AFS.L Regulatory News (AFS)

10 September 2015

Amiad Water Systems Ltd.

("Amiad" or the "Company")

Interim Results

Amiad (AIM: AFS), a leading global producer of water treatment and filtration solutions, announces its interim results for the six months ended 30 June 2015.

Financial Summary

· Revenue was $59.2m (H1 2014: $60.2m)

· Gross margin was 40.1% (H1 2014: 39.4%)

· Operating profit increased 88% to $3.9m (H1 2014: $2.1m)

· Profit before tax more than doubled to $3.5m (H1 2014: $1.7m)

· Fully diluted earnings per share increased 33% to $0.065 (H1 2014: $0.049)

· Net debt reduced to $18.2m (31 December 2014: $21.3m; 30 June 2014: $19.7m)

· Cash and cash equivalents at 30 June 2015 were $14.5m (31 December 2014: $14.1m; 30 June 2014: $14.7m)

Operational Summary

· Growth in the Irrigation and Oil & Gas segments mitigated weakness in the Industrial and Municipal segments - resulting in sales being broadly flat

o Irrigation segment sales increased to $30.5m (H1 2014: $27.7m), and continued to be the largest contributor to total revenues accounting for 52% of total revenue

o Sales in the Oil & Gas segment increased 74% to $4.7m (H1 2014: $2.7m)

o Industrial segment sales declined due to weakness in industry in most geographies, in particular China

o Municipal segment continued to suffer from lack of investment in major infrastructure projects by local authorities

o Ballast Water segment still depressed due to lack of regulatory impetus

· Growth in sales of new products maintained, accounting for 9.8% of revenues (H1 2014: 5.5%)

· Completed implementation of restructuring and cost cutting exercise, resulting in reduction in expenses

· Post period end, established a subsidiary in the UK to support increasing demand for clean water solutions in UK and Europe

Arik Dayan, Chief Executive Officer of Amiad, said: "We are pleased with the significant growth in the Irrigation and Oil & Gas segments - based on our latest products - which largely served to mitigate the weakness in the Industrial and Municipal segments. In addition, thanks to the implementation of the restructuring and cost cutting exercise, we were able to improve gross margins, reduce operational expenses and strengthen the foundations of the business. As a result, we achieved our goal of getting back to being profitable.  

"Amiad entered the second half of 2015 with a higher backlog than at the same time in the prior year, which is primarily based on the continued growth in Irrigation and Oil & Gas. Global macro-economic conditions continue to impact certain parts of our business, particularly Industrial and Municipal segments, however, our broad portfolio and presence in over 80 countries buffer us from major fluctuations. As we have said previously, our focus in 2015 is on generating profits through expanding our business and maintaining tight cost control. As a result, the Board is confident of achieving year-end results in line with market expectations."

Enquiries

About Amiad

Amiad Water Systems (AIM: AFS) is a leading global producer of automatic, self-cleaning water treatment and filtration products and systems. Through its engineering skills and ability to innovate, Amiad provides cost-effective "green" solutions for the industrial, municipal, irrigation, oil & gas and ballast water markets. In these segments its patented products are being integrated into the core of systems for filtration and water treatment, micro irrigation and membrane protection, wastewater and potable water treatment, cooling systems and sea water filtration.

Headquartered in Israel, Amiad provides these solutions through 11 subsidiaries and a comprehensive network of over 170 distributors to customers in more than 80 countries.

For additional information or product details, please visit www.amiad.com.

Operational Review

During the period, Amiad made significant progress in the Irrigation and Oil & Gas segments - based largely on its new Omega and Sigma products - but this was mitigated by a slowdown in the Industrial, Municipal and Ballast Water segments. As a result, total revenues were broadly flat at $59.2m (H1 2014: $60.2m). However, due to the restructuring and cost cutting exercise that the Company commenced in November 2014 and completed during the period, the Company reduced expenses thereby achieving growth in operating profit - and enabling a return to profitability on pre-tax and net basis.

Segment Performance

The Irrigation and Industrial segments generated $30.5m and $19.0m respectively during the period (H1 2014: $27.7m and $22.9m), accounting for 52% and 32% of the Company's revenues (H1 2014: 46% and 38%). The decline in the Industrial segment was mainly due to weakness in China compared with the prior year. The Municipal segment sales decreased to $4.8m (8%) from $6.1m in H1 2014 due to a lack of investment by municipal entities in large infrastructure projects. Revenue in the Oil & Gas segment grew to $4.7m, or 8% of total sales, from $2.7m (5%) in the first half of 2014. The Ballast Water segment remained weak with revenues of $0.1m (H1 2014: $0.8m) due to the continued lack of regulatory impetus for ship owners to invest in new systems.

Global Activity

US

In the US in H1 2014, Amiad had been delivering an exceptional Navy project, which finished in H2 2014. As a consequence, in H1 2015 the Company experienced a decline in revenues in the Industrial segment and this resulted in overall sales in the US being lower at $12.3m compared with $15.2m in the first half of 2014. Sales in the Irrigation segment in the US were slightly higher than in H1 2014, which was based on increasing demand for water filtration as a result of the widespread drought in California. Whilst sales in the Oil & Gas segment were lower than in the prior period, the Company delivered some strategic projects such as for injection water.

EMEA

Revenues in EMEA grew 10% in aggregate over H1 2014. Sales in the Irrigation segment in Europe increased significantly as a result of the Irrigation sales office that was established last year in the region. Amiad also performed well in the Oil & Gas segment in EMEA.

Post period, as announced on 7 September 2015, Amiad established a wholly-owned subsidiary in the UK to support the increasing demand for clean water solutions in the UK and Europe. It will operate from Swansea, Wales and, when the office opens later this month, will be the Company's first permanent base in the UK. Previously, Amiad's products and solutions were sold through its distributor based in Swansea. The new subsidiary, Amiad Water Systems UK Ltd, will report to Amiad Europe, and provide marketing and technical support functions.

Asia

In Asia, revenues were slightly softer compared with the prior year period, with a general decline in the Industrial segment being largely offset by an exceptional Industrial project in India, an improvement in Irrigation in China for food production and growth in Oil & Gas in South East Asia.

In China, sales were significantly lower in the Industrial segment due to a lack of activity in the steel industry. In the Company's other segments in China, the Company achieved an increase in revenues, but the contribution (other than Irrigation) remains unsubstantial. Amiad also strengthened the management team in China. Amiad continues to believe that the longer-term growth opportunities offered by China remain substantial.

Australia

The Industrial segment continued to suffer in Australia due to the reduced demand for raw materials from China, Australia's largest export customer, which has resulted in resource companies cancelling or postponing projects. However, sales increased in the Irrigation and Municipal segments, resulting in overall revenues for the period being slightly lower than the first half of 2014. The growth in the Irrigation segment was based on the new Omega and Sigma filters, with the demand being due to investment in upgrading irrigation systems used in food production to advanced, automatic solutions, which is being supported by public authorities.

Product Development

Amiad's portfolio of products launched in November 2011 continued to be well-received and increasingly penetrate the market. In particular, the growth in the Irrigation and Oil & Gas segments was based on sales of the Omega and Sigma products.

Investment in R&D was $1.5m compared with $1.8m for the first half of 2014. The reduction was due to the restructuring and cost cutting exercise. Following the appointment of a new Vice President of R&D during the period, the Company intends to increase spending on R&D to continue to develop market-leading technology and products.

Financial Review

Revenues for the six months ended 30 June 2015 were $59.2m compared with $60.2m for the first half of 2014. The Company's revenue recognition continued to be impacted by adverse changes in exchange rates, mainly the US Dollar against the New Israeli Shekel, but also between the Australian and US Dollars as well as the Euro and US Dollar. However, despite revenues being broadly flat, fully diluted earnings per share increased 33% to $0.065 (H1 2014: $0.049). 

Operating profit increased 88% to $3.9m compared with $2.1m for the first half of 2014, and profit before tax more than doubled to $3.5m (H1 2014: $1.7m). In addition, this represents a return to profit compared with the previous six months period: for the second half of 2014, the Company made a loss before tax of $2.1m.

Gross margins were 40.1% (H1 2014: 39.4%). The increase was mainly due to the benefits of the cost cutting and restructuring programme as well as the impact of currency exchange rate.

As of 30 June 2015, cash and cash equivalents were $14.5m (31 December 2014: $14.1m; 30 June 2014: $14.7m). Net debt decreased to $18.2m (31 December 2014: $21.3m; 30 June 2014: $19.7m) as a result of the increase in the net cash generated from operating activities.

Dividend

The Company has a progressive dividend policy and has historically paid dividends twice annually. However, the Board has resolved, from the current year, to consider and pay dividends once a year after the approval of the Company's audited annual financial statements. The Board expects to declare a dividend in March 2016 for the year ending 31 December 2015.

Outlook

Amiad entered the second half of 2015 with a higher backlog than at the same time in the prior year, which is primarily based on the continued growth in the Irrigation segment. Global macro-economic conditions continue to impact certain parts of the business, particularly Industrial and Municipal segments, however, the Company's broad portfolio and presence in over 80 countries buffer it from major fluctuations. As stated previously, the management team's focus in 2015 is on generating profits through expanding the business and maintaining tight cost control. As a result, the Board is confident of achieving year-end results that are in line with market expectations.

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED BALANCE SHEET

JUNE 30, 2015

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED BALANCE SHEET

JUNE 30, 2015

AMIAD WATER SYSTEMS LTD.

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2015

AMIAD WATER SYSTEMS LTD.

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2015

AMIAD WATER SYSTEMS LTD.

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2015 (contd.)

AMIAD WATER SYSTEMS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2015

AMIAD WATER SYSTEMS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1 - GENERAL INFORMATION

a. Amiad Water Systems Ltd. (hereafter -"the Company") and its subsidiaries (together- the Group) is a producer and global supplier of water filters and filtration systems used in the industrial, municipal market and the irrigation market.

b. The Company was incorporated in Israel in June 1997. The address of its registered office is Kibbutz Amiad, Israel.

The Company has traded on the Alternative Investment Market in London (AIM), a part of the London Stock Exchange, since December 2005.

The principal shareholders of the Company, as of the report release date, are Kibbutz Amiad (hereafter -The "Kibbutz"), directly and through a Company controlled by the Kibbutz, A.M.S.I. Investments Ltd. ("AMSI") which owns 45.49% of the Company's outstanding shares.

The Kibbutz and AMSI are engaged in a shareholders agreement with Kibbutz Beit Zera Cooperative Agricultural Society Ltd. and two cooperatives held by Beit Zera (hereinafter - "Beit Zera") which owns 4.5% of the Company's outstanding shares and with Bermad Industries Cooperative Agricultural Society Ltd. (hereinafter - "Bermad") which owns 8.99% of the Company's outstanding shares. The agreement was signed upon Beit Zera and Bermad becoming shareholders in the Company pursuant to the acquisition of Arkal Filtration systems Cooperative Agricultural Society Ltd. Pursuant to the shareholders agreement the parties thereto shall vote their shares together at all meeting of the shareholder of the Company, as shall be agreed among them or in the absence of an agreement as shall be decided by the Kibbutz. In addition, the shareholder agreement imposes on Beit Zera and Bermad certain limitations on the transferability of shares of the Company they received pursuant to the acquisition of Arkal Filtration systems Cooperative Agricultural Society Ltd.

These group consolidated financial statements were authorized for issue by board of directors on September 9, 2015.

AMIAD WATER SYSTEMS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 2 - BASIS OF PREPARATION

a. These condensed consolidated interim financial statements for the six months ended 30 June 2015 have been prepared in accordance with IAS 34, 'Interim financial reporting'. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with IFRSs.

This condensed consolidated interim financial information is reviewed and not audited.

b. Estimates -

The preparation of interim financial statements requires management to exercise its judgment; it also requires the use of accounting estimates and assumptions that affect the application of the group's accounting policy and the amounts of reported assets, liabilities, income and expenses. Actual results may differ from those estimates.

In preparation of these condensed consolidated interim financial statements, the significant judgments that were exercised by the management in applying the group's accounting policy and the key sources of estimation uncertainty were similar to those applied in the consolidated annual financial statements for the year ended December 31, 2014.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies and computation methods used in preparing the interim financial information are consistent with those used in preparing the 2014 annual financial statements, except for the following:

NOTE 4 - REVENUES FROM SALES:

Sales by customer location:

AMIAD WATER SYSTEMS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 5 - CASH FLOWS FROM OPERTIONS:

APPENDIX A:

* Classification 

AMIAD WATER SYSTEMS LTD.NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 5 - CASH FLOWS FROM OPERTIONS (continued):

APPENDIX B: