RNS Number:6671T
Amiad Filtration Systems Ltd
26 March 2007
26 March 2007
Amiad Filtration Systems Ltd.
("Amiad" or "the Company")
Results for the Twelve Months to 31 December 2006
Amiad, a producer and global supplier of water filters and filtration systems
for the industrial & municipal and the irrigation markets, announces its full
year results to 31 December 2006.
Financial Highlights
* Turnover rose 4% in line with market expectations to $44.1m (2005: $42.4m)
* Operating income was $4.6m (2005: $4.9m) reflecting increased investment in
sales and marketing after the IPO
* Profit before tax was $3.7m (2005: $4.1m)
* Net Profit $3.0m (2005: $2.9m)
* Cash from operations amounted to $1.3m (2005: loss of $0.3m)
* Gross margins were maintained at the 50% level
* Basic and fully diluted earnings per share were 15 cents
* A final dividend for 2006 of 4.47 cents (USD) per share
Operational Highlights
* Excellent progress made in China and Australia
* Selected as prime contractor for sewage treatment project in Israel, one of
the largest systems of its type in Israel
* First water treatment project delivered in Russia and initiated sales into
India
* Highest ever introduction of line modifications and new products
* Continued weakness in the US Dollar and the higher cost of materials has put
pressure on margins and expenses
Commenting on the results, Yossi Katz, Chief Executive of Amiad, said: "In 2006,
the Company continued to build on its solid foundations for future growth and
the strong finish to the year has carried on into 2007. Order levels have been
strong since the beginning of 2007, leading to a higher current order backlog
compared to the corresponding period last year.
"With the introduction of a record number of line modifications and new products
in response to our customers' demands and our penetration into high-growth
territories such as China and India gives the Company confidence in delivering
further gradual sales growth in 2007."
Enquiries:
Amiad Filtration Systems Ltd.
Yossi Katz, +44 20 7929 8989 on the day and
Chief Executive Officer +972 4 690 9500 thereafter
Itamar Eder,
Chief Financial Officer
Corfin Communications
Harry Chathli, Neil Thapar + 44 20 7929 8989
Operational Review
The Board of Amiad is pleased to report a year of growth, albeit a modest one.
Revenues for the full year 2006 were $44.1m compared to $42.4m in 2005. The
results reflect laying of solid foundations after the Company's admission on AIM
in December 2005 and positioning the Company for the future.
Amiad is a producer and global supplier of water filters and filtration systems
for the industrial & municipal markets and the irrigation markets. The early
part of 2006 was impacted by a slowdown in the irrigation use associated with
farming patterns mainly in Spain, USA and Africa. In Israel, the Company was
selected as a prime contractor for the treatment of sewage for the Municipality
of Ra'anana. This contract was Amiad's biggest project of its kind, enabling
sewage to be turned into a resource for irrigation, thereby reducing consumption
of clean water.
At the time of its IPO, the Company stated that some of the proceeds from the
associated fundraising would be used to increase sales and marketing activities
and penetrate high growth territories. During the year Amiad strengthened its
product portfolio with the introduction of a range of new products, such as an
Automatic Disk Filters for irrigation market and Micro-Fiber Filters aimed at
general water treatment. In addition the Company continued to expand its global
presence in key markets including Australia, China, Japan, Singapore and the
USA. The benefits of a broader product range and greater expansion into new
territories was felt during the latter part of the year resulting in a strong
finish to 2006.
In China, the Company achieved double-digit growth in 2006, including the
successful supply of the first phase of a project worth approximately $400,000
for sewage treatment for the "Olympic Village" in Beijing. In the second phase,
additional orders of similar magnitude and purpose have also recently been
received and are expected to be supplied during 2007.
The Company also delivered its first water treatment project in Russia and
initiated sales into India during the second half of the year through the supply
of water-treatment systems to remove iron from drinking water.
Sales from Amiad's new thread filter product increased during 2006 and have
continued to attract interest from customers globally. Additionally, Amiad has
seen a significant interest in its filters for the pre-filtration of membrane
systems, including for desalination projects.
In South America, the Company has seen good growth in products supplied to the
oil and gas industries in Brazil and it currently has orders for three different
new projects there.
The Company also strengthened its senior management with the appointment of a
new Vice President of Business Development who will be focusing on new areas of
business development and mergers & acquisitions.
Amiad currently sells its products worldwide to over 70 countries across the
Americas, Africa, Europe, Asia and Australasia.
Financial review
The Company increased its revenues by 4% to $44.1 million (2005: $42.4m), profit
before tax was $3.7 million (2005: $4.1m) and net profit $3.0m (2005: $2.9m).
Basic and fully diluted earnings per share was 15 cents.
The gross margin was maintained at 50%, approximately the same as in 2005.
Operating income was down slightly to $4.6m (2005: $4.9m) reflecting the
increased investment in sales and marketing to help build for the future.
Net cash and cash equivalents balance as of 31 December 2006 amounted to $6.1m.
Cash from operations for the full year improved to $1.3m compared with a $0.3m
loss in 2005.
R&D
In 2006, Amiad introduced a record number of line modifications and new products
including the introduction of Micro-Fiber Technology at Japan's City Water
Exhibition. The Company also introduced a new automatic disc-filter mainly
for the irrigation market and a new electric dosing-pump.
Dividend
The Directors are recommending a final dividend for 2006 of 4.47 cents (USD) per
share which will be paid on 18 May 2007 to members on the register on 18 April
2007. Shares will be marked ex-dividend on 18 April 2007.
This is in addition to the interim dividend paid of 2.385 cents (USD) making the
total for the year 6.855 cents (USD).
Outlook
In 2006, the Company continued to build on its solid foundations for future
growth and the strong finish to the year has carried on into 2007. Order levels
have been strong since the beginning of 2007, leading to a higher current order
backlog compared to the corresponding period last year. Demand for the Company's
innovative automatic thread filter technology continues to gain acceptance in
key markets and look set to achieve significant growth in the current year
albeit from a small base.
The continued weakness in the US Dollar and the higher cost of materials has put
pressure on margins and expenses.
With the introduction of a record number of line modifications and new products
in response to our customers' demands and our penetration into high-growth
territories such as China and India gives the Company confidence in delivering
further gradual sales growth in 2007.
AMIAD FILTRATION SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
31 December
2006 2005
$ in thousands
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents 4,217 7,692
Financial assets at fair value through profit
and loss 1,869 4
Accounts receivable and accruals:
Trade 16,871 14,467
Other 1,009 1,250
Inventories 10,470 8,210
Income Tax assets 431 -
T o t a l current assets 34,867 31,623
NON-CURRENT ASSETS:
Loan to a related party 685 411
Severance pay assets 1,872 2,157
Long-term receivables 105 94
Property and equipment 2,973 2,613
Intangible assets 2,403 2,618
Deferred income tax assets 1,225 1,128
T o t a l non-current assets 9,263 9,021
T o t a l assets 44,130 40,644
31 December
2006 2005
$ in thousands
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Short-term credit and loans from bank and other 7,532 6,348
Accounts payable and provisions:
Trade 7,862 5,833
Other 3,111 2,579
Income tax liability 488 870
T o t a l current liabilities 18,993 15,630
NON-CURRENT LIABILITIES:
Loans from banks and other
(net of current maturities) 2,786 3,601
Severance pay obligations 1,909 2,118
Deferred income tax liabilities 542 629
T o t a l non-current liabilities 5,237 6,348
T o t a l liabilities 24,230 21,978
SHAREHOLDERS' EQUITY
Capital and reserves attributable to
equity holders of the Company:
Share capital 2,291 2,291
Capital reserves 12,797 12,797
Currency translation reserve 164 123
Retained earnings 4,303 3,190
19,555 18,401
MINORITY INTEREST 345 265
T o t a l shareholders' equity 19,900 18,666
T o t a l liabilities and shareholders' equity 44,130 40,644
AMIAD FILTRATION SYSTEMS LTD.
CONSOLIDATED INCOME STATEMENTS
Year ended 31 December
2006 2005
$ in thousands
except per share data
Revenue 44,076 42,406
Cost of sales 22,097 21,139
Gross profit 21,979 21,267
Selling and marketing costs 11,455 10,571
Administrative and general expenses 5,590 5,471
Amortization of other assets 339 340
Other losses 4 1
Operating profit 4,591 4,884
Finance costs 864 822
Profit before income taxes 3,727 4,062
Income tax expenses 736 1,151
Profit for the year 2,991 2,911
Attributable to:
Equity holders of the Company 2,875 2,943
Minority interest 116 (32)
2,991 2,911
$
Earnings per share attributable to the equity
holders of the Company during the period
(See note 18):
Basic 0.152 0.200
Diluted 0.150 0.200
AMIAD FILTRATION SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Attributable to equity holders of the Company
Total
Currency share-
Share Capital Perpetual translation Retained Minority holders'
capital reserve debenture reserve earnings Total interest equity
$ in thousands
BALANCE
AT 1
JANUARY
2005 1,497 1,020 2,871 39 2,872 8,299 238 8,537
CHANGES
DURING
THE YEAR
ENDED 31
DECEMBER
2005:
Currency
translation
differences - - - 84 - 84 - 84
Profit for
the year - - - - 2,943 2,943 (32) 2,911
Total
recognised
profit for
2005 - - - 84 2,943 3,027 (32) 2,995
Net
proceeds
from
issuance
of shares
in IPO 545 8,730 - - - 9,275 - 9,275
Deferred
taxes
in respect
of IPO costs - 621 - - - 621 - 621
Interest on
perpetual
debenture - - - - (81) (81) - (81)
Exchange
differences
on perpetual
debenture - - (196) - 196 - - -
Conversion
of perpetual
debenture - 2,675 (2,675) - - - - -
Dividend
($0.2
per share) - - - - (2,804) (2,804) - (2,804)
Dividend to
minority - - - - - - (36) (36)
Changes in
minority
interest
upon the
sales of
Investment
in a company - - - - - - 95 95
Issuance of
bonus shares 249 (249) - - - - - -
Share-based
payment -
Value of
employee
services - - - - 64 64 - 64
BALANCE AT
31 DECEMBER
2005 2,291 12,797 - 123 3,190 18,401 265 18,666
CHANGES
DURING THE
YEAR
ENDED 31
DECEMBER
2006:
Currency
translation
differences - - - 41 - 41 - 41
Profit for
the year - - - - 2,875 2,875 16 2,991
Total
recognised
profit for
2006 - - - 41 2,875 2,916 116 3,032
Dividend
($0.1
per share) - - - - (1,905) (1,905) - (1,905)
Dividend to
minority - - - - - - (36) (36)
Share-based
payment -
Value of
employee
services - - - - 143 143 - 143
BALANCE AT
31 DECEMBER
2006 2,291 12,797 - 164 4,303 19,555 345 19,900
AMIAD FILTRATION SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Notes Year ended 31 December
2006 2005
$ in thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash generated from (used in) operations 19 3,805 2,157
Interest paid (633) (823)
Income taxes paid (1,833) (1,643)
Net cash generated from (used in) operating
activities 1,339 (309)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,080) (1,041)
Purchase of intangible assets (124) (44)
Investment grants received 79 113
Disposal of (investment in) marketable
securities, net (1,853) 300
Acquisition of company included according
to the proportionate consolidation method - (517)
Increase in cash resulting from transition to
full consolidation of a company previously included
according to the proportionate consolidation
method - 8
Proceeds from sale of property and equipment 62 41
Proceeds from the sale of a subsidiary - 50
Long-term loan granted to a related party and
others (328) (284)
Collection of long-term loan granted to a
related party 85 268
Net cash used in investing activities (3,159) (1,106)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of shares in IPO - 9,275
Dividends paid to the minority interest (36) (36)
Dividends paid to equity holders of the
parent (1,905) (2,804)
Interest on perpetual debenture - (135)
Receipt of long-term loans and other
liabilities 1,075 1,964
Repayments of long term loans (1,872) (1,928)
Short-term credit from banks, net 1,092 840
Net cash generated from (used in) financing
activities (1,646) 7,176
Effect of exchange rate changes on cash and
cash equivalents (9) (73)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,475) 5,688
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 7,692 2,004
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD 4,217 7,692
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION:
a. The Company was incorporated in Israel in June 1997. On 5 December, 2005, the
company's shares were admitted to trading on the AIM, a market operated by the
London Stock Exchange. Concurrently, the Company completed an initial public
offering (IPO) of its shares. The principal shareholders of the Company are
Kibbutz Amiad ("the Kibbutz"), through a company controlled by the Kibbutz,
A.M.S.I. Investments Ltd. ("AMSI") which owns 52.68% of the Company's
outstanding shares, and the Atoka group which owns 14.1% of the Company's
outstanding shares.
b. The Group is a producer and global supplier of water filters and filtration
systems used in the industrial & municipal market and the irrigation market.
c. On 30 June, 1998, the Company entered into an agreement with the Kibbutz
and with the limited partnership, Amiad Filtration Systems ("the partnership")
in which the Kibbutz is the general partner ("the purchase agreement") whereby
all of the partnership's business activities, assets, including goodwill and
intellectual property, but excluding property rights (lease rights and/or
ownership to land and buildings) were transferred to the Company in effect as
from 1 January, 1998 ("the transfer date"). All of the partnership's liabilities
were also transferred to the Company as of the transfer date, except for certain
guarantees and charges that remained in the partnership.
The transfer of the above assets and liabilities was carried out at no
consideration in accordance with the regulations of the Israeli Economy
Settlements Regulations (Legislation Amendments) Tax Reliefs Relating to
Assistance Arrangements with Farmers, 1990.
According to these regulations, for income tax purposes, the cost of transferred
assets, the respective accumulated depreciation and their purchase date shall be
as in the transferring partnership.
d. Definitions:
The Company - Amiad Filtration Systems Ltd.
The Group - The Company and its subsidiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The principal accounting policies applied in the preparation of these
consolidated financial statement, are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
a. Basis of preparation
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS).
The consolidated financial statements have been prepared under the historical
cost convention as modified by the revaluation of severance pay assets.
The preparation of financial statements in conformity with IFRS requires the use
of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Company's accounting
policies.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
1. Amendments to published standards effective in 2006:
* IAS 19 (Amendment), Employee Benefits, is mandatory for the Group's
accounting periods beginning on or after 1 January 2006. It introduces the
option of an alternative recognition approach for actuarial gains and
losses. It may impose additional recognition requirements for multi-employer
plans where insufficient information is available to apply defined benefit
accounting. It also adds new disclosure requirements. As the Group does not
intend to change the accounting policy adopted for recognition of actuarial
gains and losses and does not participate in any multi-employer plans,
adoption of this amendment only impacts the format and extent of disclosures
presented in the accounts.
* IAS 21 (Amendment), Net Investment in a Foreign Operation (effective
from 1 January 2006). This amendment requires exchange differences arising
on all monetary items that form part of an entity's net investment in a
foreign operation to be recognized initially in a separate component of
equity in the consolidated financial statements. This amendment has no
significant impact on the Group's financial statements.
2. Standards, amendments and interpretations effective in 2006 but not relevant
The following standards, amendments and interpretations are mandatory for
accounting periods beginning on or after 1 January 2006 but are not relevant to
the Group's operations:
* IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup
Transactions;
* IAS 39 (Amendment), The Fair Value Option;
* IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts;
* IFRS 1 (Amendment), First-time Adoption of International Financial
Reporting Standards and IFRS 6 (Amendment), Exploration for and Evaluation
of Mineral Resources;
* IFRS 6, Exploration for and Evaluation of Mineral Resources;
* IFRIC 4, Determining whether an Arrangement contains a Lease;
* IFRIC 5, Rights to Interests arising from Decommissioning, Restoration
and Environmental Rehabilitation Funds;
* IFRIC 6, Liabilities arising from Participating in a Specific Market -
Waste Electrical and Electronic Equipment;
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
3. Standards and interpretations to existing standards that are not yet
effective and have not been early adopted by the Group
The following interpretations to existing standards have been published that are
mandatory for the Group's accounting periods beginning on or after 1 May 2006 or
later periods but that the Group has not early adopted:
* IFRS 7, Financial Instruments: Disclosures, and the complementary
Amendment to IAS 1, Presentation of Financial Statements - Capital
Disclosures (effective from 1 January 2007). IFRS 7 introduces new
disclosures relating to financial instruments.
* IFRS 8 Operating Segments (effective from 1 January 2009) sets out
requirements for disclosure of information about an entity's operating
segments and also about the entity's products and services, the geographical
areas in which it operates, and its major customers.
The IFRS requires an entity to report financial and descriptive information
about its reportable segments. Reportable segments are operating segments or
aggregations of operating segments that meet specified criteria. Operating
segments are components of an entity about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the same basis as is used
internally for evaluating operating segment performance and deciding how to
allocate resources to operating segments.
IFRS 8 replaces IAS 14, Segment Reporting, achieving convergence with SFAS 131,
Disclosures About Segments of an Enterprise and related Information, except for
minor differences.
Management is currently assessing the impact of IFRS 8 on the Group's segment
disclosure.
* IFRIC 9, Reassessment of embedded derivatives (effective from 1 January
2007). IFRIC 9 requires an entity to assess whether an embedded derivative
is required to be separated from the host contract and accounted for as a
derivative when the entity first becomes a party to the contract. Subsequent
reassessment is prohibited unless there is a change in the terms of the
contract that significantly modifies the cash flows that otherwise would be
required under the contract, in which case reassessment is required. As none
of the group entities have changed the terms of their contracts, IFRIC 9 is
not relevant to the Group's operations.
* IFRIC 10, Interim Financial Reporting and Impairment (effective from 1
January 2006). IFRIC 10 prohibits the impairment losses recognised in an
interim period on goodwill, investments in equity instruments and
investments in financial assets carried at cost to be reversed at a
subsequent balance sheet date. The adoption of this standard does not
expected to have material impact on the Group's accounts.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
4. Interpretations to existing standards that are not yet effective and
not relevant for the Group's operations
The following interpretations to existing standards have been published that are
mandatory for the Group's accounting periods beginning on or after 1 May 2006 or
later periods but are not relevant for the Group's operations:
* IFRIC 7, Applying the Restatement Approach under IAS 29, Financial
Reporting in Hyperinflationary Economies (effective from 1 January 2007).
* IFRIC 11, IFRS 2 - Group and treasury share transactions (effective from
1 January 2008).
* IFRIC 12, Service concession arrangements (effective from 1 January
2008).
b. Functional currency
Items included in the financial statements of each of the Group entities are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). The Company's audit's subsidiaries
functional currency (except in Australia, China and France - see c below) is the
U.S. dollar.
Foreign currency transactions are translated into the functional currency using
exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
c. Group companies
The functional currency of the subsidiary in Australia is the Australian dollar
("AUD").
The functional currency of the subsidiary in France is the EURO.
The functional currency of the jointly controlled entity in China is the Chinese
RMB.
The results and financial position of those Group entities that have a
functional currency different from the presentation currency are translated into
the presentation currency as follows:
1) Assets and liabilities for each balance sheet presented are translated at the
closing rate at that balance sheet date;
2) Income and expenses for each income statement are translated at average
exchange rates; and
3) All resulting exchange differences are recognised as a separate component of
equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations, are taken to shareholders' equity.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
d. Principles of consolidation
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies generally accompanying a shareholding of more
than one half of the voting rights. Subsidiaries are fully consolidated from the
date on which they are incorporated and they will be deconsolidated from the
date that control ceases.
Intercompany balances and transactions between Group companies included in
consolidation have been eliminated. All intercompany transactions between the
Group companies are conducted at cost.
Where necessary, accounting policies of subsidiaries have been changed to ensure
consistency with the policies adopted by the Group.
e. Proportionately consolidated companies
There is a contractual agreements for joint control of the company Yixing
Taixing Environtec Co.Ltd, held 50%, with the other venturers. Accordingly, it
is accounted for by the proportionate consolidation method. Under this method,
the company combines its share of the assets, liabilities, revenues, and
expenses of the jointly controlled entity with similar line items in the
consolidated financial statements.
f. Financial assets at fair value through profit and loss
Marketable securities held for trading are stated at quoted market prices at
balance sheet date. Changes in their value are included in other gain (losses),
net in the statement of income.
g. Property and equipment:
1) All property and equipment (including leasehold improvements) are stated at
historical cost, less accumulated depreciation, impairment and investment
grants. Historical cost includes expenditure that is directly attributable to
the acquisition of the items.
Repairs and maintenance are charged to the income statement during the period in
which they are incurred.
2) The assets are depreciated using the straight-line method over their
estimated useful lives.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Annual rates of depreciation are as follows:
%
Machinery and equipment 6 - 20 (mainly 10%)
Office furniture and equipment, computers
and peripheral equipment 7 - 33 (mainly 33%)
Motor vehicles 15 - 20 (mainly15%)
Leasehold improvements Over the term of the lease
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
An asset's carrying amount is written down immediately to its recoverable amount
if the asset's carrying amount is greater than its estimated recoverable amount
(note 2(i)).
Leasehold improvements (fixtures) in buildings under operating leases are
depreciated using the straight-line method over the term of the lease, which is
shorter than the estimated useful lives of the improvements.
3) Gains and losses on disposals are determined by comparing proceeds with the
carrying amount. These gains and losses are included in the income statement.
h. Intangible assets
Other assets comprise know-how, customer relationships and goodwill. Most of
these assets were acquired in connection with the acquisition of Filtration Ltd.
In a business combination in 2000. The fair value of these assets (other than
goodwill) was based on an independent valuation. Following initial recognition,
the cost model is applied to these assets.
The periods of amortization of these assets are as follows:
Know-how - amortized over a period of 10 years, using the straight-line method.
Customer relationships - amortized over the estimated lives of the customer
relationship
(10 years), taking into account the scope of sales to acquired customers.
Goodwill is presented in the consolidated balance sheets, and represents the
excess of the cost of acquisition of an investment in a subsidiary over the
company's share in the fair value of the subsidiary's identifiable assets
(including intangible assets), net of the fair value of its identifiable
liabilities (net of related taxes), at the date of acquisition.
Goodwill on acquisition is measured at cost being the excess of the cost of the
business combination over the fair value of net assets acquired. Goodwill is not
amortized commencing from 1 January, 2002, and is measured at cost less any
accumulated impairment losses. Goodwill is reviewed for impairment annually or
more frequently if events or changes in circumstances indicate that the carrying
value may be impaired.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
i. Impairment of non-financial assets
Assets that are subject to depreciation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs to sell and its value in use.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units).
j. Inventories
Inventories - are stated at the lower of cost and net realizable value. Cost is
determined as follows:
Raw materials, auxiliary materials and packing materials - on the "first-in
first-out" basis.
Work in progress - on the basis of average cost including materials, labour and
other direct and indirect manufacturing costs.
Finished products - on the basis of average cost including materials, labour and
other direct and indirect manufacturing costs.
Purchased products - on the "first-in, first-out" basis.
k. Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost and where applicable, with exchange differences, less
provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables.
Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganisation, and default or delinquency in
payments are considered indicators that the trade receivable is impaired.
Impaired account is principally determined in respect of specific debts whose
collection, in the opinion of the Company's management, is uncollectible. The
amount of the provision is recognised in the income statement within
'administrative and general expenses'. Subsequent recoveries of amounts
previously written off are credited against administrative and general costs in
the income statement.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
L. Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks and other short-term highly liquid investments with original maturities of
three months or less.
m. Deferred income tax
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However,
the deferred income tax is not accounted for, if it arises from initial
recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither the accounting
nor taxable profit.
Upon distribution of dividends from tax-exempt income of "approved enterprises",
the amount distributed will be subject to tax at the rate that would have been
applicable had the company not been exempted from payment thereof. The amount of
the related tax is charged as an expense in the income statements.
Deferred income tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax on temporary differences arising on investments in
subsidiaries and in the event the distribution of earnings by investees as
dividends are not provided, since the Group controls the timing of the reversal
of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred income tax assets and deferred income tax liabilities are offset only
if they relate to the same taxable entity and that entity has a legally
enforceable right to offset those assets against the liabilities.
n. Employee benefits:
1. Severance pay obligations
Labour laws and agreements in Israel and abroad require companies in the Group
to pay a certain multiple of monthly pay as severance benefits to employees who
are dismissed, resign or retire from their employment. The severance pay
obligation is accounted for as a defined benefit plan.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
The liability recognised in the balance sheet in respect of severance pay is the
present value of the defined benefit obligation at the balance sheet date,
together with adjustments for unrecognised actuarial gains or losses. The
obligation is measured annually by independent actuaries using the projected
unit credit method. The present value of the obligation is determined by
discounting the estimated future cash outflows using interest rates of
government bonds that are denominated in the currency in which the benefits will
be paid, and that have terms to maturity approximating to the terms of the
related severance pay obligations.
The Group purchases insurance policies and contributes to severance pay funds to
manage its exposure to the severance pay obligation. The rights to reimbursement
under insurance policies are recognised as severance pay assets when it is
virtually certain that the insurance company will reimburse some or all of the
expenditure required to settle the severance pay obligation. The severance pay
assets from severance pay funds are stated at fair value through the income
statements.
2) Vacation and recreation pay
Under Israeli law, each employee is entitled to vacation days and recreation
pay, both computed on an annual basis. The entitlement is based on the length of
the employment period. The Group recognises a liability and an expense for
vacation and recreation pay, based on the entitlement of each employee.
3) Profit-sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit sharing
based on a formula that takes into consideration the profit attributable to the
Company's shareholders after certain adjustments. The Group recognises a
provision where contractually obliged or where there is a past practice that has
created a constructive obligation.
4) Share-based payment transactions
Employees (including senior executives) of the Group receive remuneration in the
form of share-based payment transactions, whereby employees render services as
consideration for equity instruments (equity-settled transactions).
The cost of equity-settled transactions is measured by reference to the fair
value at the grant date using an option-pricing model.
The cost of equity-settled transactions is recognized, together with a
corresponding increase in equity, over the vesting period. The cumulative
expense, recognized at each reporting date until the vesting date, reflects the
extent to which the vesting period has expired and the Company's best estimate
of the number of equity instruments that will ultimately vest. No expense is
recognized for amounts that do not ultimately vest.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
o. Revenue recognition policy
Revenue comprises the fair value of the consideration received or receivable for
the sale of goods in the ordinary course of the Group's activities. Revenue is
shown, net of value-added tax, returns, rebates and discounts and after
eliminating sales within the Group. Revenue is recognised as follows:
1. Sales of goods
Sales of goods are recognised when a group entity has delivered products to the
customer and there is no unfulfilled obligation that could affect the customer's
acceptance of the products. Delivery does not occur until the risks of
obsolescence and loss have been transferred to the customer, and either the
customer has accepted the products in accordance with the sales contract, the
acceptance provisions have lapsed, or the Group has objective evidence that all
criteria for acceptance have been satisfied.
2. Contract work performed
When the outcome of a contract cannot be estimated reliably, contract revenue is
recognised only to the extent of contract costs incurred that are likely to be
recoverable. When the outcome of a construction contract can be estimated
reliably and it is probable that the contract will be profitable, contract
revenue is recognised over the period of the contract. When it is probable that
total contract costs will exceed total contract revenue, the expected loss is
recognised as an expense immediately.
p. Leases
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases are charged to the income statement on a straight-line basis
over the period of the lease.
q. Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
r. Dividend distribution
Dividend distribution to the company's shareholders is recognised as a liability
in the Group's financial statements in the period in which the dividends are
approved by the Company's shareholders.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
s. Trade payables
Trade payables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
t. Basic and diluted earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of the issued and
outstanding ordinary shares during the year with the addition of issuable shares
resulting from the employee share purchase plans.
(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares issued and outstanding to assume conversion of all
dilutive potential ordinary shares, being employee share options under the 2005
plan. For employee share options, a calculation is made of the number of shares
that could have been acquired at fair value based on the monetary value of the
subscription rights attached to outstanding share options. The number of shares
calculated as above is compared with the number of shares that would have been
issued assuming the exercise of the share options.
u. Government grants
Royalty-bearing grants from the Government of Israel for funding approved
research projects and for participation in export marketing expenses are
recognised at the time the Company is entitled to such grants. Such grants are
recorded as a liability when repayment is probable.
Non-royalty-bearing grants from the Government of Israel for purchases of fixed
assets, in accordance with the Law for the Encouragement of Capital Investments,
1959 were deducted from the respective purchased assets.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
*. Exchange rates and linkage basis
Monetary assets and liabilities, denominated in currencies other then U.S.
dollar, are translated using exchange rates in effect at balance sheet date.
Monetary assets and liabilities linked to the Israeli consumer price index
("CPI") are presented according to the relevant index for each linked asset or
liability.
Below are Data regarding the exchange rates of certain currencies in relation to
the U.S. dollar and data regarding the CPI:
Exchange rate Exchange rate Exchange rate CPI*
of one Euro of one of one NIS
Australian Dollar
At end of year:
2006 0.759 1.265 0.237 109.90
2005 0.845 1.363 0.217 110.00
2004 0.733 1.283 0.232 107.44
Increase
(decrease)
during the year:
2006 (10.18%) (7.19%) 9.22% (0.01%)
2005 15.28% 6.24% (6.47%) 2.38%
* Based on the index for the month ending on each balance sheet date, on the
basis of 2000 average = 100.
w. Derivatives financial instruments
Derivatives are initially recognized at fair value on the date a derivative
contract is entered into. The derivative instruments do not qualify for hedge
accounting and are accounted for at fair value through profit or loss. Changes
in the fair value of these derivative instruments that do not qualify for hedge
accounting are recognized immediately in the income statement within finance
costs - net.
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 18 - EARNINGS PER SHARE:
Data regarding the earning per share:
Year ended 31 December
2006 2005
$ in thousands
Weighted average number of Ordinary shares
outstanding (in thousands)
Basic:
Number of shares in the beginning of the period 18,873 5,743
Effect of split and bonus shares - 8,084
Effect of issuance of shares in IPO - 420
Number of shares used for calculation of earnings
per share -basic 18,873 14,247
Diluted:
Number of shares used for calculation of earnings
per share -basic 18,873 14,247
Adjustments for share options 309 -
Number of shares used for calculation of earnings
per share -diluted 19,182 14,247
Net income attributable to equity holders of the parent 2,875 2,943
Less - interest on perpetual debenture - (81)
2,875 2,862
Basic earnings per share (in U.S. dollars) 0.152 0.200
Diluted earnings per share (in U.S. dollars) 0.150 0.200
AMIAD FILTRATION SYSTEMS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 19 - CASH FLOWS FROM OPERATING ACTIVITIES:
Year ended 31
December
2006 2005
$ in thousands
Profit for the year from continuing operations 2,991 2,911
(a) Adjustments to reconcile net income to net cash
Used in operating activities:
Depreciation 941 980
Interest paid 633 823
Income taxes paid 1,833 1,643
Share based payment 143 64
Deferred income taxes, net (184) 107
Accrued severance pay, net 76 (72)
Exchange rate differences on liabilities to
banks and other long-term liabilities 69 61
Gain from marketable securities (12) -
Loss on sale of fixed assets and others 14 66
Exchange rate differences on loans to related
party and others (48) 22
6,456 6,605
Changes in working capital:
Increase in accounts receivable:
Trade (2,261) (3,068)
Other (187) (59)
Increase (Decrease) in accounts payable:
Trade 1,802 (392)
Other 131 (1,096)
Decrease (increase) in inventories (2,136) 167
(2,651) (4,448)
Cash generated from operations 3,805 2,157
(b) Acquisition of company included according to
the proportionate consolidation method
Working capital (excluding cash and cash
equivalents) (321)
Intangible assets (42)
Fixed assets, net (229)
Long-term receivables 75
Cash out flow (517)
(c) proceeds from the sale of a subsidiary
Working capital (excluding cash and cash
equivalents) (476)
Fixed assets, net 526
Cash in flow 50
(d) Increase in cash resulting from transition to full
consolidation of a company previously included according to
the proportionate consolidation method
Working capital (excluding cash and cash equivalents) 121
Fixed assets, net (113)
Cash in flow 8
Non-cash transaction - grant receivables
regarding the purchase of Fixed assets 64 81
This information is provided by RNS
The company news service from the London Stock Exchange
END
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