Final results for 2021

7 March 2022

MTI Wireless Edge Ltd

("MTI", the "Company" or the "Group")

Final results for 2021

MTI Wireless Edge Ltd (AIM:MWE), the technology group focused on comprehensive communication and radio frequency solutions across multiple sectors, is pleased to announce its audited results for the year ended 31 December 2021.

2021 Highlights

A solid financial performance

• The Group recorded revenue growth of 6% to US$43.2m (2020: US$40.9m)

• A 9% increase in profit from operations to US$4.43m (2020: US$4.08m), helped by the increasing scale of the Group

• Net profit growth was limited to a 6% increase to US$3.7m (2020: US$3.5m) due to the strength of the Israeli Shekel versus the US Dollar in 2021

• Earnings per share increased by 6% to 4.07 US cents (2020: 3.83 US cents)

• Cash flow from operations increased 65% to US$6.6m (2020: US$4.0m) leading to a net cash increase of 33% to US$12.5m at 31 December 2021 (31 December 2020: US$9.4m)

• Increased final dividend by 12% to 2.8 US cents per share (2020: 2.5 US cents per share)

Positive market trends across all three divisions

• Our proven backhaul solution to support the rollout of 5G, which could be further enhanced by recent technical developments to counter small mast movements due to varying climate conditions, has a growing order book from existing customers as well as an initial order from a new tier one customer. This, together with good progress in military antennas, has increased the prospects for the antenna division overall.

• With water scarcity continuing to be a critical, global issue, demand for our water management solutions under the Mottech brand was strong, both from new markets and in response to the launch of new water saving and cost-efficient products.

• Similarly, increased global defence spending underpinned another good year for MTI Summit, which also benefits from Israel being a central hub for the development of new global defence and wireless technologies. In addition, the acquisition of 51% of PSK in January 2022, is expected to further accelerate this division's growth in the defence sector.

Moni Borovitz, Chief Executive Officer of MTI Wireless Edge, said: "This was a strong performance with all three divisions growing revenue and profits despite challenges in the supply chain, increasing shipment costs and ongoing pandemic related restrictions. Our diversified business model, global presence, and the commitment of our teams, combined to deliver an excellent trading result for the year, albeit some of the reported financials were effected by foreign exchange translation changes. Most importantly, we continue to meet our operating profit growth targets as per our business model. 

Looking ahead, the business continues to be in a strong financial position with net cash of US$12.5m at the year end. The Group's three divisions are well established, with experienced, autonomous leadership teams all utilizing the Group's core expertise in radio frequency communications and are all focused on taking advantage of attractive market trends within their respective sectors, namely: the roll-out of 5G cellular connectivity; tackling the growing global issue of water scarcity; and increased international defence spending. The first two months of 2022 have started well, and we look forward to delivering another year of solid growth."

Moni Borovitz, Chief Executive Officer, will provide an investor presentation relating to the Company's financial results for the year ended 31 December 2021 via the Investor Meet Company (IMC) platform today at 10.00 am UK time.

Investors can sign up for free via: https://www.investormeetcompany.com/mti-wireless-edge-ltd/register-investor

Investors who have already registered and added to meet the Company, will be automatically invited to the meeting.

Shareholders should note that the Company will not post hard copies of its audited annual report and accounts for the year ended 31 December 2021 (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 

For further information please contact:

About MTI Wireless Edge Ltd. ("MTI")

Headquartered in Israel, MTI is a technology group focused on comprehensive communication and radio frequency solutions across multiple sectors through three 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 174 GHz.

Internationally recognized as a producer of commercial off-the-Shelf and custom-developed antenna solutions in a broad frequency range, MTI addresses both commercial and military applications.

MTI supplies directional and omnidirectional antennas for outdoor and indoor deployments, including smart antennas for 5G backhaul, Broadband access, public safety, RFID, base station 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.

Water Control & Management Division 

Via its subsidiary, Mottech Water Solutions Ltd ("Mottech"), MTI 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, increase crops quality and yield, while reducing operational and maintenance costs providing fast ROI while helping sustain the environment. 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.

Distribution & Professional Consulting Services Division  

Via its subsidiary, MTI Summit Electronics Ltd., MTI offers consulting, representation and marketing services to foreign companies in the field of RF and Microwave solutions and applications including engineering services (including design and integration) in the field of aerostat systems and the ongoing operation of Platform subsystems, SIGINT, RADAR, communication and observation systems which is performed by the Company. It also specializes in the development, manufacture and integration of communication systems and advanced monitoring and control systems for the Government and defence industry market.

Chairman's statement

I am pleased to report on a successful trading period despite the challenges of operating through a year that was disrupted by the global COVID-19 pandemic.

We believe the business to be well balanced and well placed to continue to expand and the recent acquisition of PSK Technologies Ltd will further support our expansion and the technical solutions we offer.

Trading overview

Despite the ongoing impact of the COVID-19 pandemic, MTI continued to deliver against the objectives that we have set ourselves. The business grew in terms of both sales and profits whilst investing in innovative new technologies, most notably in the ongoing development of a new antenna solution for the 5G market. Working around the restrictions imposed by the pandemic, MTI teams around the globe maintained very high operational levels and delivered margin progression. The Company agreed a new partnership in the Mottech division with Viridix, a company which specializes in actionable data analytics for irrigation, based on the RooTense® sensor that measures the water available to the roots of crops. Also announced recently, the Company completed the 51% acquisition of PSK.

Whilst foreign exchange fluctuations slightly skewed some of the reported results, the cash generation from operations during the year was excellent, up 65%, supporting an increased dividend and strengthening an already strong balance sheet.

Dividend

Reflecting the strength of the Company's trading performance the Board is pleased to declare a final dividend of US$0.028 per share representing a 12% increase on the previous year (2019: US$0.025). The dividend will be paid on 31 March 2022 to shareholders on the register at the close of trading on 18 March 2022 (ex-dividend on 17 March 2022). The currency translation into British Pounds will be made on 22 March 2022 and there will not be a scrip dividend alternative.

People

I would, as always, like to thank our employees for their significant contribution to the Company, especially for their efforts and flexibility during 2021, which was so full of disruptions and changing requests to adapt working practices to meet with new variants of COVID-19 and regulations aimed at combating the pandemic.

Outlook

MTI is a leader in radio frequency communications and it is this deep rooted, technical experience that supports all of our activity across all three divisions. Each of our target markets is constantly innovating and evolving and our customers rely on us to keep them in touch and ahead of developments. To do this our track record and experience is key, but so is our ability to share innovations across all three divisions so that we can consolidate our expertise into all areas.

2022 has begun well for the business with an increased pipeline of opportunities across all three divisions. This, together with the macro drivers for our business being the roll-out of 5G networks globally, increased defence spending and ongoing worldwide water shortages, should ensure that there is increasing demand for the Group's products and services.

Zvi Borovitz

Chairman

Chief Executive's review

Introduction

In 2021, we achieved significant progress across all three divisions, showing growth in revenue and profits during a highly unusual period for all businesses. There were inevitable delays in shipments, and we suffered from volatile foreign exchange rates, but the underlying performance of the Group was solid, generating cash so that the Company entered 2022 in a strong financial position and is well placed to continue to grow.

Financial results

Revenues for the twelve months to 31 December 2021 increased by 6% to US$43.2m (2019: US$40.9m), a positive performance given the interruptions throughout the year due to COVID-19.

Gross margin rates remained solid, reflecting the mix of products sold in different markets. Gross margin was slightly negatively affected by exchange rates but also from rising shipping costs, which lowered profitability relative to revenue growth, although overall gross profit grew by 3%.

Operating profit increased by 9% to US$4.43m (2020: US$4.08m), which demonstrated the scalability of the business, meeting our long term growth model - adding a minimum of 15% operating profit margin on the incremental revenues generated from organic growth.

Significant foreign currency fluctuations during 2021, in particular, the strength of the Israeli Shekel versus the US Dollar led to higher finance costs, being mostly non-cash expenses, but overall net profit increased 6% to US$3.7m (2020: US$3.5m).

Cash flow from operations for the 2021 financial year increased 65% to US$6.6m (2020: US$4.0m). This resulted in a net cash balance of approximately US$12.5 million (2020: US$9.4m).

The Company continues to have a share buy-back programme in place. The objective of this programme is to assist with trading liquidity, by accumulating shares in treasury through market purchases and then 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 is planned to continue for as long as the programme is in place. As at 7 March 2022, 50,000 shares were held in treasury. 

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

This division is 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 2021, revenues from this division increased by 1%, a small increase but potentially marking the switch to a long period of growth driven primarily by the sale of the division's 5G backhaul solution. 5G sales now represent 20% of the antenna business and are expected to continue to increase.

During the year, the Company made excellent progress in the ongoing development of automatic beam steering ("ABS") antenna solution which ensures the antenna adapts to any small movements caused by different climate conditions, including wind or temperature. If successful, this will be an important technical development, moving the total 5G solution up the value chain and it has already attracted significant engagement from a new Tier one customer. The next step for the ABS antenna solution is for it to be tested by potential customers and then to move into production.

There is no doubt the roll-out of 5G infrastructure is coming and, if anything, the pandemic served to underline the importance of connectivity to enable people to work and communicate effectively from wherever they are located. Network operators are underway in terms of rolling out higher bandwidth services to their customers and will need to increase the backhaul connectivity between cell towers to deliver these faster services. This is the opportunity MTI has been working towards and we are still at the early stages before demand is expected to ramp up.

Elsewhere across the division, sales of RFID (radio frequency identification) antennas used in asset tracking, which slowed due to the pandemic in 2020, showed good recovery in 2021. Military antenna sales performed robustly matching sales levels for the prior year and there are some good prospects in this market for the current year.

Our offset facility in India had a reasonable year alongside the recovery of the airline industry and the prospects, subject to normal market conditions continuing, remain good.

Water Control & Management

This division provides wireless control systems to manage irrigation and water distribution for agriculture, municipal authorities and commercial entities. It operates under the Mottech brand and utilises part of the 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 higher quality, crops and plants being grown.

This has been an excellent year for Mottech with revenues increasing by 9% against the prior year. Demand for Mottech's solutions has been good across nearly all markets with the only exception being China which will hopefully return in the current year. Importantly, the division overall has benefitted from an increase in recurring service and maintenance income which represents 20% of all income and is expected to continue to improve.

Also in 2021, Mottech launched the Mottech Decoder System, which is a wired extension that is required in several key markets, enabling multiple commands and functions in parallel with the receipt of data from sensors. Since the year end, Mottech signed a new strategic partnership with Viridix, a company which specializes in actionable data analytics for irrigation, based on the RooTense® sensor that measures the water available to the roots of crops. The combination of the two companies' expertise is expected to lead to the first fully automatic, real time data based solution, with AI (artificial intelligence) capabilities for "Agrogation" - agronomic based irrigation.

Water scarcity is a growing global issue and Mottech's technologies can make a real difference in countries where it is critical to have efficient water usage whilst maintaining good levels of irrigation. Mottech aims to be both a commercial and environmental success story.

Distribution & Professional Consulting Services

Operating under the MTI Summit Electronics brand, this division exclusively represents approximately 40 international suppliers of radio frequency/microwave components and sells these products to Israeli 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.

2021 saw another excellent performance by MTI Summit, with revenues growing by 5% against tough comparators in the prior year. In September 2021, the division signed a new strategic agreement with a significant customer operating in the defence sector, confirming MTI Summit as the primary supplier, with pre-agreed pricing across an extensive range of products. This is MTI's first agreement of its kind, which enables the customer to make orders far more quickly and more efficiently than the old process. In the past the customer spent approximately US$4m per annum, and this figure is expected to increase due in part to the convenience of the new agreement for both parties.

Demand has been strong from existing customers and markets, with the satellite office in Russia recovering in 2021. The Company has over time built up significant expertise in the tethered balloon sector and the division is currently participating in a large tethered balloon project in Israel, which is expected to continue to contribute strongly in 2022.

Since the year-end, the Company acquired 51% of PSK, an Israeli company which is well known to MTI having collaborated together on numerous projects over the past 10 years. PSK specialises in the development, manufacture and integration of communication systems and advanced monitoring and control systems for the Government and defence industry market. It is a natural fit with MTI Summit and is expected to contribute to future growth of this division and the Group as a whole.

Outlook

The events in Ukraine have shocked the world and are deeply saddening. With the situation being very fluid and multiple actions being taken globally at Government levels, the Board has decided to exit the Group's operations in Russia. MTI's office in Russia generated 6% of consolidated revenues and circa 5% of net profits in 2021, all relating to distribution and professional consulting services. The core professional consulting services division's activities are and will remain in Israel without any disruption, which is also the case in respect of our other divisions.

MTI is a market innovator and we will continue to seek to lead. We have always had a "first to develop" approach, using MTI's intellectual property and licensed technology from leading partners, to create unique solutions. The new ABS solution for 5G backhaul is an excellent example of this and we look forward to providing updates on the potential commercial benefits that come with it.

2021 was a solid trading year for the business and we will seek to repeat and build upon it in 2022. We have a very strong financial platform and MTI will continue to seek to expand its business through a mix of acquisition-led and organic growth. 

Moni Borovitz

Chief Executive Officer

M.T.I Wireless Edge Ltd.

Consolidated Statements of Comprehensive Income

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, 2021 :

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

For the year ended December 31, 2020 :

The accompanying notes form an integral part of the financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position (Cont.)

The financial statements on pages 4 to 48 were approved by the Board of Directors and authorised for issue on March 6, 2022, and were signed on its behalf by:

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows (Cont.)

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, 2021

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.

- Providing consulting, representation and marketing services to foreign companies in the field of RF (radio frequency) and Microwave, including engineering services in the field of aerostat systems and system engineering services.

2. 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 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 the level of future taxable profits together with future tax planning strategies.

2. Accounting policies (Cont.)

C. 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 using the inputs method by dividing actual completion costs incurred (based on estimates of material costs, labor costs, subcontractor performance, and other factors) to date by the total completion costs anticipated. 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 Company's management. 

The Company recognizes revenue from construction contracts over time, since the Company's performance does not create an asset with alternative use to the Company and the Company has an enforceable right to payment for performance completed up to that date.

The payment terms for these projects are based on milestones specified in the contract, which are determined in relation to the rate of progress. The Company believes that recognising revenue based on costs incurred to satisfy performance obligations faithfully depicts its performance in construction contracts. Therefore, when revenue is recognized before a specified milestone is achieved, the Company recognizes the costs incurred to satisfy the related performance obligation as unbilled revenue.

Financing components - The Company does not have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.

The Company elected not to adjust the transaction price for the effects of financing components in contracts where the period between when the Company transfers a promised good or a service to the customer and when the customer pays for it is one year or less.

2. Revenues from the sale of goods are recognized at the point in time when control of the asset is transferred to the customer, generally upon delivery of the equipment.

Volume rebates give rise to variable consideration. The variable consideration is estimated at contract inception and constrained until the associated uncertainty is subsequently resolved. The application of the constraint on variable consideration increases the amount of revenue that will be deferred.

To estimate the variable consideration to which it will be entitled, the Company applied the 'most likely amount method' for contracts with a single volume threshold and the 'expected value method' for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration was primarily driven by the number of volume thresholds contained in the contract. The Company includes in the transaction price amounts of variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

2. Accounting policies (Cont.)

At the end of each reporting period, the Company updates its estimates of variable consideration.

D. Assets and liabilities arising from contracts with customers

Contract assets (presented as "Unbilled revenue ")  

A contract asset is the Company's right to consideration in exchange for goods or services the entity has transferred to a customer that is conditional on something other than the passage of time

Trade receivables

A receivable represents the Company's right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

E. Basis of consolidation

The Group controls an investee if and only if the Group has:

- Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee).

- Exposure, or rights, to variable returns from its involvement with the investee, and

- The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over the investee, including: the contractual arrangement with the other vote holders of the investee, the Group's potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: (i) derecognises the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of any non-controlling interests and the cumulative translation differences recorded in equity: (ii) Recognises the consideration received at fair value, recognises any investment retained at fair value of and recognises any surplus or deficit in profit or loss; (iii) reclassifies the parent's share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Company had directly disposed of the related assets or liabilities.

F. Consolidated financial statements

Where relevant, the accounting policies in the financial statements of the subsidiaries are adjusted to conform with the policies applied in the financial statements of the Group.

2. Accounting policies (Cont.) 

G. Goodwill

Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost of a business combination comprises the fair values of assets given, liabilities assumed and equity instruments issued. Any costs of acquisition are charged to profit or loss (if the costs of acquisition are related to the issue of debt or equity, they are charged to equity or liability respectively). Goodwill is recognized as an intangible asset with any impairment in carrying value being charged to profit or loss. Goodwill is not systematically amortized and the Company reviews goodwill for impairment once a year or more frequently if events or changes in circumstances indicate that there may be an impairment.

H. Intangible assets

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured on initial recognition at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized development costs, are recognized in profit or loss when incurred.  Intangible assets with finite useful lives are amortized over their useful lives and reviewed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end. Intangible assets with indefinite useful lives are not systematically amortized and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. The useful lives of these assets are reviewed annually to determine whether such assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful lives assessment from indefinite to finite is accounted for prospectively as a change in accounting estimate and on that date the intangible asset is tested for impairment.

I. Impairment of non-financial assets

Impairment tests on goodwill and indefinite useful lives assets are undertaken annually on December 31 or sooner when there are indicators of impairment. Other non-financial assets (excluding Inventories) are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of the non-financial asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to dispose), the asset is written down and an impairment charge is recognized accordingly in the profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is performed on the asset's cash-generating unit level (i.e. the smallest group of assets to which the asset belongs that generates cash inflow that are largely independent of cash inflows from other assets). Goodwill is allocated at initial recognition to each of the Group's cash-generating units that are expected to benefit from the synergies of the business combination giving rise to the goodwill. An impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) is lower than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses allocated to goodwill cannot be reversed in subsequent periods.

2. Accounting policies (Cont.)

An impairment loss allocated to an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. A reversal of an impairment loss, as above, is limited to the lower of the carrying amount of the asset that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years and the assets recoverable amount. The reversal of an impairment loss of an asset is recognized in profit or loss. Impairment charges are included in the general and administrative expenses line item in the statement of comprehensive income. During the 2020 and 2021 financial years no impairment charges of non-financial assets were recognized.

J. Functional currency and Foreign currency transactions

The reporting currency of the Group is U.S. Dollars ("dollar"; "USD"), which is the currency of the primary economic environment in which the Company and the majority of the Group's subsidiaries operate. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

On consolidation, the assets and liabilities of foreign operations are translated into Dollars at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions). The exchange differences arising on translation for consolidation are recognised in OCI as 'Adjustment arising from translation of financial statements of foreign operations'. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss.

K. Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

A. In the principal market for the asset or liability, or

B. In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group.

2. Accounting policies (Cont.)

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

Classification by fair value hierarchy:

Assets and liabilities presented in the statement of financial position at fair value are grouped into classes with similar characteristics using the following fair value hierarchy which is determined based on the source of input used in measuring fair value:

L. Financial instruments:

1. Financial assets

The Group classifies its financial assets based on the business model for managing the financial asset and its contractual cash flow characteristics. The Company's accounting policy for the relevant category is as follows:

Amortized cost

These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment. 

Impairment provisions for trade receivables are recognized based on the simplified approach within IFRS 9 using a provision in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognized within general and administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

2. Accounting policies (Cont.)

2. Financial Liabilities

The Group classifies its financial liabilities based on the business model for managing the financial liabilities and its contractual cash flow characteristics. The Company's accounting policy for the relevant category is as follows

Other financial liabilities include the following items:

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

- Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

3. De-recognition:

Financial assets - The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the rights to receive the contractual cash flows.

Financial Liabilities - The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.

M. Government grants

Grants received from the Israel-U.S. Bi-national Industrial Research and Development Foundation (henceforth "BIRD") as support for a research and development projects include an obligation to pay back royalties conditional on future sales arising from the project. Grants received from BIRD, are accounted for as forgivable loans, in accordance with IAS 20 (Revised), pursuant to the provisions of IFRS 9. Accordingly, when the liability for the loan is first recognized, it is measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grants received and the fair value of the liability is accounted for upon recognition of the liability as a grant and recognized in profit or loss as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest method.

Changes in the projected cash flows are discounted using the original effective interest rate and recorded in profit or loss in accordance with the provisions of IFRS 9. 

At the end of each reporting period, the Group evaluates, based on its best estimate of future sales, whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid. If there is such reasonable assurance, the appropriate amount of the liability is derecognized and recorded in profit or loss as an adjustment of research and development expenses. If the estimate of future sales indicates that there is no such reasonable assurance, the appropriate amount of the liability that reflects expected future royalty payments is recognized with a corresponding adjustment to research and development expenses. 

2. Accounting policies (Cont.)

N. Deferred tax

Deferred taxes are computed in respect of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the amounts attributable for tax purposes. Deferred taxes are recognized in profit or loss, except when they relate to items recognized in other comprehensive income or directly in equity. 

Deferred taxes are measured at the tax rates that are expected to apply in the period when the temporary differences are reversed in profit or loss, other comprehensive income or equity, based on tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred taxes in profit or loss represent the changes in the carrying amount of deferred tax balances during the reporting period, excluding changes attributable to items recognized in other comprehensive income or directly in equity or deferred tax arising on business combinations. 

Deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is not probable that they will be utilized. In addition, temporary differences (such as carryforward losses) for which deferred tax assets have not been recognized are reassessed and deferred tax assets are recognized to the extent that their recoverability is probable.

Any resulting reduction or reversal is recognized in "income tax" within the statement of comprehensive income. Taxes that would apply in the event of the disposal of investments in investees have not been taken into account, as long as the disposal of such investments is not expected in the foreseeable future and the group has control over such disposal. In addition, deferred taxes that would apply in the event of distribution of dividends have not been taken into account, if distributions of dividends involve an additional tax liability; the Group's policy is not to initiate distribution of dividends that triggers an additional tax liability.

All deferred tax assets and liabilities are presented in the statement of financial position as non-current items. Deferred tax liabilities are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred tax liabilities relate to the same taxpayer and the same taxation authority.

O. Current taxes:

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years.

P. Inventories

Inventories are measured at the lower of cost and net realizable value. Cost is calculated according to a weighted average model.

2. Accounting policies (Cont.)

Q. Property, plant and equipment

Items of property, plant and equipment are initially recognized at cost including directly attributable costs. Depreciation is calculated on a straight line basis, over the useful lives of the assets at annual rates as follows:

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss.

R. Cash and cash equivalents

Cash equivalents are considered by the Group to be highly-liquid investments, including, inter alia, short-term deposits with banks, the maturity of which do not exceed three months at the time of deposit and which are not restricted.

S. Provision for warranty

The Group generally offers up to three year warranties on its products. Based on past experience, the Group does not record any provision for warranty of its products and services due to immateriality.

T. Share-based payments

Where equity settled share options are awarded to employees, the fair value of the options calculated at the grant date is charged to the statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted.

2. Accounting policies (Cont.)

U. Employee benefits

1. Short-term employee benefits: Short-term employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

2. Post-employment benefits: The plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.

The Group has defined contribution plans pursuant to Section 14 of the Severance Pay Law since 2004 under which the Group pays fixed contributions to a specific fund and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense simultaneously with receiving the employee's services and no additional provision is required in the financial statements except for the unpaid contribution. The Group also operates a defined benefit plan in respect of severance pay pursuant to the Severance Pay Law. According to the Law, employees are entitled to severance pay upon dismissal, retirement and several other events prescribed by that Law. The liability for post employment benefits is measured using the projected unit credit method. The actuarial assumptions include rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate determined by reference to yields on high quality corporate bonds with a term that matches the estimated term of the benefit plan.

In respect of its severance pay obligation to certain of its employees, the Company makes deposits into pension funds and insurance companies ("plan assets"). Plan assets comprise assets held by a Long-term employee benefits fund or qualifying insurance policies. Plan assets are not available to the Group's own creditors and cannot be returned directly to the Group. The liability for employee benefits presented in the statement of financial position presents the present value of the defined benefit obligation less the fair value of the plan assets.

V. Earnings per Share (EPS)

Earnings per share is calculated by dividing the net profit or loss attributable to owners of the parent by the weighted number of ordinary shares outstanding during the period. Basic earnings per share only include shares that were actually outstanding during the period. Potential ordinary shares (convertible securities such as employee options) are only included in the computation of diluted earnings per share when their conversion decreases earnings per share or increases loss per share from continuing operations. Further, potential ordinary shares that are converted during the period are included in the diluted earnings per share only until the conversion date, and since that date they are included in the basic earnings per share. The Company's share of earnings of investees is included based on the proportion of the shares in the investee held by the Company.

2. Accounting policies (Cont.)

W. Segment reporting

An operating segment is a component of the Group that meets the following three criteria:

1. Is engaged in business activities from which it may earn revenues and incur expenses;

2. Whose operating results are regularly reviewed by the Group's chief operating decision maker to make decisions about allocated resources to the segment and assess its performance; and

3. For which separate financial information is available.

Segment revenue and segment costs include items that are attributable to the relevant segments and items that can be allocated to segments. Items that cannot be allocated to segments include the Group's financial income and expenses and income tax.

X. Leases

Right-of-use assets: 

The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any accumulated impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets comprises the amount of the initial measurement of the lease liability; lease payments made at or before the commencement date less any lease incentives received; and initial direct costs incurred. The recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. The right-of-use assets are presented within property, plant and equipment.

Lease liabilities:

At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option that is reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.

The variable lease payments that do not depend on an index or a rate are recognized as expenses in the period on which the event or condition that triggers the payment occurs.

Lease term:

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

2. Accounting policies (Cont.)

Depreciation of a right-of-use asset:

Subsequent to the inception of the lease, a right-of-use asset is measured using the cost method, less accumulated depreciation and accumulated impairment losses, and is adjusted for re-measurements of the lease liability. Depreciation is measured using the straight-line method over the useful life or contractual lease term, whichever ends earlier. Lessees will also be required to re-measure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will recognize the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset, until the carrying amount is reduced to zero.

3. Revenues

(*) at a point in time

(**) over time

4. Profit from operations

5. Operating segments

The Company and its subsidiaries are engaged in the following segments:

- 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.

- Providing consulting, representation and marketing services to foreign companies in the field of RF and Microwave, including engineering services in the field of aerostat systems and system engineering services.

Segment information

Year ended December 31, 2021

December 31, 2021

5. Operating Segments (cont.)

Year ended December 31, 2020

December 31, 2020

2. Entity wide disclosures of External revenue by location of customers.

3. Additional information about revenues:

There is one single customer from which revenues amount to 12% in 2021 (11% in 2020) of total revenues reported in the financial statements. This is a customer for the antenna and distribution & special consulting services divisions and the credit terms with it are usually end of month + 90 days.

6. Finance expense and income

7. Tax expenses

A. Tax Laws in Israel

1. Amendments to the Law for the Encouragement of Capital Investments, 1959 (the "Encouragement Law"):

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which prescribes, among others, amendments to the Law. The Amendment became effective as of January 1, 2011. According to the Amendment, the benefit provisions in the Law were modified and a flat tax rate applies to the Company's entire preferred income. Commencing from the 2011 tax year, the Group will be able to opt to apply (the waiver is non-recourse) the Amendment and from the elected tax year and onwards, it will be subject to the amended tax rates that are: 2014 and thereafter will be 16% (in development area A - 9%).

The Group applied the Amendment effectively from the 2011 tax year.

On 15 November 2021 an amendment to the Encouragement Law was approved (the "2021 Amendment"). According to the 2021 Amendment companies that had retained earnings from exempt income earned before 31 December 2020 can distribute those earnings with a lower tax rate of 10% to the Company and withholding tax of 15% to the shareholders. The Company has such retained earnings totalling approximately 10.3m NIS ($3.3m USD).

2. Tax rates:

On December 29, 2016, the Law for Economic Efficiency (Legislative Amendments for Achieving the Budgetary Goals for 2017-2018) was published in Reshumot (the Israeli government official gazette), which enacts, among other things, the following amendments:

- Decreasing the corporate tax rate to 24% in 2017 and to 23% in 2018 and thereafter (instead of 25%).

- Commencing tax year 2017 and thereafter the tax rate on the income of preferred enterprises of a qualifying Company in Development Zone A as stated in the Encouragement of Capital Investment

7. Tax expenses (cont.)

Law, shall decrease to 7.5% (instead of 9%) and for companies located in zones other than Zone A the rate shall remain 16%.

- In addition, the tax rate on dividends distributed on January 1, 2014 and thereafter originating from preferred income under the Encouragement Law will be raised to 20% (instead of 15%).

Therefore the applicable corporate tax rate for 2014 and thereafter is 16%.

B. The principal tax rates applicable to the subsidiaries whose place of incorporation is outside Israel are:

A company incorporated in India - The statutory tax rate is 28% and the Company was in an exempt zone until end of March 2013 and further in a 50% tax exempt zone until end of March 2018. Nevertheless from the Tax Year 2011-12, in the absence of taxable income or tax due on taxable income (calculated as per normal rates) being less than 18.5% of the Accounting Book Profits during a particular year, the Indian regulation states that the company has to pay a Minimum Alternate tax at a rate of 18.5% of the Accounting Book Profits for that year. Such excess Minimum Alternate Tax paid on book profits over the Tax due on Actual Taxable Income (calculated as per normal rates) of each year is capable of set off against the taxable profits of future years.

A company incorporated in Switzerland - The weighted tax rate applicable to a company operating in Switzerland is about 25% (composed of Federal, Cantonal and Municipal tax). Provided that the company meets certain conditions, the weighted tax rate applicable to its income in Switzerland will not exceed 10%.

A company incorporated in South Africa - the statutory tax rate is 28%

A company incorporated in Australia - the statutory tax rate is 30%

A company incorporated in United States of America - the statutory tax rate is 21%.

A Company incorporated in Russia - the statutory tax rate is 20%.

A Company incorporated in Canada - the statutory tax rate is 25%.

A Company incorporated in China - the statutory tax rate is 25% but for small entities the tax rate is 10%. To be classified as a small entity all following should apply (i) Annual taxable income not exceeding 3 million yuan, (ii) Number of employees not exceeding 300 and (iii) Total assets not exceeding 50 million yuan. The Company meets the criteria of a small entity.

C. Income tax assessments

The Company has tax assessments considered as final up to and including the year 2016.

7. Tax expenses (cont.)

The adjustments for the difference between the actual tax charge for the year and the standard rate of corporation tax in Israel applied to profits for the year are as follows:

8. Earnings per share

Net earnings per share attributable to equity owners of the parent

There are no options in issue as the date of this report (See note 24).

9. Dividends

10. Property, plant and equipment

10. Property, plant and equipment (cont.)