Amiad Water Systems Ltd (LON:AFS), which makes technology to treat and filter water, warned shareholders about an expected US$3-$5mln dilution of profits, as it faced lower revenues, falling margins and new accounting rules.
Net profit for the full year is expected to be “materially impacted” because adopting IFRS 16 means its results will be worse affected by fluctuations in the Israeli shekel, the Israel-based company said in a trading update on Friday.
Moreover, Amiad blamed “lower-than-anticipated sales in the second half” for its inability to “offset the impact on gross margin of large, lower-margin projects completed in the first half of the year”.
In all, lower-than-expected revenue, margin pressures and the impact of the adopting IFRS 16, meant that the company expects net profit for the year to be “$3m-$5m below market expectations”.
When the AIM-listed company reported its last results in September, revenues rose 4% to US$58.4mln, but pre-tax profits stood at US$900,000, down 59% “primarily reflecting the impact of IFRS 16”.
Nevertheless, after entering the second half of the year with a higher order book and larger sales pipeline, Amiad said it was “successful in converting this pipeline into sales” and expects to achieve revenue growth in the year.
“However, owing to a number of global macroeconomic factors, in particular those impacting the Americas, certain projects did not proceed due to a lack of capital investment,” the company reported.
Looking ahead, Amiad said it now enters 2020 with a “higher backlog” than at the same point in the prior year and is experiencing “encouraging sales activity”.