AFS.L Regulatory News (AFS)

29 Mar 2006 07:03

Amiad Filtration Systems Ltd29 March 2006 29 March 2006 Amiad Filtration Systems Ltd ("Amiad" or "the Company") Results for the Twelve Months to 31 December 2005 Amiad, a producer and global supplier of water filters and filtration systemsfor the industrial & municipal and the irrigation markets announces its fullyear results to 31 December 2005. Financial Highlights • Turnover rose 15% to $42.4m (2004: $36.9m)• Operating income up 75% to $4.9m (2004: $2.8m)• Profit before tax increased 57% to $4.1m (2004: $2.6m)• As expected, gross margins were 50.2%• Basic and fully diluted earnings per share increase 82% to 20 cents (2004: 11 cents)• Raised £6.5m before expenses for the Company through admission to AIM in December 2005• A final dividend of 7.71 cents (USD) per share Operational Highlights • Strong demand for automatic filters specifically in Mexico and Central America, Spain and China• Significant sales growth in Ecuador Columbia and Mexico for irrigation products• Solid initial sales of new product containing thread filter in USA and France• Entered into 50% joint venture with Yixing Taixing Environtec Co Ltd (China) Commenting on the results, Yossi Katz, Chief Executive of Amiad said: "Amiad isbenefiting from strong growth in water resource infrastructure investment as demand for clean water increases globally. "Despite possible seasonal fluctuations in the irrigation sector during the yearthe company expects a solid demand for its advanced filtration systems. Ourgrowing involvement in India, Brazil, China, Eastern Europe, Russia and USprovides the Company with a good platform for further growth in 2006." Enquiries: Amiad Filtration Systems +44 (0)20 7929 8989 on the day andYossi Katz, Chief Executive Officer +972 (0) 4 690 9500 thereafterItamar Eder, Chief Financial Officer Corfin CommunicationsHarry Chathli, Neil Thapar +44 (0)20 7929 8989 Overview Amiad made significant progress in the twelve months to 31 December 2005. TheCompany increased its revenues by 15% to $42.4 million (2004: $36.9m) and profitbefore tax increased by 57% to $4.1m million (2004: $2.6m). If the non-recurring expenses, management fees payable to the shareholders, which wereterminated on Admission, and amortisation of non-tangible assets were excluded,the profit before tax was $5.4m Amiad is a producer and global supplier of water filters and filtration systemsused in two key markets, namely the industrial and municipal market and the irrigation market. The Company develops and supplies advanced filtration systems which improve performance and efficiency. By revenue, automatic filters are the Company's largest business segment. These results reflect continued strong demand for automatic filters, specifically in Mexico and Central America, Spain and China, primarily in the industrial & municipal markets. Amiad's automatic filters require low maintenance and can be adapted to provide bespoke solutions to a wide range of applications in industries including steel, power, oil and gas, pulp and paper,in addition to a wide variety of other applications in the irrigation market. Amiad now sells its products in over 60 countries across the Americas, Africa, Europe, Asia and Australasia. Over 90% of the Company's revenues are generated outside Israel. On 5 December 2005, the Company was admitted to trading on AIM. The Company raised £6.5 million, primarily to develop its sales and marketing strategy in the high growth territories such as China, India, Mexico, Africa and Eastern Europe. Operational Review During the year, the Company had identified a number of key market segments thatwere expected to experience strong growth due to increasing demand for clean water or higher environmental standards. Industrial & Municipal The Company has made significant progress in the Industrial & Municipal sector during the year, with a double-digit year-on-year growth from the previous year.A significant contract was signed in France with Veolia for the supply of filters for pre-filtration of membranes. In September 2005, the Company secured an order in the US to supply its new product, the thread filter, which was developed specifically for pre-filtration and sea water application. Another breakthrough in this segment was filtration of ballast water, with the Company selling its first commercial system of this product to Meyer Wreft in Germany and subsequently receiving an order for a system in Pan Asia in Korea. In July 2005, the Company increased to 50 per cent. its stake in Yixing Taixing Environtec Co. Ltd, a Chinese affiliate, which will allow it to accelerate salesin the rapidly growing Chinese market and lower the cost of manufacturing of steel manual and automatic filters. In 2006 the Company should continue to benefit from focusing on the emerging markets of Central America and India as it takes on new employees and enters into distribution networks. Irrigation Revenue derived from products being sold to the irrigation market also saw double digit growth compared to the previous year, mainly due to two large projects in the early part of 2005. This was an unusual high as this segment is the one most affected by seasonality. The Company achieved significant penetration into Central America, mainly in Mexico and also expanded sales in Ecuador and Colombia. In Europe, the Company installed 86 filtration systems in Spain through their distributor, Mondragon. In the latter part of 2005, the Company started to produce and sell automatic disc filters for the irrigation sector and expects to supply this to customers in the coming year. This is an important addition it the Company's current main product line of automatic filters. On September 1, 2005, the Company acquired the remaining 50% of the shares in Amiad Australia from Plastro Irrigation Ltd. ("Plastro"). Accordingly, Amiadceased to sell directly to the irrigation market and now focuses on filtration and water treatment systems for the municipal and industrial markets. TheCompany will continue to sell filters for the irrigation sector via Plastro. Financial review The Company increased its revenues by 15% to $42.4 million (2004: $36.9m) and profit before tax increased by 57% to $4.1 million (2004: $2.6m). Basic and fully diluted earnings per share increased by 82% to 20 cents (2004: 11 cents). As expected, the gross margin was 50.2%, same as in 2004. Operating income increased by 75% to $4.9m (2004: $2.8m) reflecting the growthin revenues and a tight control over operational expenditure. Net income amounted to $2.9m compared to $1.7m for the previous year. Net cash balances as of December 31, 2005, amounted to $7.7m reflecting the $9.3m net proceeds from the placing on admission to AIM in December 2005, and after repayment of loans and reducing the use of credit facilities. Cash from operations for the full year was negative $0.3m compared with a positive $1.8m in 2004. In the first half of 2005 the cash from operations was negative $2.1m which, as expected, turned to a positive $1.8m in the second half of the year. R&D Amiad employs 25 people worldwide in research & development and engineering. It has a good track record of innovation with success in increasing automation, efficiency and space saving. The Company's breakthrough product, the thread filter is the only effective alternative to other membrane filtering systems. The Company intends to invest 3-5% of sales on R&D on an ongoing basis. Dividend The Directors are recommending a dividend payment of approximately 7.71 cents (USD) per share for the twelve months payable on 5 May 2006 to shareholders on the register on 5 April 2006 which is set as the Ex-Dividend date. Outlook Global demand for clean water continues to rise steadily. This is expected to lead to significant investment in water resource infrastructure over the long term. The Company has seen a further increase in demand for its advanced filtration systems, specifically in the Industrial & Municipal markets. Sales inthe irrigation segment will reflect the seasonality associated with the farmingpatterns during the early part of the year. However, increased distribution and sales in India, Brazil, China, Eastern Europe, Russia and US provides the Company with a solid platform for further growth in 2006. CONSOLIDATED BALANCE SHEETS December 31, -------------------------- 2005 2004 -------- -------- U.S. dollars in thousands --------------------------ASSETS CURRENT ASSETS:Cash and cash equivalents 7,692 2,004Marketable securities 4 307Trade receivables 14,467 11,055Other accounts receivable 1,250 1,078Inventories 8,210 8,483 -------- --------Total current assets 31,623 22,927 -------- --------NON-CURRENT ASSETS:Loan to a jointly controlled entity - 256Loans to a related party 411 400Severance pay fund 558 538Long-term receivables 94 228Fixed assets, net 2,613 2,544Other assets, net 2,618 2,872Deferred taxes 1,128 696 -------- --------Total non-current assets 7,422 7,534 -------- --------TOTAL ASSETS 39,045 30,461 ======== ========LIABILITIES AND EQUITY CURRENT LIABILITIES:Credit from banks and others 6,348 5,866Trade payables 5,833 6,002Income taxes payable 870 1,509Other accounts payable 2,579 2,945 -------- --------Total current liabilities 15,630 16,322 -------- --------NON-CURRENT LIABILITIES:Liabilities to banks and others 3,601 4,319Accrued severance pay 519 571Deferred taxes 629 712 -------- --------Total non-current liabilities 4,749 5,602 -------- --------TOTAL LIABILITIES 20,379 21,924 -------- --------CHARGES, CONTINGENT LIABILITIES AND COMMITMENTS EQUITYShare capital 2,291 1,497Capital reserves 12,797 1,020Perpetual debenture - 2,871Foreign currency translation reserve 123 39Retained earnings 3,190 2,872 -------- -------- 18,401 8,299Minority interest 265 238 -------- --------TOTAL EQUITY 18,666 8,537 -------- --------TOTAL LIABILITIES AND EQUITY 39,045 30,461 ======== ======== CONSOLIDATED STATEMENTS OF INCOME -------------------------- Year ended December 31, -------------------------- 2005 2004 ------ -------- ------- Note U.S. dollars in thousands (except per share data) ------ -------------------------- Revenues from sales 42,406 36,934Cost of sales 21,139 18,376 -------- --------Gross profit 21,267 18,558 -------- --------Selling and marketing expenses 10,571 9,774General and administrative expenses 5,471 5,562Amortization of other assets 340 411 -------- -------- 16,382 15,747 -------- --------Operating income 4,885 2,811Financial expenses, net 822 249Other income (expenses), net (1) 23 -------- --------Income before taxes on income 4,062 2,585Taxes on income 1,151 864 -------- --------Net income 2,911 1,721 ======== ========Attributable to:Equity holders of the parent 2,943 1,671Minority interest (32) 50 -------- -------- 2,911 1,721 ======== ========Basic and diluted earnings per share(in U.S. dollars) 3 0.20 0.11 ======== ======== The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Attributable to equity holders of the parent ----------------------------------------------------------- Share Capital Perpetual Foreign Retained Total capital reserves debenture *) currency earnings trans- lation reserve -------- -------- --------- --------- --------- ------- U.S. dollars in thousands -----------------------------------------------------------Balance atJanuary 1, 2004 1,497 1,020 2,824 41 1,734 7,116 Interest onperpetualdebenture*) - - - - (113) (113) Exchange differenceson perpetual - - 47 - (47) -debenture Currency translationdifferences - - - (2) - (2) Dividend - - - - (373) (373) Net income - - - - 1,671 1,671 ------- -------- --------- --------- --------- -------Balance atDecember 31, 2004 1,497 1,020 2,871 39 2,872 8,299 Net proceedsfrom issuance 545 8,730 - - - 9,275of shares in IPO Deferred taxes inrespect of IPO costs - 621 - - - 621 Interest onperpetual debenture *) - - - - (81) (81) Exchange differenceson perpetual debenture - - (196) - 196 - Conversion of perpetual debenture *) - 2,675 (2,675) - - - Currency translationdifferences - - - 84 - 84 Dividend - - - - (2,804) (2,804) Dividend to minority - - - - - - Changes in - - - - - -minority interestupon the sale ofinvestment in acompany Issuance ofbonus share 249 (249) - - - - Share-based payment - - - - 64 64 Net income - - - - 2,943 2,943 -------- -------- --------- --------- --------- -------Balance atDecember 31, 2005 2,291 12,797 - 123 3,190 18,401 ======== ======== ========= ========= ========= ======= CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued) -------- -------- ------------- Minority Total Total interest equity recognized income (expense) **) -------- -------- ------------- U.S. dollars in thousands -------------------------------------- Balance at January 1, 2004 188 7,304 - Interest on perpetual debenture *) - (113) -Exchange differences on perpetual - - - debentureCurrency translation differences - (2) (2)Dividend - (373) -Net income 50 1,721 1,671 -------- -------- ------------Balance at December 31, 2004 238 8,537 1,669 ======== ======== ============Net proceeds from issuance of shares in IPO - 9,275 -Deferred taxes in respect of IPO costs - 621 -Interest on perpetual debenture *) - (81) -Exchange differences on perpetual - - - debentureConversion of perpetual debenture *) - - -Currency translation differences - 84 84Dividend - (2,804) -Dividend to minority (36) (36) -Changes in minority interest upon the sale of investment in a company 95 95 -Issuance of bonus shares - - -Share-based payment - 64 -Net income (32) 2,911 2,943 -------- -------- ------------Balance at December 31, 2005 265 18,666 3,027 ======== ======== ============ *) See Note 18c.**) Attributable to equity holders of the parent. The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------- Year ended December 31, ------------------------- 2005 2004 --------- --------- U.S. dollars in thousands -------------------------Cash flows from operating activities:-------------------------------------Net income 2,911 1,721Adjustments to reconcile net income to net cash provided by (used in) operating activities (a) (3,220) 92 --------- ---------Net cash provided by (used in) operating activities (309) 1,813 --------- ---------Cash flows from investing activities:-------------------------------------Purchase of fixed assets (1,041) (1,151)Purchase of other assets (44) -Investment grants received 113 128Disposal of (investment in) marketable securities 300 (261)Acquisition of company included according to the proportionate consolidation method (b) (517) -Increase in cash resulting from transition to full consolidation of a company previously included according to the proportionate consolidation method (d) 8 -Proceeds from sale of fixed assets 41 46Proceeds from the sale of a subsidiary (c) 50 -Long-term loan granted to a related party and others (284) (154)Collection of long-term loan granted to a related party 268 57 --------- ---------Net cash used in investing activities (1,106) (1,335) --------- ---------Cash flows from financing activities:---------------------------------------Net proceeds from issuance of shares in IPO 9,275 -Dividends paid to the minority interest (36) -Dividends paid to equity holders of the parent (2,804) (373)Interest on perpetual debenture (135) (109)Receipt of long-term loans and other liabilities 1,964 2,911Repayment of long-term loans (1,928) (1,662)Receipt of loans from others - 233Short-term credit from banks, net 840 (1,280) --------- ---------Net cash provided by (used in) financingactivities 7,176 (280) --------- ---------Effect of exchange rate changes on cash and cash equivalents (73) 19 Increase in cash and cash equivalents 5,688 217Cash and cash equivalents at the beginning of the year 2,004 1,787 --------- ---------Cash and cash equivalents at the end of the year 7,692 2,004 ========= =========Interest paid 823 490 ========= =========Income taxes paid 1,643 530 ========= ========= The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------- Year ended December 31, -------------------------- 2005 2004 --------- --------- U.S. dollars in thousands --------------------------(a) Adjustments to reconcile net income to net cash provided by (used in) operating activities: ------------------------------------------ Income and expenses not involving operating cash flows: Depreciation and amortization 980 902 Share-based payment 64 - Deferred taxes, net 107 (206) Accrued severance pay, net (72) (83) Exchange rate differences on liabilities to banks and other long-term liabilities 61 235 Loss on sale of fixed assets and others 66 15 Exchange rate differences on loans to related party and others 22 (19) -------- --------- 1,228 844 -------- --------- Changes in operating assets and liabilities: Increase in trade receivables (3,068) (1,099) Increase in other accounts receivable (59) (77) Decrease (increase) in inventories 167 (2,860) Increase (decrease) in trade payables (392) 1,707 Increase (decrease) in other accounts payable (1,096) 1,577 -------- --------- (4,448) (752) -------- --------- (3,220) 92 ======== =========(b) Acquisition of company included according to the proportionate consolidation method -------------------------------------------- Working capital (excluding cash and cash equivalents) (321) Other assets (42) Fixed assets, net (229) Long-term receivables 75 -------- Cash outflow (517) ========(c) Proceeds from the sale of a subsidiary ---------------------------------------- Working capital (excluding cash and cash equivalents) (476) Fixed assets, net 526 -------- Cash inflow 50 ========(d) Increase in cash resulting from transition to full consolidation of a company previously included according to the proportionate consolidation method ------------------------------------------ Working capital deficiency (excluding cash and cash equivalents) 121 Fixed assets, net (113) -------- Cash flow 8 ======== The accompanying notes are an integral part of the consolidated financialstatements. NOTE 1:- GENERAL a. The Company was incorporated in Israel in June 1997. On December 5, 2005, the Company's shares were admitted to trading on the AIM, a market operated by the London Stock Exchange. Concurrently, the Company completed an initial public offering (IPO) of its shares - see Note 18b. The principal shareholders of the Company are Kibbutz Amiad ("the Kibbutz"), through a company controlled by the Kibbutz, A.M.S.I. Investments Ltd. ("AMSI") which owns 54.1% of the Company's outstanding shares, and Gaon Agro Industries Ltd. ("Gaon Agro") which owns 13% of the Company's outstanding shares. b. The Group is a producer and global supplier of water filters and filtration systems used in the industrial & municipal market and the irrigation market. c. On June 30, 1998, the Company entered into an agreement with the Kibbutz and with the limited partnership, Amiad Filtration Systems ("the partnership") in which the Kibbutz is the general partner ("the purchase agreement") whereby all of the partnership's business activities, assets, including goodwill and intellectual property, but excluding property rights (lease rights and/or ownership to land and buildings) were transferred to the Company in effect as from January 1, 1998 ("the transfer date"). All of the partnership's liabilities were also transferred to the Company as of the transfer date, except for certain guarantees and charges that remained in the partnership. The transfer of the above assets and liabilities was carried out at no consideration in accordance with the regulations of the Israeli Economy Settlements Regulations (Legislation Amendments) Tax Reliefs Relating to Assistance Arrangements with Farmers, 1990. According to these regulations, for income tax purposes, the cost of transferred assets, the respective accumulated depreciation and their purchase date shall be as in the transferring partnership. d. Definitions: In these financial statements: The Company - Amiad Filtration Systems Ltd. The Group - The Company and its subsidiaries. Subsidiaries - Companies over which the Company exercises control and whose accounts are consolidated with those of the Company. Jointly controlled entities - Companies owned by various entities that has a contractual arrangement for joint control, and whose accounts are consolidated with those of the Company using the proportionate consolidation method. NIS - New Israeli shekels NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES a. Basis of preparation: The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS"). b. Accounting policies: The accounting policies adopted by the Group for all periods presented are in compliance with the IFRSs that are effective at December 31, 2005. c. Financial statements in U.S. dollars - the functional and presentation currency: The functional and presentation currency of the Company and its subsidiaries (except in Australia and China - see below), is the U.S. dollar. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income. The functional currency of the subsidiary in Australia is the Australian dollar ("AUD"). The functional currency of the jointly controlled entity in China is the Chinese RMB. As at the reporting date, the assets and liabilities of these companies are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date, and income and expenses are translated at weighted average exchange rates. The exchange rate differences arising on the translation are taken directly to a separate component of equity ("foreign currency translation reserve"). d. Principles of consolidation: Subsidiaries are consolidated from the date on which control is transferred to the Company and cease to be consolidated from the date on which control is transferred out of the Company. Intercompany balances and transactions, including profits from inter-company transactions not yet realized outside the Group, have been eliminated upon consolidation. The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company, using consistent accounting policies. The financial statements were consolidated with those of the following subsidiaries: - Filtration Ltd., wholly-owned and controlled by the Company, is registered in Israel and engaged in the manufacture and marketing of automatic water filters ("Filtration"). - Amiad U.S.A. Inc., an 82%-owned subsidiary, is registered in the State of California, U.S.A. and is engaged in the sale of the Company's products and other irrigation products in the U.S., Canada and Mexico. - Filtration and Control Systems Pte Ltd., wholly-owned and controlled by the Company, is registered in Singapore and is engaged in the marketing and distribution of the Company's products in East Asia, except China. - Amiad France S.A.R.L., a 66%-owned subsidiary, is registered in France and engaged in the marketing and distribution of the Company's products in France. - Amiad Filtration Solutions Ltd., wholly-owned and controlled by the Company, is registered in Israel from January 2005 and operates a sales office in Germany. - Amiad Australia Pty Ltd. ("Amiad Australia") - wholly-owned and controlled by the Company commencing from September 1, 2005 (see Note 7a). From October 1, 2003 until August 31, 2005, Amiad Australia's financial statements were consolidated by the proportionate consolidation method. The Company is engaged in the marketing and distribution of filtration and irrigation products to the agricultural, industrial and municipal markets in the Australian region. In June 2004, Amiad Australia and unrelated parties active in the Australian irrigation market established a jointly controlled company (50%), Plastro Asia Pacific Pty Ltd. ("PAP"), which is engaged in the manufacture and marketing of agricultural irrigation products. The agreement between Amiad Australia and the other shareholders provided Amiad Australia with potential voting rights that are currently exercisable. Based on an assessment of these potential voting rights, together with its existing voting power, Amiad had determined in accordance with IAS 27, "Consolidated and Separate Financial Statements," that it controlled PAP and accordingly the accounts of PAP were consolidated in these financial statements. e. Jointly controlled entity: The jointly controlled entity is included in the consolidated financial statements using the proportionate consolidation method. Under this method, the Company combines its share of the assets, liabilities, revenues and expenses of the jointly controlled entity with similar line items in the consolidated financial statements. f. Cash equivalents: The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. g. Short-term marketable securities: Marketable securities held for trading are stated at quoted market prices at balance sheet date. Changes in their value are included in financial expenses, net in the statement of income. h. Trade receivables: Trade receivables are recognized and carried at original invoice amount, less an allowance for doubtful accounts. The allowance for doubtful accounts is principally determined in respect of specific debts whose collection, in the opinion of the Company's management, is doubtful. i. Inventories: Inventories are stated at the lower of cost and net realizable value. Cost is determined as follows: Raw materials, auxiliary materials and packing materials - using the "first-in, first-out" method. Work in progress - on the basis of average cost including materials, labour and other direct and indirect manufacturing costs. Finished products - on the basis of average cost including materials, labour and other direct and indirect manufacturing costs. Purchased products - using the "first-in, first-out" method. j. Fixed assets: Fixed assets are stated at cost net of accumulated depreciation and investment grants. Expenditures for improvements and upgrading are added to cost. The Company evaluates in each reporting period the necessity to record an impairment loss (see l. below). Depreciation is calculated by the straight-line method over the estimated useful lives, as follows: % -------------------- Machinery and equipment 6 - 20 (mainly 10%) Office furniture and equipment, computers and peripheral equipment 7 - 33 (mainly 33%) Motor vehicles 15 - 20 (mainly 15%) Leasehold improvements Over the term of the lease k. Other assets: Other assets comprise know-how, customer relationships, non-competition agreements and goodwill. Most of these assets were acquired in connection with the acquisition of Filtration Ltd. in a business combination in 2000. The fair value of these assets (other than goodwill) was based on an independent valuation. Following initial recognition, the cost model is applied to these assets. The periods of amortization of these assets are as follows: Know-how - amortized over a period of 10 years, using the straight-line method. Customer relationships - amortized over the estimated lives of the customer relationship (10 years), taking into account the scope of sales to acquired customers. Non-competition agreements - were amortized over a period of 2-4 years, using the straight-line method. Goodwill on acquisition is measured at cost being the excess of the cost of the business combination over the fair value of net assets acquired. Goodwill is not amortized commencing from January 1, 2002, and is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. l. Recoverable amount of non-current assets: The carrying values of non-current assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount is the higher of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. m. Share-based payment transactions: Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). The cost of equity-settled transactions is measured by reference to the fair value at the grant date using an option-pricing model (see Note 18d). The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date the options vest. The cumulative expense, recognized at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. No expense is recognized for amounts that do not ultimately vest. n. Deferred income taxes: The Company provides for deferred income taxes using the liability method of accounting. Under the liability method, deferred taxes are recognized for temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred taxes are measured based on enacted tax rates that will be in effect in the year in which the differences are expected to reverse. Deferred tax assets in respect of carryforward losses and other temporary deductible differences are recognized to the extent that it is probable that they will be utilized. Taxes that would apply in the event of the distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, when the distribution of dividend does not involve an additional tax liability or when the Company is able to control the distribution of dividends that will cause an additional tax liability. o. Revenue recognition: Revenues from product sales are recognized upon delivery to the customer and, in certain circumstances, after customer acceptance. p. Exchange rates and linkage basis: Monetary assets and liabilities, denominated in currencies other then U.S. dollar, are translated using exchange rates in effect at balance sheet date. Monetary assets and liabilities linked to the Israeli Consumer Price Index ("CPI") are presented according to the relevant index for each linked asset or liability. Exchange differences are recorded in the statements of income. Below are data about the exchange rates of certain currencies in relation to theU.S. dollar and data regarding the CPI: As of 1 Euro 1 AUD 1 NIS CPI--------------- -------- -------- -------- -------- U.S. dollars ---------------------------------------- December 31, 2005 0.845 1.363 0.217 110.00December 31, 2004 0.733 1.283 0.232 107.44December 31, 2003 0.791 1.330 0.228 106.16 q. Basic and diluted earnings per share: Basic earnings per share are computed by dividing net income attributable to ordinary equity holders of the parent (after deducting interest on perpetual debenture) by the weighted average number of Ordinary shares outstanding during the period, adjusted retrospectively for a share split and issuance of bonus shares. Diluted earnings per share are computed based on the above plus the effect of dilutive securities (options). r. Fair value of financial instruments: The carrying amounts of cash and cash equivalents, trade receivables and other accounts receivable, credit from banks, trade and other accounts payables approximate their fair value due to the short-term maturity of such instruments. The fair value of long-term liabilities for banks and others also approximates carrying value, as these liabilities bear interest at variable rates. s. Government grants: Royalty-bearing grants from the Government of Israel for funding approved research projects and for participation in export marketing expenses are recognised at the time the Company is entitled to such grants. Such grants are recorded as a liability when repayment is probable. Non-royalty-bearing grants from the Government of Israel for purchases of fixed assets, in accordance with the Law for the Encouragement of Capital Investments, 1959 were deducted from the respective purchased assets. NOTE 3:- EARNINGS PER SHARE As described in Note 18b, in November 2005, the Company effected a split of theCompany's share capital, and distributed bonus shares to the shareholders. The earnings per share presented in these financial statements have beenadjusted retrospectively to reflect the share split and the bonus shares. -------------------------- Year ended December 31, -------------------------- 2005 2004 --------- -------- U.S. dollars in thousands --------------------------Weighted average number of Ordinary shares outstanding (in thousands) Number of shares in the beginning of the year 5,743 5,743 Effect of split and bonus shares 8,084 8,084 Effect of issuance of shares in IPO 420 - -------- --------Number of shares used for calculation of earnings per share 14,247 13,827 ======== ======== U.S. dollars in thousands -------------------------Net income attributable to equity holders of the parent 2,943 1,671 Less - interest on perpetual debenture (81) (113) -------- -------- 2,862 1,558 ======== ========Basic and diluted earnings per share (in U.S. dollars) *) 0.20 0.11 ======== ======== *) Basic and diluted earnings per share are presented in the same amount, since the effect of share options is immaterial. - ENDS - This information is provided by RNS The company news service from the London Stock Exchange