Half Yearly Report

15th Sep 2009 07:00



Press Release

15 September 2009

Telit Communications PLC

("Telit" or "the Company")

Interim Results for the six months ended 30 June 2009

Rome, Italy, 15 September 2009 - Telit Communications PLC (AIM: TCM), a global leader in machine-to-machine (m2m) communications, is pleased to announce its interim results for the six months ended 30 June 2009.

Financial & Business Highlights:

Revenue decreased to €27.7 million (H1 2008: €30.1 million)

Gross profit decreased to €12.7 million (H1 2008: €12.9 million)

Gross margin increased to 45.8% (H1 2008: 43.0%)

Net operating expenses decreased to €14.3 million (H1 2008: €15.5 million)

Operating loss for the period decreased to €1.6 million (H1 2008: loss of €2.6 million)

Adjusted EBITDA1 for the period €0.6 million (H1 2008: loss of €1.1 million)

Net loss of €2.0 million (H1 2008: loss of €4.2 million)

 

 

Commenting on the results, Oozi Cats, Chief Executive of Telit, said: "The first six months of the year have been challenging in terms of revenues but positive for Telit in terms of improved operating results and number of units sold, which showed a substantial improvement."

"We are pleased to have been able to achieve such performance during the first six months of the year in spite of the effects of the worldwide economic recession on the m2m industry and the effects of foreign exchange rate fluctuations on our business. The global demand for m2m cellular wireless solutions has grown in terms of units but the strong erosion in the average sales price offset the increase in units sold. Market research indicates that the number of modules sold will increase slightly in 2009 after a decline of 1.5% in 2008, leading to no growth in the m2m market in terms of revenue in 2009 but with a rebound of revenue in 2010, gaining momentum in 2011. Telit presented significant growth in 2008 against the market trend and continued to grow in terms of units sold above the market performance.  During the first half of 2009, Telit also continued to improve its operating effectiveness and in spite of the decline in the top line Telit achieved a higher - and positive - EBITDA compared to the first half of 2008. As part of the ongoing cost structure improvement process which is reflected in the first half results by reducing the operating costs from €15.5 million to €14.3 million, Telit also invested in creating new outsourced manufacturing in China, which commenced in August 2009 and which will help the Company sustain the profitability levels achieved in H1 2009. The half year results demonstrate the considerable effectiveness being achieved by our business and the opportunities going forward."

Below are the key financial performance for H1 2009 compared to H1 2008 and FY 2008:

	H1 2009 €'000	H1 2008 €'000	FY 2008 €'000
Revenue	27,720	30,112	59,083
Gross profit	12,694	12,937	29,096
Gross profit percentage	45.8%	43.0%	49.2%
Other income	408	-	1,002
Research & Development1	(5,360)	(5,197)	(9,577)
Selling & Marketing1	(5,249)	(6,285)	(10,694)
General & Administrative1	(3,870)	(3,811)	(8,827)
Share based payment charges	(260)	(246)	(436)
Operating Loss (EBIT)	(1,637)	(2,602)	564
Adjusted EBITDA	571	(1,107)	3,673

1 Excluding share based payments

For further information:

Telit Communications PLC Michael Galai, Finance Director	Tel: 00 972 3 791 40 40 [email protected] www.telit.com
Seymour Pierce Limited Chris Howard, Corporate Finance	Tel: +44 (0) 20 7107 8000 www.seymourpierce.com

  CHIEF EXECUTIVE'S STATEMENT AND REVIEW - INTERIM RESULTS 2009 

Introduction

I am pleased to present Telit's unaudited interim results for H1 2009. We are pleased to report on strong progress made in the first six months of 2009 in improving the Company's EBIT and EBITDA while more than halving the net loss, especially in the current global economic situation. 

The first half of the year has been a successful period in terms of new client wins in the APAC and Americas region where Telit is showing strong growth, which were offset by the decline in revenues in EMEA. Many of the wireless M2M module vendors differentiate themselves by focusing on specific technology standards. Telit is one of the very few players that support GSM/GPRS, CDMA and UMTS networks, while entering the arena of short range RF technologies such as WiFi, Zigbee, and Bluetooth and GPS Technology. Telit delivers strong and sustainable growth and is ranked by market research firm Beecham Research (May 2009) as the third largest M2M module supplier worldwide in terms of sales with an increase of approximately 50% in its market share in 2008.

Beecham research report, released in May 2009 analyzes the latest market developments in all regions around the world and forecasts that the market is promising continuous and increasing growth over the coming years, in spite of the current economic downturn. Beecham research believes that m2m network connections will exceed 50 million by 2013, with a CAGR of 20% over 2008 figures. 

Financial Results 

The results for the first six months reflect the current global economic situation, mainly in Europe, but despite the decline in the revenues during the period, the EBIT and EBITDA are better than those achieved in the first half of 2008.

The majority of revenue continues to come from repeat business with existing customers. In addition to the development of existing customer relationships, Telit has increased the number of direct customers during the period to decrease its dependency on the distribution channels which now reflect about 50% from the total sales. 

H1 2009 gross profit decreased only slightly to €12.7 million, compared to €12.9 million in H1 2008, in spite of the decline in revenue, resulting in an overall margin of 45.8% compared to 43.0% for H1 2008. 

Research and development expenses, excluding share-based payments, were €5.4 million, including the new R&D centre in Sofia Antipolis which was acquired in November 2008, compared to €5.2 million in H1 2008. 

Sales and marketing expenses, excluding share-based payments, were €5.2 million, compared to €6.3 million in H1 2008.

General and administrative expenses, excluding share-based payments, were €3.9 million, compared to €3.8 million in H1 2008. The H1 2009 expenses include general and administrative expenses of the new entities in France and Brazil which were not included in H1 2008.

Share based compensation charges were €0.3 million in H1 2009 compared to €0.2 million in H1 2008. 

The overall net operating expenses were €14.3 compared to €15.5 in H1 2008 resulting in an operating loss for the period of €1.6 million, a significant improvement from a loss of €2.6 million in H1 2008, especially considering the decline in revenue. Loss before tax was €2.1 million, compared to a loss of €3.5 million in H1 2008, due to the decrease in operating losses of €1.0 million and lower net financing costs of €0.4 million.

Net loss for the period was €2.0 million compared to a net loss of €4.2 million in H1 2008. 

Total basic and diluted loss per share from continuing operations was 4.4 Euro cents for the period compared to a 6.9 Euro cents loss per share in H1 2008. The total continuing and discontinued basic and diluted loss per share was 4.4 Euro cents, compared to a 9.2 Euro cents loss per share in H1 2008.

Regional Information

The continued development of Telit's global outreach can be seen by the geographical division of revenues for H1 2009. While the majority of revenue continues to come from the EMEA region, we fully expect that the APAC and Americas regions will continue to increase the weightings of their contribution to total revenue performance in 2009 and beyond. 

The split of revenue on a geographical basis for the six months ended 30 June 2009 and 2008 and for full year 2008 is as follows:

	H1 2009 (M€)	% of Total Revenues	H1 2008 (M€)	% of Total Revenues	FY 2008 (M€)	% of Total Revenues
EMEA	17.0	61%	23.7	79%	44.2	75%
APAC	5.8	21%	4.8	16%	9.6	16%
AMERICAS	4.9	18%	1.6	5%	5.3	9%
Total Revenues	27.7	100%	30.1	100%	59.1	100%

The performance in the APAC region has improved during the period and the revenues from this region are expected to increase during the rest of 2009 and beyond. Telit Americas showed significant growth during the period and is expected to continue to increase its weighting within Telit's total revenues during the rest of 2009 and beyond.

The number of employees on a geographical basis as at 30 June 2009, 2008 and for full year 2008 is as follows:

	June 30,  2009	June 30, 2008	December 31, 2008
EMEA	275	213	268
APAC	74	70	76
AMERICAS	20	14	21
Total Employees	369	297	365

The majority of the increase in the headcount between H1-09 to H1-08 derives from the acquisition of Telit RF and the investments in Telit Brazil and Telit South Africa in the second half of 2008.

Effects of Foreign Exchange

40% of Telit's revenue in the period ended 30 June 2009 was generated in Euros (52% in H1 2008), with the remaining generated in, or linked to, U.S. dollars and other currencies. However, a substantial part of the Company's purchased materials cost is denominated in U.S. dollars, therefore, despite the negative impact of the depreciation in the value of the U.S. dollar and other currencies against the Euro on Telit's top line in H1 2009 compared to H1 2008 exchange rates, there is no material impact on the gross profit in the period. 

Business Performance & sales

During H1 2009 the following major developments took place that contributed to the overall performance of the Company and will contribute to the Company's future results:

Telit completed the integration of One RF Technology S.A.S. (acquired in November 2008 and since renamed Telit RF), which designs wireless data transmission solutions for m2m and telemetry applications and developed its own ZigBee™ solutions that complement Telit's existing product offering and business. Telit RF's contribution to H1 2009 revenue was marginal but we expect it to grow faster than the group from 2010 and beyond.

Telit Infinita Services were launched during the period. The primary goal of Telit Infinita Services is to simplify m2m solution deployment and maintenance of device software. Telit Infinita Services support customers in managing device populations throughout their lifetime via a powerful back-end solution. The Premium FOTA Management greatly increases the operational reliability of an m2m application. Malfunctions due to changes made to the network or new software versions with additional functions mean regular updates of the module firmware are required. With Premium FOTA Management, these updates can now be performed remotely over the air, fast and reliably. The services business is expected to begin generating significant revenue from mid-2010 and forms the basis for the Company's business plan for the next 3-5 years.

The GE863-PRO3 is Telit's first dual-core module. Equipped with two powerful microprocessors, this quad-band module is suited for a wide range of applications requiring high processing power. The GE863-PRO3 has the same form factor and software interfaces as all other modules of the GE863 family, ensuring it can be easily integrated into existing customer designs with minimum adaptation. During the first half of 2009 the GE863-PRO3 generated revenue of approximately €0.4m and we expect this product to increase its weightings in the total revenue in H2 2009 and beyond

In April 2009, Telit also entered into supply agreements with Positron, a PST Electronics brand (Positron), and MetaSystem spa. Under the terms of the agreement with Positron, Telit will be its exclusive provider of wireless modules in Brazil. The devices will be used on the Positron GSM trackers line, developed to equip vehicles. The GE-864 QUAD Automotive is the latest module produced by Telit in Brazil and it boasts specific characteristics to cater specifically to the automotive market. MetaSystem, a MetaSystem Group company specialising in research, development and production of advanced electronic security systems for the automotive sector, has chosen Telit's modules for its MetaSat RC06 MBK telematics device. These agreements are expected to contribute significant revenue from the fourth quarter of 2009 and beyond

In 2009, Telit introduced the GE865, the latest extension to its GE product range. The innovative BGA module with a form factor of just 22 x 22 x 3 mm is based on a single-chip solution from Infineon Technologies. This makes it the smallest globally available GSM/GPRS module. The GE865 can be incorporated perfectly into high-volume M2M applications in which the module size and low energy consumption play a key role. The first shipment of this product is expected in the fourth quarter of 2009 with a significant ramp-up in 2010.

In April 2009, Telit concluded a three-year cooperation agreement with Eurocopter to develop a configuration management monitoring system for helicopters. Under the terms of the RFID-Aero R&T project, Telit's short-range division, Telit RF Technologies, will develop a wireless communication system for critical helicopter components, fitted with an Active RFID tag, based on the ZigBee standard protocol. Information about the current status of the component is transmitted to a central system. This project will begin generating revenue from 2012 onwards.

Major R&D Developments

The R&D performance during the period was in line with our expectations. Telit is committed to continued investment in R&D and new technologies, which are the basis for the Company's growth in the future. The major R&D developments during the period include:

UC864-G, a WCDMA/HSDPA module for the global market - completed certification for the module which has tri-band for WCDMA and quad band for GSM/GPRS/Edge, and with software and features identical to the UC864-E.

CC864-dual, a CDMA 1X module for North America - Sprint IOT was completed for the first Telit CDMA module developed for the U.S. market which supports 800MHz and 1.9GHz band in the same form-factor as GC864 and UC864.

GE864-Automotive, based on the E Gold Lite platform, the module designed mainly for ruggedized environments and automotive applications, was launched. The use of the GE864 subcompact form factor allows its integration into cars and other applications requiring an extended operating temperature range and mechanical ruggedness within the ever-shrinking space inside electronics bays in trucks, cars and other mobile platforms. 

GE864-ATEX, has been designed for critical applications working in explosive environments and, as such, it's architectural and engineering specifications followed the strict requirements of the ATEX directive. 

GE865, the new GSM/GPRS module with the smallest foot print in world-wide was launched.

Update on the Strategic alliance with Bartolini After Market Electronics Services s.r.l. ("BAMES")

In June 2007 BAMES invested €9 million in the share capital of the company's subsidiary, Telit Wireless Solutions Srl. (TWS), the first installment of a €16 million investment in TWS' share capital. Under the terms of the transaction, BAMES invested the second sum of €7 million, in TWS' share capital in December 2008, after Telit met certain milestones. 

In July 2009 the Company signed an agreement with BAMES to convert the manufacturing agreement with SEM (the Vimercate, Italy based manufacturing arm of BAMES) to be non-exclusive. As a result of the cancellation of the exclusivity, SEM is entitled to a compensation of €2.75-3.50 million. In addition, manufacturing costs will remain fixed through the end of the year. Telit and SEM will continue to cooperate in various projects and SEM will continue to provide specific manufacturing services to Telit, such as manufacturing of prototypes, on a non-exclusive basis.

Telit has begun parallel manufacturing with a new, leading, manufacturer in China and expects that a majority of its products will be manufactured in China starting from 2010. The new manufacturing arrangements will allow Telit to improve its competitive position within the m2m market and to maintain the current level of profitability in the next years.

Outstanding Shares 

In August 2009 the Company completed the transaction announced on 14 July 2009, according to which the Company allotted to Boostt B.V., a significant shareholder of the Company, 1,500,000 new shares of 1 pence each to Boostt B.V. at 29p per share. The net consideration received by the Company was £435,000.

Following the completion of the abovementioned transaction, the Company's total issued share capital consists of 46,014,281 ordinary shares of 1p each with one voting right per share. There are no shares held in treasury. 

Board changes 

In February 2009 Boostt B.V. nominated Mr. Massimo Testa, aged 51, as a non-independent, non-executive Director, to the Board of Directors to the Company. 

Mr. Testa is currently a director and shareholder of Techvisory S.A. ("Techvisory") and Wireless Solution Management S.L. ("WSM"), which are corporate parents of Boostt B.V., a significant shareholder of the Company. Mr. Testa is the brother of Mr. Enrico (Chicco) Testa, Chairman of the Board of Directors of the Company. 

Also in February 2009, Mr. Maurizio Gasparri, an independent non-executive director, resigned from the Board due to an increased workload from his other commitments.

Outlook

The outlook for the rest of 2009 looks positive for Telit, and despite the challenges in the m2m market we expect to be back on track with renewed growth despite the decline in revenue in the first half. We are well positioned to take advantage of the opportunities ahead, are confident in our strong position within our industry and look forward to continue gaining more market share. We are constantly seeking further expansion opportunities through new technologies or by gaining access to new territories and new market segments. We are also continuously working on rationalising the Company's cost base, and the effects of the work done to date are reflected in the improved EBIT and EBITDA of our operations during the first half of the year and will continue to have a positive effect on our results in the second half of the year and beyond. In addition, we expect that the EMEA region will improve substantially during the second half of the year based on the current backlog we have in hand.

The improvements in our costs base and in the EMEA operations, coupled with the additional cost savings from the move of manufacturing to China, will serve to improve our business results, in the top line as well as in the EBIT, EBITDA and net profit lines.

Telit intends to continue to take advantage of the considerable opportunities arising in this growing global market. I look forward to providing further news of the Company's progress over the coming months.

Appreciation

Telit's management's main focus is and will continue to be to expand and strengthen our position as one of the world's premier m2m technology providers, while striving to anticipate and respond to market conditions that are beyond our control, such as the effects of the global downturn on 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, directors and employees for their commitment to the company and its success. Their dedication is an invaluable asset, indeed the core asset of the company.

At the end of this period I very much believe that it is apparent that all the efforts we have invested, and are still investing, have created a solid business platform, the benefits of which our customers, shareholders and other stakeholders can enjoy.

Oozi Cats

Chief Executive

  CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

	Six months ended 30 June		Year ended 31 December
	2009	2008	2008
	Unaudited		Audited
	€'000	€'000	€'000
Revenue	27,720	30,112	59,083
Cost of sales	(15,026)	(17,175)	(29,987)
Gross profit	12,694	12,937	29,096
Other income	408	-	1,002
Research and development expenses	(5,410)	(5,230)	(9,647)
Selling and marketing expenses	(5,337)	(6,353)	(10,829)
General and administrative expenses	(3,992)	(3,956)	(9,058)
Operating profit (loss)	(1,637)	(2,602)	564
Investment income	67	214	192
Finance costs	(493)	(1,087)	(1,171)
Share of results in associated undertakings	11	8	18
Gain on partial deemed disposal of subsidiary	-	-	1,614
Profit (Loss) before income taxes	(2,052)	(3,467)	1,217
Income taxes (tax benefit)	(89)	(281)	2,586
Loss for the period from continuing operations	(1,963)	(3,186)	(1,369)
Loss for the period from discontinued operations	-	(987)	(1,864)
Loss for the period	(1,963)	(4,173)	(3,233)
Other comprehensive income Translation adjustments	57	(1,291)	(1,904)
Total comprehensive income for the period	(1,906)	(5,464)	(5,137)
Attributable to:
Equity shareholders of the parent	(1,969)	(3,974)	(3,052)
Minority interests	6	(199)	(181)
	(1,963)	(4,173)	(3,233)
Basic and diluted loss per share (in euro cents)
From continuing operations	(4.4)	(6.9)	(2.7)
From discontinued operations	-	(2.3)	(4.3)
Total continuing and discontinued	(4.4)	(9.2)	(7.0)
Weighted average number of equity shares in issue	44,514,281	43,214,281	43,430,948

.  CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

	30 June		31 December
	2009	2008	2008
	Unaudited		Audited
	€'000	€'000	€'000
ASSETS
Non-current assets
Intangible assets	10,207	10,400	9,883
Property, plant and equipment	3,419	3,221	3,779
Investments in associated undertakings	613	616	629
Other investments	1,570	1,570	1,570
Other long term assets	311	195	3,437
Deferred tax asset	574	3,430	548
	16,695	19,432	19,846
Current assets
Inventory	8,764	8,453	10,750
Trade receivables	16,969	19,125	14,575
Other current assets	4,655	3,191	4,799
Deposits - restricted cash	6,000	6,328	6,000
Cash and cash equivalents	2,250	2,773	4,619
	38,639	39,870	40,743
Total assets	55,334	59,302	60,589
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Share capital	644	627	644
Other reserve	(260)	(260)	(260)
Share premium	30,188	29,651	30,188
Translation reserve	(3,401)	(2,916)	(3,464)
Retained deficit	(16,852)	(16,246)	(15,143)
Total shareholders' equity	10,319	10,856	11,965
Minority interests	77	304	77
Total equity	10,396	11,160	12,042
Non-current liabilities
Other loans	3,150	500	3,531
Post-employment benefits	1,790	1,725	1,807
Deferred tax liabilities	180	226	245
Provisions	761	-	748
Other long-term liabilities	199	2,658	119
	6,080	5,109	6,450
Current liabilities
Short-term borrowings from banks and other lenders	21,119	21,376	19,026
Trade payables	7,858	14,305	11,140
Provisions	122	112	142
Other current liabilities	9,759	7,240	11,789
	38,858	43,033	42,097
Total equity and liabilities	55,334	59,302	60,589

  CONSOLIDATED STATEMENT CASH FLOWS 

	Six months ended 30 June		Year ended 31 December
	2009	2008	2008
	Unaudited		Audited
	€'000	€'000	€'000
CASH FLOWS - OPERATING ACTIVITIES
Net cash used in continuing operations	(2,472)	(3,622)	(6,735)
Net cash from / (used in) discontinued operations	-	4,707	(1,441)
Net cash from / (used in) operating activities	(2,472)	1,085	(8,176)
CASH FLOWS - INVESTING ACTIVITIES
Net proceeds from issue of shares in subsidiary to a third party	-	-	7,000
Grant contribution towards intangible assets	-	-	2,606
Acquisition of subsidiaries	-	-	(15)
Purchase of property, plant and equipment	(369)	(1,219)	(1,686)
Purchase of intangible assets	(1,673)	(2,687)	(4,888)
Net cash (used in) / from continuing operations	(2,042)	(3,906)	3,017
Net cash used in discontinued operations	-	1,187	-
Net cash (used in) / from investing activities	(2,042)	(2,719)	3,017
CASH FLOWS - FINANCING ACTIVITIES
Preferential rate loan	-	-	3,909
Repayment of long term loans	(381)	-	-
Short-term borrowings from banks and others	2,161	3,742	757
Net cash (used in) / from continuing operations	1,780	3,742	4,666
Net cash (used in) / from discontinued operations	-	(4,249)	-
Net cash (used in) / from financing activities	1,780	(507)	4,666
(Decrease) / increase in cash and cash equivalents	(2,734)	(2,141)	(493)
Cash and cash equivalents-balance at beginning of period	4,619	5,212	5,212
Effect of exchange rate differences	365	(382)	(100)
Cash and cash equivalents-balance at end of period	2,250	2,773	4,619

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

Six months ended 30 June 2009 (Unaudited)

	Share capital	Share premium	Other reserve	Translation adjustment	Retained earnings	Total	Minority interest	Total
	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000
1 January 2009	644	30,188	(260)	(3,464)	(15,143)	11,965	77	12,042
Total comprehensive income for the period
Loss for the period					(1,969)	(1,969)	6	(1,963)
Other comprehensive income
Translation adjustment				63		63	(6)	57
Total comprehensive income for the period				63	(1,969)	(1,906)	-	(1,906)
Transaction with owners, recorded directly in equity
Contributions by and distributions to owners
Share-based payment charge					260	260		260
Total transaction with owners					260	260		260
30 June 2009	644	30,188	(260)	(3,401)	(16,852)	10,319	77	10,396

 

Six months ended 30 June 2008 (Unaudited) 

	Share capital	Share premium	Other reserve	Translation adjustment	Retained earnings	Total	Minority interest	Total
	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000
1 January 2008	627	29,651	(260)	(1,734)	(12,512)	15,772	605	16,377
Total comprehensive income for the period
Loss for the period					(3,974)	(3,974)	(199)	(4,173)
Other comprehensive income
Translation adjustment				(1,182)		(1,182)	(109)	(1,291)
Total comprehensive income for the period				(1,182)	(3,974)	(5,156)	(308)	(5,464)
Transaction with owners, recorded directly in equity
Contributions by and distributions to owners
Share-based payment charge					240	240	7	247
Total transaction with owners					240	240	7	247
30 June 2008	627	29,651	(260)	(2,916)	(16,246)	10,856	304	11,160

Year ended 31 December 2008 (Audited) 

	Share capital	Share premium	Other reserve	Translation adjustment	Retained earnings	Total	Minority interest	Total
	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000
1 January 2008	627	29,651	(260)	(1,734)	(12,512)	15,772	605	16,377
Total comprehensive income for the period
Loss for the period					(3,052)	(3,052)	(181)	(3,233)
Other comprehensive income
Translation adjustment				(1,730)		(1,730)	(174)	(1,904)
Total comprehensive income for the period				(1,730)	(3,052)	(4,782)	(355)	(5,137)
Transaction with owners, recorded directly in equity
Contributions by and distributions to owners
Issuance of shares	17	537				554		554
Share-based payment charge					421	421	15	436
Total changes in ownership interests in subsidiaries							(188)	(188)
Total transactions with owners	17	537			421	975	(173)	802
31 December 2008	644	30,188	(260)	(3,464)	(15,143)	11,965	77	12,042

  

NOTES TO THE INTERIM FINANCIAL STATEMENT

AT 30 JUNE 2009 (UNAUDITED)

2. The interim financial statements include the results of operations and the financial position of the Company and its subsidiaries (together the "Group") as at and for the six months ended 30 June 2009. The Group is engaged in the development, manufacture and sale of wireless communications (primarily cellular) modules - products for transmitting electronic data designed for the m2m telecom market, and services entailing the development and licensing of cellular technology to third parties based on the Company's technological property. 

The consolidated interim financial statements of the Company have been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the AIM Rules using the accounting policies set out in the Group's 31 December 2008 statutory accounts. The AIM Rules do not require compliance with the requirements of IAS 34 "Interim Financial Statements" and these consolidated interim financial statements have not been prepared in compliance with the disclosure requirements of that standard. The consolidated interim financial statements have not been audited or reviewed and do not constitute the company's statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2008 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

 

3. The Directors have not declared an interim dividend.

 

4. On 29 January 2009 the Company's remuneration committee, following the waiver by Messers. Oozi Cats and Enrico Testa of 1,625,000 options over ordinary shares, approved the granting of 3,100,000 options over ordinary shares in the capital of the Company to Messers. Cats and Testa, and to Mr. Michael Galai, directors in the Company. This grant was authorized as part of a group-wide waiver of options by the existing employees, officers, consultants and directors, and a subsequent grant of new options to the waiving optionholders and to employees who joined the Telit group during the past 18 months, at an exercise price closer to the then current market price of the Company's shares. The total number of options waived is 2,972,666 and the total number of options granted is 6,057,000. 

The agreement provided for SEM to produce all of Telit's m2m modules (with some exceptions) for a five year period starting from March 12, 2007. As a result of the cancellation of the exclusivity, SEM is entitled to a compensation of €2.75-3.50 million to be settled by set-off against the receivable balance Telit has from the license agreement entered into by the parties in December 2008. In addition, manufacturing costs will remain fixed through the end of the year. Telit and SEM will continue to cooperate in various projects and SEM will continue to provide specific manufacturing services to Telit, such as manufacturing of prototypes, on a nonexclusive basis.

7. Borrowings:

	H1 2009	H1 2008	FY 2008
	€'000	€'000	€'000
Current borrowings	21,119	21,376	19,026
Non-current borrowings	3,150	500	3,531
Total	24,269	21,876	22,557

The non-current borrowing of €3.15 million represents the long-term element of a preferential rate loan from the Ministry of Trade and Commerce in Italy of €3.9 million provided in connection with the Group's business development program in Sardinia. The loan attracts interest at a rate of 0.75% p.a. and is repayable in ten annual instalments commencing in March 2009 and ending in March 2018.

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.

ENDIR GUUWWBUPBGCC

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