RNS Number : 5808E MTI Wireless Edge Limited 02 March 2020 2 March 2020 MTI Wireless Edge Ltd ("MTI" or the "Company") Final results for 2019 MTI Wireless Edge Ltd (AIM: MWE), the technology group focused on comprehensive communication and radio frequency solutions across multiple sectors, today announces its audited results for the year ended 31 December 2019. HIGHLIGHTS Strong Financial Performance · Delivered solid revenue growth, up by 13% to $40.0m (2018: $35.5m) · Performance reflects the benefits of increasing scale and improved profit margins, leading to a 29% increase in profit before tax to $3.4m (2018: $2.65m) · Earnings per share increased by 21% to 3.27 US cents (2018: 2.70 US cents) · Generated $5.6m of cash from operations (2018: $2.3m), increasing net cash to $7.7m on 31 December 2019 (31 December 2018: $4.4m) · Shareholder's equity grew to $22.3m on 31 December 2019 (31 December 2018: $20.6m) representing 19.7p per share (Calculated at £/$ rate of 1.29) · Dividend of $0.02 per share (2018: $0.015 per share) declared · Ongoing successful share repurchase programme contributed to tripled average daily share trading in 2019 Operational Growth Drivers · Good demand for MTI's comprehensive solutions across multiple geographies and sectors · No single customer generated more than 7% of revenues and income is spread across three divisions · Macro trends underpinned growth in 2019 and are expected to continue into 2020 and beyond, namely: o Climate change and water shortages are driving demand for Mottech's water management solutions; o Increases in defence spending globally and MTI's Indian offset solution led to growth in military antenna sales and solutions; o The move by mobile operators to next generation 5G networks is driving requests for tests / early deployments of MTI's 5G backhaul antennas from large OEM suppliers. · Successful acquisition of a 50% shareholding in Parkland, Australia. The Group continues to assess other similar value enhancing acquisition opportunities Moni Borovitz, Chief Executive Officer of MTI Wireless Edge, said "This is an excellent result for 2019 and we are well placed for 2020. Our business is diversified across several markets with a core focus on providing radio frequency solutions. We will continue to seek to expand through a mix of acquisition led and organic growth." For further information please contact: MTI Wireless Edge Ltd Moni Borovitz, CEO http://www.mtiwirelessedge.com +972 3 900 8900 Allenby Capital Limited (Nomad and Joint Broker) +44 20 3328 5656 Nick Naylor Alex Brearley Peterhouse Capital Limited (Joint Broker) +44 20 7469 0930 Lucy Williams Eran Zucker Novella (Financial PR) +44 20 3151 7008 Tim Robertson Fergus Young About MTI MTI Wireless Edge Ltd ("MTI" or the "Company") (AIM: MWE.L) has established over the last 50 years its reputation as a global provider of comprehensive radio frequency communication solutions across multiple sectors through three core divisions: Antennas: A one stop shop for the sale of 'off the shelf' flat and parabolic antennas, combined with the provision of customdeveloped antenna solutions to a range of commercial and military customers, with a growing focus on providing 5G backhaul antenna solutions to support mobile phone operators as they roll-out their 5G networks. Water Control & Management: This division provides wireless control systems to manage agricultural irrigation and water distribution for municipal authorities and commercial entities. It operates under the Mottech brand and utilises hardware technology from Motorola, integrated with the Company's own proprietary management software. Mottech's solutions reduce water and power usage whilst providing clients with higher revenue from accurate irrigation, leading to more and better quality crops and plants being grown. Distribution & Professional Consulting Services: Operating under the MTI Summit Electronics brand, this division exclusively represents 40 international suppliers of radio frequency/microwave components and sells these products to Israeli and global customers. Expert knowledge of both the international suppliers and customers further enables MTI to act as a consultant to all parties and assist with devising complete radio frequency/microwave solutions. MTI is based in Israel, India, USA, South Africa, Russia, Australia and China. As at 31 December 2019, MTI had a total of 212 employees. CHAIRMAN'S STATEMENT Introduction As we enter our 50th year, I am very pleased to report our audited results for the financial year ended 31 December 2019, led by record revenues of $40.0m and profit before tax of $3.4m. This is an excellent result for the Company and a reflection of the increasing demand for our comprehensive solutions from our global customer base. MTI is a well-established, cash generative, expert in the field of radio frequency communication. We provide comprehensive solutions across multiple sectors to hundreds of customers globally. Our success, in the large part, stems from the knowledge and expertise accumulated over the past 50 years within our management team and across the businesses, which enables us to deliver the technical solutions that clients are seeking. Trading overview In 2019 the Company experienced high growth, with both revenues up 13% and profit before tax up 29%, with these increases coming primarily from organic growth. In particular, MTI's Distribution and Consultation division benefited from customers recently deploying technical design solutions that have been introduced by MTI over the last number of years. There is an encouraging order-book from design solution wins, which are maturing into profitable sales, and of course, the team continues to propose new design solutions to a range of clients. Water Control & Management had another strong year. We completed the acquisition of 50% of Parkland Australia, which contributed positively in the second half of 2019 and Parkland Australia is well placed to expand in 2020. Climate change and water scarcity is driving demand for our solutions and as a result there are exciting opportunities to expand this business in both existing and new markets. The Antenna division recorded record sales of military antenna. However, overall revenues were held back as the telecoms industry transitions to adopting 5G networks which we believe will continue in 2020, with further testing and early deployments of MTI's technology after which hopefully material sales of 5G- equipment are expected to begin. Dividend Reflecting the strength of the Company's trading performance the Board is pleased to declare a final dividend of $0.02 per share representing a 33% increase (2018: $0.015). The dividend will be paid on 3 April 2020 to shareholders on the register at the close of trading on 20 March 2020 (ex-dividend on 19 March 2020). There will not be scrip dividend alternative. Share Buyback Programme In January 2019 the Company announced a share buyback programme up to a maximum value of £150,000. The objective of this programme is to assist with trading liquidity, by holding purchased shares in treasury and selling blocks of shares to institutional shareholders, subject to demand and price. Cash generated from any resales of purchased shares has been reused for further share purchases, and this policy will continue to be as long the programme is in place. The programme commenced on 28 January 2019 for an initial term of six months and has been renewed twice so far, being currently valid until 26 July 2020. It has been very successful, with average daily share trading in 2019 tripling over 2018 and the Board has therefore decided to continue with the programme. As at 1 March 2020, no shares were held in treasury. People I would like to thank our employees for their contribution to the Company and for their dedication and creativity, which has enabled us to achieve these results. I would also like to acknowledge our gratitude to the employees' families for their continued support. Outlook MTI is well placed in its key markets, all of which have good macro trends that are likely to drive future growth. Our business has been repositioned and streamlined to focus on taking advantage of the following key trends: - Demand for next generation 5G networks; Global warming and climate change; and Increased defence budget spending. These factors, together with the market reputation and positioning of MTI, has established the Company as an expert in the field of radio frequency and as a partner that is able to develop unique solutions to meet the individual technical needs of our customers. The Board believes that this positions the Group well for 2020 and beyond. Zvi Borovitz Chairman CHIEF EXECUTIVE'S REVIEW Introduction It is very pleasing to report such a good set of results in the Company's 50th year. Achieving $40m in revenues was an internal target and it is highly satisfying to achieve this. Over the last two years we have reorganised and simplified the business, so that we are now a single company with a single listing on the AIM market of the London Stock Exchange. The response to this, together with the strength of our trading performance, has been positive. Our aim now is to continue to build our customer base and take advantage of the positive tailwinds supporting our products and services. Financial Results Revenues for the twelve months to 31 December 2019 increased by 13% to $40.0m (2018: $35.5m), which is a significant uplift and reflects both strong organic growth and contributions from acquisitions. Gross margin improved by 6%, reflecting the mix of products sold in different markets. Gross margin was also negatively affected by exchange rates (especially due to strengthening of the New Israeli Shekel), which lowered profitability relative to revenue growth. Nevertheless, profit before tax increased by 29% to $3.4m (2018: $2.65m), which demonstrated the scalability of the business and the ability for the businesses' existing infrastructure to support increased revenues. Finance expenses were also lower, as the result of an internal protection on currency exchange and lower levels of bank loans due to the repayment of the Mottech acquisition loan. These resulted in increased earnings per share, which grew by 21% over 2018 to 3.27 US cents (2018: 2.70 US cents), coupled with strong cash generation from operations of $5.6m of (2018: $2.3m), increasing net cash to $7.7m on 31 December 2019 (31 December 2018: $4.4m). Operational Review Over the last 50 years MTI has established its reputation as a global provider of comprehensive radio frequency solutions across multiple sectors through three core divisions. Antennas A one stop shop for the sale of 'off the shelf' flat and parabolic antennas, combined with the provision of custom-developed antenna solutions to a range of commercial and military customers, with a growing focus on providing 5G backhaul antenna solutions to support mobile phone operators as they roll-out their 5G networks. In 2019, revenues from this division decreased by 5% as the fixed broadband access market slowed whilst the market for 5G backhaul showed good progress, with 10% of antenna revenue coming from 5G backhaul versus 5% in 2018. Demand for 5G backhaul antenna solutions and our unique position of offering both flat antennas and dual band subsystem antennas, helped secure contracts with key customers (with these customers together having a market share of over 30% in the current backhaul market). Our technology and the increased sales had laid good foundations for further tests and early deployments in 2020, with material sales hopefully starting in 2021. In the military antenna market, sales grew 13% over 2018, boosted by our offset facility in India. MTI's Indian business enables customers to conform to India's Defence Offset Guidelines which dictate, in general, that 30% of any defence contract must be completed in India. We remain optimistic on the future growth of this segment as we continue to see a large pipeline of opportunities for both military antennas and MTI's offset solution. Water Control & Management This division provides wireless control systems to manage agricultural irrigation and water distribution for municipal authorities and commercial entities. It operates under the Mottech brand and utilises hardware technology from Motorola, integrated with the Company's own proprietary management software. Our solutions reduce water and power usage, whilst providing higher revenue from accurate irrigation, leading to more and better quality crops and plants being grown. In 2019, our wireless controller segment revenue grew by 16% in 2019, which has contributed to this division growing over 60% since its acquisition in 2015. The acquisition of 50% of Parkland Australia (now registered as Mottech Parkland) added to our commercial positioning in Australia and the integration of this acquisition was completed during 2019. We believe that this will increase our service offering in Australia in the years to come. Climate change is driving demand for better water management solutions and we remain focused on developing this business segment globally. Distribution & Professional Consulting Services Operating under the MTI Summit Electronics brand, this division exclusively represents circa 40 international suppliers of radio frequency/microwave components and sells these products to Israeli and Russian customers. Expert knowledge of both the international suppliers and customers further enables MTI to act as a consultant to all parties and assist with devising complete radio frequency/microwave solutions. In 2019, this division was the best contributor to the Company's overall revenue, given that it grew its revenues by 33%. The division benefitted from customers adopting design solutions that in some cases were proposed by MTI several years ago. This is a long-term business with some projects lasting over 10 years. Prospects for this division are good, as there is an encouraging order-book to fulfill this year, coupled with design wins which are creating new orders, and of course, the Company continues to propose new design solutions to a range of clients. Outlook MTI is a well-balanced business with a diversified spread of income, both geographically and across multiple markets. We have a clear business focus on providing comprehensive radio frequency solutions to leading technology corporations. The fact that it is our 50th year of operations demonstrates our longevity and our experience, which enables our "first to develop" approach using MTI's intellectual property and licensed technology from leading partners to create unique solutions. Our financial performance in 2019 showed a significant increase in profit before tax, which increased by 29%, reflecting the benefits of our scalable and risk adjusted business model. Looking ahead, MTI will continue to seek to expand its business through a mix of acquisition-led and organic growth. Moni Borovitz Chief Executive Officer Shareholders should note that the Company will not post hard copies of its audited annual report and accounts for the year ended 31 December 2019 (the "Annual Report") to its shareholders. Shareholders who require a hard copy of the Annual Report may write to the Company at MTI Wireless Edge Ltd Headquarters, 11 Hamelacha St. Afek Industrial Park, Rosh-Ha'Ayin, Israel requesting a hard copy. An electronic version of the Annual Report will shortly be available on the Company's website at the following address: www.mtiwirelessedge.com M.T.I Wireless Edge Ltd. Consolidated Statements of Comprehensive Income For the year ended December 31, Note Revenues 3, 5 Cost of sales Gross profit 2019 2018 $'000 $'000 40,043 27,247 35,471 23,420 12,796 12,051 Research and development expenses 1,185 1,090 Distribution expenses 4,229 4,277 General and administrative expenses Profit from sale of property, plant and equipment 3,931 3,767 )8( )7( 4 3,459 2,924 Finance expense Profit from operations 6 Finance income 6 211 )161( 288 )14( 7 3,409 454 2,650 321 2,955 2,329 Re measurements on defined benefit plans )6( 22 Items that may be reclassified to profit or loss: Adjustment arising from translation of financial statements of foreign operations 62 )229( Total other comprehensive income (loss) 56 )207( 3,011 2,122 2,849 106 2,337 )8( 2,955 2,329 2,905 106 2,130 )8( 3,011 2,122 8 0.0327 0.0270 8 0.0327 0.0269 Profit before income tax Tax expenses Profit Other comprehensive income (loss) net of tax: Items that will not be reclassified to profit or loss: Total comprehensive income Profit attributable to: Owners of the parent Non-controlling interest Total comprehensive attributable to: Owners of the parent income (loss) Non-controlling interest Earnings per share (dollars) Basic Diluted The accompanying notes form an integral part of these financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Changes in Equity For the year ended December 31, 2019 : Attributable to owners of the parent Capital Reserve Total from shareattributable Additional based to owners NonShare paid-in payment Translation Accumulated of the controlling capital capital transactions differences losses parent interests Total equity U.S. $ in thousands Balance as at January 1, 2019 205 22,388 366 (124) (2,195) 20,640 375 21,015 Changes during 2019: Comprehensive income Profit for the year Other comprehensive income Re measurements on defined benefit plans - - - - 2,849 2,849 106 2,955 Translation differences - - - 62 )6( - )6( 62 - )6( 62 Total comprehensive income (loss) for - - - 62 2,843 2,905 106 3,011 - - - - )1,306( )1,306( - )1,306( - - - - - - 402 402 Classification of ESOP that expired - 291 )291( - - - - - Exercise of options to share capital Profit from acquisition and disposal of treasury shares (note 5C) 2 146 )31( - - 117 - 117 - 43 - - - 43 - 43 Share based payment - - 8 - - 8 - 8 207 22,868 52 )62( )658( 22,407 883 23,290 the year Dividend Non-controlling Interest of newly purchased subsidiary Balance as at December 31, 2019 The accompanying notes form an integral part of these financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Changes in Equity (Cont.) For the year ended December 31, 2018 : Attributable to owners of the parent Capital Reserve Total from shareattributable Additional based to owners NonShare paid-in payment Translation Accumulated of the controlling capital capital transactions differences losses parent interests Total equity U.S. $ in thousands Balance as at January 1, 2018 200 21,716 352 105 (2,781) 19,592 383 19,975 Changes during 2018: Comprehensive income Profit for the year Other comprehensive income Re measurements on defined benefit - - - - 2,337 2,337 )8( 2,329 Translation differences - - - )229( 22 - 22 )229( - 22 )229( Total comprehensive income (loss) for - - - )229( 2,359 2,130 )8( 2,122 5 - 672 - 14 - )1,773( - )1,096( 14 - )1,096( 14 205 22,388 366 )124( )2,195( 20,640 375 21,015 plans the year Dividend Share based payment Balance as at December 31, 2018 The accompanying notes form an integral part of the financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Financial Position As at December 31, Note As at December 31, 2019 2019 2018 2018 $'000 $'000 $'000 $'000 ASSETS Non-current assets: Property, plant and equipment 10 5,212 Intangible assets 11 1,116 881 Deferred tax assets Long-term prepaid expenses 12 664 31 687 32 Total non-current assets 4,245 7,023 5,845 Current assets: Inventories 13 5,748 Current tax receivables 6,005 672 153 Unbilled revenue 14 2,866 2,271 Trade and other receivables 14 9,799 9,591 Cash and cash equivalents 15 8,140 5,401 Total current assets TOTAL ASSETS 27,225 23,421 34,248 29,266 LIABILITIES Non-curent liabilities: Contingent consideration 27B Lease liabilities Loans from banks, net of 69 - 224 - 141 843 427 701 current maturities 16 Employee benefits, net 17 Total Non-current liabilities 1,277 1,128 Current Liabilities: Current tax payables Trade and other payables Current maturities and short term bank credit 230 12 18 9,139 6,530 19 312 581 Total current liabilities 9,681 7,123 Total liabilities 10,958 8,251 TOTAL NET ASSETS 23,290 21,015 The accompanying notes form an integral part of these financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Financial Position (Cont.) As at December 31, Note Capital and reserves attributable to owners of the parent Share capital Additional paid-in capital Capital reserve from share-based payment transactions Translation differences Accumulated losses Non-controlling interests TOTAL EQUITY As at December 31, 2019 2019 2018 2018 $'000 $'000 $'000 $'000 23 207 205 22,868 22,388 52 (62) (658) 366 (124) (2,195) 22,407 20,640 883 375 23,290 21,015 The financial statements on pages 4 to 53 were approved by the Board of Directors and authorised for issue on March 1, 2020, and were signed on its behalf by: March 1, 2020 Date of approval of financial statements Moshe Borovitz Chief Executive Officer Elhanan Zeira Controller Zvi Borovitz Chairman of the Board The accompanying notes form an integral part of these financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Cash Flows For the year ended December 31, For the year ended December 31, 2019 2019 2018 2018 $'000 $'000 $'000 $'000 Operating Activities: Profit for the year 2,955 2,329 Adjustments for: Depreciation and amortization 973 589 Gain from investments in financial assets - (29) Equity settled share-based payment expense 8 14 Gain on disposal of property, plant and equipment (8) (7) Finance expense (income), net 32 454 (11) 321 Income tax expense 4,414 3,206 Changes in working capital and provisions Decrease (increase) in inventories 523 Decrease in trade receivables 233 (634) 451 Increase in unbilled revenues (595) (509) (137) 70 1,821 136 (111) (11) Decrease (increase) in other accounts receivables Increase (decrease) in trade and other accounts payables Increase (decrease) in employee benefits, net 1,981 Interest received Interest paid Income tax paid Net cash provided by operating activities (744) 44 40 (77) (764) (70) (171) (797) (201) 5,598 2,261 The accompanying notes form an integral part of these financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Cash Flows (Cont.) For the year ended December 31, For the year ended December 31, 2019 2019 2018 2018 $'000 $'000 $'000 $'000 Investing Activities: Proceeds from sale of property, plant and equipment 31 39 Sale (purchase) of investments in financial assets, net - 2,040 Acquisition of initially consolidated subsidiaries (23) (707) Purchase of property, plant and equipment Net cash provided by (used in) investing activities (515) (699) 1,564 Financing Activities: Exercise of share options Dividend Short term loan from banks 117 - (1,306) (1,096) - (21) Payments of lease liabilities (511) - Treasury shares acquired (428) - Treasury shares sold 471 - Long term loan received from banks (554) 120 (878) Repayment of long-term loans from banks (2,211) (1,875) Increase (decrease) in cash and cash equivalents 2,688 1,950 Cash and cash equivalents at the beginning of the year 5,401 3,508 Net cash used in financing activities Exchange differences on balances of cash and cash equivalents Cash and cash equivalents at the end of the year Appendix A - Non-cash transactions: 51 (57) 8,140 5,401 For the year ended December 31, 2019 2018 $'000 $'000 94 47 Purchase of property, plant and equipment with credit - Scrip dividend (Note 9) The accompanying notes form an integral part of these financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Cash Flows (Cont.) Appendix B - Acquisition of subsidiary, net of cash acquired: For the year ended December 31, For the year ended December 31, 2019 2019 2018 2018 $'000 $'000 $'000 $'000 Working capital (excluding cash and cash equivalents) Property, plant and equipment 163 112 - Intangible assets 192 - Goodwill 81 (54) - Deferred taxes The subsidiaries' assets (excluding cash and cash equivalents) and liabilities at date of acquisition Non-controlling interests Contingent consideration Total - - 494 (402) (69) - 23 - - The accompanying notes form an integral part of these financial statements. M.T.I Wireless Edge Ltd. Notes forming part of the consolidated financial statements for the year ended December 31, 2019 677 1. General description of the Group and its operations M.T.I Wireless Edge Ltd. (hereafter - the "Company", or collectively with its subsidiaries, the "Group") is an Israeli corporation. The Company was incorporated under the Companies Act in Israel on December 30, 1998, and commenced operations on July 1, 2000. Since March 2006, the Company's shares have been traded on the AIM market of the London Stock Exchange. The formal address of the Company is 11 Hamelacha Street, Afek industrial Park, Rosh-Ha'Ayin, Israel. The Company and its subsidiaries are engaged in the following areas: - Development, design, manufacture and marketing of antennas for the military and civilian sectors. - A leading provider of remote control solutions for water and irrigation applications based on Motorola's IRRInet state of the art control, monitoring and communication technologies. 2. - Providing consulting, representation and marketing services to foreign companies in the field of RF and Microwave. - Providing engineering services in the field of floating systems and system engineering services. Accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. A. Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, except for the measurement of Employee benefit assets. The Company has elected to present the statement of comprehensive income using the function of expense method. B. Estimates and assumptions The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. These estimates and underlying assumptions are reviewed regularly. Changes in accounting estimates are reported in the period of the change in estimate and thereafter. The key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates used by the the Company and its subsidiaries (hereafter - the "Group") that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. - Deferred tax assets: Deferred tax assets are recognized for unused carryforward tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the estimated timing and level of future taxable profits together with future tax planning strategies. C. New IFRSs applied in the period: 1. IFRS 9 Financial Instruments IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The Company has implemented the requirements of IFRS 9 retrospectively on the basis of the facts and circumstances that existed as of 1 January 2018 by recognizing the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings and other components of equity as of January 1, 2018. See note 2 (M) for the accounting policy applied The adoption of IFRS 9 did not have an impact on the financial statements. 2. IFRS 15 Revenue from Contracts with Customers IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The Company elected to apply IFRS 15 retrospectively for the first time by recognizing the cumulative effect of the retroactive application as an adjustment to the opening balance of retained earnings as at 1 January 2018. See note 2 (D) for the accounting policy applied The adoption of IFRS 15 did not have an impact on the financial statements. D. Revenue recognition Revenue from contracts with customers Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services 1. Revenues from Construction Contracts are recognized based on the percentage of completion to date. The percentage of completion is determined by dividing actual completion costs in