Spokesman: Good morning, and welcome to the Koor Industries conference call. For your information, all the participants in the call can hear only. After the presentation there will be the possibility to ask questions. Instructions on how to get a turn to speak will be given at the appropriate time. For help during the call, please press the asterisk and zero buttons. Please be aware that this call is being recorded. Tuesday March 18, 2008. Before I hand over to Manno Kahana of Gelbart Kahana, I would like to point out that apart from historical data that will be provided, all the data and/or results mentioned in this call are forecasts including risks and uncertainties. The Company’s results may differ significantly on account of various factors, as detailed in the Company’s prospectus and its reporting to the regulatory authorities. I now hand over to Mr. Kahana. Mr. Kahana, please.
Manno Kahana: Thank you. Good morning to all the early risers. Welcome to everyone and welcome to the Koor Industries conference call to present the results of the 4th Quarter and of course the entire 2007. This morning Koor published its financial statements and we have made sure you have been sent the announcements for investors and a summary of the financials. Participants in this call and others who did not receive the announcements and summary financials are invited to call the offices of Gelbart Kahana Investor Relations. With us today on this conference call are Mr. Didi Paz, the Company’s Executive Vice President, Ms. Michal Yageel, the Company’s Comptroller, and Mr. Oren Hillinger, the Company’s Finance Director. I would like to hand over to Mr. Oren Hillinger, who will review the key events in the last Quarter and of course during the year. Oren, please.
Oren Hillinger: Thank you, Manno. Good morning everyone, and thank you for participating in our conference call. Yesterday evening we reported our results for 2007. This was a year where a great deal happened, with a lot of activity for us here at Koor. This year we posted a profit of NIS 620 million as compared with the loss of NIS 41 million in 2006. These are excellent results, which are due to two main items. Firstly there was the completion of the sale of our holdings in ECI, and the second was good results at Makhteshim Agan. We also posted other capital gains. During the year we mainly focused on disposing of holdings that were not our principal assets. This year Makhteshim Agan had profits of USD 178 million, an increase of 112% over the previous year. Makhteshim Agan’s sales increased 17% to USD 2,100 million.
In Q4 we posted a loss of NIS 117 million. Most of the loss was due to the increase in finance expenses, mainly on account of the free-fall in the dollar-shekel exchange rate during the quarter.
With your permission, I will expand slightly on the main disposals we carried out during the year. Firstly, as I said, the largest and main disposal was of our holdings in ECI, where we held 28%. The company was sold to Mr. Shaul Shani and certain funds under his control for USD 1,200 million. Our share was USD 330 million and we recorded a capital gain from this transaction of NIS 514 million. Other disposals that we carried out, from January 2007 onwards, when we sold our holdings in Scopus (23%) to Optibase for NIS 68 million and a capital gain of NIS 23 million. In April 2007 we also sold our holdings in the Sheraton Moriah hotel chain, 56.5%, to a company owned by Azorim and Boimelgreen Capital, for USD 24 million. We have not yet received the entire amount. We had previously received USD 15 million, and the balance, about a further USD 9 million, we are expected to receive at the end of this March. The transaction earned us a capital gain of NIS 13 million. In 2007 we also completed the transaction signed at the end of 2006 to sell most of our holdings in Elbit Systems to Federman Enterprises. This year the balance of 4.4% in Elbit was sold for USD 58 million. Capital gains in this case were NIS 37 million. Another disposal we made during the year was of Knafaim Holdings, 9.2% to Mrs. Tamar Borovitz for USD 14 million and a capital gain of NIS 15 million. This was one of the sales we were obliged to make by the Antitrust Commissioner after the IDB Group acquired control of Koor. So far there were disposals and capital gains.
There were some other activities – in investments, one material investment we made during the year in the private equity fund Indivision, which invests in the retail sector in India. During the year we invested USD 7 million, and to date we have invested in total USD 8.25 million out of an overall investment commitment of USD 15 million. In July 2007 and January 2008 we purchased additional shares of Makhteshim Agan for an overall amount in two purchases of NIS 150 million, of which NIS 24 million was in July and the balance in January 2008.
In June 2007 we cancelled our ADRs and delisted from the New York Stock Exchange. We also announced the cancellation of the ADR program and of our intention to deregister with the SEC. The main considerations for this step were the costs involved in being registered to trade in the US and compliance with the Sarbanes-Oxley rules, clause 404, and of course the very small level of trading and the low percentage of holdings by Koor’s American shareholders. In February 2008, just a little while ago, we announced that we had filed the report known as F15 for deregistration of the shares from the US SEC.
We also worked on raising debt during the year. We raised and expanded our Series H Debentures, and raised about NIS 640 million from institutional investors. Maalot has ranked the debenture as A+/Stable. This was an issue at an effective interest rate of 4.05% linked to the Israeli CPI.
In addition, during the year we distributed dividends in both September and December for a total amount of NIS 530 million.
And now, with your permission, I will review our financial results. As I have already said, Koor finished 2007 with a profit of NIS 620 million, compared with a loss of NIS 41 million the previous year. We finished Q4 with a loss of NIS 117 million compared to NIS 55 million in the corresponding quarter in the previous year. Earnings per share this year were NIS 36.9, as compared with a loss of NIS 2 per share the previous year. The loss per share on the quarter was NIS 7.4, as compared with NIS 2.8 in the corresponding quarter the previous year.
The borrowings of Koor and its wholly owned subsidiaries at 12.31.2007 were NIS 3 billion, which is gross. Cash and cash equivalents were NIS 2.35 billion, giving a net debt for Koor and its wholly owned subsidiaries of NIS 650 million. This amount does not include NIS 40 million that is meant to be received during 2008 for deals entered into. On the other hand, it also does not include for example the acquisition of shares of Makhteshim Agan that we carried out in 2008.
As far as the main investee companies go: Makhteshim Agan, which during the year was held 39% and is recorded using the equity method, reported growth of 17% in its annual revenues, which came to USD 2.080 million, as compared with USD 1.78 million in 2006. Net profit of Makhteshim Agan in 2007 was USD 178 million, an increase of 112% as compared with profits of USD 84 million in 2006. In Q4 Makhteshim Agan also posted improvements compared with the corresponding quarter the previous year. It showed an increase of 13% in quarterly revenues at USD 476 million as compared with USD 420 million as compared with the corresponding quarter the previous year, and net income in the quarter was USD 20 million, as compared with a net loss of USD 39 million in Q4 2006, when there were one-time, net of tax impairments of USD 54 million.
Telrad, which we hold 61% and which also reports using the equity method, in 2007 posted a drop of 23% in its sales. It had NIS 250 million in sales as compared with NIS 320 million the previous year. In terms of profit it showed a marked improvement, with net income of NIS 13 million for the year as compared with a net loss of NIS 136 million in the previous year, which also included one-time impairments of NIS 80 million. In Q4 there was also an improvement in Telrad’s results. It showed profits of NIS 4 million for the quarter as compared with a loss of NIS 12 million for the corresponding quarter in 2006. In the quarter it had sales of NIS 57 million as compared with NIS 65 million in the corresponding quarter of the previous year.
To conclude, I would like to mention that you can find Koor’s financial results, press releases and other information on our website at www.koor.com. I would also like to point out that there are certain accounting differences between the results of the companies and the results included in Koor’s consolidated statements. The results I have just summarized are of the companies as reported by them.
{0><}-100{>Manno Kahana: <}0{>Thank you. Now we will move on to the questions stage.<0}
Spokesman: Thank you. Now we continue to the questions and answers. If you want to ask a question, press asterisk and 1. To cancel the question press asterisk and 2. If you are listening using a speakerphone, please lift the receiver before dialing. Please wait while I gather your questions. I am going to repeat the instructions: to ask a question, press on asterisk and 1. Please wait while I gather together your questions. There are no questions at this stage. Before I hand back to Mr. Oren Hillinger to sum up, I would like to say that you can listen to a recording of the conference call on telephone +972-3-9255937, from about two hours time onwards. Mr. Hillinger, please.
Oren Hillinger: Thank you. I would like to thank you again for taking part in our conference call. If you have further questions, please do not hesitate, we are here, and we would be pleased to answer any question.
Spokesman: Mr. Hillinger, sorry for the interruption, it seems we have a question. Are you ready to take it?
Oren Hillinger: Of course.
Manno Kahana: Why not?
Spokesman: The question is from Eyal Shani of DS Investments.
Eyal Shani: Hello, good morning.
Manno Kahana: Good morning.
Eyal Shani: Could you expand a bit, in the last quarter you had exposure to very high cash balances in foreign currency. What is the position today, and is there any hedging? I apologize but I have not managed yet to go over all the financials.
Oren Hillinger: We have stated in the financial statements that the exposure was indeed to the dollar. We have also stated that at this point we are not hedged. We also mentioned the effect of this from the start of the quarter till today, with a likely impact on Q1 results, assuming the exchange rate does not change until the end of the quarter.
Eyal Shani: As far as I remember, in the previous quarter you made warnings, what might be called a sort of profit warning about your foreign currency holdings.
Oren Hillinger: Correct, we issued a notice at the end of the quarter.
Eyal Shani: Was there one this quarter too?
Oren Hillinger: As I said, as we also stated in the published financial statements, yes, in this quarter too we have very significant dollar holdings that are being eroded by the slide in the exchange rate.
Eyal Shani: Presumably. A second question, if you could explain a bit whether you have some sort of program for future strategy apart from the holdings in Makhteshim Agan. In all, it does not appear that you have liquidity problems in the company, and you can raise more money. I cannot tell if at the moment this is no problem for you, unless I am mistaken. Perhaps you could explain a bit.
Oren Hillinger: We are not today at the stage where we have something to report, but we have stated and I can repeat that we are considering both real and financial investments abroad, among other reasons on account of the state of the markets and the opportunities that have cropped up recently. As you said, we are holding large cash balances on the account, and we have the ability to leverage these balances.
Eyal Shani: In what fields will you be concentrating? Is there some direction or is everything open at the moment?
Oren Hillinger: We are not focusing on a specific field, and as I said, as and when we have something to report, we will be happy to do so.
Eyal Shani: Thank you.
Oren Hillinger: Thank you.
Spokesman: There are no further questions at this stage. Mr. Hillinger, would you like to carry on with your summing up?
Oren Hillinger: Yes. I would just state again that if anyone has more specific questions for us, we will be very pleased to answer. I look forward to meeting you for the conference call for the results of Q1 2008. Have a good day. Thank you.
Spokesman: That concludes Koor Industries’ conference call. Thanks for taking part. Have a nice day.
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