Final Results

Telit Communications PLC

("Telit" or "the Company" or "the Group")

Preliminary results for the year ended 31 December 2012

Telit Communications PLC (AIM: TCM), a global leader in machine-to-machine (m2m) communications, is pleased to announce its preliminary results for the year ended 31 December 2012.

Financial highlights[1]

·; Revenue increased by 16.9% to $207.4 million (2011: $177.4 million).

·; Gross profit increased by 13.4% to $76.9 million (2011: $67.8 million).

·; Adjusted EBIT for the year increased by 53.1% to $10.6 million (2011: $6.9 million).

·; Adjusted EBITDA for the year increased by 32.2% to $17.3 million (2011: $13.1 million).

·; Adjusted Profit before tax for the year increased by 68.7% to $9.6 million (2011: $5.7 million).

·; Adjusted Profit for the year increased by 100.8% to $8.9 million (2011: $4.4 million).

·; Adjusted basic earnings per share for the year were 8.6 cents compared to 4.5 cents in 2011.

·; Net equity increased by 9.2% to $66.4 million (2011: $60.8 million).

Operational highlights for 2012

·; The Group made a number of significant investments in 2012 including the set-up of the m2mAIR business unit (see below), the integration of Navman Wireless OEM Solutions LP ("Navman") and the opening of new sales offices in Australia, Hong Kong, Canada, Russia and the Czech Republic. As a result of these new sales offices, sales and marketing expenditure increased to $30.5 million (2011: $25.3 million). All of these activities are expected to contribute towards Telit's growth in 2013.

·; Launch of m2mAIR in 2012, a business unit dedicated to aggregating value to the module business with value added services, including connectivity. This strategic move will enable the Company to add an increasing layer of recurring revenues to its business model during 2013.

·; In 2012, the Company entered into an underlying agreement with Telefónica, a top tier telecommunications company, for the purposes of facilitating m2mAIR. m2mAIR offers its customers:

§ Global coverage through the footprint of Telefónica and its roaming partners.

§ Blue-chip customer pricing for mid-size/small customers.

§ High quality m2m service management platform.

§ m2m value added services and connectivity including over the air Remote Module Management.

According to 2011 Berg Insight market research, 2013 revenues for the market in which m2mAIR operates are expected to be $7.3 billion, growing to $15.5 billion in 2016. These revenues are currently captured by operators and service providers around the world.

·; Successful integration of Navman, a leading designer and manufacturer of location technologies, including the Global Positioning System (GPS) and Global Navigation Satellite System (GNSS). Navman augmented our location product portfolio and enhances our ability to service the needs of our customers.

·; Development of 4G LTE designed for use in the most demanding automotive applications.

Acquisitions

·; Acquisition of Navman, a leading designer and manufacturer of world-class GPS modules and solutions, completed in January 2012. This acquisition has enhanced Telit location product portfolio.

·; Acquisition of CrossBridge Solutions Inc. ("CrossBridge"), a premier US based m2m data and value added services provider located in Lincolnshire, Illinois, USA in December 2012. The acquisition of CrossBridge and its US based engineering and sale staff will allow us to expand Telit m2mAIR business unit offerings in m2m value added services and connectivity to the USA.

Financial review

·; Revenue for the year increased by 16.9% to $207.4 million (2011: $177.4 million) largely attributed to sales in the US and EMEA markets.

·; Gross profit for the year increased by 13.4% to $76.9 million (2011: $67.8 million) with gross margin of 37.1% (2011: 38.2%).

·; Research and Development expenses decreased by $1.0 million to $20.1 million (9.7% of revenues) compared to $21.1 million in 2011 (11.9% of revenues). Sales and marketing expenses increased by $5.2 million to $30.5 million (14.7% of revenues) compared to $25.3 million in 2011 (14.2% of revenues). The increase is mainly due to the Navman acquisition, the set-up of the m2mAIR business unit and the opening of new sales offices. General and administrative expenses increased to $19.7 million (9.5% of revenues) compared to $17.5 million in 2011 (9.9% of revenues).

·; Adjusted EBIT increased from $6.9 million in 2011 to $10.6 million.

·; Adjusted EBITDA increased to $17.3 million reflecting an EBITDA margin of 8.4% (2011: $13.1 million; 7.4%).

·; Basic earnings per share for the year were 3.8 cents compared to 1.6 cents in 2011.

Commenting on the results, Oozi Cats, Chief Executive, said: "2012 was an important year for Telit. We achieved strong growth in sales and profits together with the launch of the m2mAIR business unit and the acquisition of CrossBridge in USA that will add, from 2013, a layer of recurring revenue stream to Telit's financial model. We will continue exploring opportunities in the m2m space that are in line with our road map, such as backend and cloud services to m2m service providers.

Our hard work and significant investments over the past few years have created a market leading platform through which we are capitalizing on the exciting opportunities within the m2m market and continuing to increase our market share. We are very excited about the one stop shop concept we are providing to our m2m customers and we are confident that Telit is now even better placed to achieve its objective of becoming the leading provider of m2m solutions worldwide.

2013 has started well, as investments in sales and marketing, and m2mAIR begin bearing fruit. The Company remains confident about the current year outlook."

For further information:

Notes to readers

With over 12 years exclusively dedicated to the m2m market, Telit constantly advances its technological leadership from six R&D centres around the globe. The Company offers an extensive portfolio of the highest quality cellular, short-range, and global navigation satellite system (GNSS) modules, available in over 80 countries from 30 sales offices, 59 exclusive distributors, and a sales force of about 350 sales people.

Telit provides unmatched customer support and premier design-in expertise from its sales and support offices, global distributor network of wireless experts and 30+ accredited Competence Centres. The Company's vast experience doing business globally has helped Telit establish strong channels and excellent access to key suppliers, customers and distributors in all major markets. Telit is entrenched not only as a supplier but also as an active member in standards definitions bodies for a number of segments and application areas including automated meter reading, automotive, fleet management, healthcare, security systems, telematics, POS, and others.

Brief introduction to the machine to machine (m2m) market

Machine to machine (m2m) technology establishes wireless communication between machines and the information centre of a business. The goal of m2m is to enable applications that allow businesses to increase productivity and competitiveness. At the heart of each m2m implementation is a communication module which receives, processes and transmits information.

The international market for machine to machine (m2m) wireless communications is rapidly growing as wireless communications are now a must have rather than a luxury technology. Companies that were not interested in m2m wireless solutions in the past are now looking to incorporate this technology into their businesses as their operations expand and modernise.

The IMS Research (now part of IHS) report on the m2m sector "The World Market for Modules in M2M Communications - 2012 Edition", predicts that the market will enjoy high growth over the coming years. IMS Research believes that the number of units to be shipped will reach 118.5 million by 2016 representing a 2010-16 CAGR of 24.1%. Beecham Research in its "M2M Cellular Modules Forecast" report issued in July 2012, projects an average selling price decline of 8.9% p.a. resulting in a CAGR of 13.3 % growth in monetary value of the sector from 2010 through 2016 with a total value of m2m module market of $1.96 billion in 2016.

Chairman's statement

I am pleased to deliver the 2012 results. Our strong competitive position has helped us to achieve significant growth.

Outlook

The outlook for 2013 looks positive for the m2m industry as a whole and for Telit in particular. Notwithstanding the fact we are operating in a competitive environment, we believe we are well positioned to take advantage of the opportunities ahead and believe that our acquisitions in 2011 and 2012 together with our new m2mAIR business unit will strengthen our already strong position within our industry. We look forward to continued organic business expansion and are constantly seeking further expansion opportunities through new technologies or by gaining access to new territories and new market segments.

We look to 2013 and beyond with excitement, as we continue to gain market share and strive to constantly improve our profitability while continuing to provide the market with first rate products as well as value added services.

Board changes

·; On July 5, 2012, Mr Steven Sherman and Mr Sergio Luciano Buonanno were appointed to the board as Non-Executive Directors. Mr Buonanno is an Independent Director. Mr Sherman is a member of the remuneration committee of the Board.

·; Mr Alexander Sator, Non-Executive Director, resigned from the board as of December 31, 2012.

People

At the end of 2012, Telit employed 519 employees worldwide, an increase of 14.1% (2011: 455). During 2012 we have made significant progress and this is a reflection of the excellent team we are proud to have at Telit. The Board believes that our skilled staff is, and will continue to be, the cornerstone of Telit's success. I would like to personally thank all of the Company's employees for their hard work and to welcome all the new employees that have joined the Telit family, including those joining us from CrossBridge.

Dividend

The Company is not proposing to pay a dividend in respect of the period (2011: $ nil).

Enrico Testa

Chairmanof the Board 

Chief Executive's statement

2012 was the third year in a row of double digit growth for Telit and improvements in absolute profitability. In 2012 we implemented two major steps from our strategic roadmap - the acquisition of Navman that augmented our location product portfolio and enhances our ability to service the needs of our customers, and the launch of m2mAIR, a business unit dedicated to aggregating value to the module business with value added services including connectivity.

Financial results[2] 

Regional information

The split of revenue on a geographical basis for the years ended 31 December 2012 and 2011 is as follows:

EMEA

The EMEA results for 2012 epitomise one of the key words defining the m2m market: Diversification.

Telit's strategy is, and has been, not just to focus on a few large projects, but to follow many diverse projects in the m2m market, either directly or through our distribution network. As a result, over the years we have managed to build a very broad customer base, with diverse applications. This is one of the pillars of our success and is designed to lead to stability and long term growth.

The acquisition of Navman at the beginning of 2012 gave us access to the Global Navigation Satellite Systems ("GNSS") market. We successfully integrated Navman's sales network into Telit and the new products have been well received amongst our customers. Navman's growth in revenues has been over 100% in 2012 and we are aiming for the same success in 2013. Our target is to be a leader in GNSS space in the telematics vertical just as we are today for cellular modules.

Another significant milestone for Telit EMEA during last year was the launch of m2mAIR. The take-up of our value added services and connectivity has exceeded our expectations. This is confirmation that our value added proposition corresponds with our customers' needs. It brings them an easy and straightforward way to deploy their projects, allowing them to focus on their core business and relying on Telit for the remote management and connection of their devices in the field. We see 2013 as a phenomenal growth opportunity for m2mAIR, based on number of pilots in place and customers already showing interest in our proposals.

We still see uncertainties in the broader eurozone economy which may not stabilize until 2014 or later. Nevertheless and regardless of the slowdown of the economy in 2012, our strategy during 2012 was to keep investing resources in key markets, including Germany, France and Central Eastern Europe. This strategy has allowed us to strengthen our leadership position in EMEA and is expected to contribute to our growth in the general market during the coming years.

Americas

In 2012, the transition from 2G to 3G/4G technology continued at a rapid pace. The trend away from GPRS to 3G and CDMA was dramatic in North America. For Telit, the 910-form factor was very popular with customers who have multi region and multi carrier requirements. Telit received certification for many variants of the 910-product family on the major US carriers, including HSPA, HSPA+, EV-DO and low-cost 1xRTT products.

Telit became an associate member of Intel's Intelligence Systems Alliance and met new customers in the embedded computing space that provide industrial grade computers for a variety of computing intensive applications, such as gaming machines, medical devices, kiosks and digital signage. With the introduction of the Mini PCI Express card application developers are now able to integrate m2m capabilities into their solutions that need high-performance and cellular connectivity. Moreover, Telit, with Intel as the platinum sponsor, hosted its second Developers Conference in San Diego, Telit DevCon 2012, which connected industry experts with embedded application developers.

During 2012, Telit was involved in several major projects including the following:

·; For an industry leading m2m communications solutions provider, which develops end devices, such as cellular routers and modems, Telit provided HE910-D penta-band HSPA+ modules and DE910-DUAL EV-DO CDMA modules to offer faster communication speeds with the newest network technologies.

·; A customer which is an innovative global player in Internet of Things, m2m and connected devices and solutions, now uses the low power consumption of Telit's C24, G24L and H24 modules, for fleet and asset tracking applications.

·; A leading global provider of innovative and sustainable solutions for the management of waste and recycling now enables connectivity for solar compactors and waste receptacles with Telit's GE864-QUAD V2 module.

·; Another customer provides a hand-held device that helps field technicians optimize 3G m2m device installations using Telit's CC864-DUAL, UC864-G and DE910-DUAL modules.

·; A leading wireless medical technology company that focuses on the diagnosis and monitoring of cardiac arrhythmias, uses the CC864-DUAL to capture and transmit cardiac data while a patient is ambulatory.

·; A developer of ready, off-the-shelf telematics products, selected Telit's HE910 to enable connectivity in their solution for monitoring people, pets, personal belongings and commercial assets. They also selected the HE863 for their next-generation Interface, which monitors vehicle usage and driver behaviour with instant access to fuel levels, idling times, maintenance status and more.

·; A customer with innovative out-of-the box remote wireless monitoring solutions, selected Telit's G24 and H24 modules for its product lines, to enable real-time monitoring of a wide range of mobile and fixed industrial assets, such as gas lines, irrigation systems, chemical tanks and automotive fleets.

Telit's acquisition in December 2012 of CrossBridge, a premier US based m2m data and value added services provider located in Lincolnshire, Illinois, allows Telit to expand its m2mAIR business unit offerings to North America. Value added services from m2mAIR combine solutions for module and subscription management with m2m connectivity, delivering business value through enhanced network performance, cost control, security and troubleshooting.

2012 was a standout year for Telit Latin America in terms of sales growth, manufacturing improvements and introduction of new products. The Company gained new important accounts in the Telematics and Metering segments, reinforcing its leadership position in the Latin American market. The sales and backlog grew in units 25% compared to 2011.

Telit concluded the manufacturing migration of its production plant in Brazil to a top quality ISO TS Contracted Manufacturer. This migration ensures a significant manufacturing cost reduction, as well as a production capacity increase. In 2012 the Company successfully introduced its GNSS business with great acceptance from the market. The Company also started innovating in 3G local manufacturing, which is expected to generate important opportunities in new 3G applications.

APAC

In 2012 our business in APAC came under strong price pressure and it was also a year of investments and restructuring. We recruited a new president for the region as well as additional sales force. We also decreased our costs of production, all in order to build the necessary infrastructure for future growth.

In Korea, operators are migrating to LTE technology. Telit, with years ofmarket leadership and experience working with local operators, began the transition of our product offerings. In addition, the Navman acquisition added a brand new portfolio of GPS/GNSS modules to complement our cellular modules to Telematics customers, providing faster time to market and lower cost of development. Both changes offer potential growth to an otherwise mature and stable m2m market.

In China,the largest m2m market in APAC, Telit has once again grown in market segment share. Telit attained leadership in market segment share of m2m cellular modules shipped against all other major foreign brand module suppliers. In addition, Telit was the only foreign branded module supplier that participated in the standard setting committee advising the State Grid Corporation of China on the next generation wireless module standard which will have significant impact on smart meters in China that are going to be deployed in the next few years.  Telit's brand and expertise is well recognized among the Chinese industry leaders.

With respect to the rest of APAC, Telit continues to invest in new markets like Australia, New Zealand, and Japan that are ripe for substantial growth. In Australia, Telit opened an office in Melbourne. In Japan, Telit signed distributor agreements and forged business partnership with prominent Japanese customers. Telit will continue to leverage its presence in APAC to provide the highest quality service and product to our regional customers.

Technology & products

Technological innovation is Telit's core capability. Thanks to its six R&D centres the Company was again able, in 2012, to provide outstanding module quality ranging from cellular, to short-range RF and location technologies. The modules are currently integrated in a wide range of applications, including asset tracking, remote industrial monitoring, automated utility meter reading, insurance telematics, consumer electronics, mobile health devices and many more.

In 2012 we expanded our offering based on the (X) E910 form factor. We introduced the CE910 (CDMA-1x) and DE910 (EVDO) products to extend our offering for the CDMA markets. We also introduced new UE910 (UMTS, HSPA) variants to complete our WCDMA offering with additional bands and throughput. To complete the offering we launched the GE910 (GPRS) product and announced the extension of this family to LTE in 2013. This module family, the Telit (X) E910 features a series of wireless modules based on the Land-Grid-Array (LGA) form factor to ensure software and hardware, forward and backward compatibility across technologies, while maintaining the application design and guaranteeing the same form factor and the same software interface through all cellular technologies throughout the product's industrial lifetime.

Another 2012 highlight are the new automotive products based on the new form factor (X)E920. The new HE920 (HSPA) and LE920 (LTE) will be commercialized during 2013 and will expand our offering to the automotive market. We also extended our automotive portfolio with the new GE910 (GPRS) automotive grade variant.

Furthermore, during 2012 we launched a series of new GNSS modules. Our offering now includes the JF2 and JN3 (GPS) products added with the Navman acquisition and the newly launched SL869 (GPS/Glonass) and SE880 (GPS) products.

Integration of Navman Wireless OEM Solutions LP

The acquisition of Navman, which completed on 3 January 2012, strengthened Telit's position as the premier product and consultative partner in the m2m industry, by leveraging the synergies of both companies to better serve our global customers.

The acquisition of Navman's technology and the engagement of its US based executive engineering and sales staff has made Telit a major contender in the GNSS market. Our enhanced product portfolio resulting from the acquisition, as well as Navman's reputation for delivering state-of-the-art GPS technology and the global reach of Telit's sales and marketing organization put us in a strong position of growth in the GPS sector. In particular, the Navman acquisition provided us with access to new GPS customers beyond the traditional m2m industry and rights to the "Jupiter" product line which dates back over 20 years to the development of GPS systems at Rockwell International and which has become almost synonymous with GPS.

Acquisition of CrossBridge Solutions Inc.

In December 2012 the Company acquired CrossBridge Solutions Inc., a premier US based m2mAIR data and value added services provider located in Lincolnshire, Illinois, USA. The acquisition of CrossBridge and its US based engineering and sale staff will allow us to expand Telit m2mAIR business unit offerings in m2m value added services and connectivity to the USA, and is expected to contribute to the recurring revenues starting 2013.

Strategy

Having successfully integrated the most recent businesses acquired by Telit (Motorola m2m, GlobalConect, Navman and CrossBridge) into the Company's global organization, and with our significant market share, Telit is confident in its position as a leading global company in the m2m industry. Telit looks forward to continuing to implement its strategy which is to grow the Company through a three-pronged approach:

- Organically alongside general growth in the m2m industry;

- Via recurring income through our valued added services unit which will leverage the long-standing relationships with our customers; and

- Via appropriate acquisition opportunities to the extent that these become available.

Outlook

The outlook for the rest of 2013 and the future looks positive for the m2m industry and promising for Telit. Our strong position in the m2m market together with our m2mAIR business unit is expected to lead Telit to further growth and further improvement in our financial results.

The hard work and dedication of Telit's staff across the globe is and will continue to be crucial to Telit's success. I would like to thank the Company's management team and all employees for their continued commitment to the Company and its success. Their dedication is an invaluable asset, indeed the core asset of the Company. I would also like to welcome the employees of CrossBridge into the Telit family.

Telit intends to continue to take advantage of the considerable opportunities arising in this growing global market. 2013 has started well, and I look forward to providing further news of the Group's progress over the coming months.

Oozi Cats, Chief Executive

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CASH FLOW

CONSOLIDATED STATEMENT OF CASH FLOW

(1) The Company has re-presented the tax expenses and the net finance costs in the 2011 cash flow statement so it provides better information on the cash flow involved in income tax as presented in the income statement and net finance cost. In the revised presentation, movement in deferred taxes, tax paid in cash and net finance cost paid, has been presented in separate lines, while the other non-cash tax expenses have been reflected within the movement in other current liabilities balance.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2012 (audited)

Year ended 31 December 2011 (audited)

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1. The Group's accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU.

2. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011. Statutory accounts for 2012 have been delivered to the Registrar of Companies. The auditors have reported on the 2012 and 2011 statutory accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

3. The Group meets its day to day working capital requirements through overdraft facilities and invoice advance facilities. Some of these facilities are cancellable on demand or have renewal dates within one year of the date of approval of the financial statements. In addition, the Group has received a long-term preferential rate loan supported by the Ministry of Trade and Commerce in Italy. Further information is provided within note 5.

The management considers the uncertainty over (a) the level of demand for the Group's products which may also affect the possibility of utilizing some of these facilities since they depend upon the level of sales in specific markets and in some instances to specific customers; (b) the exchange rate between Euro and US dollar and thus the consequence for the cost of the Group's raw materials; (c) the availability of bank finance in the foreseeable future; (d) the continuity of supply from key suppliers; and (e) the forecasts in current market environments.

The Group's forecasts and projections taking into account the Group's history of successfully renewing its facilities in the past and the fact that there are actions available to the Group to address these risks, show that the Group should be able to operate within the level of its current facilities. The Group maintains constant negotiations with its banks for renewing and increasing the credit facilities to meet the required working capital for the Group's future growth. After making enquiries, the directors are confident that the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

4. Reconciliation of operating profit, profit before tax and net profit to the adjusted figures:

(1)

5. Net (debt) / cash position

The table below presents the net (debt) / cash position at the year-end:

*increase in working capital borrowing mainly due to the growth of the company and increase in receivables and inventory.

(1) Drawn letters of credit and borrowings arising from invoice advances use for working capital financing.

(2) Representing the preferential rate loan supported by the Ministry of Trade and Commerce in Italy provided in connection with the Group's business development program in Sardinia. The loan is denominated in Euro, attracts interest at a rate of 0.75% and is repayable in ten annual instalments that commenced on 20 March 2009. On December, 2012 additional loan in the amount of $975K, carrying the same terms, was received.

(3) Representing a preferential rate loan from a regional fund in Italy provided in connection with the Group's acquisition of the campus used for the Company's main R&D facility in Trieste, Italy. The mortgage loan is denominated in Euro, attracts interest at a rate of Euribour 6 months less 20% and is repayable in 15 semi-annual instalments that commenced in June 2012.

The directors believe, based on the past performance of the relevant subsidiaries and the history of the relationships with the lending banks, that the credit facilities will remain available to the Group in the foreseeable future and that therefore the Group will be able to continue to fund its operations from these credit facilities.