REG - MTI Wireless Edge - Final Results <Origin Href="QuoteRef">MWEE.L</Origin> - Part 2
17/02/2016 07:10
- Part 2: For the preceding part double click ID:nRSQ2616Pa
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.
Goodwill is recognized as an intangible asset with any impairment in carrying value being charged to the income statement.
The 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 is an impairment.
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 a finite useful life are amortized over their useful life and reviewed for impairment whenever there
is an indication that the asset may be impaired. The amortization period and the amortization method for an intangible
asset are reviewed at least at each 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 life of these assets is reviewed
annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances
do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted
for prospectively as a change in accounting estimate and on that date the asset is tested for impairment. Commencing from
that date, the asset is amortized systematically over its useful life.
Impairment of non-financial assets
Impairment tests on goodwill are undertaken annually on December 31 or sooner when there are signs of impairment. Other
non-financial assets 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 impairment charge is
recognized accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on
the asset's cash-generating unit (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) to which goodwill has been allocated 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.
An impairment loss allocated to asset, other than goodwill, is reversed only if there have been changes in the estimates
used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment
loss, as above, 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 impairment loss of an asset is recognized in profit or loss.
Impairment charges are included in general and administrative expenses line item in the statement of comprehensive income.
During the years 2014 and 2015 no impairment charges of non-financial assets were recognized.
Functional and reporting currency
The majority of the revenues of the Company are generated in U.S. dollars. In addition, a substantial portion of the
Company's costs are incurred in U.S. dollars. Thus, the functional currency of the Company is the U.S. dollar.
The reporting currency of the financial statements is the U.S. dollar.
Foreign currency transactions
Transactions denominated in foreign currency (other than the functional currency) are recorded on initial recognition at
the exchange rate as of the date of the transaction. After initial recognition, monetary assets and liabilities denominated
in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate as
of that date. Exchange differences, other than those capitalized to qualifying assets are recognized in profit or loss.
Non-monetary assets and liabilities measured at cost are translated at the exchange rate as of the date of the transaction.
Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the
functional currency using the exchange rate prevailing at the date in which the fair value was determined.
Exchange differences arising on the retranslation of monetary assets and liabilities are recognized immediately in profit
or loss.
Financial assets
The Group classifies its financial assets into one of the following categories, depending on the purpose for which the
asset was acquired. The Group's accounting policy for each category is as follows:
Fair value through profit or loss: This category comprises only marketable securities. These assets are carried at fair
value with changes in fair value recognized in profit or loss.
Loans and receivables: Loans and receivables are investments with fixed or determinable payments that are not quoted in an
active market and they are initially recognized at fair value plus directly attributable transaction costs. After initial
recognition, loans are measured based on their terms at amortized cost plus directly attributable transaction costs using
the effective interest method and less any impairment losses. Short-term borrowings are measured based on their terms,
normally at face value.
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.
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 of financial instruments by fair value hierarchy:
The financial instruments 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).
Financial Liabilities
The Group classifies its financial liabilities as follows:
Other financial liabilities: Other financial liabilities include the following items:
• Bank borrowings are initially recognized at fair value less any transaction costs directly attributable to the
issue of the instrument. Such interest bearing liabilities are subsequently measured at amortized cost using the effective
interest method, which ensures that any interest expense over the period is at a constant interest rate on the balance of
the liability carried in the statement of financial position. Interest expense in this context includes initial transaction
costs, as well as any interest or coupon payable while the liability is outstanding.
• Trade payables and other short-term monetary liabilities, which are initially recognized at fair value and
subsequently measured at amortized cost using the effective interest rate method.
De-recognition of financial instruments
Financial assets: A financial asset is derecognized when the contractual rights to the cash flows from the financial asset
expire or the Group has transferred its contractual rights to receive cash flows from the financial asset or assumes an
obligation to pay the cash flows in full without material delay to a third party and has transferred substantially all the
risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.
Financial liabilities: A financial liability is derecognized when it is extinguished, that is when the obligation is
discharged or cancelled or expires. A financial liability is extinguished when the creditor
· discharges the liability by paying in cash, other financial assets, goods or services; or
· is legally released from the liability.
Where an existing financial liability is exchanged with another liability from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is accounted for
as an extinguishment of the original liability and the recognition of a new liability. The difference between the carrying
amounts of the existing liability and new liability is recognized in profit or loss. If the exchange or modification is not
substantial, it is accounted for as a change in the terms of the original liability and no gain or loss is recognized on
the exchange.
Impairment of financial assets
The Group assesses at the end of each reporting period whether there is any objective evidence of impairment of a financial
asset or group of financial assets as follows.
Financial assets carried at amortized cost:
There is objective evidence of impairment of loans and receivables if one or more events have occurred after the initial
recognition of the asset and that loss event has an impact on the estimated future cash flows. Evidence of impairment may
include indications that the debtor is experiencing financial difficulties, including liquidity difficulty and default in
interest or principal payments.
The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at
the financial asset's original effective interest rate (the effective interest rate at initial recognition). If the
financial asset has a variable interest rate, the discount rate is the current effective interest rate. The carrying amount
of the asset is reduced through the use of an allowance account. In a subsequent period, the amount of the impairment loss
is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was
recognized. The amount of the reversal, which is limited to the amount of any previous impairment, is recognized in profit
or loss.
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 the BIRD on or after January 1, 2009, are accounted for as forgivable
loans, in accordance with IAS 20 (Revised), pursuant to the provisions of IAS 39. 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 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 and recorded in profit or loss in accordance with the provisions of IAS
39.
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.
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 other
comprehensive income or directly in equity if the tax relates to those items.
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.
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 on "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,
since the distribution of dividends does not involve an additional tax liability, and if so, 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, respectively. Deferred taxes are offset in the
statement of financial position if there is a legally enforceable right to offset a current tax asset against a current tax
liability and the deferred taxes relate to the same taxpayer and the same taxation authority.
Taxes on income
Tax-exempt income derived from "approved enterprises" will be subject to additional income tax in the event of distribution
of dividends attributed to such income. Such additional income tax has not been provided for in the financial statements,
since the current policy of the Group is not to distribute dividends incurring additional income tax.
Inventories
Inventories are initially recognized at cost, and subsequently at the lower of cost and net realizable value. Cost is
calculated according to weighted average model.
Property, plant and equipment
Items of property, plant and equipment are initially recognized at cost. Cost includes directly attributable costs and the
estimated present value of any future costs of dismantling and removing items. Depreciation is computed by the straight
line method, based on the estimated useful lives of the assets, 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
Investment property
An investment property is property (land or a building or both) held by the owner (lessor under an operating lease) or by
the lessee under a finance lease to earn rentals or for capital appreciation or both rather than for use in the production
or supply of goods or services, for administrative purposes or for sale in the ordinary course of business.
Investment property is measured initially at cost less including costs directly attributable to the acquisition. After
initial recognition, investment property is measured at cost, accumulated depreciation and accumulated impairment losses
and accounted for similarly to property, plant and equipment measured at cost.
Investment property is depreciated on a straight-line basis at annual rates of 3.13%, over its useful life.
Investment property is derecognized on disposal or when the investment property ceases to be used and no future economic
benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the
asset is recognized in profit or loss in the period of the disposal.
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.
Provision for warranty
The Group generally offers up to three years warranties on its products. Based on past experience, the Group does not
record any provision for warranty of its products and services.
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. As long as all other vesting conditions are satisfied,
a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense charged is not
adjusted for failure to achieve a market vesting condition.
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 to 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 termination of employee-employer relationship 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 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 current deposits in 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.
Earnings per Share (EPS)
Earnings per share are 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 earnings per share of the investees multiplied by the
number of shares held by the Company.
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
distributed among segments. Non-distributed items include the Group's financial income and expenses and income tax.
New IFRSs in the period prior to their adoption
- IFRS 9 Financial Instruments:
In July 2014, the IASB issued the final and complete version of IFRS 9, Financial Instruments ("IFRS 9"), which replaces
IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 mainly focuses on the classification and measurement of
financial assets and it applies to all assets in the scope of IAS 39.
According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt
instruments are measured at amortized cost only if both of the following conditions are met:
- the asset is held within a business model whose objective is to hold assets in order to collect the contractual cash
flows.
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a
distinction between debt instruments to be measured at fair value through profit or loss and debt instruments to be
measured at fair value through other comprehensive income.
Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes
recognized in profit or loss or in other comprehensive income, in accordance with the election by the Company on an
instrument-by-instrument basis. If equity instruments are held for trading, they should be measured at fair value through
profit or loss.
According to IFRS 9, the provisions of IAS 39 will continue to apply to de-recognition and to financial liabilities for
which the fair value option has not been elected.
According to IFRS 9, changes in measurement fair value of financial liabilities which are attributable to the change in
credit risk should be presented in other comprehensive income. All other changes in fair value should be presented in
profit or loss.
IFRS 9 also prescribes new hedge accounting requirements.
IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.
The Company is evaluating the possible impact of IFRS 9 but is presently unable to assess its effect, if any, on the
financial statements.
Impairment - The impairment model is a more 'forward looking' model in that a credit event no longer has to occur before
credit losses are recognised. For financial assets measured at amortised cost or fair value through other comprehensive
income, an entity will now always recognise (at a minimum) 12 months of expected losses in profit or loss. Lifetime
expected losses will be recognised on these assets when there is a significant increase in credit risk after initial
recognition.
Hedging - The new hedge accounting model introduced the following key changes:
- Simplified effectiveness testing, including removal of the 80-125% highly effective threshold
- More items will now qualify for hedge accounting, e.g. pricing components within a non-financial item, and net
foreign exchange cash positions
- Entities can hedge account more effectively the exposures that give rise to two risk positions (e.g. interest rate
risk and foreign exchange risk, or commodity risk and foreign exchange risk) that are managed by separate derivatives over
different periods
- Less profit or loss volatility when using options, forwards, and foreign currency swaps
- New alternatives available for economic hedges of credit risk and 'own use' contracts which will reduce profit or
loss volatility.
- IFRS 15 -Revenue from Contracts with Customers (hereafter - IFRS 15)
IFRS 15 shall replace other IFRS provisions relating to revenue recognition.
The core principle of IFRS 15 is that an entity will recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services.
IFRS 15 sets out a single revenue recognition model, according to which the entity shall recognize revenue in accordance
with the said core principle by implementing a five-step model framework:
1) Identify the contract(s) with a customer
2) Identify the performance obligations in the contract
3) Determine the transaction price
4) Allocate the transaction price to the performance obligations in the contract
5) Recognize revenue when the entity satisfies a performance obligation.
IFRS 15 provides guidance about various issues related to the application of the said model, including: recognition of
revenue from variable consideration set in the contract, adjustment of the price of transaction set in the contract in
order to reflect the effect of the time value of money and costs to obtain or fulfill a contract.
IFRS 15 extends the disclosure requirements regarding revenue and requires, among other things, that entities disclose
qualitative and quantitative information about significant judgments made by management in determining the amount and
timing of the revenue.
The standard shall be applied retrospectively for annual reporting periods starting on January 1, 2018 or thereafter,
taking into account the reliefs specified in the transitional provisions of IFRS 15. Under these provisions, early adoption
of the standard is allowed. The Group has not as yet examined the implication of implementation of the IFRS 15 on the
financial statements.
2. Business combination
On April 28, 2015 the Company signed an agreement for the purchase of 100% of the share capital of Mottech Water Solutions
ltd ("Mottech"), a provider of wireless control products and services, for a consideration of approximately US$ 4 million
(15.5 million New Israeli Shekels) plus an additional contingent payment based on performance which could rich up to about
US$ 750 thousand (3 million New Israeli Shekels). The acquisition was completed on June 11, 2015 and funded by long-term
bank loan and internal sources. To secure the long-term bank loan the Company recorded a charge on the share capital of
Mottech and in addition has undertaken to meet the following financial covenant to be computed on the basis of the separate
financial statements of the Company:
· The amount of equity shall not be lower than 40% of total assets of the Company. As of December 31, 2015 the Company
meets the covenant.
Mottech is a global distributor and integrator of Motorola's wireless control solutions, which includes a portfolio of
radio-enabled sensors and switches managed by control software. Mottech primarily operates in the water management sector
and has developed proprietary wireless management solutions for commercial irrigation, municipal water authorities and
water distributors. A typical solution reduces costs for the client, for example Mottech provides a commercial farm
irrigation system that monitors the local environment, weather and soil sensors in real-time and Mottech's propriety
software automatically operates irrigation and fertilizer pump stations to optimize these critical costs for the farm.
Mottech was set up in May 2014 and acquired its business and assets at the same time from the Israeli court. The assets had
been placed in the Israeli court following the previous owner going into administration as result of business failure of a
subsidiary which is not part of Mottech or its business anymore.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities which were acquired based on
their fair value at the time of the acquisition. The intangible assets recognized include customer relations in the total
amount of US$ 483 thousands, differed taxes in the total amount of US$ 66 thousands and goodwill in the total amount US$
167 thousands. The customer relation is amortized over an economic useful life of up to 10 years.
Acquisition cost of Mottech at the date of acquisition:
Fair value
$'000
Cash paid 4,003
Contingent consideration liability 92
Total acquisition cost 4,095
Set forth below are the assets and liabilities of Mottech at date of acquisition:
Fair value
$'000
Cash and cash equivalents 961
Trade receivables 1,991
Other receivables 217
Inventories 1,586
Property, plant and equipment 95
Intangible assets 11
Trade payables (268)
Other liabilities (1,071)
Net identifiable assets 3,522
Intangible assets arising on acquisition, net of differed taxes 573
Total purchase cost 4,095
The result of the company were consolidated into the financial statement of the group commencing May 31, 2015 and from that
date Mottech has contributed US$ 636 thousand to the consolidated profit and US$ 6,271 thousand to the consolidated revenue
turnover. If the business combination had taken place at the beginning of the year, the consolidated net profit would have
been US$ 812 thousand and the consolidated revenue turnover would have been US$ 23,819 thousand.
Cash outflow/inflow on the acquisition:
$'000
Cash and cash equivalents acquired at the acquisition date 961
Cash paid (4,003)
Net cash (3,042)
Goodwill:
$'000
Balance at January 1, 2015 406
additions 167
Balance at December 31, 2015 573
The goodwill arising on acquisition is attributed to the expected benefits from the synergies of the combination of the
activities of the Company and the Mottech.
Contingent consideration:
As part of the purchase agreement with the previous owner of Mottech, it was agreed that the previous owner would be
entitled to an additional contingent consideration ("the contingent consideration"). The Group will pay the contingent
consideration to the previous owner based on calculation:
Up to US$ 720 thousand, if the acquired Company's accumulated revenue in 2016 - 2017 exceeds US$ 25.8 Million (100 million
New Israeli Shekels) ("the revenue target").
As of the acquisition date, the fair value of the contingent consideration was estimated at US$ 92 thousand. The fair value
was determined using the Monte-Carlo method.
The significant non-observable data used in measuring the fair value of the liability in respect of a contingent
consideration are as follows:
Discount rate: 12.8%
A significant increase in the estimated amount of the acquired Company's pre-tax income will result in a significant
increase (decrease) in the fair value of the liability in respect of the contingent consideration whereas a significant
increase (decrease) in the discount rate and default risk rate will result in a decrease (an increase) in the fair value of
the liability.
3. Revenues
For the year ended December 31,
2015 2014
$'000 $'000
Revenues arises from:
Sale of goods 13,987 11,032
Sale of services 2,182 -
Projects 3,410 3,309
19,579 14,341
4. Profit from operations
For the year ended December 31,
2015 2014
This has been arrived at after charging: $'000 $'000
Wages and salaries 6,525 4,957
Depreciation and amortization 593 451
Material and subcontractors 8,668 6,867
Operating lease expense 162 54
Plant, Machinery & Usage 681 661
Travel & Exhibition 260 231
Advertising & Commissions 207 149
Consultants 401 272
Others 320 359
17,817 14,001
5. Segments
1. Segment information
Following the acquisition of the new operation the Group's chief operating decision maker examines operating segments
differently from the past and therefore commencing the current financial statements the following table's present revenue
and profit information regarding the Group's operating segments for the years ended December 31, 2015 and 2014.
For the year ended December 31, 2015
Antennas Water Solutions* Total
$'000
Revenue
External 13,305 6,274 19,579
Total 13,305 6,274 19,579
Segment profit 859 903 1,762
Unallocated corporate expenses
Finance expense, net (388)
Profit before income tax 1,374
Other
Depreciation and amortization 561 32 593
(*) Results for seven month ending December 31, 2015.
For the year ended December 31, 2014
Antennas* Water Solutions Total
$'000
Revenue
External 14,341 - 14,341
Total 14,341 - 14,341
Segment profit 311 - 311
Unallocated corporate expenses
Unallocated income 29
Finance expense, net (187)
Profit before income tax 153
Other
Depreciation 451 - 451
(*) Reclassified
2. Entity wide disclosures External revenue by location of customers.
For the year ended December 31,
2015 2014
$'000 $'000
Israel 9,658 8,334
North America 4,331 2,259
Europe 2,269 2,590
Africa 1,276 -
Asia 547 780
Other 1,498 378
19,579 14,341
3. Additional information about revenues:
Revenues from major customers each of whom amount to 10% or more of total revenues reported in the financial statements:
For the year ended December 31,
Revenues 2015 2014
$'000 $'000
Customer A - Antennas segment 2,808 3,414
Others (non major customers) 16,771 10,927
19,579 14,341
6. Finance expense and income
For the year ended December 31,
2015 2014
$'000 $'000
Finance expense
Interest on bank loans 113 87
Net Foreign exchange loss 146 72
Interest and bank fees 173 122
432 281
Finance income
Gains from financial assets classified as held for trading 44 94
44 94
388 187
388
187
7. Income Tax
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 tracks 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: 2011 and 2012 - 15%, 2013 and 2014 - 12.5% and in 2015 and thereafter - 12%.
The Group applied the Amendment effectively from the 2011 tax year.
2. Tax rates:
On August 5, 2013, the Law for Change of National Priorities (Legislative Amendments for Achieving the Budgetary Goals for
2013-2014), 2013 (hereinafter - the 2013 Amendments) was published in Reshumot (the Israeli government official gazette),
which enacts, among other things, the following amendments:
- Raising the corporate tax rate to 26.5% (instead of 25%) beginning in 2014 and thereafter.
- Commencing tax year 2014 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 Law, shall increase to 9% (instead of 7% in 2014
and 6% in 2015 and thereafter) and for companies located in zones other than Zone A the rate shall increase to 16% (instead
of 12.5% in 2014 and 12% in 2015 and thereafter).
- 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 - 16% and the real capital gains tax rate and the real
betterment tax rate 26.5%.
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 36% and the company was in exempt zone until end of March 2013.
Nevertheless in the absence of taxable income the Indian regulation states that the company had to pay Minimum Alternate
tax rate which is 50% of the tax rate (the 36%) out of the accounting profit paid as an advanced for future years, if the
Company becomes tax liable.
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%
C. Income tax assessments
The Company has tax assessments considered as final up to and including the year 2011.
For the year ended December 31,
2015 2015 2014 2014
$'000 $'000 $'000 $'000
Current tax expense
Income tax on profits for the year 201 26
201 26
Deferred tax income
Origination and reversal of temporary differences (91) (142)
(91) (142)
Total tax expense (benefit) 110 (116)
Total tax expense (benefit)
110
(116)
The reasons 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,
2015 2014
$'000 $'000
Profit before income tax 1,374 153
Tax computed at the corporate rate in Israel of 16% 220 24
Un deductible expenses (Income not subject to tax) 13 (13)
Taxes resulting from different tax rates applicable to foreign and other subsidiaries 22 3
Utilization of previously unrecognized tax losses (102) (119)
Other (43) (11)
Total income tax expense (benefit) 110 (116)
8. Earnings per share
Net earnings per share attributable to equity owners of the parent
For the year ended December 31,
2015 2014
$'000 $'000
Net Earnings used in basic EPS 1,222 247
Net Earnings used in diluted EPS 1,222 247
Weighted average number of shares used in basic EPS 51,571,990 51,571,990
Effects of:
Employee options 325,037 -
Weighted average number of shares used in diluted EPS 51,897,027 51,571,990
Basic net EPS (dollars) 0.0237 0.0048
Diluted net EPS (dollars) 0.0235 0.0048
The employee options have been included in the calculation of diluted EPS as the weighted average share price during the
year greater than their exercise price (i.e. they are in-the-money) and therefore it would be advantageous for the holders
to exercise those options. The total number of options in issue is disclosed in note 24.
9. Dividends
For the year ended December 31,
2015 2014
$'000 $'000
Dividend of 0.68 cents (0.68 cents) per ordinary share proposed and paid during the year relating to the previous year's results 351 351
After the date of the financial statements the board of directors declared a dividend of 1.1 cents per share totaling US$
567 thousands. This dividend has not been accrued at the reporting date (December 31, 2015).
On January 12, 2016 the company adopted a change in its article of association allowing the board of directors to declare a
scrip dividend - for more information see note 27B.
10. Property, plant and equipment
Building Machinery & Office Computer equipment Vehicles Total
equipment furniture & equipment
$'000 $'000 $'000 $'000 $'000 $'000
Cost:
Balance as of January 1, 2015 4,572 4,559 270 1,317 257 10,975
Acquisitions 49 164 8 31 42 294
Transfer from Investment Property 552 - - - - 552
Adjustment arising from acquisition of consolidated companies 13 82 24 39 87 245
Exchange differences - - - - 1 1
Balance as of December 31, 2015 5,186 4,805 302 1,387 387 12,067
Accumulated Depreciation:
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