TIDMLEAD
Leadcom Integrated Solutions Ltd.
Financial Reports for Full Year 2008
Announces Conclusion of Arrangement with its Banks
-- Annual revenues of US$253 million, a growth of 25% from US$202 million
in 2007.
-- Annual adjusted* gross profit rose 15% to US$54.5 million from US$47.5
million in 2007.
-- Annual adjusted* operating profit decreased to US$7 from US$12.3 in
2007.
-- Net loss of US$7.8 million compared to US$6.1 million in 2007. Net
loss from continuing operations of US$5.6 million, compared to a
profit from continuing operations of US$3.9 million in 2007.
-- Conclusion of an arrangement concerning the Company's credit lines and
facilities vis-à-vis the banks.
-- Company listed its securities on the Tel Aviv Stock Exchange in
December 2008.
-- Buyback of NIS 9.5 million par value of debentures generating a profit
of US$1.3 million.
-- Management infrastructure reinforced with Chief Operating Officer,
Chief Sales & Marketing Officer, and Territorial Region Heads
appointments recently announced.
-- Composition of its board of directors restructured.
-- Management continues to review all aspects of the business to ensure
the Company is best equipped to meet the very challenging market
conditions.
-- Departure of CFO
*adjusted gross and operating profit-excluding amortization and option expenses.
Hod Hasharon, Israel, March 11, 2009 - Leadcom Integrated Solutions Ltd. ("Leadcom" or the "Company", AIM: LEAD), a leading international provider of innovative telecommunications solutions, specializing in the implementation and management of complex wireless and fixed-line telecommunications networks,announced today its financial results for the full year of 2008.
Arik Alcalay, Chief Executive Officer, commented: "2008 was marked by intensive activity in all of the Company's lines of business. The Company implemented significant strategic measures while at the same time contending with the global financial crisis and its impact on our markets. Despite this severe crisis, Leadcom ended the year with record sales of US$253 million, representing growth of 25% over 2007, and generated EBITDA of US$ 12 million."
"Looking towards 2009, we see a difficult and challenging year ahead. Nevertheless, the Company's management believes it has taken appropriate steps to enable the Company to make it through the year successfully. The strategic moves we have taken are intended to help the Company cope in 2009 with reduced sales volumes compared to 2008 and to diversify the Company's revenue sources, as we have eliminated most of the activities which were loss making in 2008."
"In the final months of 2008 Leadcom implemented various strategic actions in order to achieve a better geographical, technological and business focus. Geographically, we decided to focus on countries where operations are more profitable, and we exited countries where profitability had been eroded, such as: Argentina, Venezuela, Turkey and Uganda. Technologically, Leadcom ceased its activities in technologies which management could not, at present, find business justification for. Thus, for example, Leadcom is no longer active in the NGN, IPTV and switching areas. Commercially, we decided that it would be right for us to terminate or sell off activities which are not part of the Company's core business. Thus, we decided to close down the Enterprise business unit in Israel, which although generating annual sales of US$10 million, was not profitable. We sold the tower production line in the Ivory Coast and dismantled an engineering unit located in Paris (Ytelcom Engineering) which we acquired as part of the Ytelcom deal."
"We replaced the majority of the board members and the Company was reorganized from a vertical regional management structure to a matrix-based structure; both these steps are aimed at better positioning the Company for the challenges ahead. The reorganization included the creation of two corporate positions - Chief Operating Officer (COO) and Chief Sales & Marketing Officer (CSMO). We also recently implemented a graduated compensation reduction policy for the Company's management, employees and directors, as well as significantly scaling back the workforce, which at the end of the first quarter of 2009 will stand at approximately 1150 workers."
"We have taken the initiative in preparing for a sharp drop in the Company's business activity due to the global crisis and the recession in the telecommunications sector. At present, the hardest hit by this trend are our operations in Africa and India. Although in recent months we have taken numerous preemptive steps, including reduced payroll costs, layoffs, lower expenses in all the Company's operating territories and attention to limiting exposure to customer credit, the Company's revenues are likely to be substantially affected by this situation. The Company continues to conduct a thorough review of its customer contracting policy, in light of the global crisis and the expected implications. The decline in sales in recent months is due, in part, to Leadcom's clear policy of avoiding contracts with both existing and prospective customers who we believe might present a significant risk of defaulting on their obligations or who we foresee may present debt-collection difficulties."
Mr. Alcalay added: "I am pleased to announce the conclusion of an arrangement concerning the Company's credit lines and facilities vis-à-vis the banks. Under the new arrangement, the Company is no longer in breach of its financial covenants, as reported by the Company to the market during 2008, because new ones have been agreed with its banks which are more appropriate for the current environment. This enables Company's management to focus all its attention on the Company's ongoing business."
Cash flow in 2008:
The cash flow used for continuing operating activities was negative, amounting to US$18.8 million compared to a positive cash flow of US$10 million in 2007. The negative cash flow in 2008 was mainly the result of a steep drop in the level of factoring performed by the Company due to a contraction in non-bank credit sources. The decrease in 2008 is attributable, in addition, to an increase in the number of customer credit days due to the global financial crunch. As discussed above, the Company is taking a proactive approach in managing its credit exposure amongst current and potential customers.
Sales in 2008:
Leadcom ended 2008 with sales of US$253 million, growth of 25% from sales of US$202 million in 2007. The growth in sales is mainly attributable to an increase of US$36 million in the scope of activity in MEA, resulting in part from the inclusion of Ytelcom's revenues in the company's results for the entirety of 2008 compared to only five months in 2007. In APAC the company recorded an increase of US$9 million in the scope of operations and in the Americas an increase of US$4.7 million, compared to 2007.
Adjusted Gross profit in 2008:
The adjusted gross profit in 2008 was US$54.5 million, 15% higher than in 2007. The adjusted gross profit margin was 22% compared to 24% in 2007. The decrease in the adjusted gross profit margin is mainly the result of the slower activity of Ytelcom, the amortization of intangible assets related to the acquisition of Ytelcom and costs associated with efficiency and organizational measures in that company.
Adjusted Operating profit in 2008:
Leadcom ended 2008 with an adjusted operating profit of US$7 million and an adjusted operating profit margin of 3%, compared to an adjusted operating profit of US$12.3 million and an adjusted operating profit margin of 6% in 2007.
G&A expenses in 2008:
The G&A expenses in 2008 were US$37.5 million compared to US$29 million in 2007. The increase is mainly attributed to increased business activity in the MEA and Indian markets, the inclusion of Ytelcom's G&A expenses in the company's results for the entirety of 2008 compared to only five months in 2007 and expenses relating to the listing in Tel Aviv Stock Exchange.
Financing expenses in 2008:
Net financing expenses in 2008 were US$8.3 million compared to US$4.1 million in 2007. Financing expenses derived mainly from interest on utilized credit lines, bank fees, debenture expenses, a decline in the value of the Company's securities portfolio (which was sold entirely at the end of 2008) and the appreciation of the US dollar in 2008 against several of the Company's functional currencies in respect to the financing of the Company's operations in multiple countries (mainly against the Indian Rupee and the Euro, which weakened respectively against the US dollar by 25% and 5% in 2008).
Net loss in 2008:
Leadcom ended 2008 with a loss from continuing operations of US$5.6 million, compared to a profit from continuing operations of US$3.9 million in 2007.
Q4 results:
Leadcom ended the fourth quarter of 2008 with sales of US$55 million, compared to US$70 in the 3rd quarter of 2008.
The adjusted gross profit in the fourth quarter of 2008 was US$11.3 million, compared to US$15.1 million in the 3RD quarter of 2008.
The adjusted operating loss in the fourth quarter of 2008 was US$0.8 million, compared to profit of US$3.8 million in the 3rd quarter of 2008.
The net loss in the fourth quarter of 2008 was US$ 3.7 million, the same as the 3rd quarter of 2008 net loss.
Equity:
Leadcom's equity as of December 31, 2008 was US$22 million, equivalent to 15% of the balance sheet total, compared to 22% in 2007. The decrease in equity is mainly attributable to a loss of US$7.8 million in 2008, an increase in negative capital reserves from translation differences totaling US$3.9 million, and the weakening of subsidiaries' functional currency against the Company's functional currency (mainly the Indian Rupee at a rate of 25% and the Euro at a rate of 5%, against the US Dollar). A decrease of US$3.8 million was also recorded in other capital reserves, due to the purchase of options from minority shareholders (in respect of a subsidiary in Africa).
Accounts receivable:
The accounts receivable as of December 31, 2008 was US$ 88 million, compared to US$73 million as of December 31, 2007. The increase is mainly attributable to a sharp decrease in factoring and increase in DSO (days of sales outstanding).
Non Current Debentures:
The debentures balance as of December 31, 2008 was US$26 million, compared to US$33 million as of December 31, 2007. The decrease is mainly attributable to a classification of US$6.5 as a current liability and debentures buyback by the company.
Listing on the Tel Aviv Stock Exchange:
In December 2008, Leadcom began trading on the Tel Aviv Stock Exchange, following the listing of its shares and debentures (Series A) issued by the Company on December 26, 2006.
Purchase of Debentures by the Company:
In order to improve the Company's capital structure, the board of directors decided to implement a plan for the purchase of up to US$4.8 of the Company's debentures, financed by bank loans. Up to the end of 2008, the Company purchased NIS 9 million par value of debentures, for a consideration of US$1.3 million, and recorded a one off profit of US$1.3million. To date, the Company purchased an additional NIS 3.3 million par value of debentures, in consideration for US$0.5 million.
Departure of CFO:
Eytan Mucznik, the Company's CFO since 2003, announced today to the board of directors about his decision to depart from the Company and seek new challenges. The board thanked Mr. Mucznik for his dedication and services to the Company. The Company will announce the new CFO's appointment shortly.
Outlook:
The Company's expansion strategy has lead to an annual increase rate of approximately 25% in revenues, in each of the past 5 years. Notwithstanding, it is the Company's estimation that such growth rate shall not be applicable in upcoming years, and that, in light of the financial crisis and the uncertainty in the markets we operate in, the Company is likely to experience a steep drop in its customers' demand. Despite such expected reduction in revenues, the aforementioned measures taken by the Company are aimed to improve Company's operational efficiency and main financial indicators. Simultaneously with facing the challenges ahead, the Company aspires to reinforce its position as an international leader in the planning, erection and maintenance of telecommunications (predominantly cellular) networks, while continuing to implement new technologies and adapting its services for the ever-changing market needs.
The Company's strategic goals for each geographic region it operates in, derive from the abovementioned comprehensive strategy, while taking into account each region's unique attributes and technological maturity.
Web cast:
Leadcom Integrated Solutions Ltd. will hold a live webcast with Arik Alcalay, CEO and Eytan Mucznik, CFO, to review and discuss the Company's financial and operational results for the year 2008.
The web cast will take place on Wednesday March 11, 2009 at 4 PM (Israel), 2 PM (UK), 9 AM (US Eastern).
In order to participate please dial:
-- Israel: 03-9180610
-- UK: 0-800-917- 4613
-- US: 1-888-7233 - 163
-- International: +972 3 9180610
A recording of this web cast will be available on our website at www.leadcom-is.com from 8 PM (Israel Time) on the same day (March 11) and for a 90 day period.
Further information:
To this release are attached extracted statements and further information published by the Company as part of its "Directors' Report" that is required under Israeli Securities laws.
Enquiries:
Nathalie Garson - Leadcom
Tel: +972 9 7690009
Andrew Godber / Giles Stewart - Panmure Gordon
Direct: +44 (0) 20 7614 8385
Important Notice
This press release contains historical information and forward-looking statements with respect to the business, financial condition and results of operations of Leadcom Integrated Solutions Ltd. The words "believe," "expect," "intend," "plan," "should" and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views, assumptions and expectations of the Company with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in the telecommunications market and in general economic and business conditions, loss of key customers and unpredictable sales cycles, competitive pressures, market acceptance of new products, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, both referenced and not referenced in this press release. Various risks and uncertainties may affect the Company and its results of operations. Should one or more of these or other risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned or projected. The Company does not intend or assume any obligation to update these forward-looking statements.
LEADCOM INTEGRATED SOLUTIONS LTD.
CONSOLIDATED BALANCE SHEET
31 December
Note 2008 2007 2006
$ in thousands
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents 20a 15,421 22,665 34,884
Financial assets at fair value through
profit or loss 20d 488 13,398 -
Accounts receivable and accruals: 20b
Trade 87,720 73,458 55,277
Other 10,368 12,212 8,408
Balances associated with
discontinued operations 5 937 11,650 -
Inventories 10 11,272 12,404 3,073
T o t a l current assets 126,206 145,787 101,642
NON-CURRENT ASSETS :
Deposits with severance pay funds 15e 1,567 1,159 949
Deferred income tax assets 18d 1,908 1,688 1,717
Investment in an associated company 9 - 680 -
Property and equipment, net 7 11,581 12,960 5,365
Intangible assets, net 8 5,936 8,703 103
T o t a l non-current assets 20,992 25,190 8,134
T o t a l assets 147,198 170,977 109,776
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Isaac Angel Arik Alcalay Eytan Mucznik
=-----------------------------------------------------------------------
Chairman of the Board Chief Executive Officer Chief Financial Officer
=-----------------------------------------------------------------------
=-----------------------------------------------------------------------
Date of approval of the financial statements by the board of directors: 10 March 2009.
31 December
Note 2008 2007 2006
$ in thousands
Liabilities and equity
CURRENT LIABILITIES:
Loans from banks and 20c 33,725 25,831 2,468
unsecured debentures
Accounts payable and accruals:
Trade 29,130 31,545 14,390
Other 20f 30,752 32,881 14,429
Balances associated with
discontinued operation 5 13 5,705 -
Current income tax liability 1,070 1,560 2,805
Financial derivatives 20e 455 - -
T o t a l current liabilities 95,145 97,522 34,092
NON-CURRENT LIABILITIES:
Unsecured debentures 14a 26,026 33,036 29,169
Loans from banks and
finance companies
(net of current portion) 14b - 306 258
Other non-current liabilities 23b 1,880 - -
Deferred tax liability 18d - 367 -
Severance pay obligations 15d 2,142 2,497 1,774
T o t a l non-current liabilities 30,048 36,206 31,201
T o t a l liabilities 125,193 133,728 65,293
EQUITY:
Capital and reserves attributable to
equity holders of the Company:
Share capital 17 26 26 26
Share premium 36,690 36,453 35,731
Capital reserve 743 4,458 2,946
Currency translation reserve (4,493) (544) 361
Retained earnings (accumulated (10,964) (3,153) 5,402
losses)
22,002 37,240 44,466
Minority interest 3 9 17
T o t a l equity 22,005 37,249 44,483
T o t a l liabilities and equity 147,198 170,977 109,776
LEADCOM INTEGRATED SOLUTIONS LTD.
CONSOLIDATED INCOME STATEMENT
Year ended
31 December
Note 2008 2007 2006
$ in thousands
except per share data
CONTINUING OPERATIONS:
Revenues 20g 253,173 201,793 107,860
Cost of revenues 20h (200,069) (155,152) (76,687)
Gross profit 53,104 46,641 31,173
Selling and marketing costs 20i (10,208) (8,442) (7,612)
Administrative and general expenses 20j (37,525) (28,929) (14,252)
Other gains (costs) - net 20k (794) 82 72
Operating profit 4,577 9,352 9,381
Finance income 4,688 3,290 179
Finance costs (13,015) (7,442) (1,241)
Finance costs - net 20l (8,327) (4,152) (1,062)
Share of profit of an 9 - 168 -
associated company
Profit (loss) before income tax (3,750) 5,368 8,319
Income tax expense 18e (1,883) (1,481) (2,571)
NET PROFIT (LOSS) FOR THE YEAR FROM
CONTINUING OPERATIONS (5,633) 3,887 5,748
NET PROFIT (LOSS) FOR THE YEAR FROM
DISCONTINUED OPERATIONS 5 (2,184) (9,964) 2,893
NET PROFIT (LOSS) FOR THE YEAR (7,817) (6,077) 8,641
ATTRIBUTABLE TO:
Equity holders of the Company (7,811) (6,069) 8,688
Minority interest (6) (8) (47)
(7,817) (6,077) 8,641
$
EARNINGS/(LOSS) PER SHARE
ATTRIBUTABLE TO THE EQUITY
HOLDERS OF THE COMPANY DURING
THE YEAR:
FROM CONTINUING OPERATIONS:
Basic 22 (0.047) 0.032 0.051
Diluted (0.047) 0.031 0.050
FROM DISCONTINUED OPERATION:
Basic 22 (0.018) (0.083) 0.026
Diluted (0.018) (0.080) 0.025
LEADCOM INTEGRATED SOLUTIONS LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Company
Retained
Number Currency earnings
of Share Share Capital translation (accumulated Minority Total
shares capital premium reserve reserve losses) interest equity
$ in thousands
BALANCE 120,221,700 26 36,453 4,458 (544) (3,153) 9 37,249
AT 1
JANUARY
2008
CHANGES
DURING
THE
YEAR
ENDED
31
DECEMBER
2008:
Currency - - - - (3,949) - - (3,949)
translation
differences
Loss - - - - - (7,811) (6) (7,817)
for
the
year
Total - - - - (3,949) (7,811) (6) (11,766)
recognised
loss
for
2008
Purchase
of
an
option
to
exercise
shares
in
a
consolidated
company - - - (3,780) - - - (3,780)
Employee
share
option
plan:
Value - - - 144 - - - 144
of
employee
services
Proceeds 167,500 * 237 (79) - - - 158
from
share
options
exercised
BALANCE 120,389,200 26 36,690 743 (4,493) (10,964) 3 22,055
AT 31
DECEMBER
2008
BALANCE 119,026,650 26 35,731 2,946 361 5,402 17 44,483
AT 1
JANUARY
2007
CHANGES
DURING
THE
YEAR
ENDED
31
DECEMBER
2007:
Currency - - - - (905) - - (905)
translation
differences
Loss - - - - - (6,069) (8) (6,077)
for
the
year
Total - - - - (905) (6,069) (8) (6,982)
recognised
loss
for
2007
Employee
share
option
plan:
Value - - - 2,133 - - - 2,133
of
employee
services
Proceeds 1,195,050 * 722 (621) - - - 101
from
share
options
exercised
Dividend - - - - - (2,486) - (2,486)
paid
BALANCE 120,221,700 26 36,453 4,458 (544) (3,153) 9 37,249
AT 31
DECEMBER
2007
* Represents an amount of less than $1 thousand.
LEADCOM INTEGRATED SOLUTIONS LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Company
Retained
Number Currency earnings
of Share Share Capital translation (accumulated Minority Total
shares capital premium reserve reserve losses) interest equity
$ in thousands
BALANCE 99,032,100 22 13,931 1,279 (814) (1,200) 165 13,383
AT 1
JANUARY
2006
CHANGES
DURING
THE
YEAR
ENDED
31
DECEMBER
2006:
Currency - - - - 1,175 - (101) 1,074
translation
differences
Profit - - - - - 8,688 (47) 8,641
for
the
year
Total - - - - 1,175 8,688 (148) 9,715
recognised
profit
for
2006
Proceeds 19,070,000 4 21,249 - - - - 21,253
from
issuance
of
ordinary
shares,
net of
issuance
costs
Employee
share
option
plan:
Value - - - 2,178 - - - 2,178
of
employee
services
Proceeds 924,550 * 551 (511) - - - 40
from
share
options
exercised
Divided - - - - - (2,086) - (2,086)
paid
BALANCE 119,026,650 26 35,731 2,946 361 5,402 17 44,483
AT 31
DECEMBER
2006
* Represents an amount of less than $1 thousand.
LEADCOM INTEGRATED SOLUTIONS LTD.
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December
2008 2007 2006
$ in thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit (loss) for the year (7,817) (6,077) 8,641
Adjustments required to
reflect the cash flows
from operating activity (see appendix) (8,316) *9,084 *(22,548)
Net cash generated from (used (16,133) 3,007 (13,907)
in) operating activities
Net cash generated from
(used in) continuing
operating activities (18,848) 10,096 (11,908)
Net cash generated from 2,715 (7,089) (1,999)
(used in) discontinued
operating activities
Net cash generated from (used (16,133) 3,007 (13,907)
in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, (205) (10,533) -
net of cash acquired
Sale (purchase) of financial
assets at fair value
through profit or loss 14,205 (12,184) -
Proceeds from selling an 106 - -
associated company
Purchases of property and equipment (3,855) (6,199) (3,171)
Purchase of intangible assets (319) (663) (16)
Proceeds from sale of property 297 197 90
and equipment
Contribution to severance pay assets (649) (518) *(519)
Net cash generated from (used 9,580 (29,900) (3,616)
in) investing activities
Net cash generated from (used
in) used in continuing
operating investing activities 9,580 (29,551) (3,369)
Cash used in an investing
activity relating to
discontinued operation - (349) (247)
Net cash generated from (used 9,580 (29,900) (3,616)
in) investing activities
CASH FLOWS FROM CONTINUING
FINANCING ACTIVITIES:
Proceeds from issuance of
ordinary shares, net of
issuance costs - - 21,249
Issuance of unsecured debentures, - - 29,169
net of issuance costs
Proceed from employee share 158 108 44
options exercised
Dividend paid - (2,486) (2,086)
Buyback of debentures (1,416) - -
Purchase of an option to exercise
shares in a consolidated
company (750) - -
Short-term loans - net 2,650 4,566 (3,958)
Receipt of long-term loans - 12,715 473
Repayments of long-term loans (444) (724) (648)
Net cash generated from continuing 198 14,179 44,243
financing activities
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,355) (12,714) 26,720
Cash and cash equivalents 22,665 34,884 7,527
at beginning of the year
Exchange gains on cash (889) 495 637
and cash equivalents
CASH AND CASH EQUIVALENTS AT
END OF THE YEAR 15,421 22,665 34,884
* Reclassified.
LEADCOM INTEGRATED SOLUTIONS LTD.
CONSOLIDATED CASH FLOW STATEMENT
ADJUSTMENTS REQUIRED TO REFLECT THE CASH FLOW FROM OPERATING ACTIVITIES:
Appendix Year ended 31 December
2008 2007 2006
$ in thousands
Adjustments required to reflect the cash
flows from operating activities:
Income and expenses not
involving cash flows:
Depreciation and amortization 6,962 4,212 1,527
Net movements in severance pay obligations (452) 980 *189
Goodwill impairment 499 - -
Loss from selling an associate company 220 - -
Changes in long-term liabilities from banks
and finance companies 2,076 *876 *438
Gain from buyback of debentures (1,336) - -
Fair value gains on financial assets at
fair value through profit or loss 25 *7 -
Income tax expenses (1,154) *(686) *2,314
Amounts charged in respect of options
granted to employees 144 2,133 2,178
Losses (gains) on sale of 42 (5) (32)
property and equipment
Share of profit of an associated company - (168) -
Fair value losses (gains) 238 (122) (8)
on severance pay assets
7,264 7,227 6,606
Changes in operating asset
and liability items:
Decrease (increase) in accounts receivable:
Trade (11,380) (8,637) (27,285)
Other 3,333 (785) (2,490)
Increase (decrease) in accounts payable:
Trade (2,834) 10,465 1,373
Other (5,313) 2,644 60
Decrease (increase) in inventories 614 (1,830) (812)
(15,580) 1,857 (29,154)
Cash generated from (used in) operations (8,316) 9,084 (22,548)
*Reclassified.
LEADCOM INTEGRATED SOLUTIONS LTD.
CONSOLIDATED CASH FLOW STATEMENT
ADJUSTMENTS REQUIRED TO REFLECT THE CASH FLOW FROM
OPERATING ACTIVITIES (continue):
1. Income tax paid in cash for the years ended 31 December 2008, 2007 and 2006 were $3,388 thousands, $2,167 thousands and $1,553 thousands, respectively.
2. Interest paid in cash for the years ended 31 December 2008, 2007 and 2006 were $6,974 thousands, $3,774 thousands and $1,163 thousands, respectively.
3. Interest received in cash for the years ended 31 December 2008, 2007 and 2006 were $1,636 thousands, $937 thousands and $181 thousands, respectively.
Non-cash transactions:
1. In 2008, of the total movement in the outstanding balances of trade payables, $653 thousands (2007 - $567 thousands, 2006 - $330 thousands) was in respect of purchase of property and equipment.
2. As for the 31 December 2007, incidental acquisition costs in the amount of $643 thousands (note 23a) have not been paid, and they were paid during 2008 (less returned amounts).
3. As for the 31 December 2008, the cost of purchasing an option to exercise shares in a consolidated company in the amount of $3,880 thousands has not been paid (note 23b).
4. As for the 31 December 2008, proceeds from selling an associated company in the amount of $319 thousands has not been received (note 9).
Annex A
Extracted statements and further information published by the Company as part of its "Directors' Report" that is required under Israeli Securities laws.
1.Risks associated with currency fluctuations
The group's activity is international and exposed to risks caused by fluctuations in exchange rates of various foreign currencies, especially against the US dollar.
The Company's management has decided on a policy for managing exchange rates risks of each company in the group compared to its main operations' currency. In order to accommodate exchange rate risks, the group is utilizing several hedging instruments.
In the hedging transactions for countries that have a different currency from the Company's main operations' currency, the Company utilizes a hedging policy that is not recognized as a hedging transaction according to the IFRS, therefore the hedging activity is presented in the financial statements as financial income or financial expenses.
The Company's policy is to hedge between approximately 75% and 100% of its expected cash flow exposure, in each of the major foreign currencies with which it operates, especially the New Israeli Shekels, the Euro and the India Rupee. The hedging is valid until the payment date. The hedged period is decided from time to time by the Company's Investment and Hedging Committee.
In December 2006, the Company raised 125 million New Israeli Shekels in debentures. The debentures carried a fixed interest of 6.65%, linked to the Israeli CPI. On December 2, 2008, Midroog (an Israeli rating Company), lowered the Company's debentures rating from Aa2 to Baa2, and as a result the interest on the debentures increased to 7.15%. The Company hedges this liability through CROSS CURRENCY I.R.S. transactions with banks, replacing its New Israeli Shekel (CPI linked) liability with a US Dollar liability with fixed interest. Until December 2008, the part that was not protected by CROSS CURRENCY I.R.S. transactions was indirectly hedged by the Company's securities portfolio that was held in New Israeli Shekels, and invested in Corporate and Government bonds, carrying a fixed interest and linked to the CPI.
During December 2008, the company repurchased NIS 9,518,000 principal amount of its debentures. At the same time the Company sold its remaining securities and as a result of this sale an exposure of NIS 15.4 million to changes in currencies related to the debentures, was created. The Company intends to decrease this exposure by continuing to repurchase its debentures.
Credit from banks is utilized by two companies in the group. In the parent Company, most of the credit is taken in US Dollars, and in an African subsidiary in CFA Francs. These credits are not exposed to losses due to changes in the exchange rates because the credit was taken in the same currency as each of the aforementioned companies' operating currency. On December 29, 2008, the parent Company took a Euro loan. This loan is exposed to changes in Euro/Dollar exchange rates, but is naturally hedged by assets held in Euro in the Company's balance sheet.
Linkage table as of 31 December, 2008:
CPI linked Not CPI linked USD Euro Indian CFA Other Other Total
Rupees Franc Currencies Assets /
liabilities
=-----------------------------------------------------------------------------------------------------------
ILS
=-----------------------------------------------------------------------------------------------------------
USD 000'
=-----------------------------------------------------------------------------------------------------------
Assets
=-----------------------------------------------------------------------------------------------------------
Current
Assets
=-----------------------------------------------------------------------------------------------------------
Cash and - 95 5,461 1,073 3,545 3,742 1,505 - 15,421
Cash
Equivalent
=-----------------------------------------------------------------------------------------------------------
Financial 488 - - - - - - 488
Assets
through
Profit or
Loss
=-----------------------------------------------------------------------------------------------------------
Accounts - 5,957 36,548 6,904 18,435 17,872 2,004 - 87,720
Receivables
=-----------------------------------------------------------------------------------------------------------
Other - 1,294 3,365 675 2,086 1,240 4,212 - 12,872
Assets
=-----------------------------------------------------------------------------------------------------------
Total 488 7,346 45,374 8,652 24,066 22,854 7,721 - 116, 501
Current
Assets
=-----------------------------------------------------------------------------------------------------------
=-----------------------------------------------------------------------------------------------------------
Non - - - - - - - 30,697 30,697
Financial
Assets
=-----------------------------------------------------------------------------------------------------------
=-----------------------------------------------------------------------------------------------------------
Total 488 7,346 45,374 8,652 24,066 22,854 7,721 30,697 147,198
Assets
=-----------------------------------------------------------------------------------------------------------
=-----------------------------------------------------------------------------------------------------------
Liabilities
=-----------------------------------------------------------------------------------------------------------
Current
Liabilities
=-----------------------------------------------------------------------------------------------------------
Short term - - 13,572 7,522 - 6,106 25 - 27,225
credit
=-----------------------------------------------------------------------------------------------------------
Accounts - 8,602 2,385 1,770 5,913 7,396 3,064 - 29,130
Payables
=-----------------------------------------------------------------------------------------------------------
Other - 4,953 4,982 4,168 7,349 10,060 5,029 - 35,857
Payables
=-----------------------------------------------------------------------------------------------------------
Non
Current
Liabilities
=-----------------------------------------------------------------------------------------------------------
Debentures 32,526 - - - - - - - 32,526
=-----------------------------------------------------------------------------------------------------------
Financial - 455 - - - - - - 455
Derivatives
=-----------------------------------------------------------------------------------------------------------
Total 32,526 14,010 20,619 13,460 12,898 23,562 8,118 - 125,193
Liabilities
=-----------------------------------------------------------------------------------------------------------
=-----------------------------------------------------------------------------------------------------------
Net Assets (32,038) (6,664) 24,755 (4,808) 11,168 (708) (397) 30,697 22,005
over
liabilities
=-----------------------------------------------------------------------------------------------------------
As of December 31, 2008, the Company's balance sheet was exposed to changes in several currencies. The table below summarizes the impact of a 10% increase or decrease, as the case may be, in the ratio between the currencies, on the Company's income before tax:
Exposure to Dollar December 31st, December 31st, 2007
2008
=---------------------------------------------------------------------------
Currency USD Thousands
=---------------------------------------------------------------------------
Israeli Weakening of 180 -
Shekel/USD US Dollar
=---------------------------------------------------------------------------
Chilean Pesos/USD Strengthening 201 166
of US Dollar
=---------------------------------------------------------------------------
Turkish New Weakening of 48 145
Lira/USD US Dollar
=---------------------------------------------------------------------------
Tanzanian Weakening of 404 108
Shilling/USD US Dollar
=---------------------------------------------------------------------------
Euro and CFA Strengthening 1,100 69
to USD* of US Dollar
=---------------------------------------------------------------------------
Peruvian Sol/USD Weakening of 96 162
US Dollar
=---------------------------------------------------------------------------
Bulgarian Lev/USD Weakening of 394 209
US Dollar
=---------------------------------------------------------------------------
Indian Rupees/USD Strengthening 623 1,152
of US Dollar
=---------------------------------------------------------------------------
* The ratio between the Euro and The CFA Franc is fixed.
2.Risks associated with prices and CPI
The debentures issued by the Company are linked to the Israeli CPI, and therefore the Company is exposed to the said index. The Company hedges most of this risk by CROSS CURRENCY I.R.S transactions. The part that is not protected through these transactions is exposed to changes in the CPI, but this exposure is expected to decrease due to the Company's plan to continue repurchasing of its debentures.
The Company has no exposure to changes in share prices.
3.Cash flow risks attributed to changes in interest rates
The Company has no cash flow exposure due to changes in interest rate.
4.Credit risks
Credit risks are managed on the group level. Credit risks are caused by cash and cash equivalents, financial instruments, debentures, deposits in banks and financial institutions and by credit exposure vis-a-vis customers.
In relation to deposits in banks and financial entities, only institutions with a minimal rating of 'A' are approved for deposit. Only securities rated 'A' and up are approved to be included in the Company's securities portfolio. In relation to credit provided for clients, the Company uses the services of business data providers and credit insurance companies in order to recognize the financial stability of its existing and prospective clients. In case there is no available ranking, a special evaluation is performed for each client, considering the client's financial position, past experience and other relevant factors.
5.Liquidity risks
Company's management follows the group's cash reserve forecasts, and ensures the Company has sufficient cash level and access to credit lines.
6.Sensitivity analyses
Sensitivity to changes in exchange rate
Sensitivity to exchange rate Dollar against Israeli Shekel as of 31.12.2008
December 31, 2008 2007
Profit (loss) from change Fair value Profit (loss) from change Profit (loss) from change Fair value Profit (loss) from change
+10% +5% Exchange rate -5% -10% +10% +5% Exchange rate -5% -10%
3.8020 3.8460
Cash (10) (5) 95 5 10 - - - - -
Trade Receivables (596) (298) 5,957 298 596 (561) (280) 5,606 280 561
Other Receivables (129) (65) 1,294 65 129 (154) (77) 1,543 77 154
Forward deals (44) (22) (437) 22 44 (739) (387) 133 428 903
- Sell
USD Buy ILS
CROSS CURRENCY (3,006) (1,503) (931) 1503 3,006 (1,647) (863) 287 954 2,013
I.R.S. deals
fixing USD/ILS
and CPI
Investment - - - - - (832) (416) 8,319 416 832
Portfolio
- Corporate
bonds linked
to CPI
Investment - - - - - (55) (27) 546 27 55
Portfolio
- Corporate
bonds not linked
to CPI
Investment - - - - - (411) (206) 4,113 206 411
Portfolio
- Government
bonds linked
to CPI
Loans from banks - - - - - 208 104 (2,080) (104) (208)
Trade Payables 860 430 (8,602) (430) (860) 567 283 (5,670) (283) (567)
Other Payables 495 248 (4,953) (248) (495) 306 153 (3,060) (153) (306)
Firm Commitment 118 59 (1,180) (59) (118)
- rent
Firm Commitment 206 103 (2,062) )103( )206(
- Car Leasing
Debentures 2,074 1,037 (20,736) (1,037) (2,074) 3,341 1,670 (33,406) (1,670) (3,341)
Total (32) (16) (31,555) 16 32 23 (46) (23,669) 178 507
The fair value of identified objects in the balance sheet and those that are not recognized but against which there are firm liabilities total $31.6 million as of December 31, 2008. This value is exposed to currency fluctuations so that an increase in the exchange rate increases the fair value, and vice versa in case of a decrease in exchange rate. The Company's reporting currency is US Dollar; an increase in the Dollar/Shekel exchange rate will increase the fair value of the Company's liabilities.
The Company has firm commitments (such as: rent, car lease contracts) that are linked to the Israeli CPI. The fair value was calculated by the Net Present Value method with an average rate of 6.59%.
As of the date of the balance sheet, the Company has 12 forward transactions of selling US Dollars against New Israeli Shekels each month from January 2009 until June 2009. The Company's basic exposure is to the decrease in the US Dollar exchange rate.
Sensitivity to exchange rate Dollar against Euro as of 31.12.2008
Profit (loss) from change Fair value Profit (loss) from change
=----------------------------------------------------------------------------------------
1.3932
=----------------------------------------------------------------------------------------
+10% +5% -5% -10%
=----------------------------------------------------------------------------------------
Cash 107 54 1,073 (54) (107)
=----------------------------------------------------------------------------------------
Trade Receivables 690 345 6,904 (345) (690)
=----------------------------------------------------------------------------------------
Other Receivables 68 34 675 (34) (68)
=----------------------------------------------------------------------------------------
Total Assets 865 432 8,652 (432) (865)
=----------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------
Loans from banks (752) (376) (7,522) 376 752
=----------------------------------------------------------------------------------------
Trade Payables (177) (89) (1,770) 89 177
=----------------------------------------------------------------------------------------
Other Payables (417) (209) (4,168) 209 417
=----------------------------------------------------------------------------------------
Total Liabilities (1,346) (674) (13,460) 674 1,346
=----------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------
Net Exposure (481) (242) (4,808) 242 481
=----------------------------------------------------------------------------------------
The fair value of the recognized items in the balance sheet are estimated at $4.8 million as of December 31, 2008. This value is exposed to changes in the exchange rate so that an increase in the Euro/Dollar exchange rate decreases the fair value and the opposite occurs in case of a decrease in the Euro/Dollar exchange rate.
Sensitivity to exchange rate Dollar against CFA Franc as of 31.12.2008
Profit (loss) from change Fair value Profit (loss) from change
=----------------------------------------------------------------------------------------
471.8945
=----------------------------------------------------------------------------------------
+10% +5% -5% -10%
=----------------------------------------------------------------------------------------
Cash (374) (187) 3,742 187 374
=----------------------------------------------------------------------------------------
Trade Receivables (1,787) (894) 17,872 894 1,787
=----------------------------------------------------------------------------------------
Other Receivables (124) (62) 1,240 62 124
=----------------------------------------------------------------------------------------
Total Assets (2,285) (1,143) 22,854 1,143 2,285
=----------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------
Loans from banks 611 306 (6,106) (306) (611)
=----------------------------------------------------------------------------------------
Trade Payables 740 370 (7,396) (370) (740)
=----------------------------------------------------------------------------------------
Other Payables 1,006 503 (10,060) (503) (1,006)
=----------------------------------------------------------------------------------------
Total Liabilities 2,357 1,179 (23,562) (1,179) (2,357)
=----------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------
Net Exposure 72 36 (702) (36) (72)
=----------------------------------------------------------------------------------------
The fair value of the identified items in the balance sheet is estimated at 0.7 million Dollars as of 31.12.2008. This value is exposed to an increase of the US Dollar rate against the CFA.
Sensitivity to exchange rate Dollar against Indian Rupee as of 31.12.2008
Profit (loss) from change Fair value Profit (loss) from change
=----------------------------------------------------------------------------------
48.8025
=----------------------------------------------------------------------------------
+10% +5% -5% -10%
=----------------------------------------------------------------------------------
Cash (355) (177) 3,545 177 355
=----------------------------------------------------------------------------------
Trade Receivables (1,843) (922) 18,435 922 1,843
=----------------------------------------------------------------------------------
Other Receivables (209) (104) 2,086 104 209
=----------------------------------------------------------------------------------
Total Assets (2,407) (1,203) 24,066 1,203 2,407
=----------------------------------------------------------------------------------
=----------------------------------------------------------------------------------
Trade Payables 591 296 (5,913) (296) (591)
=----------------------------------------------------------------------------------
Other Payables 699 349 (6,985) (349) (699)
=----------------------------------------------------------------------------------
Total Liabilities 1,290 645 (12,898) (645) (1,290)
=----------------------------------------------------------------------------------
=----------------------------------------------------------------------------------
Net Exposure (1,117) (558) 11,168 558 1,117
=----------------------------------------------------------------------------------
The fair value of the identified items in the balance sheet is estimated at $11.5 million as of December 31, 2008. This value is exposed to an increase of the US Dollar rate against the INR.
Sensitivity to exchange rate Dollar against other major currencies as of 31.12.2008
Chilean Colombian Norwegian Kroner Tanzanian
Pesos/USD Pesos/USD / USD Shilling/USD
=--------------------------------------------------------------------
Cash 475 65 91 38
=--------------------------------------------------------------------
Trade 0 157 729 0
Receivables
=--------------------------------------------------------------------
Other 91 869 2 486
Receivables
=--------------------------------------------------------------------
Total Assets 566 1,090 821 524
=--------------------------------------------------------------------
=--------------------------------------------------------------------
Loans from 23 0 0 0
banks
=--------------------------------------------------------------------
Trade Payables 0 281 66 393
=--------------------------------------------------------------------
Other Payables 63 90 121 1,115
=--------------------------------------------------------------------
Total 86 371 187 1,508
Liabilities
=--------------------------------------------------------------------
=--------------------------------------------------------------------
Net Exposure 480 719 634 (984)
=--------------------------------------------------------------------
=--------------------------------------------------------------------
Impact of 5% (24) (36) (32) 49
change
in exchange
rate
=--------------------------------------------------------------------
Impact of 10% (48) (72) (63) 98
change
in exchange
rate
=--------------------------------------------------------------------
Sensitivity to changes in interest rate
The following tables present financial instruments' fair value's sensitivity to changes in interest in the Company's balance sheet.
Accounts receivables and accounts payable are not sensitive to changes in interest rates since they appear in the balance sheet for a short term, and the activity is not performed in a country with a high inflation rate.
Sensitivity to changes in the real Shekel interest rate
Changes in fair value Fair value Changes in fair value
+10% +5% -5% -10%
CROSS CURRENCY (156) (78) (931) 78 157
I.R.S. deals
fixing USD/ILS
and CPI
Firm Commitment 9 5 (1,180) (5) (9)
- rent
Debentures 862 442 (20,736) (466) (957)
Total 715 369 (22,848) (392) (809)
The Company issued its debentures (linked to the CPI). Changes in the debentures' fair value were calculated by the Net Present Value model. The Debentures fair value is presented according to its stock market value.
Sensitivity to changes in the nominal Shekel interest rate
Changes in fair value Fair value Changes in fair value
+12% +10% +5% -5% -10% -12%
Financial
Derivatives
Forward deals (8) (7) (3) (437) 3 7 8
- Sell
USD Buy ILS
Total (8) (7) (3) (437) 3 7 8
The Company has 12 forward transactions that are influenced by changes in the New Israeli Shekel interest. An increase in the Shekel interest increases the fair value.
Sensitivity to changes in the nominal dollar interest
Changes in fair value Fair value Changes in fair value
+15% +10% +5% -5% -10% -15%
CROSS CURRENCY 114 57 (931) (57) (115)
I.R.S. deals
fixing USD/ILS
and CPI
Financial
Derivatives
Forward deals 6 4 2 (437) (2) (4) (6)
- Sell
USD Buy ILS
Total 6 118 59 (1,368) (59) (119) (6)
The Company has forward transactions that are influenced by changes in the US dollar interest.
The interest rates that were used for the fair value calculation of the forward transactions are the risk free interest rates for the relevant periods.
The US dollar interest rates: 0.236%-1.604%
The Israeli Shekel interest rates: 1.703%-2.535%
Sensitivity to changes in the Israeli CPI (Consumer Price Index)
The table below presents the sensitivity of the Company's financial instruments fair value to changes in the Israeli CPI.
Changes in fair value Fair value Changes in fair value
+1.50% +0.20% +0.10% -0.10% -0.20% -1.50%
Firm Commitment (31) (4) (2) (2,062) 2 4 31
- Car Leasing
Firm Commitment (18) (2) (1) (1,180) 1 2 18
- rent
Total (49) (6) (3) (3,242) 3 6 49
The Company has firm commitments (rent, car leasing contracts). The fair value is the present value of future cash flow. A change in the CPI affects such fair value.
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