F.T.S.- Formula Telecom Solutions Announcements

RNS Number : 7998B F.T.S-Formula Telecom Solutions Ltd 21 August 2008  
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F.T.S - Formula Telecom Solutions Limited
Notes forming part of the financial statements for the period ended June 30, 2008

F.T.S. - FORMULA TELECOM SOLUTIONS LTD.
AND ITS SUBSIDIARIES
(An Israeli Corporation)

CONSOLIDATED INTERIM FINANCIAL STATEMENTS 
AS OF JUNE 30, 2008

F.T.S FORMULA TELECOM SOLUTIONS LTD. AND ITS SUBSIDIARIES
(An Israeli Corporation)

Formula Telecom Solutions Ltd. (FTS) Announces Interim Results
For the Six Months Ended June 30, 2008

London, UK | August 21, 2008: FTS (LSE: FTS), a global provider of Billing, CRM and Business Control solutions for communications and content service providers, today announced it's results for the six months ending June 30, 2008.
Highlights: 

-          2008 first half net profit of US$1,857,000 compared to net profit of US$334,000 in the first half of 2007.
-          2008 first half revenues up by 6.5% to US$16,351,000 compared to US$15,351,000 in the first half of 2007.
-          2008 first half gross profit up by 4% to US$7,750,000 compared to US$7,450,000 in the first half of 2007.

"In the first six months of 2008 the growth in our operations exceeded the expectations of our Board of Directors," said Amos Sivan, FTS' Chief Executive Officer. "FTS has focused its efforts on the implementation of new contracts and succeeded in meeting the challenges of the competitive telecommunications market. We are extremely confident in our strong pipeline, breadth of products and roadmap and are currently negotiating several new projects, which we expect will materialize in the second half of the year. We are very pleased with our results, which would not have been possible without the commitment of our experienced management team and the dedication of our excellent employees. In line with our consistent track record of successful M&As, we will continue to examine potential fusions that will allow us to further increase our profitability and revenues."
Commenting on recent share movements, CEO Sivan added: "FTS has noted the recent decline in its share price, which was due to a forced sale, unrelated to FTS, by a shareholder who experienced difficulties and was forced to dispose of all his FTS holdings, amongst other holdings in his portfolio. FTS has an extensive pipeline and we expect to continue on the path of strong, stable growth."

About Formula Telecom Solutions (FTS):
FTS (LSE: FTS) is a leading provider of Billing, CRM and Business Control solutions for communications and content service providers. By analyzing events from a business standpoint rather than just billing them, FTS allows providers to better understand their customer base and leverage business value from every event and interaction. FTS deploys its full range of end-to-end, stand-alone and add-on solutions to customers in over 40 countries and has implemented solutions in wireless, wireline, cable, content and broadband markets including multiple cross-network installations. Serving the evolving needs of both traditional and next generation service providers, the company's operations comprise of four international R&D locations and strategically-located sales support offices worldwide. In 2007, FTS was voted the 'Most Promising Company' at the prestigious TeleStrategies Billing and OSS World industry event.  
Chairman's Statement
I am pleased to report FTS' 2008 interim results for the six months to 30 June 2008.

FTS sells Next Generation Business Control and infrastructure software solutions for communications service providers. Our solutions enable providers to address the key issues of today's communication market: customer retention and revenue growth. By analyzing events from a business standpoint rather than just billing them, FTS allows providers to better understand their customer base and leverage business value from every event and interaction. FTS deploys its full range of solutions to customers worldwide and has implemented solutions in wireless, wire line, cable, content and broadband markets. The Company targets Tier-1 operators in developed markets with its business control solutions, as well as operators in emerging markets.

The telecoms market is evolving with the growth in IP based communication and continuing consolidation in the market. In response to market changes, providers are restructuring their businesses and aligning vendors to their future needs. This is both a challenge and long-term opportunity for FTS. FTS predicted these transformations in the industry and has been working aggressively to adapt the Company to the new market environment, as well as developing new products and services that meet the customers' ever changing requirements.

In the course of repositioning and re-branding its product line FTS recently announced the launch of Leap™ Billing & CRM - the next generation of its converged billing & CRM solutions.

The product suite has been designed to inherently unify billing and CRM information, providing a holistic view of all customer events and billing events and enabling in-depth service personalization. Based upon a process-driven design, the solution offers unparalleled flexibility, empowering service providers to quickly launch and easily manage multi-service offerings in-house in real time without vendor intervention.
Leap Billing & CRM is an end-to-end converged solution based on telecom-specific business processes that reflect the industry's best practices. The solution allows new business practices to be instantly implemented and new services, bundles and promotions to be rolled out immediately, without involving costly billing and CRM integration projects. In this way, Leap Billing & CRM offers a long-term, viable solution to the ever-evolving needs of telecom providers.
Initial market response is highly positive with strong feedback from industry analysts, industry press, potential partners and customers, stressing the real market need the Company is addressing and the superiority of the solutions it presents. FTS expects to continue its marketing efforts during the second half of 2008 to leverage this new momentum with a marketing and sales campaign to launch the new strategy and products. The Company anticipates this new positioning and the associated marketing campaign will result in market interest in its products and lead to new bid proposals. It is expected that some of these will materialize into contracts in the second half of 2008, although it is difficult to predict the exact timing.

Results
In the six months to 30 June 2008 total revenue increased by 6.5% to $16.351m (2007: $15.351m).  

Gross profit for the six months was $7.750m (2007: $7.450m), an increase of 4.0%.

Research and development expenditure in the six months to 30 June 2008 was $2.007m (2007: $2.635m), a decrease of 24%. This decrease was mainly due to diversion of R&D efforts towards delivery of projects. 

Sales and marketing costs in the six months to 30 June 2008 were $1.715m (2007: $2.300m), a decrease of 25%.  

General and administrative costs in the six months to 30 June 2008 were $2.294m (2007: $2.396m), a decrease of 4%. 

The Company's operating income in the six months to 30 June 2008 was $1.734m (2007: $0.119m). 

The financial income, net for the six months to 30 June 2008 was $0.236m (2007: financial income of $0.088m) which resulted from gains on securities and bonds, less interest paid on bank loans.

Net income for the six months to 30 June 2008 was $1.857m (2007: net income of $0.334m). 

Outlook
We believe that due to management's extensive efforts, this positive momentum will continue in the forthcoming years and will increase the Company's revenues and profitability as well.  

The board continues to believe that FTS is ideally placed to exploit the opportunities offered in both developed and emerging markets. We have a number of reasons to be confident that FTS can develop its business further in the future: the very positive response we have received from the repositioning and re-branding of our product line; our world-wide reach; and the multiple successful deployments of the full range of FTS solutions to our multi-player operator customers around the globe.

The Company is involved in a number of bid proposals which are at various stages of the sales cycle. We expect some of these to crystallize into contracts in the near future although it is difficult to predict the exact timing.

We also believe that our business control solutions based on our Leap BCE product will enable us to penetrate Tier-1 service providers in developed markets. We expect to continue on the path of strong, stable growth in the future, as we have an extensive pipeline and a consolidated roadmap of products and solutions.

Dan Goldstein
Chairman

To the shareholders of F.T.S - Formula Telecom Solutions Limited

We have reviewed the accompanying consolidated financial statements of F.T.S - Formula Telecom Solutions Limited (hereafter- "the company"), which comprise of the balance sheet as of 30 June 2008, and the consolidated income statement, statement of changes in equity and consolidated cash flow statement for the period then ended, in accordance with International Financial Reporting Standards. All information included in these financial statements is the representation of the management of the company.
A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with International Financial Reporting Standards.

Tel-Aviv, Israel    August 21, 2008
 

 
Ziv Haft
 
Certified Public Accountants (Isr.)
 
BDO Member Firm
 
Consolidated income statement for the period ended June 30, 2008
 

 

Period ended June 30,

 

Year ended
December 31,

 

2008

 

2007

 

2007

 

U.S. In thousands

 

Unaudited

 

Audited

 
 
 
 
 
 
Revenues
16,351 
 
 15,351 
 
 32,105 
Cost of sales

(8,601)

 

( 7,901)

 

(16,467)

 
 
 
 
 
 
Gross profit
 7,750
 
 7,450 
 
 15,638 
 
 
 
 
 
 
Research and development expenses
(2,007)
 
 (2,635)
 
(4,856)
Distribution costs
(1,715)
 
(2,300)
 
(4,413)
General and administrative expenses, net

(2,294)

 

(2,396)

 

(5,739)

 
 
 
 
 
 
Profit from operations
 1,734
 
 119 
 
 630 
Finance expense
(182)
 
(225)
 
(484)
Finance income
 418 
 
 313 
 
 1,157 
Other operating expense

-

 

(1)

 

-

 
 
 
 
 
 
Profit before tax
 1,970 
 
206 
 
 1,303 
Tax income (expense)

(113)

 

 128 

 

  730

 
 
 
 
 
 
Profit for the period

 1,857 

 

 334 

 

 2,033 

 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
Basic (dollars per share)

0.0568

 

 0.0102 

 

 0.0623

 
 
 
 
 
 
Diluted (dollars per share)

0.0568

 

 0.0102 

 

 0.0622 

 
 
 
 
 
 
 

The accompanying notes form an integral part of the financial statements.
Consolidated statement of changes in equity for the period ended June 30, 2008

For the six months ended June 30, 2008:
 

 
Share capital
 
Additional paid in capital
 
Retained earnings
 
Treasury share reserves
 
Total
 
U.S. In thousands
 
Unaudited
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2008
1
 
 10,025 
 
 11,096 
 
(463)
 
 20,659 
 
 
 
 
 
 
 
 
 
 
Changes during the six months
            ended June 30, 2008:
 
 
 
 
 
 
 
 
 
Profit for the period
-
 
-
 
 1,857 
 
-
 
 1,857 
Issuance of employees' stock options
-
 
 32 
 
-
 
-
 
 32 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2008
1
 
 10,057 
 
 12,953 
 
(463)
 
 22,548 
 
 
 
 
 
 
 
 
 
 
 
 

For the six months ended June 30, 2007:

Share capital 

Additional paid in capital

Retained earnings

Treasury share reserves

Total

U.S. In thousands

Unaudited
Balance at January 1, 2007
1

 9,943 

 9,063 

(463) 

 18,544 
Changes during the six months 
    ended June 30, 2007:

Profit for the period
-

-

 334 

-

 334 
Issuance of employees' stock options
-

-

-

-

-
Balance at June 30, 2007
1

 9,943 

 9,397 

(463) 

 18,878
For the year ended December 31, 2007:

Share capital 

Additional paid in capital

Retained earnings

Treasury share reserves

Total

U.S. In thousands

Audited
Balance at January 1, 2007
1

 9,943 

 9,063 

(463)

 18,544 
Changes in equity for 2007:    

Profit for the year
-

-

 2,033 

-

 2,033 
Issuance of employees' stock options
-

 82 

-

-

 82 
Balance at December 31, 2007
1

 10,025 

 11,096 

(463)

 20,659 
Consolidated balance sheet as of June 30, 2008

30.6.2008

30.6.2007

31.12.2007
U.S. In thousands
Unaudited

Audited

ASSETS
Non-current assets:
Property, plant and equipment (PPE)

737

1,129

925
Intangible assets

7,687

7,624

7,646
Rental deposits

 42

70

62
Long term unbilled receivables

-

243

-
Deferred tax assets

 3,125

2,776

3,258
 
    Total non-current assets

11,591

11,842

11,891
 

Current assets:
Other receivables and prepaid expenses

756

1,659

1,161
Current tax assets

2,199

1,549

1,786
Trade receivables

9,094

11,927

9,629
Other financial assets

4,500

5,325

5,165
Cash and cash equivalents

12,805

4,380

9,707
 
    Total current assets

29,354

24,840

27,448
 
        TOTAL ASSETS

40,945

36,682

39,339
LIABILITIES
Non-current liabilities:
Employee benefits, net

547

321

448

    Total Non-current liabilities

547

321

448
Current Liabilities:
Other payables

3,735

4,357

3,760
Trade payables

6,060

3,518

4,040
Customer advances and deferred revenue

2,760

4,440

4,525
Short-term borrowings

5,295

5,168

5,907

    Total current liabilities

17,850

17,483

18,232
    Total liabilities

18,397

17,804

18,680
        TOTAL NET ASSETS

22,548

18,878

20,659
30.6.2008

30.6.2007

31.12.2007

U.S. In thousands

Unaudited

Audited
Capital and reserves attributable to 
  equity holders of the company

Share capital
 1 

 1 

 1 
Additional paid-in capital
 10,057 

 9,943 

 10,025 
Treasury share reserve
(463)

(463)

(463)
Retained earnings
 12,953 

 9,397 

 11,096 
TOTAL EQUITY
 22,548 

 18,878 

 20,659 

The financial statements were approved by the Board of Directors on August 21, 2008 and were signed on it's behalf by:

August 21, 2008
Date of approval

Dan Goldstein
Alon Raz
Amos Sivan
of financial statements

Chairman 
of the Board
Chief Financial Officer
Chief Executive Officer and Director
Consolidated cash flow statement for the period ended June 30, 2008

Period ended June 30,

Year ended
December 31,
2008

2007

2007
U.S. In thousands
Unaudited

Audited

Operating Activities:
Net profit (loss)

1,857

 334 

 2,033 

Adjustments for:
Depreciation and amortization

970

 1,399 

 2,716 
Gain from sale of property, plant and equipment

-

 24 

-
Deferred taxes

133

(242)

(725)
Employees' stock options

32

-

 82 

Cash flows from activities before changes
   In working capital and provisions:
Decrease (increase) in short-term investments, net 

665

 111 

 271 
Decrease (increase) in trade receivables

535

(1,837)

 704 
Decrease (increase) in other receivables prepaid expenses and rental deposits

425

(372)

 135 
Decrease (increase) in tax balances

(413)

(230)

(467)
Increase (decrease) in trade payables

2,006

 236 

 754 
Increase (decrease) in other payables

(25)

 39 

(558)
Increase in employee benefits

99

(32)

 95 
Increase (decrease) in customer advances 
and deferred revenues

(1,765)

(2,310)

(2,225)

Cash generated from operations

4,519

(2,880)

 2,815 

Supplement disclosure on cash flow information

Period ended June 30,

Year ended
December 31,
2008

2007

2007
U.S. In thousands
Unaudited

Audited

Cash flows from operating activities brought forward

-

-

 2,815 

Investing Activities:
Acquisition of business enterprise (Annex A)
 
-
 
(52)
 
(52)
Capitalization of software development costs
 
(677)
 
(1,177)
 
(2,203)
Proceeds from sale of PPE
 
-
 
 1 
 
-
Purchase of PPE
 
(132)
 
(137)
 
(217)

 
 
(809)
 
(1,365)
 
(2,472)

Financing Activities:
Short-term bank borrowing, net

(682)

(2,066)

(1,497)
Other short-term credit

70

-

 170 

(612)

(2,066)

(1,327)
Increase (decrease) in cash and cash equivalents

3,098

(6,311)

(984)

Cash and cash equivalents at beginning of period

9,707

 10,691 

 10,691 
Cash and cash equivalents at end of period

12,805

 4,380 

 9,707 

Non-cash activities:
Purchase of property and equipment against trade payables

51

 67 

50
Annex 'A' - Acquisition of business enterprise:

Period ended June 30,

Year ended
December 31,

2008

2007

2007

U.S. In thousands

Unaudited

Audited
Customer contracts and related customer relationships
-

-

 143 
Property and equipment
-

-

 17 
Working Capital
-

-

(108)

-

-

 52 

The directors of the Company are responsible for the financial information set out below.

NOTE 1 - ACCOUNTING POLICIES:
General:
F.T.S. - Formula Telecom Solutions Ltd (the "Company") was founded in January 1997 under the law of the state of Israel.

The Company is a global provider of convergent telecom management solutions for mobile, fixed-line and advanced services operators. The Company provides a range of versatile solutions to the market, which include convergent real-time prepaid and postpaid billing and Customer Relationship Management ("CRM") order management, infrastructure management, Electronic Bill Presentation software, as well as call center implementations.

The Company operates in one operating segment.
Note 2 - Significant Accounting Policies:
The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2007 are applied consistently in these interim consolidated financial statements.
NOTE 3 - FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING 
STANDARDS (IFRS):
Reconciliations and explanatory notes on how the transition to IFRS has affected profit and net assets previously reported under US Generally Accepted Accounting Principles are given below: 

Profit and loss account reconciliation for the period ended June 30, 2007:
 

 
 
 
US GAAP
 
Adjustments
 
IFRS
 
Sub-note
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
 
Revenue
 
 
 15,351 
 
-
 
 15,351 
Cost of sales
 
 

(7,901)

 

-

 

(7,901)

 
 
 
 
 
 
 
 
Gross profit
 
 
 7,450 
 
-
 
 7,450 
Research and development costs
 
 
(2,635)
 
-
 
(2,635)
Distribution costs
 
 
(2,300)
 
-
 
(2,300)
General and administrative expenses
B, C
 

(2,521)

 

 125 

 

(2,396)

 
 
 
 
 
 
 
 
Loss from operations
 
 
(6)
 
 125 
 
 119 
Finance costs
 
 
(225)
 
-
 
(225)
Finance income
 
 
 313 
 
-
 
 313 
Other income
 
 

(1)

 

-

 

(1)

 
 
 
 
 
 
 
 
Profit (loss) before tax
 
 
 81 
 
-
 
 206 
Tax income
D
 

 159 

 

(31)

 

 128 

 
 
 
 
 
 
 
 
Profit (loss) for the period
 
 

 240 

 

 94 

 

 334 
Balance sheet reconciliation as at June 30, 2007:

US GAAP

Adjustments 

IFRS

Sub-note

$'000

$'000

$'000
 ASSETS

Non-current assets:

Property, plant and equipment 
 1,129 

-

 1,129 
Intangible assets
A

 8,583 

(959)

 7,624 
Severance pay fund
B

 147 

(147)

-
Rental deposits
 70 

-

 70 
Long term unbilled receivables
 243 

-

 243 
Deferred tax assets
A, D

-

 2,776 

 2,776 
 

    Total non-current assets
 10,172 

 1,670 

 11,842 
 

Current assets:

Other receivables and prepaid expenses
A,E

 4,817 

(3,158)

 1,659 
Current tax assets
E

-

 1,549 

 1,549 
Trade receivables
C

 12,927 

(1,000)

 11,927 
Other financial assets
 5,325 

-

 5,325 
Cash and cash equivalents
 4,380 

-

 4,380 
 

    Total current assets
 27,449 

(2,609)

 24,840 
 

    TOTAL ASSETS
 37,621 

(939)

 36,682 
LIABILITIES

Non-current liabilities:

Employee benefits
B

 637 

(316)

 321 
    Total Non-current liabilities
 637 

(316)

 321 
Current Liabilities:

Other payables
 4,357 

 - 

 4,357 
Trade payables
 3,518 

 - 

 3,518 
Customer advances and deferred revenue
 4,440 

 - 

 4,440 
Short-term borrowings
 5,168 

 - 

 5,168 
    Total current liabilities
 17,483 

 - 

 17,483 
    Total liabilities
 18,120 

(316)

 17,804 
    TOTAL NET ASSETS AND EQUITY
 37,621 

(939)

 36,682 
Adjustments:
Explanations of the adjustments made to the US GAAP income statement and balance sheets are as follows:
A.    Deferred taxes in current assets were classified to non current assets in separate line in accordance with IAS 1.
B.    Employee benefits were calculated according to actuarial assumptions based on the "projected unit credit" method in accordance with IAS 19. In addition, assets and liabilities were presented in net value.
C.    The company estimated its allowance for doubtful debts in accordance with IAS 39 - treatment in impairment of financial assets.
D.    The effect on deferred taxes due to changes made in employee benefits and allowance for doubtful debts.
E.    Current tax assets were classified from other receivables and prepaid expenses in separate line in accordance with IAS 1.

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