TABLE
OF CONTENTS
|
iv |
|
iv |
|
|
1 |
|
|
1 |
|
|
1 |
A. |
SELECTED FINANCIAL DATA |
1 |
B. |
CAPITALIZATION AND INDEBTEDNESS |
3 |
C. |
REASONS FOR THE OFFER AND USE OF PROCEEDS |
3 |
D. |
RISK FACTORS |
3 |
|
|
12 |
A. |
HISTORY AND DEVELOPMENT OF THE COMPANY |
12 |
B. |
BUSINESS OVERVIEW |
13 |
C. |
ORGANIZATIONAL STRUCTURE |
24 |
D. |
PROPERTY, PLANTS AND EQUIPMENT |
24 |
|
|
26 |
|
|
26 |
A. |
OPERATING RESULTS |
26 |
B. |
LIQUIDITY AND CAPITAL RESOURCES |
37 |
C. |
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES |
40 |
D. |
TREND INFORMATION |
40 |
E. |
OFF-BALANCE SHEET ARRANGEMENTS |
41 |
F. |
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
41 |
G. |
SAFE HARBOR |
41 |
|
|
41 |
A. |
DIRECTORS AND SENIOR MANAGEMENT |
41 |
B. |
COMPENSATION |
45 |
C. |
BOARD PRACTICES |
48 |
D. |
EMPLOYEES |
52 |
E. |
SHARE OWNERSHIP |
54 |
|
|
55 |
A. |
MAJOR SHAREHOLDERS |
55 |
B. |
RELATED PARTY TRANSACTIONS |
57 |
C. |
INTERESTS OF EXPERTS AND COUNSEL |
61 |
|
|
61 |
A. |
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
61 |
B. |
SIGNIFICANT CHANGES |
62 |
|
|
62 |
A. |
OFFER AND LISTING DETAILS |
62 |
B. |
PLAN OF DISTRIBUTION |
63 |
C. |
MARKETS |
63 |
D. |
SELLING SHAREHOLDERS |
63 |
E. |
DILUTION |
63 |
F. |
EXPENSES OF THE ISSUE |
63 |
|
|
63 |
A. |
SHARE CAPITAL |
63 |
B. |
MEMORANDUM AND ARTICLES OF ASSOCIATION |
63 |
C. |
MATERIAL CONTRACTS |
70 |
D. |
EXCHANGE CONTROLS |
70 |
E. |
TAXATION |
71 |
F. |
DIVIDENDS AND PAYING AGENTS |
78 |
G. |
STATEMENT BY EXPERTS |
78 |
H. |
DOCUMENTS ON DISPLAY |
78 |
I. |
SUBSIDIARY INFORMATION |
78 |
|
|
78 |
|
|
79 |
|
|
79 |
|
|
79 |
|
|
79 |
|
|
82 |
|
|
82 |
|
|
82 |
|
|
82 |
|
|
82 |
|
|
82 |
|
|
83 |
|
|
83 |
|
|
83 |
|
|
83 |
|
|
83 |
|
|
84 |
USE
OF CERTAIN TERMS
As
used herein, and unless the context suggests otherwise, the terms “we”, “us”, “our” or “Ituran”
refer to Ituran Location and Control Ltd. and its consolidated subsidiaries.
We
have prepared our consolidated financial statements in US Dollars. Our consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States (“U.S. GAAP”). All references herein to “dollars”
or “$” or “USD” are to United States dollars, and all references to “NIS” are to New Israeli Shekels.
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. The use of the words “projects,” “believes,”
“expects,” “may,” “plans” or “intends,” or words of similar import, identifies a statement
as “forward-looking.” The forward-looking statements included herein are based on current expectations that involve a number
of risks and uncertainties. These forward-looking statements are based on the assumption that we will not lose a significant customer
or customers or experience increased fluctuations of demand or rescheduling of purchase orders, that our markets will continue to grow,
that our products will remain accepted within their respective markets and will not be replaced by new technology, that competitive conditions
within our markets will not change materially or adversely, that we will retain key technical and management personnel, that our forecasts
will accurately anticipate market demand, and that there will be no material adverse change in our operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. In
addition, our business and operations are subject to substantial risks which increase the uncertainty inherent in the forward-looking
statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Factors
that could cause actual results to differ from our expectations or projections include the risks and uncertainties described in this annual
report in Item 3D: Risk Factors. Forward-looking
statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statements or
other information contained in this report, whether as a result of new information, future events or otherwise. You are advised, however,
to consult any additional disclosures we make in our reports on Form 6-K filed with the U.S. Securities and Exchange Commission (“SEC”).
PART
I
ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
A. SELECTED
FINANCIAL DATA
The
selected consolidated financial data below is provided under generally accepted accounting principles in the U.S. (U.S. GAAP). You should
read the selected consolidated financial data presented in this Item together with Item 5 – Operating and Financial Review and Prospects
and with our consolidated financial statements included elsewhere in this annual report.
Our
selected consolidated statements of income data for the years ended December 31, 2020, 2021 and 2022 and our selected consolidated balance
sheet data as of December 31, 2021 and 2022 have been derived from our consolidated financial statements included elsewhere in this report.
The selected consolidated statements of income data for each of the years ended December 31, 2018 and 2019, and the selected consolidated
balance sheet data as of December 31, 2018, 2019 and 2020, are derived from our audited consolidated financial statements not included
in this report.
Selected
Financial Data Under U.S. GAAP:
Consolidated Statements
of Income Data
|
|
Year Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
In USD |
|
|
|
In thousands, except per
share amounts |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telematics services |
|
|
209,558 |
|
|
|
189,649 |
|
|
|
182,944 |
|
|
|
204,728 |
|
|
|
181,357 |
|
Telematics products |
|
|
83,514 |
|
|
|
81,235 |
|
|
|
62,683 |
|
|
|
74,604 |
|
|
|
71,978 |
|
Total Revenues |
|
|
293,072 |
|
|
|
270,884 |
|
|
|
245,627 |
|
|
|
279,332 |
|
|
|
253,335 |
|
Cost of Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telematics services |
|
|
90,129 |
|
|
|
83,427 |
|
|
|
80,339 |
|
|
|
89,167 |
|
|
|
69,347 |
|
Telematics products |
|
|
65,381 |
|
|
|
59,619 |
|
|
|
48,747 |
|
|
|
58,656 |
|
|
|
55,678 |
|
Total cost of revenues |
|
|
155,510 |
|
|
|
143,046 |
|
|
|
129,086 |
|
|
|
147,823 |
|
|
|
125,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
137,562 |
|
|
|
127,838 |
|
|
|
116,541 |
|
|
|
131,509 |
|
|
|
128,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
16,848 |
|
|
|
14,099 |
|
|
|
12,767 |
|
|
|
13,913 |
|
|
|
6,223 |
|
Selling and marketing expenses |
|
|
13,327 |
|
|
|
13,262 |
|
|
|
12,040 |
|
|
|
13,769 |
|
|
|
12,322 |
|
General and administrative expenses |
|
|
48,705 |
|
|
|
46,118 |
|
|
|
49,705 |
|
|
|
55,166 |
|
|
|
47,693 |
|
Impairment of goodwill |
|
|
|
|
|
|
- |
|
|
|
10,508 |
|
|
|
12,292 |
|
|
|
- |
|
Impairment of intangible assets and other expenses (income) net |
|
|
(92 |
) |
|
|
(256 |
) |
|
|
3,690 |
|
|
|
13,715 |
|
|
|
(306 |
) |
Operating Income |
|
|
58,774 |
|
|
|
54,615 |
|
|
|
27,831 |
|
|
|
22,654 |
|
|
|
62,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses), net |
|
|
- |
|
|
|
(109 |
) |
|
|
(272 |
) |
|
|
(26 |
) |
|
|
13,138 |
|
Financing income (expenses), net |
|
|
(5,944 |
) |
|
|
(5,538 |
) |
|
|
1,480 |
|
|
|
576 |
|
|
|
717 |
|
Income before income tax |
|
|
52,830 |
|
|
|
48,968 |
|
|
|
29,039 |
|
|
|
23,204 |
|
|
|
76,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax |
|
|
(12,745 |
) |
|
|
(11,854 |
) |
|
|
(10,856 |
) |
|
|
(12,234 |
) |
|
|
(17,273 |
) |
Share in gains (losses) of affiliated companies, net |
|
|
(585 |
) |
|
|
(102 |
) |
|
|
(842 |
) |
|
|
(3,203 |
) |
|
|
4,219 |
|
Net income for the year |
|
|
39,500 |
|
|
|
37,012 |
|
|
|
17,341 |
|
|
|
7,767 |
|
|
|
63,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to non-controlling interest |
|
|
(2,397 |
) |
|
|
(2,756 |
) |
|
|
(1,218 |
) |
|
|
(878 |
) |
|
|
(2,504 |
) |
Net income attributable to Company stockholders |
|
|
37,103 |
|
|
|
34,256 |
|
|
|
16,123 |
|
|
|
6,889 |
|
|
|
60,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1.82 |
|
|
|
1,65 |
|
|
|
0.77 |
|
|
|
0.33 |
|
|
|
2.88 |
|
Diluted |
|
|
1.82 |
|
|
|
1,65 |
|
|
|
0.77 |
|
|
|
0.33 |
|
|
|
2.88 |
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
20,418 |
|
|
|
20,769 |
|
|
|
20,813 |
|
|
|
21,037 |
|
|
|
21,077 |
|
Diluted |
|
|
20,418 |
|
|
|
20,769 |
|
|
|
20,813 |
|
|
|
21,037 |
|
|
|
21,077 |
|
Consolidated
Balance Sheets Data:
|
|
Year Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
In USD |
|
|
|
In thousands, except per
share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalent; and investment in trading marketable securities
|
|
|
28,166 |
|
|
|
54,711 |
|
|
|
78,846 |
|
|
|
54,322 |
|
|
|
53,295 |
|
Working Capital |
|
|
57,680 |
|
|
|
58,102 |
|
|
|
66,708 |
|
|
|
73,085 |
|
|
|
84,214 |
|
Total Assets |
|
|
290,927 |
|
|
|
293,021 |
|
|
|
312,472 |
|
|
|
339,235 |
|
|
|
373,792 |
|
Total Liabilities |
|
|
138,068 |
|
|
|
155,218 |
|
|
|
182,573 |
|
|
|
203,321 |
|
|
|
213,592 |
|
Retained Earnings |
|
|
168,963 |
|
|
|
143,259 |
|
|
|
127,684 |
|
|
|
116,479 |
|
|
|
129,580 |
|
Stockholders’ Equity |
|
|
145,797 |
|
|
|
132,460 |
|
|
|
127,192 |
|
|
|
129,330 |
|
|
|
153,693 |
|
Dividend declared per share |
|
|
0.56 |
|
|
|
0.90 |
|
|
|
0.24 |
|
|
|
0.95 |
|
|
|
0.95 |
|
Other Data:
|
|
Year Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2019 |
|
Subscribers of telematics services (1)
|
|
|
2,066,000 |
|
|
|
1,881,000 |
|
|
|
1,768,000 |
|
|
|
1,781,000 |
|
|
|
1,770,000 |
|
Average monthly churn rate |
|
|
2.6 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
3.3 |
% |
|
|
2.8 |
% |
|
(1) |
Number of subscribers are rounded to the nearest thousand. |
B. CAPITALIZATION
AND INDEBTEDNESS
Not applicable.
C. REASONS
FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK
FACTORS
Our
business, operating results and financial condition could be seriously harmed due to any of the following risks, among others. If we do
not successfully address the risks to which we are subject, we could experience a material adverse effect on our business, results of
operations and financial condition and our share price may decline, which may result in a loss of all or part of your investment. We cannot
assure you that we will successfully address any of these risks. You should carefully consider the following factors as well as the other
information contained and incorporated by reference in this annual report before taking any investment decision with respect to our securities.
See “Forward Looking Statements” on page iv above.
RISKS
RELATED TO OUR BUSINESS
Failure
to maintain our existing relationships or establish new relationships with insurance companies or car manufacturers could adversely affect
our revenues and growth potential.
Revenues from our stolen
vehicle recovery services, which we refer to as SVR services, (“SVR”) and automatic vehicle location (“AVL”) products,
which we refer to as telematics products, are primarily dependent on our relationships with
insurance companies and car manufactures in Israel. Insurance companies drive demand for our SVR services and telematics products by encouraging
and, in some cases, requiring customers to subscribe to vehicle location services and purchase vehicle location products such as ours.
In certain subsidiaries in Brazil and Argentina, insurance companies enter into written agreements to subscribe to our services and purchase
or lease our products directly. Our inability to maintain our existing relationships or establish new relationships with insurance companies
could adversely affect our revenues and growth potential. In some of the territories in which we operate, we have business relation with
car manufacturers. Our inability to maintain our existing relationships or establish new relationships with car manufacturers companies
could adversely affect our revenues and growth potential.
Changes
in practices of insurance companies in the markets in which we provide our SVR services and sell our telematics products could adversely
affect our revenues and growth potential.
We depend on the practices
of insurance companies in the markets in which we provide our SVR services and sell our telematics products. In Israel, insurance companies
either mandate the use of SVR services and telematics products, or their equivalent, as a prerequisite for providing insurance coverage
to owners of certain medium- and high-end vehicles or provide insurance premium discounts to encourage vehicle owners to subscribe to
services and purchase products such as ours. In certain subsidiaries in Brazil and Argentina, insurance companies mainly lease our telematics
products directly and subsequently require their customers to subscribe to our SVR services.
Therefore, we rely on
insurance companies’ continued practice of:
◾ |
accepting vehicle location and recovery technology as a preferred security product; |
◾ |
requiring or providing a premium discount for using location and recovery services and products;
|
◾ |
mandating or encouraging use of our SVR services and telematics products,
or similar services and products, for vehicles with the same or similar threshold values and for the same or similar required duration
of use; and |
If any of these policies
or practices change, revenues from sales of our SVR services and telematics products could decline, which could adversely affect our revenues
and growth potential.
A
reduction in vehicle theft rates may adversely impact demand for our SVR services and telematics products.
Demand for our SVR services
and telematics products depends primarily on prevailing or expected vehicle theft rates. Vehicle theft rates may decline as a result of
various reasons, such as the availability of improved security systems, implementation of improved or more effective law enforcement measures,
or improved economic or political conditions in markets that have high theft rates. If vehicle theft rates in any or all of our existing
markets decline, or if insurance companies or our other customers believe that vehicle theft rates have declined or are expected to decline,
demand for our SVR services and telematics products may decline.
A
decline in sales of new cars at the markets in which we operate could result in reduced demand for our telematics services and telematics
products.
Our SVR services and
telematics products are primarily used to protect cars and are often installed before or immediately after their initial sale. Consequently,
a reduction in sales of vehicles could reduce our addressable market for SVR services and telematics products. New vehicle sales may decline
for various reasons, including an increase in new vehicle tariffs, taxes or gas prices. A decline in vehicle production levels or labor
disputes affecting the automobile industry in the markets where we operate may also impact the volume of new vehicle sales. A decline
in sales of new vehicles in the markets in which we provide our SVR services or sell our telematics products could result in reduced demand
for such services and products.
There
is significant competition in the markets in which we offer our services and products and our results of operations could be adversely
affected if we fail to compete successfully.
The markets for our services
and products are highly competitive. We compete primarily on the basis of the technological innovation, quality and price of our services
and products. Our most competitive market is the telematics services market and the related telematics products market, due to the existence
of a wide variety of competing services and products and alternative technologies that offer various levels of protection and tracking
capabilities, including global positioning systems, or GPS, satellite- or network-based cellular systems and direction-finding homing
technologies. Some of these competing services and products, such as certain GPS-based products, are installed in new cars by vehicle
manufacturers prior to their initial sale, which effectively precludes us from competing for such subscribers in the SVR market. Furthermore,
providers of competing services or products may extend their offerings to the locations in which we operate, or new competitors may enter
the telematics services market. Our telematics products also compete with less sophisticated theft protection devices such as standard
car alarms, immobilizers, steering wheel locks and homing devices, some of which may be significantly cheaper. Some of these competing
products have greater brand recognition than our telematics products.
The
development of new or improved competitive products, systems or technologies that compete with our telematics products may render our
products less competitive or obsolete, which could cause a decline in our revenues and profitability.
We are engaged in businesses
characterized by rapid technological change and frequent new product developments and enhancements. The number of companies developing
and marketing new telematics products has expanded considerably in recent years. The development of new or improved products, systems
or technologies that compete with our telematics products, for both our SVR and fleet management services, may render our products and
services less competitive and we may not be able to enhance our technology in a timely manner. In addition to the competition resulting
from new products, systems or technologies, our future product enhancements may not adequately meet the requirements of the marketplace
and may not achieve the broad market acceptance necessary to generate significant revenues. Any of the foregoing could cause a decline
in our revenues and profitability.
The
inability of local law enforcement agencies to timely and effectively recover the stolen vehicles we locate could negatively impact customers’
perception of the usefulness of our SVR services and telematics products, adversely affecting our revenues.
Our telematics products
identify the location of vehicles in which our products are installed. Following a notification of an unauthorized entry, or if we receive
notification of the vehicle’s theft from a subscriber, we notify the relevant law enforcement agency of the location of the subscriber’s
vehicle and generally rely on local law enforcement or governmental agencies to recover the stolen vehicle. We cannot control nor predict
the response time of the relevant local law enforcement or other governmental agencies responsible for recovering stolen vehicles, nor
that the stolen vehicles, once located, will be recovered at all. In the past, some stolen vehicles in which our telematics products were
installed were not recovered on timely manner, from the time an unauthorized entry is confirmed or reported to the time the vehicle is
recovered. To the extent that the relevant agencies do not effectively and timely respond to our calls and recover stolen vehicles, our
recovery rates would likely diminish, which may, in turn, negatively impact customers’ perception of the usefulness of our SVR services
and telematics products, adversely affecting our revenues.
The
ability to detect, deactivate, disable or otherwise inhibit the effectiveness of our telematics products could adversely affect demand
for such products and our revenues.
The effectiveness of
our telematics products is dependent, in part, on the inability of unauthorized persons to deactivate or otherwise alter the functioning
of our telematics products or the vehicle anti-theft devices that work in conjunction with our telematics products. As sales of our telematics
products increase, criminals in the markets in which we operate may become increasingly aware of our telematics products and may develop
methods or technologies to detect, deactivate or disable our tracking devices or the vehicle anti-theft devices that work in conjunction
with our telematics products. We believe that, as is the case with any product intended to prevent vehicle theft, over time, there may
be an increased ability of unauthorized persons to detect, deactivate, disable or otherwise inhibit the effectiveness of our telematics
products, although it is difficult to verify this fact. An increase in the ability of unauthorized persons to detect, deactivate, disable
or otherwise inhibit the effectiveness of our telematics products could adversely affect demand for our products and our revenues.
We
rely on some intellectual property that we license from third parties, the loss of which could preclude us from providing our SVR services
or market and sell some of our telematics products, which would adversely affect our revenues.
We license from third
parties some of the technology that we need in order to provide our SVR services and market and sell some of our telematics products.
In the event that such licenses were to be terminated, or if such licenses were rendered unenforceable or invalid and we would not be
able to license similar technology from other parties, it would require us, at a minimum, to obtain rights to a different technology and
reconfigure our telematics products accordingly. In addition, some of the licenses we obtained from third parties are non-exclusive, which
may enable other entities to obtain identical licenses from such third parties to operate in the places in which we conduct our business
resulting in increased competition and could adversely affect our revenues.
Our
ability to sell some of our services and products depends upon the prior receipt and maintenance of various governmental licenses and
approvals and our failure to obtain or maintain such licenses and approvals, or third-party use of the same licenses and frequencies,
could result in a disruption or curtailment of our operations, a significant increase in costs and a decline in revenues.
We are required to
obtain specific licenses and approvals from various governmental authorities in order to conduct our operations. For example, some of
our telematics products use radio frequencies that are licensed and renewed periodically from the Ministry of Communications in Israel
and similar agencies worldwide. As we continue to expand into additional markets, we will be required to obtain new permits and approvals
from relevant governmental authorities. Furthermore, once our telematics infrastructure is deployed and our telematics end-units are sold
to subscribers, a change in radio frequencies would require us to recalibrate all of our antennas and replace or modify all end-units
held by subscribers, which would be costly and may result in delays in the provision of our SVR services. In addition, some of the governmental
licenses for radio frequencies that we currently use may be preempted by third parties. In Israel, our license is designated as a “joint”
license, allowing the government to grant third parties a license to use the same frequencies, and in Brazil our license is designated
as a “secondary”, non-exclusive license, which allows the government to grant a third party a primary license to use such
frequencies, which third-party use could adversely affect, disrupt or curtail our operations. Our inability to maintain necessary governmental
licenses and frequency approvals, or third-party use of or interference with the same licenses or frequencies, could result in a significant
increase in costs and decline in revenues.
Our
SVR services business model is based on the existence of certain conditions, the loss or lack of which in existing or potential markets
could adversely affect our revenues generated in existing markets or our growth potential.
Our SVR services business
model and, consequently, our ability to provide our SVR services and sell our telematics products, relies on our ability to successfully
identify markets in which:
◾ |
the rate of car theft or consumer concern over vehicle safety is high; |
◾ |
satisfactory radio frequencies are available to us for our RF technology, that allow us to operate our
business in an uninterrupted manner; and |
◾ |
insurance companies, car manufacturers or owners of cars believe that the value of cars justifies incurring
the expense associated with the deployment of SVR services. |
The absence of such conditions,
our inability to locate markets in which such conditions exist or the loss of any one of the above conditions in markets we currently
serve could adversely affect our revenues generated in existing markets or our growth potential.
The
loss of key personnel could adversely affect our business and prospects for growth.
Our success depends upon
the efforts and abilities of key management personnel, including our President and our Co-Chief Executive Officers. Loss of the services
of one or more of such key personnel could adversely affect our ability to execute our business plan. In addition, we believe that our
future success depends in part upon our ability to attract, retain and motivate qualified personnel necessary for the development of our
business. If one or more members of our management team or other key technical personnel become unable or unwilling to continue in their
present positions, and if additional key personnel cannot be hired and retained as needed, our business and prospects for growth could
be adversely affected.
We
rely on third parties to manufacture our telematics products, which could affect our ability to provide such products in a timely and
cost-effective manner, adversely impacting our revenues and profit margins.
We outsource the manufacturing
of a significant part of our telematics products to third parties. We use manufacturers for production of our telematics products and
we do not maintain significant levels of inventories to support us in the event of an unexpected interruption in its manufacturing process.
If our principal manufacturer or any of our other manufacturers is unable to or fails to manufacture our products in a timely manner,
we may not be able to secure alternative manufacturing facilities without experiencing an interruption in the supply of our products or
an increase in production costs. Any such interruption or increase in production costs could affect our ability to provide our telematics
products in a timely and cost-effective manner, adversely impacting our revenues and profit margins.
We
rely on two major suppliers to supply us with various products and software. Each of these suppliers supply us with different type of
products and services and act as single supplier of such products and services.
We rely on two major
suppliers to supply us with various products and software, one of them is our subsidiary. Each of these suppliers supply us with different
type of products and software and act as single supplier of such products and services.
Termination of relations
with one of our major suppliers would adversely affect our operations and revenues.
We
depend on the use of specialized quality assurance testing equipment for the production of our telematics products, the loss or unavailability
of which could adversely affect our results of operations.
We and our third-party
manufacturers use specialized quality assurance testing equipment in the production of our products. The replacement of any such equipment
as a result of its failure or loss could result in a disruption of our production process or an increase in costs, which could adversely
affect our results of operations.
Cancellation
of use of Generation 2.0 in Israel
The Israeli Ministry
of Telecommunications has decided that from 2026 Generation 2.0 used by customers of Ituran in Israel will not be in operation. This is
a general decision which applies to us too.In case such decision is not abolished or postponed, then we shall need to cooperate with another
Israeli cellular company. Such cooperation may cost us up to 4 Million USD per annum during the 3-5 years to follow.
The
adoption of industry standards that do not incorporate the technology we use may decrease or eliminate the demand for our services or
products and could harm our results of operations.
There are no established
industry standards in all of the businesses in which we sell our telematics products. For example, vehicle location devices may operate
by employing various technologies, including network triangulation, GPS, satellite-based or network-based cellular or direction-finding
homing systems. The development of industry standards that do not incorporate the technology we use may decrease or eliminate the demand
for our services or products and we may not be able to develop new services and products that are in compliance with such new industry
standards on a cost-effective basis. If industry standards develop and such standards do not incorporate our telematics products and we
are unable to effectively adapt to such new standards, such development could harm our results of operations.
Expansion
of our operations to new markets involves risks and our failure to manage such risks may delay or preclude our ability to generate anticipated
revenues and may impede our overall growth strategy.
We anticipate future
growth to be attributable to our business activities in new markets, particularly in developing countries, where we may encounter additional
risks and challenges, such as longer payment cycles, potentially adverse tax consequences, potential difficulties in collecting receivables
and potential difficulties in enforcing agreements or other rights in foreign legal systems. The challenges and risks of entering a new
market may delay or preclude our ability to generate anticipated revenues and may impede our overall growth strategy.
Part
of our services rely on GPS/GPRS-based technology owned and controlled by others, the loss, impairment or increased expense of which could
negatively impact our immediate and future revenues from, or growth of, our services and adversely affect our results of operations.
Part of our business
relies on signals from GPS/GPRS satellites built and maintained by third parties. If GPS/GPRS satellites become unavailable to us, or
if the costs associated with using GPS/GPRS technology increase such that it is no longer feasible or cost-effective for us to use such
technology, we will not be able to adequately provide our services. In addition, if one or more GPS/GPRS satellites malfunction, there
could be a substantial delay before such satellites are repaired or replaced, if at all. The occurrence of any of the foregoing events
could negatively impact our immediate and future revenues from, or growth of, our telematics services and adversely affect our results
of operations.
Material
cyber security failure may harm our operations, which rely on use of information technology and wireless transmission.
Our telematics and SVR
services, relies on the use of information technology which under a major cyber security breach, could harm our operations. We are using
physical services, wireless transmitting stations, GPRS/GPS, and in lesser account cloud computing to provide our services. There are
risks associated with storing and transmitting data, which due to cyber security breach may be corrupted, and the store data on remote
servers may be destroyed, damaged, seized, or otherwise no longer accessible, which may temporary decrease our ability to deliver telematics
and SVR services.
We implemented cyber
security controls – which consists of three pillars: prevention, detection and response (data recovery in the event of a cyber breach).
We perform an ongoing review of our systems and an annual external review of our cyber security controls and their implementation. However,
such cyber security controls may not be able to prevent all unexpected weaknesses. In the event of a cyber-attack, we could experience
the corruption or loss of data, misappropriation of assets or sensitive information, including customer information, or operational disruption.
This could result in response costs and various financial loss and may subject us to litigation and cause damage to our reputation, for
which we may not be covered under our current insurance policies and may lead to substantial loss of revenues.
Some
of our employees in our subsidiaries in Brazil and Argentina are members of labor unions and a dispute between us and any such labor union
could result in a labor strike that could delay or preclude altogether our ability to generate revenues in the markets where such employees
are located.
Some of our employees
in our subsidiaries in Brazil and Argentina are members of labor unions. If a labor dispute were to develop between us and our unionized
employees, such employees could go on strike and we could suffer work stoppage for a significant period of time. A labor dispute can be
difficult to resolve and may require us to seek arbitration for resolution, which arbitration can be time consuming, distracting to management,
expensive and difficult to predict. The occurrence of a labor dispute with our unionized employees could delay or preclude altogether
our ability to generate revenues in the markets where such employees are located.
Inflation and shortage
of semiconductor supplies
In periods of shortages
impacting the semiconductor industry during year 2022, we have placed and may continue to place non-cancellable inventory orders in advance
of our historical lead times, and pay premiums and/or provide deposits to secure future supply and capacity. For example, while we previously
placed orders with approximately six months’ lead time, we have begun placing orders at least twelve months in advance. Our inventory
and purchase commitments reflect our demand expectations for our future quarters and long-term supply and capacity needs. However, we
may not be able to accurately predict when such periods of shortage will end, nor do we know whether those inventory orders accurately
address our current and future demand needs. These actions increased some of our product costs .If this shortage will sustain we may suffer
same economic extra costs in the future.
During the year 2022,
we have encountered growing inflation rates and growing interest rates in the main territories where we operate. This has caused additional
costs to our financing and operations. This environment has a potential negative impact on our results, as long as it sustains.
Regional or Global Health
Pandemic
A regional or a global
health pandemic, such as COVID-19, could severely affect our business, results of operations and financial condition due to impacts
on our suppliers and customers, as well as impacts from remote work arrangements, actions taken to contain the disease or treat its
impact and the speed and extent of the recovery.
We are subject to litigation
that could result in significant costs to us.
On July 13, 2015, we
received a purported class action lawsuit which was filed against the Company in the District Court of Central Region in Tel-Aviv by one
plaintiff who is a subscriber of the Company, alleging that the Company, which was declared a monopoly under the Israeli Antitrust Law,
unlawfully abused its power as a monopoly and discriminated between its customers. The lawsuit is yet to be approved as a class action.
The total amount claimed if the lawsuit is approved as a class action was estimated by the plaintiff to be approximately NIS 300 million
(approximately USD 85.2 million). Based on an opinion of its legal counsels, the Company believes that the lawsuit lacks substantiation,
and that the Company has good defence arguments in respect of claims made by the plaintiff and that the chances that the suit will not
be approved as a class action lawsuit are more likely than not. While we cannot predict the outcome of this case, if we are not successful
in defending our claim, we could be subject to significant costs, adversely affecting our results of operations.
For additional information
on these lawsuits and for information concerning additional litigation proceedings, please refer to Item 8.A – “Consolidated
financial Statements and other Financial Information” under the caption “Material Legal Proceedings” below.
We
have not applied nor obtained for several of the permits required for the operation of some of our base sites. To the extent enforcement
is sought, the breadth, quality and capacity of our network coverage could be materially affected.
The provision of our
SVR services depends upon adequate network coverage for accurate tracking information. In Israel, we have installed 98 base sites that
provide complete communications coverage in Israel. Similarly, we have communications coverage in Sao Paulo (121 sites), Rio (6 sites),
Brazil and Buenos Aires, Argentina (37 sites). The installation and operation of most of our base sites require building permits from
local or regional zoning authorities as well as a number of additional permits from governmental and regulatory authorities.
Currently most of our
base sites in Israel and Brazil and some of our base sites in Argentina operate without local building permits or the equivalent. Although
relevant authorities in Israel, Brazil and Argentina have not historically enforced penalties for non-compliance with certain permit regulations,
following ongoing press coverage and actions by various public interest groups, relevant Israeli authorities have begun seeking enforcement
of permit regulations, especially with respect to antennas constructed for cellular phone operators. Some possible enforcement measures
include the closure or demolition of existing base sites or the imposition of limitation on the building of new base stations. Should
these enforcement measures be imposed upon us in Israel, Brazil or Argentina, the extent, quality and capacity of our network coverage
and, as a result, our ability to provide SVR services, may be adversely affected. In Israel we are in process of achieving compliance
with the regulation of our base stations, such process can take several years.
Currency
fluctuations may result in valuation adjustments in our assets and liabilities and could cause our results of operations to decline.
The valuation of our
assets and liabilities, our revenues received, and the related expenses incurred are not always denominated in the same currency. This
lack of correlation between revenues and expenses exposes us to risks resulting from currency fluctuations. These currency fluctuations
could have an adverse effect on our results of operations, such currency fluctuations take place in several countries in which we operate
which affects our operation results in these countries. In addition, fluctuations in currencies may result in valuation adjustments in
our assets and liabilities which could cause our results of operations to decline.
RISKS
RELATED TO OUR OPERATIONS IN ISRAEL
We
are headquartered in Israel and therefore our results of operations may be adversely affected by political, economic and military instability
in Israel.
Our headquarters are
located in Israel and most our key employees, officers and directors are residents of Israel. Accordingly, security, political and economic
conditions in Israel directly affect our business. Over the past several decades, a number of armed conflicts have taken place between
Israel and its Arab neighbours. During the recent years Israel was engaged in an armed conflicts with a militant group and political party
who controls the Gaza Strip. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas
in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Continued or increased
hostilities, future armed conflicts, political developments in other states in the region or continued or increased terrorism could make
it more difficult for us to conduct our operations in Israel, which could increase our costs and adversely affect our financial results.
Furthermore, there are
number of countries, primarily in the Middle East, that still restrict business with Israel or Israeli companies and as a result our company
is precluded from marketing its products in these countries. Restrictive laws or policies directed toward Israel or Israeli businesses
could have an adverse effect on our ability to grow our business and our results of operations.
The Israeli government
is currently pursuing extensive changes to Israel’s judicial system. This has sparked extensive political debate. In response to
the foregoing developments, many individuals, organizations and institutions, both within and outside of Israel, have voiced concerns
that the proposed changes may negatively impact the business environment in Israel, due to potential reluctance of foreign investors to
invest or transact business in Israel, increased currency fluctuations, downgrades in credit rating, increased interest rates, increased
volatility in securities markets, and other changes in macroeconomic conditions. To the extent that any of these negative developments
occur, they may have an adverse effect on our business, our results of operations, or our ability to raise additional funds.
Under
Israeli law, we are considered a “monopoly” and therefore subject to certain restrictions that may negatively impact our ability
to grow our business in Israel.
We have been declared
a monopoly under the Israeli Economy competition Law (formerly known as Restrictive Trade Practices Law, 1988) (the “Israeli Antitrust
Law”), in the market for the provision of systems for the location of vehicles. Under Israeli law, a monopoly is prohibited from
taking certain actions, such as predatory pricing and the provision of loyalty discounts, which prohibitions do not apply to other companies.
The Israeli antitrust authority (under its new name - Competition Authority) may further declare that we have abused our position in the
market. Any such declaration in any suit in which it is claimed that we engage in anti-competitive conduct would serve as prima
facie evidence that we are a monopoly or that we have engaged in anti-competitive behaviour. Furthermore, we may be ordered
to take or refrain from taking certain actions, such as set maximum prices, in order to protect against unfair competition. If we breach
certain provisions of the Israeli Antitrust Law, including as a monopoly, the Israeli Competition authority may also impose on us in an
administrative procedure, financial sanctions in an amount of up to the lower of NIS 100 million (approximately US$28.4 million, according
to the USD-NIS exchange rate, as of December 31, 2022) or 8% of our annual revenues for the last financial year prior to such breach.
Restraints on our operations as a result of being considered a “monopoly” in Israel could adversely affect our ability to
grow our business in Israel.
It
may be difficult and costly to enforce a judgment issued in the United States against us, our executive officers and directors, or to
assert United States securities laws claims in Israel or serve process on our officers and directors.
We are incorporated and
headquartered in Israel. As a result, our executive officers and directors are non-residents of the United States and a substantial portion
of our assets and the assets of these persons are located outside of the United States. Therefore, service of process upon any of these
officers or directors may be difficult to effect in the United States. Furthermore, it may be difficult to enforce a judgment issued against
us in the United States or any of such persons in both United States courts and other courts abroad.
Additionally, there is
doubt as to the enforceability of civil liabilities under United States federal securities laws in actions originally instituted in Israel
or in actions for the enforcement of a judgment obtained in the United States on the basis of civil liabilities in Israel.
Provisions
of Israeli corporate and tax law may delay, prevent or otherwise encumber a merger with, or an acquisition of, our company, which could
prevent a change of control, even when the terms of such transaction are favourable to us and our shareholders.
We may be subject to
Israeli corporate law which regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires
special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant
to these types of transactions. In addition, our articles of association contain, among other things, provisions that may make it more
difficult to acquire our company, such as classified board provisions and certain restrictions on the members of our board pursuant to
regulatory requirements of the Israeli Ministry of Communication. Furthermore, Israeli tax considerations may make potential transaction
structures involving the acquisition of our company unappealing to us or to some of our shareholders. See Item 10.B. – “Memorandum
and Articles of Association” - “Our Corporate Practices under the Israeli Companies Law” under the caption “Approval
of Transactions under Israeli law” and Item 10.E. – “Taxation” under the caption “Israeli Tax Considerations”
for additional discussion of some anti-takeover effects of Israeli law. These provisions of Israeli law and our articles of association
may delay, prevent or otherwise encumber a merger with, or an acquisition of, our company or any of our assets, which could have the effect
of delaying or preventing a change in control of our company, even when the terms of such a transaction could be favourable to our shareholders.
The
rights and responsibilities of our shareholders will be governed by Israeli law and may differ in some respects from the rights and responsibilities
of shareholders under United States law.
We are incorporated under
Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our memorandum of association, articles
of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders
in typical US-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company
and other shareholders and to refrain from abusing his, her or its power in the company, including, among other things, in voting at the
general meeting of shareholders on certain matters. Israeli corporate law has undergone extensive revisions in recent years and, as a
result, there is little case law available to assist in understanding the implications of these provisions that govern shareholders’
actions, which may be interpreted to impose additional obligations on holders of our ordinary shares that are typically not imposed on
shareholders of US-based corporations.
GENERAL
RISKS RELATED TO OUR ORDINARY SHARES AND THE ECONOMY
Future
sales of our ordinary shares could reduce the market price of our ordinary shares.
If we or our shareholders
sell substantial amounts of our ordinary shares on the Nasdaq Global Select Market, the market price of our ordinary shares may decline.
The market price of our ordinary shares is subject
to fluctuation, which could result in substantial losses for our investors.
The stock market in general,
and the market price of our ordinary shares in particular, are subject to fluctuation, and changes in our share price may be unrelated
to our operating performance. The market price of our ordinary shares has fluctuated in the past, and we expect it will continue to do
so, as a result of a number of factors, including:
◾ |
the gain or loss of significant orders or customers; |
◾ |
recruitment or departure of key personnel; |
◾ |
the announcement of new products or service enhancements by us or our competitors; |
◾ |
quarterly variations in our or our competitors' results of operations; |
◾ |
announcements related to litigation; |
◾ |
changes in earnings estimates, investors' perceptions, recommendations by securities analysts or our
failure to achieve analysts' earnings estimates; |
◾ |
developments in our industry; and |
◾ |
general market conditions and other factors unrelated to our operating performance or the operating performance
of our competitors. |
These factors and price
fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses to our investors.
Somewhat
significant portion of our ordinary shares are held by a small number of existing shareholders and our articles of association provide
for a staggered board, which may hinder change of control.
Moked Ituran Ltd. currently
beneficially owns approximately 20.27% of our outstanding ordinary shares (not including treasury stock held by us). Other than applicable
regulatory requirements under applicable law, Moked Ituran Ltd., is not prohibited from selling an interest in our company to a third
party. In addition, our articles of association provide for a staggered board which may delay, prevent or deter a change in control. For
additional information concerning our staggered board, see Item 6.A – Directors and Senior Management.
U.S.
investors in our company could suffer adverse tax consequences if we are characterized as a passive foreign investment company.
If, for any taxable year,
our passive income or our assets that produce passive income exceed levels established by the Internal Revenue Code, we may be characterized
as a passive foreign investment company, which we refer to as PFIC, for US federal income tax purposes. This characterization could result
in adverse US tax consequences to our shareholders who are U.S. Holders. See Item 10.E. – “Taxation” under the caption
“United States Tax Considerations” below, for more information about which shareholders may qualify as U.S. Holders. If we
were classified as a PFIC, a U.S. Holder could be subject to increased tax liability upon the sale or other disposition of our ordinary
shares or upon the receipt of amounts treated as “excess distributions.” Under such rules, the excess distribution and any
gain would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares and the amount allocated to the current
taxable year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount
allocated to each of the other taxable years would be subject to tax at the highest marginal rate in effect for the applicable class of
taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such
other taxable years. In addition, U.S holders of shares in a PFIC may not receive a “step-up” in basis on shares acquired
from a decedent. U.S. Holders should consult with their own U.S. tax advisors with respect to the United States tax consequences of investing
in our ordinary shares as well as the specific application of the “excess distribution” and other rules discussed in this
paragraph. For a discussion of how we might be characterized as a PFIC and related tax consequences, please see Item 10.E. – “Taxation”
under the caption “United States Tax Considerations–Passive foreign investment company considerations”.
Securities
we issue to fund our operations or in connection with acquisitions could dilute our shareholders ownership or impact the value of our
ordinary shares.
We may decide to raise
additional funds through a public or private debt or equity financing to fund our operations or finance acquisitions. If we issue additional
equity securities, the percentage of ownership of our shareholders will be reduced and the new equity securities may have rights superior
to those of our ordinary shares, which may, in turn, adversely affect the value of our ordinary shares.
Global
and local economic downturns could reduce the level of consumer spending and available credit within the automobile industry, which could
adversely affect demand for our products and services and negatively impact our financial results.
Current and future economic
conditions could adversely affect consumer spending in the automobile industry, as such spending is often discretionary and may decline
during economic downturns when consumers have less disposable income. Consequently, changes in general economic conditions resulting in
a significant decrease in dealer automobile sales or in a tightening of credit in financial markets, such as the 2007 U.S. subprime mortgage
crisis and resulting credit crunch, could adversely impact our future revenue and earnings. Such decreases could also affect the financial
security of the automobile dealers and manufactures with whom we do business. The delayed payment from or closure of our larger dealer
groups could affect our ability to collect on our receivables. Similar effects could result from local economic downturns in either one
of our main markets of operations, i.e. Israel, Brazil, Mexico, Colombia, Ecuador and Argentina. Given the volatile nature of the current
market disruption, we may not timely anticipate or manage such existing or new risks. Our failure to do so could materially and adversely
affect our business, financial condition, results of operations and prospects.
ITEM 4. |
INFORMATION ON THE COMPANY |
|
A. |
HISTORY AND DEVELOPMENT OF THE COMPANY |
Our
History
Our legal name is Ituran
Location and Control Ltd. and we were incorporated under the laws of the State of Israel on February 1994 as a subsidiary of Tadiran Ltd.,
an Israeli-based designer and manufacturer of telecommunications equipment, software and defence electronic systems, whose original business
purpose was to adapt military-grade technologies for the civilian market.
We are mainly engaged
in the area of Telematics services, consisting of stolen vehicle recovery, fleet management services, connected cars, UBI, and other tracking
services. We also provide telematics products used in connection with our Telematics services and various other applications. We currently
primarily provide our services as well as sell and lease our products in Israel, Brazil, Argentina, Mexico, Ecuador, Colombia, Canada
and the United States .(and fleet management in other countries through distributors ).
In May 1998, we completed
the initial public offering of our ordinary shares in Israel and our ordinary shares began trading on the Tel-Aviv Stock Exchange. In
September 2005, we publicly offered our ordinary shares in the United States. On May 25, 2016 our shares were voluntarily delisted from
the Tel Aviv stock exchange, and our ordinary shares are currently quoted only on Nasdaq under the symbol “ITRN”.
During the period of
the years 2018-2021 we closed in two steps, the acquisition of whole of the shares of Road Track Holding S.L, (following transaction
name was changed to Ituran Spain Holdings S.L) a telematics company operating primarily in the Latin American region ("RTH Transaction").
The total cost of the RTH transaction was 103 Million USD – combination of shares and cash.
We are subject to
the provisions of the Israeli Companies Law, 5759-1999. Our principal executive offices are located at 3 Hashikma Street, Azour 58001,
Israel, and our telephone number is +972-3-557-1333. Our website address is www.ituran.com (the
information contained therein or linked thereto shall not be considered incorporated by reference in this annual report). Our agent for
service of process in the United States Ituran USA Inc.1700 NW 64th ST. SUITE 100 Fort Lauderdale, Florida 33309, and its telephone number
is +1 (866) 543-5433.
Principal Capital Expenditures
We had capital expenditures
of $26.5 million in 2022, $ 16.6 million in 2021 and $ 10.2 million in 2020. We have financed our capital expenditures with cash generated
from our operations.
Our capital expenditures
in ,2022, 2021, and 2020 consisted primarily of acquisition of operational equipment for $ 16.7 $ million, 7.0 million, and $3.9
million, respectively.
Overview
We believe we are a leading
provider of telematics services, consisting predominantly of stolen vehicle recovery, fleet management services and other tracking services
as well as connected car and UBI (usage base insurance). We also provide telematics products used in connection with our telematics services.
We currently primarily provide our services and sell and lease our products in Israel, Brazil, Argentina, Mexico, Ecuador, Colombia, United
States, Canada and other regions through our distributers. We utilize technologies that enable precise and secure high-speed data transmission
and analysis. Some of the technology underlying our products was originally developed for the Israeli Defence Forces in order to locate
downed pilots.
We generate our revenues
from subscription fees paid for our telematics services and from the sale and lease of our telematics products.
We describe below the
principal markets in which we compete. For a breakdown of total revenues by category of activity and geographic market for each of the
last three financial years, please see Item 5.A - Operating Results under the caption “Revenues”.
Telematics Services
In 2022,71.5% of our
revenues were attributable to our telematics services. As of December 31, 2022, we provided our services in Israel, Brazil, and other
countries to approximately, 738,000, 558,000, and 770,000 subscribers, respectively.
Following RTH Transaction
we have direct agreements with 2 major car manufacturers and our products developed by RTH subsidiary are embedded in the cars or otherwise
approved by the car manufacturer. This connection requires us to stand up for the highest car manufacturer automotive standards.
Stolen vehicle recovery
services
Our stolen vehicle recovery
and tracking services, which we refer to as SVR services, enable us to locate, track and recover stolen vehicles for our subscribers.
Our customers include individual vehicle owners who subscribe to our services directly, car manufacturers and insurance companies that
either require their customers to install a security system or offer their customers financial incentives to subscribe to SVR services
such as ours. In certain countries, insurance companies directly subscribe to our SVR services on behalf of their customers.
Fleet management services
Our
fleet management services enable corporate and individual customers to track and manage their vehicles in real time. Our services improve
appointment scheduling, route management and fleet usage tracking, thereby increasing efficiency and reducing operating costs for our
customers. We market and sell our services to a broad range of vehicle fleet operators and individual vehicle owners in different geographic
locations and industries. As of December 31, 2022, we provided our services to approximately504,000 end-users through corporate customers
in countries where we operate directly and through 24,000
distributers.
Value-added services
The locator services
that we offer allow customers to protect valuable merchandise and equipment. We currently provide locator services in Israel, Brazil,
Mexico, Colombia, Ecuador and Argentina. In addition, through a call center, we provide 24-hour on-demand navigation guidance, information
and assistance to our customers. Such services include the provision of traffic reports, help with directions and information on the location
gas stations, car repair shops, post offices, hospitals and other facilities. We offer our concierge services to our subscribers in Israel,
Argentina, Ecuador, Colombia and Brazil.
"Connected Car"- The
service platform includes a back office application, a telematics device installed in the vehicle, mobile apps for both IOS and Android
and an interface using the car infotainment screen. Such services include information on car service history, information on some car
systems, remote communication with the car in order to detect malfunctions, and to provide pre-emptive car maintenance alerts for both
mechanical failures and operational issues such as a low tire pressure alert. The system also enables booking service appointments, both
from the infotainment system interface in the system and from the user's mobile app and additional related operational, and marketing
services, as well as information analysis. "Connected Car" is operating in Israel, Brazil, Colombia, Mexico, Argentina and Ecuador.
“Usage Based Insurance”
(UBI) – we have developed a unique product (hardware and software) that measure and analyse the driving behaviour in a verity of
aspects by the driver, which enables insurance companies to offer a tailor -made and personalized insurance policy. The UBI has already
been implemented and marketed by the majority of the insurance companies in Israel.
“Auto Financing”
- A strong second-hand car market in many of our geographies in Latin America, and new fintech start-ups as well as the banks enter
this segment to provide the financing in this market. However, they need a provider of location-based and connected-car technology, such
as Ituran, to monitor the car location and driver’s behaviour and thereby to decrease the risk of the loan pledged against the car.
Telematics
Products
In 2022, 28.5% of our
revenues were attributable to the sale of our telematics products. Our telematics products employ short - and medium-range communication
between two-way wireless modems and are used for various applications, including automatic vehicle location, which we refer to as telematics
products.
Our telematics products
enable the location and tracking of vehicles, as well as assets, and are used by us primarily to provide SVR and fleet management services
to our customers. Each subscriber to our services has our telematics end-unit installed in his or her vehicle. Subscribers to services
for locating equipment and merchandise will use our SMART and GPS/GPRS products.
Our
Services and Products
Telematics
services
Stolen vehicle recovery
Our stolen vehicle recovery
system is based on three main components: a telematics end-unit that is installed in the vehicle, a network of base stations and a 24-hour
manned control center. Once the control center receives indication of an unauthorized entry into a vehicle equipped with our telematics
end-unit, our operators decide whether it is a false alarm or an actual unauthorized entry. If it is determined to be an unauthorized
entry, or if a notification of the vehicle’s theft is received directly from the vehicle operator, our operators transmit a signal
that activates the transmitter installed in the vehicle. We then pinpoint the location of the transmitter with terrestrial network triangulation
technology or GPRS technology and notify the relevant law enforcement agency. In Israel, Brazil, Mexico, Colombia, Ecuador and Argentina,
we also maintain private enforcement units, which work together with local police to recover the vehicle. In addition, we have the capability
to immobilize vehicles remotely from our control centers.
Fleet management
We offer our customers
the ability to use a comprehensive application for fleet management both by using an Internet site and workstations. Our system allows
our customers 24-hour access to information on their fleets through our active control center and we are able to tailor our system to
our customers’ specific needs.
Our solutions allow our
subscribers to effectively manage and control their fleet, and thereby to reduce their operating costs, optimize work hours and appointment
scheduling and improve their services and operations. Our system includes the following features:
|
• |
the ability to locate the fleet’s vehicles; |
|
• |
continuous data communication with the fleet’s vehicles; |
|
• |
real-time vehicle status indicators: speed, distance driven, direction of travel, driver name, motion
start/stop, engine start/stop, speeding, diagnostic alerts, driver behaviour and more; |
|
• |
recording of determined events and analysis of data over time to improve driving and vehicle use;
|
|
• |
remote monitoring and processing of data, such as temperature control in refrigerated or chilled compartments,
time stamp, tire pressure and heat and other complementary data; |
|
• |
connection to standard organization systems; |
|
• |
task management optimization. |
Value-added services
Locator
services. Our services allow consumers to protect valuable merchandise and
equipment. We provide our locator services in Israel, Brazil, Ecuador, Colombia, Mexico and Argentina.
Concierge
services. Through a call center, we provide 24-hour on-demand navigation
guidance, information and assistance to our customers. Such services include the provision of traffic reports, help with directions and
information on the location of gas stations, car repair shops, post offices, hospitals and other facilities. We provide our concierge
services to subscribers in Argentina, Ecuador, Colombia and Israel.
“UBI”
and "Connected Car". We provide UBI services in Israel through seven insurance
companies, and Connected Car services in Israel, Brazil, Colombia, Mexico, Argentina and Ecuador. For additional information on the service,
see Item 4.B. – “Information on the Company “ - “Business Overview” under the caption “Telematics
Services”
Telematics
products
Our telematics products
are used for various applications in the telematics markets and primarily in connection with our telematics services described above.
Our telematics products
enable the location and tracking of vehicles, as well as assets or persons, and are primarily used by us in providing our telematics services.
Each subscriber to our services has at least one of our end-units installed in his or her vehicle. Subscribers to services for locating
persons or valuables will use our SMART and GPS/GPRS products. Our key telematics products for telematics applications include:
■ |
Base
Site: a radio receiver, which includes a processor and a data computation
unit to collect and send data to and from transponders and send that data to control centers as part of the terrestrial infrastructure
of the location system; |
■ |
Control
Center: a center consisting of software used to collect data from various
base sites, conduct location calculations and transmit location data to various customers and law enforcement agencies; |
■ |
GPS/GPRS-based
products: navigation and tracking devices installed in vehicles; and
|
■ |
SMART:
a portable transmitter installed in vehicles (including motorcycles) that sends a signal to the base site, enabling the location
of vehicles, equipment or an individual; |
Geographical
Information
The following table lists the key services
and products that we currently sell or lease in different regions of the world:
Country |
|
Services offered |
|
Products sold |
Israel
|
|
SVR,
Fleet Management,
Value-added services, including:
Connected Car,
UBI |
|
Telematics Products |
|
|
|
|
|
Brazil
|
|
SVR,
Fleet Management,
Value-added services, including:
Connected Car, |
|
Telematics Products |
|
|
|
|
|
Mexico, Ecuador, Colombia |
|
SVR,
Fleet Management,
Value-added services, including:
|
|
Telematics Products |
|
|
|
|
|
United States |
|
SVR,
Fleet Management,
Value-added services, including:
Asset protection to Auto Lenders |
|
Telematics Products |
|
|
|
|
|
Argentina
|
|
SVR,
Fleet Management,
Value-added services, including:
Connected Car |
|
Telematics Products
|
In each of the above countries we maintain
a control center, which is operated 24 hours a day, 365 days a year. The following is a short description of key operating statistics
about our telematics services in the countries in which we operate (including through RTH subsidiaries):
■ |
Israel: We
commenced operations in Israel in 1995 and we had approximately 738,000 subscribers as of December 31, 2022. The operations in Israel
were expended through M& A transactions with local companies (following the RTH Transaction) as well as organic growth. We operate
throughout Israel in providing services through GPS/GPRS and RF based products and services. |
◾ |
Brazil: We
commenced operations in Brazil in 2000 and we had approximately 558,000 subscribers as of December 31, 2022. The operations were expended
through organic growth. We currently provide RF based products and services only in the metropolitan areas of Sao Paulo, Campinas, Americans
and Rio de Janeiro. However, we operate throughout Brazil in providing GPS/GPRS based products and services. |
■ |
Argentina: We
commenced operations in Argentina in 2002. We currently provide to our current
customers (not for new installations) RF based products
and services only in the metropolitan area of Buenos Aires. However, we also operate throughout Argentina in providing GPS/GPRS based
products and services. |
■ |
United
States: We commenced operations in the United States in 2000. We provide
GPS/GPRS products and services throughout the United States. |
■ |
Mexico: We
acquired the operations in Mexico in September 2018 as part of the RTH Transaction. We currently provide GPS/GPRS based products and services.
|
■ |
Ecuador: We
acquired the operations in Ecuador in September 2018 as part of the RTH Transaction. We currently provide GPS/GPRS based products and
services. |
■ |
Colombia: We
acquired the operations in Colombia in September 2018 as part of the RTH Transaction. We currently provide GPS/GPRS based products and
services. |
In all of the abovementioned countries (except
of Israel and Brazil), and others, we had approximately 770,000 subscribers as of December 31, 2022.
Customers,
Marketing and Sales
We market and sell our
products and services to a broad range of customers that vary in size, geographic location and industry. In 2020 ,2021 and 2022 no single
customer or group of related customers comprised more than 10% of our total annual revenues.
Our selling and marketing
objective is to achieve broad market penetration through targeted marketing and sales activities. As of December 31, 2022, our selling
and marketing team consisted of 92 employees.
(A) Telematics services
Stolen vehicle recovery
Our customers in the
SVR market include insurance companies, car manufactures and individual vehicle owners. As of December 31, 2022, majority of our subscribers
use SVR services.
Our marketing and sales
efforts are principally focused on five target groups: insurance companies and agents, car manufacturers, dealers and importers, cooperative
sales channels (mostly vehicle fleet operators and owners) and private subscribers.
We maintain marketing
and sales departments in each geographical market in which we operate. Each department is responsible for maintaining our relationships
with our principal target groups. These responsibilities also include advertising and branding, sales promotions and sweepstakes.
In Israel, we focus our
marketing efforts on insurance companies and agents, dealers and importers, cooperative sales channels (mostly vehicle fleet operators
and owners) and private subscribers.
In Brazil and Argentina
our marketing and sales efforts are principally focused in all five target groups, as described above. In the United States, we believe
that insurance companies do not constitute a material influence in the marketing of SVR services or telematics products.
Most of our sales in
the United States are made through car dealerships and dealers for new or used cars and cooperative sales channels. In Mexico, Colombia
and Ecuador we focus our marketing efforts on dealers and importers, cooperative sales channels (mostly vehicle fleet operators and owners),
private subscribers and car manufactures.
Fleet management
Vehicle fleet management
systems are primarily marketed through vehicle fleets’ departments, which form a part of our regional marketing departments. We
conduct in-depth research to identify companies that will gain efficiency and cost savings through the implementation of our products
and services and conduct targeted marketing campaigns to these companies. In addition, we participate in professional conventions and
advertise in professional publications and journals designed for our target customers. Our customers in the fleet management market include
small-, mid- and large-size enterprises and individuals. As of December 31, 2022, we provided our services to approximately end users
through504,000 corporate customers and individuals in Israel, Brazil, Argentina, United States, Mexico, Colombia, Ecuador and through
distributers in other regions.
Value-added services
“Concierge Services”
- Our concierge services are provided to existing SVR customers. A few thousands SMART devices were installed in valuable merchandise
and equipment.
"Connected Car"- The
service platform includes a back-office application, a telematics device installed in the vehicle, mobile apps for both IOS and Android
and an interface using the car infotainment screen. Such services include information on car service history, information on some car
systems, remote communication with the car in order to detect malfunctions, and to provide pre-emptive car maintenance alerts for both
mechanical failures and operational issues such as a low tire pressure alert. The system also enables booking service appointments, both
from the infotainment system interface in the system and from the user's mobile app, and additional related operational, and marketing
services, as well as information analysis.” Connected Car’ is operating in Israel, Brazil, Colombia, Mexico, Argentina and
Ecuador.
“Usage Based Insurance
(UBI)" – we have developed a unique product (hardware and software) that measure and analyze the driving behavior in a verity of
aspects by the driver, which enables insurance companies to offer a tailor -made and personalized insurance policy. The UBI has already
been implemented and marketed by the majority of the insurance companies in Israel, and we intend to accelerate its marketing and work
with additional insurance companies in year 2022.
(B) Telematics products
Our telematics end-units
are primarily used by us in providing our telematics services, including, SVR, fleet management, "Connected Car" and value-added services,
at the regions we operate.
Competition
We face strong competition
for our services and products in each market in which we operate. We compete primarily on technology edge, functionality, ease of use,
quality, price, service availability, geographic coverage, track record of recovery rates and response times and financial strength.
(A) Telematics services
We compete with a variety
of companies in each of our markets. The three major technologies utilized by our competitors are GPS/cellular, network-based cellular
and radio frequency-based homing systems. In addition, new competitors utilizing other technologies may continue to enter the market.
Stolen vehicle recovery
◾ |
Israel. Our
primary competitors in Israel are Pointer and Skylock Ltd. |
◾ |
Brazil. Brazil
is a highly fragmented market with many companies selling competing products and services (including immobilizers and other less-sophisticated
vehicle security systems). Our main competitors in Brazil are Sascar, Zatix, CEABS, Car Systems, Sat-Company, 3S.
|
◾ |
Argentina. Argentina
is a highly fragmented market with many companies selling competing products and services (including immobilizers and other less-sophisticated
vehicle security systems). Our main competitors in Argentina are LoJack Corporation, Pointer Argentina S.A., Prosegur S.A. and Megatrans
S.A. |
◾ |
United
States. In the United States, there are several major companies offering
various theft protection and recovery products that compete with our product and service offerings, including LoJack Corporation, OnStar
Corporation, Advantage GPS/Procon Analytics, Sarekon GPS, Calamp, Spireon (which also includes SysLocate and GoldStar), PassTime, Guide
Point, Icon and I-Metrik SVR. |
◾ |
Colombia. Colombia is
a highly fragmented market. Main companies operate under the satellite/cellular infrastructure. Our main competitors are LoJack Corporation
(under Detekor Brand), Prosegur, SATRACK (Local Company). |
◾ |
Mexico.
Mexico is a highly fragmented market in tracking and satellite location services, in which there are multiple companies dedicated to providing
comprehensive satellite tracking, fleet management and vehicle recovery solutions with GPS technology through the marketing of similar
devices and technologies to ours, highly specialized in fleet management. The direct competitors are LoJack Corporation, Encontrack S.A.
and Pointer Recuperación S.A. |
◾ |
Ecuador. Ecuador
is highly fragmented market. Main companies operate under the satellite/cellular infrastructure. Our
main competitors are Hunter (Lojack Corporation),Tracklink and Carsync.
|
We believe that we are a leading provider
of telematics services in Israel, as we are deemed a monopoly in this field; however, we are unable to provide specific market share information
in the markets of our operations for various reasons, including the broad range of services and products that compete in these markets,
the non-existence of trade publications with respect to the products and services we offer in such markets and the lack of meaningful
or accurate market research or data available to us.
Fleet Management
The vehicle fleet management
market is highly fragmented with many corporations offering location products and services. Our major competitors are:
|
• |
Israel:
Pointer
Telocation, ISR, Traffilog and Skylock; |
|
• |
United
States: GPS Insight, Trimble, Network Fleet, Street Eagle, FleetMatics,
Navtrack, Teletrac, Trim Track, FleetBoss, PassTime, Verizon, AT&T, Geotab, Fleet-Complete,Sprint, Zubie, and Spireon;
|
|
• |
Brazil:
Sascar, Zatix, CEABS, 3S and GolSat; |
|
• |
Argentina:
LoJack Corporation, Megatrans SA., Sitrac S.A., American Tracer, Ubicar S.A.,Sky Cop. and YPF S.A; |
|
• |
Mexico:
LoJack Corporation, Encotrack, Easytrack, Geotab and Tracker; |
|
• |
Ecuador:
Hunter (LoJack Corporation), Tracklink, Carsync and Sherlock; |
|
• |
Colombia: Satrack,
Detector and Prosegur. |
(B) Telematics products
Our telematics system
for automatic vehicle location is based on terrestrial network triangulation technology and GPS/GPRS and primarily competes with
companies that use one of three main technologies: GPS/GPRS (in combination with telematics), network-based cellular communication and
radio frequency-based homing.
Telematics products based
on GPS, network-based cellular and homing technologies do not require the construction of a separate infrastructure of base stations as
with terrestrial network triangulation systems.
GPS receivers require
line of sight to at least three satellites, which reduces their effectiveness in areas where the satellite signals are subject to interference
and “noise” (such as urban areas, buildings or parking garages, forests and other enclosed or underground spaces). GPS and
network-based cellular systems are also prone to jamming since the tracking signal receivers are located in the vehicle and can be easily
tampered with. In addition, the satellites utilized by GPS devices are managed by the United States Department of Defence and can be subject
to forced temporary outages. The main disadvantage of homing systems is that they provide only the general direction and not the precise
location of the end-unit. In addition, homing systems require that the vehicle be reported stolen before the tracking signal can be activated,
which may result in a delay between vehicle theft and recovery.
The GPS technology can
receive and transmit a massive capacity of data which enable us to provide a better data analysis and variety of additional services.
Terrestrial
network triangulation system does not require line of sight and the signals are not easily interrupted in densely populated or obstructed
areas. Also, the signals are transmitted from the end-unit in the vehicle to a network of base stations. Therefore, in order to jam the
system, receivers in each individual base station within range of the end-unit would have to be jammed, which is difficult to accomplish.
Additionally, since the primary application of terrestrial network triangulation systems in the telematics industry is vehicle location
and not continuous two-way communication, short bursts of data are sufficient for tracking purposes, which enable the network of
base stations to be deployed at a much lower density in the coverage area than traditional network-based cellular base stations. Terrestrial
network triangulation systems are capable of determining the precise location, and not just the general direction, of a vehicle at any
moment in time. Furthermore, when connected with the existing theft protection system in the vehicle, terrestrial network triangulation
systems automatically alert the control center when a vehicle is stolen and do not require that the vehicle be reported stolen, which
can potentially reduce stolen vehicle recovery times to a few minutes. The main disadvantage of terrestrial network triangulation systems
is the necessity to deploy a physical infrastructure, including the construction, development and deployment of a network of base stations
and a control center and the need to address the various financial, legal and practical issues associated with such deployment. Any such
deployment entails an investment of a sizable amount of money prior to the receipt of any revenues.
Since our telematics
end-units are primarily used by us in providing our telematics services, the information provided above concerning our competition in
this market is applicable to the competition in the telematics products’ market as well.
Manufacturing
Operations and Suppliers
Our telematics products
are manufactured and assembled by a limited number of manufacturers in Israel (including our subsidiary E.R.M) and in China. We engage
with our manufacturers on a full turn-key basis, where we supply detailed production files and materials list and receive a final product
that we sell directly to our clients. Other than our dependency on manufacturing suppliers, as described in Item 3D. -“Risk
Factors” above, we do not depend on a single manufacturer for the production of our products. Our quality assurance and testing
operations are performed by our manufacturers at their facilities, while using our quality assurance and testing equipment and in accordance
with the test procedures designated by us. We monitor quality with respect to key stages of the production process, including the selection
of components and subassembly suppliers, warehouse procedures, assembly of goods, final testing, packaging and shipping. We are ISO 9001
certified. Some of our products are within the highest car manufacture automotive standard. We believe that our quality assurance procedures
have been instrumental in achieving the high degree of reliability of our products. Due to the recent shortage of several components,
prices of several components accelerated.
Several components and
subassemblies included in our products are presently obtainable from a single source or a limited group of suppliers and subcontractors.
We maintain strong relationships with our manufacturers and suppliers to ensure that we receive an adequate supply of products, components
and raw materials at favorable prices and to access their latest technologies and product specifications.
Proprietary
Rights
We seek to protect our
intellectual property through patents, trademarks, contractual rights, trade secrets, know-how, technical measures and confidentiality,
non-disclosure and assignment of inventions agreements and other appropriate protective measures to protect our proprietary rights in
the primary markets in which we operate. The continued use of some licenses granted by third parties to use their intellectual property
is material to our business. Please refer to Item 3D. – Risk Factors, under the caption “We rely on some intellectual property
that we license from third parties, the loss of which could preclude us from providing our SVR services or market and sell some of our
telematics products, which would adversely affect our revenues” above.
We typically enter into
non-disclosure and confidentiality agreements with our employees and consultants. We also seek these protective agreements from some of
our suppliers and subcontractors who have access to sensitive information regarding our intellectual property. These agreements provide
that confidential information developed or made known during the course of a relationship with us is to be kept confidential and not disclosed
to third parties, except in specific circumstances.
Our stolen vehicle recovery
system is based on three main components: (i) a telematics end-unit that is installed in the vehicle, (ii) (for RF technology based telematics
units) a network of base stations that relay information between the vehicle location units and the control center, certain components
of which were developed by third parties and are currently licensed to us and (iii) a 24-hour manned control center consisting of software
used to manage communications and the exchange of information among the hardware components of the telematics system, certain components
of which were developed by third parties and licensed to us.
“Ituran”
and “Mr. Big” and the related logos are our trademarks, the former has been registered in Israel, Hong Kong and as a European
Union and the latter has been registered in Israel. “Mapa” trademark and its related logos where sold as part of the sale
of Mapa to an unrelated party to us.
Environmental, Social
and Governance (ESG) Practices
As a global brand with
material social and economic influence, we recognize that our success can only be built alongside the success of our stakeholders, including,
our users, partners, and employees. We aim to achieve high ESG standards while continuing to develop our business and executing on our
strategy.
We conduct our business
activities and develop policies based on a firm commitment to ethical practices and corporate governance best practices. This includes
the “code of business conduct and ethics” and anti-bribery/corruption area where we have a policy of zero tolerance for corruption.
This also includes a “Whistle Blower” procedure whose purpose is to dissuade and to prevent illegal activity and conduct of
business that may harm our good reputation. Our code of business conduct and ethics, and the Whistle Blower procedure are published in
our website.
We promote and support
fair social and economic opportunities in the professional services global market. We recognize that there are systemic and cultural biases,
caused by age, gender, race, ethnicity, sexual orientation, religion, or ability, and we know these biases can reduce the accessibility
to opportunities on a global scale. It is our mission to reduce these accessibility gaps worldwide through our services, the programs
we support, and the partners with whom we work. We invest resources into data privacy and how we can protect our users by, among other
things, building key infrastructures and policies to safeguard the data on our platform and the privacy of our users.
We advance fairness and
transparency in our workforce and we promote and implement fair labor practices and employees' human rights throughout our organization.
We respect data privacy relating to our employees. We act to prevent sexual harassment and workplace bullying. We also implement non-discriminatory
hiring and promotion practices and actively pursue gender diversity in our workforce.
We value and celebrate
diversity within our community. Our work environment seeks to foster an inclusive culture, where our employees feel challenged and in
possession of the tools to thrive at work. We are continuously learning and looking at ways to continue to create an environment that
is an inclusive place of work. Furthermore, we recognize the importance of environmental matters.
In
addition, we also have an “environmental policy”. This policy sets goals in terms of preserving the environment, raising employee's
awareness and developing and promotion products that will help our customers to save fuel and as a result to reduce waste, air pollution
and gas emissions greenhouse. We also adopted a “Code of conduct of Ituran's Suppliers and Agents” which sets high standards
in choosing our suppliers, In terms of business honestly, ethically and quality drive. Our environmental policy and the Code of conduct
of Ituran's Suppliers and Agents our both published in our website at https://www.ituran.com/
..
Regulatory
Environment
In order to provide our
SVR services in the locations where we currently operate, we need to obtain four primary types of licenses and permits: (i) for our products
utilizing the RF technology - a license that allows us to use designated frequencies for broadcasting, transmission or reception of signals
and information and to provide telecommunication services to our customers, (ii) for our products utilizing the RF technology - a building
permit, which permits us to erect our base sites and transmit therefrom, (iii) product specific licenses (commonly known as type approvals),
which enable us to use the equipment necessary for our services, and (iv) a general commerce license, which allows us to offer our services
to the public.
The telecommunication
services and frequency license and general commerce licenses we require are granted by the applicable national agency regulating communications
in the markets in which we operate, specifically, the Ministry of Communication, in Israel, Anatel. Agencia Nacional de Telecomunicatoes
in Brazil. Modernization Ministry in Argentina and the Federal Communications Commission in USA. The product specific licenses we
require are granted in Israel by the Ministry of Communication, in Brazil by IBRACE (the Instituto Brasileiro de Certificatao de Productos
para Telecominicatoes), in Argentina by the Autoridad Federal de Tecnologias de la Información y las Comunicaciones, in the United
States by the Federal Communications Commission, and Ministry of Information Technology and Communications and Regulatory Communications
Commission in Colombia. In Mexico, the regulatory authority is the Federal Telecommunications Commission, however, because of the type
of services we provide, we are not obligated entities; In Ecuador's case, the regulatory body is the Telecommunications Regulatory and
Control Agency, however, we are not subject to either.
In Brazil, the general
commerce licenses, such as the city permits, are granted by the local municipalities and other specific entities, depending on the licenses
required.
Our frequency licenses
in all of the locations where we operate are “secondary” or “joint”, which means that the government may grant
another person or persons, typically a cellular operator, a primary license to the same frequencies and, to the extent our operations
interfere with the operations of the other person, we would have to modify our operations to accommodate the joint use of the frequencies.
All of these licenses are also subject to revocation, alteration or limitation by the respective authority granting them. While any events
that would cause us to change frequencies or to modify our operations could have a material adverse effect on us, we do not believe that
this is a likely event in any of the locations where we provide our SVR services.
Our frequency license
in Israel was renewed for a term of five (5) years until January 31, 2023. Following new regulations since October 2022, there is no need
any more for the extension of our frequency license, and registration with a specific registrar is sufficient. Our frequency licenses
in Brazil will expire in 2034. Except in Brazil, we have options to extend all of our frequency licenses for periods ranging from three-
to ten-years. A renewal application in Brazil will be submitted 6 months before the frequency license expiration date, to provide us a
new license for a period of ten (10) years. In Argentina, on July 15, 1999, the SECOM (Secretary of Communication dependent of Economy
Ministry) granted us a license to provide services in a Secondary Band. On December 2015, SECOM was converted into the Modernization Ministry,
with ENACOM (National Communication Entity) which is a decentralized entity that works within the scope of the Modernization Ministry.
Nevertheless, our frequency
is still authorized, there is a new entrant with ENACOM Authorization to provide LTE service. If this entrant starts the activity, we
will face an incompatibility situation. We received the authorization from ENACOM to use a 12-month trial in Band 8 902-905/947-950 MHz bands
additionally to our current frequencies. During this period, we will perform a test to obtain a definitive authorization. Due to
the Covid-19 Pandemic we have not managed an extension to the trial period so as not to compromise future network development. We
have decided to wait for a formal request from ENACOM to start again with this trail.
On December 9, 2016,
we were informed that one of the cellular providers in Argentina, which shares some of our frequencies, intends to implement on them 4G
cellular service. Such service may cause Interference that may impede the provision of our SVR service in Argentina. We are negotiating
with ENACOM to define new frequency which we will migrate into. Subject to the applicable laws, and ENACOM decision, the migration process
may take few years, and will be determined by ENACOM.
In Israel and Brazil,
like our competitors and most cellular operators, we are not in compliance with all relevant laws and regulations in connection with the
erection of transmission antennas (our base sites). As of the date hereof, most of our base sites in Israel and Brazil are operating without
local building permits. Currently, there is heightened awareness of this issue in Israel, particularly in connection with base sites of
cellular providers, and possible sanctions could include fines and even the closure or demolition of these base sites. In Brazil, Brazilian
authorities enforce permit requirements and impose penalties for non-compliance with such requirements. However, we do not believe this
is likely. Obtaining such required permits may involve additional fees as well as payments to the Land Administration Authority.
In Israel the required
permits and approvals for the erection of the base sites include:
◾ |
erection and operating permits from the Israeli Ministry of the Environment; |
◾ |
permits from the Israeli Civil Aviation Authority, in certain cases; |
◾ |
permits from the Israeli Defense Forces; |
◾ |
approval from Israel’s Land Administration and/or from Civil Administration in the Territories,
which usually also involves payment for the land use rights; and |
◾ |
building permits from local or regional zoning authorities in Israel and Brazil. |
We are continuously in
the process of obtaining the relevant permits required for the construction of our base sites in Israel, however, to date, we have been
issued only 15 of these permits (13
of them have expired). With respect to the general permit from Israel’s Land Administration, in 2005 we entered into an agreement
with the Israel’s Land Administration, pursuant to which the general permit has been issued to us against an annual consideration
based on the date of approval of our base sites. The agreement had expired on December 31, 2010. In the event that the Israel Land
Administration claims consideration for the building of the base sites without a permit, we may be subject to penalties and payment of
annual consideration for the years of use of those base sites.
In Brazil, very few providers
of wireless telecommunications services obtain the required permits for the erection of transmission antennas due to the nature of the
approval process. Currently we do not have such permits (except Anatel permits). In Brazil, we try to minimize our risk by locating most
of our equipment in sub-leased sites which are already used by other telecommunication service providers, such as cellular operators.
In Brazil the required
permits for the building of our base sites include:
|
• |
a permit from Anatel (National Agency for Telecommunication) |
|
• |
a permit from IBAMA (Environment national agency) and/or state EPAs |
|
• |
a permit from the fire department; and a |
|
• |
permit from COMAR (Aviation authorities) |
ANATEL permits are required
only for sites where we have transmission equipment and we have obtained all the permits required with this agency. Special IBAMA permits
need to be obtained only for ground sites which are located in certain preservation areas. We have few sites of this kind, most of them
are collocated sites where we pay for the right of use and permits are undertaken by the landowner. Fire Department permits are required
only for equipment rooms and we have not applied for any as of this date. COMAR permits are needed only for a very few of our sites, most
of which are collocated.
In Argentina, the installation
of an antenna support structure requires the authorization of the owner of the building or the land in which it is intended to be install.
The Municipalities regulate through specific Municipal Ordinances are granting urban licenses for our base stations’ installation.
The regulation referred
to the civil work of the support structure of the antenna, (masts / towers / anchors / bracing, etc.) is not the competence of ENACOM
(National Communication Entity), so it cannot exercise jurisdiction over it. This situation is determined in articles 39, 40 and 41 of
the National Law 19798/72, and in Resolution No. 795 CNT / 92, ratified by Resolution 302 SC / 99. Therefore, the claims and queries related
to the installation, the deterioration or poor conditions or related to the support structures, should be addressed to the municipalities. It
should be noted that the owner of a station in operation assumes responsibility for the works and accessory facilities that must be executed
to install a radio station, attributing the technical responsibility of a civil work, to the designer and the director of the same, being
this situation framed in what is established in articles 1273 and following of the Civil and Commercial Code of the Nation.
We are not in compliance
with all relevant laws and regulations in connection with the erection of antennas; some of them in the past were demolished by Municipalities.
As of the date hereof, most of our base sites operating without local Municipality permits, possible sanctions could include fines and
even the closure of those sites. In Argentina authorities enforce permit requirements and impose penalties for non-compliance with such
requirements. Obtaining such required permits may involve additional fees as well as payments to Municipality Authority.
We have been declared
a monopoly under the Israeli Antitrust Law, 1988, in the provision of systems for the location of vehicles in Israel. This law prohibits
a monopoly from abusing its market position in a manner that might reduce competition in the market or negatively affect the public. For
instance, a monopoly is prohibited from engaging in predatory pricing and providing loyalty discounts, which prohibitions do not apply
to other companies. The law empowers the Commissioner of Competition to instruct a monopoly abusing its market power to perform certain
acts or to refrain from taking certain acts in order to prevent the abuse. Additionally, any declaration by the Israeli Competition authority
that a monopoly has abused its position in the market may serve in any suit in which it is claimed that such a monopoly engages in anti-competitive
conduct, as prima facie evidence that it has engaged in anti-competitive behavior. Our
declaration as a monopoly in the market of “provision of systems for the location of vehicles in Israel” was not accompanied
with any instructions or special restrictions beyond the provisions of The Economic Competition Law. Although we may be ordered to take
or refrain from taking certain actions, to date we have not been subject to such restrictions.
In Colombia we have to
pay 2.2% on the annual gross income generated by the provision of our services to the Ministry of Information Technologies and Communications
(MINTIC) for use of telecommunication spectrum (resolution 0290 MINTIC) and 0.1% to Commission Regulatory of Communications (CRC) in the
same terms (resolution 5807 CRC).
In Ecuador and Mexico
there are no levies imposed on our activities.
Other
Investments
As part of our ongoing
business we are engaged and encountered by many potential investments which may have correlation to our core business. The following are
the main investments we have consummated during last seven years.
Bringg
- On December 2013 the Company invested $1.4 million in Bringg delivery technologies Ltd. (formerly Overvyoo Ltd.), an Israeli start-up
company developing solutions for the management of mobile/field workforce. On January and July, 2015, we invested additional amounts of
$1.1 million and US$ 2 million, respectively. During the years 2015 - 2020, additional investors, which are not related to us, invested
in Bringg a total amount of approximately $80 million, which reduced our capital share in Bringg. During 2021, Bringg, raised an
additional $100 million, which sets Bringg’s valuation at $1 billion. Following such investment, we now hold 16.9% of Bringg’s
share capital.
SaverOne Ltd - On March
2017, we invested an amount of $0.9 million in SaverOne 2014 Ltd., an Israeli start-up company developing a system that
aims to reduce the occurrence of road accidents by preventing the use of distracting mobile apps while driving (The system prevents the
driver from using texting applications while the vehicle is in motion, leaving other passengers unaffected).
During the years 2017
– 2021 we invested additional amount of approximately $0.8 million.
On
June 2020 SaverOne have consummated public registration on the Israeli Stock Market (“TASE”)
and thus its shares became equity investment with readily determinable fair value. We now hold approximately 3.2% of SaverOne’s
share capital.
As of December 31, 2022,
the fair value of our investment in SaverOne is approximately US$0.2 million.
in June 2022, SaverOne
filed with the SEC for an IPO, and as of today, shares are also traded on Nasdaq Capital Market (Symbol: SVRE).
C. ORGANIZATIONAL
STRUCTURE
In July 1995, Moked Ituran
Ltd. purchased our company and the assets used in connection with its operations from Tadiran and Tadiran Public Offerings Ltd. In September
2018, we acquired a majority of the shares of Road Track, a telematics company operating primarily in the Latin American region.
List of Significant Subsidiaries
Name of Subsidiary |
|
Country of Incorporation |
|
Proportion of Ownership Interest |
|
|
|
|
|
Ituran USA Holdings Inc
|
|
USA |
|
100% |
Ituran USA Inc
|
|
USA |
|
85.80% |
Ituran de Argentina S.A
|
|
Argentina |
|
100% |
Ituran Sistemas de Monitoramento Ltda
|
|
Brazil |
|
98.75% |
Ituran Instalacoes Ltda
|
|
Brazil |
|
98.75% |
Teleran Holding Ltda
|
|
Brazil |
|
99.99% |
Ituran servicos Ltda
|
|
Brazil |
|
98.75% |
E.R.M. Electronic Systems Limited
|
|
Israel |
|
49.5%1
|
Mapa Mapping & Publishing Ltd
|
|
Israel |
|
100% |
Ituran Spain Holding S.L
|
|
Spain |
|
100% |
Ituran Road Track Monitaramento de Veiculos LTDA
|
|
Brazil |
|
100% |
Ituran Road Track Argentina, S.A
|
|
Argentina |
|
100% |
Global Telematics Solutions HK, Limited
|
|
Hong Kong |
|
100% |
Road Track De Colombia S.A.S
|
|
Colombia |
|
100% |
Road Track Ecuador, S.A.
|
|
Ecuador |
|
100% |
Road Track Mexico S.A. De C.V
|
|
Mexico |
|
100% |
Road Track HK Telematics Limited
|
|
Hong Kong |
|
100% |
E.D.T.E – Drive Technology Ltd
|
|
Israel |
|
100% |
Ituran Tech Ltd
|
|
Israel |
|
100% |
D. PROPERTY, PLANTS AND EQUIPMENT
As of the date of this
report, we don’t own any real estate other than the following properties: An office building of 8 floors in the area of approximately
5,356 sqm (57,651 square feet), which was purchased by our subsidiary Ituran Sistemas de Monitoramento Ltda (Ituran Brazil) in Sao Paulo,
Brazil, and was later, on December 3, 2014 sold to Ituran Location and Control Ltd, A building located in Rua Joao pessoa 450, Sao Caetano
do Sul, Estado de Sao Paulo in Sao Paulo, Brazil in the area of approximately 36,936 square feet which was purchased by our subsidiary
Ituran Road Track Monitoramento de Veiculos, Ltda which serve as an Operating center, A building located in Avenida del Taller No.36 Col.
Transito in Mexico in the area of approximately 21,132 square feet which was purchased by our subsidiary Road Track Mexico, S.A de C.V
which serve as an Operating center, a building located in Manuel Najas Oel 81 and Juan de Selis in Quito, Ecuador in the area of approximately
24,176 square feet which was purchased by our subsidiary Road Track Ecuador, S.A which serve as an Operating center, and a building located
in Keren Ha' Yesod 15, Tirat Ha'Carmel, Israel at the area of approximately 5,025 square feet which was purchased by our subsidiary E.D.T.E
– Drive Technology Ltd which serve as an office space and a warehouse.
1 The
proportion of voting power is 51%
Other than the property
in Brazil, Ecuador and Mexico and Israel, all of our offices, headquarters, control centers and facilities are leased in accordance with
our specific needs in the areas in which we operate. Additionally, we lease space for our base sites, in order to operate the reception
and transmission stations of the system, in each area in which we provide our SVR services.
In 2022 we leased an
aggregate of approximately 64,750 square feet of office space in Azour and Holon, Israel. In 2022, the annual lease payments for these
facilities were approximately 1,323,000. The lease ends by April 2029. These premises include our executive offices and the administrative
and operational centers for our operations as well as our customer service, value-added services and technical support centers and warehouse
for the Israeli market. We also lease 3,000 square feet for a warehouse and offices in Tirat Ha’Carmel for $ 62,000 annually.
In
Buenos Aires, Argentina, we lease approximately 8,611 square feet for office space for the total amount of AR$12.772.992 ($ 98.253) annually,
approximately 1,238 square feet for our control center (C3) and Data Center
for AR$ 3.258.000 ($ 25.061) annually and approximately 2,121 square feet for our warehouse for AR$ 2.040.000 ($ 15,692) annually.
In Bogota, Colombia,
we lease approximately 9,035 square feet for office space and Operating center for the amount of $60,797 annually.
In Mexico City, Mexico,
we lease approximately 3,875 square feet for Corporate Office for the amount of $ 35,000 annually. This was terminated in November 2020.
Additionally, we lease a warehouse for the amount of $3,000 annually.
We leased approximately
12,916 square feet of office space, stores and warehouse in Brazil for approximately 264,000 ($51,000) Brazilian Real annually. The lease
agreements will expire and will have to be renewed on August 21, 2026 and December 2024, as applicable to each engagement.
In
Guayaquil, Ecuador, we lease approximately 7,828 square feet for Warehouse for the amount of $ 30,000 annually. In Quito, Ecuador, we
lease approximately 3,229 square feet for Warehouse for the amount of $ 11,700 annually. In Cuenca, Ecuador, we lease approximately 538
square feet for Warehouse for the amount of $ 3,521 annually. In Ibarra, Ecuador, we lease approximately 1,108 square feet for Corporate
Office for the amount of $ 2,600 annually.
We leased approximately
9,260 square feet for our offices and control center in Florida for an amount of $ 166,500 annually for period of 60 months commencing
March 24, 2016 and ended March 23, 2021, and a 12 months extension starting March 24, 2021 at a reduced annual rate of $145,000 annually.
This lease was extended until March 2023, for $156,000 annually.
We believe that our facilities
are suitable and adequate for our operations as currently conducted. In the event that additional facilities will be required, we believe
that we could obtain such facilities at commercially reasonable rates.
The size of our base
station sites varies from approximately 11 to 44 square feet. In Israel, we have 98base stations and we rent most base station sites independently
for a monthly rate ranging from $200 to $2,200 per site depending on the location, size and other factors; for certain sites we do not
pay any rent. The typical duration of a lease agreement for our base stations in Israel is five years and we generally have a right to
renew the term of the lease agreements for a period ranging between two and five years. In Brazil, we have 147 base station sites, of
which 23 sites are leased from the same entity under a 15 years-contract, (commencing from 2012) for a monthly rate ranging from $500
to $1,750 per site. The remaining 124 sites are leased independently for an annual rate ranging from $200 to $550 depending on the location,
size and other factors, and the typical duration for these leases is five years. In Argentina, we have 37 base station sites, all of which
are leased from six entities for a monthly rate ranging from $215 to $930 per site. The duration of the lease ranges from one to two years.
We do not believe that
we have a legal retirement obligation associated with the operating leases for our base sites pursuant to the relevant accounting standards,
since we do not own any real property. However, we are obligated pursuant to certain of the operating leases for our base sites, mainly
for base sites in Israel, Brazil and Argentina, to restore facilities or remove equipment at the end of the lease term. Since the restoration
is limited to any construction or property installed on the property, which in our case is only the installed antennas, we do not believe
that these obligations, individually or in the aggregate, will result in us incurring a material expense.
ITEM 4.A. |
UNRESOLVED STAFF COMMENTS |
Not applicable
ITEM 5: |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The
following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included
elsewhere in this report.
Introduction
We believe we are a leading
provider of telematics services, consisting predominantly of stolen vehicle recovery, which we refer to as SVR, and tracking services.
We also provide telematics products used in connection with our SVR services and for various other applications. We currently provide
our services and sell and lease our products mainly in Israel, Brazil, Argentina and the United States and since September 2018 also in
Colombia, Mexico and Ecuador.
Our operations consist
of two segments: Telematics services and telematics products.
Our telematics services
segment consists of our SVR, "Connected Car" fleet management, UBI, and other value-added services. We currently operate our telematics
services throughout the regions we operate.
Our telematics products
segment consists of our short - and medium-range two-way telematics products. We sell our telematics end-units to customers that
subscribe to our telematics services.
Outlook
We have historically
experienced growth in most of the markets in which we provide our telematics services. These markets, which are the main markets that
we operate in, are generally characterized by high car theft rates, insurance companies and car manufactures that are seeking solutions
to limit their actual losses resulting from car theft and increase their sales by adding additional value to the customer, and hence the
Brazilian market continues to represent growth potential for our telematics services. The growth in subscribers within our telematics
services segment also has a direct impact on the sale or lease of our telematics products, as they are an integral component of our telematics
services and are installed in each subscriber’s vehicle. In Israel, in recent years the market experienced an increased car sales
which positively affect our sales as compared with previous years.
Please refer to Item
3D. – Risk Factors above in respect of factors that could negatively impact our business.
Geographical breakdown
Telematics services’
subscriber base
The following table sets
forth the geographic breakdown of subscribers to our telematics services as of the dates indicated:
|
|
As of December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
Israel |
|
|
738,000 |
|
|
|
653,000 |
|
|
|
643,000 |
|
Brazil |
|
|
558,000 |
|
|
|
453,000 |
|
|
|
452,000 |
|
Others |
|
|
770,000 |
|
|
|
775,000 |
|
|
|
673,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
|
2,066,000 |
|
|
|
1,881,000 |
|
|
|
1,768,000 |
|
(1) All numbers provided
are rounded, and therefore totals may be slightly different than the results obtained by adding the numbers provided.
Revenues
The following table sets
forth the geographic breakdown of our revenues for each of our business segments for the relevant periods indicated.
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
Telematics
services |
|
|
Telematics
products |
|
|
Telematics
services |
|
|
Telematics products |
|
|
Telematics
services |
|
|
Telematics
products |
|
Israel |
|
|
103.3 |
|
|
|
48.0 |
|
|
|
96.5 |
|
|
|
44.1 |
|
|
|
85.1 |
|
|
|
35.4 |
|
Brazil |
|
|
66.7 |
|
|
|
2.4 |
|
|
|
55.2 |
|
|
|
2.6 |
|
|
|
60.0 |
|
|
|
1.5 |
|
Others |
|
|
39.6 |
|
|
|
33.1 |
|
|
|
37.9 |
|
|
|
34.6 |
|
|
|
37.8 |
|
|
|
25.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
|
209.6 |
|
|
|
83.5 |
|
|
|
189.6 |
|
|
|
81.3 |
|
|
|
182.9 |
|
|
|
62.7 |
|
(1)
We attribute revenues to countries based on the location of the customer.
Telematics services
segment
We generate revenues
from rendering our SVR, fleet management connected car,UBI and other value-added services. A majority of our revenues represent subscription
fees paid to us by our customers. We recognize revenues from subscription fees on a monthly basis. Most of our customers are free to terminate
their subscription at any time. In the absence of such termination, the subscription term continues automatically. We also generate subscription
fees from our fleet management services. Assuming no additional growth in our subscriber base and based on our historical average churn
rates of 3% per month in this segment, we can anticipate that at least 90% of our subscription fees generated in a prior quarter will
recur in the following quarter.
Telematics products
segment
We generate revenues
from sale of our telematics products to customers in Israel, Brazil, Argentina, Mexico, Colombia, Ecuador and the United States. We currently
sell or lease our telematics end-units in each of the above regions. Growth in our subscriber base is the principal driver for the sale
of our telematics products. We recognize revenues from sales of our telematics products upon transfer of control to the customer (usually
upon delivery).
Cost of revenues
Telematics services
segment
The cost of revenues
in our telematics services segment consists primarily of staffing, maintenance and operation of our control centers and base stations,
costs associated with our staff and costs incurred for private enforcement, licenses, permits and royalties, as well as communication
costs and costs due to depreciation of leased products and installation fees. Cost of revenues for sales of our fleet management services
also includes payments to a third party who markets our services.
Telematics products
segment
The cost of revenues
in our telematics products segment consists primarily of production costs of our third-party manufacturers and costs associated with installation
fees.
Operating expenses
Research and development
Our research and development
expenses consist primarily of salaries, costs of materials and other overhead expenses, primarily in connection with the design and development
of our telematics products. We expense some of our research and development costs as incurred. Subject to certain criteria we capitalize
software development costs. For further information see Note 1S to our consolidated financial statements.
Selling and marketing
Our selling and marketing
expenses consist primarily of advertising, salaries, commissions and other employee expenses related to our selling and marketing team
and promotional and public relations expenses.
General and administrative
Our general and administrative
expenses consist primarily of salaries, bonuses, accounting and other general corporate expenses.
Operating Income
Telematics services
segment
Operating income in our
telematics services segment is primarily affected by increases in our subscriber base and our ability to increase the resulting revenues
without a commensurate increase in our corresponding costs.
Telematics products
segment
Operating income in our
telematics products segment is primarily affected by our ability to increase sales of our telematics products.
Financing expenses (income),
net
Financing income (expenses),
net ,include, inter alia ,short-term and long-term interest expenses, financial commissions, income (expenses) in respect of changes in
obligation to purchase non-controlling interests ,and gains (losses) from currency fluctuations from the translation of monetary balance
sheet items denominated in currencies other than the functional currency of each entity in the group, gains (losses) in respect of marketable
securities and other investments, and expenses related to tax positions.
Taxes on income
Income earned from our
services and product sales is subject to tax in the country in which we provide our services or from which we sell our products.
Critical Accounting Policies
and Estimates
Our critical accounting
policies are more fully described in Note 1 to our consolidated financial statements appearing elsewhere in this report. However, certain
of our accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on a periodic basis. We base our estimates
on historical experience, industry trends, authoritative pronouncements and various other assumptions that we believe to be reasonable
under the circumstances. Such assumptions and estimates are subject to an inherent degree of uncertainty.
The following are our
critical accounting policies and the significant judgments and estimates affecting the application of those policies in our consolidated
financial statements. See Note 1 to our consolidated financial statements included elsewhere in this report.
Revenue recognition
We and our subsidiaries
generate revenue from subscriber fees for the provision of services and sales of systems and products, mainly in respect of fleet management
services, stolen vehicle recovery services and other value-added services. To a lesser extent, revenues are also derived from technical
support services. We and our subsidiaries sell the systems primarily through their direct sales force and indirectly through resellers.
Revenue recognition accounting
policy applied from January 1, 2018 (following the adoption of ASC Topic 606);
We
apply ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) ”) to all contracts, using the modified retrospective
method.
In accordance with ASC 606, we determine
revenue recognition through the following five steps:
|
• |
Identification of the contract, or contracts, with a customer; |
|
• |
Identification of the performance obligations in the contract; |
|
• |
Determination of the transaction price; |
|
• |
Allocation of the transaction price to the performance obligations in the contract; and |
|
• |
Recognition of revenue when, or as, we satisfy a performance obligation. |
A contract with a customer
exists when all of the following criteria are met: the parties to the contract have approved it (in writing, orally, or in accordance
with other customary business practices) and are committed to perform their respective obligations, we can identify each party’s
rights regarding the distinct goods or services to be transferred (“performance obligations”), we can determine the transaction
price for the goods or services to be transferred, the contract has commercial substance and it is probable that we will collect substantially
all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
For each type of contract,
at inception, we assess the goods or service promised in a contract with a customer and identifies the performance obligations. With respect
to contracts that are determined to have multiple performance obligations, such as contracts that combine product with services (mostly
SVR services) and/or rights to use assets, we allocate the contract’s transaction price to each performance obligation using either
its best estimate of the relative standalone selling price of each distinct good or service in the contract. The primary method used to
estimate the relative standalone selling price is expected costs of satisfying a performance obligation and an appropriate margin for
that distinct good or service. or when applicable we use the residual approach (an entity under certain conditions may estimate the standalone
selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services
promised in the contract). However, when applicable (see below), we estimate the selling prices of certain services using the residual
approach.Revenues are recognized when, or as, control of services or products is transferred to the customers at a point in time or over
time, as applicable to each performance obligation.
Revenues are recorded
in the amount of consideration to which we expect to be entitled in exchange for performance obligations upon transfer of control to the
customer, excluding amounts collected on behalf of other third parties and sales taxes.
We do not adjust the
amount of consideration for the effects of a significant financing component since we expect, at most contracts' inception, that the period
between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services
to be generally one year or less, based on the practical expedient. Our credit terms to customers are, on average, between thirty and
ninety days.
Contingencies
We and our subsidiaries
are involved in certain legal proceedings that arise from time to time in the ordinary course of their business and in connection with
certain agreements with third parties. Except for income tax contingencies, we records accruals for contingencies to the extent that the
management concludes that the occurrence is probable and that the related liabilities are estimable. Legal expenses associated with contingencies
are expensed as incurred.
Goodwill
and intangible assets
Goodwill represents the
excess of the purchase price over the fair value of the identifiable net assets acquired in business combinations accounted for in accordance
with the "purchase method" and is allocated to reporting units at acquisition. Goodwill is not amortized but rather tested
for impairment at least annually in accordance with the provisions of ASC Topic 350, "Intangibles - Goodwill and Other".
We elected to perform the goodwill annual
impairment test for its operating units as follows: the entire balance of goodwill (an amount of approximately $39.5 million (as of December 31,
2022) relates to four different reporting units . is tested for impairments on December 31,each year or more often.
As required by ASC Topic
350, we choose either to perform a qualitative assessment whether the quantitative goodwill impairment test is necessary or proceeds directly
to the quantitative goodwill impairment test. Such determination is made for each reporting unit on a stand-alone basis. The qualitative
assessment includes various factors such as macroeconomic conditions, industry and market considerations, cost factors, overall financial
performance, earnings multiples, gross margin and cash flows from operating activities and other relevant factors. When we choose to perform
a qualitative assessment and determines that it is more likely than not (more than 50 percent likelihood) that the fair value of the reporting
unit is less than its carrying value, then we proceed to the quantitative goodwill impairment test. If we determine otherwise, no further
evaluation is necessary.
With
respect to goodwill impairment tests performed before the adoption of ASU 2017-04 (which became effective for annual or any interim goodwill
impairment tests in fiscal years beginning after December 15,2019), when we decided or were required to perform the quantitative goodwill
impairment test, we firstly were required to compare the fair value of the reporting unit to its carrying value ("step 1"). If the fair
value of the reporting unit exceeded the carrying value of the reporting unit net assets (including the goodwill allocated to such reporting
unit), goodwill was considered not to be impaired, and no further testing was required. If the carrying value was determined to exceed
the fair value of the reporting unit, then the implied fair value of goodwill was determined by subtracting the fair value of all the
identifiable net assets from the fair value of the reporting unit. An impairment loss was recorded for the excess, if any, of the carrying
value of the goodwill allocated to the reporting unit over its implied fair value ("step 2").
Commencing fiscal 2022,upon
the adoption of ASU 2017-04 (which eliminated Step 2 from the goodwill impairment, when we decide or are required to perform the quantitative
goodwill impairment test, we compare the fair value of the reporting unit to its carrying value and an impairment charge is recognized
for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. In the performance of the quantitative
analysis we apply assumptions that market participants would consider in determining the fair value of each reporting unit.
As of December 31, 2022,
2021 and 2020, we had four reporting units which include goodwill.
Telematics
services:
Under the telematics
services segment there are two reporting units with goodwill. For one of which (resulted from past acquisitions) with an allocated amount
of approximately US$1.7 millions of goodwill, we performed a qualitative assessment as of December 31, 2022 and 2021, and concluded that
the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing
was required, with respect to such units.
For the second reporting
unit (resulted from RT acquisition) with an allocated amount of approximately US$ 32.2 million of goodwill (as of December 31, 2022),
we performed the annual impairment test, as of December 31, 2022and reached to a conclusion that no impairment should be recorded at that
point.
We have
historically performed an annual goodwill assessment for such reporting unit as of June 30 of each year or more often if indicators of
impairment are presented. following the second closing of the RT acquisition, we decided to change the date of its annual impairment assessment
from June 30 to December 31.
We
performed a qualitative assessment as of December 31, 2022 and concluded that the qualitative assessment did not result in a more likely
than not indication of impairment, and therefore no further impairment testing was required, with respect to such units.
Telematics
products:
Under the telematics
products segment there are two reporting units with goodwill, for one of which (resulted from past acquisitions) with an allocated amount
of approximately US$_2million of goodwill, we performed a qualitative assessment as of December 31, 2022 and 2021, and concluded
that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment
testing was required, with respect to such units.
For
the second reporting unit (resulted from RT acquisition) with an allocated amount of approximately US$ 3.6 million of goodwill (as of
December 31, 2022), we performed the annual impairment test, as of December 31, 2022 and reached to a conclusion that no impairment should
be recorded at that point. We have historically performed an annual goodwill assessment as of June 30 of each year or more often if indicators
of impairment are presented. following the second closing of the RT acquisition, we decided to change the date of its annual impairment
assessment from June 30 to December 31. We performed a qualitative assessment as of December 31, 2022 and concluded that the qualitative
assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required,
with respect to such unit.
Results of Operations
The following table sets
forth for the periods indicated selected items from our consolidated statements of income as a percentage of our total revenues.
|
|
Year Ended December 31, |
|
|
|
% |
|
Consolidated statements of operations data: |
|
2022 |
|
|
2021 |
|
|
2020 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
Telematics services
|
|
|
71.5 |
|
|
|
70.0 |
|
|
|
74.5 |
|
Telematics product
|
|
|
28.5 |
|
|
|
30.0 |
|
|
|
25.5 |
|
Total Revenues |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Cost of Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Telematics services
|
|
|
30.8 |
|
|
|
30.8 |
|
|
|
32.7 |
|
Telematics products
|
|
|
22.3 |
|
|
|
22.0 |
|
|
|
19.8 |
|
Total cost of revenues
|
|
|
53.1 |
|
|
|
52.8 |
|
|
|
52.5 |
|
Gross profit |
|
|
46.9 |
|
|
|
47.2 |
|
|
|
47.5 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
5.7 |
|
|
|
5.2 |
|
|
|
5.2 |
|
Selling and marketing Expenses
|
|
|
4.5 |
|
|
|
4.9 |
|
|
|
5.0 |
|
General and administrative expenses, net
|
|
|
16.6 |
|
|
|
17.0 |
|
|
|
20.2 |
|
Impairment of goodwill
|
|
|
- |
|
|
|
- |
|
|
|
4.3 |
|
Impairment of intangible assets and other expenses (income), net |
|
|
- |
|
|
|
(0.1 |
) |
|
|
1.5 |
|
Total operating expenses
|
|
|
26.8 |
|
|
|
27.0 |
|
|
|
36.2 |
|
Operating Income
|
|
|
20.1 |
|
|
|
20.2 |
|
|
|
11.3 |
|
Other income expenses, net
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Financing income, net
|
|
|
(2.0 |
) |
|
|
(2.0 |
) |
|
|
0.6 |
|
Income before income tax
|
|
|
18.1 |
|
|
|
18.1 |
|
|
|
11.8 |
|
Income tax |
|
|
(4.4 |
) |
|
|
(4.4 |
) |
|
|
(4.4 |
|
Share in gains (losses) of affiliated companies, net
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
Net income for the year
|
|
|
13.5 |
|
|
|
13.6 |
|
|
|
7.1 |
|
Less: net income attributable to non-controlling interests |
|
|
(0.8 |
) |
|
|
(1.0 |
) |
|
|
(0.5 |
) |
Net income attributable to company stockholders
|
|
|
12.7 |
|
|
|
12.6 |
|
|
|
6.6 |
|
Analysis
of our Operation Results for the Year ended December 31, 2022 as compared to the Year ended December 31, 2021
Revenues
Total revenues increased
from $270.9 million in 2021 to $293.1 million in 2022 or 8.2 %. This decrease consisted an increase of $ 19.9 million from subscription
fees from our telematics services and an increase of $2.3 million from sales of our telematics products.
Telematics services
segment
Revenues
in our telematics services segment increased by $19.9 million from $ 189.6 million in 2021 to $ 209.6 million in 2022, or 10.5 %. Mainly
due to an increase in our average annual number of subscribers from 1,830,000 in 2021 to 1,996,000 in 2022.
Telematics products
segment
Revenues in our telematics
products segment increased from $ 81.2million in 2021, to $83.5 million in 2022 or 2.8 %. This increase of $2.3 million is primarily due
to an increase in sales, mainly in Israel.
Cost of revenues
Total cost of revenues
increased from $143.0million in 2021, to $155.5 million in 2022 or 8.7 %. This increase consisted of an increase of $6.7 million in the
Telematics services segment and an increase of $5.8 million in the telematics product segment. As a percentage of total revenues, cost
of revenues increased slightly from52.8 % in 2021to 53.0 % in 2022.
Telematics services
segment
Cost of revenues for
our Telematics services segment increased from $ 83.4 million in 2021, to $ 90.1 million in 2022 or 8.0 %. This increase was primarily
due to an increase in salary expenses of approximately $ 1.7million, an increase in depreciation and amortization expenses of approximately
$ 2.2 million and increase in installation and communication costs expenses of approximately $2 million, As a percentage of total revenues
for this segment, cost of revenues decreased from 44% in 2021 to 43 % in 2022.
Telematics products
segment
Cost of revenues for
our telematics products segment increased from $59.6 million in 2021, to $65.4 million in 2022 or 9.7 %. This increase was mainly due
to the increase in our products’ sales and the change in the mixture of products sales as well as increase in our cost due to the
electronic component shortage. As a percentage of total revenues for this segment, cost of revenues increased from 73.4% in 2021, to 78.3
% in 2022.
Operating expenses
Research and development
Our research and development
expenses increased from $ 14.1 million in 2021 to $ 16.8 million in 2022. As a percentage of total revenues, research and development
expenses increased from 5.2 % in 2021 to 5.7 % in 2022.
Selling and marketing
Our selling and marketing
expenses remain in the same level of $13.3 million. As a percentage of total revenues, selling and marketing expenses decreased from 4.9
% in 2021 to 4.5 % in 2022.
General and administrative
General and administrative
expenses increased from $ 46.1 million in 2021, to $ 48.7 million in 2022 or 5.6 %. The increase was mainly due to an increase in salary
expenses of approximately $ 0.9 million and an increase in expenses related to returning to work in offices in amount of $1.3 million.
As a percentage of total revenues, general and administrative expenses decreased from 17 % in 2021 to 16.6 % in 2022.
Impairment of goodwill
During 2021 and 2022
we recorded no goodwill impairment .
Impairment of intangible
assets and Other expenses (income), net
During 2021 and 2022
we recorded no intangible assets impairment.
Operating income
Total operating income
increased from $54.6 million in 2021, to $58.8 million in 2022 or 7.6 %. This increase of approximately $4.2
million reflects an increase of $ 8.2 million in the operating income in the telematics service segment and a decrease of $4.0 million
in the operating loss in the telematics products segment.
Telematics services
segment
Operating income in our
telematics services segment increased from $48.1 million in 2021 to $56.3 million in 2022, or 17.1 %. This increase was mainly attributed
to the increase of our average base of subscribers from 1,825,000 subscribers in 2021 to 1,974,000 subscribers in 2022.
As a percentage of income
in our telematics services segment revenues, operating income in our telematics services segment increased from 25.3 % in 2021 to 26.9
% in 2022.
Telematics products
segment
Operating income in our
telematics products segment decreased from $ 6.5 million in 2021 to $ 2.5 million in 2022. This decrease in operating income was
mainly attributed to the increase in our product costs due to the higher components’ prices which resulted due to the global shortage
of electronic components.
As a percentage of income
in our telematics products segment revenues, operating income in our telematics products segment decreased from 8.1 % in 2021 to 3.0
% in 2022.
Financing expenses ,
net
Financing expenses, net,
was $5.5 million in 2021 compared with $ 5.9 million in 2022.
The increase in the financing
expenses was mainly due to an increase in losses in respect of marketable securities and other investments in an amount of $1.5
million. The abovementioned were offset by a decrease in income in respect of changes in obligation to purchase non-controlling interests
in an amount of $1.0 million.
Income Tax
Income Tax expenses increased
from $11.9 million in 2021, to $12.7 million in 2022 or 6.7 %. As a percentage of income before tax, income tax expenses decreased
slightly from 24.2 % in 2021 to 24.1 % in 2022.
Analysis
of our Operation Results for the Year ended December 31, 2021 as compared to the Year ended December 31, 2020
Revenues
Total revenues increased from $245.6 million
in 2020 to $270.9 million in 2021 or 10%. This increase consisted of an increase of $ 6.7 million from subscription fees from our telematics
services and an increase of $ 18.6 million from sales of our telematics products.
Telematics services segment
Revenues in our telematics services segment
increased by $ 6.7 million from $ 182.9 million in 2020 to $189.6 million in 2021, or 4 %. Mainly due to the Increase in 113,000 subscribers
Telematics products segment
Revenues in our telematics products segment
increased from $ 62.7 million in 2020, to $81.2 million in 2021 or 29.5 %. This increase of $18.50 million is primarily due to an increase
in sales, mainly in our business in Israel. This increase was also effected by a positive impact of exchange rate fluctuations of the
NIS vs the USD in an amount of approximate $ 3.7 million.
Cost of revenues
Total cost of revenues increased from $ 129.1
million in 2020, to $143.0 million in 2021 or 11%. This increase consisted of an increase of $3.4 million in the telematics services segment
and an increase of $10.9 million in the telematics product segment. As a percentage of total revenues, cost of revenues increased slightly
from 52.5% to 52.8%.
Telematics services segment
Cost of revenues for our telematics services
segment increased from $81.4 million in 2020, to $84.8 million in 2021 or 4 %. This increase was primarily due to the effect of exchange
rate fluctuations in an amount of approximately $ 1.4 million and an increase in salary expenses of approximately $2.3 million. As a percentage
of total revenues for this segment, cost of revenues increased from 44.5% in 2020 to 44.7% in 2021.
Telematics products segment
Cost of revenues for our telematics products
segment increased from $ 48.7 million in 2020, to $ 59.6 million in 2021 or 22%. This increase was mainly due to the increase in our products’
sales. As a percentage of total revenues for this segment, cost of revenues decreased from 77.8 % in 2020, to 73.4% in 2021.
Operating expenses
Research and development
Our research and development expenses increased
from $ 12.8 million in 2020 to $ 14.1 million in 2021. As a percentage of total revenues, research and development expenses did not increase,
and remain at 5.2 % in 2020 and in 2021.
Selling and marketing
Our selling and marketing
expenses increased from $ 2.0 million in 2020 to $ 13.3 million in 2021. As a percentage of total revenues, selling and marketing expenses
decreased slightly from 5.0 % in 2020 to 4.9 % in 2021.
General and administrative
General and administrative
expenses decreased from $49.7 million in 2020, to $ 46.1 million in 2021 or 7%. The decrease was mainly due to the effect of allowance
for doubtful accounts in amount of $4.2 million, the abovementioned were offset primarily due to an increase in salaries expenses in an
amount of $0.8 million. As a percentage of total revenues, general and administrative expenses decreased from 20.2% in 2020 to 17.0% in
2021.
Impairment of goodwill
During 2021, we did not record any goodwill
impairment loss.
On June 30,2020, an impairment
of approximately $10.5 million was recorded, primarily due to increase in the country’s risk indicator, as part of the effects of
Covid - 19.
Impairment of intangible assets and other
expenses (income), net
During 2021 no intangible assets impairment
loss was recorded. During 2020 the company recorded an intangible assets impairment loss in the amount of approximately US$ 3.7 million,
respectively. The impairment was recorded in the consolidated statement of income under "Impairment of intangible assets and other expenses".
Operating income
Total operating income increased from $ 27.8
million in 2020, to $54.6 million in 2021 or 96 %. This increase of approximately $ 26.8 million was mainly due to the impairment loss
in an amount of approximately $ 14.2 million record in 2020. The increase of approximately $ 12.6 million reflects an increase of $ 8.1
million in the operating income in the telematics service segment and an increase of $ 4.5 million in the operating income in the telematics
products segment.
Telematics services segment
Operating income in our telematics services
segment increased from $28.6 million in 2020 to $ 48.1 million in 2021, or 68 %. This increase was mainly attributed to the decrease in
the impairment of goodwill and of impairment of intangible assets of $11.3 million and from the increase of our subscriber’s client
base.
As a percentage of our telematics services
segment revenues, operating income in our telematics services segment increased from 15.7 % in 2020 to 25 % in 2021.
Telematics products segment
Operating income (loss) in our telematics
products segment increased from loss of $0.8 million in 2020 to income of $6.5 million in 2021. This increase in operating income was
mainly attributed to the decrease in the impairment of goodwill and intangible assets of $2.8 million in. And from the increase of our
gross revenues in our telematics products segment.
As a percentage of our telematics product
segment revenues, operating losses in our telematics productrs segment increased from (1.3) % in 2020 to 8 % in 2021.
Financing income, net
Financing income, net, were $ 1.5 million
in 2020 compared with an expense of $ 5.5 million in 2021.
The increase in the financing expense was
mainly due to an increase in losses in respect of marketable securities in an amount of $2.4 million in 2021, compared to an increase
of $ 4.3 million in 2020.
Income Tax
Income Tax expenses increase from $ 10.9 million
in 2020, to $ 11.9 million in 2021 or 9%. As a percentage of income before tax, income tax expenses decreased from 37.4% in 2020 to 24.2%
in 2021 primarily due to an (non- deductible for tax) impairment in goodwill and intangible assets related to RTH transaction in 2020
in an amount of $ 14.2 million, and no impairment in goodwill and intangible assets related to RTH transaction in 2021. Also, a (non-deductible
for tax) gain in 2020 and losses in 2021 in respect of marketable securities value.
As a percentage from
income before tax, exclude the impairment which mentioned above, income tax expenses decreased from 25.5% in 2020 to 24.2% in 2021.
Impact of Currency Fluctuations on Results
of Operations, Liabilities and Assets
Although we report our consolidated financial
statements in dollars, in 2020, 2021 and 2022, a portion of our revenues and direct expenses was derived in other currencies. For fiscal
years 2020, 2021 and 2022 we derived approximately30.6 %26.6% and_24.8 % of our revenues in dollars and other currencies, 49.2 %,
52.0 % and 51.6 % in NIS, 20.2 %, 21.4% and 23.6 % in Brazilian Reals. In fiscal years 2020, 2021 and 2022, 29.0 %, 30.9 % and 28.1
% of our expenses were incurred in dollars and other currencies, 50.6 %, 52.3% and 53.4 % in NIS and 20.4%, 16.8%, and 18.5 % in Brazilian
Reals.
Exchange differences upon conversion from
our functional currency to dollars (presentation currency) are accumulated as a separate component of accumulated other comprehensive
income under stockholders’ equity. In the year 2022, accumulated other comprehensive income decreased by $ 3.9 million. In the year
2021, accumulated other comprehensive income decreased by $ 2.9 million. In 2020, accumulated other comprehensive income decreased by
$ 12.9 million.
The fluctuation of the other currencies in
which we incur our expenses or generate revenues against the dollar has had the effect of increasing or decreasing (as applicable) reported
revenues, cost of revenues and operating expenses in such foreign currencies when converted into dollars from period to period. The following
table illustrates the effect of the changes in exchange rates on our revenues, gross profit and operating income for the periods indicated:
|
|
Year Ended December 31, |
|
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
|
Actual |
|
|
At 2019 exchange rates (1)
|
|
|
Actual |
|
|
At 2020 exchange rates (1)
|
|
|
Actual |
|
|
At 2021 exchange rates (1)
|
|
|
|
(In thousands of US$) |
|
Revenues
|
|
|
245,627 |
|
|
|
262,529 |
|
|
|
270,884 |
|
|
|
264,507 |
|
|
|
293,072 |
|
|
|
296,752 |
|
Gross profit
|
|
|
115,515 |
|
|
|
122,708 |
|
|
|
127,838 |
|
|
|
125,090 |
|
|
|
137,562 |
|
|
|
139,120 |
|
Operating income |
|
|
27,831 |
|
|
|
31,229 |
|
|
|
54,615 |
|
|
|
53,595 |
|
|
|
58,774 |
|
|
|
59,218 |
|
(1) Based
on average exchange rates during the period. Those columns are Non GAAP information.
Our policy remains to
reduce exposure to exchange rate fluctuations by entering into foreign currency forward transactions that mainly qualify as hedging transactions
under ASC Topic 815, “Derivatives and Hedging”, the results of which are reflected
in our income statements as revenues or cost of revenues. The result of these transactions, which are affected by fluctuations in exchange
rates, could cause our revenues, cost of revenues, gross profit and operating income to fluctuate.
|
B. |
LIQUIDITY AND CAPITAL RESOURCES |
We fund our operations primarily from cash
and cash equivalents generated from operations. As of December, 31, 2020 ,2021 and 2022, we had, $78.8 million and $54.7 million and
$28.2million in cash and marketable securities and $66.7 million , $58.1 million and $57.3 million in working capital, respectively.
We hold most of our cash and cash equivalents in US dollars or the local currency of their location.
As of December 31, 2022 we had a long term
loan at the amount of $ 0.4 million and a short term loans at the amount of $ 11.8 million As of December 31, 2021 we had a long-
term loan from an Israeli bank at the amount of $ 13.7 million and a short term loans at the amount of $ 17.8 million. As of December,
2020 we had a long – term loan from an Israeli bank at the amount of $ 34.1 million and a short term loans at the amount of $ 20.4
million. As of December, 2020 ,2021and 2022, we also had $ 1.9 million, $1.6 million and $1.7 million, respectively, available to us under
existing lines of credit. As of December 31, 2020 we utilized $0.3 million of our credit line, as of December 31,2021 we utilized
$ 0.7 million of our credit line and, and as of December 31,2022 we utilized $ 0.6 millions of our credit line.
We believe that our
cash flow from operations, availability under our lines of credit and cash and marketable securities will be adequate to fund our capital
expenditures, contractual commitments and other demands and commitments for the foreseeable future as well as for the long-term. We believe
that cash flow generated from operations and cash available to us from our credit facilities will be sufficient to cover future expansion
of our various businesses into new geographical markets or new products, as currently contemplated and as we describe herein. However,
if existing cash and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek financing elsewhere
by selling additional equity or debt securities or by obtaining additional credit facilities.
As of December 31, 2020,2021 and 2022 we
had long-term liabilities of $19.7 million, $22.5 million, and $ 21.2 million, respectively, for employee rights upon retirement for certain
of our employees that become payable upon their retirement. Our Israeli employees are entitled to one month’s salary, equal to the
applicable monthly salary at the time of such employee’s retirement, for each year of employment, or a portion thereof, upon retirement.
This liability is partially funded by deposit balances maintained for these employee benefits in the amount of $13.6 million , $16.2
million and $15.1 million, as of December , 2020 ,2021 and 2022 respectively. The deposited funds include profits accumulated up to the
balance sheet date and may be withdrawn upon the fulfilment of the obligation pursuant to Israeli severance pay laws or labor agreements.
In Argentina, new economic
policies related to the external sector have been in effect since August 2019, motivated by the liabilities in dollars and the inability
of the Government to deal with it in the initially agreed terms. These measures were initially taken by the outgoing Government and then
deepened by the new elected Government that began on December 10, 2019. The following regulations currently apply:
1. Currency market:
a. Individuals can
only acquire dollars for savings, in the amount of US $ 200 per month. On this purchase applies 65% taxes. The taxes for all abroad and
tourism expenses is 100%.
b. Companies are not
allowed to acquire dollars.
2. Imports:
a. The Information
System called SIMI is maintained. Imports and their payments require prior authorization from the government.
b. Payment for the
importation of services also requires authorization from the government.
c. Both types of imports
(goods and services) require compliance with Transfer Pricing Report and other tax regulations.
3. Income Tax and Dividends:
a. Payment of dividends
to shareholders abroad requires prior authorization from the Central Bank.
b. The following chart
shows the new scenario for the Corporate Income Tax rate that will apply for fiscal years commencing since January 1st,
2021.
The amount will be adjusted
by inflation since January 2022.
Accumulated net taxable profit |
will pay a fix amount of |
plus a % over the following amount |
More than AR$ |
up to AR$ |
|
|
AR$
|
- |
AR$ |
7.604.948,57 |
AR$ |
- |
25% |
AR$ |
0
|
AR$ |
7.604.948,58 |
AR$ |
76.049.485,68 |
AR$ |
1.901.237,14 |
30% |
AR$ |
7.604.948,57 |
AR$ |
76.049.485,69 |
on |
AR$ |
22.434.598,28 |
35% |
AR$ |
76.049.485,68 |
c. On dividends originated
7% tax will be withheld as shareholders Income Tax.
In Ecuador, there are
two unique Laws which are relevant to our activities:
|
1. |
Remittance tax (Impuesto a la Salida de Divisas) - Remittance tax of 5% is imposed on the transfer of
money abroad in cash or through pay checks, transfers, or courier of any nature carried out with or without the mediation of the Ecuadorian
financial system, including transfer from foreign bank accounts. Dividends are exempt from this tax, under certain considerations.
|
|
2. |
Labor profit sharing - Although it is not considered a tax, companies are obligated to pay 15% of their
pre-tax earnings to their employees. This payment is considered a deductible expense for CIT computation purposes. |
In Mexico, All Mexican
employers, whether individuals or entities, are required to calculate and pay mandatory profit- sharing payments to employees within 60
days following the filing of their annual Mexican tax return. The obligation for employers to make such payments is based on the legal
provisions in Section IX of Article 123 of the Political Constitution of the United Mexican States, which establishes that employees shall
have the right to participate in their employer’s profits in the amount of 10% of such employer’s taxable income. As such,
the following types of employees have the right to receive profit sharing payments: (a) permanent employees hired to carry out normal,
long-term work for an employer, without regard to the number of days worked during the January 1 through December 31, 2019 fiscal year;
(b) eventual permanent employees who have worked for an employer fewer than 60 days, whether continuously or sporadically, during the
fiscal year referred to above; (c) former employees who have the right to claim profit sharing payments, when such rights have not lapsed.
Dividends
On February 26, 2017
we have revised our dividend policy, which came in force starting from 2017, that our dividends will be declared and distributed on a
quarterly basis in an amount of at least 5 million USD subject to the provisions of the Israeli laws concerning lawful distribution of
dividends.
Dividend we declared
in respect to 2020 result:
On May 13, 2020, we declared
the suspension of the dividend distribution due to the Covid-19 pandemic. On March 3, 2021, we declared the renewal of the dividend distribution
policy of at least $3 million a quarter. On the same date we also declared a quarterly dividend in an amount of $10 million, which was
paid (net of taxes at the rate of 25%) on April 6, 2021 with respect to the fourth quarter of 2020.
Dividend we declared
in respect to 2021 result:
On May 25, 2021, we declared
a quarterly dividend in the amount of $3 million, which was paid (net of taxes at the rate of 25%) on July 14, 2021, with respect to the
first quarter of 2021. On August 23, 2021, we
declared a quarterly dividend in the amount of $3 million, which was paid (net of taxes at the rate of 25%) on October 13, 2021, with
respect to the second quarter of 2021. On November 16, 2021, we declared a quarterly dividend on the amount of $3 million, which was paid
(net of taxes at the rate of 25%) on January 5, 2022, with respect to the third quarter of 2021. On March 7, 2022, we declared a quarterly
dividend of $3 million, which was paid (net of taxes at the rate of 25%) on April 6, 2022, with respect to the fourth quarter of 2021.
Dividend we declared
in respect to 2022 result:
On May 24, 2022, we declared
a quarterly dividend in the amount of 3 million, which was paid (net of taxes at the rate of 25%) on July 14, 2022, with respect to the
first quarter of 2022. On August 29. 2022, we declared a quarterly dividend in the amount of 3, million, which was paid (net of taxes
at the rate of 25%) on October 13, 2022, with respect to the second quarter of 2022. On November 21, 2022, we declared a quarterly dividend
in the amount of 3 million, which was paid (net of taxes at the rate of 25%) on January 4, 2023.
Until the RTH Transaction,
we have repurchased 2,507,314 of our shares, out of these shares (373,489 shares) were resold as part of the consideration in the RTH
Transaction. As part of the RTH Transaction price adjustment 300,472 shares were returned to us in April 2019. As part of implementation
of our Board of Directors decision of 25 million USD share repurchase program, Share repurchases were funded by our wholly owned subsidiary
with available cash. Repurchases of the Company’s ordinary shares were based on Rule10b-18 terms. During the years 2019 and 2021
we purchased 227,828 and 228,725 of our shares for approximately $6 million each year. During the year 2021, we also directly
purchased additional 50,995 shares for approximately $ 1.3 million not through publicly announced plans. During 2022 we purchased additional
357,362 shares.
As
of the date of this report, the updated quantity of treasury shares is 3,366,934 (including the aforementioned, 603,142 shares which are
entitled to dividend distributed). The following table sets forth the components of our historical cash flows for the periods indicated:
|
|
Year ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
45,118 |
|
|
|
55,790 |
|
|
|
60,068 |
|
Net cash used in investing activities |
|
|
(27,354 |
) |
|
|
(18,524 |
) |
|
|
(11,479 |
) |
Net cash used in financing activities |
|
|
(36,360 |
) |
|
|
(58,666 |
) |
|
|
(29,449 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(3,860 |
) |
|
|
(477 |
) |
|
|
(921 |
) |
Net increase/decrease in cash and cash equivalents |
|
|
(22,456 |
) |
|
|
(21,877 |
) |
|
|
18,219 |
|
Years ended December
31, 2022, December 31, 2021 and December 31, 2020
Net cash provided by operating activities
Our operating activities provided cash of
$60.1 million in 2020 , $55.8 million in 2021 and $45.1 million in 2022.
Cash from operating activities in 2022 decreased
in an amount of approximately $ 10.7 million, this decreased was mainly due to a growth of the operation in Brazil.
Net cash used in investing activities
Net cash used in investing activities in 2022
in an amount of approximately $27.4 million, included capital expenditure in the amount of $26.5 million.
Net cash used in investing activities in 2021
in an amount of approximately $ 18.2 million, included capital expenditure in the amount of $ 16.6 million.
Net cash used in investing activities in 2020
in an amount of approximately $11.5 million, included capital expenditure in the amount of $ 10.2 million.
Net cash used in financing activities
Net cash used in financing
activities in 2022 in an amount of approximately $36.4 million consisted primarily a repayment of short and long term credit from financial
institution in an amount of $16.5 million, cash dividend payment in an amount of approximately $ 11.5 million and acquisition of company
shares in an amount of approximately $ 8.5 million.
Net cash used in by financing
activities in 2021 in an amount of approximately $ 58.9 million consisted primarily of a repayment of short and long term credit from
financial institution in amount of $ 23.8 million, cash dividend payment in an amount of approximately $ 15.8 million a cash payment to
settle the obligation to purchase non-controlling interest in an amount of approximately $ 11.3 million and an acquisition of company
shares in an amount of approximately $ 7.3 million.
Net cash used in by financing
activities in 2020 in an amount of approximately $ 29.4 million consisted primarily of a repayment of short and long term credit from
financial institution in amount of $ 17 million, cash dividend payment in an amount of approximately $ 10 million and a cash dividend
payment in an amount of approximately $ 1.7 million paid by our subsidiary to the non - controlling interests.
|
C. |
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES |
Most of our research
and development activities take place in Israel, Mexico, Colombia and Ecuador. Our Research and Design department is constantly working
on upgrading the service infrastructure and improving our fleet management applications, including by introducing new services and uses
of the system, while utilizing both internal development staff and outsourcing such activities to third parties, as well as developing
new service platforms for cellular/GPS based devices.
Expenditures for research
and development activities undertaken by us were approximately $ 16.8 million in 2022, $14.1 million in 2021, and $ 12.8 million
in 2020.
The COVID-19 pandemic,
had little impact on our business during year 2022. Nevertheless, in case this pandemic or similar in effect will erupt this may have
an adverse effect on our business.
Please see Item 4.A.
– History and Development of the Company and Item 4.B. – Business Overview above for trend information.
|
E. |
OFF-BALANCE SHEET ARRANGEMENTS |
We do not have off-balance
sheet arrangements (as such term is defined in Item 5E. of the Form 20-F) that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to investors.
|
F. |
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
Contractual obligations
and commercial commitments
The following table summarizes
our material contractual obligations as of December 31, 2022:
|
|
Payments due by period |
|
Contractual obligations |
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
After 5 years |
|
|
|
(In USD thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases 2
|
|
|
11,580 |
|
|
|
3,287 |
|
|
|
3,617 |
|
|
|
2,674 |
|
|
|
2,002 |
|
Purchase Obligations
|
|
|
13,127 |
|
|
|
13,127 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Long – term debt obligations
|
|
|
12,190 |
|
|
|
11,845 |
|
|
|
345 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
30,571 |
|
|
|
21,933 |
|
|
|
3,962 |
|
|
|
2,674 |
|
|
|
2,002 |
|
The safe harbour provided
in Section 27A of the Securities Act and Sections 21E of the Exchange Act shall apply, among other things, to forward looking information
provided in Item 5. F.
ITEM 6.
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
A. |
DIRECTORS AND SENIOR MANAGEMENT |
The following persons
are our directors, senior management and employees upon whose work we are dependent:
Name |
Age
|
Position
|
|
|
|
Izzy Sheratzky |
76 |
President and director |
Yehuda Kahane |
78 |
Director |
Ze’ev Koren
|
78 |
Chairman of the Board of Directors and an independent director |
Efraim Sheratzky
|
70 |
Director |
Eyal Sheratzky |
54 |
Co-Chief Executive Officer and Director |
Nir Sheratzky |
51 |
Co-Chief Executive Officer and Director |
Gil Sheratzky |
45 |
CEO of our Subsidiary, International Activity and Business Development Officer and
a Director |
Yoav Kahane(1)(2)
|
49 |
Director and an independent Director |
Yigal Shani |
78 |
Director |
Israel Baron (1)(2)(3) +
|
69 |
External Director |
Gidon Kotler (1)(2)(3)
|
82 |
External Director |
Tal Sheratzky- Jaffa
|
45 |
Director and an independent director |
Ami Saranga |
59 |
Deputy Chief Executive Officer |
Eli Kamer |
56 |
Executive Vice President, Finance; Chief Financial Officer |
Guy Aharonov |
57 |
General Counsel |
Udi Mizrahi |
51 |
Deputy Chief Executive Officer International Operation and VP of Finance |
Notes:
(1)
Member of audit committee
(2)
Member of compensation committee
(3)
External director elected in accordance with the Israeli Companies Law
+ Chairperson
of all committees
2
Please see consolidated financial statements, Note 7.
Izzy
Sheratzky is a co-founder of our company and its President. He has
previously served as the Chairman of our Board of Directors, which in our company constitutes both an officer and director positions,
ever since our company was acquired from Tadiran in 1995. Until 2003, Mr. Sheratzky also served as our Chief Executive Officer. Mr. Sheratzky
also serves as the Chairman of the Board of Directors of Moked (1973) Investigations Company Ltd., Moked Services, Information and Investments
Ltd., and Moked Ituran. He also serves as a director in Tikal Document Collection Ltd. Mr. Sheratzky is the father of Eyal, Nir and Gil
Sheratzky, Brother of Efraim Sheratzky and uncle of Tal Sheratzky-Jaffa.
Yehuda
Kahane is a co-founder of our company and has served on our board since
1995. Professor Kahane is an entrepreneur in both the academic and business arenas. He is a Fellow of the World Academy of Art and Science.
He received the 2011 highest international award for his lasting contribution to the theory, practice and education in insurance and risk
management, as well as a lifetime achievements award by the Israeli Insurance industry. He is a co-founder and chairperson of the YK Center
for Preparing for the New Economy. Kahane is a Professor (Emeritus) from the Collar Business, Tel Aviv University where he headed the
Institute for Business and the Environment. He taught at many business schools around the world, including the Wharton School, the University
of Texas (Austin), the University of Toronto and the University of Florida, and has founded and served as the first Dean of the Israeli
Academic School of Insurance. Professor Kahane chairs and is a major owner of Capital Point Ltd., and is active in the formation, seed
investment and management of start-up companies and technological incubators, unrelated to our company. He chairs the association for
the visually impaired people in Herzliya and Sharon district, and a board member of the Center for Blind People in Israel (The Umbrella
organization). He is an honorary member of the Israel-Brazil Chamber of Commerce. Professor Kahane holds a BA degree in Economics and
Statistics, an MA degree in Business Administration and a PhD in Finance from the Hebrew University of Jerusalem and is a Fellow of the
Israeli Association of Actuaries. He specializes in insurance, risk management, environmental issues and technological forecasting. He
is the father of Yoav Kahane.
Zeev
Koren has served as a director of our company since 2006 and since
2011 serves as the Chairman of the Board of Directors of the Company. In 1988 Brigadier Gen. (Res) Koren retired from the Israel Defence
Forces after a career of 25 years, where in his final position he served as the head of human resources planning for the general staff
division. Since then he has served in a senior capacity in companies in the fields of international forwarding and medical services. During
the past ten years he has also served as the general manager of a Provident Management Company. He holds a B.A. in Political Science and
Criminology from Bar Ilan University.
Efraim
Sheratzky was appointed to the board on February
9, 2015 to replace Mr. Amos Kurz, as a Class A Director. Efraim Sheratzky studied insurance in the Israeli Insurance College. Efraim Sheratzky
owns together with Yigal Shani, Tzivtit Insurance Agency (1998) Ltd. Efraim Sheratzky served as our director from 1999 and until 2005.
Efraim Sheratzky is the brother of Izzy Sheratzky and the uncle of Eyal, Nir and Gil Sheratzky and father of Ms. Tal Sheratzky-Jaffa.
Mr. Efraim Sheratzky was
elected, on December 14, 2022, in annual general shareholders meeting, to serve as a director in Class A for additional period until third
succeeding Annual General meeting, thereafter.
Eyal
Sheratzky has served as a director of our company
since its acquisition from Tadiran in 1995 and currently serves as a Co-Chief Executive Officer since 2003. Prior to 2003, he served as
Vice President of Business Development during the years 1999 through 2002. Mr. Sheratzky also serves as a director of Moked Ituran and
certain of our other subsidiaries, including Ituran Network. From 1994 to 1999, he served as the Chief Executive Officer of Moked Services,
Information and Investments and as legal advisor to several of our affiliated companies. Mr. Sheratzky holds LLB and LLM degrees from
Tel Aviv University School of Law and an Executive MBA degree from the Kellogg School of Management at Northwestern University, USA. Mr.
Sheratzky is the son of Izzy Sheratzky and the brother of Nir and Gil Sheratzky and nephew of Effraim Sheratzky.
Mr. Eyal Sheratzky was elected,
on December 14, 2022, in annual general shareholders meeting, to serve as a director in Class A for additional period until third succeeding
Annual General meeting, thereafter.
Nir
Sheratzky has served as a director of our company since its acquisition
from Tadiran in 1995 and currently serves as a Co-Chief Executive Officer since 2003. Prior to 2003, Mr. Sheratzky served as an Executive
Officer in our company from 1995 to 2003. Mr. Sheratzky is also a director in Moked Ituran. He holds BA and MA degrees in Economics from
Tel Aviv University. Nir is the son of Izzy Sheratzky and the brother of Eyal and Gil Sheratzky and nephew of Effraim Sheratzky.
Gil
Sheratzky serves as a director of our company and since 2013 as our
International Activity and Business Development Officer. Mr. Sheratzky has been serving since January 23, 2007 as the Chief Executive
Officer of our subsidiary, E-Com Global Electronic Commerce Ltd. From 2003 and until 2013 Mr. Sheratzky served as our marketing communication
officer. During the years 2000 - 2001 Gil worked in our control center, and during the years 2001 - 2002 he worked in an advertising agency. Mr.
Sheratzky holds a BA in Business Administration from the Herzliya Interdisciplinary Center, and an MBA degree from the Booth School of
Business at Chicago University, USA. Gil serves also as director in Saver One Bringg and chairman of Mapa GIS (a subsidiary of Ituran).
Gil Sheratzky is the son of Izzy Sheratzky and the brother of Eyal Sheratzky and Nir Sheratzky and nephew of Effraim Sheratzky
Yoav
Kahane (Director and an Independent Director, and also
a member of audit committee and a member of compensation committee) has served as director of our company since 1998. Mr. Kahane
is serving as the Chief Executive Officer of Vizo Specs Ltd,a start up company he co-founded that develop a non-invasive technology for
immediate enhancement of attention and the treatment of ADHD .During 2020 he served as CBO of PrintCB ,developer and manufacturer of advanced
copper materials for car electrification. a. During 2006-2014, Mr. Kahane has worked for Enzymotec in various managerial positions including
Director of Business Development, VP Sales & Marketing, Infant Nutrition Business Unit Manager, Chief Executive Officer and Chairman
of Advanced Lipids AB, a joint venture of AAK AB and Enzymotec, specializing in nutritional ingredients to the infant nutrition industry.
During the years 2004-2005, Mr. Kahane served as Vice President of Sales and Marketing in Elbit Vision Systems Ltd. During the years 2001
and 2002, he served as Manager of Business Development in Denver Holdings and Investments Ltd. In 2000, Mr. Kahane established Ituran
Florida Corp. and served as its Chief Executive Officer until 2001. Mr. Kahane holds a BA degree in Life Sciences from Tel-Aviv University,
a BA degree in Insurance and an MBA degree from the University of Haifa. Yoav Kahane is the son of Professor Yehuda Kahane..
Mr. Kahane. Mr. Kahane was elected, on December 14, 2022, in annual general shareholders meeting, to serve as an Independent Director
in Class A for additional period until third succeeding Annual General meeting, thereafter.
Yigal
Shani has served as a director of our copany since its acquisition
from Tadiran in 1995. Mr. Shani is an insurance agent and a partner in the insurance agency Tzivtit Insurance Agency (1998) Ltd. together
with Efraim Sheratzky, which provides insurance services to our company. Mr. Shani, has resigned
on March 13, 2014 in order to allow compliance with the provisions of the Israeli Companies Law, which require that the board of directors
to include at least one female and was reappointed on February 9, 2015 to replace Mr. Avner Kurz, as a Class B Director.
Israel
Baron has been serving as an external director of our company since
2003 and is the Chairman of our board’s committees. Mr. Baron served as a director in Poalim Trust Services Ltd., a fully owned
subsidiary of Bank Hapoalim Ltd from 2009 until 2017. In addition, Mr. Baron has been serving as Chief Executive Officer of several public
sector employee retirement and saving plans since 2003. Prior to 2003, Mr. Baron managed an organizational consulting firm, served as
an investment manager in the Isaac Tshuva group during the years 1999 to 2001 and as Chief Executive Officer of Gmulot Investment Company
Ltd. Mr. Baron serves as a director of Quality Baron Management Services Ltd. and until 2004 he served as a director of Brill Shoe Industries
Ltd. Mr. Baron is a certified CPA and holds a BA degree in Economics and Accounting from the Bar-Ilan University in Ramat-Gan, Israel.
Israel Baron was re-elected on December 10, 2020 for additional 3-year term to serve as external director.
Gidon
Kotler is an external director of our company. He was nominated on
April 30, 2014. Prior to his retirement on 2016, Mr. Kotler has been serving as the assets manager of Strauss-Group Ltd., one of Israel’s
largest public companies, since 1997. Prior to that, Mr. Kotler has served for 3 years as the chief executive officer of the Tel-Aviv
New Central Bus Station, and for 14 years as the chief executive officer of the Dizengof Center’s management company. Mr. Kotler
has served as an external director of Elran Real Estate Ltd. from 2007 until 2010. On December 28, 2016, an annual general shareholders
meeting approved the extension of the term of Mr. Gideon Kotler, our external director, for additional three years (beginning April 30,
2017). On December 12, 2019, an annual general shareholder meeting approved additional extension of the term of Mr. Gideon Kotler, our
external director, for additional three years (beginning April 30, 2020), which was extended for an additional three years (beginning
April 30, 2023), in an annual shareholder's general meeting held on December 14, 2022.
Ms.
Tal Sheratzky-Jaffa was until recently a Vice President at Margalit
Startup City, a unique Israeli organization focused on building and creating centers of excellence worldwide. Prior to joining Margalit
Startup City, Ms. Sheratzky-Jaffa was a Strategy and Development Manager at Reality Investment Funds, Israeli value-add real estate fund.
Prior to joining Reality Investment Funds, Ms. Sheratzky-Jaffa was a partner at the Israeli law firm Amit, Pollak, Matalon and Co., specializing
in the fields of investment funds, mergers and acquisitions, high-tech and corporate governance, and an associate at the New York offices
of the US law firm Akin Gump Strauss Hauer & Feld. Ms. Sheratzky-Jaffa holds LL.M degree from Columbia University (New York), LL.B
from Haifa University and B.A (economics) from Haifa University, and is a member of the Israeli Bar Association and the New York State
Bar. Ms. Sheratzky-Jaffa is the nephew of Izzy Sheratzky and the cousin of Eyal, Nir and Gil Sheratzky and the daughter of Efraim Sheratzky.
Ms. Sheratzky – Jaffa was elected, on December 14, 2022, in annual general shareholders meeting, to serve as director in Class A
for additional period until third succeeding Annual General meeting, thereafter.
Ami
Saranga has been serving as the Deputy Chief Executive Officer of our
company since 2011. Prior to that Mr. Saranga served as our VP Marketing since 2008. Prior to 2008, Mr. Saranga managed the SME division
of Pelephone Communications Ltd., one of Israel’s largest telecommunication network operators. Mr. Saranga holds a BA degree in
Business Administration from Ruppin Academic Center, Israel.
Eli
Kamer has served as Executive Vice President, Finance and Chief Financial
Officer of our company since 1999, after serving as its Finance Department Manager since 1997. Prior such date, Mr. Kamer worked as an
accountant in Fahn Kanne & Co., our independent registered public accountant. Mr. Kamer is a CPA and holds a BA degree in Business
Administration from the Israel College of Management and an MBA degree in business administration from Bar Ilan University.
Guy
Aharonov has served as our in-house legal counsel since 1999. Prior
to joining our company, he has worked as an attorney in Cohen Lahat & Co. Mr. Aharonov holds LLB and LLM degrees from Tel Aviv University.
Udi
Mizrahi has served as our VP Finance since 2000. On his current position
Mr. Mizrahi serve as a Deputy Chief Executive Officer International Operation and VP of Finance. Mr. Mizrahi is a CPA and holds a BA degree
in accounting and economics from Ruppin Academic Center, Israel.
Shahar
Sheratzky has served in different marketing roles in our company since 2007.
On January 2022 Mr. Shahar Sheratzky was nominated to Vice president, head of our business division. Among his responsibilities are the
marketing, selling and digital fields. Mr. Sheratzky holds a MBA degree in business administration with a specialization in global marketing
from Reichman University, Israel. Mr. Shahar Sheratzky is the nephew of Izzy Sheratzky and the cousin of Eyal, Nir and Gil Sheratzky and
the son of Efraim Sheratzky.
Our articles of association
provide for staggered three-year terms for all of our directors (except our external directors, who are elected in accordance with the
provisions of the Israeli Companies Law). The directors on our board (excluding the external directors) are divided into three classes,
and each class of directors serves for a term of three years, as follows: Izzy Sheratzky, Gil Sheratzky and Zeev Koren (class C), who
were re-elected on December 13, 2021; Nir Sheratzky, Yigal Shani and Yehuda Kahane (class B), who were re-elected on December 10,
2020; and Eyal Sheratzky, Efraim Sheratzky, Tal Sheratzky-Jaffa and Yoav Kahane (class A), who were re-elected on December 12, 2019. This
classification of the board of directors may delay or prevent a change of control of our company.
On December 28, 2016,
an annual general shareholders meeting approved the extension of the term of Mr. Gideon Kotler, our external director, for additional
three years (beginning April 30, 2017), which was extended for an additional term of three years commencing from April 30, 2023. On December
10, 2020, an annual general and special shareholders meeting approved the re-election of Mr. Israel Baron, our external director,
for additional three years.
Diversity
of the Board of Directors
The table below provides certain information
regarding the composition of our Board. Each of the categories listed in the below table has the meaning as it is used in Nasdaq
Rule 5605(f) and related instructions.
Board
Diversity Matrix (As of April 10 , 2023)
Country of Principal Executive Offices |
Israel |
Foreign Private Issuer |
Yes |
Disclosure Prohibited under Home Country Law |
No |
Total Number of Directors |
12 |
Part I: Gender Identity |
Female |
Male |
Non-Binary |
Did Not Disclose
Gender |
Directors |
1 |
11 |
|
|
Part II: Demographic Background |
|
Underrepresented Individual in Home Country Jurisdiction |
0 |
LGBTQ+ |
0 |
Did Not Disclose Demographic Background |
0 |
Shareholders Agreement
and Articles of Association of Moked Ituran Ltd.
Pursuant to Moked Ituran
Ltd's articles of association and agreement (as amended) between its shareholders, there is a mechanism in place with regard to directors
to be designated and voted for election by Moked Ituran Ltd in each of our annual shareholdings meeting for the relevant class of directors
(four directors in class A and B and three in class C). The aforementioned is in effect only for as long as Moked Ituran Ltd holds at
least 15% of our issued and outstanding share capital.
The aggregate direct
compensation we paid to our directors who are not officers for their services as directors as a group for the year ended December 31,
2022 was approximately $ 294,000. Directors are reimbursed for expenses incurred in connection with their attendance of board or committee
meetings. The compensation payable to external directors is determined in accordance with regulations promulgated under the Israeli Companies
Law. See Item 6.C - Board Practices under the caption “External directors” below. Our audit committee and board of directors
approved compensation for Mr. Ze’ev Koren, for serving as the Chairman of our board of directors, and for Mr. Yoav Kahane, for serving
as a member of our board committees, such that they shall be compensated in the same manner as our external directors are compensated,
annually and per meeting, in accordance with the Companies Regulations (Rules for the Compensation and Expenses of an External Director),
2000-5760. In 2022, we paid the sum of NIS 486,000 (approximately $ 145,000) to our external directors, NIS 200,000 (approximately $ 60,000)
to Mr. Ze’ev Koren, NIS 174,000 (approximately $ 52,000) to Mr. Yoav Kahane, NIS 127,000 (approximately $ 38,000) to Ms. Tal
Sheratzky-Jaffa. We do not have any agreements with directors providing for benefits upon termination of their respective services as
such.
The aggregate costs to
the Company of the compensation to our Co-Chief Executive Officers in 2022 were $ 3.2 million. The aggregate compensation paid to all
of our officers as a group during 2022 was approximately $ 10.7 million. In 2022 we paid an aggregate amount of $ 70,000 to one
director who provided us with services. The above compensation amounts include amounts attributable to automobiles made available to our
officers and other fringe benefits commonly reimbursed or paid by companies in Israel. Employee directors do not receive additional fees
for their services as directors.
The following table sets
forth the breakdown of the compensation of our 5 highest paid officers in 2022 according to our 2022 financial reports:
|
|
Management fees |
|
|
Wage |
|
|
Social components |
|
|
Car value |
|
|
Bonus (results based) |
|
|
Bonus (Share yield based) |
|
|
Total |
|
|
|
Compensation components (in thousand US Dollars) |
|
Izzy Sheratzky (President)
|
|
|
824 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,152 |
|
|
|
- |
|
|
|
1,976 |
|
Eyal Sheratzky (Co-Chief Executive Officer |
|
|
641 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
938 |
|
|
|
- |
|
|
|
1,579 |
|
Nir Sheratzky (Co-Chief Executive Officer) |
|
|
641 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
938 |
|
|
|
- |
|
|
|
1,579 |
|
Gil Sheratzky (CEO of our Subsidiary. International Activity
and Business Development Officer) |
|
|
446 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
670 |
|
|
|
- |
|
|
|
1,116 |
|
Shachar Sheratzky (Vice president, head of our business division)
|
|
|
|
|
|
|
183 |
|
|
|
32 |
|
|
|
31 |
|
|
|
220 |
|
|
|
- |
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of our 5 highest paid officers $ 6,716,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2022, we set aside $ 486,000 for the
benefit of our officers for pension, retirement or similar benefits. We do not set aside any funds for the benefit of our directors who
are not employees for any pension, retirement or similar benefits.
All numbers in this section are rounded to
the nearest thousand.
During 2022, Messrs.
Izzy Sheratzky, Eyal Sheratzky, Nir Sheratzky and Gil Sheratzky provided their services as President, Co-Chief Executive Officers and
CEO of our Subsidiary & International Activity and Business Development Officer respectively, as independent contractors pursuant
to services agreements, which were adopted by our shareholders meeting in January 2014, which terms correspond to our compensation policy
as described below.
On December 10, 2020
our annual general meeting of shareholders approved the extension of service agreements as independent contractors, of Messrs. Izzy Sheratzky,
Eyal Sheratzky, Nir Sheratzky and Gil Sheratzky for a period of additional three years.
For further details concerning
such terms of service, please see Item 7.B – Related Parties Transactions under the caption “Transactions with our directors
and principal officers.”
In 2006, our compensation
committee has devised a bonus scheme pursuant to which some of our officers and employees received shares of our profit before tax on
a consolidated basis, based on their seniority, level of global and domestic involvement, contribution to our operations and other criteria
set by the compensation committee. In 2010, our compensation committee resolved that additional managers shall be entitled to receive
bonuses under this bonus scheme and that some of the grantees should continue to receive a bonus based on our consolidated results and
some should receive a bonus based only on our solo financial statements. During 2022, we paid a total of $ 1,037,000 to our officers and
employees pursuant to the above bonus schemes.
Our
compensation policy for office holders
In December 2012, amendment
no. 20 to the Israeli Companies Law became effective. Among other things, this amendment requires Israeli public companies to set forth
their policy regarding their office holders’ terms of office, including fixed compensation, target-based incentives, equity awards,
severance and other benefits. The amendments also set forth the considerations that should be applied when devising a compensation policy
for office holders.
The term “office
holder” is defined in the Israeli Companies Law, to mean the chief executive officer, chief business officer, deputy chief executive
officer, vice chief executive officer, any other person fulfilling such position even if his title is different, as well as a director
or a manager directly subordinate to the chief executive officer.
The compensation policy
must be approved every three years by the board of directors, after considering the recommendations of the compensation committee; and
generally requires the approval of the company’s general meeting of shareholders by a special majority of shareholders who are not
controlling shareholders and who do not have a personal interest in the approval of the policy; or, alternatively, that the non-controlling
shareholders and shareholders who do not have a personal interest in the matter who are present and vote against the policy hold two percent
or less of the voting power of the company.
The compensation policy
does not intend to amend any officer’s existing terms of office; nor to bestow any officer with a right to receive the compensation,
or any element thereof set forth therein. However, generally, once the compensation policy is approved, all future terms of service of
office holders should conform to its provisions. The specific terms of office of each officer shall be separately determined in accordance
with the relevant provisions of the Israeli Companies Law and the regulations promulgated thereunder.
Our general shareholders
meeting approved our compensation policy for office holders on October 31, 2013, and on November 7, 2016, and later on December 14, 2022
approved a renewal of the compensation policy . The policy applies to office holders of the Company (see definition above),
who serve as the Company’s President, Chief Executive Officer(s) and other executives who are deemed office holders of the
Company, as well as office holders of the Company’s Israeli wholly owned subsidiaries, provided they report to the chief executive
officer. The policy also applies to directors of the Company.
Our compensation policy
for office holders was formulated in view of our belief that our business success is the result of the excellence of our human resources
and their devotion to the achievement of our company’s goals. Therefore, it is aimed at offering our officers with a competitive
compensation package that will align their incentives with those of our company and our shareholders, and at motivating them to achieve
the goals of our company, while avoiding undue pressure to take excessive risks. Among other factors, our compensation committee and board
of directors have considered, as required by amendment no. 20 to the Israeli Companies Law and as reflected in the policy: (a) the advancement
of the company’s goals, its business plan and its policy with a long-term view; (b) the creation of appropriate incentives for office
holders, considering the company’s risk management policy; (c) the size of the company and the nature of its business; (d) with
respect to variable components of the terms of office – the contribution of the office holders to the achievement of the company’s
goals and to the maximization of its profits, with a long-term view and in accordance with the position of the office holder.
The compensation policy
incorporates all matters required to be included in a compensation policy as mandated by amendment 20 to the Israeli Companies Law, including
(without limitation): (a) the requirement to consider the office holders’ education, skills, professional experience, expertise,
position and past compensation agreements; (b) consideration of the ratios between overall compensation of the officers and the average
and median salary of the other employees of the Company; (c) the board’s right to reduce variable compensation; (d) the determination
of a maximum period for advanced and transition periods upon termination of services; (e) basing variable components of compensation on
key performance indicators and on measurable criteria; (f) determining the ratio between fixed and variable components of compensation
and setting forth caps on the amount of variable compensation payable; and (g) a claw-back provision with respect to restatements of financial
statements. For further details, see our full compensation policy for office holders, which is filed herewith as Exhibit 4.24 under Item
19 – Exhibits.
Board of Directors
Pursuant to our articles
of association as presently in effect, our board of directors generally consists of twelve directors, including at least three independent
directors in accordance with the listing rules of Nasdaq concerning the composition of audit committees, of whom two directors are external
directors as required by Israeli law. Our independent directors, as such term is defined under the Nasdaq listing rules, are Mr. Baron,
Mr. Kotler, Mr. Koren, Mr. Yoav Kahane and Ms. Tal Sheratzky - Jaffa, Pursuant to our articles of association, other than the external
directors, for whom special election requirements apply (see “External directors” below), our directors are elected, by majority
of our shareholders and may be removed by special majority. However, see Item 6.A – Directors and Senior Management for a description
of our staggered board and the shareholders agreement and articles of association of Moked Ituran Ltd. Our board of directors may at any
time and from time to time appoint any other person as a director to fill a vacancy until the general meeting of shareholders in which
the term of service of the replaced director was scheduled to expire.
Pursuant to the Israeli
Companies Law, our chairman convenes and presides over the meetings of the board. In addition, any two directors may convene a meeting
of the board of directors, as well as a director who becomes aware of a company’s matter that allegedly involves a breach of the
law or an improper business conduct. A quorum consists of a majority of the members of the board, and decisions are taken by a vote of
the majority of the members present. Our articles of association provide that such quorum will in no event be less than two directors.
We are incorporated in
Israel and are therefore subject to the provisions of the Israeli Companies Law, including certain corporate governance provisions. Our
ordinary shares are listed on the Nasdaq Global Select Market (Our shares were delisted from the Tel Aviv stock exchange on May 25, 2016,
for additional information see Item 9.A – Price History of Our Shares), and we are therefore subject to certain provisions of the
Israeli securities laws, the U.S. securities Laws and the Nasdaq listing rules. See also Item 16.G. – Corporate Governance below
for additional information concerning our compliance with the Nasdaq listing rules and exemptions therefrom.
According to our Articles
of Association, some of our officers and employees (including the chairman of our board and at least one third member of the Board) should
be citizens and residents of Israel and receive clearance approval from the Israeli General Security Service. All the members of our board
comply with these requirements.
On February 26, 2017
our board has adopted an Internal Compliance policy, which following review of our internal process included a comprehensive update of
our internal regulations and codification of our internal regulations, all pursuant to the applicable Israeli laws.
External directors
Under Israeli law, the
board of directors of companies whose shares are publicly traded are required to include at least two members who qualify as external
directors. External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:
◾ |
Such majority includes at least the majority of the shares held by all non-controlling shareholders or
those having personal interest in the nomination, except personal interest which is not resulting from connections with controlling shareholders,
present and voting at such meeting; or |
◾ |
The total number of shares voted against the election of the external director and held by shareholders
other than controlling shareholders or those having personal interest in the nomination, except personal interest which is not resulting
from connections with controlling shareholders, must not exceed 2% of the shares whose holders are entitled to vote at any meeting of
shareholders. |
External directors are
generally elected to serve an initial term of three years and may be re-elected to serve in that capacity for two additional three-year
terms; however, companies whose securities are listed on recognized foreign exchanges, such as Nasdaq, may extend the service terms of
their external directors for additional unlimited terms, each of no more of than three years , subject to the approval of the audit committee
and the board of directors that such extension is for the benefit of the company in view of the directors’ expertise and special
contribution to the operation of the board and its committees and these reasons together with the term served by the external director
were presented to the shareholders prior to their approval (see the Israeli Companies Regulations (Allowances for Companies with Securities
Listed on an Exchange Outside Israel), 2000-5760). The appointment of an external director for additional terms may be brought for the
approval of the shareholders either by the board of directors or by a shareholder that holds at least 1% of the company’s voting
rights, provided that the nominee is not a related or competing shareholder (as defined below) or a relative thereof, at the time of the
appointment, and does not have an affinity to such shareholder (as defined below) at the time of the appointment or the two years preceding
such appointment. The term “related or competing shareholder” means the shareholder who proposed the appointment or a 5% shareholder
of the company if, at the time of the appointment, his controlling person or a company controlled by either of them, has business relations
with the company, or if he, his controlling person or a company controlled by either of them are competitors of the company. The term
“affinity” means the on-going existence of work relationship, business or professional relationship or control and the service
as an officer.
External directors may
generally be removed from office by the same majority of shareholders required for their election or by a court, in each case, only under
limited circumstances, including if they cease to meet the statutory qualification for their appointment or violate the duty of loyalty
to the company.
If at the time of the
appointment of an external director, all directors who are not controlling persons or their relatives are of the same gender, then the
elected external director must be of the other gender.
Each committee of the
board of directors that is vested with an authority of the board must include at least one external director, except that the audit committee
and compensation committee must include all external directors then serving on the board of directors. The Israeli Companies Law prohibits
external directors from receiving, directly or indirectly, any compensation other than for services as an external director pursuant to
the provisions and limitations set forth in the applicable regulations promulgated under the Israeli Companies Law.
Israeli law provides
that a person is not qualified to serve as an external director if he is a relative (as defined in the Israeli Companies Law) of the company’s
controlling person, or if, at the time of his/her appointment and/or at any time during the two years preceding his or her appointment,
that person, a relative, partner or employer of that person, or any entity under that person’s control, has or has had an affinity
(as defined above) to the company, its controlling person or its relative or to any entity that, as of the date of appointment, or at
any time during the two years preceding that date, is controlled by the company or by its controlling person. In addition, no person may
serve as an external director if that person’s professional activities create, or may create, a conflict of interest with that person’s
responsibilities as a director or otherwise interfere with that person’s ability to serve as a director; and, a person already serving
as a director of one company may not be appointed as an external director of the company if at that time a director of the company is
serving as an external director of the first company. In addition, a company, controlling shareholder and any other entity controlled
by the controlling shareholder may not grant to such external director, its spouse or child, any benefits, directly or indirectly, and
the external director, its spouse or child may not be appointed to serve in any position, may not be employed by and may not, directly
or indirectly, render any professional services to the company, such controlling shareholder or any other entity controlled by the controlling
shareholder, during the first two years following such external director’s termination of tenure of office, and with respect to
a relative who is not the external director’s spouse or child – during the first year following such termination.
Mr. Israel Baron is now
serving his seventh term as an external director of the Company, who was reelected on of December 10, 2020 for a term of 3 years. Mr.
Gideon Kotler was appointed on April 30, 2014 by an extraordinary shareholders meeting as our new external director, following the death
of our former external director, Dr. Orna Ophir, in January 2014 and was reelected by our general shareholders meeting on December 28,
2016, for his second term, of additional 3 years term starting from April 30, 2017, which was later extended for additional term of three
years beginning April 30, 2020, and thereafter extended for an additional term of three years commencing from April 30, 2023.
Audit committee
Under Israeli law, the
board of directors of a public company m