REG - MTI Wireless Edge - Final results for 2021
07/03/2022 07:00
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RNS Number : 7751D MTI Wireless Edge Limited 07 March 2022
7 March 2022
MTI Wireless Edge Ltd
("MTI", the "Company" or the "Group")
Final results for 2021
MTI Wireless Edge Ltd (AIM:MWE), the technology group focused on comprehensive
communication and radio frequency solutions across multiple sectors, is
pleased to announce its audited results for the year ended 31 December 2021.
2021 Highlights
A solid financial performance
• The Group recorded revenue growth of 6% to US$43.2m (2020:
US$40.9m)
• A 9% increase in profit from operations to US$4.43m (2020:
US$4.08m), helped by the increasing scale of the Group
• Net profit growth was limited to a 6% increase to US$3.7m
(2020: US$3.5m) due to the strength of the Israeli Shekel versus the US Dollar
in 2021
• Earnings per share increased by 6% to 4.07 US cents (2020:
3.83 US cents)
• Cash flow from operations increased 65% to US$6.6m (2020:
US$4.0m) leading to a net cash increase of 33% to US$12.5m at 31 December 2021
(31 December 2020: US$9.4m)
• Increased final dividend by 12% to 2.8 US cents per share
(2020: 2.5 US cents per share)
Positive market trends across all three divisions
• Our proven backhaul solution to support the rollout of 5G,
which could be further enhanced by recent technical developments to counter
small mast movements due to varying climate conditions, has a growing order
book from existing customers as well as an initial order from a new tier one
customer. This, together with good progress in military antennas, has
increased the prospects for the antenna division overall.
• With water scarcity continuing to be a critical, global issue,
demand for our water management solutions under the Mottech brand was strong,
both from new markets and in response to the launch of new water saving and
cost-efficient products.
• Similarly, increased global defence spending underpinned
another good year for MTI Summit, which also benefits from Israel being a
central hub for the development of new global defence and wireless
technologies. In addition, the acquisition of 51% of PSK in January 2022, is
expected to further accelerate this division's growth in the defence sector.
Moni Borovitz, Chief Executive Officer of MTI Wireless Edge, said: "This was a
strong performance with all three divisions growing revenue and profits
despite challenges in the supply chain, increasing shipment costs and ongoing
pandemic related restrictions. Our diversified business model, global
presence, and the commitment of our teams, combined to deliver an excellent
trading result for the year, albeit some of the reported financials were
effected by foreign exchange translation changes. Most importantly, we
continue to meet our operating profit growth targets as per our business
model.
Looking ahead, the business continues to be in a strong financial position
with net cash of US$12.5m at the year end. The Group's three divisions are
well established, with experienced, autonomous leadership teams all utilizing
the Group's core expertise in radio frequency communications and are all
focused on taking advantage of attractive market trends within their
respective sectors, namely: the roll-out of 5G cellular connectivity; tackling
the growing global issue of water scarcity; and increased international
defence spending. The first two months of 2022 have started well, and we look
forward to delivering another year of solid growth."
Moni Borovitz, Chief Executive Officer, will provide an investor presentation
relating to the Company's financial results for the year ended 31 December
2021 via the Investor Meet Company (IMC) platform today at 10.00 am UK time.
Investors can sign up for free via:
https://www.investormeetcompany.com/mti-wireless-edge-ltd/register-investor
(https://www.investormeetcompany.com/mti-wireless-edge-ltd/register-investor)
Investors who have already registered and added to meet the Company, will be
automatically invited to the meeting.
Shareholders should note that the Company will not post hard copies of its
audited annual report and accounts for the year ended 31 December 2021 (the
"Annual Report") to its shareholders. Shareholders who require a hard copy
of the Annual Report may write to the Company at MTI Wireless Edge Ltd
Headquarters, 11 Hamelacha St. Afek Industrial Park, Rosh-Ha'Ayin, Israel
requesting a hard copy. An electronic version of the Annual Report will
shortly be available on the Company's website at the following address:
www.mtiwirelessedge.com (http://www.mtiwirelessedge.com/)
For further information please contact:
MTI Wireless Edge Ltd +972 3 900 8900
Moni Borovitz, CEO http://www.mtiwirelessedge.com (http://www.mtiwirelessedge.com)
Allenby Capital Limited (Nomad and Joint Broker) +44 20 3328 5656
Nick Naylor/Alex Brearley/Piers Shimwell (Corporate Finance)
Amrit Nahal/David Johnson (Sales and Corporate Broking)
Shore Capital (Joint Broker) +44 20 7408 4090
Toby Gibbs/John More/James O'Neill (Corporate Advisory)
Fiona Conroy (Corporate Broking)
Novella (Financial PR) +44 20 3151 7008
Tim Robertson/Fergus Young
About MTI Wireless Edge Ltd. ("MTI")
Headquartered in Israel, MTI is a technology group focused on comprehensive
communication and radio frequency solutions across multiple sectors through
three core divisions:
Antenna Division
MTI is a world leader in the design, development and production of high
quality, state-of-the-art, and cost-effective antenna solutions including
Smart Antennas, MIMO Antennas and Dual Polarity Antennas for wireless
applications. MTI supplies antennas for both military and commercial markets
from 100 KHz to 174 GHz.
Internationally recognized as a producer of commercial off-the-Shelf and
custom-developed antenna solutions in a broad frequency range, MTI addresses
both commercial and military applications.
MTI supplies directional and omnidirectional antennas for outdoor and indoor
deployments, including smart antennas for 5G backhaul, Broadband access,
public safety, RFID, base station and terminals for the utility market.
Military applications include a wide range of broadband, tactical and
specialized communication antennas, antenna systems and DF arrays installed on
numerous airborne, ground and naval, including submarine, platforms worldwide.
Water Control & Management Division
Via its subsidiary, Mottech Water Solutions Ltd ("Mottech"), MTI provides
high-end remote control solutions for water and irrigation applications based
on Motorola's IRRInet state-of-the-art control, monitoring and communication
technologies.
As Motorola's global prime-distributor Mottech serves its customers worldwide
through its international subsidiaries and a global network of local
distributors and representatives. With over 25 years of experience in
providing customers with irrigation remote control and management, Mottech's
solutions ensure constant, reliable and accurate water usage, increase crops
quality and yield, while reducing operational and maintenance costs providing
fast ROI while helping sustain the environment. Mottech's activities are
focused in the market segments of agriculture, water distribution, municipal
and commercial landscape as well as wastewater and storm-water reuse.
Distribution & Professional Consulting Services Division
Via its subsidiary, MTI Summit Electronics Ltd., MTI offers consulting,
representation and marketing services to foreign companies in the field of RF
and Microwave solutions and applications including engineering services
(including design and integration) in the field of aerostat systems and the
ongoing operation of Platform subsystems, SIGINT, RADAR, communication and
observation systems which is performed by the Company. It also specializes in
the development, manufacture and integration of communication systems and
advanced monitoring and control systems for the Government and defence
industry market.
Chairman's statement
I am pleased to report on a successful trading period despite the challenges
of operating through a year that was disrupted by the global COVID-19
pandemic.
We believe the business to be well balanced and well placed to continue to
expand and the recent acquisition of PSK Technologies Ltd will further support
our expansion and the technical solutions we offer.
Trading overview
Despite the ongoing impact of the COVID-19 pandemic, MTI continued to deliver
against the objectives that we have set ourselves. The business grew in terms
of both sales and profits whilst investing in innovative new technologies,
most notably in the ongoing development of a new antenna solution for the 5G
market. Working around the restrictions imposed by the pandemic, MTI teams
around the globe maintained very high operational levels and delivered margin
progression. The Company agreed a new partnership in the Mottech division with
Viridix, a company which specializes in actionable data analytics for
irrigation, based on the RooTense® sensor that measures the water available
to the roots of crops. Also announced recently, the Company completed the 51%
acquisition of PSK.
Whilst foreign exchange fluctuations slightly skewed some of the reported
results, the cash generation from operations during the year was excellent, up
65%, supporting an increased dividend and strengthening an already strong
balance sheet.
Dividend
Reflecting the strength of the Company's trading performance the Board is
pleased to declare a final dividend of US$0.028 per share representing a 12%
increase on the previous year (2019: US$0.025). The dividend will be paid on
31 March 2022 to shareholders on the register at the close of trading on 18
March 2022 (ex-dividend on 17 March 2022). The currency translation into
British Pounds will be made on 22 March 2022 and there will not be a scrip
dividend alternative.
People
I would, as always, like to thank our employees for their significant
contribution to the Company, especially for their efforts and flexibility
during 2021, which was so full of disruptions and changing requests to adapt
working practices to meet with new variants of COVID-19 and regulations aimed
at combating the pandemic.
Outlook
MTI is a leader in radio frequency communications and it is this deep rooted,
technical experience that supports all of our activity across all three
divisions. Each of our target markets is constantly innovating and evolving
and our customers rely on us to keep them in touch and ahead of developments.
To do this our track record and experience is key, but so is our ability to
share innovations across all three divisions so that we can consolidate our
expertise into all areas.
2022 has begun well for the business with an increased pipeline of
opportunities across all three divisions. This, together with the macro
drivers for our business being the roll-out of 5G networks globally, increased
defence spending and ongoing worldwide water shortages, should ensure that
there is increasing demand for the Group's products and services.
Zvi Borovitz
Chairman
Chief Executive's review
Introduction
In 2021, we achieved significant progress across all three divisions, showing
growth in revenue and profits during a highly unusual period for all
businesses. There were inevitable delays in shipments, and we suffered from
volatile foreign exchange rates, but the underlying performance of the Group
was solid, generating cash so that the Company entered 2022 in a strong
financial position and is well placed to continue to grow.
Financial results
Revenues for the twelve months to 31 December 2021 increased by 6% to US$43.2m
(2019: US$40.9m), a positive performance given the interruptions throughout
the year due to COVID-19.
Gross margin rates remained solid, reflecting the mix of products sold in
different markets. Gross margin was slightly negatively affected by exchange
rates but also from rising shipping costs, which lowered profitability
relative to revenue growth, although overall gross profit grew by 3%.
Operating profit increased by 9% to US$4.43m (2020: US$4.08m), which
demonstrated the scalability of the business, meeting our long term growth
model - adding a minimum of 15% operating profit margin on the incremental
revenues generated from organic growth.
Significant foreign currency fluctuations during 2021, in particular, the
strength of the Israeli Shekel versus the US Dollar led to higher finance
costs, being mostly non-cash expenses, but overall net profit increased 6% to
US$3.7m (2020: US$3.5m).
Cash flow from operations for the 2021 financial year increased 65% to
US$6.6m (2020: US$4.0m). This resulted in a net cash balance of approximately
US$12.5 million (2020: US$9.4m).
The Company continues to have a share buy-back programme in place. The
objective of this programme is to assist with trading liquidity, by
accumulating shares in treasury through market purchases and then selling
blocks of shares to institutional shareholders, subject to demand and price.
Cash generated from any resales of purchased shares has been reused for
further share purchases, and this policy is planned to continue for as long as
the programme is in place. As at 7 March 2022, 50,000 shares were held in
treasury.
Operational review
Over the last 50 years MTI has established its reputation as a global provider
of comprehensive radio frequency solutions across multiple sectors through
three core divisions.
Antennas
This division is a one stop shop for the sale of 'off the shelf' flat and
parabolic antennas, combined with the provision of custom-developed antenna
solutions to a range of commercial and military customers, with a growing
focus on providing 5G backhaul antenna solutions to support mobile phone
operators as they roll-out their 5G networks.
In 2021, revenues from this division increased by 1%, a small increase but
potentially marking the switch to a long period of growth driven primarily by
the sale of the division's 5G backhaul solution. 5G sales now represent 20% of
the antenna business and are expected to continue to increase.
During the year, the Company made excellent progress in the ongoing
development of automatic beam steering ("ABS") antenna solution which ensures
the antenna adapts to any small movements caused by different climate
conditions, including wind or temperature. If successful, this will be an
important technical development, moving the total 5G solution up the value
chain and it has already attracted significant engagement from a new Tier one
customer. The next step for the ABS antenna solution is for it to be tested by
potential customers and then to move into production.
There is no doubt the roll-out of 5G infrastructure is coming and, if
anything, the pandemic served to underline the importance of connectivity to
enable people to work and communicate effectively from wherever they are
located. Network operators are underway in terms of rolling out higher
bandwidth services to their customers and will need to increase the backhaul
connectivity between cell towers to deliver these faster services. This is the
opportunity MTI has been working towards and we are still at the early stages
before demand is expected to ramp up.
Elsewhere across the division, sales of RFID (radio frequency identification)
antennas used in asset tracking, which slowed due to the pandemic in 2020,
showed good recovery in 2021. Military antenna sales performed robustly
matching sales levels for the prior year and there are some good prospects in
this market for the current year.
Our offset facility in India had a reasonable year alongside the recovery of
the airline industry and the prospects, subject to normal market conditions
continuing, remain good.
Water Control & Management
This division provides wireless control systems to manage irrigation and water
distribution for agriculture, municipal authorities and commercial entities.
It operates under the Mottech brand and utilises part of the hardware
technology from Motorola, integrated with the Company's own proprietary
management software. Our solutions reduce water and power usage, whilst
providing higher revenue from accurate irrigation, leading to more, and higher
quality, crops and plants being grown.
This has been an excellent year for Mottech with revenues increasing by 9%
against the prior year. Demand for Mottech's solutions has been good across
nearly all markets with the only exception being China which will hopefully
return in the current year. Importantly, the division overall has benefitted
from an increase in recurring service and maintenance income which represents
20% of all income and is expected to continue to improve.
Also in 2021, Mottech launched the Mottech Decoder System, which is a wired
extension that is required in several key markets, enabling multiple commands
and functions in parallel with the receipt of data from sensors. Since the
year end, Mottech signed a new strategic partnership with Viridix, a company
which specializes in actionable data analytics for irrigation, based on the
RooTense® sensor that measures the water available to the roots of
crops. The combination of the two companies' expertise is expected to lead to
the first fully automatic, real time data based solution, with AI (artificial
intelligence) capabilities for "Agrogation" - agronomic based irrigation.
Water scarcity is a growing global issue and Mottech's technologies can make a
real difference in countries where it is critical to have efficient water
usage whilst maintaining good levels of irrigation. Mottech aims to be both a
commercial and environmental success story.
Distribution & Professional Consulting Services
Operating under the MTI Summit Electronics brand, this division exclusively
represents approximately 40 international suppliers of radio
frequency/microwave components and sells these products to Israeli customers.
Expert knowledge of both the international suppliers and customers further
enables MTI to act as a consultant to all parties and assist with devising
complete radio frequency/microwave solutions.
2021 saw another excellent performance by MTI Summit, with revenues growing by
5% against tough comparators in the prior year. In September 2021, the
division signed a new strategic agreement with a significant customer
operating in the defence sector, confirming MTI Summit as the primary
supplier, with pre-agreed pricing across an extensive range of products. This
is MTI's first agreement of its kind, which enables the customer to make
orders far more quickly and more efficiently than the old process. In the past
the customer spent approximately US$4m per annum, and this figure is expected
to increase due in part to the convenience of the new agreement for both
parties.
Demand has been strong from existing customers and markets, with the satellite
office in Russia recovering in 2021. The Company has over time built up
significant expertise in the tethered balloon sector and the division is
currently participating in a large tethered balloon project in Israel, which
is expected to continue to contribute strongly in 2022.
Since the year-end, the Company acquired 51% of PSK, an Israeli company which
is well known to MTI having collaborated together on numerous projects over
the past 10 years. PSK specialises in the development, manufacture and
integration of communication systems and advanced monitoring and control
systems for the Government and defence industry market. It is a natural fit
with MTI Summit and is expected to contribute to future growth of this
division and the Group as a whole.
Outlook
The events in Ukraine have shocked the world and are deeply saddening. With
the situation being very fluid and multiple actions being taken globally at
Government levels, the Board has decided to exit the Group's operations in
Russia. MTI's office in Russia generated 6% of consolidated revenues and
circa 5% of net profits in 2021, all relating to distribution and professional
consulting services. The core professional consulting services division's
activities are and will remain in Israel without any disruption, which is also
the case in respect of our other divisions.
MTI is a market innovator and we will continue to seek to lead. We have always
had a "first to develop" approach, using MTI's intellectual property and
licensed technology from leading partners, to create unique solutions. The new
ABS solution for 5G backhaul is an excellent example of this and we look
forward to providing updates on the potential commercial benefits that come
with it.
2021 was a solid trading year for the business and we will seek to repeat and
build upon it in 2022. We have a very strong financial platform and MTI will
continue to seek to expand its business through a mix of acquisition-led and
organic growth.
Moni Borovitz
Chief Executive Officer
M.T.I Wireless Edge Ltd.
Consolidated Statements of Comprehensive Income
For the year ended December 31,
2021 2020
Note $'000 $'000
Revenues 3, 5 43,184 40,893
Cost of sales 29,685 27,816
Gross profit 13,499 13,077
Research and development expenses 965 1,029
Distribution expenses 3,686 3,579
General and administrative expenses 4,448 4,379
Profit from sale of property, plant and equipment 25 14
Profit from operations 4 4,425 4,076
Finance expense 6 454 275
Finance income 6 (67) (255)
Profit before income tax 4,038 4,056
Tax expenses 7 329 564
Profit 3,709 3,492
Other comprehensive income (loss) net of tax:
Items that will not be reclassified to profit or loss:
Remeasurements on defined benefit plans 22 42
Items that may be reclassified to profit or loss:
Adjustment arising from translation of financial statements of foreign (19) 253
operations
Total other comprehensive income 3 295
Total comprehensive income 3,712 3,787
Profit attributable to:
Owners of the parent 3,598 3,373
Non-controlling interest 111 119
3,709 3,492
Total comprehensive income attributable to:
Owners of the parent 3,601 3,668
Non-controlling interest 111 119
3,712 3,787
Earnings per share
Basic and Diluted (dollars per share) 8 0.0407 0.0383
The accompanying notes form an integral part of these financial statements.
M.T.I Wireless Edge Ltd.
Consolidated Statements of Changes in Equity
For the year ended December 31, 2021 :
Attributable to owners of the parent
Share capital Additional paid-in capital Capital Reserve from share-based payment transactions Translation differences Retained earnings Total attributable to owners of the parent Non-controlling interests Total equity
U.S. $ in thousands
Balance as at January 1, 2021 209 23,167 - 191 999 24,566 987 25,553
Changes during 2021:
Comprehensive income
Profit for the year - - - - 3,598 3,598 111 3,709
Other comprehensive income
Re measurements on defined benefit plans - - - - 22 22 - 22
Translation differences - - - (19) - (19) - (19)
Total comprehensive income (loss) for the year - - - (19) 3,620 3,601 111 3,712
Dividend - - - - (2,213) (2,213) - (2,213)
acquisition and disposal of treasury shares (note 26) - (41) - - - (41) - (41)
Balance as at December 31, 2021 209 23,126 - 172 2,406 25,913 1,098 27,011
The accompanying notes form an integral part of these financial statements.
M.T.I Wireless Edge Ltd.
Consolidated Statements of Changes in Equity (Cont.)
For the year ended December 31, 2020 :
Attributable to owners of the parent
Share capital Additional paid-in capital Capital Reserve from share-based payment transactions Translation differences Retained earnings Total attributable to owners of the parent Non-controlling interests Total equity
U.S. $ in thousands
Balance as at January 1, 2020 207 22,868 52 (62) (658) 22,407 883 23,290
Changes during 2020:
Comprehensive income
Profit for the year - - - - 3,373 3,373 119 3,492
Other comprehensive income
Re measurements on defined benefit plans - - - - 42 42 - 42
Translation differences - - - 253 - 253 - 253
Total comprehensive income for the year - - - 253 3,415 3,668 119 3,787
Dividend - - - - (1,758) (1,758) - (1,758)
Exercise of options to share capital 2 306 (54) - - 254 - 254
Acquisition of the non-controlling interest in subsidiary - (15) - - - (15) (15) (30)
Profit from acquisition and disposal of treasury shares (note 26) - 8 - - - 8 - 8
Share based payment - - 2 - - 2 - 2
Balance as at December 31, 2020 209 23,167 - 191 999 24,566 987 25,553
The accompanying notes form an integral part of the financial statements.
M.T.I Wireless Edge Ltd.
Consolidated Statements of Financial Position
As at December 31, As at December 31,
2021 2021 2020 2020
Note $'000 $'000 $'000 $'000
ASSETS
Non-current assets :
Property, plant and equipment 10 5,548 4,818
Intangible assets 11 1,014 1,064
Deferred tax assets 12 994 696
Long-term prepaid expenses 26 45
Total non-current assets 7,582 6,623
Current assets:
Inventories 13 6,849 6,399
Current tax receivables 518 557
Unbilled revenue 14 2,794 2,318
Trade and other receivables 14 10,628 10,658
Cash and cash equivalents 15 12,567 9,577
Total current assets 33,356 29,509
TOTAL ASSETS 40,938 36,132
LIABILITIES
Non-curent liabilities :
Contingent consideration - 51
Lease liabilities 10 465 155
Loans from banks, net of current maturities 16 8 37
Employee benefits, net 17 868 826
Total Non-current liabilities 1,341 1,069
Current Liabilities:
Current tax payables 322 213
Trade and other payables 18 12,241 9,192
Current maturities and short-term bank credit 19 23 105
Total current liabilities 12,586 9,510
Total liabilities 13,927 10,579
TOTAL NET ASSETS 27,011 25,553
The accompanying notes form an integral part of these financial statements.
M.T.I Wireless Edge Ltd.
Consolidated Statements of Financial Position (Cont.)
As at December 31, As at December 31,
2021 2021 2020 2020
Note $'000 $'000 $'000 $'000
Capital and reserves attributable to 22
owners of the parent
Share capital 209 209
Additional paid-in capital 23,126 23,167
Translation differences 172 191
Retained earnings 2,406 999
25,913 24,566
Non-controlling interests 1,098 987
TOTAL EQUITY 27,011 25,553
The financial statements on pages 4 to 48 were approved by the Board of
Directors and authorised for issue on March 6, 2022, and were signed on its
behalf by:
March 6, 2022
Date of approval Moshe Borovitz Elhanan Zeira Zvi Borovitz
of financial statements Chief Executive Officer Controller Chairman of the Board
The accompanying notes form an integral part of these financial statements.
M.T.I Wireless Edge Ltd.
Consolidated Statements of Cash Flows
For the year ended December 31, For the year ended December 31,
2021 2021 2020 2020
$'000 $'000 $'000 $'000
Operating Activities:
Profit for the year 3,709 3,492
Adjustments for:
Depreciation and amortization 976 1,009
Equity settled share-based payment expense - 2
Loss (gain) on disposal of property, plant and equipment (25) 13
Finance expense, net 53 69
Income tax expense 329 564
5,042 5,149
Changes in working capital and provisions
Increase in inventories (479) (557)
Decrease (increase) in trade receivables 604 (1,053)
(Increase) decrease in unbilled revenues (476) 548
(Increase) decrease in other accounts receivables (448) 255
Increase in trade and other accounts payables 2,803 140
Increase in employee benefits, net 64 25
2,068 (642)
Interest received 52 28
Interest paid (88) (43)
Income tax paid (481) (494)
(517) (509)
Net cash provided by operating activities 6,593 3,998
The accompanying notes form an integral part of these financial statements.
M.T.I Wireless Edge Ltd.
Consolidated Statements of Cash Flows (Cont.)
For the year ended December 31, For the year ended December 31,
2021 2021 2020 2020
$'000 $'000 $'000 $'000
Investing Activities:
Proceeds from sale of property, plant and equipment 153 28
Payment of contingent consideration regarding business acquisition (54) (21)
Purchase of property, plant and equipment (835) (454)
Net cash used in investing activities (736) (447)
Financing Activities:
Exercise of share options - 254
Dividend (2,213) (1,758)
Payments of lease liabilities (449) (493)
Acquisition of the non-controlling interest in subsidiary - (30)
Treasury shares acquired (41) (155)
Treasury shares sold - 163
Repayment of long-term loans from banks (117) (308)
Net cash used in financing activities (2,820) (2,327)
Increase in cash and cash equivalents 3,037 1,224
Cash and cash equivalents at the beginning of the year 9,577 8,140
Exchange differences on balances of cash and cash equivalents (47) 213
Cash and cash equivalents at the end of the year 12,567 9,577
(449)
(493)
Acquisition of the non-controlling interest in subsidiary
-
(30)
Treasury shares acquired
(41)
(155)
Treasury shares sold
-
163
Repayment of long-term loans from banks
(117)
(308)
Net cash used in financing activities
(2,820)
(2,327)
Increase in cash and cash equivalents
3,037
1,224
Cash and cash equivalents at the beginning of the year
9,577
8,140
Exchange differences on balances of cash and cash equivalents
(47)
213
Cash and cash equivalents at the end of the year
12,567
9,577
The accompanying notes form an integral part of these financial statements.
M.T.I Wireless Edge Ltd.
Notes forming part of the consolidated financial statements for the year ended
December 31, 2021
1. General description of the Group and its operations
M.T.I Wireless Edge Ltd. (hereafter - the "Company", or collectively with its
subsidiaries, the "Group") is an Israeli corporation. The Company was
incorporated under the Companies Act in Israel on December 30, 1998, and
commenced operations on July 1, 2000. Since March 2006, the Company's shares
have been traded on the AIM market of the London Stock Exchange.
The formal address of the Company is 11 Hamelacha Street, Afek industrial
Park, Rosh-Ha'Ayin, Israel.
The Company and its subsidiaries are engaged in the following areas:
- Development, design, manufacture and marketing of antennas for the
military and civilian sectors.
- A leading provider of remote control solutions for water and
irrigation applications based on Motorola's IRRInet state of the art control,
monitoring and communication technologies.
- Providing consulting, representation and marketing services to
foreign companies in the field of RF (radio frequency) and Microwave,
including engineering services in the field of aerostat systems and system
engineering services.
2. Accounting policies
The principal accounting policies adopted in the preparation of the financial
statements are set out below. The policies have been consistently applied to
all the years presented, unless otherwise stated.
A. Basis of preparation
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS). The financial statements
have been prepared under the historical cost convention, except for the
measurement of employee benefit assets.
The Company has elected to present the statement of comprehensive income using
the function of expense method.
B. Estimates and assumptions
The preparation of the financial statements requires management to make
estimates and assumptions that have an effect on the application of the
accounting policies and on the reported amounts of assets, liabilities,
revenues and expenses. These estimates and underlying assumptions are reviewed
regularly. Changes in accounting estimates are reported in the period of the
change in estimate and thereafter.
The key assumptions made in the financial statements concerning uncertainties
at the end of the reporting period and the critical estimates used by the
Group that may result in a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
- Deferred tax assets: Deferred tax assets are recognized for
unused carryforward tax losses and deductible temporary differences to the
extent that it is probable that taxable profit will be available against which
the losses can be utilized. Significant management judgment is required to
determine the amount of deferred tax assets that can be recognized, based upon
the estimated timing and the level of future taxable profits together with
future tax planning strategies.
2. Accounting policies (Cont.)
C. Revenue recognition
Revenue from contracts with customers
Revenue from contracts with customers is recognized when control of the goods
or services are transferred to the customer at an amount that reflects the
consideration to which the Company expects to be entitled in exchange for
those goods or services
1. Revenues from Construction Contracts are recognized based on the
percentage of completion to date. The percentage of completion is determined
using the inputs method by dividing actual completion costs incurred (based on
estimates of material costs, labor costs, subcontractor performance, and other
factors) to date by the total completion costs anticipated. When a loss from
a contract is anticipated, a provision for the entire loss that is anticipated
is made in the period in which this first becomes evident, as assessed by the
Company's management.
The Company recognizes revenue from construction contracts over time, since
the Company's performance does not create an asset with alternative use to the
Company and the Company has an enforceable right to payment for performance
completed up to that date.
The payment terms for these projects are based on milestones specified in the
contract, which are determined in relation to the rate of progress. The
Company believes that recognising revenue based on costs incurred to satisfy
performance obligations faithfully depicts its performance in construction
contracts. Therefore, when revenue is recognized before a specified milestone
is achieved, the Company recognizes the costs incurred to satisfy the related
performance obligation as unbilled revenue.
Financing components - The Company does not have any contracts where the
period between the transfer of the promised goods or services to the customer
and payment by the customer exceeds one year.
The Company elected not to adjust the transaction price for the effects of
financing components in contracts where the period between when the Company
transfers a promised good or a service to the customer and when the customer
pays for it is one year or less.
2. Revenues from the sale of goods are recognized at the point in time
when control of the asset is transferred to the customer, generally upon
delivery of the equipment.
Volume rebates give rise to variable consideration. The variable consideration
is estimated at contract inception and constrained until the associated
uncertainty is subsequently resolved. The application of the constraint on
variable consideration increases the amount of revenue that will be deferred.
To estimate the variable consideration to which it will be entitled, the
Company applied the 'most likely amount method' for contracts with a single
volume threshold and the 'expected value method' for contracts with more than
one volume threshold. The selected method that best predicts the amount of
variable consideration was primarily driven by the number of volume thresholds
contained in the contract. The Company includes in the transaction price
amounts of variable consideration only to the extent that it is highly
probable that a significant reversal in the amount of cumulative revenue
recognised will not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
2. Accounting policies (Cont.)
At the end of each reporting period, the Company updates its estimates of
variable consideration.
D. Assets and liabilities arising from contracts with customers
Contract assets (presented as "Unbilled revenue ")
A contract asset is the Company's right to consideration in exchange for goods
or services the entity has transferred to a customer that is conditional on
something other than the passage of time
Trade receivables
A receivable represents the Company's right to an amount of consideration that
is unconditional (i.e., only the passage of time is required before payment of
the consideration is due).
E. Basis of consolidation
The Group controls an investee if and only if the Group has:
- Power over the investee (i.e. existing rights that give it the
current ability to direct the relevant activities of the investee).
- Exposure, or rights, to variable returns from its involvement with
the investee, and
- The ability to use its power over the investee to affect its
returns.
When the Group has less than a majority of the voting or similar rights of an
investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over the investee, including: the contractual
arrangement with the other vote holders of the investee, the Group's potential
voting rights.
The Group re-assesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the
Group obtains control over the subsidiary and ceases when the Group loses
control over the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are
attributed to the equity holders of the parent and to the non-controlling
interests, even if this results in the non-controlling interests having a
deficit balance. All intra-group assets and liabilities, income, expenses
and cash flows relating to transactions between members of the Group
are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control,
is accounted for as an equity transaction. If the Group loses control over a
subsidiary, it: (i) derecognises the assets (including goodwill) and
liabilities of the subsidiary, the carrying amount of any non-controlling
interests and the cumulative translation differences recorded in equity: (ii)
Recognises the consideration received at fair value, recognises any investment
retained at fair value of and recognises any surplus or deficit in profit or
loss; (iii) reclassifies the parent's share of components previously
recognised in OCI to profit or loss or retained earnings, as appropriate, as
would be required if the Company had directly disposed of the related assets
or liabilities.
F. Consolidated financial statements
Where relevant, the accounting policies in the financial statements of the
subsidiaries are adjusted to conform with the policies applied in the
financial statements of the Group.
2. Accounting policies (Cont.)
G. Goodwill
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost of a business combination comprises the fair values
of assets given, liabilities assumed and equity instruments issued. Any costs
of acquisition are charged to profit or loss (if the costs of acquisition are
related to the issue of debt or equity, they are charged to equity or
liability respectively). Goodwill is recognized as an intangible asset with
any impairment in carrying value being charged to profit or loss. Goodwill is
not systematically amortized and the Company reviews goodwill for impairment
once a year or more frequently if events or changes in circumstances indicate
that there may be an impairment.
H. Intangible assets
Separately acquired intangible assets are measured on initial recognition at
cost including directly attributable costs. Intangible assets acquired in a
business combination are measured on initial recognition 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 finite useful lives are amortized
over their useful lives and reviewed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortization period
and the amortization method for an intangible asset are reviewed at least at
each year end. Intangible assets with indefinite useful lives are not
systematically amortized and are tested for impairment annually or whenever
there is an indication that the intangible asset may be impaired. The useful
lives of these assets are reviewed annually to determine whether such
assessment continues to be supportable. If the events and circumstances do not
continue to support the assessment, the change in the useful lives assessment
from indefinite to finite is accounted for prospectively as a change in
accounting estimate and on that date the intangible asset is tested for
impairment.
I. Impairment of non-financial assets
Impairment tests on goodwill and indefinite useful lives assets are
undertaken annually on December 31 or sooner when there are indicators of
impairment. Other non-financial assets (excluding Inventories) are subject to
impairment tests whenever events or changes in circumstances indicate that
their carrying amount may not be recoverable. Where the carrying value of the
non-financial asset exceeds its recoverable amount (i.e. the higher of value
in use and fair value less costs to dispose), the asset is written down and an
impairment charge is recognized accordingly in the profit or loss. Where it is
not possible to estimate the recoverable amount of an individual asset, the
impairment test is performed on the asset's cash-generating unit level (i.e.
the smallest group of assets to which the asset belongs that generates cash
inflow that are largely independent of cash inflows from other assets).
Goodwill is allocated at initial recognition to each of the Group's
cash-generating units that are expected to benefit from the synergies of the
business combination giving rise to the goodwill. An impairment loss is
recognized if the recoverable amount of the cash-generating unit (or group of
cash-generating units) is lower 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 allocated to goodwill cannot
be reversed in subsequent periods.
2. Accounting policies (Cont.)
An impairment loss allocated to 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. A reversal
of an impairment loss, as above, is limited to the lower of the carrying
amount of the asset that would have been determined (net of depreciation or
amortization) had no impairment loss been recognized for the asset in prior
years and the assets recoverable amount. The reversal of an impairment loss of
an asset is recognized in profit or loss. Impairment charges are included in
the general and administrative expenses line item in the statement of
comprehensive income. During the 2020 and 2021 financial years no impairment
charges of non-financial assets were recognized.
J. Functional currency and Foreign currency transactions
The reporting currency of the Group is U.S. Dollars ("dollar"; "USD"), which
is the currency of the primary economic environment in which the Company and
the majority of the Group's subsidiaries operate. For each entity, the Group
determines the functional currency and items included in the financial
statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded by the Group's
entities at their respective functional currency spot rates at the date the
transaction first qualifies for recognition. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency
spot rates of exchange at the reporting date. Differences arising on
settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value is
determined.
On consolidation, the assets and liabilities of foreign operations are
translated into Dollars at the rate of exchange prevailing at the reporting
date and their statements of profit or loss are translated at average exchange
rates (unless this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the rate on the dates of the transactions). The
exchange differences arising on translation for consolidation are recognised
in OCI as 'Adjustment arising from translation of financial statements of
foreign operations'. On disposal of a foreign operation, the component of OCI
relating to that particular foreign operation is reclassified to 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. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
A. In the principal market for the asset or liability, or
B. In the absence of a principal market, in the most advantageous market
for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
2. Accounting policies (Cont.)
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.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would
use the asset in its highest and best use.
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.
Classification by fair value hierarchy:
Assets and liabilities presented in the statement of financial position at
fair value are grouped into classes with similar characteristics using the
following fair value hierarchy which is determined based on the source of
input used in measuring fair value:
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. Financial instruments:
1. Financial assets
The Group classifies its financial assets based on the business model for
managing the financial asset and its contractual cash flow characteristics.
The Company's accounting policy for the relevant category is as follows:
Amortized cost
These assets arise principally from the provision of goods and services to
customers (e.g. trade receivables), but also incorporate other types of
financial assets where the objective is to hold these assets in order to
collect contractual cash flows and the contractual cash flows are solely
payments of principal and interest. They are initially recognized at fair
value plus transaction costs that are directly attributable to their
acquisition or issue, and are subsequently carried at amortized cost using the
effective interest rate method, less provision for impairment.
Impairment provisions for trade receivables are recognized based on the
simplified approach within IFRS 9 using a provision in the determination of
the lifetime expected credit losses. During this process the probability of
the non-payment of the trade receivables is assessed. This probability is then
multiplied by the amount of the expected loss arising from default to
determine the lifetime expected credit loss for the trade receivables. For
trade receivables, which are reported net, such provisions are recorded in a
separate provision account with the loss being recognized within general and
administrative expenses in the consolidated statement of comprehensive income.
On confirmation that the trade receivable will not be collectable, the gross
carrying value of the asset is written off against the associated provision.
2. Accounting policies (Cont.)
2. Financial Liabilities
The Group classifies its financial liabilities based on the business model for
managing the financial liabilities and its contractual cash flow
characteristics. The Company's accounting policy for the relevant category is
as follows
Other financial liabilities include the following items:
Bank borrowings are initially recognised at fair value net of any transaction
costs directly attributable to the issue of the instrument. Such
interest-bearing liabilities are subsequently measured at amortised cost using
the effective interest rate method, which ensures that any interest expense
over the period to repayment is at a constant rate on the balance of the
liability carried in the consolidated statement of financial position. For the
purposes of each financial liability, interest expense includes initial
transaction costs and any premium payable on redemption, as well as any
interest or coupon payable while the liability is outstanding.
- Trade payables and other short-term monetary liabilities, which are
initially recognised at fair value and subsequently carried at amortised cost
using the effective interest method.
3. De-recognition:
Financial assets - The Company derecognizes a financial asset when the
contractual rights to the cash flows from the financial asset expire or it
transfers the rights to receive the contractual cash flows.
Financial Liabilities - The Company derecognizes a financial liability when
its contractual obligations are discharged or cancelled, or expire.
M. Government grants
Grants received from the Israel-U.S. Bi-national Industrial Research and
Development Foundation (henceforth "BIRD") as support for a research and
development projects include an obligation to pay back royalties conditional
on future sales arising from the project. Grants received from BIRD, are
accounted for as forgivable loans, in accordance with IAS 20 (Revised),
pursuant to the provisions of IFRS 9. Accordingly, when the liability for the
loan is first recognized, it is measured at fair value using a discount rate
that reflects a market rate of interest. The difference between the amount of
the grants received and the fair value of the liability is accounted for upon
recognition of the liability as a grant and recognized in profit or loss as a
reduction of research and development expenses. After initial recognition, the
liability is measured at amortized cost using the effective interest method.
Changes in the projected cash flows are discounted using the original
effective interest rate and recorded in profit or loss in accordance with the
provisions of IFRS 9.
At the end of each reporting period, the Group evaluates, based on its best
estimate of future sales, whether there is reasonable assurance that the
liability recognized, in whole or in part, will not be repaid. If there is
such reasonable assurance, the appropriate amount of the liability is
derecognized and recorded in profit or loss as an adjustment of research and
development expenses. If the estimate of future sales indicates that there is
no such reasonable assurance, the appropriate amount of the liability that
reflects expected future royalty payments is recognized with a corresponding
adjustment to research and development expenses.
2. Accounting policies (Cont.)
N. Deferred tax
Deferred taxes are computed in respect of temporary differences between the
carrying amounts of assets and liabilities in the financial statements and
the amounts attributable for tax purposes. Deferred taxes are recognized
in profit or loss, except when they relate to items recognized in other
comprehensive income or directly in equity.
Deferred taxes are measured at the tax rates that are expected to apply in the
period when the temporary differences are reversed in profit or loss, other
comprehensive income or equity, based on tax laws that have been enacted or
substantively enacted at the end of the reporting period. Deferred taxes in
profit or loss represent the changes in the carrying amount of deferred tax
balances during the reporting period, excluding changes attributable to items
recognized in other comprehensive income or directly in equity or deferred
tax arising on business combinations.
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. In
addition, temporary differences (such as carryforward losses) for which
deferred tax assets have not been recognized are reassessed and deferred tax
assets are recognized to the extent that their recoverability is probable.
Any resulting reduction or reversal is recognized in "income tax" within the
statement of comprehensive income. Taxes that would apply in the event of the
disposal of investments in investees have not been taken into account, as long
as the disposal of such investments is not expected in the foreseeable future
and the group has control over such disposal. In addition, deferred taxes that
would apply in the event of distribution of dividends have not been taken into
account, if distributions of dividends involve an additional tax liability;
the Group's policy is not to initiate distribution of dividends that triggers
an additional tax liability.
All deferred tax assets and liabilities are presented in the statement of
financial position as non-current items. Deferred tax liabilities are offset
if there is a legally enforceable right to offset a current tax asset against
a current tax liability and the deferred tax liabilities relate to the same
taxpayer and the same taxation authority.
O. Current taxes:
The current tax liability is measured using the tax rates and tax laws that
have been enacted or substantively enacted by the reporting date as well as
adjustments required in connection with the tax liability in respect of
previous years.
P. Inventories
Inventories are measured at the lower of cost and net realizable value. Cost
is calculated according to a weighted average model.
2. Accounting policies (Cont.)
Q. Property, plant and equipment
Items of property, plant and equipment are initially recognized at cost
including directly attributable costs. Depreciation is calculated on a
straight line basis, over the useful lives of the assets at annual rates as
follows:
Rate of depreciation Mainly %
Buildings 3 - 4 % 3.13
Machinery and equipment 6 - 20 % 10
Office furniture and equipment 6 - 15 % 6
Computer equipment 10 - 33 % 33
Vehicles 15 % 15
Subsequent costs are included in the asset's carrying amount or recognised as
a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying amount of any component
accounted for as a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to profit or loss during the reporting
period in which they are incurred.
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at the end of each reporting period. An asset's carrying amount
is written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with
carrying amount. These are included in profit or loss.
R. Cash and cash equivalents
Cash equivalents are considered by the Group to be highly-liquid investments,
including, inter alia, short-term deposits with banks, the maturity of which
do not exceed three months at the time of deposit and which are not
restricted.
S. Provision for warranty
The Group generally offers up to three year warranties on its products. Based
on past experience, the Group does not record any provision for warranty of
its products and services due to immateriality.
T. Share-based payments
Where equity settled share options are awarded to employees, the fair value of
the options calculated at the grant date is charged to the statement of
comprehensive income over the vesting period. Non-market vesting conditions
are taken into account by adjusting the number of equity instruments expected
to vest at each reporting date so that, ultimately, the cumulative amount
recognised over the vesting period is based on the number of options that
eventually vest. Market vesting conditions are factored into the fair value of
the options granted.
2. Accounting policies (Cont.)
U. Employee benefits
1. Short-term employee benefits: Short-term employee benefits are
benefits that are expected to be settled wholly before twelve 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 pursuant to Section 14 of the
Severance Pay Law since 2004 under which the Group pays fixed contributions to
a specific fund 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 simultaneously with
receiving the employee's services and no additional provision is required in
the financial statements except for the unpaid contribution. 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, retirement and several other events prescribed by that
Law. The liability for post employment benefits is measured using the
projected unit credit method. The actuarial assumptions include rates of
employee turnover and future 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 yields on high quality
corporate bonds with a term that matches the estimated term of the benefit
plan.
In respect of its severance pay obligation to certain of its employees, the
Company makes deposits into pension funds and insurance companies ("plan
assets"). Plan assets comprise assets held by a Long-term employee benefits
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 presented in the statement of financial
position presents the present value of the defined benefit obligation less the
fair value of the plan assets.
V. Earnings per Share (EPS)
Earnings per share is calculated by dividing the net profit or loss
attributable to owners of the parent by the weighted number of ordinary shares
outstanding during the period. Basic earnings per share only include shares
that were actually outstanding during the period. Potential ordinary shares
(convertible securities such as employee options) are only included in the
computation of diluted earnings per share when their conversion decreases
earnings per share or increases loss per share from continuing operations.
Further, potential ordinary shares that are converted during the period are
included in the diluted earnings per share only until the conversion date, and
since that date they are included in the basic earnings per share. The
Company's share of earnings of investees is included based on the proportion
of the shares in the investee held by the Company.
2. Accounting policies (Cont.)
W. Segment reporting
An operating segment is a component of the Group that meets the following
three criteria:
1. Is engaged in business activities from which it may earn revenues
and incur expenses;
2. Whose operating results are regularly reviewed by the Group's chief
operating decision maker to make decisions about allocated resources to the
segment and assess its performance; and
3. For which separate financial information is available.
Segment revenue and segment costs include items that are attributable to the
relevant segments and items that can be allocated to segments. Items that
cannot be allocated to segments include the Group's financial income and
expenses and income tax.
X. Leases
Right-of-use assets:
The Group recognizes right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and any
accumulated impairment losses, and adjusted for any re-measurement of lease
liabilities. The cost of right-of-use assets comprises the amount of the
initial measurement of the lease liability; lease payments made at or before
the commencement date less any lease incentives received; and initial direct
costs incurred. The recognized right-of-use assets are depreciated on a
straight-line basis over the shorter of its estimated useful life and the
lease term. Right-of-use assets are subject to impairment. The right-of-use
assets are presented within property, plant and equipment.
Lease liabilities:
At the commencement date of the lease, the Group recognizes lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in substance fixed
payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a
purchase option that is reasonably certain to be exercised by the Group and
payments of penalties for terminating a lease, if the lease term reflects the
Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a rate are
recognized as expenses in the period on which the event or condition that
triggers the payment occurs.
Lease term:
The Group determines the lease term as the non-cancellable term of the lease,
together with any periods covered by an option to extend the lease if it is
reasonably certain to be exercised, or any periods covered by an option to
terminate the lease, if it is reasonably certain not to be exercised.
2. Accounting policies (Cont.)
Depreciation of a right-of-use asset:
Subsequent to the inception of the lease, a right-of-use asset is measured
using the cost method, less accumulated depreciation and accumulated
impairment losses, and is adjusted for re-measurements of the lease liability.
Depreciation is measured using the straight-line method over the useful life
or contractual lease term, whichever ends earlier. Lessees will also be
required to re-measure the lease liability upon the occurrence of certain
events (e.g., a change in the lease term, a change in future lease payments
resulting from a change in an index or rate used to determine those payments).
The lessee will recognize the amount of the re-measurement of the lease
liability as an adjustment to the right-of-use asset, until the carrying
amount is reduced to zero.
3. Revenues
For the year ended December 31,
2021 2020
Revenues arises from: $'000 $'000
Sale of goods * 35,308 33,788
Rendering of services ** 5,729 4,863
Projects ** 2,147 2,242
43,184 40,893
(*) at a point in time
(**) over time
4. Profit from operations
For the year ended December 31,
2021 2020
This has been arrived at after charging: $'000 $'000
Material and subcontractors 21,559 20,664
Wages and salaries 13,123 12,372
Plant, Machinery and Usage 1,359 1,268
Depreciation and amortization 976 1,011
Travel and Exhibition 270 137
Advertising and Commissions 464 767
Consultants 568 419
Others 440 165
38,759 36,803
5. Operating segments
The Company and its subsidiaries are engaged in the following segments:
- Development, design, manufacture and marketing of antennas for the
military and civilian sectors.
- A leading provider of remote control solutions for water and
irrigation applications based on Motorola's IRRInet state of the art control,
monitoring and communication technologies.
- Providing consulting, representation and marketing services to
foreign companies in the field of RF and Microwave, including engineering
services in the field of aerostat systems and system engineering services.
Segment information
Year ended December 31, 2021
Antennas Water Solutions Distribution & Consultation Adjustment & Elimination Total
U.S. $ in thousands
Revenues
External 11,294 17,606 14,284 - 43,184
Inter-segment - - 174 (174) -
Total 11,294 17,606 14,458 (174) 43,184
Segment profit 282 2,074 1,845 224 4,425
Finance expense, net 387
Tax expenses 329
Profit 3,709
December 31, 2021
Antennas Water Solutions Distribution & Consultation Adjustment & Elimination Total
U.S. $ in thousands
Segment assets 14,399 11,100 11,999 - 37,498
Unallocated assets 3,440
Segment liabilities 3,090 3,626 6,282 - 12,998
Unallocated liabilities 929
5. Operating Segments (cont.)
Year ended December 31, 2020
Antennas Water Solutions Distribution & Consultation Adjustment & Elimination Total
U.S. $ in thousands
Revenues
External 11,187 16,121 13,585 - 40,893
Inter-segment - - 144 (144) -
Total 11,187 16,121 13,729 (144) 40,893
Segment profit 158 1,928 1,614 376 4,076
Finance expense, net 20
Tax expenses 564
Profit 3,492
December 31, 2020
Antennas Water Solutions Distribution & Consultation Adjustment & Elimination Total
U.S. $ in thousands
Segment assets 14,531 11,194 8,429 - 34,154
Unallocated assets 1,978
Segment liabilities 3,511 3,133 3,621 - 10,265
Unallocated liabilities 314
2. Entity wide disclosures of External revenue by location of
customers.
For the year ended December 31,
2021 2020
$'000 $'000
Israel 24,342 23,108
America 5,551 4,245
Europe Middle East & Africa 9,266 9,015
Asia Pacific 4,025 4,525
43,184 40,893
3. Additional information about revenues:
There is one single customer from which revenues amount to 12% in 2021 (11% in
2020) of total revenues reported in the financial statements. This is a
customer for the antenna and distribution & special consulting services
divisions and the credit terms with it are usually end of month + 90 days.
6. Finance expense and income
For the year ended December 31,
2021 2020
$'000 $'000
Finance expense
Net Foreign exchange loss 205 -
Leases 43 40
Interest and bank fees 206 235
454 275
Finance income
Interest from bank deposits 67 28
Net Foreign exchange gain - 227
67 255
387 20
7. Tax expenses
A. Tax Laws in Israel
1. Amendments to the Law for the Encouragement of Capital Investments, 1959
(the "Encouragement Law"):
In December 2010, the "Knesset" (Israeli Parliament) passed the Law for
Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the
Amendment"), which prescribes, among others, amendments to the Law. The
Amendment became effective as of January 1, 2011. According to the Amendment,
the benefit provisions in the Law were modified and a flat tax rate applies to
the Company's entire preferred income. Commencing from the 2011 tax year, the
Group will be able to opt to apply (the waiver is non-recourse) the Amendment
and from the elected tax year and onwards, it will be subject to the amended
tax rates that are: 2014 and thereafter will be 16% (in development area A -
9%).
The Group applied the Amendment effectively from the 2011 tax year.
On 15 November 2021 an amendment to the Encouragement Law was approved (the
"2021 Amendment"). According to the 2021 Amendment companies that had retained
earnings from exempt income earned before 31 December 2020 can distribute
those earnings with a lower tax rate of 10% to the Company and withholding tax
of 15% to the shareholders. The Company has such retained earnings totalling
approximately 10.3m NIS ($3.3m USD).
2. Tax rates:
On December 29, 2016, the Law for Economic Efficiency (Legislative Amendments
for Achieving the Budgetary Goals for 2017-2018) was published in Reshumot
(the Israeli government official gazette), which enacts, among other things,
the following amendments:
- Decreasing the corporate tax rate to 24% in 2017 and to 23% in
2018 and thereafter (instead of 25%).
- Commencing tax year 2017 and thereafter the tax rate on the income of
preferred enterprises of a qualifying Company in Development Zone A as stated
in the Encouragement of Capital Investment
7. Tax expenses (cont.)
Law, shall decrease to 7.5% (instead of 9%) and for companies located in zones
other than Zone A the rate shall remain 16%.
- In addition, the tax rate on dividends distributed on January 1,
2014 and thereafter originating from preferred income under the Encouragement
Law will be raised to 20% (instead of 15%).
Therefore the applicable corporate tax rate for 2014 and thereafter is 16%.
B. The principal tax rates applicable to the subsidiaries whose place of
incorporation is outside Israel are:
A company incorporated in India - The statutory tax rate is 28% and the
Company was in an exempt zone until end of March 2013 and further in a 50% tax
exempt zone until end of March 2018. Nevertheless from the Tax Year 2011-12,
in the absence of taxable income or tax due on taxable income (calculated as
per normal rates) being less than 18.5% of the Accounting Book Profits during
a particular year, the Indian regulation states that the company has to pay a
Minimum Alternate tax at a rate of 18.5% of the Accounting Book Profits for
that year. Such excess Minimum Alternate Tax paid on book profits over
the Tax due on Actual Taxable Income (calculated as per normal rates) of each
year is capable of set off against the taxable profits of future years.
A company incorporated in Switzerland - The weighted tax rate applicable to a
company operating in Switzerland is about 25% (composed of Federal, Cantonal
and Municipal tax). Provided that the company meets certain conditions, the
weighted tax rate applicable to its income in Switzerland will not exceed 10%.
A company incorporated in South Africa - the statutory tax rate is 28%
A company incorporated in Australia - the statutory tax rate is 30%
A company incorporated in United States of America - the statutory tax rate is
21%.
A Company incorporated in Russia - the statutory tax rate is 20%.
A Company incorporated in Canada - the statutory tax rate is 25%.
A Company incorporated in China - the statutory tax rate is 25% but for small
entities the tax rate is 10%. To be classified as a small entity all following
should apply (i) Annual taxable income not exceeding 3 million yuan, (ii)
Number of employees not exceeding 300 and (iii) Total assets not exceeding 50
million yuan. The Company meets the criteria of a small entity.
C. Income tax assessments
The Company has tax assessments considered as final up to and including the
year 2016.
7. Tax expenses (cont.)
For the year ended December 31,
2021 2021 2020 2020
$'000 $'000 $'000 $'000
Current tax expense
Income tax on profits for the year 722 592
Taxes in respect of previous years (95) 4
627 596
Deferred tax income (see note 12)
Origination and reversal of temporary differences (298) (32)
(298) (32)
Total tax expenses 329 564
The adjustments for the difference between the actual tax charge for the year
and the standard rate of corporation tax in Israel applied to profits for the
year are as follows:
For the year ended December 31,
2021 2020
$'000 $'000
Profit before income tax 4,038 4,056
Tax using the Company's domestic tax rate of 16% 646 648
Non-deductible expenses 6 -
Taxes resulting from different tax rates applicable to foreign and other 94 41
subsidiaries
Utilization of prior years tax losses for which deferred taxes were not (322) (138)
provided
Adjustments for current income tax of prior years (95) 31
Other - (18)
Total income tax expense 329 564
8. Earnings per share
Net earnings per share attributable to equity owners of the parent
For the year ended
December 31,
2021 2020
$'000 $'000
Net Earnings used in basic and diluted EPS 3,557 3,373
Weighted average number of shares used in basic and diluted EPS 88,509,740 88,093,025
basic and diluted net EPS (dollars) 0.0407 0.0383
There are no options in issue as the date of this report (See note 24).
9. Dividends
For the year ended
December 31,
2021 2020
$'000 $'000
Dividend paid 2,213 1,758
10. Property, plant and equipment
Building Machinery & Office Computer equipment Vehicles Right of use asset Total
equipment
furniture & equipment
$'000
Cost:
Balance as of January 1, 2021 5,070 6,323 688 2,386 1,032 1,203 16,702
Acquisitions 164 245 14 41 389 957 1,792
Disposals - - - - (258) (465) (723)
Exchange differences - 2 (1) 1 (6) - (4)
Balance as of December 31, 2021 5,216 6,570 701 2,428 1,157 1,695 17,767
Accumulated Depreciation:
Balance as of January 1, 2021 2,421 5,267 614 2,264 436 882 11,884
Additions 103 187 21 32 135 447 925
Disposals - - - - (130) (465) (595)
Exchange differences - 2 (2) - 5 - 5
Balance as of December 31, 2021 2,524 5,456 633 2,296 446 864 12,219
Net book value as of December 31, 2021 2,692 1,114 68 132 711 831 5,548
Lease liabilities Year ended December 31
2021 2020
$'000 $'000
Interest expense 43 36
Total cash outflow for leases 474 529
Additions to right-of-use assets 957 164
December 31, 2021 Less than one year 1 to 2 years 2 to 3 3 to 4 years > 4 Total
years years
$'000
Lease liabilities 440 335 130 - - 905
December 31, 2020 Less than one year 1 to 2 years 2 to 3 3 to 4 years > 4 Total
years years
$'000
Lease liabilities 286 140 11 - - 437
10. Property, plant and equipment (cont.)
Building Machinery & Office Computer equipment Vehicles Right of use asset Total
equipment
furniture & equipment
$'000
Cost:
Balance as of January 1, 2020 5,046 6,241 673 2,354 832 1,098 16,244
Acquisitions 15 78 12 32 289 172 598
Disposals - - - - 103 67 170
Exchange differences 9 4 3 - 14 - 30
Balance as of December 31, 2020 5,070 6,323 688 2,386 1,032 1,203 16,702
Accumulated Depreciation:
Balance as of January 1, 2020 2,328 5,068 597 2,237 345 457 11,032
Additions 93 195 16 26 144 484 958
Disposals - - - - 62 59 121
Exchange differences - 4 1 1 9 - 15
Balance as of December 31, 2020 2,421 5,267 614 2,264 436 882 11,884
Net book value as of December 31, 2020 2,649 1,056 74 122 596 321 4,818
11. Intangible assets
Goodwill from business combination Customer relations * Total
$'000
Cost:
Balance as of December 31, 2021 2,088 715 2,803
Accumulated Amortization:
Balance as of January 1, 2021 1,227 511 1,738
Amortization charge - 51 51
Balance as of December 31, 2021 1,227 562 1,789
Net book value as of December 31, 2021 861 153 1,014
Goodwill from business combination Customer relations * Total
$'000
Cost:
Balance as of January 1, 2020 2,007 523 2,530
Acquired through business combinations 81 192 273
Balance as of December 31, 2020 2,088 715 2,803
Accumulated Amortization:
Balance as of January 1, 2020 1,227 460 1,687
Amortization charge - 51 51
Balance as of December 31, 2020 1,227 511 1,738
Net book value as of December 31, 2020 861 204 1,065
(*) Customer relations is amortized over an economic useful life of between
6.5 to 10 years.
12. Deferred tax assets
Deferred tax asset is calculated on temporary differences under the liability
method using the tax rates that are expected to apply to the period when the
asset is realised.
The movement in the deferred tax asset is as shown below:
2021 2020
$'000 $'000
At January 1 696 664
Charged to other comprehensive income - -
Charged to profit or loss 298 32
At December 31 994 696
Deferred tax assets have been recognized in respect of all differences giving
rise to deferred tax assets because it is probable that these assets will be
recovered.
12. Deferred tax assets (Cont.)
Composition:
31.12.2021 31.12.2020
$'000 $'000
Accrued severance pay 87 89
Other provisions and employee-related obligations 152 137
Research and development expenses deductible over 3 years 163 177
Carry forward tax losses 592 293
994 696
Deferred tax assets relating to carry forward capital losses of the Group
total approximately $1,171 and $1,139 thousand as of December 31, 2021 and
2020 respectively were not recognized in the financial statements because
their utilization in the foreseeable future is not probable.
13. Inventories
31.12.2021 31.12.2020
$'000 $'000
Raw materials and consumables 5,177 4,364
Work-in-progress 112 155
Finished goods and goods for sale 1,560 1,880
6,849 6,399
14. Trade receivables, other receivables and unbilled revenue
31.12.2021 31.12.2020
$'000 $'000
Trade receivables 9,310 9,818
Unbilled revenue - Projects 2,794 2,318
Other receivables 1,318 840
13,422 12,976
Trade receivables:
31.12.2021 31.12.2020
$'000 $'000
Trade receivables (*) 8,707 9,697
Notes receivable 701 224
Allowance for expected credit losses (98) (103)
9,310 9,818
(*) Trade receivables are non-interest bearing. They are generally on
60-120 day terms.
14. Trade receivables, other receivables and unbilled revenue (cont.)
As at 31 December 2021 trade receivables of $108,000 (2020 - $593,000) were
past due but not impaired.
They relate to the customers with no default history.
Unbilled revenue:
31.12.2021 31.12.2020
$'000 $'000
Actual completion costs 5,000 4,059
Revenue recognised 1,750 1,779
Billed revenue (3,956) (3,520)
Total Unbilled receivables - Projects 2,794 2,318
Other receivables:
31.12.2021 31.12.2020
$'000 $'000
Prepaid expenses 826 305
Advances to suppliers 128 168
Tax authorities - V.A.T 226 295
Employees 138 72
1,318 840
15. Cash and cash equivalents
31.12.2021 31.12.2020
$'000 $'000
In U.S. dollars 6,460 6,552
In other currencies 6,107 3,025
12,567 9,577
16. Loans from banks
31.12.2021 31.12.2020
$'000 $'000
US Dollars - unlinked - 63
NIS 14 42
South African Rand 17 37
Less - current maturities (23) (105)
8 37
In 2011 the Company received a US$ 2.5 Million loan for the purchase of the
company building in Rosh Ha'ayin, Israel, secured by a mortgage on the said
asset. The loan is for 10 years, with repayment on a quarterly basis from
April 2011 until January 2021 and bears interest at a fixed rate of 4.9%.
On August 2016, the Company received a NIS 100,000 (approximately US$ 29
thousand) loan respectively for the purchase of a car. The loan is for 4 years
with a monthly repayment starting August 2016 and bears interest of Prime
+0.6% (2.35% as of December 31, 2020).
During 2018 two additional loans for purchases of cars were taken, which total
NIS 320,000 (approximately US$ 85 thousand). These loans are for 4 years with
a monthly repayment and bear interest of Prime +0.4% (2.15% as of December 31,
2020). All bank loans for the purchase of cars are secured by a fixed lien on
the car.
During 2017 Mottech South Africa entered into a loan agreement of
approximately US$ 37 thousand for the purchase of cars payable over 60 months
on a monthly basis. The interest rate is linked to the South Africa prime
lending rate.
During 2018 Mottech South Africa had entered into a loan agreement of
approximately US$ 30 thousand for the purchase of cars, which is payable over
36 - 48 months on a monthly basis. The interest rate is linked to the South
Africa prime lending rate.
At December 31 2021 First Second year Third
year year and thereafter
$'000
Long-term loan 6 2 -
17. Employee benefits
A. Composition:
As at December 31
2021 2020
$'000 $'000
Present value of the obligations 1,851 1,756
Fair value of plan assets (983) (930)
868 826
B. Movement in plan assets:
Year ended December 31
2021 2020
$'000 $'000
Year beginning 930 975
Foreign exchange gain 31 74
Interest income 15 15
Contributions 14 13
Benefit paid (16) (137)
Re measurements gain (loss)
Actuarial profit (loss) from financial assumptions 1 (1)
Return on plan assets (excluding interest) 8 (9)
Year end 983 930
C. Movement in the liability for benefit obligation:
Year ended December 31
2021 2020
$'000 $'000
Year beginning 1,756 1,818
Foreign exchange loss 46 140
Interest cost 49 39
Current service cost 42 40
Benefits paid (25) (229)
Re measurements loss (gain)
Actuarial (gain) from financial assumptions (61) (2)
Adjustments (experience) (1) (50)
Year end 1,851 1,756
Supplementary information
1. The Group's liabilities for severance pay, retirement and pensions
pursuant to Israeli law and employment agreements are recognized in full - in
part by managers' insurance policies, for which the Group makes monthly
payments and accrued amounts in severance pay funds and the rest by the
liabilities which are included in the financial statements.
17. Employee benefits (cont.)
2. The amounts funded displayed above include amounts deposited in severance
pay funds with the addition of accrued income. According to the Severance Pay
Law, the aforementioned amounts may not be withdrawn or mortgaged as long as
the employer's obligations have not been fulfilled in compliance with Israeli
law.
3. Principal nominal actuarial assumptions:
As at December 31,
2021 2020
Discount rate on plan liabilities 2.15% 2.12%
Expected increase in pensionable salary 2% 2%
4. Sensitivity test for changes in the expected rate of salary increase or
in the discount rate of the plan assets and liability:
Change in defined benefit obligation
As at December 31,
2021 2020
$'000 $'000
The change as a result of:
Salary increases of 1 % 65 74
Salary decreases of 1 % (58) (65)
The change as a result of:
Increase of 1% in discount rate (56) (63)
Decrease of 1% in discount rate 64 73
Year ended December 31,
2021 2020
$'000 $'000
Expenses in respect of defined contribution plans 489 457
18. Trade and other payables
As at December 31,
2021 2020
$'000 $'000
Trade payables 5,346 5,098
Employees' wages and other related liabilities 1,895 1,814
Advances from trade receivables 3,404 1,417
Accrued expenses 819 396
Government authorities 158 44
Lease liability 440 231
Others 179 192
12,241 9,192
19. Current maturities and short-term bank credit
As at December 31,
Interest rate 2021 2020
as at December 31, 2021
% $'000 $'000
Current maturities In NIS Prime+0.6 14 24
Current maturities In SA ZAR 9.5 - 11 9 18
Current maturities In US $ 4.9 - 63
Total Current maturities and short-term bank loans 23 105
Changes in liabilities arising from financing activities
Reconciliation of the changes in liabilities for which cash flows have been,
or will be classified as financing activities in the statement of cash flows
Loans and borrowings Lease liabilities
Total
$'000
At 1 January 2021 142 386 528
Changes from financing cash flows:
Payments of lease liabilities - (449) (449)
Repayment of long-term loans from banks (117) - (117)
Total changes from financing cash flows 25 (63) (38)
Changes in fair value:
New leases - 957 957
Leases cancelled before maturity - (1) (1)
Interest expense - 48 48
Interest paid - (48) (48)
Total changes from financing cash flows 25 893 918
Effects of foreign exchange 6 12 18
At 31 December 2021 31 905 939
19. Current maturities and short-term bank credit (Cont.)
Loans and borrowings Lease liabilities
Total
$'000
At 1 January 2020 453 658 1,111
Changes from financing cash flows:
Payments of lease liabilities - (493) (493)
Repayment of long-term loans from banks (308) - (308)
Total changes from financing cash flows 145 165 310
Changes in fair value:
New leases - 172 172
Leases cancelled before maturity - (8) (8)
Interest expense - 40 40
Interest paid - (40) (40)
Total changes from financing cash flows 145 329 474
Effects of foreign exchange (3) 57 54
At 31 December 2020 142 386 528
20. Financial instruments - Risk Management
The Group is exposed through its operations to the following
financial risks:
· Foreign currency risk
· Liquidity risk
· Credit risk
Foreign currency risk
Foreign exchange risk arises when Group companies enter into transactions
denominated in a currency other than their functional currency.
The Group's policy is to allow the Group's entities to pay liabilities
denominated in their functional currency using the cash flows generated from
the operations of each entity. When the Group's entities have liabilities
denominated in a currency other than their functional currency (and the entity
does not have sufficient cash balances in this currency to settle the
liability) the Group, if possible, transfers cash balances in one entity to
another entity in the Group. The Group's currency risks are as follows:
Most of the Company's revenues are in US dollars or linked to that currency,
and the Company's inputs are mainly linked due to the importation of raw
materials paid for in US Dollars, but the wages and salary expenses (which
constitutes a material input in the Company's operations) are in NIS.
Therefore, there is an exposure to changes in the exchange rate of the NIS
against the Dollar.
Management mitigates that risk by holding some cash and cash equivalents and
deposit accounts in NIS. The Company also purchases from time to time some
forward contracts on the NIS/$ exchange rate to hedge part of the salary
costs. As of December 31, 2021 no such transactions were open. Since the
purchase of Mottech the Group has an additional currency risk due to its
subsidiaries' activity.
20. Financial instruments - Risk Management (Cont.)
The following is a sensitivity analysis of a change of 5% as of the date of
the financial position in the NIS exchange rates against the functional
currency, while the rest of the variables remain constant, and their effect on
the pre-tax profit or loss on equity:
Profit (loss) from change Book value Profit (loss) from change
December 31, 2021
NIS exchange rate 0.337 0.321 0.305
Total assets, net 96 1,922 (96)
December 31, 2020
NIS exchange rate 0.327 0.311 0.295
Total assets, net 48 951 (48)
The Company's exposure to changes in foreign currency in all other currencies
is immaterial.
Total Other currencies NIS USD
As at December 31, 2021
Assets
Current assets:
12,567 5,167 940 6,460 Cash and cash equivalents
12,104 619 5,919 5,526 Trade receivables
1,318 11 1,069 238 Other receivables
Liabilities
current liabilities:
23 9 14 - Current maturities and short term bank credit and loans
5,346 1,192 2,835 1,319 Trade payables
6,895 3,372 3,127 396 Other accounts payables
non- current liabilities:
8 8 - - Loans from banks, net of current maturities
13,717 1,216 1,992 10,509 Total assets, net
20. Financial instruments - Risk Management (Cont.)
Total Other currencies NIS USD
As at December 31, 2020
Assets
Current assets:
9,577 2,869 945 5,763 Cash and cash equivalents
12,136 570 5,810 5,756 Trade receivables
840 6 651 183 Other receivables
Liabilities
current liabilities:
105 18 24 63 Current maturities and short term bank credit and loans
5,098 1,000 2,837 1,261 Trade payables
4,094 331 3,576 187 Other accounts payables
non- current liabilities:
37 19 18 - Loans from banks, net of current maturities
13,219 2,077 951 10,191 Total assets, net
Liquidity Risk
Liquidity risk is the risk that arises when the maturity of assets and
liabilities does not match. An unmatched position potentially enhances
profitability, but can also increase the risk of insufficient liquidity means
to fulfil its immediate obligations. The Group's objective is to maintain a
balance between continuity of funding and flexibility. The Group have
sufficient availability of cash including the short-term investment of cash
surpluses and the raising of loans to meet its obligations by cash management,
subject to Group policies and guidelines.
The table below summarizes the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments (including interest
payments):
December 31, 2021 Less than one year 1 to 2 years 2 to 3 3 to 4 years > 4 Total
years years
$'000
Loans from banks 23 6 2 - - 31
Trade payables 5,346 - - - - 5,346
Payables 6,895 - - - - 6,895
12,264 6 2 - - 12,272
December 31, 2020 Less than one year 1 to 2 years 2 to 3 3 to 4 years > 4 Total
years years
$'000
Loans from banks 105 32 5 - - 142
Trade payables 5,098 - - - - 5,098
Payables 4,094 - - - - 4,094
9,297 32 5 - - 9,334
Credit risks
Financial instruments which have the potential to expose the Group to credit
risks are mainly deposit accounts, trade receivables and other receivables.
The Group holds cash and cash equivalents in short term deposit accounts in
banking institutions in Israel that are considered financially sound, thereby
substantially reducing the risk to suffer credit loss.
20. Financial instruments - Risk Management (Cont.)
With respect to trade receivables, the Group believes that there is no
material credit risk which is not mitigated in light of Group's policy to
assess the credit risk of customers before entering contracts. Moreover, the
Group evaluates trade receivables on a timely basis and adjusts the allowance
for expected credit losses accordingly. Since January 2019 the Company has had
an agreement with a credit insurance company to further mitigate this risk.
The aging analysis of these trade-receivable balances by business segment is
as follows:
Past due trade receivables with aging of
December 31, 2021
Revenues Total trade receivables Neither past due nor impaired < 30 >30
days days
Antennas - other receivables 11,294 4,884 4,852 12 20
Water Solutions - other receivables 17,606 3,311 3,277 22 12
Distribution & Consultation - other receivables 14,458 3,909 3,867 32 10
Intercompany (174) - - - -
Total 43,184 12,104 11,996 66 42
Past due trade receivables with aging of
December 31, 2020
Revenues Total trade receivables Neither past due nor impaired < 30 >30
days days
Antennas - other receivables 11,187 6,586 6,161 423 2
Water Solutions - other receivables 16,121 2,502 2,465 18 19
Distribution & Consultation - other receivables 13,729 3,048 2,917 26 105
Intercompany (144) - - - -
Total 40,893 12,136 11,543 467 126
Fair value
The carrying amount of cash and cash equivalents, trade receivables, other
accounts receivable, credit from banks and others, trade payables and other
accounts payable approximate their fair value.
20. Financial instruments - Risk Management (Cont.)
The Group is not exposed to cash flow risk due to interest rates since the
long-term loan bears fixed interest.
The following table demonstrates the carrying amount and fair value of the
groups of financial instruments that carrying amounts does not approximate
fair value:
Carrying amount Fair value
2021 2020 2021 2020
Financial liabilities: $'000
Long-term loan with interest (1) 8 142 8 143
(1) The fair value of the long-term loan received with fixed
interest is based on the present value of cash flows using an interest rate
currently available for a loan with similar terms.
Linkage terms of financial liabilities by groups of financial instruments
pursuant to IAS 39
December 31, 2021:
NIS Unlinked S.A Rand Total
$'000
Financial liabilities measured at amortized cost 14 - 17 31
December 31, 2020:
NIS Unlinked S.A Rand Total
$'000
Financial liabilities measured at amortized cost 42 63 37 142
Capital management
The Group's objective is to maintain, as much as is possible, a stable capital
structure. In the opinion of Group's management its current capital structure
is stable. Consistent with others in the industry, the Group monitors capital,
including others also, on the basis of the gearing ratio.
This ratio is calculated as net debt divided by total capital. Net debt is
calculated as total borrowings (including 'current and non-current borrowings'
as shown in the consolidated statement of financial position) less cash and
cash equivalents. Total capital is calculated as 'equity' as shown in the
consolidated statement of financial position plus net debt.
The gearing ratios at 31 December 2021 and 2020 were as follows:
31.12.2021 31.12.2020
Loans from banks 31 142
bank credit - -
Total liabilities 31 142
31.12.2021 31.12.2020
Share capital 209 209
Additional paid-in capital 23,126 23,167
Retained earnings 2,406 999
Capital reserves 172 191
Non-controlling interest 1,098 987
Total equity 27,011 25,553
Leverage ratio 0.1% 0.55%
20. Financial instruments - Risk Management (Cont.)
The net debt ratios stem from the Board of Directors' decision to continue to
invest in the Company's development, but without the use of excessive
leverage. The Group intends to examine the leverage ratio from time to time
and to define it according to its needs. The decrease in the net debt ratio in
2021 derived mainly from the repayment of credit, in accordance with the
repayment schedules, alongside an increase in the Company's equity as a result
of the Company's profits. The Group intends to maintain the leverage ratio in
future periods as well. Beyond that stated above, there were no other material
changes in the objectives, policies or processes of managing the Group's
capital during the year, as well as in the Group's definition of capital.
21. Subsidiaries:
A. The principal subsidiaries of the Company, all of which have been
consolidated in these consolidated financial statements, are as follows:
Name Country of incorporation Proportion of ownership interest on 31 December Held by
2021 2020
AdvantCom Sarl Switzerland 100% 100% M.T.I Wireless Edge
Global Wave Technologies PVT Limited India 80% 80% AdvantCom Sarl
Ginat Wave India Private ltd. India 49% 49% M.T.I Wireless Edge
Mottech water solutions ltd. Israel 100% 100% M.T.I Wireless Edge
Aqua water control solution ltd Israel 100% 100% Mottech water solutions
Mottech Water Management (pty) ltd. South Africa 85% 85% Mottech water solutions
Mottech USA Inc. United states 100% 100% Aqua water control solution
M.T.I Engineering ltd. Israel 100% 100% M.T.I Wireless Edge
Summit electronics ltd. Israel 100% 100% M.T.I Engineering ltd.
M.T.I Summit electronics ltd. Israel 100% 100% M.T.I Wireless Edge
M.T.I Summit SPB ltd. Russia 99.9% 99.9% M.T.I Summit electronics ltd.
Mottech Water Management (Shenzhen) Ltd. China 100% 60% Mottech water solutions ltd.
Mottech Parkland (pty) Ltd. Australia 50% 50% Mottech water solutions ltd.
Mottech Water Management ltd. Canada 100% - Mottech water solutions ltd.
22. Share capital
Authorized
2021 2021 2020 2020
Number NIS Number NIS
Ordinary shares of NIS 0.01 each 100,000,000 1,000,000 100,000,000 1,000,000
Issued and fully paid
2021 2021 2020 2020
Number NIS Number NIS
Ordinary shares of NIS 0.01 each at beginning of the year 88,538,724 885,388 87,828,724 878,288
Changes during the year
Exercise of options to share capital - - 710,000 7,100
At end of the year 88,538,724 885,388 88,538,724 885,388
23. Share-based payments
On May 18, 2016 a new option scheme for key Employees was approved at the
Company's Annual General Meeting. Under the plan, options to purchase 800
thousand ordinary shares were granted (each option for the purchase of one
ordinary share) at a price of 27 pence per share (approximately 33 US cents).
At that point in time, this represented approximately 1.5% of the Company's
issued and voting share capital on a fully diluted basis. The vesting period
of the options was as follows: 2 years for 50% of the options, 3 years for an
additional 25% of the options and 4 years for the remainder of the options.
Unexercised options expire nine years after the date of the grant after which
they will be void. Options are forfeited when the employee leaves the Company.
There is no cash settlement of the options. The weighted average fair value of
the options as at the grant date is 6 pence (approximately 9 US cents) per
option, and was estimated using a Black and Scholes option pricing model based
on the following significant data and assumptions:
Share price - 19.88 pence (representing approximately 29 cents)
Exercise price - 27 pence (representing approximately 39 cents)
Expected volatility - 45.34%
Risk-free interest rate - 0.85%
And expected average life of options 4.375 years
The volatility measured the standard deviation of expected share price returns
and is based on the historical volatility of the Company. The options were
granted as part of a plan that was adopted in accordance with the provision of
section 102 of the Israeli Income Tax Ordinance.
23. Share-based payment (Cont.)
The expense recognized in the financial statements for employee services
received for the year ended December 31, 2021 and 2020 was zero and US $2,000
respectively.
The following table lists the number of share options, the weighted average
exercise prices of share options and modification in employee option plans
during the current year:
2021 2021 2020 2020
weighted average exercise price Number weighted average exercise price Number
$ $
Outstanding at beginning of year - - 0.35 710,000
Exercised during the year - - 0.35 710,000
Granted during the year - - - -
Forfeited during the year - - - -
Outstanding at the end of the year - - - -
Exercisable at the end of the year - - - -
During January to September 2020, employees of the Company exercised options
over 710,000 Ordinary Shares in exchange for a total consideration of
approximately $254,000. There are currently no share options granted under the
current employee share option plan of the Company.
24. Commitments and guarantees
A. Royalty commitments
(i) The Group is committed to pay royalties to the Government of Israel on
proceeds from sales of products in the research and development of which the
Government of Israel participates by way of grants. Under the terms of the
Group's funding from the Government of Israel, royalties of 2%-3.5% are
payable on sales of products developed from a project so funded, up to 100% of
the amount of the grant received, including amounts received by the Parent
Company and its subsidiaries through July 1, 2000. In 2021 the Group received
$147,000 as additional grants for development of new products and therefore
the maximum royalty amount payable by the Group on December 31, 2021 is US$
617,000.
No provision is recognized due to the lack of expectation to sell relevant
products in the foreseeable future and for new developments a provision will
be created once development is in more advance stages.
During 2021 the Group did not pay any royalties.
(ii) The Group is committed to pay royalties to the Government of Israel on
proceeds from growth in sales of Mottech's products in China of which the
Government of Israel participates by way of grants. Under the terms of the
Group's funding from the Government of Israel, royalties of 3% from the
increase of sales in China (base year was 2017) shall be paid up to 100% of
the amount of the grant received. Payment of royalties shall begin after
completion of the grant receipt, which occurred in 2020. The maximum royalty
amount payable by the Group at December 31, 2021 is US$ 237,000.
24. Commitments and guarantees (cont.)
B. Guarantees
The Group has provided guarantees in favour of customers and government
institutes in the amount of US$ 620,000 and US$ 100,000 respectively. The
guarantees are mainly to guarantee advances received from customers and
performance of contracts signed.
25. Transactions with related parties:
A. Service Agreement with controlling shareholder:
On March 1, 2019, an amendment to the agreement with Mokirey Aya Management
Ltd. (hereinafter: the "Management Company") was renewed to include
remuneration (per month) of:
1. 55,000 NIS to Mr. Zvi Borovitz for his service as a chairman of the
board of the Company in capacity of at least 50% of a standard working week
and
2. 77,000 NIS to Mr. Moni Borovitz for his service as CEO of the Company
in capacity of at least 90% of a standard working week.
All amounts are prior to VAT which will be added to the invoices and are
linked to the increase in the consumer price index. In addition to the above,
and in accordance with the remuneration policy adopted by the Company, as
required under rule 20 to the Israeli Companies Law, a bonus scheme was
granted to each of the managers. The bonus scheme states that Zvi Borovitz and
Moni Borovitz will be entitled (each one of them) to a bonus amounting to 2.5%
of the Company's net profit exceeding US$800,000 per year, prior to any
bonuses granted in the Company. In the case of a loss in a year the bonus for
the next year will be for a net profit exceeding US$800,000 above the loss
made in the previous year. In addition Mr. Moni Borovitz shall be entitled to
a bonus equal to three months' management fee, based on the meeting of targets
specified by the remuneration committee at the beginning of each year or per
the remuneration committee's decision to give such for special performance,
plus one month's management fee if the consolidated revenue of the Company
increases by more than 5% from the previous year. A ceiling to the bonuses was
set at eight months management fees for Mr. Moni Borovitz and US$100,000 for
Mr. Zvi Borovitz. The agreement also states that the Company shall reimburse
the Management Company for any expense made in performance of the manager's
duty. The Company shall also provide each of the managers with a car and
phones and will be responsible for all its related expenses, including all
relevant taxes.
25. Transaction with the Parent Group:
The following transactions occurred with the Controlling shareholder and other
related parties:
2021 2020
$'000 $'000
Management Fee 819 787
25. Transactions with related parties (cont.):
Compensation of key management personnel of the Group:
2021 2020
$'000 $'000
Short-term employee benefits * 1,262 1,216
* Including Management fees for the CEO, Directors, Executive Management and
other related parties including the Controlling shareholder.
Balances with related parties:
2021 2020
$'000 $'000
Other accounts payables 299 374
26. Significant Events:
A. On 24 January 2019 the Company announced a share repurchase program to
conduct market purchases of ordinary shares of par value 0.01 Israeli Shekels
each ("Ordinary Shares") in the Company up to a maximum value of £150,000
(the "Programme"). The Programme is managed by Peterhouse Capital Limited
("Peterhouse Capital").
B. The Company has entered into an arrangement with Peterhouse Capital
in relation to the Programme where Peterhouse Capital will make the trading
decisions concerning the timing of the market purchases of Ordinary Shares
independently of and uninfluenced by the Company, with such trading decisions
being in line with the terms of the Programme. Purchases may continue during
any prohibited periods of the Company, as defined by the Market Abuse
Regulation 596/2014/EU ("MAR"), which may fall during the term of the
Programme. The Company reserves the right to bring a halt to the Programme
under circumstances that it deems to be appropriate, provided that it is
permissible for this to occur in compliance with MAR.
The Programme commenced on 28 January 2019 and was originally to continue
until no later than 26 July 2019. Thereafter, the board of directors of the
Company and the board of directors of MTI Engineering had decided to continue
with the Programme for several further periods and it is currently in effect
until the end of August 2022. Ordinary Shares acquired as a result of the
Programme will be held by MTI Engineering and in accordance with the Israeli
Companies Law, 1999 will not have any voting rights. An objective of the
Programme is that Ordinary Shares acquired by MTI Engineering will be resold,
provided that this occurs under circumstances that the Board of MTI deems to
be appropriate and in compliance with MAR. Cash generated from any eventual
resales of Ordinary Shares acquired by MTI Engineering under the Programme
will be credited to an account held with a third party, which will be under
the direction of Peterhouse Capital and such cash may be used by Peterhouse
Capital to make future purchases of Ordinary Shares under the Programme. As at
31 December 2021, 50,000 Ordinary Shares were held in treasury under the
Programme.
26. Significant Events (cont.):
C. On 4 February 2021, the Company's subsidiary Mottech Water Solutions
Ltd registered and opened a wholly-owned subsidiary in Canada and is working
on establishing its activities in Canada.
D. On 19 April 2021 at an extraordinary shareholders meeting, Mrs. Lihi
Elimelech Bechor was re-elected as an external director for another three year
term.
E. Outbreak of COVID-19 and Business Continuity - In December 2019, the
COVID-19 pandemic broke out in China, and the virus has spread to many
countries around the world. In January 2020, the World Health Organization
announced the outbreak of the Coronavirus as a global health emergency, and in
March 2020, the World Health Organization declared the pandemic to be a global
pandemic. In 2021 and until the date of this report the Company was able to
maintain good levels of operation using remote work procedures and a
sufficient level of production in its production facilities while assuring the
health of its employees. All aspects of the Group's supply chain are working
slower, and the Company's industry has been affected on the operational level,
along with the rest of the world economy as it faces the risk of a global
recession where the ability to predict the timing of a recovery is uncertain.
In particular shipment costs are higher and availability of ships is lower -
this effected both shipment ability and costs of goods in 2021. This
uncertainty of the level of the global economic slowdown, its duration and its
medium to long term effects creates challenges, but the Company believes that
if there is no further deterioration in the situation, its financial strength
and business stability will allow it to navigate through this.
27. Subsequent events
A. The Board of directors has decided to declare a cash dividend of
2.8 US cents per share being approximately $2,479,000. This dividend will be
paid on 31 March 2022 to shareholders on the register at the close of trading
on 18 March 2022 (ex-dividend on 17 March 2022).
B. The financial statements were authorized for issue by the board
as a whole following their approval on March 6, 2022.
C. On January 3, 2022, after the balance sheet date, M.T.I Summit
Electronics Ltd ("M.T.I Summit") (a subsidiary company) has entered into a
share purchase agreement, which includes both a purchase of existing shares in
and the making of a new equity investment into P.S.K wind technologies Ltd
(hereafter- "P.S.K"), after which M.T.I Summit will own 51% of PSK (the
"Acquisition"). The initial consideration for the Acquisition is
approximately US$1.2 million, with an earn out payment subject to performance
of up to approximately US$2.56 million.
In addition, M.T.I Summit has made a loan to P.S.K of US$0.8 million and is
party to an option agreement in relation to the acquisition of the remaining
49% of P.S.K.
P.S.K specialises in the development, manufacture and integration of
communication systems and advanced monitoring and control systems for the
Government and defence industry market.
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