The Management s Discussion and Analysis Report for the period from January 1 to March 31, 2014 (the "Report")

Transcription

1 The Management s Discussion and Analysis Report for the period from January 1 to March 31, 2014 (the "Report") 1. Business Overview 2. Economic Review 2.1 General economic conditions 2.2 Operating and Financial Review 1) Earnings 2) Financial Positions 3) Cash Flow 4) Employees 3. Risk Report 4. Outlook 5. Responsibility Statement 1. Business Overview Electronics Line 3000 Ltd. ( EL or the Company ) is a pioneer in next-generation security solutions for the residential and small commercial markets. The Company designs and produces cutting-edge solutions for security and control of living and working environments. The EL line provides comprehensive security protection, as well as sophisticated system and home management functionality, for optimal comfort, safety and peace of mind. This new industry standard is further upgraded with enhanced remote management capabilities that give homeowners instant access to their system from anywhere in the world. Upgrading Everyday Security EL solutions enable new levels of control and maintenance in protected sites through ELAS, a proprietary remote management server. The Company enjoys a unique market position in supplying ELAS-governed systems for the home and workplace, which provide the multiple benefits of a virtual security presence, convenient home automation, and energy efficiency, all customized by the end-user and/or the service provider. EL s extensive product line includes both wired and wireless solutions. EL solutions offer enhanced detection and PSTN/IP/GSM/GPRS-based event reporting, along with advanced remote management tools. Effective back-office support and customized branding of EL solutions provide superior security with significant business benefits and market expansion potential.

2 Global Partnerships Nearly three decades of cutting-edge leadership have earned EL a solid market position, allowing users worldwide to benefit from EL s ongoing development of upgraded security solutions. The Company maintains long-term partnerships worldwide. EL has made cutting-edge technology, user-friendly design and exceptional quality the benchmarks for serving its international network of clients and partners. Drawing on a tradition of pioneering expertise, EL specialists also provide security integration consultancy, installation service, training and technological support. EL was established in 1982 and is headquartered in Israel. The Company is publicly traded on the Frankfurt Stock Exchange (ELN) and is part of the RISCO Group, an established leader in the international security market. In March 2010, RISCO Ltd., ("Risco") a leading provider of integrated security solutions, acquired a controlling interest in the Company. RISCO Group intends to maintain the Company's product offerings and independence in the market by growing it as RISCO Group's residential arm through product portfolio expansion into video and management solutions together with its major partners worldwide. In order to increase the Company's global coverage and to have better penetration into new and existing markets, in August 2010, the Company entered into management and distribution agreements with Risco as Risco has the facilities to import, promote, sell, market and distribute the products in the territory (as defined in the agreement) and is willing to act as the supplier's non-exclusive distributor of the Products in the Territory. The Company reorganized its sales force in order to achieve a better coverage in its target markets. Mr. Douglas Luscombe, the Company's CEO, was located in the UK and several regional Sales Managers (RSM) were assigned to cover the rest of Europe and the Russian market. The Company has a presence, and believes it is well positioned in important markets around the world, in particular Northern and Western Europe and is consistently strengthening its position in additional regions in Latin America, APAC and more. The Company s brand is associated with high quality products and solutions. The Company continues to develop and expand its marketing and sales capabilities with a focus on strategic customers and markets, while at the same time, providing more marketing and technical support to existing customers. Products and Product Families The Company offers an array of security solutions for every need. EL s wireless control systems enable end-users to choose the level of control and monitoring they require using innovative remote solutions.

3 Advanced security detectors supply excellent interior and perimeter protection while safety detectors offer enhanced environmental and personal safety including: smoke, gas and water leak detection, panic buttons and much more. The systems can be activated using a variety of local control devices such as keyfobs and keypads. EL also offers end-users and providers advanced remote management applications for comprehensive control over the system from any location. Complementing accessories and add-ons include home automation modules, zone expanders, receivers, sirens and the more for a complete security offering. ELAS (Electronics-Line Application Server) is EL s cloud-based server which enables EL s intrusion systems to be controlled remotely using the MyELAS smartphone app. ELAS acts as a proxy that mediates between the various applications and the panels. When the end-user exerts the MyELAS app, the application connects to ELAS and ELAS in turn connects to its main panel. Data is then transferred between the panel and the smartphone in real-time. Smartphone App The MyELAS app enables end-users to control their EL intrusion systems remotely, directly from their smartphones or via the web application with the push of a button, giving them peace of mind at all times. Remote Configuration and Diagnostics ELAS enables remote configuration and diagnostics, providing a more efficient way for installers to troubleshoot and solve issues without the need for extraneous onsite visits.

4 Utilizing the most Stringent Security Technologies ELAS utilizes security technologies including encryption, advanced firewalls and additional security safeguards that comply with the most rigorous security standards to ensure that data cannot be accessed by unauthorized users. Reliable and Scalable Our ELAS cloud server offers total reliability with full redundancy during server downtime, enabling seamless operation in times of crisis. The system offers a totally scalable architecture, i.e. the ability to easily increase the capability of the server with the growth of your company. iconnect 2-Way is a powerful and streamlined 2-way wireless intrusion system, designed for the residential and small commercial markets. Connection to the cloud-based ELAS server enables users to remotely control their iconnect 2- Way systems through the myelas app (also available via web browser). Visual verification is also supported with the purchase of a PIR camera detector enabling users to view images on demand of their homes or businesses directly from their smartphones, allowing them to feel totally in control at all times. Users will receive / SMS/ voice notifications in the event of an alarm, and can also arm or disarm their iconnect 2-Way systems remotely. iconnect 2-Way supports GPRS with GSM and IP as backup or IP and PSTN as backup, and can be remotely configured saving installers time and hassle. A wide range of 2-way detectors and accessories can be used with the system.

5 The Commpact intrusion system is named for its streamlined, space-saving design, while offering a professional, highly reliable system at a competitive price. Commpact s connectivity to the cloud-based ELAS server enables it to be controlled remotely by EL s smartphone app (also available via web browser) which offers users the possibility to arm/disarm the system remotely as well as to receive / SMS/ voice notifications and to view and store a history of events. Commpact supports a wide range of security and safety accessories including elderly care and detectors against smoke, flood and poisonous gases. The simple and quick wireless installation and remote programming of the Commpact system add further to its appeal as a powerful, convenient system which allows users to enjoy a complete sense of control as well as peace of mind. Prime is a basic, reliable and robust security system using one-way wireless FM technology. The system uses PSTN and GSM connectivity and is compatible with all of EL s wireless keypads and peripherals. Prime supports variable applications such as SMS event notifications, remote programming and maintenance, audio communication or range extension.

6 2. Economic Review 2.1 General economic conditions The recovery of the global economy which started to take hold in advanced economies within the second half of 2013 is becoming broader. Fiscal consolidation is slowing, and investors are less worried about debt sustainability. As a consequence, the International Monetary Fund (IMF) in its World Economic Outlook (WEO) from April 2014, projects global growth to strengthen from 3.0 percent in 2013 to 3.6 percent in This projection is largely due to the recovery in the advanced economies. The IMF for example expects growth in the United States to be 2.8 percent in 2014, up from 1.9 percent in 2013 carried by domestic demand and supported in part by a reduction in the fiscal drag. Based on easier credit conditions and increased confidence, growth has rebounded particularly strong in the United Kingdom and is expected to rise from 1.8 percent in 2013 to 2.9 percent in Even the euro area has finally emerged from recession. The recovery is expected to continue in 2014 with growth forecast to be 1.2 percent, reflecting a smaller fiscal drag, expectations of improving credit conditions, and stronger external demand. In many emerging market and developing economies, stronger external demand from advanced economies will slightly lift growth. The IMF thus expects growth in developing economies to increase from 4.7% in 2013 to 4.9% in Domestic demand however has remained weaker than expected in many emerging markets dampened by tighter financial conditions. As a result, growth in 2014 has been revised downward compared to the January 2013 forecasts for many countries, including Brazil, Mexico, Russia and South Africa. Despite improved prospects, the global recovery is still fragile and significant downside risks persist: Emerging market risks have increased, there are risks to activity from lower-thanexpected inflation in advanced economies, and geopolitical risks have resurfaced. Overall, the balance of risks therefore remains on the downside. According to Transparency Market Research, the worldwide market for physical security is expected to reach a market size of USD billion by 2019 with a CAGR of 15% from 2013 to According to IHS research, the residential sector accounted for over 40% of the $2.7 billion global intruder alarm market in 2012, and is forecasted to grow at an annual rate of 5.3% from 2012 to The relatively new smart home trend in North America is expected to increase the penetration rate of intruder alarm products into the residential sector. This trend is expected in Europe as well with energy-management features as one of the main drivers. 2.2 Operating and Financial Review The financial statements of the Company as at March 31, 2014 have been prepared in accordance with the International Financial Reporting Standards (IFRS).

7 1. Earnings US $ in thousands Jan. 1 st Mar. 31 st 2014 (Reviewed) Jan. 1 st Mar. 31 st 2013 (Reviewed) Revenues 3,535 4,311 Gross Profit 1,494 1,773 % 42% 41% Research and development Selling and marketing General and administrative Financial Exp Net Income The Company s revenues in the first three months of 2014 ( Reporting Period ) amounted to US$ 3.5 million, compared to revenues of US$ 4.3 million during the first three months of The decrease is due to an overstock within the Company s customers and complies with management expectations. While the gross profit decreased from US$ 1.8 million to US$ 1.5 million in the Reporting Period, the gross profit margin improved from 41% in the first three months of 2013 to 42% in the Reporting Period. Total operating expenses for the Reporting Period amounted to US$ 1.3 million, compared to US$ 1.1 million in the first three months of To enhance the future growth prospects of the Company, the management increased the spending for research and development as well as for distribution and marketing. Therefore the Research and Development expenses increased to US$ 306,000 during the Reporting Period, compared to US$ 262,000 in the same period last year and the Selling and Marketing expenses rose to US$ 494,000 during the first three months of 2014, compared to US$ 407,000 in the respective period last year. The management aims to expand the existing sales network and to increase the overall awareness of EL s products and security solutions. The General and Administrative expenses amounted to US$ 500,000 during the Reporting Period, up from US$ 403,000 in the first quarter of On August 29, 2013, the Company's shareholders approved an amendment to the Management services agreement with Risco. The revised agreement includes; (i) additional services which will be rendered by Risco to the Company and (ii) revises the annual amount payable to Risco so that the base amount will be an amount of $800 instead of $300, and (iii) the agreement has been extended for an additional three years period. The increase in General and Administrative expenses is mainly due the implantation of the management service agreement between Risco and the Company as mentioned above. Net financing expenses amounted to US$ 31,000 during the Reporting Period, compared to US$ 22,000 for the respective period of last year. The net profit for the Reporting Period amounted to US$ 163,000, compared to a net profit of US$ 679,000 in the first three months of 2013.

8 The Company s Financial Position The Company s cash and cash equivalents as of March 31, 2014 (hereinafter: the Reporting Date ) were US$ 1.6 million, compared to US$ 2.0 million on December 31, The decrease is mainly due to an increase in the working capital of the Company. The Company s trade receivables on the Reporting Date were US$ 1.2 million, compared to US$ 927,000 as of December 31, The Company s prepaid expenses, other accounts receivables, advance payments to suppliers on the Reporting Date amounted to US$ 184,000, compared to US$ 164,000 as at December 31, The Company s inventories on the Reporting Date slightly increased to US$ 4.0 million compared to US$ 3.9 million on December 31, Net investment in property, plant and equipment amounted to US$ 0.5 million as at the Reporting Date, slightly below the US$ 0.6 million as at December 31, The short term credit balance from banks on the Reporting Date amounted to US$ 88,000, compared to US$ 179,000 as of December 31, The Company s trade payables on the Reporting Date were US$ 1.5 million compared to US$ 1.7 million as at December 31, 2013 Other current liabilities were US$ 0.6 million, the same as at December 31, Financial Ratios March 31, 2014 December 31, 2013 Current Ratio Quick Ratio As at the Reporting Date, the Company complies with bank covenants. Shareholders equity as at March 31, 2014 amounted to US$ 6.9 million, corresponding in an equity ratio of 74%, compared to US$ 6.7 million (71%) as at December 31, Cash Flow During the Reporting Period, net cash used in operating activities amounted to US$ 257,000 compared to US$ 559,000 provided by operating activities during the comparable period last year. During the first quarter of 2014, the Company directed US$ 24,000 towards investment activities, compared to proceeds of US$ 43,000 during the comparable period last year. Cash used in financing activities amounted to US$ 90,000 in the first three months of In the comparable period last year, net cash provided by financing activities amounted to US$ 87,000.

9 Employees The number of employees decreased from 33 on December 31, 2013 to 31 on March 31, Risks and Opportunities The management report in the annual report for 2013 provides full details of risk factors that could affect the business performance of Electronics Line, see section 4 Risk and Opportunities, while business potential is discussed in section 5 Outlook. There was no material change in the risk/opportunity profile of Electronics Line in the Reporting Period. 4. Events after the reporting period Extension to the Outsourcing Services Agreement between the Company and Sogodi Ltd. The Company is disclosing in this report that, in compliance with the Israeli Companies Law (the "Companies Law"), the Company's audit committee and board of directors approved, in accordance with section 1(1) of the Israeli Companies Regulations (Relief from Related Parties' Transactions) (the "Regulations"), an extension to the Outsourcing Services Agreement between the Company and Sogodi Ltd (the "Agreement"), for an additional term of 3 years as of the current termination date of the Agreement. The Company's audit committee and board of directors also approved, in compliance with the Regulations, that there was no significant change in the terms of the Agreement and in the relevant circumstances. The Company s special general meeting of the shareholders authorized the Company on June 16, 2011, to enter into the Agreement with Sogodi Ltd, a Bulgarian Company controlled by Mr. Moshe Alkelai, the controlling shareholder of the Company and the Chairman of the board of directors. The terms of the Agreement, the details of which are set forth in section 3 to the Statement of the Company dated May 11, 2011, will remain the same. Under Section 1C of the Regulations, each shareholder that holds at least 1% of the Company's issued share capital or voting rights is entitled to object to the approval of the aforementioned resolution, provided, however, that such objection is submitted in writing to the Company within 14 days of the date of this announcement. If such objection is received by the Company within such 14 days period, the aforementioned resolution will require shareholders' approval by a special majority pursuant to section 275 of the Companies Law. No other material events have occurred since the reporting period ended on 31 March 2014.

10 5. Outlook The results for the first three months of 2014 were in line with management expectations. Looking ahead to the full business year, the Company therefore unalterably expects an increase in revenues of 10% compared to fiscal year of 2013 to approximately US$ 18 million, mainly from its strategic customers and markets, in particular, Northern and Western Europe, and from the new product lines (ELAS, iconnect two-way and CommPact). With the increasing revenue, the Company also anticipates a continued improvement of its earnings. The Company continues focusing on its two-way-wireless iconnect product line and its PIR camera detector with a built-in camera for video verification. In addition, The Company expects that the new Smartphone applications for iphone and Android, will help increase sales of the iconnect and CommPact panels.. However, in view of the economic difficulties in many European markets and the continuing recession in southern Europe, the Company also realizes that there are risks for the development of sales in those countries. 6. Responsibility Statement To the best of our knowledge and in accordance with the applicable reporting principles for financial reporting, the interim financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and the management report of the Company includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal opportunities and risks associated with the expected development of the Company for the remaining months of the financial year. Douglas Luscombe CEO Moshe Alkelai Chairman of the Board Rishon Le Zion, May 21, 2014

11 ELECTRONICS LINE 3000 LTD. INTERIM CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 2014

12 ELECTRONICS LINE 3000 LTD. INTERIM CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 2014 IN U.S. DOLLARS UNAUDITED INDEX Page Auditors' Review Report 2 Statements of Financial Position 3-4 Income Statements 5 Statements of Comprehensive Income 6 Statements of Changes in Equity 7 Statements of Cash Flows 8-9 Notes to Interim Condensed Financial Statements

13 Kost Forer Gabbay & Kasierer 3 Aminadav St. Tel-Aviv , Israel Tel: Fax: ey.com Report on review of interim condensed financial statements Board of Directors of Electronics Line 3000 Ltd. Introduction We have reviewed the accompanying interim condensed statement of financial position of Electronics Line 3000 Ltd. ("the Company") as of March 31, 2014, and the related interim condensed income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the three month period then ended and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed financial statements in accordance with IAS 34, "Interim Financial Reporting"(IAS 34). Our responsibility is to express a conclusion on these interim condensed financial statements based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial statements are not prepared, in all material respects, in accordance with IAS 34. Tel-Aviv, Israel May 21, 2014 KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global - 2 -

14 ELECTRONICS LINE 3000 LTD. STATEMENTS OF FINANCIAL POSITION U.S. dollars in thousands March 31, December 31, Unaudited Audited ASSETS CURRENT ASSETS: Cash and cash equivalents 1,617 1,232 1,988 Trade receivables 1,152 1, Other accounts receivable Inventories 4,010 2,419 3,912 Total current assets 6,963 4,901 6,991 NON-CURRENT ASSETS: Property, plant and equipment, net Intangible assets Deferred taxes 1, ,593 Security deposits Total non-current assets 2,351 1,409 2,403 Total assets 9,314 6,310 9,394 The accompanying notes are an integral part of the interim financial statements

15 ELECTRONICS LINE 3000 LTD. STATEMENTS OF FINANCIAL POSITION U.S. dollars in thousands March 31, December 31, Unaudited Audited LIABILITIES AND EQUITY CURRENT LIABILITIES: Short-term credit from banks Trade payables 1, ,728 Other current liabilities Total current liabilities 2,197 1,670 2,470 NON-CURRENT LIABILITIES: Loans from banks Employee benefit liabilities, net Total non-current liabilities EQUITY: Share capital 15,933 15,933 15,933 Additional paid-in capital 6,637 6,596 6,632 Accumulated deficit (15,718) (18,178) (15,881) Total equity 6,852 4,351 6,684 Total liabilities and equity 9,314 6,310 9,394 The accompanying notes are an integral part of the interim financial statements. May 21, 2014 Date of approval of the Moshe Alkelai Douglas Luscombe Sharon Sheep financial statements Chairman of the Board President and CEO Responsible for finance - 4 -

16 ELECTRONICS LINE 3000 LTD. INCOME STATEMENTS U.S. dollars in thousands (except per share data) Three months ended March 31, Year ended December 31, Unaudited Audited Revenues 3,535 4,311 16,534 Cost of revenues 2,041 2,538 9,507 Gross profit 1,494 1,773 7,027 Operating costs and expenses: Research and development ,235 Selling and marketing ,851 General and administrative ,146 Total operating costs and expenses 1,300 1,072 5,232 Operating income ,795 Financial income Financial expenses Income before taxes on income ,832 Income tax benefit - - 1,095 Net income ,927 Net income per share (basic and diluted) The accompanying notes are an integral part of the interim financial statements

17 ELECTRONICS LINE 3000 LTD. STATEMENTS OF COMPREHENSIVE INCOME U.S. dollars in thousands (except per share data) Three months ended March 31, Year ended December 31, Unaudited Audited Net income ,927 Other comprehensive income: Amounts that will not be reclassified subsequently to profit or loss: Remeasurement gain from defined benefit plans Total other comprehensive income Total comprehensive income ,976 The accompanying notes are an integral part of the interim financial statements

18 ELECTRONICS LINE 3000 LTD. STATEMENTS OF CHANGES IN EQUITY U.S. dollars in thousands Share capital Additional paid-in capital Accumulated deficit Total equity Balance as of January 1, 2013 (Audited) 15,933 6,584 (18,857) 3,660 Net income - - 2,927 2,927 Other comprehensive income Total comprehensive income - - 2,976 2,976 Cost of share-based payments Balance as of December 31, 2013 (Audited) 15,933 6,632 (15,881) 6,684 Total comprehensive income Cost of share-based payments Balance as of March 31, 2014 (Unaudited) 15,933 6,637 (15,718) 6,852 Share capital Additional paid-in capital Accumulated deficit Total equity Balance as of January 1, 2013 (Audited) 15,933 6,584 (18,857) 3,660 Total comprehensive income Cost of share-based payments Balance as of March 31, 2013 (Unaudited) 15,933 6,596 (18,178) 4,351 The accompanying notes are an integral part of the interim financial statements

19 ELECTRONICS LINE 3000 LTD. STATEMENTS OF CASH FLOWS U.S. dollars in thousands Three months ended March 31, Year ended December 31, Unaudited Audited Cash flows from operating activities: Net income ,927 Adjustments to reconcile net income to net cash used in operating activities: Adjustments to profit or loss items: Depreciation and amortization Increase in employee benefit liabilities, net Cost of share-based payments Income tax benefit - - (1,095) Financial expenses, net Changes in operating asset and liability items: (480) Increase in trade receivables (225) (455) (269) Decrease (increase) in other accounts receivable (20) 34 9 Decrease (increase) in inventories (98) 1, Increase in security deposits - (11) (17) Decrease in trade payables (188) (1,070) (228) Increase (decrease) in other current liabilities 6 (380) (248) (525) (259) (623) Interest paid (53) (24) (129) Income taxes paid - - (3) (53) (24) (132) Net cash provided by (used in) operating activities (257) 559 1,692 Cash flows from investing activities: Purchase of property, plant and equipment (24) (43) (156) Net cash used in investing activities (24) (43) (156) The accompanying notes are an integral part of the interim financial statements

20 ELECTRONICS LINE 3000 LTD. STATEMENTS OF CASH FLOWS U.S. dollars in thousands Three months ended March 31, Year ended December 31, Unaudited Audited Cash flows from financing activities: Repayment of long-term loans from banks (90) (87) (351) Net cash used in financing activities (90) (87) (351) Increase (decrease) in cash and cash equivalents (371) 429 1,185 Cash and cash equivalents at beginning of period 1, Cash and cash equivalents at end of period 1,617 1,232 1,988 The accompanying notes are an integral part of the interim financial statements

21 NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS U.S. dollars in thousands ELECTRONICS LINE 3000 LTD. NOTE 1:- GENERAL These interim financial statements have been prepared in a condensed format as of March 31, 2014 and for the three months then ended ("financial statements"). These financial statements should be read in conjunction with the Company's annual financial statements and the accompanying notes as of December 31, 2013 ("the annual financial statements") and for the year then ended. The Company's shares are publicly traded on the Prime Standard, a market operated by the Frankfurt Stock Exchange. Following the Board's resolution, dated April 8, 2014 the Company changed the trading of its shares from the Prime Standard to the General Standard segment of the Frankfurt Stock Exchange. The Company's transfer to trading in the General Standard segment will take effect on July 31, NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES a. The significant accounting policies and methods of computation adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the annual financial statements, except for the adoption of the following amendments as of January 1, 2014: b. Amendments to IAS 32, "Financial Instruments: Presentation regarding Offsetting Financial Assets and Financial Liabilities", and Amendment to IAS 19, "Employee Benefits", regarding the accounting for contributions linked to service: The IASB issued amendments to IAS 32 ("the amendments to IAS 32") regarding the offsetting of financial assets and financial liabilities. The amendments to IAS 32 clarify, among others, the meaning of "currently has a legally enforceable right of set-off" ("the right of set-off"). The IASB issued an amendment to the existing requirements of IAS 19 regarding contributions made by employees or third parties that are linked to service. The effect of the adoption of the amendments to IAS 32 and IAS 19 on the Company's financial statements was immaterial