
(2.2) bn, NIS (3.1) bn, NIS (1.3) bn, NIS (1.5) bn and NIS (2.1) bn, respectively.
2. IEC defines “liquidity” as cash and cash equivalents, short term investments and available credit facilities.
D Denotes USD figures at USD/NIS exchange rate of 3.85, 3.47, 3.75, 3.46, 3.57 & 3.47 for the end of period of 2016FY, 2017FY, 2018FY, 2019FY, H1-2019 & H1-2020, respectively
6.55.8 5.8
6.5
2.83.7
(2.2) (2.7) (3.1)
(1.3) (1.5)(2.2)(2.7)
(3.7) (3.3)
(4.8)
(2.7) (2.7)
5.76.3
5.6 5.6
(12)
(8)
(4)
0
4
8
12
2016 2017 2018 2019 H1-2019 H1-2020
NIS bn
Operating activities Investment activities, net Financing activities Total Liquidity
$1.7
($1.1)
$1.7
($0.7)
$1.5
($0.8)
($1.4)
($0.4)
($0.9)
$1.9
$0.8
($0.4)
($0.8)
$1.1
($0.6)
($0.8)
Generating sufficient cash flow from operations enables IEC to decrease debt
Investor Relations
(1)
($0.6) ($0.8)
24
(2)
51.8
50.0
46.9
44.6
43.2
42.1
38.3
36.1
34.7
32
37
42
47
52
2012 2013 2014 2015 2016 2017 2018 2019 H1-2020
NIS, bn
$11.3
$12.1
$11.6
$12.0
$14.4
$10.2
(2)
$10.4
$10.0
Net Financial Debt (1) Over Time
Source: IEC’s Financial Statements for 2012FY-2019FY and for H1-2020
1. IEC defines “net financial debt” as credit from banks and other credit providers, total long-term debt (including debentures, long-term liabilities to banks, including hedge transactions, lease liabilities, debentures to the
State of Israel and liabilities to the State of Israel), less cash and cash equivalents, short-term investments and other receivables (including receivables for forward contracts and swap transactions, MTM and long-term
deposits and regulatory deferral account assets with respect to linkage differentials).
2. As from 01/01/2019, “net financial debt” also includes lease liabilities.
D Denotes USD figures at USD/NIS exchange rate of 3.85, 3.47, 3.75, 3.46 & 3.47 for the end of period of 2016FY, 2017FY, 2018FY, 2019FY & H1-2020, respectively
Investor Relations
Prepared According to
Government Companies
Regulations
IFRS
25
$13.9
Fixed94.0%
Floating6.0%
Consolidated Debt Breakdownas of June 30, 2020
Note: The “fifth year and thereafter” blue bar is off the chart.
Source:1) IEC immediate report on the Corporate Liabilities Status.2) IEC Financial data and Bloomberg.3) IEC’s Financial Statements for H1-2020.4) IEC Financial data, IEC immediate report on the Corporate Liabilities Status.
Annual Debt Maturities (Principal in NIS billions)(1)
1.120.17 0.17 0.17 0.33
2.05
1.91
4.28
1.40
21.543.2
2.1
4.4
1.6
0
2
4
6
First year Second year Third year Forth year Fifth year and thereafter
(NIS bn)
Loans from local and foreign banks Local bonds, private bonds and non-bank loans
Debt by Currency(4)Type of Instrument(4) Debt by linkage(4)
NIS54.7%
Euro1.9%
USD38.1%
Other5.3%
NIS CPI linked42.7%
NIS non-linked12.0%
Foreign currency
45.3%
21.9
Interest Rate Exposure(3)
Investor Relations
Local public bonds32.5%
Private bonds and non-bank
loans 61.6%
Local bank loans 2.4%
Foreign bank loans
3.5%
26
Coupon Outstanding
Amount ($mn) Maturity
6.875%650$Jun-23
5.000%1,250$Nov-24
7.875%125$Dec-26
7.750%300$Dec-27
4.250%$1,000Aug-28
8.940%40$Mar-30
8.100%125$Dec-96
Profile of International IEC $ Bonds(2)
Income Statement(NIS millions)
Source: IEC’s Financial Statements for H1-2020
Investor Relations 27
(NIS millions)
12/31/2019 06/30/2019 06/30/2020
Revenues 24,660 11,408 11,075
Cost of operating the electricity system
Fuels 8,302 4,309 2,899
Purchases of electricity 4,193 1,874 2,521
Operation of the generation system 4,352 2,168 2,057
Operation of the transmission and distribution system and others 2,524 1,260 1,414
Total costs 19,371 9,611 8,891
Profit from operating the electricity system 5,289 1,797 2,184
Other expenses (revenues), net (2,477) 40 (373)
Sales and marketing expenses 869 428 425
Administrative and general expenses 638 372 529
Expenses (income) from liabilities to pensioners (39) 5 (13)
Reform agreement's results 761 483 155
Profit from current operations 5,537 469 1,461
Financial expenses (income), net 1,368 1,079 (69)
Income (loss) before income taxes 4,169 (610) 1,530
Expenses (income) from taxes on income 917 (134) 356
Income (loss) after income taxes 3,252 (476) 1,174
Company's share of the loss of asociated companies (15) (5) -
Income (loss) before regulatory deferral accounts 3,237 (481) 1,174
Movement in regulatory deferral accounts balances, net of tax (1,421) 665 (460)
Profit for the period 1,816 184 714
Profit (loss) with respect to cash flow hedging, net of tax (148) (6) 176
Remeasurement of a defined benefit plan, net of tax (1,939) (376) 2,388
Movement in balances of regulatory deferral accounts balances, net of tax 78 46 (152)
Other Comprehensive profit (loss) for the period, net of tax (2,009) (336) 2,412
Comprehensive income (loss) for the period (193) (152) 3,126
For The period:
Balance Sheet(NIS millions)
Source: IEC’s Financial Statements for H1-2020
Investor Relations 28
(NIS millions)
Assets 12/31/2019 06/30/2019 06/30/2020 Liabilities and Equity 12/31/2019 06/30/2019 06/30/2020
Current assets Current liabilities
Cash and cash equivalents 3,190 1,464 2,118 Credit from banks and other credit providers 6,110 5,053 4,236
Short term investments 427 381 367 Trade payables 2,127 2,208 1,985
Trade receivables for sales of electricity 4,384 4,570 4,294 Other current liabilities 1,157 1,218 1,196
Other current assets 702 405 1,223 Customer advances, net of work in progress 440 448 563
Inventory - fuel 671 986 622 Provisions 658 657 675
Inventory - stores 151 145 152 Liabillities of disposal groups classified as held for sale 340 331 306
Assets of disposal groups classified as held for sale 1,903 911 1,833 Total current liabilities 10,832 9,915 8,961
Total current assets 11,428 8,862 10,609
Non-current liabilities
Debentures 28,469 30,533 28,046
Non-current assets Liabilities to banks 3,887 4,123 3,174
Inventory - fuel 1,753 1,273 1,753 Liabilities with respect to other benefits after employment
termination
6,354 5,779 5,853
Long-term receivables 2,315 1,152 1,814 Deferred taxes, net 6,003 5,632 6,943
Investment in associates 19 29 19 Liability to the State of Israel 1,783 1,795 1,756
Assets with respect to benefits after employment
termination
4,825 5,813 8,101Lease liabilities
845 684 827
Fixed assets, net 57,620 58,461 56,967 Other liabilities 588 603 522
Intangible assets, net 1,241 1,188 1,169 Total non current liabilities 47,929 49,149 47,121
Total non-current assets 67,773 67,916 69,823 Equity 24,650 24,691 27,776
Debit balance of regulatory deferral accounts
8,338 9,059 7,090
Credit balances of regulatory deferral accounts and
deferred taxes with respect to regulatory deferral
accounts 4,128 2,082 3,664
Total assets and debit balance of regulatory
deferral accounts87,539 85,837 87,522
Total liabilities, equity and credit balance of
regulatory deferral accounts87,539 85,837 87,522
Thank youFor questions or additional information, please contact us:
29
Israel Electric Corp. Investor Relations: [email protected]
Appendices
30
IEC has taken significant steps to reduce emissions
Nitrogen Oxides NOX Sulfur Dioxide SO2
Carbon Dioxide CO2 Particulate Matter PM
1.80
0.88
0.0
0.5
1.0
1.5
2.0
2012 2018
Gra
m /
KW
h p
rod
uced
Source: IEC Environmental report for the years 2017 – 2018 and IEC Financial Statements for 2019FY and for H1-20201) The emissions reduction cost does not include interest during the construction period
Investor Relations 31
-51%1.68
0.63
0.0
0.5
1.0
1.5
2.0
2012 2018G
ram
/ K
Wh
pro
du
ced -63%
754
605
0
200
400
600
800
2012 2018
Gra
m /
KW
h p
rod
uced
0.056
0.032
0.00
0.03
0.06
2012 2018
Gra
m /
KW
h p
rod
uced
-20% -43%
The State of Israel signed the Paris Agreement in
2016 and has significantly limited the usage of coal
for electricity generation
An emissions reduction project in the larger coal
units was executed at a significant cost of NIS 7.1
billion (1)
Older coal units will be mothballed
Newer and larger coal units are expected to be
converted to Natural gas
Government target of Israel is to be “coal free” by
2030. Minister of Energy expect target to move
forward to 2025
IEC is financially protected from change in fuel mix
by the electricity tariff
Implementing Government policies
The Reform in the Generation Segment(Selected generation sites)
Investor Relations 32
Steam - dual purpose: coal and fuel oil
Steam - dual purpose: natural gas and fuel / diesel oil
Gas turbine (internal combustion)
Combined cycle (internal combustion and steam)
A power station planned to
be sold during the reform
A power station which was
sold during the reform
Hagit: will be sold units with a
capacity of 660 megawatts
Source: IEC ‘s Financial Statements for 2019FY and for H1-2020Note:1. In accordance with the IEC’s undertakings adopted by the IEC's BOD on May 10, 2018, to the extent that the Government resolutions and/or the legislative amendments and/or the administrative decisions and/or the arrangements of
the Electricity Authority and/or the aforesaid licenses given by the State of Israel, that will correspond to the (insofar as these are needed according to the State of Israel position), or that the collective agreement IEC and the employeesrepresentatives will not be in force, then all IEC’s undertakings, according to the IEC’s undertaking document, will not be in force and the State of Israel will not be able to file claims and/or complain against IEC with respect to thoseundertakings. On June 3, 2018, the required Government Decision was received, on July 19, 2018 the Knesset approved the Amendment to the Law, and on May 17, 2018, the Principles of the policy of the Minister and the ElectricityAuthority’s Regulation as aforesaid were published. In addition, on November 4, 2018, the Collective Agreement came into effect after all the contingent conditions detailed therein were fulfilled. For the purpose of implementing the fullstructural change outline, it will be required the approval of the regulatory agencies, decisions and regulations of the Electricity Authority and granting licenses which, as of this date, have not yet been received and there is no certaintyregarding the date of determining the agreements or the granting of such licenses and their final terms. As of this date, IEC is unable to reliable estimate the exact implications of the additional regulations and approvals that have notyet been formulated or received on its financial position and results.
Environment, sustainability and corporate governance (ESG) (1)
Investor Relations
1) Source: IEC's Corporate Sustainability Report for 2018, Maala's rating for IEC for 2020.
2) Maala is the non-profit CSR standards-setting organization in Israel who serves the needs of some 110 members, comprised of Israel’s large and mid-size companies, committed to
excellence in corporate citizenship. The criteria in the rankings are determined by an independent public committee composed of content experts, academics, heads of social
environmental organizations and representatives of the business sector.
33
IEC earned the highest ranking in the Maala(2) 2020 Index: Platinum+ (for the sixth consecutive year)
Ethical Aspects
of Business
Conduct
Responsible
Supply Chain
Implementation of Corporate
Governance Code
Effectiveness of the work of
the Board of Directors policy
Prevention of conflicts of
interests, corruption and
embezzlement
A published code of ethics
adapted to IEC’s fields of
operations
Reference to ethical
aspects with stakeholders
Internal communications
on ethics issues
Organizational culture that
respects employee rights
Promotion of health and
ensuring worker safety
Retention and development
of human resources
Work-life balance and
fostering an open culture
Engagements mainly through public tenders or
other competitive procedures. Setting fair rules
and providing equal opportunity to suppliers
Improving dialogue and deepening cooperation
with Israeli industrial enterprises
Securing subcontracted workers' payment terms
and conditions
Diversity of suppliers
Diversified and
humanitarian employment
Diversified employees in
managerial positions
Women in managerial roles
Accessibility for people with
disabilities
Social activity policy
Promotion of regular and
one-off volunteering by
workers and pensioners
in the community
Environmental violations
screening
Environmental policy &
management system
Measurement and setting
objectives: air, energy, waste,
water and sewage
Employee health,
Wellbeing and
working relations
EnvironmentEmployee
Volunteering
Diversity &
Inclusion
Corporate
Governance
The Israeli Electricity Sector Structure
34
In light of reform in the electricity market, an independent company shall be established to manage the
system. A considerable part of the IEC’s generation capacity will be privatized, and the supply segment
shall be open to competition. The transmission activity and most distribution activity shall remain in IEC
Source: The Electricity Authority - Report on State of Electricity Sector Year of 2019.
* The Electricity Authority Forecast
0% 20% 40% 60% 80% 100%
Generation Capacity
Transmission
Distribution
Supply
System Administrator
2019
IEC IPP Historical Distributers
0% 20% 40% 60% 80% 100%
Generation Capacity
Transmission
Distribution
Supply
System Administrator
*2025
IEC
IPP
Historical Distributers
A new government company
The Israeli Electricity Sector Fuel Mix
35
Source: The Electricity Authority - Report on State of Electricity Sector Year of 2019.
* The Electricity Authority Forecast
34.2 35.1 38.732.1 30.1 29.2
24.2 22.0 20.6 21.9 17.5
2.8
22.8 21.0 10.8 27.1 30.4 34.4 41.1 43.2 46.3 46.150.1 70.8
0.9 2.6 9.3
1.5 0.3
-0.2 0.9
1.3 1.8 2.0
3.3 5.6
11.3
58.4 59.8 63.4 61.5 61.4
65.5 65.7 68.3 69.6
72.5 73.2
84.9
0
20
40
60
80
100
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* 2025*
(TWH)
Coal Natrual Gas Diesel Fuel Other Renewable Energy
Electricity Market Fuel Mix (IEC & IPP)
Sources of Natural Gas in Israeli Waters
Introduction of LNG by
a regasification ship
36
As of this date,
Tamar & Leviathan
reservoirs are the
only active sites
Tariff Comparison to European Countries
Source:Eurostat, Electricity prices for domestic consumers – bi-annual data, as of 04/28/2020. Israel rate is based on the last tariff update that does not include VAT (01/01/2020) and converted EUR/NIS exchange rate of 3.79 as of 04/28/2020.1) Average national price in Euro per kWh without taxes for medium size household consumers (annual consumption between 2,500 and 5,000 kWh).
Average Price per KWh(1)
Investor Relations
21.3
19.5
15.815.1
14.313.6 13.5 13.2 13.2 13.2
12.6 12.6 12.612.0 11.9 11.8 11.5 11.4 11.2
10.4 10.3 10.3 10.39.7 9.5
8.7 8.6 8.4 8.0
0
5
10
15
20
25
Irela
nd
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Cyp
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Unite
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ingdom
Italy
Neth
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Au
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Sp
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Germ
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Sw
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Norw
ay
Fra
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Cze
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Fin
lan
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Gre
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Isra
el (J
anuary
2020)
Slo
venia
Latv
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Po
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l
Denm
ark
Cro
atia
Esto
nia
Rom
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Slo
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Lith
uania
Po
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Hungary
Tu
rkey
Bu
lga
ria
(€ cents equivalent)
37