18th Aug 2006 07:00
Telit Communications PLC18 August 2006 Press Release 18 August 2006 Telit Communications PLC ("Telit" or "the Company") Interim Results for six months ended 30 June 2006 Telit Communications PLC (AIM:TCM), the global wireless communications developerand distributor, today announces its interim results for the six months ended 30June 2006. HighlightsNet Current Assets as of 30 June 2006 (in • million)Cash and cash equivalents 11.8 Short Term Borrowings (*) 10.2Trade Receivables 20.8 Trade Payables 9.9Other Current Assets 14.3 Other Current Liabilities 3.2Total Current Assets 46.9 Total Current Liabilities 23.3Net Current Assets 23.6 Net Current Assets Less Long Term Loan as of 30 June 2006 (in • million)Net Current Assets 23.6Long Term Loan from main Shareholder (3.1)Total 20.5(*) Mainly to finance Trade Receivables • Telit's IPO was based on the balance sheet as at 31 December 2004 and raised €30 million net. Telit's Net Current Assets Less Long Term Loan (pre IPO) was €1.7 million, compared with €20.5 million at 30 June 2006. Since the IPO until to 30 June 2006 the Company invested more than €7 million in capital investments and acquisitions.• Telit has increased its lines of credit from financial institutions by €16 million during July and August 2006. These facilities exclude lines of credit in Israel that are secured by the Company's trade receivables.• Available lines of credit currently total €32.7 million, of which €4.8 million had been drawn as at 30 June 2006. • Turnover increased 10.5% to €40.5 million (H1 2005: €36.6 million).• Gross profit increased 7.2% to €7.1 million (H1 2005: €6.6 million).• Operating loss: €3.0 million (H1 2005: €0.6 million).• Loss for the period: €3.5 million (H1 2005: €1.9 million).• Significant growth in the Wireless Solutions Business Unit, which achieved a 132% increase in turnover to €10.5 million (H1 2005: €4.5 million).• Turnover for the Wireless Products Business Unit has declined to €30 million (H1 2005: €32 million).• Net current assets of €23.6 million, including cash and cash equivalents of €11.8 million.• Major expansion of the Wireless Solutions Business Unit, with particular emphasis on the development of a global sales network. The Company now has distribution agreements in 45 countries. Commenting on the results, Oozi Cats, Chief Executive Officer of TelitCommunications, said: "Over the past six months, Telit has taken advantage ofsome opportunities which presented themselves in the market to make significantprogress in establishing its position as a global player in the m2m market. TheBoard has taken the decision to accelerate this expansion. Although in the shortterm this has, and will continue to impact the Company's earnings, I amconfident that the current investment in the development of a global salesnetwork will deliver strong results in the future. We have also extended ourm2m product offering to CDMA technologies, in addition to our existing GSM/GPRSproduct line, and are making solid advances with UMTS and short-range products. "I am encouraged by the willingness of financial institutions in Italy to extendTelit lines of credit. I believe that companies in our industry must achieve three important buildingblocks to become one of the world's leading companies in the m2m marketplace:global presence, a set of products supporting a wide range of technologies andsufficient financial resources to support the company's growth. We currentlybelieve that we have a solid platform in these three areas and we look to thefuture with optimism." Outlook Telit will continue to focus on the Wireless Solutions Business Unit, aimed atdriving future growth, with the objective of creating value for itsshareholders. This strategy is being fulfilled thanks to Telit's globalstrategy, innovative products and continued commitment to R&D. Telit's ambitionis to grow faster than the global m2m market that has now developed and isdemonstrating continuous growth. The consolidation of this market isprogressing and management estimates that the Company is currently the fourthlargest provider in the m2m market, and third largest provider in Europe. Telit will continue to manage and develop its profitable Wireless ProductsBusiness Unit to continue to generate cash to support its strategy in theWireless Solutions Business Unit. The Company intends to present its customers,with further sets of products both in Israel as well as in Europe, who couldbenefit from the extensive knowledge that Telit has gained via its WirelessProducts Business Unit. For further information:Telit Communications PLCOozi Cats, Chief Executive Officer Tel: + 39 040 419 2491 www.telit.comAvi Israel, Deputy CEO & Financial Director Tel: + 972 54 8188 841 www.telit.comMerav Zimerman, Chief Marketing Officer Tel: + 972 54 5230 140 www.telit.com Media enquiries:AbchurchChris Lane / Laura Riascos de Castro Tel: + 44 (0) 20 7398 [email protected] www.abchurch-group.com CHIEF EXECUTIVE'S STATEMENT AND REVIEW As I reported in the trading update released on 27 July 2006, the Company hadmade good progress during the first six months of 2006 with regard to theWireless Solutions Business Unit. However, due to changes in the Israelicellular market that have led to a reduction in sales to the Company's majorcustomer, as announced in July 2006, the Wireless Products Business Unit has notachieved the same level of operating profit as in the prior period. Theencouraging strong growth from our Wireless Solutions Business Unit in the lastsix months justifies the strategy adopted by Telit prior to its IPO. As aresult we plan to continue our investment in this business unit. Total sales reached €40.5 million in the first half of this year, an increase of10.5% over H1 2005, with the gross profit margin reaching a level of 17.5% (H12005: 18.0%). Wireless Solutions Business Unit The Wireless Solutions Business Unit has performed well during the first sixmonths of 2006, a period in which the Company has introduced five new productsto the market. Turnover for this division for the six months ended 30 June 2006has increased by 132% at approximately €10.5 million compared to €4.5 millionfor the six month period to 30 June 2005. Operating losses in this businessunit decreased by 2% in the first half of 2006 from the first half of 2005. Thepotential growth of the Wireless Solutions Business Unit depends on thecontinued successful development of state-of-the-art products as well as onsecuring the necessary distribution agreements. At this point, our team ofengineers is supporting up to 1,000 new customer designs in progress. The development of the Wireless Solutions Business Unit is the key to theCompany's success and we believe it will be the business unit that will play asignificant role in value creation for our shareholders. In order to fulfillTelit's ambitious goals, a global market presence is essential. Particularemphasis has been placed on the development of a global sales network, asdemonstrated by the announcement made by the Company on 30 May 2006 concerningthe acquisition of Bellwave M2M Co Ltd and the establishment of "Telit APAC,"our gateway to expansion in the Asia Pacific region. Telit APAC (formerly Bellwave M2M) generated revenues of US$21 million in 2005and benefits from having a dominant market share of approximately 50% in theSouth Korean m2m market. Bellwave Co Ltd will retain the remaining 25% ofBellwave M2M, but Telit holds a call option to purchase the remaining 25% forapproximately US$2 million. This call option is exercisable until December2006. Telit APAC currently has 43 employees, the majority of whom are engineers. TelitAPAC will focus on the development of CDMA 1X and EVDO products for the Asianand American markets as well as the development of WCDMA/UMTS products forglobal distribution. Telit APAC will also serve as Telit's sales gateway to theemerging Asia Pacific markets for both CDMA and GSM/GPRS product lines. To further drive the Company's international growth, we have formed a newcompany called Telit Wireless Solutions Inc. (Telit USA). Telit USA,established on 1 July 2006, is based in Raleigh, North Carolina and has nineemployees, most of whom are salesmen and product marketing experts. Aspreviously indicated, the main objective of the new subsidiary is to focus onthe telematics and fleet management sectors. These are two of the largestindustry segments for the application of machine-to-machine technology in theUnited States. According to ABI research, the m2m market in North America isexpected to generate sales of between 6 and 7 million units in 2007 andexperience average annual growth of 24% to 28% to 2010. Telit has been investing continuously in R&D for many years. In June 2006, weofficially opened our new research and development centre in Cagliari, Sardinia.This new centre was opened after Telit was declared eligible to receive €25.5million from the Italian government, comprising a grant and a long-termpreferential rate loan. These arrangements are available to the Company untilthe end of the first quarter of 2008. We intend to use these availableresources in a diligent and careful manner to develop Telit's product portfolio.The new centre will serve both business units in developing future productsand integrating complementary technologies such as GPS and short-rangeconnectivity (Wi-Fi, Wi-Max, Bluetooth, ZigBee, RFID) and will employapproximately 100 engineers by 2008. Substantial progress has been achieved within the Wireless Solutions BusinessUnit since the Company's flotation on AiM last year. We have successfullyopened satellite offices in eleven countries worldwide, signed new substantialdistribution agreements and opened two more R&D centres in Seoul and Sardinia inaddition to the one in Trieste. Telit's cost-optimised products are tailored tothe demands of various markets and applications. Telit is now set to serve allm2m market demands and offers a full range of products, including GSM/GPRS andCDMA. We have started the development process of future technologies such asUMTS earlier than expected, using the funds we have received from the Italiangovernment. In the first half of 2006, we commenced production of five new products based onthe new chipset from Infineon (e-gold lite), including GM862-GPS, GM862-Quad,Ge863-GPS, GE864-Quad, and GC864-Quad. We have also completed PTCRB(certification for the US market) for products based on e-gold lite.Additionally, we have finished development and started mass production ofGP863-AMR, which is the AMR (Automated Meter Reading) application that we havedesigned for the large IBM/Oxxio project in the Netherlands. With Telit's setof products, we believe we have our finger on the market's pulse. Wireless Products Business Unit The Wireless Products Business Unit (previously named the Enhanced Value AddedReseller ("EVAR") Business Unit) has experienced mixed fortunes over the pastsix months. This business unit generated revenue of €30 million for the sixmonth period, in comparison to €32 million for the six months ended 30 June2005. During the first half, we launched four new handsets in the Italian marketand two new handsets in the Israeli market. Despite the changes in the Israeli cellular market, as mentioned above, weexpect to be able to sustain the Company's performance in this profitable andcash generative business unit. Customer satisfaction with the Company'sproducts is encouraging, and we expect it to increase as customers experienceTelit's product quality. People To continue the Company's growth, we have made several important new hires overthe period. During the past few months we have announced the major changes atthe Company directorship level. We have also strengthened our capabilities atthe Company executive level. These executives understand the market and have aclear vision to create a winning strategy with respect to products definitionand development as well as customer support. We believe that our managementteam provides us with a tremendous market advantage. CONSOLIDATED INCOME STATEMENT Six months ended Year ended 30 June 31 December 2006 2005 2005 Unaudited Unaudited (*) Audited (*) •'000 •'000 •'000Continuing operations Revenue 40,479 36,624 85,914Cost of sales (33,396) (30,018) (71,331) Gross profit 7,083 6,606 14,583 Other income 807 604 1,134Research and development expenses (2,973) (1,843) (3,914)Selling and marketing expenses (4,106) (2,193) (5,293)General and administrative expenses (3,810) (3,760) (7,372)Other expenses (13) (21) (215) Operating loss (3,012) (607) (1,077) Investment income 180 137 656Finance costs (485) (475) (938)Share in results of associate (23) (87) (164) Loss before income taxes (3,340) (1,032) (1,523) Income taxes (158) (494) (1,338) Loss for the periodfrom continuing operations (3,498) (1,526) (2,861) Discontinued operations Loss for the period from discontinued operations - (391) (1,306) Loss for the period (3,498) (1,917) (4,167) Attributable to:Equity holders of the parent (3,510) (1,917) (4,167)Minority interest 12 - - (3,498) (1,917) (4,167)Loss per share (in pence)From continuing operations Basic (8.12) (4.99) (7.76) Diluted (8.12) (4.99) (7.76) From continuing and discontinued operations Basic (8.12) (6.27) (11.30) Diluted (8.12) (6.27) (11.30) Weighted average number of equity shares in issue 43,214,281 30,558,033 36,886,157 (*) See note 9. The accompanying notes are an integral part of the financial statements. CONSOLIDATED BALANCE SHEET 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited •'000 •'000 •'000ASSETS Non-current assetsInvestment in associate 670 716 649Deferred expenses 94 56 73Property, plant and equipment 1,806 1,353 1,414Goodwill and intangible assets 4,808 574 616Deferred income tax asset 3,676 3,678 3,696 11,054 6,377 6,448Current assetsCash and cash equivalents 11,769 24,871 17,207Trade receivables 20,781 22,431 33,286Other current assets 5,094 5,820 4,357Inventory 9,284 9,615 12,030 46,928 62,737 66,880 57,982 69,114 73,328 LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equityShare capital 627 627 627Other reserve (260) (260) (260)Share premium 29,651 29,602 29,651Translation adjustments (521) (128) (284)Retained earnings 504 5,417 3,432 30,001 35,258 33,166 Minority interest 424 - - Total shareholders' equity 30,425 35,258 33,166 Non - current liabilitiesLoan from parent company 3,055 4,073 3,054Post employment benefits 1,034 1,762 856Other long-term liabilities 106 73 106 4,195 5,908 4,016 Current liabilitiesShort-term borrowings from banks and other lenders 10,230 18,824 22,823Trade payables 9,922 5,134 8,955Other current liabilities 3,210 3,990 4,368 23,362 27,948 36,146 57,982 69,114 73,328 The accompanying notes are an integral part of the financial statements. CONSOLIDATED CASH FLOW STATEMENT Six Months ended Year ended June 30 31 December 2006 2005 2005 Unaudited Unaudited Audited •'000 •'000 •'000CASH FLOWS - OPERATING ACTIVITIES Net cash provided by (used in) operating activities (Appendix 1) 13,026 4,989 (5,025) CASH FLOWS - INVESTING ACTIVITIESPurchase of property, plant and equipment (434) (65) (431)Proceeds from disposal of property, plant and equipment 25 15 41 Additions to financial assets - (190) (190)Purchase of intangible assets (7) (542) (622)Other (10) - (27)Sales of financial assets - - 211Acquisition of subsidiary (6,027) - - Net cash used in investing activities (6,453) (782) (1,018) CASH FLOWS - FINANCING ACTIVITIESShort-term borrowings from banks and others (12,012) (10,258) (7,772)Proceeds from issuance of share capital - 29,969 30,019 Net cash (used in) provided by financing activities (12,012) 19,711 22,247 (Decrease) increase in cash and cash equivalents (5,439) 23,918 16,204 Cash and cash equivalents-balance at beginning ofperiod 17,207 582 582Effect of exchange rate differences 1 371 421Cash and cash equivalents-balance at end of period 11,769 24,871 17,207 The accompanying notes are an integral part of the financial statements. CONSOLIDATED CASH FLOW STATEMENT Appendix 1 - Adjustments to reconcile net income to net cash flows provided by(used in) operating activities Six months ended Year ended 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited •'000 •'000 •'000 Loss for the period from continuing operations (3,498) (1,526) (2,861)Loss for the period from discontinued operations - (391) (1,306) Loss for the period (3,498) (1,917) (4,167)Adjustment for:Depreciation and amortization 377 333 661Income tax expense 158 494 1,338Investment income (180) (137) (656)Finance costs 485 475 938Increase (decrease) in provision for postemployment benefits 179 170 (735)Share-based payment charge 582 267 532Share in results of associate 23 87 164 Operating cash flows before movements in workingcapital:Decrease in trade receivables 11,786 13,593 3,808(Increase) decrease in other current assets (791) 2,815 4,039Decrease (increase) in inventory 3,426 (3,463) (5,952)Increase (decrease) in trade payables 1,678 (1,047) 2,681(Decrease) in other current liabilities (1,202) (6,103) (5,743)Cash generated by (used in) the operations 13,023 5,567 (3,092) Income tax received 266 - -Income tax paid (324) (352) (1,240)Interest received 252 137 336Interest paid (191) (363) (1,029)Net cash provided by (used in)operating activities 13,026 4,989 (5,025) The accompanying notes are an integral part of the financial statements. STATEMENT OF CHANGES IN EQUITY Six months ended 30 June 2006 (Unaudited) Share Other Share Translation Retained Minority Total capital reserve premium adjustment earnings Total interest Equity •'000 Balance - 1 627 (260) 29,651 (284) 3,432 33,166 - 33,166January 2006 Arising a - - - - - - 412 412acquisitionTranslation - - - (237) - (237) - (237)adjustmentsShare based - - - - 582 582 - 582payment chargeNet loss for theperiod - - - - (3,510) (3,510) 12 (3,498) Balance-30 June2006 627 (260) 29,651 (521) 504 30,001 424 30,425 Six months ended 30 June 2005 (Unaudited) Share Other Share Translation Retained capital reserve premium adjustment earnings Total •'000 Balance- 1 January 2005 - - - (915) 7,067 6,152 Reverse acquisition capital - (260) - - - (260)adjustmentIssue of share capital 627 29,602 - - 30,229Translation adjustments - - - 787 - 787Share based payment charge - - - - 267 267Net loss for the period - - - - (1,917) (1,917) Balance-30 June 2005 627 (260) 29,602 (128) 5,417 35,258 Year ended 31 December 2005 (Audited) Share Other Share Translation Retained capital reserve premium adjustment earnings Total •'000 Balance- 1 January, 2005 - - - (915) 7,067 6,152 Reverse acquisition capital - (260) - - - (260)adjustmentIssue of share capital 627 - 29,651 - - 30,278Translation adjustments - - - 631 - 631Share based payment charge - - - - 532 532Net loss for the period - - - - (4,167) (4,167) Balance-31 December 2005 627 (260) 29,651 (284) 3,432 33,166 The accompanying notes are an integral part of the financial statements. NOTES TO THE INTERIM FINANCIAL STATEMENTAT 30 JUNE 2006 (UNAUDITED) 1. Telit Communications PLC ("the Company") was incorporated and registered inEngland and Wales as a public limited company on 30 November 2004 under theCompanies Act 1985. On 4 April 2005, the Company completed an Initial Public Offering on the AIMMarket, for the issue of 16,428,571 ordinary shares, at a price of 140 pence pershare, for aggregate proceeds of £20.5 million (approximately • 30 million), net of certain issuance costs and expenses. 2. In June 2006 the Company acquired 75% of Bellwave m2m Co. Ltd ("Bellwave"),the machine to machine ("m2m") division of Bellwave Co. Ltd, a South Koreanwireless communications developer, in a cash transaction totalling US $6.18million, excluding directly attributable costs. Bellwave Co. Ltd retains theremaining 25% of Bellwave m2m; however, the company holds a call option topurchase the remaining 25% for approximately US$2 million, exercisable until 31December 2006. Due to the proximity of the acquisition to the Telit's interimreporting date, the acquisition accounting for Bellwave has been determined on aprovisional basis. Telit expects to complete its purchase price allocation,including the identification and valuation of intangible assets, in the secondhalf of the year. Bellwave, which developed and marketed the world's smallest CDMA datacommunications module, currently has 40 employees the majority of whom areengineers. The company will focus on the development of CDMA 1X and EVDOproducts for the Asian and American markets and the development of WCDMA/UMTSproducts for global distribution. The company will also serve as the Group'ssales gateway to the emerging Asia Pacific markets for both CDMA and GSM/GPRSproduct lines. 3. On 1 July 2006, the Company established a new company in the United States,Telit Wireless Solution Inc. (Telit USA). The main objective of the newsubsidiary is to focus on the automotive and fleet management sectors, two ofthe largest industry segments for the application of m2m technology in theUnited States. 4. The interim financial statements include the results of operation and thefinancial position of the Company and its subsidiaries as at and for the sixmonths ended 30 June 2006 (together "the Group"). The Group is currentlyengaged in the following two main activities: • Wireless Solutions - Development manufacturing and sale of modules -cellular products for transmitting data designed for the m2m telecom market andservices entailing the development and licensing of cellular technology to thirdparties based on the Company's technological property; and • Wireless Products - Distribution of cellular products manufactured in theFar East on the Israeli, Italian and European markets and rendering warranty onthis equipment. The consolidated interim financial statements of the Company have been preparedin accordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules using the accounting policies setout in the Group's 31 December 2005 statutory accounts. The consolidatedinterim financial statements have not been audited or reviewed and do notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. A copy of the statutory accounts for that year has been delivered tothe Registrar of Companies. The auditors' report on those accounts was notqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. 5. The Directors have not declared an interim dividend. 6. For management purposes, the Group is currently organised into twooperating divisions, Wireless Solutions and Wireless Products. These divisionsare the basis on which the Group reports its segment information. Segmentinformation of these businesses is presented below. Six months ended June 30 Year ended 31 December 2006 2005 2 0 0 5 Unaudited Unaudited (*) Audited (*) •'000 •'000 •'000Revenue Wireless Products Business 29,986 32,105 70,677Wireless Solutions Business 10,493 4,519 15,237Total revenue 40,479 36,624 85,914 Operating profit (loss)Wireless Products Business 489 2,684 4,318Wireless Solutions Business (3,003) (3,074) (4,530) (2,514) (390) (212) Unallocated expenses (498) (217) (865)Operating loss (3,012) (607) (1,077) Investment income 180 137 656Finance costs (485) (475) (938)Share in results of associate (23) (87) (164) Loss before income taxes (3,340) (1,032) (1,523)Income taxes (158) (494) (1,338) Loss for the periodfrom continuing operations (3,498) (1,526) (2,861) (*) See note 9. 7. During the period the Company provided guarantees to certain suppliers ofTelit Communications SpA ("Telit Italy"), to sustain a credit line to be grantedby the suppliers in respect of purchases made. The guarantees shall not exceedthe amount of • 5.5 million. In addition the Company provides guarantees to certain banks in Italy, tosustain a credit line to be granted by those banks. The guarantees shall notexceed the amount of • 14 million. At the balance sheet date the Company had deposited • 4 million in a bankaccount, to act as security in relation to the credit facility granted by thisbank. After the 30 June 2006 the Company deposited an addition amount of • 3 million,in another bank account, to act as security in relation to the credit facilitygranted by this bank. 8. On April 18, 2006, Telit Italy was declared eligible to receive a €11.4million grant, and has secured a €14.1 million loan facility, from the Ministryof Attivita Produttive in Italy. The funds, totaling €25.5 million, were awardedto Telit Italy to invest in a new research and development centre in preferredareas in Italy. In June 2006, the company opened a new research and developmentcentre in Cagliari, Sardinia. The new centre will serve both businesses indeveloping future products such as short-range connectivity products (Wi-Fi,WiMax, Bluetooth, RFID). The grant receivable will reduce the cost to the Groupof establishing this facility. 9. According to IAS 20 "Accounting for Government Grants and Disclosure ofGovernment Assistance", the Group has presented grant income of €683,000 withinother income. Prior periods have been adjusted in order to conform with thecurrent period presentation. This presentational change has no impact on thereported net loss. 10. In March 2006, Telit Italy received a claim from a supplier for an amountof €506,000 alleging breach of contract. The Group intends to vigorously defendsuch claim, which is at an early stage. No provision for this amount has beenrecorded in the books of the Group, since, based on the opinion of the Group'slegal consultants, it is not currently expected to lead to a significant lossfor the Group. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
TCM.L