Amiad Water Systems Ltd. — Earnings Release 2013

Sep 10, 2013

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RNS Number : 5748N

Amiad Water Systems Ltd

10 September 2013

10 September 2013

Amiad Water Systems Ltd.

("Amiad" or the "Company")

Results for the six months to 30 June 2013

Amiad (AIM: AFS), a leading global producer of water treatment and filtration solutions, announces its half year results for the six months ended 30 June 2013.

H1 2013 Financial Summary

·     Revenue was $61.7m (H1 2012: $66.2m)

·     Operating profit was $4.2m (H1 2012: $5.9m)

·     Profit before tax was $4.2m (H1 2012: $5.0m)

·     Gross margins were 40.3% (H1 2012: 43.6%)

·     Fully diluted earnings per share were $0.15 (H1 2012: $0.18)

·     Net debt reduced to $16.85m (31 December 2012: $17.1m)

·     Interim dividend of $0.051 per share (H1 2012: $0.051)

·     Cash and cash equivalents at 30 June 2013 were $13.3m (31 December 2012: $14.3m; 30 June 2012: $12.7m)

H1 2013 Operational Summary

Traditional Segments (Irrigation, Industrial and Municipal)

·      Irrigation segment broadly flat with H1 2012, but progress achieved with increase in revenues of 17% over H2 2012 due to growth in US, Latin America and China

·      Municipal segment performed as expected, with growth in Europe and Eastern Europe, and successful implementation of large-scale municipal desalination plants in Australia, Israel and India

·      Weakness experienced in Industrial segment, particularly in South East Asia, India and East Europe, but growth achieved in West Europe   

New Developing Segments (Ballast Water and Oil & Gas)

·      Significant growth achieved in Oil & Gas segment, including delivery of a pre-filtration solution at Pacific Rubiales Energy Corp's desalination plant in Columbia

·      Postponement in implementation of coastguard regulations by International Maritime Organization ("IMO") continued to negatively impact sales in Ballast Water segment, however, the new Omega line of screen products was well-received by potential customers and Amiad successfully completed pilot projects with the Danish Hydraulic Institute in Denmark and in Singapore

Commenting on the results, Arik Dayan, Chief Executive Officer of Amiad, said: "As anticipated, 2013 is proving to be a transitional year as our traditional and new segments continue to be subject to fluctuating market conditions. We are also pleased with the progress being made by our new products, which are increasingly penetrating the market, and the significant growth achieved in the Oil & Gas segment.

"Despite the challenging market conditions, we anticipate that revenues for the second half of 2013 will be slightly higher than for the first half of the year. In addition, we expect to maintain efficiency measures and tight cost control over the course of 2013 whilst continuing to invest in new products, new territories and growth segments. As a result, we have confidence in the growth prospects of the Company, which is reflected in Amiad maintaining its interim dividend at the same amount as last year."

Enquiries

Amiad Water Systems Ltd.
Arik Dayan, Chief Executive Officer Amir Harel, Chief Financial Officer	+972 4 690 9500
Nomura Code Securities Ltd.
Juliet Thompson, Christopher Golden	+44 20 7776 1200
Luther Pendragon
Harry Chathli, Claire Norbury, Oliver Hibberd	+44 20 7618 9100

Operational Review

As stated in Amiad's announcement of its Full Year 2012 Results, the slowdown observed in the final quarter of 2012 in Europe and the US, particularly in the Municipal and Industrial segments, continued into the first half of 2013, resulting in an overall decrease in revenue for the period to $61.7m (H1 2012: $66.2m). In addition, the Company was impacted in the Ballast Water segment by the postponement in the implementation of IMO regulations as expected. However, revenue in the Irrigation segment was broadly flat with the same period last year and grew 17% sequentially compared with H2 2012 whilst the Oil & Gas segment exceeded expectations and achieved significant growth. Gross margins were 40.3% (H1 2012: 43.6%).

The Irrigation and Industrial segments generated $27.1m and $23.1m respectively during the period (H1 2012: $27.8m and $24.9m), accounting for 43.7% and 37.3% of the Company's revenues. The Municipal segment generated $4.9m (8%) compared with $7.3m in H1 2012, however this decline was partly due to the delivery of an extraordinary project, in the first half of 2012, in the Municipal segment in Australia where Amiad provided its automatic self-cleaning screen filter technology for sea water reverse osmosis membrane protection at the Southern SeaWater Desalination Plant based south of Perth.

There was a significant decline in revenues in the Ballast Water segment to $1.1m, representing 1.8% of overall revenue, compared with $3.8m in the first half of 2012. This was largely due to the postponement in the implementation of coastguard regulations by the IMO, which will now come into force in 2014. However, during the period, Amiad successfully completed pilot projects with the Danish Hydraulic Institute in Denmark and in Singapore, and its products are being well-received by potential customers. In addition, Amiad has been engaged in discussions to form partnerships with further integrators (as a complement to Calgon Carbon Corporation) in this segment. As a result, Amiad is well-positioned to benefit from the significant growth opportunity in this segment when market conditions improve, where it is expected that around 60,000 ships worldwide will need refitting with one or more cleansing units by 2020 resulting in a filtration market worth approximately $1bn.

The Oil & Gas segment exceeded expectations, generating revenues of $5.7m compared with $3.0m in H1 2012 and $1.3m in H2 2012. The segment accounted for 9.2% of overall revenues - representing a larger proportion than the Municipal segment.

Amiad's portfolio of new products that were launched in November 2011 are increasingly penetrating the market and continue to be well-received. All of the products are now in the commercial pilot phase apart from one, which is in a non-commercial pilot project.  

Global Activity

Asia

During the first half of the year, Amiad experienced weakness in the Industrial segment in South East Asia. However, in the new segments, the Company delivered a project in the Oil & Gas segment and successfully completed a pilot project in the Ballast Water segment.

Amiad also suffered from weak demand in India, which was compounded by the weakness of the rupee against the US dollar and the resulting negative effect on Amiad importing products. However, Amiad continued work on its production line at its subsidiary in India and expects to reach full, local production next year. In addition, Amiad successfully commissioned a pre-filtration solution at a newly-built municipal seawater desalination plant in Chennai, India.       

In China, the government's decision to increase the country's agricultural production resulted in increasing demand for Amiad's Irrigation solutions.

US and South America

Amiad performed well and achieved growth in the Irrigation segment in the US. As the most significant market for the Ballast Water segment, the Company suffered from the setbacks in this industry. In addition, the constraints on public funding and projects persisted into 2013 resulting in continued weakness in the Municipal segment.    

The Irrigation segment in Latin America experienced growth. In the Oil & Gas segment, as announced in March, the Company was awarded a $7.7m contract in Colombia, by Nirosoft Industries Ltd., for the supply and maintenance of a pre-filtration solution providing protection for reverse osmosis membranes. Amiad's screen and microfiber filtration technology has been shipped and is in the pre-installation phase at a desalination plant that is part of the oil & gas operations of Pacific Rubiales Energy Corp., one of the largest independent oil & gas exploration and production companies in Colombia.

EMEA

Amiad performed well in the Municipal segment in Europe and Eastern Europe, and undertook significant work in Germany and Scandinavia for pre-filtration membrane protection. In Denmark, the Company successfully concluded a pilot project in the Ballast Water segment with the Omega, one of Amiad's new products. However, the extreme and extended winter across large parts of Europe resulted in weakness in the Irrigation segment with a delay in a number of projects.

In Israel, Amiad installed and commissioned a solution for the protection of ultra-filtration membranes at the Ashdod Desalination Plant in the Municipal segment. This represented the first commercial application of Amiad's new products. Similarly, Amiad successfully commissioned a project in Cyprus involving cartridge replacement.

Australia

Amiad suffered in Australia from the weakness in the Australian economy due to the reduced demand for raw materials from China, Australia's largest export customer, which has resulted in resource companies cancelling or postponing projects. Amiad anticipates some improvement in this geography going forward, but does not expect this to be of a material nature.

Financial Review

Revenues for the six months ended 30 June 2013 decreased by 6.8% to $61.7m compared with $66.2m for the first half of 2012. Fully diluted earnings per share were $0.15 (H1 2012: $0.18).

Operating profit was $4.2m compared with $5.9m for the first half of 2012, and profit before tax was $4.2m (H1 2012: $5.0m).

Gross margins were 40.3% (H1 2012: 43.6%; H2 2012: 42%). The decline was due to: the strategic decision to enter the produced water market in the Oil & Gas segment in Colombia; a higher proportion of revenue  being derived from the Irrigation segment, which typically carries a lower gross margin; the impact of fixed expenses on lower total revenue; and the weakness of the US dollar against the Israeli shekel.

As of 30 June 2013, cash and cash equivalents were $13.3m compared with $14.3m at 31 December 2012 and $12.7m at 30 June 2012. Net debt decreased to $16.85m from $17.1m at 31 December 2012.

Dividend

The Directors have decided to declare an interim dividend out of the Company's profits for the six months ended 30 June 2013 of $0.051 gross per share (interim dividend 2012: $0.051 gross per share), with an ex dividend date of 9 October 2013, a record date of 11 October 2013 and a payment date of 30 October 2013.

Outlook

As anticipated, 2013 is proving to be a transitional year as the Company's new products gain traction, and its traditional and new segments continue to be subject to fluctuating market conditions.

Looking ahead, in the second half, the Irrigation segment is expected to perform well and grow in accordance with the management's expectations. Amiad still anticipates good growth in the Ballast Water segment in the long term. However, as a result of the postponement in the implementation of the IMO regulations, a vast majority of the revenues in the Ballast Water segment that the Company had expected to generate in 2013 have been delayed to 2014. The delay in the implementation of the regulations has allowed Amiad to broaden its marketing and sales efforts as well as product offering in this segment. As a result, the Company is well-positioned to benefit when the markets return. The slowdown observed in the first half of 2013 in the US, particularly in the Municipal segment, is expected to continue. The Company anticipates that this weakness will be slightly offset by activity in its growth territories in the second half of the year.

Despite the challenging market conditions, the Company continues to anticipate that revenues for the second half of 2013 will be slightly higher than for the first half of the year. In addition, the Company expects to be able to maintain efficiency measures and tight cost control over the course of 2013.

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED BALANCE SHEET

JUNE 30, 2013

	###### June 30		###### December 31,
	2013	2012*	2012*
	(Unaudited)		(Audited)
	U.S. dollars in thousands

Assets
CURRENT ASSETS:
Cash and cash equivalents	13,267	12,697	14,255
Financial assets at fair value through
profit or loss	1,243	229	1,140
Accounts receivable and accruals:
Trade	44,096	45,049	40,831
Other	3,599	5,219	5,336
Income tax assets	1,130	1,235	701
Inventories	22,556	28,021	26,017
T o t a l  current assets	85,891	92,450	88,280
NON-CURRENT ASSETS:
Investments in associates	24	80	76
Loan to a related party	633	627	635
Long-term receivables	104	273	72
Prepaid expenses	104	163	49
Property and equipment	11,399	9,692	11,609
Intangible assets	16,879	18,090	17,482
Deferred income tax assets	1,679	1,733	2,035
T o t a l  non-current assets	30,822	30,658	31,958
T o t a l  assets	116,713	123,108	120,238

* Reflects the adoption of IFRS 11 and IAS 19

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED BALANCE SHEET

JUNE 30, 2013

	###### June 30		###### December 31,
	2013	2012*	2012*
	(Unaudited)		(Audited)
	U.S. dollars in thousands

###### Liabilities and equity
CURRENT LIABILITIES:
Short-term credit and current maturities of
borrowings from banks	15,719	17,907	13,421
Financial liabilities at fair value through profit or
loss - derivatives	93	625	112
Accounts payable and accruals:
Trade	16,972	20,471	19,807
Other	9,103	9,367	10,499
Current income tax liability	365	545	958
Dividend payable	1,360	1,242
T o t a l  current liabilities	43,612	50,157	44,797
NON-CURRENT LIABILITIES:
Borrowings from banks and others
(net of current maturities)	14,403	18,515	18,158
Put option liability	1,924	1,435	1,795
Accrued severance pay	171	11	115
Deferred income tax liabilities	1	1	1
T o t a l  non-current liabilities	16,499	19,962	20,069
T o t a l  liabilities	60,111	70,119	64,866
EQUITY:
Capital and reserves attributable to
equity holders of the Company:
Share capital	2,798	2,798	2,798
Capital reserves	28,161	24,794	28,029
Currency translation reserve	(1,016)	189	(147)
Transaction with non controlling interest	(180)	(180)	(180)
Retained earnings	26,862	25,329	24,826
	56,625	52,930	55,326
NON CONTROLLING INTEREST	(23)	59	46
T o t a l  equity	56,602	52,989	55,372
T o t a l  liabilities and  equity	116,713	123,108	120,238

* Reflects the adoption of IFRS 11 and IAS 19

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2013

			Six months ended						Year ended
			June 30						December 31,
			2013			2012*			2012*
			(Unaudited)						(Audited)
			U.S dollars in thousands except per share data
REVENUE					61,746		66,214			130,764
COST OF SALES					36,832		37,375			74,800
GROSS PROFIT					24,914		28,839			55,964
RESEARCH AND DEVELOPEMEMNT EXPENSES					1,478		1,560			2,893
SELLING AND MARKETING EXPENSES					13,261		15,031			29,162
ADMINISTRATIVE AND GENERAL EXPENSES					5,950		6,323			13,191
OTHER LOSSES (INCOME) NET					(6)		59			60
OPERATING PROFIT					4,231		5,866			10,658
FINANCIAL INCOME					1,353		428			1,336
FINANCE EXPENSES					(1,319)		(1,259)			(1,829)
FINANCE EXPENSES - NET					(34)		831			493
EQUITY EARNING					50		(1)			6
INCOME BEFORE TAXES ON INOCME					4,215		5,036			10,159
INCOME TAX EXPENSES					889		884			2,086
INCOME FOR THE PERIOD					3,326		4,152			8,073
OTHER COMPREHENSIVE INCOME-
Currency translation differences					868		(208)			128
Remeasurement of net defined benefit liability										46
TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD					2,458		4,360			7,899
PROFIT FOR THE PERIOD ATTRIBUTED TO:
Equity holders of the Company					3,396		4,188			8,122
Non controlling interest					(70)		(36)			(49)
					3,326		4,152			8,073
				U.S dollars
	EARNINGS PER SHARE:
	Attributable to the equity holders of
	the Company during the period:
	Basic			0.147				0.180			0.355
	Diluted			0.147				0.180			0.340
	* Reflects the adoption of IFRS 11 and IAS 19

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2013

			Attributable to equity holders of the Company
							Currency		Transaction with						Non-	Total
	Number of		Share		Capital		translation		non controlling		Retained				controlling	shareholders'
	shares		capital		Reserve		reserve		Interest		earning		Total		interest	equity
			U.S dollars in thousands
BALANCE AT JANUARY 1, 2013 (audited)		22,663,651		2,798		28,029		(147)		(180)		24,826		55,326	46	55,372
CHANGES DURING THE SIX MONTH ENDED
JUNE 30, 2013 (unaudited):
Comprehensive income -
Income for the period												3,396		3,396	(70)	3,326
Other comprehensive income -
Currency translation differences								(869)						(869)	1	(868)
Total comprehensive income								(869)				3,396		2,527	(69)	2.458
Transaction with owners:
Recognition of compensation related stock  and option grants						132								132		132
Dividend ($0.06  per share)												(1,360)		(1,360)		(1,360)
Total transactions with owners						132						(1,360)		(1,228)		(1,228)
BALANCE AT JUNE 30, 2013 (unaudited)		22,663,651		2,798		28,161		(1,016)		(180)		26,862		56,625	(23)	56,602
BALANCE AT JANUARY 1, 2012 (audited)		22,590,690		2,789		24,692		(20)		(180)		22,383		49,664	96	49,760
CHANGES DURING THE SIX MONTH ENDED
JUNE 30, 2012 (unaudited):
Comprehensive income -
Income for the period												4,188		4,188	(36)	4,152
Other comprehensive income -
Currency translation differences								209						209	(1)	208
Total comprehensive income								209				4,188		4,397	(37)	4,360
Transaction with owners:
Dividend ($0.055 per share)												(1,242)		(1,242)		(1,242)
Exercise of options of employee		72,961		9		102								111		111
Total transactions with owners		72,961		9		102						(1,242)		(1,131)		(1,131)
BALANCE AT JUNE 30, 2012 (unaudited)		22,663,651		2,798		24,794		189		(180)		25,329		52,930	59	52,989

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2013

		Attributable to equity holders of the Company
						Transaction
					Currency	with non-				Non-	Total
		Number of	Share	Capital	translation	Controlling	Retained			controlling	shareholders'
		shares	capital	reserve	reserve	Interest	earning	Total		interest	equity
			U.S dollars in thousands
Balance at 1 January 2012		22,590,690	2,789	24,692	(20)	(180)	22,383		49,664	96	49,760
Comprehensive income -
Income for the year							8,122		8,122	(49)	8,073
Other comprehensive income
Currency translation differences					(127)				(127)	(1)	(128)
remeasurement of net defined benefit liability							(46)		(46)		(46)
Total comprehensive income					(127)		8,076		7,949	(50)	7,899
Transaction with owners:
Issuance of shares to a senior employee		72,961	9	102					111		111
Allocation of share capital				3,235			(3,235)
Dividend ($0.106 per share)							(2,398)		(2,398)		(2,398)
Total transaction with owners		72,691	9	3,337			(5,633)		(2,287)		(2,287)
Balance at 31 December 2012		22,663,651	2,798	28,029	(147)	(180)	24,826		55,326	46	55,372

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2013

	Six months ended				Year ended
	June 30				December 31,
	2013		2012*		2012*
	(Unaudited)				(Audited)
	U.S dollars in thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash generated from operations (see note 6)	2,730	2,370		15,265
Interest paid	(382)	(516)		(1,054)
Interest received	78	250		325
Income tax paid	(1,462)	(528)		(677)
Net cash generated from operating activities	964	1,576		13,859
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(1,085)	(1,757)		(5,053)
Purchases of intangible assets and capitalized development
Expenses	(339)	(799)		(1,386)
Investments grants received	112	11		499
Restricted deposit	912	(1,222)		(1,254)
Proceeds from sale of property and equipment	12	87		122
Collection of long-term loan granted to a related party	(13)	42		127
Net cash used in investing activities	(401)	(3,638)		(6,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to equity holders of the Company				(2,398)
Receipt of long-term borrowings and other liabilities	20	5,805		9,811
Repayments of long term borrowings	(3,746)	(3,093)		(6,930)
Proceeds from exercise of options		111		111
Short-term borrowings (repayments) from banks, net	2,422	185		(5,080)
Net cash generated from (used in) financing activities	(1,304)	3,008		(4,486)
EXCHANGE LOSS (GAIN) ON CASH AND CASH
EQUIVALENTS	(247)	41		117
NET INCREASE IN CASH AND CASH  EQUIVALENTS	(988)	987		2,545
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	14,255	11,710		11,710
CASH AND CASH EQUIVALENTS AT END OF PERIOD	13,267	12,697		14,255
* Reflects the adoption of IFRS 11 and IAS 19

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR UKOKROAAKRAR

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