Dear Shareholders,
We are pleased to present Elco’s financial statements which finalize the Group’s activities for 2021. Calendar 2021 ended with record profits totaling 544 million shekels, attributed to the majority shareholders. Alongside the financial results, 2021 tells the story of Elco as a Group and the long journey undertaken by the shareholders over the many years.
The story of Elco is the story of the country
The story of the establishment of Elco is interwoven and connected with the story of the establishment of the State of Israel. Our grandfather, Alexander Salkind z”l, established a company, Elco, which at the time engaged in the manufacture of transformers and electricity meters for Israel Electric Corporation. In 1970, Alexander’s son, Gershon Salkind z”l, our late father, became the CEO of Elco and thereafter in a gradual process began to expand Elco’s activity into additional areas. It was a lengthy journey, awash with ups and downs, successes and failures. On more than one occasion along the way, we experienced crises, went through upheavals that left us with wounds and scars, but these were also what brought Elco to being the Group it is today – a thriving and growing Group with a business DNA into which the traumas of the past are incorporated.
In the last two decades, we have been managing Elco. Our management is based on the uncompromising values instilled in us by our father. Values of diligence, uncompromising integrity, business fairness, respect for others, care of our employees, the wisdom of caution and the joy of creation. These values light our path in the daily endeavor at Elco. In recent years, we introduced changes in the Group that reflect Elco’s transition from a company whose core business was in manufacturing and industry to a company that provides services in a wide variety of fields in the Israeli economy.
Deep-rooted reciprocal relationships create economic and human strength
We focused and expanded the Group’s activities in business activities in Israel – a focus that enables us to build on the financial strength of Israel’s economy and the prosperity which it gives to Elco while also returning a reciprocal value since Elco is one of the largest employers in the economy as well as being a company that pays significant sums in tax payments into Israel’s Treasury. In 2021, the Group’s tax payments amounted to a huge scope of approx. 427 million shekels, of which some 291 million shekels were for income taxes and wage deductions. The Group’s tax payments in 2021 reflect a daily tax payment exceeding 1 million shekels. We expect that development of the Group’s activity in general, and in Israel in particular, will continue in the coming years arising from our great belief in the Israeli economy and its robustness.
Transition from global manufacturing to services and focused business activity in Israel
We identified a change in the business arena in which Elco was operating as globalization increased along with increased competition in the manufacturing world. We drew a line in the sand with global trends, quickly identifying changes and carrying out dramatic moves. We based the Group’s activity in key areas through the main subsidiary companies which form the four “business practices” of the Group’s activity. We expanded and upgraded our classic areas of activity alongside entry into areas which until recently had not been inherent to Elco – transportation, food and leisure retail, green energy and hotels and we are not yet done.
We expanded the Group’s activity in the field of infrastructures through Electra. We won tenders and carried out large and significant projects in residential construction and infrastructures, including national infrastructure projects with an overall scope of approx. 6.6 billion shekels in 2021 (an increase of approx. 40% compared with 2020 data) and did so alongside expansion of Electra’s activity throughout the value chain in construction: the construction of buildings, including internal systems and maintenance of buildings following their completion. A significant change made by Electra in 2021 occurred with the acquisition of a half share in the Afikim bus company, as an additional pillar in the wide and varied world of looking at transportation as part of Israel’s overall infrastructure system in which Electra is active. Following the acquisition of Afikim, the latter acquired the activity of Egged Transportation and by doing so, Afikim turned into the third largest bus company in Israel, owning approx. 1,342 buses and serving approx. 56 million passengers annually over approx. 80 million kilometers per year.
Electra Real Estate continued in 2021 to grow at a significant pace alongside the activity of the multifamily funds for real estate investment in the United States (as of the end of 2021, approx. 41 thousand residential units), launched a dedicated fund in the hotel sector for the acquisition of hotels in the United States and in Europe, as well an office fund in Britain. In 2021, Electra Real Estate fully completed its transition into a company managing investments for various investors (GP).
2021 represented a significant milestone in the activity of Electra Consumer Products (ECP), with its entry into partnership in the Bitan Wines supermarket chain, which is the early bird in ECP’s entry into the food retail sector. Another 2021 addition to this trend was the franchise received by Electra Consumer Products from the American 7-Eleven chain as well as acquisition of control in the company holding the franchise for Columbia in Israel. It was also recently reported that Electra Consumer Products had signed a Memorandum of Understanding with the Carrefour chain. Should this transaction be signed and completed, it could be a significant milestone in the consumer economy in Israel. These moves are part of the trend for turning Electra Consumer Products into a company with a development path in the retail sector alongside expansion of its traditional activity in electrical appliances and also into other areas of activity. In calendar 2021 service transactions at Electra Consumer Products totaled an impressive 34 million point of sale (POS) counts.
In 2021, Supergas Energy finalized the establishment of two promising growth channels: electricity generation in co-generation-based power stations and electricity generation from renewable energy in parallel with its traditional activity as a supplier of cooking gas and natural gas. During the year, Supergas also completed the purchase of 30% of Balanced Rock Power, a company located in Utah, USA, which initiates large solar projects. This was conducted from an understanding that the field of renewable energies will grow significantly in the coming years alongside significant growth in new technologies and exceptional business opportunities.
What does the future hold for us?
As part of Elco’s activity strategy and the DNA that has over the years characterized the Group, Elco is committed to its investors for growth in its existing business activities alongside evaluation from time to time of new areas of activity and identification of business opportunities with a focus on the Israeli economy. We at Elco believe that organic development, rather than carrying out new acquisitions, is the most correct course of action at this time. However, organic development on its own in a large and significant group of the caliber of Elco would not allow a level of growth such as Elco has committed to its shareholders. During 2021, Elco identified an opportunity to develop its business through the acquisition of approx. 29.8% of the shares in Discount Investment. This acquisition was carried out as an equity investment without acquisition of the controlling interest, unlike the transactions more usually made by the Group. We estimate that the investment in Discount Investment could create value for its various shareholders while also minimizing risk since Discount Investment is a public company.
The Covid-19 pandemic allowed us time for strategic and not only tactical reflection. Covid-19 introduced uncertainty, insecurity, a rapidly changing world, fears, and frustration into our lives, but it also brought a great many opportunities: invitations to seek and examine, to evaluate local and global trends and perform unconventional things.
The Group currently employs more than 20,000 outstanding employees who constitute its human asset along with an elite management backbone. We believe that development and strengthening of our relations with the Group’s employees and the talented managers of the subsidiary companies, provision of the best terms possible to retain the Group’s successful managers while placing huge emphasis on assertive, successful and fair management, give us the confidence and long-term belief in the resilience of the Group’s business activities. This confidence allows us to discover tenacity and depth of vision in what we do to enable the businesses to mature, flourish and give of their fruits to the Group’s expansion, to strengthening of its market hold, while also performing dynamic changes and adapting to global trends and significant expansion of its customer club and loyalty programs through to arrival at full financial activity that includes, among other things, credit provision to customers, variety in payment methods and digital wallet development, which together form another significant step in the expansion of big data and the Group’s services to its full range of customers.
D. Salkind M. Salkind
Co-Managing Director Co-Managing Director
