26th Feb 2008 07:01
Telit Communications PLC26 February 2008 Telit Communications PLC ("Telit" or "the Company") Unaudited Preliminary Results for the twelve months ended 31 December 2007 TELIT ACHIEVES EBITDA OF €1.4 MILLION AT FULL YEAR AND OPERATING PROFIT OF €0.9 MILLION AT H2 2007 Rome, Italy, 26 February 2008 - Telit Communications PLC (AIM: TCM), a globalleader in machine-to-machine (m2m) communications, is pleased to announce itsunaudited preliminary results for the twelve months ended 31 December 2007. Financial & Business Highlights: • 2007 revenue increased by 73% to €52.2 million (2006: €30.1 million) • H2 2007 over H1 2007 revenue up 28% to €29.3 million (H1 2007: €22.9 million) • H2 2007 revenue includes royalty income of €1.5 million for the lifetime use of the tradename "Telit" by the Italian company, Bardi, as detailed in note 3 to the accompanying financial information. • 2007 gross profit increased by 89% to €22.0 million (2006: €11.7 million) o H2 2007 over H1 2007 gross profit up 40% to €12.8 million (H1 2007: €9.2million) • 2007 gross margin increased to 42.1% (2006: 38.7%) • H2 2007 over H1 2007 gross margin up 9% to 43.7% (H1 2007: 40.2%) • 2007 operating loss reduced to €1.1 million (2006: loss of €7.1 million) • H2 2007 operating income of €0.9 million (H1 2007: loss of €2.0 million) • 2007 EBITDA1 of €1.4 million (2006: loss of €4.9 million) • H2 2007 EBITDA of €2.0 million (H1 2007: loss of €0.6 million) • 2007 loss before tax of €0.9 million (2006: loss of €7.4 million) • H2 2007 income before tax of €0.3 million (H1 2007: loss of €1.2 million) • 2007 net loss of €1.5 million from continuing operations (2006: loss of €7.5 million) • H2 2007 net loss of €0.2 million from continuing operations (H1 2007: loss of €1.3 million) • Cash and cash equivalents (including restricted cash) of €11.3 million (2006: €11.0 million) • An initial investment by BAMES of €9.0 million in cash, out of a total of €16.0 million, was completed in June 2007 1 EBITDA is defined as earnings before interest, tax, depreciation and amortization and share based payments from continuing operations Commenting on the results, Oozi Cats, Chief Executive Officer of TelitCommunications PLC, said: "2007 has been another year of strong growth forTelit. We have achieved an operating profit of €0.9 million in H2 2007, as wellas achieving a positive EBITDA of €1.4 million for the full year. Impressiverevenue growth of 73% has been achieved, as we have met the market's increasingawareness and demand for our superior m2m technology. Telit's performance duringthe second half of the year has been very positive as we continued to win newbusiness and gain market share. Indeed, the impressive second half over firsthalf 2007 improvements in EBITDA performance demonstrate both the growing marketopportunity and Telit's strengthening position in the marketplace." "The success of the Group's international expansion has been a major feature ofthe year. For example the expansion of the Company's global footprint has seenover 150 new design wins secured in our operations in Telit Americas and TelitAPAC. It is no exaggeration to say that 2007 has seen Telit demonstrate beyonddoubt that it is now a first tier global player in the m2m market. The globalm2m market is gathering momentum and Telit is very much in the ascendancy amongits peers, delivering strong and sustainable growth." "The first installment of the €16 million investment by BAMES into TelitWireless Solutions, and the strategic agreement with BAMES's electronicsmanufacturing subsidiary, SEM, were also major developments during the year. The agreement provides confirmation of the value and potential of Telit'stechnology in the m2m market. We are now working very closely with BAMES and SEMand have already begun to enjoy the fruits of this alliance." "Having exceeded our forecast break-even position at the operating level for thesecond half of the year, Telit is now entering a new chapter in its development,one of profitable growth and positive earnings performance. The year hasstarted well and the new business book is strong in all of our geographicalmarkets. We are confident that the growing reputation of Telit in terms oftechnology, service and support in a growing market, will result in a strongperformance this year." "Delivering maximum returns to our shareholders is a top priority and Telit nowhas the operational and financial strength to take advantage of the considerableopportunities arising in this growing global market. We are currently in themidst of a global wireless-communications revolution and I fully expect that2008 will see further accelerated growth both of the m2m market and of Telit. Ilook forward to providing further news of the Company's progress over the comingmonths." Below are the key financial performance measures for continuing operations for2007 and 2006: H2 2007 H1 2007 2007 2006 •'000 •'000 •'000 •'000 Revenue1 29,307 22,882 52,189 30,140Gross profit 12,793 9,195 21,988 11,653Gross margin 43.7% 40.2% 42.1% 38.7% Other income 939 1,518 2,457 729Research & Development2 (4,719) (3,953) (8,672) (8,058)Selling & Marketing2 (4,720) (4,072) (8,792) (4,948)General & Administrative2 (2,990) (3,962) (6,952) (6,106)Share based compensation (429) (709) (1,138) (340)Operating profit / (loss) 874 (1,983) (1,109) (7,070)EBITDA 2,024 (626) 1,398 (4,871) 1 Including royalty income (2007: €2.3 million; 2006: €1.7 million) 2 excluding share-based payment charges. For further information:Telit Communications PLC Maya Lustig, SVP Investor Relations Tel: +972 (3) [email protected] Seymour Pierce LimitedStuart Lane Tel: +44 (0) 20 7107 8000 www.seymourpierce.com The Global Consulting GroupJonathan Shillington, Alistair Scott Tel: +44 (0)7900 053 [email protected] http://[email protected] CHIEF EXECUTIVE'S STATEMENT AND REVIEW - PRELIMINARY RESULTS 2007 Introduction I am pleased to present Telit Communications PLC's Unaudited Preliminary Resultsfor the year ended December 31 2007. 2007 has been a year of strong growth for Telit. We have achieved an operatingprofit of €0.9 million in H2 2007, as well as achieving positive EBITDA of €1.4million for the full year. Impressive revenue growth of 73% has been achieved,as we have met the market's increasing awareness and demand for our superior m2mtechnology. Telit's performance during the second half of the year has been verypositive as we have continued to win new business and gain market share. Indeed,the impressive second half over first half 2007 improvements in EBITDAperformance demonstrate both the growing market opportunity and Telit'sstrengthening position in the marketplace. The success of the Group's international expansion has been a major feature ofthe year. For example the expansion of the Company's global footprint has seenover 150 new design wins secured in our operations in Telit Americas and TelitAPAC. The second half of the year has been a highly successful period in termsof new client wins and this has been translated into the further operationalimprovements and operating profitability achieved during the last six months.Therefore, it is no exaggeration to say that 2007 has seen Telit demonstratebeyond doubt that it is now a first tier global player in the m2m market. Theglobal m2m market is gathering momentum and Telit is very much in the ascendancyamong its peers, delivering strong and sustainable growth. The first instalment of the €16 million investment by BAMES into Telit WirelessSolutions, and the strategic agreement with BAMES's electronics manufacturingsubsidiary, SEM, were also major developments during the year. The agreementprovides confirmation of the value and potential of Telit's technology in them2m market. We are now working very closely with BAMES and SEM and have alreadybegun to enjoy the fruits of this alliance. Financial Results Following the indications we provided in our trading update on 31 January 2008,the results for the year are in line with market expectations and underline thenew course the Company is taking, supported by the geographical expansion begunin 2006 and strengthened during 2007. The results for the twelve month period ended on 31 December 2007 reflect stronglike-for-like growth, strong margins and excellent underlying sales momentum. Telit increased total revenue by 73% to €52.2 million, compared to €30.1 millionfor 2006. 2007 revenue includes royalty income of €1.5 million for the lifetime use of thetradename "Telit" by the Italian company, Bardi, as detailed in note 3 to theaccompanying financial information. The majority of revenue continues to come from repeat business with existingcustomers. In addition to the development of existing customer relationships,Telit has increased the number of customers to more than 2,000 OEMs,communications solutions providers and system integrators in over 50 countries. The split of revenue on a geographical basis for the years ended 31 December 2007 and 2006 is as follows: 2007 (M•) % of Total Revenue 2006 (M•) % of Total RevenueEMEA 36.8 71 24.2 80APAC 13.7 26 5.8 20AMERICAS 1.7 3 0.1 -Total Revenue 52.2 100% 30.1 100% The continued development of Telit's global outreach can be seen by thegeographical division of revenue for 2007. The weighting of Telit's revenue isbecoming increasingly distributed across the geographies, with increasinglyhigher contributions being made to total revenue from the APAC and Americasregions. While the majority of revenue continue to come from EMEA, we fullyexpect that the APAC and Americas regions will continue to increase theweightings of their contribution to total revenue performance in 2008 andbeyond. As we have previously reported, Telit's position as a global player in the m2mmarket was attained by the penetration into the Asia Pacific and Americasmarkets in 2006. Since its inception, Telit APAC has successfully establishedits position as a sales gateway to the region for the CDMA and GSM/GPRS productlines and as a leading R&D centre for CDMA, UMTS/HSDPA and other advancedtechnologies. The new sales offices opened during the year in China (Shenzhenand Shanghai) and in Taiwan (Taipei) have made excellent progress during theyear and secured more than 70 design wins in the region. In addition, Telit Americas began making headway in the region and has securedmore than 80 design wins with new customers and, as previously announced, anorder worth $10 million over a period of two years. Telit Americas is now wellestablished to meet increasing levels of demand in the region. The market opportunity for Telit in both these regions is substantial and thelevel of major approvals achieved during 2007, combined with the expected newbusiness due to the numerous design wins during the year, are testament to thesuccess of Telit's expansion into these important growth markets. 2007 gross profit increased 89% to €22.0 million, compared to €11.7 million in2006, resulting in an overall margin of 42.1% compared to 38.7% for 2006. During the course of the year Telit continued to benefit from governmentalgrants related to our R&D activities in Trieste, Italy and recorded other incomeamounting to €2.1 million from such grants, up from €0.7 million in 2006. Research and development expenses, excluding share-based payments, were €8.7million, compared to €8.1 million in 2006. Sales and marketing expenses,excluding share-based payments, were €8.8 million, compared to €4.9 million in2006, with a majority of the increase stemming from the full year impact ofTelit APAC and Telit Americas (which were acquired and incorporated,respectively, towards the end of the first half of 2006). General andadministrative expenses, excluding share-based payments, were €7.0 million,compared to €6.1 million in 2006. The G&A expenses reflect the expansion ofTelit through the acquisition and introduction of Telit APAC and Telit Americas.Share based compensation charges were €1.1 million in 2007 and €0.3 million in2006. This resulted in an operating loss for 2007 of €1.1 million (operating profitduring the second half of the year offsetting, in part, the operating loss inthe first half of the year), down from a loss of €7.1 million in 2006. Lossbefore tax was €0.9 million, compared to a loss of €7.4 million in 2006. Netloss for the period from continuing operations was €1.5 million compared to €7.5million in 2006. Basic and diluted loss per share for continuing operations was 3.3 Euro centsfor the period compared to a 17.4 Euro cents loss per share in 2006. The totalcontinuing and discontinued basic and diluted loss per share was 15.3 Eurocents, compared to a 25.8 Euro cents loss per share in 2006. Employees The number of employees on a geographical basis as at 31 December 2007 and 2006 is as follows: 31 Dec. 2007 31 Dec. 2006EMEA 184 170APAC 62 48AMERICAS 11 9Total Employees 257 227 Business Performance During 2007 the following major developments took place that contributed to theoverall performance of the Company and will contribute to the Company's futureresults. Sales and Marketing: • Reinforced distribution network by adding Rutronik, the largest independent European Distributor, CEP AG in Germany & Poland as well as MT System in Russia. • Telit signed Symmetry Electronics as a distributor for US and Mexico. Telit signed SPI Technologies to represent Telit as a manufacturer's representative in Eastern Canada. • Worldwide customers increased to over 2000 customers compared to 1500 customers in 2006. APAC and EMEA contributed to this growth by wining 150 designs. • Extended global relationship with Arrow, one of the largest distributors of electronic components by signing distribution agreements with Arrow Asia and Sasco Holz for Central European and CIS countries. • Selected by a major European toll-collect customer, for a field trial with 10,000 units in place. • Opened sales offices in Taiwan and China with sales staff and technical support engineers. • Signed distribution agreement with Soanar, Singapore for the South Asia market and Arrow Asia Pac for the whole Asia Pacific market. • $10 million deal signed by Telit Wireless Solutions (U.S.) with major North American client. • In November Telit announced a strategic alliance with Infineon Technologies to provide 4 million GSM/GPRS chipsets for its new line of m2m modules, to be launched in Q4 2008. Product Highlights: • In October, Telit's m2m module, the GE864-PY, received PTCRB certification. This module is expected to be produced en masse in 2008 in VeriFone's POS Terminals. • In July, Telit introduced a new groundbreaking design in its module range, offering its customers high-performance at lower cost of ownership. The new GE863-PRO3 GSM/GPRS module simplifies m2m design for POS terminals, fleet management systems and AMR applications. Equipped with two powerful microprocessors, this quad-band module is suited for a wide range of applications requiring high processing power. The GE863-PRO3 also offers significant cost benefits for the development and production of complex m2m solutions. • Telit introduced a new product GE863-SIM with embedded chip SIM. This product enables higher degree of integration and provides increase reliability by eliminating the traditional SIM card and connector. • Telit entered into an agreement with Selex for the joint development of modules according to the GSM-R standard in order to address railway operators in Europe and China. • Signed agreement for development of M2M Smart platform for Telefonica. Finished development of M2M Smart platform for Telefonica • Started process of partnership for M2M card ( embedded chip SIM) with Telefonica • Release of new GT864-QUAD and GT864-PY terminal products that complete the Telit terminal product line. • Release of updated low power GPRS/GPS combined products (GM862-GPS and GE863-GPS) with 35% less power consumption than the previous versions. • Completed homologation and certification in several countries and networks including China & Taiwan (SRRC and DGT), Brazil (ANATEL), Australia (A-Tick), Israel (Cellcom and Orange), Spain (Telefonica and Vodafone), UK (O2), Ukraine and US/Canada (KORE and RACO). • BCM865 was introduced in the Korea and China markets in February, as well as a MSM6025 based CDMA-1X embedded module for general purpose m2m applications. • Achieved China type approval (SRRC) and Taiwan approval (DGT) for GM862, GC864 and GE864. • Introduced a WCDMA/HSDPA embedded module product that was launched in Europe in Q4, 2007 and is planned to be launched in North America in Q1, 2008. • Having obtained approval of six products on the Cingular / AT&T network and Annetel Brazil homologation, Telit Americas is in a position to begin delivering sales to customers in the US and Latin America. Telit America will shortly achieve homologation in Mexico and is currently in the process of gaining network approvals in Canada. Operational Highlights: • In November Telit announced a strategic alliance with Infineon Technologies to provide 4 million GSM/GPRS chipsets for its of m2m modules, effective as of Q4 2008. • During 2007 Telit doubled its production capacity. • During 2007 significant cost reduction was achieved in BOM prices and production costs, contributing to the increase in GM. • Achieved the ISO 9001:2000 Telit corporate certificate for EU, US and Korean facilities. • Successfully completed implementation of an Enterprise Resource Planning (ERP) system from SAP in the Group's major subsidiary, to be rolled out to other subsidiaries in 2008 and 2009. • Successfully transferred production of GSM/GPRS products to SEM, subsidiary of BAMES in Italy. EVAR Business developments In the second half of the year Telit sold its Italian EVAR business to a thirdparty, thus marking the final disposal of Telit's European EVAR business unit.The sale of the remaining EVAR business in Israel, announced during the secondhalf of the year, is expected to complete by the end of H1 2008. Due to the Company's decision to dispose of the EVAR business, the results ofoperations of this business unit are included in the Company's financialstatements as "discontinued operations". Strategy Our strategy for 2008 is to continue to leverage our position as a leadingplayer in the m2m market, offering customers a competitive edge by reducingtheir total cost of ownership and optimising the performance of their products.We plan on doing this through continued investment in R&D and building on thefoundations laid by our regional operations to date. This strategy takes advantage of two key trends in the m2m market: • The performance trajectory offered by many of the m2m module manufacturers overshoots the needs of the average customer, resulting in feature-rich, expensive products that deliver inferior returns on investment; and • the inability of many module manufacturers to meet the demands of early adopters due to the fact that they do not control the protocol stack required for customised product modifications. To execute our strategy, Telit relies on three core competencies thatdifferentiate it from the competition: • Complete Control of the Protocol Stack: Telit owns and develops the Protocol Stack in its modules. The Protocol Stack controls all connectivity and communication with the GSM network and is a critical success factor in being able to offer customers the flexibility required for rolling out cost-effective m2m solutions. • Commitment to Customer-Driven Innovation: Telit's comprehensive expertise in R&D enables it to help its customers win new business by working with them to develop the most innovative, cost-effective m2m applications. • Multinational Organisation Staffed with Industry Experts: Telit's R&D and Sales and Marketing units are comprised of a team of dynamic experts with proven industry experience in the m2m and semiconductor industry. Change of control In May 2007 Boostt B.V., a consortium of investors including Oozi Cats, CEO ofTelit, and a group of Italian investors led by Mr. Franco Bernabe purchased12,000,000 shares in Telit from Polar Investments Ltd. The purchase represented27.77% of the Company's issued voting share capital at a price of GBP 0.43 pershare. Boostt subsequently nominated Mr. Enrico Testa, as Chairman of the Boardof Directors of Telit and also nominated an additional director, Mr. GiovanniStella, to the Board. These two directors replaced two directors nominated byPolar, who resigned upon completion of the transaction. In July 2007, FB Net Holding B.V. ("FB Net") and Oozi Cats purchased anadditional 750,000 shares of the Company and 250,000 shares of the Company,respectively, at a price of GBP 0.53 per share. FB Net effectively controlsFranco Bernabe & T S.L. ("FBT"), which is the corporate entity that holds 50% ofBoostt B.V. (50% is held by Mr. Oozi Cats). In September 2007 FBT purchased an additional 500,000 shares of the Company at aprice of GBP 0.72 per share. Following these purchases, FB Net, FBT, Boostt, and Oozi Cats are interested ina total of 37.72% of the Company's outstanding shares. Also in July 2007, Clal Insurance Enterprise Holdings Ltd., one of Israel'slargest insurance and finance companies, became a substantial shareholder withholdings of approximately 4% of the Company's issued shares. Board changes In April 2007, having completed a mandate for two years from the listing of theCompany in 2005, Mr. David Hobley, an independent non-executive director,resigned from the Board. In May 2007, Mr. Enrico Testa and Mr. Giovanni Stella were appointed to theBoard of Telit by Boostt B.V., replacing Mr. Avigdor Kelner and Mrs. PninaBitterman-Cohen. Mr. Testa was nominated Chairman of the Board. Mr. Testa, aged 56, is currently the Chairman of Roma Metropolitane, the companyset up by the Rome municipality to implement the city's new underground system,and a board member of Rothschild Spa and of Lloyd Adriatico. He also served asa board member of Riello Group as well as on the advisory board of the CarlyleGroup. From 1996 to 2002 Mr. Testa served as Chairman of ENEL, Italy's largestelectricity company. From 1994 to 1996 he served as Chairman of ACEA, theenergy and environment company of the Rome Municipality. Mr. Testa is a formermember of the Italian Parliament, elected in 1987 and in 1994. Mr. Giovanni Stella, aged 60, began his career as an Internal Auditor at Eni,the Italian oil and gas giant. During his tenure at Eni, he had an active rolein the restructuring of the major subsidiary companies of the group. Mr. Stellaalso held a number of positions within the Eni Group of companies, includingManaging Director of Enichem, Chairman of Chemfin, Chairman & CEO of EnichemFinance SA and of Agip Petroli International, Chairman of Enichem InternationalHolding and CFO of Agip Petroli. In 1998, Mr. Stella joined Telecom Italia tobecome the Assistant to the CEO. He was later appointed Senior Vice Presidentfor Finance and Control and a Member of the Board of TIM and Sirti. In 1999 hebecame Chairman of Stream S.p.A. During his career, Mr. Stella was also amember of several work groups for Eni and for Consob. From 1989 to 1993 he wasvisiting lecturer of the Internal Auditing Course of the La Sapienza Universityof Rome. Mr. Stella is currently Managing Director of Rothschild S.p.A. and ViceChairman of Kelyan S.p.A. In August 2007, Mr. Amir Scharf was appointed to the Board of Telit, as anindependent non-executive director, as well as the chairman of the auditcommittee. Mr. Scharf, aged 41, is a Partner and Head of Securities Lawpractice at Tadmor & Co., Attorneys at Law, in Tel Aviv. He is also a Directorand Chairman of the audit committee at Analyst I.M.S. Investment ManagementServices Ltd., a full service investment house traded on the Tel Aviv StockExchange. Before joining Tadmor & Co. he was the General Counsel and CorporateSecretary of El Al Israel Airlines Ltd., and before that he served as DeputyDirector of the Legal Department of the Israeli Securities Authority. In 2004 -2006 he served as a member of The "Goshen Committee", the public committee forsetting an Israeli Corporate Governance code. Mr. Scharf was also a director ofSuperstar Holidays Limited in the UK between 2005 and 2006. In September 2007, Mr. Avi Israel resigned from the position of Finance Directorof the Company and took up the position of Chief Executive Officer of Telit'sWireless Products division, which the Company has decided to sell. On the samedate, Mr. Michael Galai was appointed Finance Director of the Company. Before his appointment, Mr. Galai, 41, served since October 2006 as theCompany's Vice President, Legal and General Counsel. Before joining Telit, Mr.Galai was General Counsel of Lipman Electronic Engineering Ltd. (Nasdaq, TASE:LPMA), where he took an active part (legal, accounting and finance) in asecondary offer to the public in 2005 and the company's sale to VeriFoneHoldings, Inc. (NYSE: PAY) in late 2006 for $1 billion. Prior to Lipman, Mr.Galai was an associate at one of Israel's leading law firms, where he took partin numerous cross-border transactions, M&As and public offerings. Before that,Mr. Galai spent six years with the Israel Securities Authority, holding avariety of enforcement and legal positions. Mr. Galai holds an MBA (major infinance), an L.L.B from the Tel Aviv University School of Law and is a member ofthe Israeli Bar. Outlook Telit's competitive advantage in terms of flexibility, scalability and productinnovation is now making substantial headway in the market as the mainchallenger to the top market players. We will continue to expand and strengthenour position as one of the world's premier m2m technology providers during 2008. Having delivered our forecasts, Telit is now entering a new chapter in itsdevelopment, one of profitable growth and positive earnings performance. Theyear has started well and the new business book is strong in all of ourgeographical markets. We are confident that the growing reputation of Telit interms of technology, service and support in a growing market, will result in astrong performance this year. Delivering maximum returns to our shareholders is a top priority and Telit nowhas the operational infrastructure and financial strength to take advantage ofthe considerable opportunities arising in this growing global market. We arecurrently in the midst of a global wireless-communications revolution and Ifully expect that 2008 will see further accelerated growth both of the m2mmarket and of Telit. I look forward to providing further news of the Company'sprogress over the coming months. Oozi Cats Chief Executive CONSOLIDATED INCOME STATEMENT (Unaudited) Year ended 31 December 2007 2006 (Restated*) •'000 •'000 Revenue 52,189 30,140Cost of sales (30,201) (18,487) Gross profit 21,988 11,653 Other income 2,139 729Non-recurring credit relating to negative goodwill 318 -Research and development expenses (8,940) (8,058)Selling and marketing expenses (8,999) (4,948)General and administrative expenses (7,615) (6,446) Operating loss (1,109) (7,070) Investment income 277 190Finance costs (1,241) (492)Share of results in associated undertakings (2) (41)Gain on partial deemed disposal of subsidiary 1,194 - Loss before income taxes (881) (7,413) Income taxes (597) (91) Loss for the period from continuing operations (1,478) (7,504) Loss for the period from discontinued operations (5,180) (3,636) Loss for the period (6,658) (11,140) Attributable to:Equity shareholders of the parent (6,627) (11,136)Minority interests (31) (4) (6,658) (11,140) Basic and diluted loss per share (in euro cents)From continuing operations (3.3) (17.4)From discontinued operations (12.0) (8.4)Total continuing and discontinued (15.3) (25.8) Weighted average number of equity shares in issue 43,214,281 43,214,281 (*) Restated for the finalisation of the provisional purchase price allocationof Telit APAC. See note 4. CONSOLIDATED BALANCE SHEET (Unaudited) December 2007 2006 (Restated*) •'000 •'000ASSETS Non-current assetsIntangible assets 9,050 6,755Property, plant and equipment 2,612 3,019Investments in associated undertakings 568 579Other investments 1,570 -Other long term assets 310 303Deferred tax asset 3,130 3,803 17,240 14,459 Current assetsInventory 8,212 10,284Trade receivables 16,591 17,452Other current assets 5,379 6,699Deposits - restricted cash 6,132 7,115Cash and cash equivalents 5,212 3,926 41,526 45,476Assets included in disposal group held for sale 8,162 - Total assets 66,928 59,935 LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equityShare capital 627 627Other reserve (260) (260)Share premium 29,651 29,651Translation reserve (1,734) (584)Retained earnings (12,112) (6,486)Total shareholders' equity 16,172 22,948 Minority interests 605 796 Total equity 16,777 23,744 Non-current liabilitiesLoan from parent company - 2,035Post-employment benefits 1,555 1,226Deferred tax liabilities 329 507Other long-term liabilities 7,308 244 9,192 4,012Current liabilitiesShort-term borrowings from banks and other lenders 17,336 17,375Trade payables 13,498 10,584Other current liabilities 3,692 4,220 34,526 32,179 Liabilities included in disposal group held for sale 6,433 -Total equity and liabilities 66,928 59,935 (*) Restated for the finalisation of the provisional purchase price allocationof Telit APAC. See note 4. CONSOLIDATED CASH FLOW STATEMENT (Unaudited) Year ended 31 December 2007 2006 (Restated*) •'000 •'000 CASH FLOWS - OPERATING ACTIVITIESNet cash used in continuing operations (1,540) (9,588)Net cash (used in) /from discontinued operations (2,239) 17,634Net cash (used in) / from operating activities (3,779) 8,046 CASH FLOWS - INVESTING ACTIVITIESNet proceeds from issue of shares in subsidiary to a third party 7,604 -Purchase of property, plant and equipment (1,251) (1,760)Purchase of intangible assets (3,733) (513)Acquisition of subsidiaries (nil cash acquired) - (5,396)Decrease /(Increase) in restricted cash deposits 1,000 (3,000)Additions to long term receivables - (56)Net cash from / (used in) continuing operations 3,620 (10,725)Net cash used in discontinued operations (741) (289)Net cash from / (used in) investing activities 2,879 (11,014) CASH FLOWS - FINANCING ACTIVITIESRepayment of other loans (1,500) -Short-term borrowings from banks and others 3,001 8,660Net cash from continuing operations 1,501 8,660Net cash from / (used in) discontinued operations 1,167 (14,903)Net cash from / (used in) financing activities 2,668 (6,243) Increase / (decrease) in cash and cash equivalents 1,768 (9,211) Cash and cash equivalents-balance at beginning of year 3,926 13,207Effect of exchange rate differences (482) (70) Cash and cash equivalents-balance at end of year 5,212 3,926 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2007 (Unaudited) Share Share Other Translation Retained Total Minority Total capital premium reserve adjustment earnings interest •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 1 January 2007 627 29,651 (260) (584) (6,486) 22,948 796 23,744 Arising on deemed 275 275disposal -minority inTelit WirelessSolutions srlArising on deemed (318) (318)acquisition - Telit APACTranslation adjustments (1,150) (1,150) (129) (1,279)Share-based payment 1,001 1,001 12 1,013charge(Loss) / profit for the (6,627) (6,627) (31) (6,658)period 31 December 2007 627 29,651 (260) (1,734) (12,112) 16,172 605 16,777 Year ended 31 December 2006 (Audited) (Restated*) Share Share Other Translation Retained Total Minority Total capital premium reserve adjustment earnings interest •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 1 January 2006 627 29,651 (260) (284) 3,432 33,166 - 33,166 Arising on acquisition- 1,317 1,317as previously reportedArising on acquisition- (513) (513)adjustments (note 5)Translation adjustments (300) (300) (4) (304)Share-based payment 1,218 1,218 1,218chargeLoss for the year- as (11,319) (11,319) (65) (11,384)previously reportedLoss for the year- 183 183 61 244adjustments (note 4)31 December 2006 627 29,651 (260) (584) (6,486) 22,948 796 23,744 NOTES TO THE UNAUDITED PRELIMINARY ANNOUNCEMENT 1. While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs by April 2008. The financial information included in this preliminary announcement has been prepared with consistent accounting policies to those set out in the Group's 2006 published financial statements, with the exception of new and revised standards and interpretations adopted during 2007. 2. The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2007 or 2006. The financial information for the year ended 31 December 2006 is derived from the statutory accounts for that year, as restated as set out in note 3, which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s. 237(2) or (3) Companies Act 1985. The auditors have not reported on the financial information as at and for the year ended 31 December 2007 and as such the information set out herein is unaudited. The auditors have indicated that, without qualifying their opinion, their report will include an emphasis of matter paragraph referring to the uncertainty over the recoverability of the deferred tax asset of 3.1 million. This is discussed further in note 7 below. 3. In November 2007 Telit entered into a lifetime license agreement with the Italian company Bardi, granting Bardi the right to use the Telit tradename in the marketing and sale in Europe of cellular phones and accessories and other electronic equipment excluding, specifically, the m2m arena, for a consideration of €1.5 million. These royalties were recorded in the income statement as revenue. 4. On 26 May 2006 Telit acquired 75% of the issued ordinary share capital of, and voting rights in, Bellwave M2M Co., Ltd. (since renamed Telit Wireless Solutions Co. Ltd ("Telit APAC"), a company incorporated and located in Korea, engaged in the production and sale of cellular communication products for the machine to machine (m2m) market. The cost of the business combination was €5,396,000 in cash, including directly attributable costs of €526,000. The provisional purchase price allocation has been finalised in the six months ended 30 June 2007. This has resulted in a reduction in the amount allocated to customer lists from €4,306,000 to €1,500,000 and technology from €689,000 to €645,000 with a consequential reduction in the related deferred tax liability from €1,374,000 to €590,000. As a result, goodwill has increased from €1,445,000 to €2,998,000. The transaction has been accounted for by the purchase method of accounting. The fair value of the assets and liabilities of Bellwave recognised at the acquisition date is as follows: Book value Fair value Fair value adjustments •'000 •'000 •'000Assets:Trade and other receivables 457 - 457Inventory 840 - 840Tangible assets 331 - 331Intangible assets: Customer list - 1,500 1,500 Development cost - 645 645 Other 19 - 19Deferred tax liabilities - (590) (590) 1,647 1,555 3,202Minority interests (804)Goodwill 2,998Total purchase consideration 5,396Net cash outflow arising on acquisition 5,396 The consolidated balance sheet and income statement as at and for the year ended31 December 2006 have been restated as a result of the final purchase priceallocation in accordance with the provisions of IFRS 3. The impact of therestatement is presented below: Balance as at 31 Restatement Restated Balance December 2006 •'000 •'000 •'000Intangible assets 7,710 (955) 6,755Deferred tax liabilities (1,193) 686 (507)Total shareholders' equity (22,765) (183) (22,948)Minority interests (1,248) 452 (796) Operating loss (7,406) 336 (7,070)Loss for the year (7,748) 244 (7,504) The impact of the restatement has been to reduce the basic and diluted loss pershare by 0.42 euro cent for the year ended 31 December 2006 from that previouslyreported. 5. During May and June 2007 Telit increased its interest in Telit APAC to 90% of the issued ordinary share capital by way of a further share subscription for cash amounting to €2,403,000. The Company has accounted for this deemed acquisition based on the book values of the net assets of Telit APAC at the date of the injection. As a result of this transaction, minority interests have been reduced by €318,000. The negative goodwill of €318,000 arising has been recorded as a credit to the income statement. 6. Telit has entered into an investment agreement with Bartolini After Market Electronic Services S.r.l. ("BAMES"). Under the terms of transaction, on 21 June 2007, BAMES provided TWS S.r.l with €9 million in equity in consideration of 5.625% of Telit Wireless Solutions S.r.l ("TWS"), and an additional €7 million will be invested in December 2008, providing Telit meets certain m2m module minimum purchase commitments. Upon completion of the second investment BAMES will receive an additional 4.375% of the share capital of TWS. Management currently assesses that, given current market conditions and the expected growth of the Company, these minimum purchase commitments are attainable. In addition to the investment agreement, Telit Communications SpA entered into a strategic manufacturing agreement with Services for Electronic Manufacturing S.r.l ("SEM"), BAMES' electronics manufacturing subsidiary, for all present and future production of Telit's m2m modules, with certain exceptions, at competitive market prices for a term of not less than five years. This enables Telit to consolidate its European manufacturing into one geographical location, streamline operations while keeping control of the Company's intellectual property and increasing its control over its supply chain. This has been achieved by the Telit taking a 19.9% equity stake in SEM and the right to nominate one director to SEM's board of directors. SEM has also provided Telit with a €7 million line of credit for finished goods, which will defer payment until the second equity investment referred to above. 7. At 31 December 2006, the Group had recorded a deferred tax asset of €3.7 million relating to losses incurred in its Italian subsidiary, Telit Communications SpA. The directors consider that under existing Italian tax law, the time period over which these losses are available for relieving future profits is unlimited. Telit Communication SpA has incurred losses to date since formation in 2003, and has incurred further losses since this date. During the year the applicable tax rate in Italy at which the asset is expected to be recovered has been reduced from 33% to 27.5%. As a result the deferred tax asset has been reduced to €3.1 million at 31 December 2007. In 2006, the Directors approved a four year business plan for Telit Communications SpA, based on which management expected to begin to recover the deferred tax asset during the year ending 31 December 2008, with full recovery forecast in the year ending 31 December 2010. The trading performance of the continuing operations of Telit Communications SpA for 2007 has been in line with the forecast for 2007 in the four year business plan. The Directors have approved an updated business plan for 2008-2010 which continues to support the beginning of recovery of the deferred tax asset during the year ending 31 December 2008, with full recovery forecast in the year ending 31 December 2010. However, as this assessment is a judgment about future events, there is no certainty as to this matter. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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