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Delek Group Sees Revenues Grow, But Posts Net Loss

TEL AVIV, Israel -- The Delek Group Ltd. saw its revenues grow 41 percent year-over-year for the nine months ending Sept. 30, hitting $10.36 billion, but posted a loss for the three quarters totaling $94.69 million, compared to a net profit of $257.77 million the year before.

Net income from operating activities for the group was $535.96 million (NIS 2.1 billion) during the three quarters, compared to $740,000 (NIS 2.9 billion) for the nine months in 2007.

The group's automotive, energy and infrastructure businesses continued to show solid performance, the company said in a statement. Delek's revenues for the third quarter of 2008 increased 27 percent to $3.45 billion, (NIS 13.5 billion.), compared to the year before "due to an increase in revenues from the sale of fuels in Israel, the USA and Europe, from an increase in refinery revenues in the USA, and from an increase in revenues of Delek Automotive," the company said.

"As we navigate these complex times, our globally diverse portfolio on four continents serves as an anchor, as it covers four different sectors meeting different global needs— automotive retail, energy and infrastructure, as well as real estate and insurance," said Asaf Bartfeld, CEO of Delek Group. "We are clearly focusing on carefully managing our balance sheet with maximum emphasis on maintaining a positive cash flow. These principals are a driving factor at all levels of the group, and we are working closely with each of our companies to ensure that this same liquidity principle is being diligently followed throughout the group.”

Delek US' net income for the first nine months of 2008 was $26.29 million (NIS 103 million) compared with $102.46 million (NIS 472 million) for the same period in 2007. For the third quarter 2008, Delek US' results were positively impacted by an increase in the 5-3-2 Gulf Coast crack spread compared to the first half of 2008; a significant decline in wholesale fuel prices in August and September, which contributed to higher fuel margins, in addition to continued ethanol blending at the retail and refining segments, the company said. However, the average overall crack spread for the nine-month period was significantly lower than the same period last year.

On Nov. 20, 2008 there was a fire at a fuel refinery at Tyler, Texas, which resulted in an employee fatality. Activity at the refinery has subsequently ceased, pending an investigation of the circumstances that led to the event and to assess the extent of damages. According to preliminary tests, the critical activities and terminal at the refinery were not damaged. Sales of the remaining inventory to customers will continue.

In accordance with the company's existing risk management program, Delek US carries $1 billion in combined limits to cover property damage and business interruption. Delek US has a $5-million deductible for property damage insurance. In addition, Delek US' business interruption insurance carries a 45-day waiting period.

Delek's business for the first nine months of 2008 was negatively impacted by world's economic woes, which affected valuations of the company's holdings in the real estate sector, resulting in the impairment of assets and the fair value adjustments of financial derivatives. The slowdown in the global and Israeli capital markets hurt the company's insurance and financial services holdings, the company said in a statement.

"Furthermore, the company's U.S.-based insurance holding was also affected by the three hurricanes, which hit certain regions insured by Republic, during the summer months," management noted.

As a result, Delek reported a net loss for the nine months of 2008 totaling $94.69 million (NIS 371 million), compared with a net profit of $257.77 million (NIS 1.01 billion) in the same period last year. Net loss for the third quarter of 2008 totaled $156.2 million (NIS 612 million), compared with a net profit of $123.53 million (NIS 484 million) in the same quarter of last year.

"Looking ahead, our professional management team, with previous experience in navigating cyclical markets with an average tenure of 15 years managing our companies, as well as our globally diverse and premier portfolio, will offer us the necessary tools to weather the current downturn," said Bartfeld in a released statement. "We also have a solid cash position and a strong ability to service our debt, with a relatively lengthy average maturity. In parallel, we continue to closely monitor developments, refining our strategy as circumstances require, prioritizing investments, with a key focus on continually building and maximizing shareholder value."
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