TIDMBAGR
RNS Number : 8961G
Bagir Group Ltd
07 March 2018
07 March 2018
Bagir Group Ltd.
("Bagir" or the "Company")
Final Results
Bagir (AIM: BAGR), a designer, creator and provider of
innovative tailoring, announces its final results for the year
ended 31 December 2017.
2017 highlights
-- Signed Share Purchase Agreement with Shangdong Ruyi
Technology Group Ltd ("Shangdong Ruyi"), a leading Asian global
textile manufacturer, for a proposed investment of $16.5m to
acquire c.54% (c.51% on fully diluted basis) of the Company's
enlarged issued share capital. The Directors believe that this
transaction has the potential to transform the Company and its
ability to compete and win major apparel manufacturing contracts
from the world's largest retailers.
-- Revenues of $51.1m in 2017, in line with revised expectations (2016: $64.1m).
-- EBITDA* and Adjusted EBITDA** of $1.5m and $0.6m respectively
in 2017, in line with revised expectations (2016: EBITDA* of
$1.6m).
-- Operating expenses*** reduced to $9.2m in 2017 (2016: $10.9m)
as part of the overall operational cost saving plan, with the
anticipation of reducing the overall operational cost base by
approximately $2 million on an annualised basis (to be implemented
during 2018).
-- Strategic acquisition of the remaining 50% shareholding in
Nazareth Garments, Ethiopia, completed in H1 2017. Further
investments in machinery deployed during H2 2017 to increase
production capacity. This competitive edge site combines tariff
free trade and low production costs with good connectivity for
onward distribution.
-- New product development continued, along with signing an
agreement with Israeli body measuring app Sizer to combine the
expertise of both businesses to produce "made to measure" suits and
other tailored garments for customers who provide their
measurements online via the Sizer app.
* 'EBITDA' is a non-IFRS measure that the Company uses to
measure its performance. It is defined as Earnings Before Interest,
Taxation, Depreciation and Amortisation and non-cash share based
compensation (in 2017 the Company adopted the IFRS 16 new
accounting standard with regard to leasing contracts, which
increased the annual depreciation in 2017 by c$0.6m).
** The Adjusted EBITDA figure in 2017 is the EBITDA* figure,
excluding $0.9m one-off capital gain attributable to the
acquisition in Ethiopia, net of other expenses.
*** Operating expenses consist of selling and marketing
expenses, general and administrative expenses and development
costs
Commenting on the results, CEO Eran Itzhak, said:
"During 2017 Bagir agreed three key transactions which are
expected to form the basis of the Company's future success. The
proposed agreement with Shandong Ruyi being the most material and
potentially transforming. From a trading perspective Bagir
experienced a challenging year, however, good progress was achieved
in developing our key manufacturing sites together with further
cost saving initiatives which will ensure we remain profitable and
positioned to accelerate especially once the $16.5 million
investment from Shandong Ruyi is completed."
The annual report and financial statements for the year ended 31
December 2017 will shortly be made available from the Company's
website in accordance with AIM Rule 20.
Enquiries:
Bagir Group Limited
Eran Itzhak, Chief Executive Officer +44 (0) 20
Udi Cohen, Chief Financial Officer 7284 7133
N+1 Singer (Nominated Adviser &
Broker) +44 (0)20
Alex Price 7496 3000
Novella Communications (Financial
PR)
Tim Robertson +44 (0)20
Toby Andrews 3151 7008
Strategic and financial review
Introduction
During 2017 the Company made significant progress agreeing three
key strategic transactions that have significantly enhanced the
future potential of the business. The first of these, namely the
acquisition of the remaining 50% of our Ethiopian site, turned out
to be a key factor in agreeing a strategic partnership with
Shandong Ruyi alongside their proposed investment of $16.5 million.
Finally, in December 2017 the Company signed an agreement with body
measuring app Sizer. These together, and in particular, the
agreement with Shandong Ruyi, are potentially transformative for
Bagir's future.
Trading in 2017 reflected a challenging market environment.
While interest from key global customers was high especially in the
future manufacturing potential from our sites in Vietnam and longer
term in Ethiopia, revenues in the period were slower than expected
in part caused by a slower than anticipated order book and higher
costs associated with investment in production lines in
Vietnam.
Operational review
Bagir's strategy remains focused on creating internationally
competitive manufacturing bases to combine with the Company's
innovative tailoring capabilities, with the aim of then winning
more major apparel manufacturing contracts from the world's largest
retailers. To that end, Bagir has re-aligned its manufacturing
bases to three key markets: Egypt; Ethiopia and Vietnam. The
Directors believe that Ethiopia represents a unique opportunity to
establish a market leading base over the medium to longer term.
However, strategically the Company's future has been potentially
transformed by the agreement with Shandong Ruyi and their proposed
$16.5 million investment into the business. Details of this
agreement and progress towards seeking shareholders' approval are
contained below.
The Board believes that an important element in Shandong Ruyi
seeking to form a partnership with Bagir was the 100% ownership of
the Ethiopian manufacturing base which the Group signed in February
2017. Gaining total control of this important asset has enabled the
Company to accelerate its development and investment plans and this
is expected to continue once the new capital is received from
Shangdong Ruyi. Ethiopia offers significant commercial advantages
as a manufacturing base given its tariff free trade and low
production costs combined with good connectivity for onward
distribution. The potential is clear and most recently the Company
has invested in 3200 TRS production lines which are expected to be
fully operational in 2018.
The third transaction completed in 2017 was with leading
measuring app Sizer. In December 2017, the Company announced an
innovative partnership with Sizer to produce 'made-to-measure'
suits and other tailored garments for customers who provide their
measurements online via the Sizer app. The technology behind the
Sizer's market leading app when combined with Bagir's tailoring
capabilities will potentially open up the made-to-measure market
for suits to a much broader audience and at a much cheaper price
point compared with a traditional tailor.2017 was a highly active
year for the business, following on the back of the successful
restructuring of the Company during 2015/2016 which saw the banks
borrowings repaid and a c.30% reduction in annual costs. The focus
on costs and efficiencies continues with a further $2 million of
annualised costs identified to be taken out of the business in the
current financial year.
Financial results
Revenue for 2017 was in line with revised management
expectations and amounted to $51.1m compared with $64.1m for 2016.
As announcement on 20 November 2017, the reduction is attributed
mainly to slower order book than anticipated, particularly with
regard to development of production lines in Vietnam.
The effect of this slowdown and delay in the Company's order
book, coupled with an increase in manufacturing costs, including
consolidation of costs of the development stage in Ethiopia,
affected the gross margin for 2017 that was decreased to 15.0%
compared with 16.4% for 2016.
Operating expenses (selling and marketing, general and
administrative and development costs) for 2017 reduced compared
with the same period last year to $9.2m (2016: $10.9m) as part of
the overall operational cost saving plan along with reduction in
variable selling expenses, with the anticipation for further
significant cost saving programme during 2018.
Selling and marketing expenses decreased to $5.0m in 2017 (2016:
$6.2m), development costs decreased to $0.8m in 2017 (2016: $1.7m)
and general and administrative expenses increased to $3.3m in 2017
(2016: $3.1m).
In 2017, the Company adopted IFRS 16 new accounting standard
with regard to leasing contracts. According to the standard,
leasing contracts for longer than 12 months are presented as an
asset and a liability in the financial statements at their
present-value and depreciated over the contract period. Consequent
to first implementation of this new accounting standard, the
depreciation costs in 2017 increased by c$0.6m. for further details
please see note 2(l) and 2(v) to the financial statements as of 31
December 2017.
The EBITDA* and the adjusted EBITDA** for 2017 amounted to $1.5m
and $0.6m respectively, compared with EBITDA* of $1.6m in 2016.
The operating loss for 2017 amounted to $(0.6)m compared with $
(0.4)m in 2016.
The net loss for 2017 amounted to $(3.0)m, compared with a
adjusted net loss of $(3.4)m in 2016. (2016 adjusted to exclude
one-time $13.3m financial income from bank debt write-off).
Cash and cash equivalents at 31 December 2017 reduced to $2.6m
compared with $8.6 at 31 December 2016, partly attributable to the
acquisition and investment in Ethiopia.
Short term credit at 31 December 2017 amounted to $2.3m compared
with $0.0m at 31 December 2016, mainly attributable to factoring
facility changed to recourse terms and import financing
facility.
* 'EBITDA' is a non-IFRS measure that the Company uses to
measure its performance. It is defined as Earnings Before Interest,
Taxation, Depreciation and Amortisation and non-cash share based
compensation (in 2017 the Company adopted the IFRS 16 new
accounting standard with regard to leasing contracts, which
increased the annual depreciation in 2017 by c$0.6m).
** The Adjusted EBITDA figure in 2017 is the EBITDA* figure,
excluding $0.9m one-off capital gain attributable to the
acquisition in Ethiopia, net of other expenses.
Strategic partnership with Shandong Ruyi
On 23 November 2017 the Company announced that it had signed a
proposed strategic partnership with Shangdong Ruyi, a leading Asian
global textile manufacturer, alongside a proposed investment of
$16.5 million to acquire c.54% (c. 51% fully diluted) of the
Company's enlarged issued share capital.
Founded in 1972, Shandong Ruyi is one of the largest textile
manufacturers in China and ranks among the Top 100 Chinese
multi-national enterprises. The group predominately engages in
textile offerings and owns a fully-integrated value chain with
operations spanning across raw materials cultivation, textiles
processing, and design and sale of brands & apparel.
Headquartered in Jining, Shandong, the hometown of Confucius and
Mencius, Shandong Ruyi operates 13 domestic industrial parks and
boasts some of the largest production lines and advanced
technologies in China. Shandong Ruyi also has significant
distribution with more than 4,000 points of sales (POS) network
that services a global customer base spread across 6 different
continents. Shandong Ruyi has over 20 subsidiaries, with three
listed subsidiaries in China, France and Japan.
The Directors of Bagir believe that through forming this
strategic partnership with Shandong Ruyi together with the
significant increase in capital, the transaction has the potential
to transform the Company and its ability to compete and win major
apparel manufacturing contracts from the world's largest
retailers.
The Directors' rationale for the transaction is as follows:
-- Shandong Ruyi has substantial retail/textile investments
globally and is therefore well positioned to provide Bagir with
significant new commercial opportunities.
-- The new capital will:
o be used partly to expand significantly the suit trouser and
establish the jacket production lines in the Company's duty free
and cost-competitive Ethiopian manufacturing base
o enhance R&D and innovation activities
o provide the working capital to support the growth
An initial payment of $1.65m was paid in January 2018, which is
non-refundable in the event that Shandong Ruyi fails to secure
Chinese regulatory consent but is refundable if Bagir's
shareholders do not approve the transaction. The balance of the
funds are to be paid post-shareholder approval.
-- Shandong Ruyi and Bagir will evaluate ways in which Shandong
Ruyi can provide additional future operational support to
Bagir.
The transaction is subject to the approval of Bagir's
shareholders and accordingly, a circular is expected to be posted
to shareholders and provide full details of the proposed
transaction and a notice convening a General Meeting. Bagir's
articles include certain provisions which apply in the event that
an investor seeks to acquire more than 30% of the voting shares in
Bagir and further details on the applicability of these will be set
out in the Circular.
Bagir has prepared the necessary shareholder circular and notice
of EGM in order to approve the full investment by Shandong Ruyi
Group. As part of the investment, one or more Director(s) will be
nominated by Shandong Ruyi to join the Board of Bagir, subject to
the completion of the necessary regulatory due diligence. Since
these proposed directors also need to be approved by Bagir's
shareholders at the EGM, the shareholder circular and notice of EGM
will be posted once Shangdong Ruyi has provided their details to
Bagir.
Board changes in 2017
Donald Stewart stepped down as a director with effect from the
end of June 2017 and the Board reiterates its thanks to him for his
contribution to Bagir over the last few years.
The Board would also like to repeat its welcome to Esther Maoz
and Jonathan Feldman who were appointed as an External Directors
under Israeli Companies Law.
Outlook
2017 was undoubtedly a strategically important year for the
business. Looking ahead for 2018, trading conditions are likely to
be similar to those experienced in 2017 meaning that the actions
taken to reduce costs will be important in order to ensure that the
Company remains profitable. Alongside this, Bagir will be working
to complete the agreement with Shandong Ruyi and invest behind the
potential of our manufacturing bases, particularly Ethiopia, so
that the Bagir is in the best possible place to be able to compete
for the key apparel manufacturing contracts from the worlds'
largest retailers.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
31 December
---------------
2017 2016
------- ------
U.S. dollars
Note in thousands
---- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 4 2,604 8,624
Short-term deposits 132 81
Trade receivables 5 3,203 3,972
Other receivables 2,981 2,288
Inventories 6 6,709 5,337
------- ------
15,629 20,302
------- ------
NON-CURRENT ASSETS:
Investment in a joint venture - 1,580
Long-term receivables 28 -
Property, plant and equipment 8,721 668
Goodwill 5,775 5,689
Other intangible assets 2,722 3,873
Deferred taxes 181 340
------- ------
17,427 12,150
------- ------
33,056 32,452
======= ======
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
31 December
------------------
2017 2016
-------- --------
U.S. dollars
Note in thousands
---- ------------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term credit 2,294 -
Trade payables 4,933 3,848
Other payables 7 4,073 4,618
11,300 8,466
-------- --------
NON-CURRENT LIABILITIES:
Employee benefit liabilities,
net 281 210
Payable for acquisition of subsidiary 2,154 2,594
Lease liabilities 580 -
Deferred taxes 1,128 -
4,143 2,804
-------- --------
EQUITY:
Share capital 3,284 3,284
Share premium 86,306 86,306
Capital reserve for share-based
payment transactions 1,757 1,580
Capital reserve for transactions
with shareholders 10,165 10,165
Adjustments arising from translation
of foreign operations (9,624) (8,895)
Accumulated deficit (76,221) (73,204)
-------- --------
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY 15,667 19,236
Non-controlling interests 1,946 1,946
-------- --------
Total equity 17,613 21,182
-------- --------
33,056 32,452
======== ========
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
Year ended
31 December
----------------
2017 2016
------- -------
U.S. dollars
Note in thousands
----- ----------------
Revenues from sales 51,091 64,071
Cost of sales 43,450 53,541
------- -------
Gross profit 7,641 10,530
Selling and marketing expenses 5,026 6,172
General and administrative expenses 3,299 3,050
Development costs 847 1,652
Other income (1,223) -
Other expenses 291 2
Operating loss (599) (346)
Finance income 10 13,305
Finance expenses (2,132) (2,676)
Company's share of losses of a
joint venture (184) (414)
Income (loss) before taxes on income (2,905) 9,869
Tax benefit (expenses) (123) 32
------- -------
Net income (loss) for the year
(all attributable to equity holders
of the Company) (3,028) 9,901
------- -------
Other comprehensive income:
Items to be reclassified or that
are reclassified to profit or loss
when specific conditions are met:
Adjustment arising from translation
of foreign operation (729) -
------- -------
Items not to be reclassified to
profit or loss in subsequent periods:
Remeasurement gain on defined benefit
plans 11 47
------- -------
Total other comprehensive income
(loss) (718) 47
------- -------
Total comprehensive income (loss) (3,746) 9,948
======= =======
Net income (loss) attributable
to equity holders of the Company (3,028) 9,901
======= =======
Total comprehensive income (loss)
attributable to equity holders
of the Company (3,746) 9,948
======= =======
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
Year ended 31
December
----------------
2017 2016
-------- ------
U.S. dollars
(except share
and per share
Note data)
---- ----------------
Earnings (loss) per share attributable
to equity holders of the Company
(in dollars) 10
Basic and diluted earnings (loss)
per share (0.01) 0.11
Weighted average number of Ordinary
shares for basic and diluted earnings
(loss) per share (in thousands) 310,543 90,231
======== ======
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to equity holders of the Company
-------------------------------------------------------------------------------
Capital Capital Adjustments
reserve reserve arising
for for from
share-based transactions translation
Share Share payment with of foreign Accumulated Non-controlling Total
capital premium transactions shareholders operations deficit Total interests equity
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
U.S. dollars in thousands
---------------------------------------------------------------------------------------------------------
Balance at 1
January
2016 576 78,342 1,438 10,165 (8,895) (83,152) (1,526) 1,946 420
Profit for the
year - - - - - 9,901 9,901 - 9,901
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Other
comprehensive
income:
Remeasurement
gain on
defined benefit
plans - - - - - 47 47 - 47
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Total
comprehensive
income - - - - - 9,948 9,948 - 9,948
Exercise of
options *) 38 (35) - - - 3 - 3
Cost of
share-based
payment - - 177 - - - 177 - 177
Issue of share
capital
(net of issue
expenses
of 0.56$
million) 2,494 7,256 - - - - 9,750 - 9,750
Conversion of
loans from
Banks into
shares 214 670 - - - - 884 - 884
Balance at 31
December
2016 3,284 86,306 1,580 10,165 (8,895) (73,204) 19,236 1,946 21,182
Loss for the
year - - - - - (3,028) (3,028) - (3,028)
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Other
comprehensive
income:
Adjustment
arising from
translation of
foreign
operation - - - - (729) - (729) - (729)
Remeasurement
gain on
defined benefit
plans - - - - - 11 11 - 11
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Total
comprehensive
income - - - - (729) (3,017) (3,746) - (3,746)
Options
forfeited - 16 (16) - - - - - -
Cost of
share-based
payment - - 177 - - - 177 - 177
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Balance at 31
December
2017 3,284 86,322 1,741 10,165 (9,624) (76,221) 15,667 1,946 17,613
======= ======= ============ ============ =========== =========== ======= =============== =======
*) Less than $1 thousands.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 31
December
-----------------
2017 2016
------- --------
U.S. dollars in
thousands
-----------------
Cash flows from operating activities:
Net income (loss) (3,028) 9,901
------- --------
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Gain from remeasurement of previous
investment in joint venture (1,223) -
Company's share of losses of a joint
venture 184 414
Depreciation and amortization 1,926 1,738
Deferred taxes, net 173 (36)
Change in employee benefit liabilities 86 (182)
Cost of share-based payment 177 177
Loss from sale of property, plant
and equipment and other assets 121 20
Finance expenses, net 1,515 1,430
Income tax benefit, net (50) 4
Gain on extinguishment of debt - (13,305)
Exchange differences on intercompany
current account 157 -
------- --------
3,066 (9,740)
------- --------
Changes in asset and liability items:
Decrease in trade receivables 799 171
Increase in other receivables (710) (319)
Decrease (increase) in inventories (1,398) 2,989
Increase (decrease) in trade payables 915 (1,568)
Decrease in other payables (1,193) (516)
------- --------
(1,587) 757
------- --------
Cash paid during the year for:
Interest paid (1,090) (978)
Interest received 8 -
Taxes paid (298) -
Taxes received 5 -
(1,375) (978)
------- --------
Net cash used in operating activities (2,924) (60)
------- --------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
31 December
--------------------------------
2017 2016
--------------- ---------------
U.S. dollars in
thousands
--------------------------------
Cash flows from investing activities:
Acquisition of initially consolidated
subsidiary (a) (1,811) -
Investment in joint venture (1,169) -
Purchase of property, plant and equipment (892) (375)
Addition to intangible assets - (43)
Collection of finance lease receivable 83 -
Purchase of short-term investments,
net (51) (5)
Release of pledged bank deposits - 387
Net cash used in investing activities (3,840) (36)
--------------- ---------------
Cash flows from financing activities:
Issue of shares, net of expenses - 9,750
Repayment of lease liabilities (720) -
Receipt of short-term credit from
others 2,280 -
Exercise of options - 3
Repayment of long-term liabilities
from banks - (6,988)
Short-term advance from (repayment
to) joint venture - (708)
Payment of liability for acquisition
of subsidiary (800) (800)
Net cash provided by financing activities 760 1,257
--------------- ---------------
Exchange differences on balances
of cash and cash equivalents of foreign
operation (16) -
--------------- ---------------
Increase (decrease) in cash and cash
equivalents (6,020) 1,161
Cash and cash equivalents at the
beginning of the year 8,624 7,463
--------------- ---------------
Cash and cash equivalents at the
end of the year 2,604 8,624
=============== ===============
Working capital (excluding cash
and cash equivalents) (1,894) -
Property, plant and equipment 7,472 -
Deferred taxes (1,295) -
Gain from remeasurement of investment
in company previously accounted
for at equity (1,223) -
Goodwill 100 -
Investment in company previously
accounted for at equity (1,349) -
--------------- -------------
1,811 -
=============== =============
a) Acquisition of initially consolidated subsidiary
The subsidiary's assets and liabilities at date of
acquisition:
b) Significant non-cash transactions:
Waiver of receivable from partner -
in joint venture (see Note 6 to the
annual financial statements) 672
Issuance of shares upon extinguishment
of loans from banks - 884
=== ================
NOTE 1:- GENERAL
a. Company description:
Bagir Group Ltd. ("the Company") is registered in Israel. The
Company and its subsidiaries ("the Group") specialize in the
manufacturing and marketing of men's and women's tailored fashion.
The Company's Headquarter is located in Kiryat Gat, Israel. The
Group's products are manufactured by subsidiaries in Egypt and
Ethiopia and subcontractors. The Group's products are marketed in
U.S, Europe (mainly in the UK) and in other countries. As for
additional details, see Note 30 to the annual financial
statements.
b. In April 2014 the Company completed an initial public
offering ("IPO") and its shares were admitted to trading on the
London Stock Exchange's Alternative Investment Market (AIM).
c. In January 2017, the Company signed an agreement to acquire
the remaining 50% of a joint venture. The acquisition was
conditional on the fulfillment of certain procedural matters. In
June 2017, the Company completed the acquisition for a total
consideration of $2.6 million, comprised of $1.9 million in cash
and $0.7 million for waiver of receivable from the partner in the
joint venture. See Note 6 to the annual financial statements.
d. In November 2017, the Company signed a strategic Share
Purchase Agreement with a global textile manufacturer (the
Investor). According to the agreement, the Investor has committed
to make an investment of $16.5 million in the Company in
consideration for the issuance by the Company of Ordinary shares
that will represent 54% (fully diluted- 51%) of the Company's
enlarged issued share capital. For further details, see Note 24 to
the annual financial statements.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been applied consistently
in the financial statements for all periods presented, unless
otherwise stated.
a. Basis of presentation of the financial statements:
The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS as adopted by the EU").
The financial statements have been prepared on a cost basis,
other than employee benefits liability and plan assets.
The Company has elected to present profit or loss items using
the function of expense method.
The Board of Directors has considered the principal risks and
uncertainties of the business, the trading forecasts prepared by
management covering a twelve month period following the approval of
the financial statements and the resources available to meet the
Group's obligations for the aforementioned period. After taking all
of the above factors into consideration, the Board of Directors has
concluded that it is appropriate to apply the going concern basis
of accounting in preparing the financial statements.
b. Consolidated financial statements:
The consolidated financial statements comprise the financial
statements of companies that are controlled by the Company
(subsidiaries). An investor controls an investee when it is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee. The consolidation of the
financial statements commences on the date on which control is
obtained and ends when such control ceases.
The financial statements of the Company and of the subsidiaries
are prepared as of the same dates and periods. The consolidated
financial statements are prepared using uniform accounting policies
by all companies in the Group. Significant intragroup balances and
transactions and gains or losses resulting from transactions
between the Company and the subsidiaries are eliminated in full in
the consolidated financial statements.
Non-controlling interests in a subsidiary represent the equity
in a subsidiary not attributable, directly or indirectly, to a
parent. Non-controlling interests are presented in equity
separately from the equity attributable to the equity holders of
the Company. Gains or losses and any component of other
comprehensive income are attributed to the Company and to
non-controlling interests. Losses are attributed to non-controlling
interests even if they result in a negative balance of
non-controlling interests in the consolidated statement of
financial position.
c. Business combinations and goodwill:
Business combinations are accounted for by applying the
acquisition method. The cost of the acquisition is measured at the
fair value of the consideration transferred on the date of
acquisition with the addition of non-controlling interests in the
acquiree. In each business combination, the Company chooses whether
to measure the non-controlling interests in the acquiree based on
their fair value on the date of acquisition or at their
proportionate share in the fair value of the acquiree's net
identifiable assets.
Direct acquisition costs are carried to the statement of profit
or loss as incurred.
In a business combination achieved in stages, equity interests
in the acquiree that had been held by the acquirer prior to
obtaining control are measured at the acquisition date fair value
while recognizing a gain or loss resulting from the revaluation of
the prior investment on the date of achieving control.
Goodwill is initially measured at cost which represents the
excess of the acquisition consideration and the amount of
non-controlling interests over the net identifiable assets acquired
and liabilities assumed.
d. Investment in a joint venture:
Joint arrangements are arrangements of which the Company has
joint control. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about
the relevant activities require the unanimous consent of the
parties sharing control. In joint ventures the parties that have
joint control of the arrangement have rights to the net assets of
the arrangement.
The Group's investment in a joint venture is accounted for using
the equity method. Under the equity method, the investment in the
joint venture is presented at cost with the addition of
post-acquisition changes in the Group's share of net assets,
including other comprehensive income of the joint venture. Profits
and losses resulting from transactions between the Group and the
joint venture are eliminated to the extent of the interest in the
joint venture.
Goodwill relating to the acquisition of a joint venture is
presented as part of the investment in the joint venture, measured
at cost and not systematically amortized. Goodwill is evaluated for
impairment as part of the investment in the joint venture as a
whole.
The financial statements of the Company and of the joint venture
are prepared as of the same dates and periods. The accounting
policies applied in the financial statements of the joint venture
are uniform and consistent with the policies applied the financial
statements of the Group.
e. Functional currency, presentation currency and foreign currency:
1. Functional currency and presentation currency:
The financial statements are presented in U.S. dollars, the
Company's functional currency.
The functional currency is the currency that best reflects the
economic environment in which an entity operates and conducts its
transactions, it is separately determined for each Group entity and
is used to measure its financial position and operating
results.
Assets and liabilities are translated at the closing rate at the
end of each reporting period. Goodwill arising from the acquisition
of a foreign operation and any fair value adjustments to the
carrying amounts of assets and liabilities on the date of
acquisition of the foreign operation are treated as assets and
liabilities of the foreign operation and are translated at the
closing rate at the end of each reporting period. Profit or loss
items are translated at average exchange rates for all the relevant
periods. All resulting translation differences are recognized as a
separate component of other comprehensive income (loss) in equity
under "adjustments arising from translation of foreign
operations".
Intragroup loans for which settlement is neither planned nor
likely to occur in the foreseeable future are, in substance, a part
of the investment in the foreign operation and are accounted for as
part of the investment and, accordingly, the exchange differences
from these loans (net of their tax effect) are recognized as other
comprehensive income (loss) under "adjustments arising from
translation of foreign operations".
Upon the full or partial disposal of a foreign operation
resulting in loss of control in the foreign operation, the
cumulative gain (loss) from the foreign operation which had been
recognized in other comprehensive income is transferred to profit
or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative
portion of the cumulative amount recognized in other comprehensive
income is reattributed to non-controlling interests.
2. Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign currency (other than the
functional currency) are recorded upon initial recognition at the
exchange rate at the date of the transaction. After initial
recognition, monetary assets and liabilities denominated in foreign
currency are translated at the end of each reporting period into
the functional currency at the exchange rate at that date. Exchange
differences are recognized in profit or loss. Non-monetary assets
and liabilities denominated in foreign currency and measured at
fair value are translated into the functional currency using the
exchange rate prevailing at the date when the fair value was
determined.
3. Below are data about the exchange rates of significant
currencies in which the Group transacts in relation to the
dollar:
Representative
exchange rate
----------------
As of GBP 1 NIS 1
---------------------------- -------- ------
U.S. dollars
----------------
31 December 2017 1.35 0.28
31 December 2016 1.229 0.26
Change % %
---------------------------- -------- -----
Year ended 31 December 2017 10 0.07
Year ended 31 December 2016 (17.0) 1.5
f. Cash equivalents:
Cash equivalents are considered as highly liquid investments,
including unrestricted short-term bank deposits with an original
maturity of three months or less from the date of investment or
with a maturity of more than three months, but which are redeemable
on demand without penalty and which form part of the Group's cash
management.
g. Short-term deposits:
Short-term bank deposits are deposits with an original maturity
of more than three months from the date of investment and which do
not meet the definition of cash equivalents. The deposits are
presented according to their terms of deposit.
h. Allowance for doubtful accounts:
The allowance for doubtful accounts is determined in respect of
specific debts whose collection, in the opinion of the Company's
management, is doubtful.
The Company did not recognize an allowance in respect of groups
of trade receivables that are collectively assessed for impairment
due to immateriality.
Impaired receivables are derecognized when they are assessed as
uncollectible.
i. Inventories:
Inventories are measured at the lower of cost and net realizable
value. The cost of inventories comprises costs of purchase and
costs incurred in bringing the inventories to their present
location and condition. Net realizable value is the estimated
selling price in the ordinary course of business less the estimated
costs of completion and the estimated selling costs.
The Company periodically evaluates the condition and age of
inventories and makes provisions for slow moving inventories.
Cost of inventories is determined as follows:
Raw materials and auxiliary materials- using the weighted
average method.
Finished products and work in progress - materials as above and
other costs on the basis of average costs including processing
expenses.
Parts - using the weighted average method.
j. Financial instruments:
1. Financial assets:
Financial assets within the scope of IAS 39 are initially
recognized at fair value plus direct transaction costs, except for
financial assets measured at fair value through profit or loss in
respect of which transaction costs are recorded in profit or
loss.
After initial recognition, the accounting treatment of financial
assets is based on their classification as follows:
a) Financial assets at fair value through profit or loss:
This category includes financial assets held for trading and
financial assets designated upon initial recognition as at fair
value through profit or loss.
b) Loans and receivables:
Loans and receivables are investments with fixed or determinable
payments that are not quoted in an active market. After initial
recognition, loans are measured based on their terms at amortized
cost less direct transaction costs using the effective interest
method and less any impairment losses. Short-term receivables are
measured based on their terms, normally at face value.
2. Financial liabilities:
Liabilities are initially recognized at fair value less, in the
case of financial liability not measured subsequently at fair value
through profit or loss, transaction costs. Loans and other
liabilities at amortized cost are presented net of direct
transaction costs.
After initial recognition, the accounting treatment of financial
liabilities is based on their classification as follows:
Financial liabilities at amortized cost:
After initial recognition, loans are measured based on their
terms at amortized cost less direct transaction costs using the
effective interest method.
3. Derecognition of financial instruments:
a) Financial assets:
A financial asset is derecognized when the contractual rights to
the cash flows from the financial asset expire or the Company has
transferred its contractual rights to receive cash flows from the
financial asset or assumes an obligation to pay the cash flows in
full without material delay to a third party and has transferred
substantially all the risks and rewards of the asset, or has
neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
A transaction involving factoring of accounts receivable and
credit card vouchers is derecognized when the abovementioned
conditions are met.
If the Company transfers its rights to receive cash flows from
an asset and neither transfers nor retains substantially all the
risks and rewards of the asset nor transfers control of the asset,
a new asset is recognized to the extent of the Company's continuing
involvement in the asset. When continuing involvement takes the
form of guaranteeing the transferred asset, the extent of the
continuing involvement is the lower of the original carrying amount
of the asset and the maximum amount of consideration received that
the Company could be required to repay.
b) Financial liabilities:
A financial liability is derecognized when it is extinguished,
that is when the obligation is discharged or cancelled or expires.
A financial liability is extinguished when the debtor (the Group)
discharges the liability by paying in cash, other financial assets,
goods or services; or is legally released from the liability.
When an existing financial liability is exchanged with another
liability from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such
an exchange or modification is accounted for as an extinguishment
of the original liability and the recognition of a new liability.
The difference between the carrying amounts of the above
liabilities is recognized in profit or loss.
If the exchange or modification is not substantial, it is
accounted for as a change in the terms of the original liability
and no gain or loss is recognized on the exchange. When evaluating
whether the change in the terms of an existing liability is
substantial, the Company takes into account both quantitative and
qualitative considerations.
4. Impairment of financial assets:
The Group assesses at the end of each reporting period whether
there is any objective evidence of impairment of a financial asset
or group of financial assets as follows.
Financial assets carried at amortized cost:
Objective evidence of impairment exists when one or more events
that have occurred after the initial recognition of the asset have
a negative impact on the estimated future cash flows. The amount of
the loss recorded in profit or loss is measured as the difference
between the asset's carrying amount and the present value of
estimated future cash flows (excluding future credit losses that
have not yet been incurred) discounted at the financial asset's
original effective interest rate. If the financial asset has a
variable interest rate, the discount rate is the current effective
interest rate. In a subsequent period, the amount of the impairment
loss is reversed if the recovery of the asset can be related
objectively to an event occurring after the impairment was
recognized. The amount of the reversal, up to the amount of any
previous impairment, is recorded in profit or loss.
5. Extinguishing financial liabilities with equity instruments:
Equity instruments issued to replace a debt are measured at the
fair value of the equity instruments issued if their fair value can
be reliably measured. If their fair value cannot be reliably
measured, the equity instruments are measured based on the fair
value of the financial liability extinguished on the date of
extinguishment. The difference between the carrying amount of the
financial liability extinguished and the fair value of the equity
instruments issued is recognized in profit or loss.
k. Fair value measurement:
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair value measurement is based on the assumption that the
transaction will take place in the asset's or the liability's
principal market, or in the absence of a principal market, in the
most advantageous market.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities measured at fair value or for which
fair value is disclosed are categorized into levels within the fair
value hierarchy based on the lowest level input that is significant
to the entire fair value measurement:
Level 1 - Quoted prices (unadjusted) in active
markets for identical assets or
liabilities.
Level 2 - Inputs other than quoted prices
included within Level 1 that are
observable either directly or indirectly.
Level 3 - Inputs that are not based on observable
market data (valuation techniques
which use inputs that are not based
on observable market data).
l. Leases:
The Group has elected to early apply IFRS 16, "Leases", in 2017.
In accordance with the transition provisions in IFRS 16, the new
Standard has been adopted using a modified retrospective approach,
with the cumulative effect of initially applying IFRS 16 recognized
on 1 January 2017, and comparative data for 2016 not being
restated. See Note 2v below for further details on the impact of
the change in accounting policy.
(i) Accounting policy applied until 31 December 2016:
The criteria for classifying leases as finance or operating
leases depend on the substance of the agreements and are made at
the inception of the lease in accordance with the following
principles as set out in IAS 17.
Operating leases - the Group as lessee:
Lease agreements are classified as an operating lease if they do
not transfer substantially all the risks and benefits incidental to
ownership of the leased asset. Lease payments are recognized as an
expense in profit or loss on a straight-line basis over the lease
term.
(ii) Accounting policy applied from 1 January 2017:
Leases are recognized as a right-of-use asset and corresponding
liability at the date of which the leased asset is available for
use by the Group. Each lease payment is allocated between the
liability and finance expense The finance expense is charged to
profit or loss over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a
straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis.
Lease liabilities include the net present value of the following
lease payments:
- fixed payments (including in-substance fixed payments), less any lease incentives,
- variable lease payment that are based on an index or a rate,
- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option, and
- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease, if that rate can be determined, or the
Group's incremental borrowing rate.
Right-of-use assets are measured at cost comprising the
following:
- the amount of the initial measurement of lease liability,
- any lease payments made at or before the commencement date,
- any initial direct costs, and
- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognized on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less
m. Property, plant and equipment:
Items of property, plant and equipment are measured at cost,
including direct acquisition costs, less accumulated depreciation,
accumulated impairment losses and excluding day-to-day servicing
expenses. Parts of items of property, plant and equipment with a
cost that is significant in relation to the total cost of the item
are depreciated separately using the component method.
Depreciation is calculated on a straight-line basis over the
useful life of the assets at annual rates as follows:
% Mainly
%
----------- --------
Machinery and equipment 3.5 - 12 10
Motor vehicles 15 - 20 15
Buildings 3.5 3.5
Office furniture and
equipment 6 - 33 7
Right of use leased assets over the lease term
and leasehold improvements (see below)
Right of use leased assets and leasehold improvements are
depreciated on a straight-line basis over the shorter of the lease
term (including any extension option held by the Group and intended
to be exercised) and the expected life of the asset.
Depreciation of an asset ceases at the earlier of the date that
the asset is classified as held for sale and the date that the
asset is derecognized. The useful life, depreciation method and
residual value of an asset are reviewed at least each year-end and
any changes are accounted for prospectively as a change in
accounting estimate
n. Intangible assets:
Separately acquired intangible assets are measured on initial
recognition at cost including direct acquisition costs. Intangible
assets acquired in a business combination are measured at fair
value at the acquisition date. Expenditures relating to internally
generated intangible assets, excluding capitalized development
costs, are recognized in profit or loss when incurred.
Intangible assets with a finite useful life are amortized over
their useful life and reviewed for impairment whenever there is an
indication that the asset may be impaired. The amortization period
and the amortization method for an intangible asset are reviewed at
least at each financial year end. Changes in the expected useful
life or the expected pattern of consumption of future economic
benefits embodied in the asset are accounted for prospectively as
changes in accounting estimates. The amortization of intangible
assets with finite useful lives is recognized in profit or
loss.
Development expenditures:
Development expenditures incurred on a development project are
recognized as an intangible asset if the Company can demonstrate:
the technical feasibility of completing the intangible asset so
that it will be available for use or sale; the Company's intention
to complete the intangible asset and use or sell it; the Company's
ability to use or sell the intangible asset; how the intangible
asset will generate future economic benefits; the availability of
adequate technical, financial and other resources to complete the
intangible asset; and the Company's ability to measure reliably the
expenditure attributable to the intangible asset during its
development.
The asset is measured at cost less any accumulated amortization
and any accumulated impairment losses. Testing of impairment is
performed annually over the period of the development project.
Amortization of the asset begins when development is complete and
the asset is available for use.
Software:
The Group's assets include computer systems comprising hardware
and software. Software forming an integral part of the hardware to
the extent that the hardware cannot function without the programs
installed on it is classified as property, plant and equipment. In
contrast, stand-alone software that adds functionality to the
hardware is classified as an intangible asset.
Amortization is calculated on a straight line basis over the
useful life of the assets at annual rates as follows:
Years
-----
Customer relationships 10
Capitalization of development
costs - novel products 3
Controlling rights acquired (see
Note 5 to the annual financial
statements) 7
Software 10
o. Impairment of non-financial assets:
The Company evaluates the need to record an impairment of the
carrying amount of non-financial assets whenever events or changes
in circumstances indicate that the carrying amount is not
recoverable. If the carrying amount of non-financial assets exceeds
their recoverable amount, the assets are reduced to their
recoverable amount. The recoverable amount is the higher of fair
value less costs to sell and value in use. In measuring value in
use, the expected cash flows are discounted using a pre-tax
discount rate that reflects the risks specific to the asset. The
recoverable amount of an asset that does not generate independent
cash flows is determined for the cash-generating unit to which the
asset belongs. Impairment losses are recognized in profit or
loss.
An impairment loss of an asset, other than goodwill, is reversed
only if there have been changes in the estimates used to determine
the asset's recoverable amount since the last impairment loss was
recognized. Reversal of an impairment loss, as above, shall not be
increased above the lower of the carrying amount that would have
been determined (net of depreciation or amortization) had no
impairment loss been recognized for the asset in prior years, and
its recoverable amount. The reversal of impairment loss of an asset
presented at cost is recognized in profit or loss.
o. Impairment of non-financial assets: (Cont.)
The following unique criteria are applied in assessing
impairment of these specific assets:
1. Goodwill:
For impairment testing, goodwill acquired in a business
combination is allocated on the acquisition date to each of the
Group's cash generating units that are expected to benefit from the
business combination.
The Company reviews goodwill for impairment once a year as of
December 31 or more frequently if events or changes in
circumstances indicate that there is an impairment.
Goodwill is tested for impairment by assessing the recoverable
amount of the cash-generating unit (or group of cash-generating
units) to which the goodwill has been allocated. An impairment loss
is recognized if the recoverable amount of the cash-generating unit
(or group of cash-generating units) to which goodwill has been
allocated is less than the carrying amount of the cash-generating
unit (or group of cash-generating units). Any impairment loss is
allocated first to goodwill.
Impairment losses recognized for goodwill cannot be reversed in
subsequent periods.
2. Investment in a joint venture:
After application of the equity method, the Company determines
whether it is necessary to recognize any additional impairment loss
with respect to the investment in a joint venture. The Company
determines at each reporting date whether there is objective
evidence that the carrying amount of the investment in the joint
venture is impaired. The test of impairment is carried out with
reference to the entire investment, including the goodwill
attributed to the joint venture.
3. Intangible assets - development costs capitalized during the development period:
The impairment test is performed annually or more frequently if
events or changes in circumstances indicate that there is an
impairment.
p. Taxes on income:
The tax results of current or deferred taxes are recognized in
profit or loss, except to the extent that they refer to items which
are recognized in other comprehensive income or equity.
1. Current taxes:
The current tax liability is measured using the tax rates and
tax laws that have been enacted or substantively enacted by the end
of reporting period as well as adjustments required in connection
with the tax liability payable in respect of previous years.
2. Deferred taxes:
Deferred taxes are computed in respect of temporary differences
between the carrying amounts in the financial statements and the
amounts attributed for tax purposes.
Deferred tax balances are measured at the tax rate that is
expected to apply when the taxes are reversed in profit or loss or
equity, based on tax laws that have been enacted or substantively
enacted by the end of the reporting period.
Deferred tax assets are reviewed at the end of each reporting
period and reduced to the extent that it is not probable that they
will be utilized. Carry-forward operating loss and deductible
temporary differences for which deferred tax assets had not been
recognized are reviewed at the end of each reporting period and a
respective deferred tax asset is recognized to the extent that
their utilization is probable.
Taxes that would apply in the event of the disposal of
investments in investees have not been taken into account in
computing deferred taxes, as long as the disposal of the
investments in investees is not probable in the foreseeable future.
Also, deferred taxes that would apply in the event of distribution
of earnings by investees as dividends have not been taken into
account in computing deferred taxes, since the distribution of
dividends does not involve an additional tax liability or since it
is the Company's policy not to initiate distribution of dividends
that would trigger an additional tax liability.
Deferred taxes are offset if there is a legally enforceable
right to offset a current tax asset against a current tax liability
and the deferred taxes relate to the same taxpayer and the same
taxation authority.
q. Share-based payment transactions:
The Company's employees are entitled to remuneration in the form
of equity-settled share-based payment transactions ("equity-settled
transactions").
Equity-settled transactions:
The cost of equity-settled transactions with employees is
measured at the fair value of the equity instruments granted at
grant date. The fair value is determined using an acceptable
pricing model, additional details are given in Note 28. In
estimating fair value, the vesting conditions (consisting of
service conditions and performance conditions other than market
conditions) are not taken into account.
The cost of equity-settled transactions is recognized in profit
or loss together with a corresponding increase in equity during the
period which the performance and/or service conditions are to be
satisfied ending on the date on which the relevant employees become
fully entitled to the award ("the vesting period"). The cumulative
expense recognized for equity-settled transactions at the end of
each reporting period until the vesting date reflects the extent to
which the vesting period has expired and the Group's best estimate
of the number of equity instruments that will ultimately vest.
No expense is recognized for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether the
market condition is satisfied, provided that all other vesting
conditions (service and/or performance) are satisfied.
If the Company modifies the conditions on which
equity-instruments were granted, an additional expense is
recognized beyond the original computed expense. An additional
expense is recognized for any modification that increases the total
fair value of the share-based payment arrangement or is otherwise
beneficial to the employee at the modification date.
r Employee benefits liabilities:
The Group has several employee benefit plans:
1. Short-term employee benefits:
Short-term employee benefits are benefits that are expected to
be settled wholly before 12 months after the end of the annual
reporting period in which the employees render the related
services. These benefits include salaries, paid annual leave, paid
sick leave, recreation and social security contributions and are
recognized as expenses as the services are rendered. A liability in
respect of a cash bonus or a profit-sharing plan is recognized when
the Group has a legal or constructive obligation to make such
payment as a result of past service rendered by an employee and a
reliable estimate of the amount can be made.
2. Post-employment benefits:
The plans are normally financed by contributions to insurance
companies and classified as defined contribution plans or as
defined benefit plans.
The Group has defined contribution plans for part of the Group's
employees overseas and for part of the Group's employees in Israel
pursuant to section 14 to the Severance Pay Law under which the
Group pays fixed contributions and will have no legal or
constructive obligation to pay further contributions if the fund
does not hold sufficient amounts to pay all employee benefits
relating to employee service in the current and prior periods.
Contributions to the defined contribution plan in respect of
severance or retirement pay are recognized as an expense when
contributed concurrently with performance of the employee's
services and no additional provision is required in the financial
statements.
The Group also operates a defined benefit plan in respect of
severance pay pursuant to the Severance Pay Law. According to the
Law, employees are entitled to severance pay upon dismissal or
retirement. The liability for termination of employment is measured
using the projected unit credit method. The actuarial assumptions
include rates of employee turnover and expected salary increases
based on the estimated timing of payment. The amounts are presented
based on discounted expected future cash flows using a discount
rate determined by reference to market yields at the reporting date
on high quality corporate bonds that are linked to the Consumer
Price Index with a term that is consistent with the estimated term
of the severance pay obligation.
In respect of its severance pay obligation to certain of its
employees, the Company makes current deposits in pension funds and
insurance companies ("the plan assets"). Plan assets comprise
assets held by a long-term employee benefit fund or qualifying
insurance policies. Plan assets are not available to the Group's
own creditors and cannot be returned directly to the Group.
The liability for employee benefits shown in the statement of
financial position reflects the present value of the defined
benefit obligation less the fair value of the plan assets.
Remeasurements comprising of actuarial gains and losses and the
return on plan assets (excluding amounts included in net interest
on the net defined benefit liability) are recognized in other
comprehensive income in the period in which they occur.
s. Revenue recognition:
In conjunction with the early adoption of IFRS 16 (see Note 2l
above), the Group has elected to early apply IFRS 15, "Revenue from
Contracts with Customers", in 2017. The adoption of IFRS 15 had no
effect on the consolidated financial statements.
Revenue from contracts with customers is recognized in profit or
loss when the control over the asset or service is transferred to
the customer. Revenue is measured and recognized at the fair value
of the consideration that is expected to be received based on the
contract terms, taking into consideration any discounts and
significant financing component. Revenue is recognized in profit or
loss to the extent that it is probable that the economic benefits
associated with the contract will flow to the Company and that the
costs incurred or to be incurred in respect of the contract can be
measured reliably.
Following are the specific recognition criteria for the Group's
revenues which must be met before revenue is recognized:
Revenues from the sale of goods:
Revenue from the sale of goods is recognized in profit or loss
when the ownership of the goods is passed to the buyer, normally
when the goods are delivered to the buyer.
t. Provisions:
A provision in accordance with IAS 37 is recognized when the
Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. If the Group expects part or all of the expense to be
reimbursed to the Company, such as in an insurance contract, the
reimbursement is recognized as a separate asset only when it is
virtually certain that it will be received by the Company. The
expense is recognized in profit or loss net of the reimbursed
amount.
u. Earnings (loss) per share:
Earnings per share are calculated by dividing the net income
(loss) attributable to equity holders of the Company by the
weighted number of Ordinary shares outstanding during the period.
Potential Ordinary shares are included in the computation of
diluted earnings per share when their conversion decreases earnings
per share from continuing operations. Potential Ordinary shares
that are converted during the period are included in diluted
earnings per share only until the conversion date and from that
date in basic earnings per share. The Company's share of earnings
of investees is included based on the earnings per share of the
investees multiplied by the number of shares held by the
Company.
v. Changes in accounting policies:
(i) As described in Note 2l above, the Group has adopted IFRS
16, "Leases", retrospectively from 1 January 2017, as permitted by
IFRS 16. Comparative data for 2016 have not been restated.
On adoption of IFRS 16, the Group recognized lease liabilities
in relation to leases which previously were classified as operating
leases under IAS 17. These liabilities were measured at the present
value of the remaining lease payments, discounted using the Group's
incremental borrowing rates as of 1 January 2017. The weighted
average incremental borrowing rate applied to the lease liabilities
on 1 January 2017 was 10.4%.
As a result of the adoption of IFRS 16 as of 1 January 2017,
property, plant and equipment and lease liabilities increased by US
$ 1.6 million with no net effect on equity.
(ii) As described in Note 2t above, the Group has adopted IFRS
15, "Revenue from Contracts with Customers" retrospectively from 1
January 2017 as permitted by IFRS 16. The adoption of IFRS 15 had
no effect on the consolidated financial statements.
NOTE 3:- INVESTMENT IN A SUBSIDIARY
The Company, through a wholly owned subsidiary, holds an
investment in a company in Egypt that was jointly owned and
controlled with another Egyptian company ("the Egyptian partner").
On 1 January 2009, the Company signed an agreement with the
Egyptian partner whereby the control and management will pass to
the Company for a period of six and half years starting 1 January
2009 in consideration of the payment of 4% of the sales revenues of
the Egyptian company to the Egyptian partner but not more than $
900 thousand a year and not less than $ 800 thousand a year for
2009 and 2010, and a fixed amount of $ 1 million for each of the
years 2011 to 2015. Over the term of the agreement, the control and
management of the Egyptian company will be in the hands of the
Company and it shall bear all costs and entitled to all profits
relating to the Egyptian company. As a result of this agreement,
since 1 January 2009, the Company fully consolidates the financial
statements of the Egyptian company.
On 1 July 2015, the Company signed an extension of the agreement
with the Egyptian partner whereby the Company will continue to
control and manage the subsidiary for an additional period of 7
years starting 1 July 2015, in consideration for a fixed annual
payment of $ 800 thousand. Accordingly, the Company will continue
to fully consolidate the financial statements of the Egyptian
subsidiary. At that date, the Company's management estimated that
the fair value of the assets of the Egyptian company approximated
their carrying amount. The Company recognized a liability in the
amount of the present value of the future fixed annual payments
discounted at rate of 15.7 % and, simultaneously, recognized an
intangible asset ("controlling rights") in the amount of $ $3,446
thousand that is amortized over the term of the agreement (7 years)
(see also Note 20).
NOTE 4:- CASH AND CASH EQUIVALENTS
31 December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
Cash in banks:
In U.S. dollars 2,387 8,410
In Sterling 8 97
In other currencies 209 117
------- ------
2,604 8,624
======= ======
NOTE 5:- TRADE RECEIVABLES
31 December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
Open accounts 3,227 3,977
Less - allowance for doubtful
accounts (24) (5)
------- ------
3,203 3,972
======= ======
Impaired debts are accounted for through recording an allowance
for doubtful accounts.
The aging analysis of past due but not impaired trade
receivables is as follows:
Past due but not impaired
---------------------------------------
Neither
past
due 60 -
(nor < 30 30 - 90 Over
impaired) days 60 days days 90 days Total
---------- ----- -------- ----- -------- -----
U.S. dollars in thousands
---------------------------------------------------
31 December
2017 3,185 - 7 1 10 3,203
========== ===== ======== ===== ======== =====
31 December
2016 3,024 713 228 - 7 3,972
========== ===== ======== ===== ======== =====
NOTE 6:- INVENTORIES
31 December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
Finished products 1,438 728
Work in progress 584 671
Raw and auxiliary materials 2,752 1,961
Parts 239 198
Inventories in transit 1,696 1,779
------- ------
6,709 5,337
======= ======
Write down of inventories recorded in cost of sales totaled $
451 thousand (2016- $ 487 thousand).
NOTE 7:- TRADE PAYABLES
31 December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
Open accounts:
In U.S. dollars 3,999 3,458
In GBP 149 135
In NIS 204 254
In other currency 581 1
------- ------
4,933 3,848
======= ======
NOTE 8:- SHARE-BASED PAYMENT
a. The expense recognized in the financial statements for
share-based payments is shown in the following table:
Year ended
31 December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
Equity-settled share-based
payment plans 177 177
======= ======
b. Share-based payment transactions granted to the Chairman, CEO
and employees of the subsidiaries in 2013:
In September 2013, the Company's Board of directors resolved to
reserve for employees of the Company and subsidiaries, up to
350,000 options.
The options are to be granted at no consideration. Each option
is exercisable into one Ordinary share of the Company (subject to
adjustments) at an exercise price of $ 1.60 under a cashless
exercise arrangement.
On 30 November 2013, 322,250 options were granted for employees
of the Company and subsidiaries. The options vested in four equal
tranches as follows:
The first tranche vested on the grant date, and the second,
third and fourth tranches vested on 31 December 2013, 2014, 2015,
respectively. The options expire 10 years from the date of
grant.
The fair value of the options amounted to $ 80 thousand at the
grant date.
The options were granted through a trustee arrangement pursuant
to section 102 of the Income Tax Ordinance.
c. In March 2014, the Board of Directors resolved to increase
the number of options available for grants to employees of the
Group from 350,000 options to 875,000 options. The options are to
be granted for no consideration. Each option is exercisable into
one Ordinary share of the Company (subject to adjustments) under
the cashless method against the payment of the exercise price of
the par value of each share. On that date, the Company granted an
additional 499,700 options to the participants who were already
granted options under the Share Option Plan. Each participant was
granted such number of options, pari passu, to the number of
options granted to such participant in November 2013. Half of the
options vested immediately on the grant date, 25% vested on 31
December 2014 and 25% vested on 31 December 2015. The options
expire 10 years from the date of grant. The fair value of the
options granted was immaterial.
The options were granted through a trustee arrangement pursuant
to section 102 of the Income Tax Ordinance
d. In January 2016, the Company granted options to acquire
2,700,000 Ordinary shares to the Company's CEO and to the Company's
CFO (1,350,000 options each). The Options have an exercise price of
GBP 0.035.
The options expire 10 years from the date of grant.
The options granted shall vest as follow: 1,000,000 options will
vest on 31 October 2016,
another 1,000,000 options will vest on 31 October 2017 and the
balance will vest on 31 October 2018.
The fair value of the options amounted to $102 thousand at the
date of the grant
e. In May 2016, the Company's Board of Directors granted
1,089,750 options to the Company's employees.
The options were granted at no consideration. Each option is
exercisable into one Ordinary share of the Company (subject to
adjustments) at an exercise price of GBP 0.0375 under cashless
exercise arrangement.
The options will vest in 3 equal tranches on May 2017, 2018 and
2019, respectively.
The options expire 10 years from the date of the grant.
The fair value of the options amounted to $29 thousand at the
date of the grant.
f. In October 2016, the Board of Directors granted 6,705,362
options to the Company's CEO, and 5,238,874 options to the
Company's CFO and another 17,803,050 options to several key
employees on the following terms:
Vesting of the options is to be based on certain stretch targets
as follows:
-- 25 per cent. On grant for the CEO and CFO and 25 per cent.
after 0.5-1 year for the key employees
-- 25 per cent. Once the Company's share price is 8 pence or above.
-- 25 per cent. Once the Company's share price is 10 pence or above.
-- 25 per cent. Once the Company's share price is 12 pence or above.
The options will be exercisable at an exercise price of GBP
0.035 and with a scheme length of 5 years.
The following table lists the inputs to the Monte - Carlo model
used for the fair value measurement of equity-settled share options
for the above plan:
Dividend yield (%) 0
Expected volatility of the
share prices (%) 60
Risk-free interest rate
(%) 0.7
Expected life of share options
(years) 5
Share price (GBP) 0.035
Based on the above inputs, the fair value of the options
amounted to $559 thousands at the date of the grant.
The expected life of the share options is based on historical
data and is not necessarily indicative of the exercise patterns of
share options that may occur in the future.
The expected volatility of the share prices is based on the
average volatility of the share price of the Company (50%) and
average volatility of companies with similar activity (50%). This
reflects the assumption that the historical volatility of the share
prices is reasonably indicative of expected future trends.
g. In May, 2017, the Company's Board of Directors granted
700,000 options to two employees (350,000 options each) on the
following terms:
Vesting of the options is to be based on certain stretch targets
as follow:
-- 25 per cent. After 1 year.
-- 25 per cent. Once the Company's share price is 8 pence or above.
-- 25 per cent. Once the Company's share price is 10 pence or above.
-- 25 per cent. Once the Company's share price is 12 pence or above.
The options will be exercisable at an exercise price of GBP
0.0475 and with a scheme length of 5 years.
The fair value of the options amounted to $19 thousand at the
date of the grant.
h. The total number of options under the Company's existing plan
are 30,788,825. According to the terms of the share options
granted, the vesting of 30,362,075 options will be accelerated and
become immediately exercisable upon takeover event or change of
control of the Company.
i. Movement during the year:
2017 2016
---------------------- ----------------------
Weighted Weighted
average average
Number exercise Number exercise
of options price of options price
----------- --------- ----------- ---------
USD USD
--------- ---------
Share options outstanding
at beginning of
year 33,963,786 0.05 667,863 0.78
Share options granted
during the year 700,000 0.04 33,537,036 0.043
Share options forfeited
during the year (3,874,961) 0.05 (189,750) 0.78
Share options exercised
during the year - - (51,363) 0.78
----------- --------- ----------- ---------
Share options outstanding
at end of year 30,788,825 0.05 33,963,786 0.05
=========== ========= =========== =========
Share options exercisable
at end of year 6,592,974 0.045 4,653,922 0.05
=========== ========= =========== =========
(1) The weighted average remaining contractual life for the
share options outstanding as of 31 December 2017 is 8.65 years
(2016- 7.1years).
(1) The range of exercise prices for share options outstanding
as of 31 December 2017 USD 0.01 for 294,250 options, USD 1.8 for
132,500 options, USD 0.048 for 29,662,075 options. and 0.04 for
700,000 options.
NOTE 9:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES
a. Balances:
As of 31 December 2017:
Key management
personnel
---------------
U.S. dollars
in thousands
---------------
Other payables 360
As of 31 December 2016:
Key management
Joint Venture personnel
------------- --------------
U.S. dollars in thousands
-----------------------------
Other receivables 61 -
Other payables 18 538
b. Benefits to key management personnel :*)
Year ended
31 December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
Short-term benefits 1,329 1,041
Post-employment benefits 64 46
Share-based payment 98 147
------- ------
1,491 1,234
======= ======
*) Includes members of the Board of Directors.
NOTE 10:- NET EARNINGS (LOSS) PER SHARE
Details of the number of shares and loss used in the computation
of basic and diluted loss per share:
Year ended 31 December
--------------------------------------------------------------------
2017 2016
-------------------------------- --------------------------------
Weighted
Weighted number number
of shares Loss from of shares Net income
*) operations *) from operations
--------------- ------------- ------------ ----------------
U.S. dollars U.S. dollars
In thousands in thousands In thousands in thousands
--------------- ------------- ------------ ----------------
310,543 (3,028) 90,231 9,901
=============== ============= ============ ================
*) The data related to the computation of diluted profit (loss)
per share (options and warrants) have not been included as they are
antidilutive.
NOTE 11:- ADDITIONAL INFORMATION ON OPERATIONS
a. General:
As more fully described in Note 14b, due to a change in the
structure of the Group's internal organization that culminated in
the second half of 2017, the Group presently has only one operating
segment - the manufacturing and marketing of men and women's
tailored fashion (mainly men's). Comparative data for 2016 has been
revised accordingly.
b. Revenues by geographical area:
Year ended 31
December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
U.S. 39,571 45,064
Europe (mainly UK) 10,450 17,000
Other 1,070 2,007
Total 51,091 64,071
======= ======
c. The carrying amounts of non- current assets (property, plant
and equipment and intangible assets) in the Company's country of
domicile (Israel) and in foreign countries based on the location of
the assets, are as follows:
31 December
---------------
2017 2016
------- ------
U.S. dollars
in thousands
---------------
Israel 1,855 2,532
UK 1,032 1,018
U.S. 6,312 6,183
Ethiopia 6,899 -
Other 1,222 497
17,320 10,230
======= ======
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UGUWPWUPRGMQ
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March 07, 2018 02:00 ET (07:00 GMT)
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