Eltek Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; the supplied filing text does not provide separate fourth-quarter results. Financial statements are audited and prepared under U.S. GAAP, in U.S. dollars unless stated otherwise.
Business context
Eltek manufactures custom printed circuit boards, including high-density interconnect, flex-rigid and multilayer boards. Its customers serve defense and aerospace, medical, industrial, telecom and networking markets. Manufacturing is based in Israel, with sales operations in the United States and Europe.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $36.7 million | $34.8 million |
| Gross profit / margin | $7.7 million / 21.1% | $6.0 million / 17.3% |
| Operating profit / margin | $3.0 million / 8.3% | $1.4 million / 4.0% |
| Net income / margin | $2.6 million / 7.1% | $1.8 million / 5.2% |
| Basic and diluted EPS | $0.58 | $0.48 |
| Operating cash flow | $3.3 million | $2.6 million |
| Cash and cash equivalents at year-end | $4.7 million | $1.6 million |
- Revenue rose 5.5%, with growth attributed mainly to Israel and the Netherlands. Gross margin improved as raw-material consumption costs and municipal taxes declined, alongside higher revenue and cost-saving measures.
- Net income improved 45%. FY2019 included $0.9 million of other income, mainly an insurance recovery for prior equipment damage; FY2020 had $16,000 of other expense, mainly from equipment disposal.
- Investing cash outflow was $1.1 million, primarily for production equipment and leasehold improvements. Financing cash flow was positive $0.8 million, including $5.6 million net proceeds from a rights offering, partly offset by debt repayments.
- Working capital was reported as $9.1 million at year-end, versus a $1.2 million deficit in 2019. A financial-statement note gives a different 2020 working-capital figure of $8.6 million; the filing text does not reconcile the discrepancy.
- At year-end, short-term credit and current maturities were $0.7 million and long-term debt excluding current maturities was $1.5 million. Operating lease liabilities totaled about $9.0 million and are separate from borrowings. The company reported compliance with bank financial covenants.
Material changes and notable items
- December 2020 rights offering raised gross proceeds of $5.7 million and issued 1,460,089 shares. Proceeds repaid approximately $3.1 million owed to controlling-shareholder affiliate Nistec Golan, with the balance available for working capital and general purposes. Outstanding shares increased to 5,840,357 from 4,380,268.
- Backlog declined to approximately $6.8 million at December 31, 2020 from $9.1 million a year earlier. Management cited deliveries during Q4 and customers’ reluctance to hold inventory or order far in advance.
- The company invested in a new developing, etching and stripping line and four laser-drilling machines. The new line was in early-stage operation; management expected a permanent license during 2021.
- The main facility lease was amended to extend occupancy through February 2027, with an option through February 2032. The amendment contributed to a substantial increase in reported right-of-use assets and lease liabilities.
- Brightman Almagor Zohar & Co. (Deloitte network) became the independent auditor in December 2020, replacing the prior EY-affiliated auditor. The 2020 audit opinion was unqualified; the auditor did not express an opinion on internal-control effectiveness. Management concluded controls were effective.
Outlook, risks and contingencies
- Management expected 2021 capital expenditures of about $1.8 million, subject to available resources, mainly for manufacturing capacity and technology upgrades. It expected existing cash, operating cash flow, credit lines, loans, supplier financing and fundraising to cover operations through 2021, while warning that liquidity could be pressured and additional financing might not be available on favorable terms.
- COVID-19 did not materially affect 2020 operations, according to management, but raw-material supply delays in early 2021 slowed production and affected revenue during that period. As of March 16, 2021, cash and cash equivalents were approximately $5.7 million.
- Environmental matters remain a significant contingency. Following inspections and a November 2020 hearing, a ministry official said fines would be recommended over alleged violations; the company sought reconsideration and could not estimate potential costs or outcome. Potential sanctions include fines, remediation costs, permit consequences or factory shutdown.
- Other disclosed risks include dependence on key customers and a limited supplier base, aging specialized machinery, competition from lower-cost Asian manufacturers, NIS currency movements, variable order timing, and possible covenant or financing pressures. Two affiliated customer groups represented 18.9% and 11.6% of 2020 revenue; two suppliers accounted for 25% and 19% of raw-material costs.
- Employee injury claims include approximately $121,000 sought by three plaintiffs and approximately $1.7 million sought by two other employees, with additional claims unquantified; insurance coverage is under review. Two former employees claimed approximately $246,000 in employment-related suits, for which a provision was recorded. A software supplier’s audit/IP dispute also remains unresolved, with potential exposure not quantified.
- The filing identifies an accumulated deficit of approximately $17.1 million and a history of losses, despite profits in 2019 and 2020. Management stated it expected the company’s plans to support operations for at least one year from financial-statement approval, but further financing could be required if cash generation is insufficient.
Most important facts for investors to verify
- Reconcile the filing’s $9.1 million versus $8.6 million working-capital disclosures.
- Track early-2021 raw-material availability, production recovery, revenue impact and subsequent cash position.
- Confirm the outcome and potential financial impact of environmental proceedings, permit matters and any required remediation.
- Assess backlog conversion, customer concentration and the durability of the 2020 gross-margin improvement.
- Review debt maturities, covenant headroom, secured-asset restrictions, lease obligations and funding for planned capital expenditures.
- Confirm the status of employee claims, insurance coverage and the software supplier dispute.