Operational Review

In 2016, the Company continued to make strong progress in adjusting its cost structure and maintaining control over its expenses. As a result, it succeeded in remaining profitable and slightly reducing net debt despite the lower revenues. The performance of the business in 2016 was as expected with weakness experienced across Amiad's segments and geographies, except Australia that achieved 11.0% growth. The revenues were also lower compared with the previous year due to a lack of substantial projects delivered during 2016, although some large projects won during the year were delayed to 2017. In addition, the revenues achieved in the second half of the year were significantly higher than the first six months in every segment except Irrigation, which resulted in total revenues being slightly higher in H2 than in H1. 

During the year the Company also continued to seek ways of improving its manufacturing processes. Operational efficiency was increased due to the Company's previous investment in the polymeric production process, which resulted in a reduction in the cost of materials. The Company also invested in its supply chain, developing an in-house metal fabrication capability, which is expected to be fully operational by mid-2017, to further improve efficiency and quality, which is expected to further reduce material costs in future years.

Segment Performance

The Irrigation and Industrial segments generated $54.8m and $39.7m respectively during the year (2015: $55.3m and $42.8m), accounting for 51.9% and 37.6% of the Company's revenue (2015: 46.6% and 36.0%). The Irrigation segment declined primarily due to the impact of the drought in California impeding investment in new orchards, especially in the almond industry. The Industrial segment revenues were reduced because of weakness in Asia.

The Municipal segment sales were $7.2m (accounting for 6.8% of 2016 total revenue), compared with $8.9m in 2015, due to a lack of investment by municipal entities in large infrastructure projects. Revenue in the Oil & Gas segment was $3.9m, or 3.7% of total sales, compared with $11.6m (9.7% of total revenue) in 2015 with the decline due to a reduction in projects as a result of the continuing low oil price environment, compared with a strong year in 2015 based on projects awarded in 2014 and delivered in 2015.

Global Activity

US & Latin America

In the US, revenues amounted to $23.6m compared with $26.0m in 2015 due to a decline in the Irrigation segment - primarily as a result of the drought in California impeding investment - and the Municipal and Oil & Gas segments. However, this was partly offset by an increase in revenues in the Industrial segment.

EMEA

Revenues in EMEA were significantly lower in aggregate over 2015, primarily due to weakness in Turkey - especially in the Oil & Gas segment where it had delivered exceptional projects in 2015 compared with no recorded revenues in this segment in this geography in 2016.

Specifically in Europe, the reported revenue was slightly below 2015, but would be higher on a constant currency basis, partly due to the first full twelve-month contribution in the Industrial and Municipal segments from a newly set up UK subsidiary. Revenues in Europe in the second half of 2016 were 30% higher than in the first half of the year.

Sales in the Irrigation segment in Europe increased as the sales office established in the region continued to build on success of the prior year, and the Municipal segment also experienced growth, but this was offset by weakness in the Industrial and Oil & Gas segments.

Asia

Sales in Asia, on aggregate, decreased compared with 2015. In India and China there were decreased sales across all segments, except a slight growth in Oil & Gas in China. However, despite reduced revenues, there were improved margins in non-irrigation business. In China, the Industrial segment continued to suffer due to the decline in the steel mill industry. However, revenues in China in the second half of 2016 were 80% higher than in the first half of the year due to the delivery of Industrial segment projects.

Australia

In Australia, revenues were 11% higher at $11.1m compared with $10.0m in 2015. The Irrigation segment performed well based on sales of the new Omega and Sigma filters. The Industrial and Municipal segments also saw a slight increase in revenues, but there was a sharp drop in Oil & Gas revenues as expected.

The above analysis shows the Company's sales by business unit.

Financial Review

Revenue for the year ended 31 December 2016 was $105.6m compared with $118.8m for 2015. As stated above, the reduction was due to weakness across the Company's segments and geographies (except Australia) - in particular, due a reduction in the number of substantial projects delivered in 2016, with some being delayed to 2017. However, as anticipated, revenue in the second half of the year was slightly higher than the first six months of 2016.

Gross margin was 39.3% (2015: 40.5%). The Company maintained tight cost control with lower selling & marketing and administrative & general expenses, however this was not sufficient to fully offset the decline in revenues and as a result operating margins declined. Spending on R&D increased as Amiad invested in sustaining its product innovation to support future sales.

Operating profit was $3.7m (2015: $8.8m) and profit before tax was $3.1m compared with $6.7m for the prior year. Fully diluted earnings per share were $0.095 compared with $0.166 in 2015. Across the currencies with which the Company operates, there was no material impact from foreign exchange movements in 2016. The Company has hedging arrangements in place for the first six months of 2017 that are secured at 2016 average FX rates.

As at 31 December 2016, cash and cash equivalents were $16.1m (30 June 2016: $16.2m). Net debt at year-end 2016 was $8.8m (30 June 2016: $10.4m), which was reduced more than expected as a result of tight management of the working capital and expense level.

Dividend

In line with the Company's dividend policy, the Directors have decided to declare a dividend, representing a total pay-out of approximately 30% of the Company's profits for the twelve months ended 31 December 2016, of $0.032 gross per share (dividend 2015: $0.067 gross per share), with an ex-dividend date of 6 April 2017, a record date of 7 April 2017 and a payment date of 4 May 2017.

Outlook

The momentum of the second half continued into 2017 as Amiad entered into the new year with a higher backlog compared with the same time of the prior year supported by increased customer demand. The Company expects good growth in the Irrigation segment this year, particularly in the US following the recovery from the drought in California, and anticipates an increase in revenue in the Industrial segment, primarily in the US and EMEA. However, if the weakness of the US Dollar against the New Israeli Shekel continues, it has the potential of having a negative impact. Consequently, the management team is committed to maintaining tight cost control whilst continuing to invest in targeted sales & marketing. Despite this, the Company expects to return to sales growth in 2017 and it will be presenting its five-year strategic plan in September.