13th Dec 2019 09:33
(Alliance News) - Amiad Water Systems Ltd issued a profit warning on Friday as a lack of investment halted projects and hurt revenue while margins were squeezed.
Shares in Amiad were down 20% at 215.00 pence in London during morning trade.
While Amiad entered the second half of 2019 with a higher order book and larger sales pipeline than it had the year before, a number of projects were called off over a lack of capital investment, meaning annual revenue will now be "slightly below market expectations".
Lower second half sales also meant it could not offset the damage done by lower-margin projects completed in the first half, resulting in a gross margin squeeze.
In addition, Amiad has been hurt by currency fluctuations, especially the new Israeli shekel against the dollar and the strengthening of the dollar against other local currencies. This has reduced the firm's revenue and further shrunk its gross margin.
On top of that, adoption of the IFRS 16 accounting standard, which addresses treatment of leases, has hurt the water treatment and filtration firm's net profit, including a negative currency impact on Amiad's finance costs due to revaluation of operating leases denominated in the new Israeli shekel.
"As a result of the lower-than-expected revenue, the gross margin pressures and the impact of the adoption of IFRS 16, the company expects net profit for full year 2019 to be USD3 million - USD5 million below market expectations," said Amiad.
However, it predicts it will enter 2020 with an even higher backlog than in 2019 and described sales activity as "encouraging".
"The company continues to focus on implementing measures to increase internal efficiency and reduce its cost base. As a result, the board continues to look to the future with optimism," Amiad added.
By Anna Farley; [email protected]
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