RNS Number : 3805S MTI Wireless Edge Limited 11 March 2019 Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR) 11 March 2019 MTI Wireless Edge Ltd ("MTI" or the "Company") Financial results for 2018 & Declaration of final dividend 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 2018. Unless indicated otherwise, all financial figures assume that the merger between the Company and MTI Computers & Software Services (1982) Ltd (the "Merger") that completed in August 2018 was in effect throughout the entire of the reported periods). Highlights: · The completion of the Merger increased revenue by 35% during the period to $35.5m, with organic growth being 2% (2017: $26.4m* and $34.6m** respectively) · Earnings per share increased by 14% to 2.70 US cents (2017: 2.36 US cents), even following the issuance of shares as consideration for the Merger · · Gross profit increased 26% year-on-year to $12m due to the Merger, with organic growth being 7% (2017: $9.6m* and $11.2m** respectively) Profit from operations increased 82% year-on-year to $2.9m due to the Merger, with organic growth being 21% (2017: $1.6m* and $2.4m** respectively) · · The Company generated $2.3m of cash from operations (2017: $2.4m) Shareholder's equity grew during the period to $20.6m (31 December 2017: $19.6m) representing 18.3p per share (Calculated at £/$ rate of 1.29) · Dividend of $0.015 per share (2017: $0.02 per share) declared - to be paid on 5 April 2019 to shareholders on the register at the close of trading on 22 March 2019 * These figures represent the relevant financial results of the Company (only) for the year ended 31 December 2017. ** These figures represent the relevant financial results of the Company in the year ended 31 December 2017, aggregated with that of MTI Computers & Software Services (1982) Ltd for the same period. Chairman's Statement I am pleased to report on our audited results for the financial year ended 31 December 2018, during which we made a significant structural change via the merger of the Company with our former controlling shareholder, MTI Computers & Software Services (1982) Ltd ("MTIC") (the "Merger"). As part of this process the board decided to reorganize the Company and as announced, subject to shareholder approval, we are expecting our proposed CEO, Moni Borovitz, to lead the implementation of our new strategy as detailed below. I would like to thank shareholders for their support for the Merger, which we believe was a strong strategic move for the benefit of all shareholders. Some of the benefits of the Merger are already seen via the cost savings in the last quarter of 2018 (the first full quarter post-Merger), during which the Company generated $1m of profit from operations for the first time, which represented more than 35% of the Company's total profit from operations for the entire year. Business wise the Company continued to experience growth in revenue and profits. We were able to secure new projects in both our antenna and representation divisions, which will benefit us in 2019 onwards. We were able to complete the registration of Mottech in China and strengthened our sales and marketing teams in China, as well as in other key territories to lay the foundations to capitalize on the enormous opportunities for future growth. Climate change and droughts being experienced across the globe have made it clear that water is becoming a critical natural resource and its management is becoming essential. These developments have allowed the Board to identify new market opportunities from various areas around the world and we are focused on maximizing these opportunities as they develop. In the antenna segment we continue to see strong demand for millimeter wave (including 60 - 80 GHz and 5G) antenna solutions and expanded our offering into dual band subsystem antenna solutions, securing contracts with key customers and increased our offering by adding a matching part to the dual band antennas. This increased our unit selling price while strengthening our relationship with customers. We are confident that this will be part of MTI's growth in the future. In the military antenna business, 2018 revenue was the highest ever and we continue to see strong demand for our products. As recently announced during 2019 we secured a large-scale order for our offset facility in India. This, together with our promising pipeline of opportunities, provides strong confidence in the future growth of the business. Our representation division experienced notable growth this year in both revenue, profits and importantly its progress in respect of future projects. We are very satisfied with the progress made, as some of the brands that we represent in Israel are becoming standards in the industry. Our system engineering division continued to market tethered balloon solutions and is involved in a large project which we expect to be turned into a more significant order for 2019, followed by a potential sizeable long-term operation, service and maintenance contract. We will announce any developments regarding this project in due course. Each of our business divisions is well positioned to continue to grow organically while we continuously search for external opportunities to accelerate such growth and use our strong balance sheet to do so. Under the Israeli Companies Law, we may declare dividends out of the higher of retained earnings and earnings generated over the two most recent years (the profit test), in either case, provided that our board of directors reasonably believes that the dividend will not render us unable to meet our current or foreseeable obligations when due (the solvency test).Following a review of the performance of the business, the Board believes we pass both tests and decided to declare a final dividend of $0.015 per share. The dividend will be paid on 5 April 2019 to shareholders on the register at the close of trading on 22 March 2019. In January 2019 the Company announced a program to conduct market purchases of ordinary shares of par value 0.01 Israeli Shekels each ("Ordinary Shares") in the Company up to a maximum value of £150,000 (the "Programme"). The key reason for the Programme was to assist with liquidity in the Ordinary Shares by holding repurchased Ordinary Shares in treasury and potentially reselling these Ordinary Shares under circumstances that the Board deems to be appropriate and in compliance with regulation. Cash generated from any eventual resales of Ordinary Shares acquired under the Programme will be credited to an account and may be reused for future purchases under the Programme. The Programme commenced on 28 January 2019 and will continue until no later than 26 July 2019. As at 10 March 2019, a total of 510,000 Ordinary Shares had been repurchased. We believe that the underlying drivers of our business, such as the continued growth in data usage and increasing subscriber numbers, are part of long-term trends that we expect will continue for the foreseeable future. This, together with the requirement for efficient water management, provides us with confidence in both the Company's short and long-term growth prospects. 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. Zvi Borovitz Chairman Chief Executive's review I am happy to report that during 2018 we experienced double digit growth due to the Merger of the Company with our former controlling shareholder (MTIC). We were also able to grow the business organically as well, increasing earnings per share by 14%. I would like to emphasize that our fourth quarter results showed operating profit of over $1 million, representing an 11% operating margin, which is an early demonstration of some of the benefits from the Merger. Our wireless controller segment grew by 9% in 2018, completing a 10% compound annual growth rate since its acquisition in 2015. We continue to see many opportunities to grow this business and remain focused on building our offering for various markets in the water management segment, as it is evident that the world's climate change is driving demand for better water management solutions. While investing in developing this business segment we were able to meet our long-term goal of having a 10% operating profit margin. In the antenna segment we experienced a decrease of 4% in revenue due to a large project that completed in 2017. Nevertheless our military antenna business reached its highest level ever, growing 26% in 2018 and we continue to see a large pipeline of opportunities here. This military segment is also making good use of our new facility in India, which is supporting the substantial demand for solutions made in India, as part of the offset requirements. Our 5G millimeter wave business has tripled its revenue in 2018, and we are confident that this will be the future growth engine of the antenna segment. Other areas of the antenna division also made significant progress in 2018, including the completion of the development of several antenna solutions, where we expanded our customer base and initiated patent registration on these new solutions. Our RFID segment was flat in 2018 after four consecutive years of growth and we believe our positioning in the market remains strong. As we continue to see more applications that require the use of such solutions our key future goal is to ensure that MTI remains well positioned in this market, to maximize the benefits of the continuing world-wide growth in the use of RFID technology. In the newly acquired representation business we had a very good year growing the revenue of its core business in Israel (which now accounts for more than 85% of the representation business) by 17%. We achieved an overall 4% increase in revenue and reached a 10% operating profit margin, while increasing the operating profit by 37% year on year. We were able to initiate several new projects during 2017-2018, the results of which should be seen in the coming years. We enter 2019 with a healthy orderbook and a large pipeline of opportunities in the various segments of the business, which provides us with great confidence in the future growth potential of the business. Dov Feiner Chief Executive Officer Declaration of final dividend The Board of MTI is pleased to announce a final dividend in respect of the year ended 31 December 2018 (the "2018 Dividend") of US$0.015 per ordinary share in the Company ("Ordinary Share"). It is intended that the 2018 Dividend will be paid on 5 April 2019 to holders of Ordinary Shares recorded on the register as at the close of business on 22 March 2019. Annual report The Company will not be posting hard copies of the annual report to its shareholders. Shareholders who require a copy of the annual report will shortly be able to download it from the Company's website at www.mtiwirelessedge.com or should write to the Company at MTI Wireless Edge Ltd Headquarters,11 Hamelacha St. Afek Industrial Park, Rosh-Ha'Ayin, Israel requesting a hard copy. For further information please contact: MTI Wireless Edge Ltd www.mtiwirelessedge.com Dov Feiner, CEO Moni Borovitz, Financial Director +972 3 900 8900 Nomad and Joint Broker Allenby Capital Limited Nick Naylor Alex Brearley +44 20 3328 5656 Joint Broker Peterhouse Corporate Finance Limited Lucy Williams Eran Zucker +44 20 7469 0930 About MTI Wireless Edge ("MTI" or the "Company") Headquartered in Israel, MTI is a technology group focused on comprehensive communication and radio frequency solutions across multiple sectors through four core divisions: Antenna Division MTI is a world leader in the design, development and production of high quality, state-of-the-art, and cost effective antenna solutions including Smart Antennas, MIMO Antennas and Dual Polarity Antennas for wireless applications. MTI supplies antennas for both military and commercial markets from 100 KHz to 90 GHz. Internationally recognized as a producer of commercial off-the-Shelf and custom-developed antenna solutions in a broad frequency range, MTI Wireless Edge addresses both commercial and military applications. MTI supplies directional and omnidirectional antennas for outdoor and indoor deployments, including smart antennas for WiMAX, Broadband access, public safety, RFID, base stations and terminals for the utility market. Military applications include a wide range of broadband, tactical and specialized communication antennas, antenna systems and DF arrays installed on numerous airborne, ground and naval, including submarine, platforms worldwide. Aerostat Operation Division Via its system engineering division, the Group offers the design and integration of aerostat operation systems, along with the ongoing operation of Platform subsystems, SIGINT, RADAR, communication and observation systems. Water Control & Management Division Via its subsidiary, Mottech Water Solutions Ltd ("Mottech"), the Group provides high-end remote control solutions for water and irrigation applications based on Motorola's IRRInet state-of-the-art control, monitoring and communication technologies. As Motorola's global prime-distributor Mottech serves its customers worldwide through its international subsidiaries and a global network of local distributors and representatives. With over 25 years of experience in providing customers with irrigation remote control and management, Mottech's solutions ensure constant, reliable and accurate water usage, while reducing operational and maintenance costs. Mottech's activities are focused in the market segments of agriculture, water distribution, municipal and commercial landscape as well as wastewater and storm-water reuse. RF and Microwave Representative and Consultation Division Via its subsidiary, MTI Summit Electronics Ltd., the group offers representative and expert consultation services specializing in RF and Microwave solutions and applications. It provides its services to international electronics suppliers operating in Israel, Eastern Europe, and Russia. 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 2018 2017* $'000 $'000 35,471 23,420 34,653 23,430 12,051 11,223 Research and development expenses 1,090 927 Distribution expenses 4,277 4,085 General and administrative expenses Loss (profit) from sale of property, plant and equipment 3,767 3,795 )7( 6 4 2,924 2,410 Finance expense Profit from operations 6 Finance income 6 288 )14( 249 )287( 7 2,650 321 2,448 440 Profit before income tax Tax expenses Profit 2,329 2,008 Re measurements on defined benefit plans 22 53 Items that may be reclassified to profit or loss: Adjustment arising from translation of financial statements of foreign operations )229( 61 Other comprehensive income (loss) net of tax: Items that will not be reclassified to profit or loss: )207( 114 2,122 2,122 2,337 )8( 1,949 59 2,329 2,008 2,130 )8( 2,063 59 2,122 2,122 Total other comprehensive income (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 8 0.0270 0.0231 Diluted 8 0.0269 0.0230 (*) comparative numbers were adjusted to reflect the merger, refer to note 27. 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, 2018 : Attributable to owners of the parent Capital Reserve Total from shareattributable Additional based to owners NonShare paid-in payment Translation Retained of the controlling capital capital transactions differences earnings 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 plans - - - - 2,337 2,337 )8( 2,329 Translation differences - - - )229( 22 - 22 )229( - 22 )229( Total comprehensive income (loss) for the - - - )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 year Dividend Share based payment Balance as at December 31, 2018 (*) comparative numbers were adjusted to reflect the merger, refer to note 27. 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, 2017 **: Attributable to owners of the parent Capital Reserve Total from shareattributable Additional based to owners NonShare paid-in payment Translation Retained of the controlling capital capital transactions differences earnings parent interests Total equity U.S. $ in thousands Balance as at January 1, 2017 195 21,337 323 44 )3,865( 18,034 324 18,358 Changes during 2017: Comprehensive income Profit for the year Other comprehensive income Re measurements on defined benefit plans - - - - 1,949 1,949 59 2,008 - - - 61 53 - 53 61 - 53 61 2,122 Translation differences Total comprehensive income for the year - - - 61 2,002 2,063 59 Exercise of options to share capital 2 99 )*( - - 101 - 101 Dividend 3 - 280 - 29 - )918( - )635( 29 - )635( 29 200 21,716 352 105 )2,781( 19,592 383 19,975 Share based payment Balance as at December 31, 2017 (*) less than one thousand dollars (**) comparative numbers were adjusted to reflect the merger, refer to note 27. The accompanying notes form an integral part of the financial statements. M.T.I Wireless Edge Ltd. Consolidated Statements of Financial Position As at December 31, As at December 31, 2018 2018 2017* 2017* Note $'000 $'000 $'000 $'000 Property, plant and equipment 10 4,245 Intangible assets 11 881 995 Deferred tax assets Long-term prepaid expenses 12 687 32 600 45 ASSETS Non-current assets: Total non-current assets 4,211 5,845 5,851 Current assets: Inventories 13 Current tax receivables 6,005 5,481 153 619 Unbilled revenue 14 2,271 1,762 Trade and other receivables 14 9,591 10,244 Other current financial assets Cash and cash equivalents 15 16 5,401 2,011 3,508 Total current assets TOTAL ASSETS 23,421 23,625 29,266 29,476 LIABILITIES Non-current liabilities: Loans from banks, net of current maturities 17 Employee benefits, net 18 427 701 Total Non-current liabilities 955 734 1,128 1,689 Current Liabilities: Current tax payables Trade and other payables Current maturities and short term bank credit and loans 12 237 19 6,530 6,706 20 581 869 Total current liabilities 7,123 7,812 Total liabilities 8,251 9,501 TOTAL NET ASSETS 21,015 19,975 (*) comparative numbers were adjusted to reflect the merger, refer to note 27. 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 As at December 31, 2018 2018 2017* 2017* $'000 $'000 $'000 $'000 24 Share capital Additional paid-in capital Capital reserve from share-based payment transactions Translation differences Retained earnings 205 200 22,388 21,716 366 (124 ) (2,195) 352 105 (2,781) 20,640 TOTAL EQUITY 19,592 375 383 21,015 19,975 Non-controlling interests (*) comparative numbers were adjusted to reflect the merger, refer to note 27. The financial statements were approved by the Board of Directors and authorised for issue on March 10, 2019, and were signed on its behalf by: March 10, 2019 Date of approval of financial statements Moshe Borovitz Chief Finance Director Dov Feiner Chief Executive Officer Zvi Borovitz Non-executive 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, 2018 2018 2017* 2017* $'000 $'000 $'000 $'000 Operating Activities: Profit for the year 2,329 2,008 Depreciation and amortization 589 623 Loss (gain) from investments in financial assets (29) 89 Equity settled share-based payment expense 14 29 Gain on disposal of property, plant and (7) (1) Adjustments for: equipment Finance (income) expenses, net (11) 321 Income tax expense 99 440 3,206 3,287 Changes in working capital and provisions Increase in inventories (634) (294) Decrease (increase) in trade receivables 451 (1,491) Decrease (increase) in unbilled revenues (509) 989 70 (152) (111) (11) 252 122 Decrease (increase) in other accounts receivables Increase (decrease) in trade and other accounts payables Increase in employee benefits, net (744) Interest received Interest paid Income tax paid (574) 40 - (70) (171) (110) (326) Net cash provided by operating activities (201) (436) 2,261 2,277 (*) comparative numbers were adjusted to reflect the merger, refer to note 27. 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, 2018 2018 2017* 2017* $'000 $'000 $'000 $'000 Investing Activities: Proceeds from sale of property, plant and equipment 39 150 2,040 (515) (2,000) (454) Sale (purchase) of investments in financial assets, net Purchase of equipment property, plant and Net cash provided by (used in) investing activities Financing Activities: Exercise of share options Dividend 1,564 (2,304) - 101 (1,773) (635) Share issuance due to the merger 677 - Short term loan from banks (21) (42) Long term loan received from banks 120 (878) 37 (847) Repayment of long-term loans from banks Net cash used in financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange differences on balances of cash and cash equivalents Cash and cash equivalents at the end of the year Appendix A - Non-cash transactions: (1,875) (1,386) 1,950 (1,413) 3,508 4,887 (57) 34 5,401 3,508 For the year ended December 31, 2018 2017* $'000 $'000 Purchase of property, plant and equipment with credit 47 3 Scrip dividend (Note 9) 677 283 (*) comparative numbers were adjusted to reflect the merger, refer to note 27. 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, 2018 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 and certain financial assets and financial liabilities at fair value through profit or loss. 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. 2. Accounting policies (Cont.) C. New IFRSs adopted 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 January 1, 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 January 1, 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 The accounting policy applied until December 31, 2017 in regards of financial instruments is as follows: Revenues are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. In cases where the Company acts as an agent or as a broker without being exposed to the risks and rewards associated with the transaction, its revenues are presented on a net basis. Revenues are measured at the fair value of the consideration received or receivables less any trade discounts, volume rebates and returns and excluding amounts collected on behalf of third parties. Following are the specific revenue recognition criteria which must be met before revenue is recognized: 1. Revenues from services are recognized as follows: - Provided that amount of revenue can be measured reliably and it is probable that the Group will receive any consideration, revenue from services is recognised in the period in which they are rendered. - Revenues from Construction Contracts - according to IAS 11 "Construction Contracts" revenues are recognized based on the percentage of completion to date by the "percentage of completion" method. The percentage of completion is determined as the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. 2. Accounting policies (Cont.) When a loss from a contract is anticipated, a provision for the entire loss that is anticipated is made in the period in which this first becomes evident, as assessed by the Group's management. 2. Revenues from the sale of goods are recognized when all of the significant risks and rewards of ownership of the goods have passed to the buyer and the seller no longer retains continuing managerial involvement. The delivery date is usually the date on which risks and rewards pass. Customer discount