Formula Systems 1985 Ltd (FORTY) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Formula Systems fourth-quarter teleconference. (OPERATOR INSTRUCTIONS). I would now like to turn your teleconference over to the President, Mr. Gad Goldstein. Please go ahead, sir.

Thank you. Hello everybody and thank you for attending this conference call. I would like to remind you that the Safe Harbor language pertains to this conference call as well, and I actually have only a couple of remarks.

I would like to start by apologizing for some things. We went through a very hectic year in 2003. We believe it was also a very fruitful year, and we did plant some seeds for a substantially better 2004. We have been (inaudible) subsidiaries. We reached full transparency for all shareholders. We raised money for a company that really needs to adjust the business models, and we did participate in bringing new products to the marketplace.

Though, we did fail in the communication in the financial markets, and the result of the good part of it is our net value of our assets. It is substantially above $30 now, but still the price of the share is about 35 percent below that, and the discount is 35 percent means that it is the largest that we have ever had in communication space, and we failed to communicate with the market.

So we are encouraged by the partial results in the fourth quarter of 2003, which we think we're in the right direction, and we promise to do whatever is needed to be done in order to have a better communication with the markets. We reflect on the value that the pricing of the market is giving to us.

We would like to discuss a little bit about the cake that we're baking for 2004. The foundation of the initial layer of this cake will be definitely and undoubtedly Matrix. Matrix is heading for dominance in the IT arena, actually to convey that it is targeting over 1 billion shekels by 2005 next year. They are creating an extraordinary cash flow from operations for the (inaudible) and for all the group. Because of confusion and lack of comparable numbers, Matrix was not found by the market that they certainly expected it to be found. We are sure that it is going to be found in the near future. But for us, it is the most excellent base that we can think of for our 2004 cake.

The second layer will be obviously the international niche player, Magic, BluePhoenix and Sapiens. They are focused and well-positioned to exploit internally the market. Then we have nextSource, fast-growing with a nice twist of potential financial deals over the next 24 months, and disposable debt, we have some nice fast-growing offspring with the Formula Vision to add some spice and flavor to our cake. The ingredients are there, and the market seems to be a better market than last year. And we are talking about real market (inaudible) the financial market, and we were looking forward for year 2004 to have a record year in orders that are relevant (inaudible) for us and hopefully for the whole market.

That was some sort of an opening statement. I would like to open now the conversation to Q&A, please.

(OPERATOR INSTRUCTIONS). Ty Kidren, CIBC.

Congratulations on a good quarter. Could you tell us a little bit more about first from a consolidated standpoint what is the revenue breakdown between Israel and international? And also looking at your holdings, which one will provide in your opinion the strongest growth? Which one has the most promising prospects for 2004 and beyond?

Yes. In terms of the breakdown, well if you take it by companies, we have actually one company that is working in the Israel, which is nextSource -- which is Magic and (inaudible) on international. Although, as you know, there is always some overlap between the companies. The numbers will be like 55-56 percent is coming from the international arena and about 44-45 percent from the total income from Israel. We expect that in 2004 something similar, maybe with a little bit more growth in the international arena. The batter ingredients are definitely all of them, basically on the international arena. But we took into consideration that most all of them would be consolidated for the full year, so it is very difficult to know exactly in advance. Was that sufficient?

When you're looking at the companies -- nextSource -- can you talk a little bit more about nextSource? Correct me if I am wrong, this company is still private; it is not public. So the numbers for the company are not transparent to the street. Why don't you tell us a little bit more about what is going on over there in the business right now, and how do you expect that to shape into 2004?

First of all, now I remember the second question. You don't really expect me to choose between the children? Basically nextSource is a privately-owned company. Rough numbers, we are about 8 million in terms of total (inaudible) for 2003 and about 24-25 for 2003 sorry. The (inaudible) 2002 and about 24 for 2003.

Now looking forward, obviously we are not expecting three times four (inaudible), but we do expect this company to grow. By the way, the only company in the group from the large trading companies that was allowed to be slightly in the red last year to sustain the growth, we would expect the company to grow this year a little bit less obviously than last year, but we would expect the company sometime in 2004 to move into profitability maybe in the second or third quarter.

Now if I mention it's a privately-held company, it is a belief that direct subsidiaries of the Formula Group should be partially owned, and so we would expect whenever we find the time, the right time for it -- and I am not positive it's going to be through 2004 -- to have to share it either with a third party, a strategic partner or through a divested acquisition or any other way, we saw that through. At the moment, we are quite pleased with the growth of this company.

Okay. Cool. Thanks. Congratulations.

Daniel Muron (ph), IBI.

Hi. Congratulations, again, on the strong quarter. I wanted to ask you what is the impact, if at all, from the investigation regarding MainSoft on Formula in the worst-case scenario and the probable scenario? Thank you.

Well, obviously we have this tendency to get all the facts before communicating. Basically I cannot really say much about it.

I just want to make one small correction. Actually the investigation is checking a possibility in which our subsidiary of MainSoft was a victim of a crime. Obviously that crime might have hurt MainSoft and also might have hurt Microsoft. We don't know yet. It is under investigation. If we were a victim of such a crime where we would definitely (technical difficulty)-- anybody on the line yet still? Okay. Let's presume that somebody is on the line.

Yes, they are here.

So, if we were such a victim and if Microsoft was hurt, then by all means we hope to catch whomever did that. I don't tell anything (inaudible). At this point, we're working closely with Microsoft with good relations and doing everything in our power to find whatever is to find and to put it to sleep as quickly as possible.

(OPERATOR INSTRUCTIONS). Shaul Eal (ph), CIBC.

That is fine. My question has been answered. Thank you.

Michael Amari.

A great quarter. I would like very much to ask you a relevant question to one of your subsidiaries -- SPNS. What are you planning to do with Sapiens? It seems to be the only stock that has not changed in price for the last two years.

Sapiens is a -- we cleared sometime ago a very ambitious plan of moving into the insurance arena. The company used to be in the record application develop deployment tools, and it is moving to a market which the company believes and we are sharing their belief. It's a very interesting fast-growing market. It might be what was the telecom market five years ago, and it could be that the insurance it is going to do the same for maybe the next four or five years.

It is not very simple for a company to make such a turnaround. Actually we visited the Del Chicos (ph) just a week ago, 10 days ago, and everybody looked very excited and so on, and what we had to tell them is actually that we really believe that Sapiens is -- that with the large shift that it is trying to make a turn, and they expected sometime in the past that such a turn can be made the same way that their speedboat was due such a turn.

Well, it does not work like that. The bad news is that it takes some time. The good news is that whenever this ship is going to be turned, it will take us, investors, for a more safe (inaudible) than a speedboat and for a longer distance. That is what we believe about Sapiens. It might take another total quarter or two or three or a year, and we are going to be there for them, and I think that there are good signs of increasing the percentage of the insurance business vice-versa the other business in this company. And the minute it is going to pick up, I think that we can inspect the revenues to get better, the profits to get better and then the stock price. It is going to take probably a while.

Thank you very much. The main point is that you are going to be for them. That is the point. That is what I wanted to hear. I appreciate your answer.

(OPERATOR INSTRUCTIONS). And we have nobody queuing up. Please continue with your presentation.

Well, with that point, I would just like to thank everybody. I think it was a reasonable quarter, and we do expect a better year and we are going to communicate more. So I would enjoy very much talking with all of you about the first quarter results. Have a nice day and bye-bye.

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