Welcome to the Ituran third quarter 2008 results conference call. (Operator instructions) As a reminder, this conference is being recorded November 24, 2008. I would like to remind everyone that forward-looking statements for the respective company's business, financial conditions, and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effect of the company's accounting policies, as well as certain other risk factors which are detailed from time to time in the company's filings with the various securities authorities. You should have all received by now the company's press release. If you have not received it, please call GK Investor Relations at 1-866-704-6710 or 9723-607-4717. I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations.

Good day to all of you, and welcome to Ituran's conference call to discuss the third quarter 2008 results. I would like to thank Ituran's management for hosting this conference call. With me today on the call are Mr. Eyal Sheratzky, co-CEO, and Mr. Udi Mizrahi, Vice President of Finance. Eyal will begin with a summary of the quarter's results, followed by Udi with a summary of the financials. We will then open the call for the question and answer session. I'd like to remind everyone that the Safe Harbor statements in the press release also refer to the contents of this conference call. And, now, Eyal, would you like to begin, please?

Welcome everyone. Thank you for joining us today and thank you for your interest in our company. We are happy with our third quarter results, in particular with regards to our strong profitability and bottom line. Now given that we sold Telematics at the end of December last year, myself, and Udi will be analyzing the results on a pro forma basis, which focuses on the core business, excluding Telematics, and removes Telematics contribution to last year’s results. We believe that this enables investors to better compare Ituran’s historical results with current results on a similar basis. Our revenue growth was 28% over the last year to $35.2 million in the quarter. This was primarily driven by the continued growth in the subscriber base over last year. In fact, we ended the quarter just shy of the 0.5 million-mark standing at 495,000 subscribers while at the same time last year we had 430,000 subscribers. In the quarter we grew by a net 16,000 subscribers, our normal quarterly expectation. I would like to take a moment to make an important point with regard to our subscriber base in Israel and how large exchange rates swings affect our results. As of the start of the first quarter we began charging our Israeli subscriber base in the local currency, the Israeli sheqel, rather than the U.S. dollar. The reason we decided to do this was in order to better hedge ourselves against future exchange rate movements, which makes a lot of sense from a business perspective. In Israel our cost base is in sheqels and it makes sense, therefore, to charge our members in Israeli sheqels. We used an exchange of four, which is about 14% higher than the actual exchange rate in the quarter, averaging around 3.5. We felt this was closer…

As Eyal said, I will be using pro forma numbers, which exclude the contribution of Telematics to Ituran in 2007. Revenues for the third quarter of 2008 reached $35.2 million. This represents a 28% increase compared with the pro forma revenues of $27.5 million in the third quarter of last year. Revenue breakdown for the quarter was: $23.6 million coming from subscription fees from our location-based services, which showed a year-over-year growth of 43%; and $11.6 million coming from product sales, which as I said, excluding the Telematics business, shows a year-over-year growth of 5.5%. The geographic breakdown of the revenues in the quarter was as follows: Israel, 55%; Brazil, 34%; USA, 2%; and Argentina, 9%. In terms of our subscriber numbers, we reached 495,000 subscribers at the end of September, a net increase of 16,000 subscribers in the last quarter. Gross margin in the quarter was 49.5% compared with the pro forma growth margin of 43.6% in the third quarter of 2007. Operating profit for the third quarter of 2008 was $7.4 million, or 21% of revenues, compared with the pro forma operating profit of $4.6 million, or 16.6% of revenues, in the third quarter of 2007. EBITDA for the quarter was $10.0 million, or 28.4% of revenues, compared to a pro forma EBITDA of $6.4 million, or 23.3% of the revenues, in the third quarter of last year. Net profit was $5.6 million in the third quarter of 2008, or 16% of the revenues, compared with a net profit of $3.2 million, or 11.5% of revenues, as reported in the third quarter of 2007. EPS in the third quarter of 2008 was $0.27 per diluted share compared with $0.14 per fully diluted share in the third quarter of 2007. As of September 30, 2008, the company had a net cash position, including marketable securities, of $57.6 million compared with $53.5 million as of June 30, 2008. Our average fully diluted number of shares for the quarter was 21.1 million shares. During the quarter we repurchased 175,000 shares for a total of $2.0 million. $1.1 million of financial gain was recorded as a result of the appreciation of the U.S. dollar against the Israeli sheqel during the quarter. This, as previously explained, is due to the fact that most of the company’s cash is held in U.S. dollars while it’s functional currency in Israel is the Israeli sheqel. Cash flow from operations during the quarter was $11.2 million and excluding the above-mentioned financial gain, cash flow from operations was $10.1 million. And with that I would like to hand the call back to Eyal.

In summary, the third quarter of 2008 was another good quarter, particularly in terms of our strong profitability, down to our bottom line. And our results demonstrate the operating leverage inherent in our business model. This is down to the reward of our efforts and investments last year. As we have shown by leveraging our cash position to buy back our own shares, and our dividend distribution, we are very much focused on sharing the rewards of our success with our shareholders and we hope to continue to share our success with our shareholders through the coming years. And with that, we would now be happy to take your questions.

(Operator Instructions) Your first question comes from Maynard Um – UBS. Maynard Um – UBS: You previously talked about net adds, ranges in the 15,000 to 20,000 per quarter. Given the economic slowing should we be thinking about a lower range of the 10,000 to 15,000 or do you think the recessionary period will result in increased demand such that we should probably still expect 15,000 to 20,000?

Actually the expectation that we said we expected this year was in the range of 15,000 to 20,000, but of course, since the changes in the international economy and the world economy, I would say that we have not yet measured the future by numbers, but to make a long story short, yes, we should assume that the growth in the net new subscribers will be smaller. Maynard Um – UBS: Can you talk more specifically about uses of cash? I mean, given your current share price do you think you will be getting more aggressive in share repurchases as compared to the third quarter?

Up until now we have finalized the budget that we got from the Board, which is in total $30.0 million during the last year and a half and this is something the Board has not yet decided again. But it is an open issue and it might be that from time to time we will increase it, but currently we have finalized the first tranche. Maynard Um – UBS: And then related to cash, are you still anticipating looking at acquisitions?

We are looking, but to be honest, we were very conservative during the last few years of good economics. Of course, at this time on one hand we believe we will see better opportunities, but on the other hand, we will be even much more conservative until the fogginess of the world recession will be more clear. So I think that in these times to hold a strong balance sheet, with no big debt, no debt, no loans, and a strong cash position will be in the benefit of the company. But we will be very conservative because at this time a strong balance sheet is a big advantage. Maynard Um – UBS: Assuming the lower subscriber numbers, you will obviously still see top line growth but maybe not as much as we had originally anticipated. Can you just talk about what you are doing on the opex side to reduce any kind of operating expenses to match the revenues going forward?

First of all, talk of reducing cost is always something at which we are always looking. We at Ituran, since many years and people that know the company in more detail, like you, know that we are considering costs, even at times of a good economy and of course when there is a recession. But don’t forget, Ituran is a very profitable company with a high profitability. We are not expecting to be without the high profitability next year. We even said that we expect to grow. So there is not any reason to panic. Any company, at any time, should be conservative, there should not be a lot of fat in the company, and this was how Ituran was built in the past and will build in the future. So I want to announce that we are not going to reduce people and not reduce costs because we don’t have fat. Of course, if beside the growth, we suffer from reducing customers and things like this, this is a different situation, but even in the worse expectations, this is not the case. I said we would grow our subscribers but maybe we will grow it in lower numbers than in 2008, but still we will grow, we will grow subscribers and hopefully we will also grow the economic results of the company. Maynard Um – UBS: But against that revenue do you also then slow the amount of R&D spending or sales and marketing spending? Aside from headcount, do you slow that spending to match the slowing of the top line?

R&D [spend], since we sold Telematics is very, very low and not material at all to our total opex. Regarding sales and marketing, you see also that it is compared to the company in three, almost four geographies, with a very strong brand in each geography, around 7% of the total expenses with those kinds of revenues for sales and marketing it is very thin. Of course, we will judge again and we will see if there is a reason to reduce part of these costs. But I must say that if you judge it in dollars, even if we save 20% or 30%, it is so low it’s not material. Most of our sales and marketing is quite in the low region. Maynard Um – UBS: On investment income for the fourth quarter, did you say it would be as strong as the third quarter in terms of absolute numbers, including the gain?

What we said is that if the currency rates goes as of today, and because we held most of our cash in dollars in Israel, it means we will have a finance income in the fourth quarter which will be higher than what it was in the third quarter. Maynard Um – UBS: Higher than the third quarter.

Yes, but I would like to make it clearer. Actually, it seems we have a strong cash position in our balance sheet that is all in dollars and the operation of Ituran, done with other currencies and mainly with the Brazilian real and these will check us. So we have kind of a major hedging in our results. But the hedging is between what happens to the EBIT and then what happens under the EBIT. In the first half of this year our operating business, based on the Brazilian real and Israeli sheqel, was very strong. We showed high EBIT numbers. On the other hand, our financial results of the cash was very low. If you remember it was even at a very strong negative influence. Now, with the currency exchange, it is now turned around toward the stronger dollar. So what will happen is our EBIT in the fourth quarter, with the assumption that the current exchange rate of the Brazilian real, which is around 2.3, and the Israeli sheqel, which around 4 sheqel per dollar, it means the operating profits will reduce maybe dramatically when you compare it in dollars. But we have a major hedging when you go to our financial income, which probably will be very, very dramatically high. I think this is what should be said and it should look like.

Your next question comes from Paul Coster – JP Morgan. Paul Coster – JP Morgan: So the net subscriber add, the rate of increase will slow. Will the churn rate increase? Are you experiencing a churn rate increase in any of your geographies at this time?

No, actually we don’t see any increasing churn rate. Based on our assumptions, and based on our experience, we said on one hand there will be less new cars on the roads, in Israel, in Brazil and in other countries. But on the other hand, in this a very strong recession situation, usually, and especially in emerging markets, the crime increases and in that case it means that insurance companies and people that still have a high capital will do their best to feel safe from any car theft or any burglaries, etc. So we think that in terms of churn and in terms of new subscribers, we will still be in a growth position. I don’t think that the churn rate by itself will increase. Paul Coster – JP Morgan: What are the early termination rules for your subscribers?

By definition, unless it’s a case of an insurance company that uses the term of leased comodato, which is like the leasing of the hardware, so a typical customer or end user is not signing with us for a long term. The reason that they stay with us, for example in Israel for six or seven years, is because the insurance companies, as a private regulator let’s call it, determines that if he wants to have the insurance policy, he has to have a location solution, so he has no choice. If he gives up Ituran, if he churns from Ituran’s services, he will lose his insurance policy. So this is the main rule. Paul Coster – JP Morgan: Perhaps you can help us understand why the growth rate on the subscriber business was in excess of 20% year-over-year whereas the product business was a lot lower. What is behind that dynamic?

If I am looking at the subscriber fee, most of the increase comes from the net addition of subscribers that we had compared with last year, about 55,000 net subscribers. And especially in the third quarter we did the transfer from linking to the U.S. dollar to the sheqel and that contributed also to the monthly fee. Regarding the monthly fee, if I am talking about the sale, if you compare it to last year, more or less there would be an increase of $600,000. And if you compared it to the second quarter, to the previous quarter, then we saw a decrease, especially in the publishing division, which shares a volatility between the quarters, and if we are talking about the business itself, in Israel there were less sales of new cars and that also affected our sales in the third quarter.

Your next question comes from Yair Reiner – Oppenheimer & Co. Yair Reiner – Oppenheimer & Co.: I just want to return to the FX discussion. I just want to make sure I understand it correctly. At this point, if we look just to the income statement, when there is a shift in FX, am I correct in understanding that there is no impact to operating margin, but operating profit will now basically mirror the change in FX.

Yes, the operating profit will be affected by the FX and on the other hand, especially if I am comparing the U.S. dollar to the sheqel, the strong dollar will benefit us in the financial income. Yair Reiner – Oppenheimer & Co.: At this point you are kind of 2/3 of the way through the fourth quarter. Can you give us a sense of how net adds are progressing and more specifically, what have you seen in terms of subscriber trends in Israel and in Brazil since the beginning of October?

Specially for Q4, as you said, we are in the middle of the quarter so we have some actual sense and we believe, we expect, it will be under our quarterly expectation during every quarter this year, which is 15,000 to 20,000 net. But every month has become difficult. But actually I still think we are okay with this range. Yair Reiner – Oppenheimer & Co.: And have you seen any change in the rate of collections?

No significant change in this.

Your next question comes from Ziv Tal – Oscar Gruss. Ziv Tal – Oscar Gruss: Do you expect some slowing in Brazil given the implementation of the regulation in the second half of 2009?

Actually we just got in an update. There is actually a lot of pressure from the car manufacturers. They still have decided to execute it in mid-2009 but to spread some different categories of cars from 2009 to 2011. Fortunately, the first segment, which is about 20%, the cars, because they have cars, they have trucks, and they have motor cycles. The most important segment for Ituran is the cars, and the cars are still on line with the expectation for July 2009. What will happen during a strong recession in Brazil, like every government now or house supporting the local economy, the local manufacturers, and the local businesses, they do something that I would not bet that things would not change, but for today it is under the same period. Ziv Tal – Oscar Gruss: But what I actually mean is regardless of what we are seeing in the macro environment, do you think that bulk deals with insurance companies, will they be postponed to the second half of 2009 if the regulation goes through as planned, because the car manufacturers will pay for the hardware?

No, we now see some tenders, we see some negotiations. See, those are companies that have already worked with us. I think that actually the regulation will create a new segment of maybe lower cost of cars than some insurance companies will enjoy to use these services, which today it will not pay but for the [inaudible] car, kind of cars, kind of motors as well as the uninsured [inaudible]. I don’t think that they are influenced by a delay in this regulation. The main influence of the regulation is that new segments will increase potential growth for us of subscribers. But until that regulation is executed, the insurance companies still need us for specific models based on their actuarial needs. The uninsured population have no solution. So nothing will decrease if the regulation is delayed but potential growth will be slower if the regulation is delayed. Only additional growth. Ziv Tal – Oscar Gruss: And you spoke about cash. Do you expect a decrease in your cash position at the beginning of next year?

We have cash. For cash there are many reasons for us. First is strategic, to use for growth. We don’t need it for organic growth so it would be needed for acquisitions. Second, it could be used for a buyback, and third, for a dividend. Currently the third option is not now in an execution mode. When [inaudible] we would report. Ziv Tal – Oscar Gruss: Can you please tell us what is going on in Argentina?

Argentina, as we see today, regarding our specific operation, we don’t see a strong influence by the recession. Don’t forget, one of the [inaudible] I can say is that Argentina, during the last ten years, suffered a lot of recessions, not only today as it started in the U.S. What actually happened is that historically, when we came in 2002, the car theft rate was very high. A lot of crime and a lot of crime toward stealing vehicles. During the last four years we saw a strong decline in car theft rates but in the last few months we have seen it increasing again, meaning the market drivers will probably be much stronger and will allow us to penetrate more. Again, we don’t have to ignore that it still depends on how many cars will come to the market, but even if there would be a recession and less cars will come to the roads, when there is an increase car theft rate, and in Argentina we have seen it for almost three months, there is no doubt that a solution such as Ituran will enjoy [growth] from this situation.

Your next question comes from Jeff Rath - Canacord Adams.

What is your churn rate right now, as a percent?

Our churn rate is about 25% on an annual basis.

So if I am understanding that correctly, 25% of your subscribers, if you held your subscriber number flat, 25% of your subscribers would turn over?

Yes. It would never happen, by the way. Because this is with the assumption that the new car will not be pushed by insurance companies to install. And actually, the basic model, even in the recession situation, is that insurance companies, for example and this could be demonstrated to any other market that we work, in Israel for example, even in a very strong recession, no Mercedes, or no BMW, or no Jaguar, or no 4-wheel drive car is without Ituran inside. So of course part of the situation that we think will not grow is because there will be less new Mercedes, less new BMWs, but there will still be some of them. And once some of them are here, we will not reduce the total subscriber base, we will reduce the gross.

I guess I’m trying to understand, because auto demand in some of these emerging markets has seen a pretty material slowdown, if there is a tipping point, clearly your overall subscriber growth is a function of your new sub-adds plus your churn rate. So I’m just wondering, if we look at the Israeli market, is there a number of new car sales on a year-over-year basis, if got to sales down 50% or something like that, is there a number that you look at that you believe would hold your total subscribers flat? I’m just trying to get a sense of the threshold there.

Actually the best thing to do is to go for our historical cases over 15 years of operation in Israel. Only one year it has happened we suffered from reducing the total cost, and it was in 2000, and it was 2,000 subscribers in the net. It was the only situation and it was in a case of two things. The first thing was a strong recession in Israel and second, there was what used to be under the name of the Second Anti [inaudible] and in a specific water the influence of the year that the Israeli army was worked very hard and strongly in the West Banks and closed the border 100%. So what actually happened is that was zero theft for three months and the insurance companies in these times were less dramatic requirement. On the other hand, there was a strong recession. And in this year we were in a flat situation. We reduced to 2,000. It was almost nothing. But if you are asking me to talk for a sensitive table, I would say that if car importers in Israel import less than 110,000 to 120,000, we can find a small decrease in the customer base. But if, in the worst-case scenario, until now in Israel it was 130,000. Of course, it can be the case. But the influence will not be dramatic. I am saying the influence on the growth, and we say today the growth in Israel probably will be much, much slower, if at all. But if you are asking me to turn around to a minus net subscribers, it is a very, very low percentage that it will happen.

Without knowing the future, can you talk about how you think about your capital expenditures for Q4 and then for out through 2009?

Our capex on an annual basis is about $16.0 million. In the last quarter it was around $4.0 million and the majority of it comes from our operation through the comodato method, what we call the free-lease or the loaning of the unit, especially in Brazil and in Argentina a little bit. So if you are asking me, going forward to 2009, I do believe that the capex more or less will be at the same level of $16.0 million.

Can you talk about your hiring plans in Brazil, in particular given that it appears there is some visibility to material growth opportunity there? How many people do you have in Brazil and over the next year what is your target?

We have 550 people. Actually, in Israel it is a different number, but just on the fundamentals. Most of the employees in our company is based on low salaries, mainly for operations, customer support, etc. We believe that this number of employees will be sufficient for the future growth.

So even with this mandate sort of looming, you don’t really think of taking your headcount up materially?

No, with the new regulations, if we will have strong benefits, if we grow so dramatically based on it and it will not be delayed, we will have to add more human resources to support it, but again, since we are working on an operating leverage model, it is not saying that every ten subscribers require a new employee. But I hope, and I dream, that this will be case, that so many new subscribers will require us to increase our costs. But as a current reason, we are very well suited to support potential additional customers in the coming time.

Regarding the Brazilian mandate in particular, it is my sense that there was a mandate introduced a while back, the government has basically made some modest revisions, as you have talked about, but with the time growing short, it would appear to me that if I were an auto supplier I would be having to move now in order to meet that mandate. So I’m just curious, you made a comment that suggested you are just going to continue to wait and see to see if the government changes the mandate again. But aren’t we getting to a point which the auto manufacturers are in fact going to have to stop lobbying and then start moving forward with the implementation? Can you help me understand that give and take?

First of all, it goes every day and it didn’t start yesterday, it started a few months ago. They already published the tenders for suppliers such as Siemens, such as Continental, such as Adelphi. We are at the beginning south to participate in some way with these models. But we understood by reading and understanding the regulation, that a company that supplies the hardware cannot provide the services. Since it was focused on the operating leverage model, we prefer not to compete and go for tenders on the hardware and provide the services. But those players are already negotiating and the car manufacturers are working on solving the technical needs and their supply, etc., and on the other hand they are trying to delay. But things are moving in Brazil toward executing in the middle of 2009. There are players already, there are already manufactures working, so nobody is waiting for the lobbyists to change anything.

There are no further questions in the queue. I would like to remind participants that a replay of this call will be available in three hours on Ituran’s website, www.ituran.co.il.

Thank you for joining our call today. I would like to thank all our employees for their hard work in the quarter. To our investors, I look forward to speaking with you next quarter.

This concludes today’s conference call.