Annual Report and Accounts 2011 - mcilvainecompany.com · Annual Report 2011 Amiad Water Systems...

Annual Report and Accounts 2011For the year ended 31 December 2011

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01 Directors & Senior Management, Secretary & Advisers

02 Financial and Operational Summary

03 Chairman’s Statement

04 Chief Executive’s Review

05 Chief Financial Officer’s Review

06 Segments

08 New Products

11 Water Sustainability

12 Global Presence

14 Directors’ Report

18 Directors’ & Senior Management Biographies

22 Corporate Governance Report

28 Independent Auditor’s Report

29 Consolidated Statements of Financial Position

31 Consolidated Statements of Comprehensive Income

32 Consolidated Statements of Changes In Equity

33 Consolidated Statements of Cash Flows

34 Notes to Consolidated Financial Statements

92 Appendix I

Annual Report 2011 Amiad Water Systems Ltd. 01

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DirectorsTal Yeshua (Non-executive Chairman)Arik Dayan (Chief Executive Officer)Amir Harel (V.P. Finance; appointed 20 September 2011)Michael Rosenberg OBE (Statutory External Director)Dan Falk (Non-executive Director)Izhar Ben-Shlomo (Non-executive Director)Harel Beit-On (Non-executive Director)Dr. Zeev Holender (Non-executive Director)Osnat Ronen (Non-executive Director)Simon Olswang (Statutory External Director)Amos Shalev (Non-executive Director)Shmuel Dudai (Non-executive Director; appointed 2 September 2011)

CompanySecretaryBarnea & Co.

RegisteredandHeadOfficeAmiad Water Systems Ltd.DN Galil Elyon 1 12335Israel

NominatedAdviserandBrokerNomura Code Securities Ltd.1 Carey LaneLondon EC2V 8AEUK

SolicitorstotheCompanyastoEnglishLawSpeechly Bircham LLP 6 New Street Square London EC4A 3LX UK

SolicitorstotheCompanyastoIsraeliLawBarnea & Co. 6 Hachoshlim Street Herzilya Pituach 46724 Israel

AuditorsandReportingAccountantsKesselman & Kesselman (a member of PricewaterhouseCoopers International Ltd.) Certified Public Accountant (Isr.) Trade Tower, 25 Hamered Street, Tel Aviv 68125 P.O.Box 452, Tel Aviv 61003 Israel

BankersBank Hapoalim Ltd. Branch No. 542 Rosh Pina Israel

United Mizrahi Bank Ltd. Branch No. 487 Kiryat Shmona Israel

Bank Leumi le-Israel B.M.Branch No. 745AfulaIsrael

RegistrarCapita IRG (Offshore) Ltd. Victoria Chambers Liberation Square 1/3 The Esplanade St. Helier Jersey JE4 0FF Channel Islands

FinancialPublicRelationsAdviserLuther Pendragon Ltd.3 Priory CourtPilgrim StreetLondon EC4V 6DRUK


Financial and Operational Summary

FinancialSummary• Revenue increased by 31% to $117.3m (2010: $89.4m)

• Operating profit was $8.9m (2010: $4.3m)

• Profit before tax was $8.3m (2010: $3.5m)

• Gross margins at 44% (2010: 43%)

• Fully diluted earnings per share was $0.312 (2010: $0.134)

• Final dividend for 2011 of $0.055 per share (2010: $0.058),

making a total dividend for the year of $0.104 (total dividend

for 2010: $0.078)

• Cash and cash equivalents at 31 December 2011 were $11.8m

(30 June 2011: $15.0m; 31 December 2010: $11.3m)

OperationalSummary• Strategic:

• Adopted ‘Amiad Water Systems Ltd’ as the Company’s name,

reflecting the development and expansion of Amiad’s offering

• Operating under three brands: Amiad, Arkal (by Amiad) and

Filtomat (by Amiad)

• Now has nine global subsidiaries following the establishment

of Amiad Sistemas de Agua LTDA and acquisition of the

remaining issued share capital of the Company’s subsidiary in

France leading to formation of “Amiad Europe”

• Operations:

• In the industrial and municipal segments, sales were

especially strong in Australia, China, East Europe, Southeast

Asia and Turkey

• Sales increased significantly in the irrigation segment,

especially in the United States

• Launched eight new products, representing a major

expansion of Amiad’s offering and including two that are

designed specifically for its new target segments of oil & gas

and ballast water


This has been a period of growth and evolution for Amiad during

which we built on the successful foundations that were established

in recent years with the reorganization of the business and

acquisition of Arkal Filtration Systems. In 2011, we launched new

products, reached new markets and increased our presence in

target geographies. Now, with our combined, enhanced portfolio of

products, we aim to be able to form the core of any water filtration

or treatment system worldwide.

To reflect this development and expansion of our offering, we

adopted a new company name: Amiad Water Systems Ltd.

With our new technologies and solutions, Amiad’s market

opportunity has grown significantly. In particular, we are able to

target the new growth segments of ballast water and oil & gas

as well as continuing to increase our presence in our traditional

sectors. Moreover, the global water treatment equipment market

is expanding – from an estimated value of $18 billion in 2012 to

$26.7 billion in 2016.

Complementing our new name, we now operate under three brands

based on distinct, but synergistic and complementary technologies:

• “Amiad”, which consists of automatic self-cleaning suction

scanner screen technology-based products, providing a variety

of filtration solutions for the industrial, municipal and irrigation

segments;

• “Arkal (by Amiad)”, which is automatic self-cleaning disc filtration

technology and polymer casing products that provide solutions

for irrigation, municipal, ballast water and marine applications;

and

• “Filtomat (by Amiad)”, which is automatic self-cleaning filtration

solutions for the industrial and municipal segments, based on

a unique patented microfibre technology that allows filtration

to a finer degree, and provides automatic self-cleaning suction

scanner screen technology to the irrigation segment.

We also continued to make progress on our stated strategy of

expanding our global footprint through gaining full control of

subsidiaries in order to have a local presence and establish

direct sales channels in competitive markets. Amiad acquired

the remaining issued share capital of its French subsidiary, and

subsequently consolidated all central and western European activity

under the newly established Amiad Water Systems Europe SAS.

Similarly in China, Amiad completed the integration of the Arkal

subsidiaries with the Company’s existing infrastructure. Finally,

we founded Amiad Sistemas de Agua LTDA as a wholly-owned

subsidiary to enhance the sale and marketing of Amiad’s products

and solutions in Brazil, where there is increasing interest and

investment in water infrastructure projects.

The enlarged business, operating in a greater number of market

segments and geographies, aims to provide a wider range of

products based on innovative solutions that can form the core of any

water treatment system worldwide.

Looking ahead, the trends we identified in last year’s Annual Report

– an increasing global water shortage and regulatory drivers – show

no sign of abating. Amiad’s solutions can provide solutions to some

of the world’s pressing problems and we are well-placed to achieve

significant growth going forward. In the near-term, Amiad entered

2012 with a substantially higher backlog than at the corresponding

period in 2011. With the global trend of investment in water

infrastructure projects persisting, the Board expects demand for

Amiad’s products to increase, resulting in year-on-year growth.

In our fiftieth year of operation, I am very proud of what we have

achieved in continuing to innovate and grow, and I would like to

thank all of our staff and shareholders for their ongoing support.

Tal Yeshua

Chairman

14 June 2012

Chairman’s Statement


Chief Executive’s Review

Amiad achieved growth in all segments in 2011 as Arkal Filtration

Systems made its maiden full-year financial contribution. The

products and projects combining Amiad and Arkal technology

contributed significantly to the record revenues of $117.3m for the

year, an increase of 31% compared with full year revenues in 2010.

We also adopted ‘Amiad Water Systems’ as our new name to reflect

the evolution and expansion of the Amiad portfolio of products.

The Company performed well in all markets, with sales in the

irrigation segment increasing globally, including a return to growth

in the United States. The irrigation segment, which constituted

approximately 43% of total revenues, increased by 36% compared

with 2010. In the industrial and municipal segments, sales grew by

33% over the previous year and were especially strong in Australia,

China, East Europe, Southeast Asia and Turkey. In 2011, the

industrial and municipal segments constituted approximately 53%

of total revenues.

We continued to expand into our new segments of ballast water

and oil & gas, where the combined revenue contribution increased

by 80% compared with 2010 and constituted approximately 4% of

total revenues.

In addition, we launched eight new products, representing a

major expansion of Amiad’s offering. These new products have

applications across our range of sectors, and, crucially, include two

that are designed specifically for our new target segments of oil &

gas and ballast water.

Turning to global activity, in China, in addition to our traditional

business streams, one of the largest projects Amiad undertook

was in the oil & gas segment using our microfibre thread filter.

Similarly, at the end of the year, we won the next stage of a water

filtration project with one of South Korea’s largest steel factories,

which will involve the installation of our microfibre filtration system

in order to treat wastewater and protect the factory’s reverse

osmosis membranes.

Production continued to expand at our subsidiary in India following

the completion of the product assembly line in late 2010, which is

now producing a small number of filters for the steel industry. We

also experienced a growth in irrigation projects, which is expected

to increase further in 2012.

As mentioned, we experienced a return to growth in the irrigation

segment in the United States, driven primarily by an increase in

farming and food consumption. We also received increased interest

for projects in the ballast water industry.

In South America, we established ‘Amiad Brazil’ to focus on

traditional industry, and the oil & gas and municipal segments. In

addition, Amiad secured a project to Arkal SpinKlin Disc Filters for

the Aquapolo tertiary wastewater treatment project in São Paulo,

Brazil, which produces reclaimed water for industrial purposes –

one of the largest facilities of its kind in the Southern Hemisphere,

For Amiad, the EMEA territory encompasses countries such as

France and Spain in Europe; Russia and former CIS countries in

East Europe; Turkey, Israel and others in the Middle East; and

Africa.

Amiad saw a 28% year-on-year sales growth both in Western

and Eastern Europe. In Western Europe, Amiad grew in Italy,

Norway, Spain and Sweden, primarily in the industrial, municipal

and oil & gas segments. In France, Amiad successfully delivered

the second phase of an existing project in the oil & gas segment

for the provision of a salt leaching brine filtration system at an

underground liquid hydrocarbon storage facility. In Russia, sales

doubled primarily due to projects in the municipal segment,

including a project for iron removal at a drinking water facility.

Sales also grew in the Ukraine and the former Yugoslavian

countries.

Finally, in Australia, Amiad experienced its best ever year in terms

of revenues and profits. This included successfully commissioning

a pre-filtration system, based on Arkal disc technology, at a

desalination plant in Adelaide. In addition, post period-end, Amiad

was awarded two significant contracts in Australia for reverse

osmosis and pre-filtation membrane protection for projects in the

desalination and oil & gas industries.


OutlookWe continue to expand our global footprint in the industrial and

municipal markets, and to experience a strong return to growth

in the irrigation segment. The new segments of ballast water and

oil & gas are progressing well, and we expect their contribution

to sales to increase. In addition, Amiad has entered 2012 with a

substantially higher backlog than at the corresponding period

in 2011.

As such, with the global trend of investment in water infrastructure

projects persisting, the Board expects demand for Amiad’s

products to increase, resulting in continuing year-on-year growth.

Arik Dayan

Chief Executive Officer

14 June 2012

Revenues for the twelve months ended 31 December 2011

increased by 31% to $117.3m compared with $89.4m for the full

year 2010. Fully diluted earnings per share was $0.312 (2010:

$0.134).

Operating profit was $8.9m compared with $4.3m in 2010 and profit

before tax was $8.3m (2010: $3.5m).

Gross margins were 44% compared with 43% in 2010. As reported

previously, during the first half of the year the Company faced

pressure from the increased price of raw materials. Amiad took

action to mitigate this increase, including raising the prices of its

products. In 2012, gross margins are expected to be similar to full

year 2011.

As of 31 December 2011, cash and cash equivalents in the bank

were $11.8m compared with $15.0m at 30 June 2011 and $11.3m

at 31 December 2010. The reduction from 30 June 2011 mainly

reflects an increase in working capital to support the Company’s

growth. The Company also made an investment in SAP, and there

was a growth in expenses relating to Research & Development and

Sales & Marketing, including the launch of eight new products.

DividendThe Directors have decided to declare a final dividend out of the

Company’s profits for the twelve months ended 31 December 2011

of $0.055 gross per share (final dividend 2010: $0.058 gross per

share), with an ex dividend date of 13 June 2012, a record date of

15 June 2012 and a payment date of 9 July 2012. This makes a total

dividend for the year of $0.104 per share (total dividend for 2010:

$0.078 gross per share).

Amir Harel

Chief Financial Officer

14 June 2012

Chief Financial Officer’s Review


Amiad is a leading provider of innovative water treatment and filtration solutions that can form the core of any water system in the industrial, municipal and irrigation segments. During the year, Amiad expanded its offering by developing new solutions to service the fast growing oil & gas and ballast water markets.

MunicipalIndustrysegments


Irrigation Ballast WaterOil & Gas

8 Annual Report 2011 Amiad Water Systems Ltd.

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JETMICROFIBERSCREEN SUCTIONJETDISC

Super Flow Ballast Water, Membrane Protection, Industrial Water, Intake Water, Marine Applications (Injection Water, Cooling water

Tertiary (Wastewater Treatment), Potable Water Treatment, Membrane Protection, Industrial Water, Ballast Water, Oil & Gas, Irrigation

Tertiary (Wastewater Treatment), Potable Water Treatment, Membrane Protection, Industrial Water, Ballast Water, Oil & Gas

Arkal AR-3 SpinKlin® (Super Flow 70)

Amiad AM-2 (Omega)

Filtomat FIL-1 (Spider)

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WorldwidePatentedandPatentsPending

PatentsPending PatentsPending

Amiadlaunchedsevennewproductsthisyearunderitsthreebrands:Amiad, Arkal (by Amiad) and Filtomat (by Amiad). The new products,

which represent a major expansion of Amiad’s offering, have applications

across the Company’s range of sectors, and include two that are designed

specifically for its new target segments of oil & gas and ballast water.


JETDISCJETDISC

Tertiary (Wastewater Treatment), Potable Water Treatment, Membrane Protection, Industrial Water, Irrigation

Tertiary (Wastewater Treatment), Potable Water Treatment, Membrane Protection, Industrial Water, Irrigation

Arkal AR-1 SpinKlin® (Super Galaxy)

Arkal AR-2 SpinKlin® (Apollo Quadro)



10Annual Report 2011 Amiad Water Systems Ltd.

SCREEN SUCTIONJETSCREEN SUCTION

Irrigation, Membrane Protection, Industrial Water Tertiary (Wastewater Treatment), Potable Water Treatment, Industrial Water , Oil & Gas

Amiad AM-2 (Sigma)

Amiad AM-3 (ScanJet)

PatentsPending PatentsPending


ReuseAmiad's systems allow used

or collected water to be safely

reused for its original purpose

as well as for irrigation,

process water, cooling towers

and more.

ReduceAmiad's self cleaning

filters utilize minimal

amounts of back flush water

ensuring water, energy and

maintenance savings.

RecycleAmiad’s systems enable the

recovery of wastewater or

used water trough effective

treatment and efficient

filtration, resulting in almost

zero waste.

Water Sustainability


3Technologies 5Continents 6Production sites

Production site

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AMIADGERMANY

FTSTURKEY

AMIADEUROPE

HEADQUARTERSISRAEL

AMIADUSA

AMIADBRAZIL

AMIADANDINA

FCSSINGAPORE

AMIADAUSTRALIA

AMIADCHINA

AMIADINDIA



9 Subsidiaries 50Years of activity

AMIADGERMANY

FTSTURKEY

AMIADEUROPE

HEADQUARTERSISRAEL

AMIADUSA

AMIADBRAZIL

AMIADANDINA

FCSSINGAPORE

AMIADAUSTRALIA

AMIADCHINA

AMIADINDIA



Directors’ ReportFor the year ended 31 December 2011

The Directors have pleasure in presenting their report together

with the audited accounts of the Company and its subsidiaries

for the year ended 31 December 2011.

1. PrincipalactivitiesThe Company was incorporated in Israel in June 1997.

On 5 December 2005, the Company’s shares were admitted

to trading on AIM, a market operated by London Stock

Exchange plc.

The Company is a producer and global supplier of water filters

and filtration systems used in two key markets, being the

industrial and municipal market and the irrigation market.

The Company specialises in automatic self-cleaning filters

that require low maintenance and that can be adapted to

provide bespoke solutions to a wide range of applications in

industries, in addition to a wide variety of other applications

in the irrigation market.

2.FinancialA financial review of the results for the year 2011 is set out

on page 5 and the full financial statements are from page 28

onwards.

3.DividendAn additional interim dividend payment for the year 2011 of

4.9 cents (US$) per share was paid on 11 October 2011 to

shareholders on the register on 21 September 2011.

The Directors approved a final dividend payment for the year

2011 of 5.5 cents (US$) per share, with an ex-dividend date of

13 June 2012, a record date of 15 June 2012 and a payment

date of 9 July 2012, making a total dividend for the year 2011

of 10.4 cents (US$) per share.

4.ReviewofbusinessandfutureprospectsThe Company’s results for the period ended 31 December

2011 and the financial position as at 31 December 2011 are

considered satisfactory by the Directors. A review of the

Company’s activities during this period and a review of future

prospects are contained in the Chairman’s and Chief Executive’s

reports set out on pages 3 and 4 respectively.

5.SharecapitalDetails of issued share capital and movements during the year

2011 are set out on page 63.

6.ResearchanddevelopmentAs at 31 December 2011 the Company employed 26 people

worldwide in research and development and engineering.

It currently intends to invest 3.5 per cent of sales revenues on

R&D on an ongoing basis.

7.DirectorsThe following Directors held office on 3 December 2011:

• TalYeshua AppointedFebruary2009

• MichaelRosenberg AppointedNovember2005

• IzharBen-Shlomo AppointedJuly2006

• DanFalk AppointedDecember2007

• ArikDayan AppointedJuly2009

• HarelBeit-On AppointedApril2009

• OsnatRonen AppointedApril2009

• ZeevHolender AppointedApril2009

• SimonOlswang AppointedApril2009

• AmosShalev AppointedJuly2010

• ShmuelDudai AppointedSeptember2011

Biographical details are set out on pages 18-21.


8.Directors’interestsAs of 31 December 2011:

DirectorNumber of

ordinary shares

Number of ordinary shares

under option

Percentage of issued share capital on

a fully diluted basis

Arik Dayan Nil 72,961 0.32

Michael Rosenberg Nil Nil Nil

Dr. Izhar Ben-Shlomo1 10,162,571 Nil 44.84

Dan Falk Nil Nil Nil

Tal Yeshua2 10,167,571 Nil 44.86

Osnat Ronen3 4,429,442 Nil 19.54

Harel Beit-On3 4,429,442 Nil 19.54

Zeev Holender Nil Nil Nil

Simon Olswang 49,500 Nil 0.22

Amos Shalev4 2,038,443 Nil 8.99

Shmuel Dudai5 10,162,571 Nil 44.84

1. Out of the 10,162,571 ordinary shares in which Dr. Ben Shlomo is interested in, 10,152,371 are registered in the name of

A.M.SI Holdings (1997) Ltd, a company controlled by Kibbutz Amiad, (“AMS”) and 10,200 ordinary shares are registered in

the name of Kibbutz Amiad. Dr. Ben Shlomo is a member in Kibbutz Amiad.

2. Out of the 10,167,571 ordinary shares in which Mr. Tal Yeshua is interested in, 5,000 shares are registered in the name of

Mr. Tal Yeshua, 10,152,371 are registered in the name of AMS and 10,200 ordinary shares are registered in the name of

Kibbutz Amiad.

3. Ms. Osnat Ronen and Mr. Harel Beit-On, who are General Partners in Viola Private Equity I, L.P. (“Viola”), are interested in

4,429,442 ordinary shares held by Viola.

4. Mr. Shalev serves as business development manager in Bermad Industries A.C.S. Ltd. (“Bermad”) and in Kibbutz Evron.

Bermad holds, as at the date of this document, 2,038,443 ordinary shares of the Company and is a party to a shareholders’

agreement with Kibbutz Amiad, pursuant to which the parties thereto shall vote their shares together at all meetings of

the shareholders of the Company, as shall be agreed among them or in the absence of agreement as shall be decided by

Kibbutz Amiad.

5. Out of the 10,162,571 ordinary shares in which Mr. Shmuel Dudai is interested in, 10,152,371 are registered in the name

of AMS and 10,200 ordinary shares are registered in the name of Kibbutz Amiad. Mr. Shmuel Dudai has served as the

chairman of the board of Kibbutz Amiad since March 2011 and is a member in Kibbutz Amiad.


9.Directors’remuneration

Name

Salary/Fee benefits (in US $)

Pension contribution (in US $)

Total (in US $)

For the year ended For the year ended For the year ended

2010 2011 2010 2011 2010 2011

Michael Rosenberg 47,935 38,678 Nil Nil 47,935 38,678

Izhar Ben-Shlomo 22,723 20,676 Nil Nil 22,723 20,676

Dan Falk 31,191 26,264 Nil Nil 31,191 26,264

Tal Yeshua 293,416 181,611 Nil Nil 293,416 181,611

Harel Beit-On 23,473 19,558 Nil Nil 23,473 19,558

Osnat Ronen 23,473 19,558 Nil Nil 23,473 19,558

Zeev Holender 24,063 19,837 Nil Nil 24,063 19,837

Simon Olswang 49,811 59,911 Nil Nil 49,811 59,911

Arik Dayan * 329,928 342,899 15,859 11,336 345,787 354,235

Amos Shalev 12,862 19,558 Nil Nil 12,862 19,558

Shmuel Dudai ** Nil 7,264 Nil Nil Nil 7,264

* Mr. Arik Dayan also serves as the CEO of the Company.

** Mr. Shmuel Dudai was appointed as a director on September 2011.

10.Health,safetyandenvironmentalpolicyThe Company recognises its legal responsibilities to ensure the well-being, safety and welfare of its employees and to maintain a safe

environment for visitors and contractors. The Company has a health and safety policy which is available to all employees. In summary, the

Company’s policy is to behave in an environmentally responsible manner, consistent with local legislation and protocols.

11.SubstantialshareholdersAs at 31 December 2011, the Company had been notified of the following interests in 3 per cent or more of the issued ordinary share capital

of the Company:

Name Number of shares% of issued ordinary

share capital

Kibbutz Amiad Agricultural Cooperative Association 10,162,571 44.99

Viola Private Equity I, L.P. 4,429,442 19.61

Bermad Industries Agricultural Cooperative Association 2,038,443 9.02

Kibbutz Beit Zera Agricultural Cooperative Association 1,019,223 4.51

Impax Assets Management 1 1,325,000 5.87

AXA Framlington Investment Managers 827,300 3.66

1. It shall be noted that on 14 February 2012 the Company was notified that Impax Asset Management Ltd. (“Impax”) had sold, through

a series of transactions from 28 September 2011 to 10 February 2012, a total of 207,882 ordinary shares of the Company across two

of its funds. Accordingly, Impax’s shareholding in the Company has been reduced from 1,325,000 shares preceding the transactions,

representing 5.87 per cent of the Company’s issued share capital and voting rights, to a current total of 1,117,118 shares, which

represents 4.95 per cent of the Company’s issued share capital and voting rights.

Directors’ ReportFor the year ended 31 December 2011 (continued)


12.CreditorpaymentpolicyandpracticeThe Company’s policy is that payments to suppliers are made in

accordance with the terms and conditions agreed between the

Company and its suppliers, provided that all trading terms and

conditions have been complied with.

13.GoingconcernThe Directors have reviewed the latest forecast results and

cash flow projections of the Company. The Directors have a

reasonable expectation that the Company has adequate resources

to continue in operational existence for the foreseeable future.

The financial statements have therefore been prepared on a going

concern basis.

14.Directors’responsibilitiesThe Israeli Companies Law, 1999 requires the Directors to

prepare financial statements for each financial year which give

a true and fair view of the state of affairs of the Company as

at the end of the relevant financial year pursuant to applicable

accounting standards.

15.AuditorsThe Directors, after receiving the view of the Company’s

Audit Committee, have decided to put to the Annual General

Meeting a resolution to renew the appointment of Kesselman &

Kesselman, a member of PricewaterhouseCoopers International

Limited, as the Company’s auditors for the financial year ending

31 December 2012.

16.NominatedadviserandbrokerThe Company appointed Nomura Code Securities Limited as its

nominated adviser and broker on 19 August 2011.

By order of the Board

12 June 2012

Tal Yeshua

Chairman

Arik Dayan



TalYeshuaNon-Executive Chairman

Mr. Yeshua has held the position of Non-executive Chairman since May 2008. He joined the board in February

2008, after being appointed as the chairman of Kibbutz Amiad in November 2007. In addition, Mr. Yeshua is

currently the Chairman of Asiv Textile Industries Ltd., Termokir Industries (1980) Ltd., Liam-Tnuvot Ltd. and the

appointed committee of Kibbutz Horshim in Israel. He was previously a director of Agrical Habonim Industries

Ltd., Arad Technologies Ltd., S.H.R. Ltd., Mifne Ltd., Kibbutz Tel Katzir, Kibbutz Eilon, Kibbutz Hefetz Haim,

Kibbutz Habonim, Kibbutz Ramot Menashe, Kibbutz Givat Oz and Kibbutz Ratamim.

Mr. Yeshua has a Certificate in Business Management from The Negev College, Israel and a Degree in Practical

Computer Engineering from the Ruppin Academic Center, also in Israel.

ArikDayanChief Executive Officer

Mr. Dayan is the appointed CEO since 25 March 2009. He held various senior positions at the Company since

joining it in 1997 as the General Manager of FCS, Amiad’s Singapore subsidiary. These positions included

being appointed as International Business Development Executive in September 2003 and as VP of Sales

and Marketing in March 2004. Mr. Dayan was part of the senior executive team that met with investors at the

launching of the Company’s IPO in December 2005. In mid 2007, he became the Deputy CEO and Senior VP

of Sales and Marketing. Prior to joining Amiad, Mr. Dayan was the Managing Director of SunGard Business

Integration Asia Pacific from 2000-2003, and the Director of Sales and Marketing at Epilady from 1994-1997.

Mr. Dayan holds a BA in Economics and Business Administration.

AmirHarel,CFOV.P. Finance

Mr. Amir Harel has been VP Finance and Chief Financial Officer of the Company since October 2011. He has

over 17 years of capital markets experience with several Israeli and international companies in various

positions, including six years as VP Finance and CFO of Tower Semiconductor (NASDAQ and TASE: TSEM).

Mr. Harel joined Amiad from InSightec Ltd., where he was the VP Finance, CFO and Corporate Secretary since

September 2005.

Other positions have included VP Finance and CFO of TransChip Inc., Corporate Secretary and CFO of Elbit

Vision Systems Ltd. (NASDAQ: EVSN) , and diverse finance management positions within the Elbit Group.

During his career, he has been responsible for a broad range of activities such as accounting, financial planning

and controlling, contract negotiation and investor relations, in addition to planning and executing significant

financial transactions. Mr. Harel holds a BSC in Information Systems Engineering and a Master in Industrial

Management, both from the Technion – Israel Institute of Technology, Haifa, Israel.

Directors’ & Senior Management Biographies


HarelBeit-OnNon-executive Director

Mr. Harel Beit-On joined the Board on 1 April 2009. He is the Founder and General Partner of Viola Private

Equity, a technology buyout and growth capital fund, an affiliate of the Viola Group. Mr. Beit-On is a senior

executive with over 20 years of management leadership in the software industry. From 1994 to 2005, Mr. Beit-On

served as the President and Chief Executive Officer of Tecnomatix Ltd. until it was successfully acquired by

UGS (today Siemens) for $228m. Mr. Beit-On is currently a Director of Red Bend Ltd., Shunra Software Ltd. and

Pulsar Welding Ltd. and has served as Chairman and/or Director of several companies, including: ECtel Ltd.

(NASDAQ:ECTX), Optimal Test Ltd., Tecnomatix (NASDAQ) and Clarizen Ltd. In 2006, on behalf of the Viola

Group, Harel led an investment of $150 million, acquiring 80% of the shares of Lumenis, a global medical device

company. Following the investment, Harel was appointed as the Chairman of Lumenis’ Board of Directors.

Mr. Beit-On has a BA in Economics from the Hebrew University in Jerusalem and an MBA from the

Massachusetts Institute Technology (MIT).

Dr.IzharBen-ShlomoNon-executive Director

Dr. Ben-Shlomo has served as a Fulbright research fellow in the University of Maryland at Baltimore and as a

visiting professor of Stanford University under the Feldman Foundation programme.

Dr. Ben-Shlomo has been working as a Director of Kibbutz Amiad since 2003 and served as a Director of the

Company between 2004 - 2005 prior to its flotation on AIM.

Dr.ZeevHolenderNon-executive Director

Dr. Holender joined the Board on 1 April 2009, bringing a wide variety of business experience and legal

knowledge with him. Heading an Israeli law firm, Dr. Holender provides legal services to the controlling

shareholder of Amiad, Kibbutz Amiad.

Dr. Holender is currently a director of Na’aeli Neot Agriculture Cooperative for Business Ltd., YEHR Real Estate

Ltd. and Dr. Zeev Holender Law Offices. He has served as a director of Aquaria Ltd. and Aeronautics Ltd.

Dr. Holender has a S.J.D (Doctorate of Juridical Science) from Harvard Law School and LLB from the Tel Aviv

University, and has served in teaching positions in top Israeli universities - schools of business & law.


DanFalkNon-executive Director

Dan Falk was appointed as a non-executive director as of 14 November 2007. From 2001 to 2007, Mr. Falk

was a business consultant to several public and private companies. From 1999 to 2000, Mr. Falk was Chief

Operating Officer and Chief Executive Officer of Sapiens International NV, a NASDAQ publicly traded company.

From 1995 to 1999, Mr. Falk was an Executive Vice President of Orbotech Ltd. From 1985 to 1995, Mr. Falk was

Vice President of Finance and Chief Financial Officer of Orbot Systems Ltd. and of Orbotech Ltd.

Mr. Falk obtained a Master of Business Administration from Hebrew University in 1972 and a Bachelor of Arts

in Economics and Political Science from Hebrew University in 1968.

OsnatRonenNon-executive Director

Ms. Osnat Ronen joined the Board on 1 April 2009. Ms. Ronen is a Partner of Viola Private Equity and has

significant experience in business and private equity investments. Prior to joining Viola Private Equity, she

was the Deputy CEO of Leumi Partners (formerly Leumi & Co.), the investment banking arm of Leumi Group.

In Leumi Partners she was responsible for Leumi Group’s Private Equity investment portfolio valued at

over $2 billion. Ms. Ronen is currently a Director of AudioCodes Ltd. and has served as a Director of several

companies, including: Paz Ltd., Direct Insurance Financial Investments Ltd., Direct Insurance IDI Ltd., Leumi

Card Ltd., Fox Weisel Ltd., Keshet Broadcasting Ltd., Leumi Investment and Leasing Company Ltd., National

Consultants Ltd., Archimedes Ltd., and Psagot Mutual Funds and Tene Growth Capital Investment Fund

where she was a member of the Investment Committee.

Ms. Ronen has a BSc in Mathematics and Computer Science and an MBA in Finance, both from

Tel-Aviv University.

SimonOlswangStatutory External Director

Mr. Simon Olswang joined the Board on 1 April 2009 as a statutory external director following a distinguished

career in law and business. Mr. Olswang is currently a director of Amdocs Ltd., a member of the Advisory

Board of Palamon Capital Partners LLP, and has recently completed his terms of office as a member of the

Boards of DIC Entertainment Inc., and The British Library.

Directors’ & Senior Management Biographies (continued)


MichaelRosenbergOBEStatutory External Director

Mr. Rosenberg joined the Board in November 2005. Mr. Rosenberg spent the first 17 years of his career

with the merchant bank Samuel Mantagu & Co Ltd. and became director of corporate finance in 1972.

In 1974 he left to join Allied Investments Ltd., a UK supplier of hospital management services in the

Middle East and developing countries. In 1988 he was a director of Raphael Zorn Hemsley Holdings Ltd.

(now Numis Corporation plc) and subsequently became chairman with specific responsibility for corporate

finance. He left in 1999 to pursue private interests and is currently on the board of a number of listed and

private companies including Pilat Media Global Plc, Catalyst Media Group Plc and Dori Media Group Ltd.

He is also director of the David Paradine Group of companies founded by Sir David Frost and was a

co-founder of TV-AM, the first commercial breakfast TV channel in the UK. He is a member of the China

Britain Business Council and was chairman of the Hong Kong Advisory Committee of the DTI.

AmosShalevNon-executive Director

Mr. Shalev joined the Board as a non-executive director on 3 August 2010. Mr. Shalev currently serves

as a director of Bermad Industries A.C.S. Ltd, the Israel Export and International Cooperation Institute

and Evron-Tamam Recycling Ltd. Partnership. He has previously served on the board of directors of

Miluot regional cooperative and Arkal Filtration Systems A.C.S. Ltd, and has held the position of CEO and

International Marketing Manager of Bermad Industries A.C.S. Ltd.

Mr. Shalev studied Management, Administration, International Marketing & General Marketing at Tel Aviv

University, Haifa University and Ruppin Academic Center.

ShmuelDudaiNon-executive Director

Shmuel Dudai joined Amiad as non-executive director on 1 September 2011. Since March 2011, he has

held the position of Chairman of Kibbutz Amiad. In addition, Mr. Dudai currently serves as a director and

manager of Mazpen Company Limited, which he founded in October 2007, and Dudais Limited, which

owns Mazpen and of which Mr. Dudai is the sole shareholder. Mazpen specialises in assisting the growth

processes of communal settlements in Israel and Mr. Dudai also sits on the managing boards of several

of these settlements. During his career, Mr. Dudai has overseen numerous settlement projects, including

the NIS 450 million Shimshit project, with a particular focus on business development and management.

Mr. Dudai received a BS.c in Computer Science & Mathematics and an MBA from Ben-Gurion University.


Corporate Governance Report For the year ended 31 December 2011

As the Company’s shares are traded on AIM, the Company is

not required to comply with the UK Corporate Governance Code

published by the Financial Reporting Council (the “Code”),

which replaced the Combined Code on Corporate Governance.

However, as stated in the Company’s AIM Admission Document,

the Directors recognise the importance of sound corporate

governance and intend that the Company will comply with the

main provisions of the Code and the Corporate Governance

Guidelines for Smaller Quoted Companies published by the

Quoted Companies Alliance insofar as they are appropriate given

the Company’s size and stage of development and insofar as is

permitted by the Israeli Companies Law, 1999 (the “Israeli Act”).

Accordingly, a statement of how the Code has been applied by the

Company and how it is intended it will continue to be applied is

given below.

The Company also intends to comply with the applicable corporate

governance requirements under the Israeli Act. Further details

are set out below.

1. Boardcomposition,rolesandindependenceDuring the course of 2011, the Company maintained a balanced

board of directors (the “Board”) comprising one executive director

and ten non-executive directors.

The company’s executive Director is Arik Dayan (Chief Executive

Officer).

The non-executive Directors of the Company during the year were:

• TalYeshua(Chairman)

• IzharBen-Shlomo

• MichaelRosenberg

• DanFalk

• HarelBeit-On

• OsnatRonen

• SimonOlswang

• ZeevHolender

• AmosShalev

• ShmuelDudai(appointedSeptember2011)

Mr. Olswang, Mr. Rosenberg, Mr. Beit-On, Ms. Ronen and Mr. Falk

are considered by the Board to be independent.

The Board is responsible for formulating, reviewing and approving

the Company’s strategy, budgets and corporate actions.

The roles of Chairman and Chief Executive Officer have been

separated and clearly defined. The principal differentiating factors in

their respective responsibilities are:

Chairman

Reports to the Board

Only the Chief Executive Officer reports to him

Responsible for running the Board


Reports to the Chairman

All executive management report to him, directly or indirectly

Responsible for running the business

Responsible for implementing the Board’s decisions

The Code recommends that the board of directors of a listed

company should include an appropriate combination of executive

and non-executive directors (and, in particular, independent

non-executive directors) such that no individual or small

group of individuals can dominate the board’s decision taking.

The Code states that the board should determine whether a

director is independent in character and judgement and whether

there are relationships or circumstances which are likely to

affect, or could appear to affect, the director’s judgement.

The Board has considered the independence of its non-executive

directors in line with the principles of the Codeand, following

careful consideration, assessed that, in the period between

1 January 2011 to 31 December 2011 five of the Company’s

directors were non-executive directors considered by the

Board to be independent. Although the Code also states that

the chairman of the board should, on appointment, meet the

independence criteria set out in the Code, Mr. Yeshua is not

considered by the Board to be independent.


2. BoardconductThe Company intends to hold Board meetings at least four times

each financial year and at other times as and when necessary.

There were six Board meetings in 2011, held on 12 April, 14 June,

19 July, 13 September, and 13 December. Izhar Ben Shlomo

was absent from the meetings which took place on 12 April and

19 July. Amos Shalev was absent from the meetings which took

place on 12 April. Harel Beit-On was absent from the meeting

which took place on 19 July. Zeev Holender was absent from the

meeting which took place on 19 July. Shmuel Dudai was absent

from the meetings which took place on 12 April, 14 June and

19 July.

In addition, the Board approved and passed unanimous written

resolutions dated 31 January 2011 and 3 October 2011.

In 2011, the Board dedicated two days for meetings with senior

management and to discuss strategy. This process is to give the

non-executive directors a thorough understanding of the strategy

of the Company as well as allowing them to impart their relevant

experience.

At each Board meeting, there is a formal schedule of matters

reserved for the Board’s attention.

Board packs containing relevant financial and non-financial

information are supplied to directors in advance of each Board/

committee meeting. Additional requests for information from

directors are met and directors are entitled to table agenda items

at Board meetings.

The appointment and removal of the Company secretary is a

matter for the Board as a whole.

The non-executive directors’ terms of appointment entitle them

to take independent professional advice as required, at the

Company’s expense.

3. Retirementandre-electionOther than those directors who are “external directors” for the

purpose of the Israeli Act and whose appointment must be made

in accordance with the provisions of the Israeli Act, directors are,

under the Company’s articles of association, required to stand for

re-election at each Annual General Meeting.

Each of the directors (other than the external directors) will seek

re-election at the forthcoming Annual General Meeting of the

Company. The Board considers that the performance of each

of these directors has, since their appointment, been effective

and that they have demonstrated commitment to their roles.

Accordingly, the Board recommends the re-election of each of the

directors (other than the external directors) at the forthcoming

Annual General Meeting.

4.RelationswithshareholdersMr. Amir Harel, the Chief Financial Officer, meets with institutional

shareholders and analysts. Non-executive directors are also

available for such meetings, subject to institutional shareholder

requests.

Press releases were issued throughout the year and the Company

maintained a website (www.amiad.com) during that period.

Additionally, this annual report, which is sent to all registered

shareholders and holders of depositary interests, contains

extensive information about the Company’s activities. Enquiries

from individual shareholders on matters relating to their

shareholdings and the business of the Company are welcomed.

The Annual General Meeting is a key forum for communication

with shareholders. The notice of meeting and annual report and

accounts will be sent out at least 20 working days before the

meeting. Shareholders are encouraged to attend the Annual

General Meeting to discuss the progress of the Company.

As was the case with the Company’s 2011 Annual General

Meeting, separate votes will be held for each proposed resolution

at this year’s Annual General Meeting and a proxy count will be

given in each case.


5.InternalcontrolThe Board has overall responsibility for the Company’s internal

control and effectiveness in safeguarding the assets of the

Company. Internal control systems are designed to reflect the

particular type of business and operations risks and to identify

and manage risks, but not entirely all risks to which the business

is exposed. As a result internal controls can only provide a

reasonable, but not absolute, assurance against material

misstatements or loss.

The processes used by the Board to review the effectiveness of

the internal controls are through the audit committee, and the

executive management reporting to the Board on a regular basis

where business plans, budgets and authorisation limits for the

approval of significant expenditure, including investments, are

appraised and agreed.

The Board also seeks to ensure that there is a proper

organisational and management structure across the Company

with clear responsibilities and accountability. The Board is also

at liberty to engage independent professional advice on risk

assessment matters.

6. AuditcommitteeUnder the Israeli Act, the board of directors of a public company

must appoint an audit committee from among its members,

which must include at least three directors. The number of

members of the audit committee must be no fewer than three

directors, including all the “external directors” which every

Israeli public company is required to have. The Company has

established an audit committee of the Board. In the period

between 1 January 2011 and 31 December 2011, the committee

comprised Dan Falk, Simon Olswang and Michael Rosenberg.

The audit committee has primary responsibility for monitoring

the quality of internal controls and ensuring that the financial

performance of the Company is properly measured and

reported on. It receives and reviews reports from the Company’s

management and auditors relating to the interim and annual

accounts and the accounting and internal control systems in use

throughout the Company. The audit committee adheres to detailed

terms of reference, which are available for inspection upon

request. The audit committee is given unrestricted access to the

Company’s auditors. Under the Israeli Act, the audit committee’s

role also includes the review and approval of certain related party

transactions and the remuneration of directors.

There were seven meetings of the audit committee in 2011,

held on 11 January, 11 April, 14 June, 19 July, 12 September,

9 October, 11 October and 7 December. All of the relevant

committee members attended these meetings.

Pursuant to the provisions of the Israeli Act, the functions of the

remuneration and nomination committees are carried out by

the audit committee and, therefore, the Company does not have

separate remuneration and nomination committees as provided

for by the Code. However, the functions of typical remuneration

and nomination committees established pursuant to the

provisions of the Code are, insofar as is possible under the Israeli

Act, carried out by the audit committee of the Board.

7. InternalauditUnder the Israeli Act, the board of directors of a public company

must appoint an internal auditor proposed by the audit committee.

The role of the internal auditor is to examine whether such

public company’s actions comply with the law, integrity and

orderly business procedure. The internal auditor must not be an

interested party or office holder, or a relative of any interested

party or office holder, or a member or representative of the

Company’s external auditors. The Israeli Act defines the term

“interested party” for such purposes so as to include a person

who holds five per cent or more of the Company’s outstanding

share capital or voting rights, a person who has the right to

appoint one or more directors or the general manager or any

person who serves as a director or as the general manager.

The Company’s internal auditor is a certified accountant,

nominated by the audit committee and approved by the Board.

The internal auditor is invited to attend every meeting of the audit

committee.

8. SharedealingsThe Company adopted, with effect from its admission to AIM, a

model code for directors’ and employee share dealings which,

taking account of the fact that the Company is incorporated in

Israel, is appropriate for a company whose securities are traded

on AIM and is in accordance with Rule 21 of the AIM Rules for

Companies.

Corporate Governance Report For the year ended 31 December 2011 (continued)


9. ExternaldirectorsThe Israeli Act requires public companies to elect at least

two members who qualify as “external directors” under

the Israeli Act. At least one of the external directors must

have a “financial and accounting speciality” and the other

external director must have a “professional qualification”.

The conditions and criteria for a director qualifying as having

a financial and accounting speciality or a professional

qualification (as the case may be) are set out in regulations

which have been adopted under the Israeli Act. The evaluation

of the external directors’ expertise is carried out by the Board.

Each external director must meet certain standards of

independence at the time of his or her appointment and

during the two year period prior to such appointment.

Pursuant to such standards, an external director must not

have, at the time of his or her appointment and during a

period of two years prior to his or her appointment, any

affiliation with the Company, its controlling persons or any

entity which was controlled by the Company or any of its

controlling persons at the time of his or her appointment

or at any time during the two year period immediately prior

to his or her appointment. Affiliation includes employment

relationships, business and professional relationships on a

regular basis, control relationships and service as an office

holder. The term “affiliation” does not include an affiliation

resulting from such person being appointed to serve as a

director of the Company during a period that the Company’s

shares are about to be offered for the first time to the public.

In addition, a person may not be appointed as an external

director if his/her other activities or position create or are likely

to create a conflict of interest with his/her service as a director.

Michael Rosenbergand Simon Olswang were re-elected on

21 February 2012 to serve as the Company’s external directors

for a third term and a second term, respectively, at a specially

convened extraordinary general meeting.

By order of the Board

12 June 2012

Tal Yeshua

Chairman

Arik Dayan


2012 2002 1992 1982 1972 1962

Independent Auditor’s Report and Financial Statements 2011

Fortheyearended31December2011

2012 2002 1992 1982 1972 1962


TotheshareholdersofAMIADWATERSYSTEMSLTD.(AmiadFiltrationSystemsLtd.formerly)

We have audited the accompanying consolidated statements of financial position of AMIAD WATER SYSTEMS LTD. (hereafter - the Company) as of 31 December 2011 and 2010, and the related consolidated statement of comprehensive income, statements of changes in equity and statements of cash flows for each of the years ended on those dates. These financial statements are the responsibility of the Company’s board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Israel, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company’s board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company, its subsidiaries and its jointly controlled entity as of 31 December 2011 and 2010, and the results of operations, changes in equity and cash flows for each of the years ended on those dates, in accordance with International Financial Reporting Standards (IFRS).

Tel-Aviv, Israel Kesselman & Kesselman27 March 2012 Certified Public Accountants (lsr.) A member firm of PricewaterhouseCoopers International Limited.

Independent Auditor’s Report


31 December

Note 2011 2010

$ in thousands

Assets

Current Assets

Cash and cash equivalents 17a 11,848 11,293

Financial assets at fair value through profit or loss 17d 442 2,513

Trade and other receivables: 17b

Trade 40,913 36,428

Other 4,277 3,134

Inventories 7 29,643 23,285

Current income tax assets 2,007 900

Total Current Assets 89,130 77,553

Non Current Assets

Investment in associates 10 10

Loans to a related party 9 558 642

Severance pay fund, net 13 112 373

Long-term receivables 10 397 363

Prepaid expenses 228 135

Property, plant and equipment 5 9,014 6,850

Intangible assets 6 19,287 18,743

Deferred income tax assets 16g 1,503 928

Total Non Current Assets 31,109 28,044

Total Assets 120,239 105,597

Tal Yeshua Arik Dayan Amir Harel

Chairman of the Board CEO and Director CFO

Date of approval of the financial statements by the board of directors: 27 March 2012.

Consolidated Statements of Financial Position


31 December

Note 2011 2010

$ in thousands

Liabilities and Equity

Current Liabilities

Short-term credit and current maturities of borrowings from banks 17c 16,686 16,659

Financial liabilities at fair value through

profit or loss- derivatives 816 47

Trade and other payables: 17e

Trade 24,387 18,331

Other 8,797 8,993

Current income tax liability 404 1,498

Total Current Liabilities 51,090 45,528

Non Current Liabilities

Borrowings from banks and others (net of current maturities) 11 16,829 11,861

Put option liability 20e 2,553 2,220

Deferred income tax liabilities 7

Total Non Current Liabilities 19,389 14,081

Total Liabilities 70,479 59,609

Equity 15

Capital and reserves attributable to equity holders of the Company:

Share capital 2,789 2,780

Capital reserves 24,692 24,467

Transaction with non-controlling interests (180) -

Currency translation reserve (20) 708

Retained earnings 22,383 17,743

49,664 45,698

Non-controlling interests 96 290

Total Equity 49,760 45,988

Total Liabilities and Equity 120,239 105,597

The notes on pages 34 to 88 are an integral part of these consolidated financial statements.

Consolidated Statements of Financial Position


Year ended 31 December

Note 2011 2010

$ in thousands except per share data

Revenue 17f 117,276 89,431

Cost of sales 17g 66,097 50,760 Gross Profit 51,179 38,671

Research and development 17h 1,838 836 Selling and marketing costs 17i 28,157 22,746 Administrative and general expenses 17j 12,293 11,608

Other gains 17k (48) (777)

Operating Profit 8,939 4,258

Finance income 17l 1,526 1,248

Finance costs (2,132) (2,030)

Finance costs, net (606) (782)

Profit before income taxes 8,333 3,476

Income tax expenses 16h 1,293 419

Profit for the year 7,040 3,057

Other comprehensive income:

Currency translation differences (759) 595

Currency translation differences realized due to business combination - (139)

Total comprehensive income for the year 6,281 3,513

Profit attributable to:

Equity holders of the Company 7,057 3,077

Non controlling interests (17) (20)

7,040 3,057

Total comprehensive income attributable to:

Equity holders of the Company 6,320 3,542

Non controlling interests (39) (29)

6,281 3,513

$

Earnings per share attributable to the equity

holders of the Company during the year (see note 18):

Basic 0.312 0.143

Diluted 0.312 0.134


Consolidated Statements of Comprehensive Income


Attributable to equity holders of the Company

Number of shares

Share capital

Capital reserve

Currency transla-

tion reserve

Transac-tion with

non-controlling

interestRetained earnings Total

Non con-trolling interest

Total equity

$ in thousands

BALANCE AT 1 JANUARY 2010 19,237,531 2,342 13,305 243 16,085 31,975 147 32,122

Comprehensive income:

Profit for the year - - - - 3,077 3,077 (20) 3,057

Other comprehensive income:

Currency translation differences - - - 604 - 604 (9) 595

Currency translation differences

realised due to business combination - - - (139) - (139) - (139)

Total comprehensive income 465 3,077 3,542 (29) 3,513

Transaction with owners:

Non controlling interest arising

on business combination 172 172

Issuance of shares related to

business combination 3,284,159 438 11,162 11,600 11,600

Dividend ($0.063 per share) - - - - (1,419) (1,419) - (1,419)

Total transaction with owners 3,284,159 438 11,162 - (1,419) 10,181 172 10,353

BALANCE AT 31 DECEMBER 2010 22,521,690 2,780 24,467 708 17,743 45,698 290 45,988

Comprehensive income:

Profit for the year 7,057 7,057 (17) 7,040

Other comprehensive income

Currency translation differences (737) (737) (22) (759)

Total comprehensive income (737) 7,057 6,320 (39) 6,281

Transaction with owners:

Acquisition of non controlling interest 69,000 9 225 9 (180) 63 (155) (92)

Dividend ($0.107 per share) (2,417) (2,417) (2,417)

Total transaction with owners 69,000 9 225 9 (180) (2,417) (2,354) (155) (2,509)

BALANCE AT 31 DECEMBER 2011 22,590,690 2,789 24,692 (20) (180) 22,383 49,664 96 49,760


Consolidated Statements of Changes In Equity


Year ended 31 December

Note 2011 2010

$ in thousands

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash generated from operations 19 6,421 6,620

Interest paid (903) (719)

Interest received 289 148

Income taxes paid (3,942) (1,322)

Net cash generated from operating activities 1,865 4,727

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of subsidiary, net of cash acquired- Arkal 20b - (9,159)

Acquisition of subsidiary, net of cash acquired -China 19b,20d - (2,267)

Acquisition of subsidiary, net of cash acquired -India 19b,20c - (182)

Acquisition of associate 20c - (10)

Purchase of property, plant and equipment (3,980) (1,144)

Purchase of intangible assets and capitalized development expenses (2,412) (175)

Investment grants received 218 -

Sale of financial assets at fair value through profit or loss, net 1,933 868

Proceeds from sale of property, plant and equipment 122 109

Restricted deposit 259 (204)

Collection (granting) of long-term loan granted to a related party and other 84 (58)

Net cash used in investing activities (3,776) (12,222)

CASH FLOWS FROM FINANCING ACTIVITIES:

Acquisition of non controlling interest -

Amiad France* (92) -

Dividends paid to equity holders of the Company (2,417) (1,419)

Receipt of long-term borrowings and other liabilities 10,990 12,304

Repayments of long term borrowings (4,995) (2,771)

Short-term borrowings (repayments) from banks, net (868) 2,007

Net cash generated from financing activities 2,618 10,121

EXCHANGE RATE GAIN (LOSS) ON CASH AND CASH EQUIVALENTS (152) 92

NET INCREASE IN CASH AND CASH EQUIVALENTS 555 2,718

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,293 8,575

CASH AND CASH EQUIVALENTS AT END OF YEAR 11,848 11,293

* The acquisition of Amiad France non-controlling interests includes issuance of 69,000 new ordinary shares in value of $234 thousand that is not involving cash flow.


Consolidated Statements of Cash Flows


Notes to Consolidated Financial Statements

NOTE 1 - GENERAL INFORMATION:

a. Amiad Water Systems LTD. (hereafter -the Company) and its subsidiaries (together- the Group) is a leading global producer to water treatment and filtration solutions.

b. The Company was incorporated in Israel in June 1997. The address of its registered office is Kibbutz Amiad, Israel.

The Company is traded on the Alternative Investment Market in London (AIM), a part of the London Stock Exchange, since December 2005.

The principal shareholders of the Company, as for the report release date, are Kibbutz Amiad (“the Kibbutz”), directly and through a company controlled by the Kibbutz, A.M.S.I. Investments Ltd. (“AMSI”) which owns 44.99% of the Company’s outstanding shares, and Viola Private Equity which owns 19.61% of the Company’s outstanding shares.

These Group consolidated financial statements were authorized for issue by board of directors on 27 March 2012.

c. On 30 June 1998, the Company entered into an agreement (“the purchase agreement”) with the Kibbutz and with the limited partnership, in which the Kibbutz is the general partner whereby all of the Partnership‘s business activities, assets, including goodwill and intellectual property, but excluding property rights (lease rights and/or ownership to land and buildings) were transferred to the Company in effect as from 1 January 1998. All of the Partnership‘s liabilities were also transferred to the Company as of the same date, except for certain guarantees and charges that remained in the Partnership.

d. On 28 April 2010, the Company acquired 100% of the share capital of Arkal Filtration Systems (hereafter – “Arkal”) Cooperative Agricultural Society Ltd. As for the acquisition of Arkal, see note 20a.

e. On 8 September 2011 the Company changed its name from “Amiad Filtration Systems Ltd.” to “Amiad Water Systems Ltd.”

f. In December 2011, the Israeli tax authority approved the merger application of the Company and its Isareli subsidiaries, Arkal Filtration systems Ltd. and Filtration Ltd. (hereafter- the Company).

The merger approval is effective retroactively from 1 January 2011.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The principal accounting policies applied in the preparation of these consolidated financial statement are set out below. These policies have been consistently applied through all the years presented, unless otherwise stated.

a. Basis of preparation

The consolidated financial statements of Amiad Water Systems Ltd. have been prepared in accordance with International Financial Reporting Standards (hereinafter - “IFRS”) and IFRIC interpretations. They have been prepared under the historical cost convention, as modified by the revaluation of plan assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss presented as fair value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.


Notes to Consolidated Financial Statements(continued)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):

1) New and amended standards adopted by the Group

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2011:

• IFRS3,Businesscombinations:

A. Applicable to annual periods beginning on or after 1 July 2010. Applied retrospectively. Transition requirements for contingent consideration from a business combination that occurred before the effective date of the revised IFRS Clarifies that the amendments to IFRS 7, ‘Financial instruments: Disclosures’, IAS 32, ‘Financial instruments: Presentation’, and IAS 39, ‘Financial instruments: Recognition and measurement’, that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of IFRS 3 (as revised in 2008).

B. Applicable to annual periods beginning on or after 1 July 2010. Applied prospectively from the date the entity applies IFRS 3. Measurement of non- controlling interests The choice of measuring non-controlling interests at fair value or at the proportionate share of the acquiree’s net assets applies only to instruments that represent present ownership interests and entitle their holders to a proportionate share of the net assets in the event of liquidation. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by IFRS.

C. Applicable to annual periods beginning on or after 1 July 2010. Applied prospectively. Un-replaced and voluntarily replaced share- based payment awards. The application guidance in IFRS 3 applies to all share based payment transactions that are part of a business combination, including un-replaced and voluntarily replaced share-based payment awards.

• IFRS7,Financialinstruments.

Effective 1 January 2011. Applied retrospectively. Emphasises the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments.

• ‘Prepaymentsofaminimumfundingrequirement’(AmendmentstoIFRIC14),issuedinNovember2009.Theamendmentscorrect an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem.

The amendments are effective for annual periods beginning 1 January 2011. The amendments is applied retrospectively to the earliest comparative period presented. The first time application is not expected to have a material effect on the Group’s financial statements.

2) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group.

The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2011 or later periods, but the Group has not early adopted them:

• IAS19,‘Employeebenefits’wasamendedinJune2011. The impact on the Group will be as follows: to eliminate the corridor approach and recognise all actuarial gains and losses in OCI as they occur; to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The Group is yet to assess the full impact of the amendments.




• IFRS9,‘Financialinstruments’,issuedinNovember2009. This addresses the classification and measurement of financial assets. The standard is not applicable until 1 January 2015 but is available for early adoption. The Group is yet to assess IFRS 9’s full impact. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. As to amounts to be recognized as above in other comprehensive income, these amounts shall not be recycled to income or loss. Nevertheless, it is allowed to transfer accumulated income or losses between equity items. IFRS 9, ‘Financial instruments’. Effective 1 January 2015. IFRS 9 is the first standard issued as part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for) financial assets: amortised cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge (not for accounting purposes) accounting continues to apply.

• IFRS10,‘Consolidatedfinancialstatements’. Effective 1 January 2013. The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entity (an entity that controls one or more other entities) to present consolidated financial statements. Defines the principle of control, and establishes controls as the basis for consolidation. Set out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. The first time application is not expected to have a material effect on the Group’s financial statements.

• IFRS11,‘Jointarrangements’. Effective 1 January 2013. IFRS 11 is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed.

• IFRS12,‘Disclosuresofinterestsinotherentities’. Effective 1 January 2013. IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates and subsidiaries.

• IFRS13,‘Fairvaluemeasurement’. Effective 1 January 2013. IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied

where its use is already required or permitted by other standards within IFRSs or US GAAP.

b. Principles of consolidation:

1) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.




The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the statement of comprehensive income.

Inter-Company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

2) Transactions with Non Controlling interests

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity.

Put option granted to subsidiary minority interests share holders:

Subsidiary non controlling interests share holders were granted with a Put option by the Company, entitling them the right to sell part of their interests, or entire of, in the subsidiary, for a limited term.

The Company recognized this option liability by measuring it according to the option’s present value of its estimated compensation at the exercising date. The liability was formed against the reduction of the non controlling interests in the subsidiary.

Variations in fair value of the Put option liability, resulted from passing time factor, are recognized through profit or loss as financial expenses, while other changes are attributed to goodwill.

Based on the Put option existence, as above, the Group fully consolidated (100%)

The assets and liabilities of the subsidiary.

3) Associates

Associates are all entities over which the Group has significant influence but not control generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost.

4) Proportionately consolidated Company

The Group’s interest in the jointly controlled entity is accounted for by proportionate consolidation. The Group combines its share of the joint venture individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is attributable to the other ventures. The Group does not recognise its share of profits or losses from the joint venture that result from the Group’s purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets, or an impairment loss.




c. Foreign currency translation:

1) Functional and presentation currency

Items included in the financial statements of each of the Group entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in U.S. dollar, which is the Company’s functional and group’s presentation currency.

2) Transaction and balances

Foreign currency transactions are translated into the functional currency using the average exchange rates prevailing to the period of the financial statements of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

All foreign exchange gains and losses are presented in the statement of comprehensive income within ‘Finance income or cost’.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss.

3) Group companies

The results and financial position of those Group entities (none of which has the currency of hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

a) Assets and liabilities for each statement of financial position presented are translated at the closing rate at that statement of financial position date.

b) Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated rate on the dates of transactions).

c) All resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, are taken to other comprehensive income.

When foreign operations is partially disposed or sold (other than transactions with non-controlling interests), exchange differences that were recorded in other comprehensive income are recognised in the statement of comprehensive income.

Goodwill and fair value adjustments arising on acquisition of foreign entity are treated as assets and liabilities of foreign entity and translated at the closing rate.

4) Exchange rates and linkage basis

Monetary assets and liabilities linked to the Israeli consumer price index (“CPI”) are presented according to the relevant index for each linked asset or liability.




Below are data regarding the exchange rates of certain currencies in relation to the U.S. dollar and data regarding the CPI:

Exchange rate of one Euro

Exchange rate of one

Australian DollarExchange rate

of one NIS

CPI*

At end of year:

2011 1.292 1.015 0.262 128.56

2010 1.335 1.017 0.281 125.83

2009 1.441 0.900 0.265 122.57

Increase (decrease) during the year:

2011 (3.22%) (0.2%) (6.76%) 2.17%

2010 (7.35%) 13% 6.03% 2.65%

* Based on the index for the month ending on each statement of financial position date, on the basis of 2000 average = 100.

d. Property, plant and equipment:

1) All property, plant and equipment (including leasehold improvements) is stated at historical cost net of investment grants, and presented less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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 the replaced part is derecognised. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.

2) The assets are depreciated using the straight-line method over their estimated useful lives.

Annual rates of depreciation are as follows:

%

Machinery and equipment 7 - 20 (mainly 10%)

Office furniture and equipment 7 - 20 (mainly 10%)

Computers and peripheral equipment 20 - 33

Motor vehicles 15 - 20

Leasehold improvements (fixtures) in buildings under operating leases are depreciated using the straight-line method over the term of the lease or the estimated useful lives of the improvements, by the shorter.

The assets’ useful lives and depreciation methods are reviewed, and adjusted if appropriate, at the end of each reporti

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