18th Sep 2007 07:02
Telit Communications PLC18 September 2007 Press Release 18 September 2007 Telit Communications PLC ("Telit" or "the Company") Interim Results for the six months ended 30 June 2007 TELIT REPORTS FIRST HALF OF STRONG GROWTH Rome, Italy, 18 September 2007 - Telit Communications PLC (AIM: TCM), a globalleader in machine-to-machine (M2M) communications, is pleased to announce itsinterim results for the six months ended 30 June 2007. Financial & Business Highlights: • Revenue increased by 101% to €22.9 million (H1 2006: €11.4 million) • Gross profit increased by 152% to €9.2 million (H1 2006: €3.7 million) • Gross margin increased to 40.2% (H1 2006: 32.1%) • Operating loss reduced to €1.98 million (H1 2006: loss of €2.6million) • Loss before tax of €1.2 million (H1 2006: loss of €2.8 million) • Net loss of €1.3 million from continuing operations (H1 2006: loss of€2.8 million) • Cash and cash equivalents (including restricted cash) of €18.6 million(H1 2006: €11.8 million) • Following the sale of the EVAR business unit (expected to complete atthe end of September), Telit will be a pure-play m2m wireless applications andservices company • An initial investment by BAMES of €9 million in cash, out of a total of€16 million, was completed in June 2007 • Telit on course for achieving a break-even position at the operatinglevel, by the end of 2007 • Below are the major financial parameters for H1 2007 compared to H1 2006: Six months ended 30 June 2007 2006 •'000 •'000 Revenues 22,882 11,388Gross profit 9,195 3,653Gross profit percentage 40.2% 32.1% Other income 1,518 683Research & Development (3,953) (2,853)Selling & Marketing (4,072) (1,763)General & Administrative (3,962) (2,166)Share based payment charges (709) (170)EBIT (1,983) (2,616)EBITDA (626) (2,167) Commenting on the results, Oozi Cats, Chief Executive Officer of TelitCommunications PLC, said: "The first six months of the year have been very positive and resulted insubstantial revenue and margin growth for Telit." "Following the agreed disposal of the handsets business (which is expected tocomplete by the end of September) the Company is now focused 100% on the designand distribution of wireless applications and services in machine to machinecommunications. This global market is achieving an annualized growth of morethan 30%, as the demand for m2m cellular wireless solutions becomes an expectedrather than luxury technology. The half year performance demonstrates theconsiderable growth being achieved by our business and the opportunity goingforward. The sale of the handsets division will enable Telit to realize themaximum potential of this business." "Our strategy for the rest of 2007 will be to continue to leverage our positionas a leading player in the m2m market, throughout our regional operations andthrough the continued investment in R&D. Telit now has an excellent portfolioof products and distribution capabilities and we will be actively seeking waysof expanding our operations during the remainder of the year. " "With strong market conditions continuing, we expect to reach a break-even position at the operating level, by the end of 2007. I look forward to reporting further progress early in 2008." For further information:Telit Communications PLCMaya Lustig, VP Investor Relations Tel: +972 (3) [email protected] Seymour Pierce LimitedStuart Lane Tel: +44 (0) 20 7107 8000 www.seymourpierce.comThe Global Consulting GroupJonathan Shillington, Jonathan Sapeika Tel: +44 (0) 20 7826 [email protected] http://[email protected] CHIEF EXECUTIVE'S STATEMENT AND REVIEW - INTERIM RESULTS 2007 Introduction I am pleased to present Telit Communications PLC's unaudited Interim Results for2007. The first six months have been very positive and resulted in substantialrevenue and margin growth for Telit. Following the sale of the handsets business, which is expected to complete bythe end of September, the Company is now focused 100% on the design anddistribution of wireless applications in machine to machine communications(m2m). This global market is achieving an annualized growth rate of more than30% as the demand for m2m cellular wireless solutions becomes an expected,rather than luxury, technology. The half year performance demonstrates theconsiderable growth being achieved by our business and the opportunity goingforward. The sale of the handsets division will enable Telit to realize themaximum potential of this business. 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 this period. 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 are alreadybeginning to enjoy the fruits of this alliance. Financial Results In line with market expectations, the first half of 2007 has given Telit astrong start and a firm foundation for the full year. The Company is on coursefor achieving a break-even at the operating level, by the end of 2007. The results for the six month period reflect strong like-for-like growth, strongmargins and excellent underlying sales momentum. Telit increased total revenuesby 101% to €22.9 million, compared to €11.4 million for the six months to 30June 2006. Within said results, most of our revenues came from repeat business withexisting customers. In addition to the development of existing customerrelationships, Telit has increased the number of customers to more than 2,000OEMs communications solutions providers and system integrators in over 50countries. The split of revenue on a geographical basis for the six months ended 30 June2007 and 2006 is as follows: H1 2007 (M•) % of Total Revenues H1 2006 (M•) % of Total RevenuesEMEA 16.3 71% 10.5 92%APAC 6.0 26% 0.9 8%AMERICAS 0.6 3% 0.0 0%Total Revenues 22.9 100% 11.4 100% The geographical mix in H1 2007 reflects Telit's growth from a European orientedcompany to a true global competitor. Thus, although sales in EMEA have enjoyed asubstantial increase, the overall weight of the EMEA region from Telit's totalsales has decreased as the Company's geographical mix becomes more diversified. Telit's global position was attained by the penetration into two major markets:Asia Pacific and the Americas. In June 2006 we acquired Bellwave m2m Co. Ltd, aSouth Korean wireless communications developer, since renamed Telit APAC. TelitAPAC serves as both a sales gateway to the emerging Asia Pacific markets for theCDMA and GSM/GPRS product lines and the R&D centre for CDMA, UMTS/HSDPA andother advanced technologies. In the second half of 2006 we launched TelitAmericas, which serves as the sales gateway for sales in the Americas. Since itsinception, Telit America's has obtained major approvals that support ouraggressive sales and marketing efforts. Gross profit increased 152% to €9.2 million, compared to €3.7 million in thecomparable period in 2006, resulting in an overall margin of 40.2% compared to32.1% for the first six months of 2006. The strong results were driven by the continued investment in R&D and theinternational expansion of sales and marketing operations, with new salesoffices opened during H1 2007 in Taiwan and mainland China. We continued tobenefit from governmental grants related to our R&D facilities in Italy andrecorded other income amounting to €1.2 million from such grants, up from €0.7million in 2006. Research and development expenses were €4.0 million, comparedto €2.9 million in the comparative period last year. Selling and marketingexpenses were €4.1 million, compared to €1.8 million in the comparative periodin 2006, with a majority of the increase stemming from the consolidation ofTelit APAC and Telit Americas (which were acquired and incorporated,respectively, towards the end of the first half of 2006). General andadministrative expenses were €4.0 million, compared to €2.2 million in thecomparative period in 2006. The operating expenses exclude share basedcompensation charges of €709,000 during H1 2007 and €170,000 during H1 2006. TheG&A expenses reflect the expansion of Telit through the acquisition andintroduction of Telit APAC and Telit Americas. This resulted in an operating loss for the first six months of the year of €1.98million, down from €2.6 million in 2006. Loss before tax was €1.2 million,compared to a loss of €2.8 million in 2006. Net loss for the period fromcontinuing operations was €1.3 million compared to €2.8 million in 2006. Basic and diluted loss per share for continuing operations was 3.4 Euro cents(2.3p) for the period compared to a 6.6 Euro cents (4.5p) loss per share in June2006. This gave a total continuing and discontinued basic and diluted loss pershare of 11.9 Euro cents (8.1p) compared to a 8.1 Euro cents (5.5p) loss pershare in 2006. Employees The number of employees on a geographical basis as at 30 June 2007 and 2006 is as follows: June 30, 2007 June 30, 2006EMEA 165 145APAC 57 40AMERICAS 9 7Total Employees 231 192 Business Performance During the first six months of the year the following major developments tookplace that have contributed significantly to the overall performance of theCompany. Sales and Marketing: • Reinforced Distribution network by adding Rutronik, the largestindependent European Distributor, CEP AG in Germany & Poland as well as MTSystem in Russia. • Extended global relationship with Arrow, one of the largestdistributors of electronic components by signing distribution agreements withArrow Asia and Sasco Holz for Central European and CIS countries. • Selected by a major European toll-collect customer, for a field trialwith 10,000 units in place • Opened sales offices in Taiwan and China with sales staff andtechnical support engineers. • Signed distribution agreement with Soanar, Singapore for the SouthAsia market and Arrow Asia Pac for the whole Asia Pacific market. Product Portfolio: • In July Telit introduced a new groundbreaking design in its modulerange, offering its customers high-performance at lower cost of ownership. Thenew GE863-PRO3 GSM/GPRS module simplifies m2m design for POS terminals, fleetmanagement systems and AMR applications. Equipped with two powerfulmicroprocessors, this quad-band module is suited for a wide range ofapplications requiring high processing power. The GE863-PRO3 also offerssignificant cost benefits for the development and production of complex m2msolutions. The groundbreaking Telit GE863-PRO3 module will be available duringthe fourth quarter of this year. • Entered into an agreement with Selex for the joint development ofmodules according to the GSM-R standard in order to address railway operators inEurope and China. • Release of new GT864-QUAD and GT864-PY terminal products that completethe Telit terminal product line. • Release of updated low power GPRS/GPS combined products (GM862-GPS andGE863-GPS) with 35% less power consumption than the previous versions. • Completed homologation and certification in several countries andnetworks 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, aswell as a MSM6025 based CDMA-1X embedded module for general purpose m2mapplications. • Achieved China type approval (SRRC) and Taiwan approval (DGT) forGM862, GC864 and GE864. • Introduced a WCDMA/HSDPA embedded module product to be launched inEuropean market in Q4, 2007 and in America in Q1, 2008 respectively. • Having obtained approval of six products on the Cingular / AT&Tnetwork and Annetel Brazil homologation, Telit Americas is in a position tobegin delivering sales to customers in the US and Latin America. Telit Americawill shortly achieve homologation in Mexico and is currently in the process ofgaining network approvals in Canada. Operations: • Achieved the ISO 9001:2000 Telit corporate certificate for EU, US andKorean facilities. • Successfully completed implementation of an Enterprise ResourcePlanning (ERP) system from SAP. • Successfully transferred production of GSM/GPRS products to SEM,subsidiary of BAMES in Italy. Investment consortium buys major stake in Telit In April 2007 Boostt B.V. entered into an agreement to purchase 12,000,000shares in Telit, representing 27.77% of the Company's issued voting sharecapital, from Polar Investments Ltd. at a price of €0.64 per share. Thetransaction completed on 4 May 2007. Boostt is a consortium of investors including Oozi Cats, CEO of Telit, and agroup of Italian investors led by Mr. Franco Bernabe. Boostt subsequentlynominated Mr. Chicco Testa, as Chairman of the Board of Directors of Telit andalso nominated an additional director, Mr. Gianni Stella, to the Board. Thesetwo directors replaced two directors nominated by Polar, who resigned uponcompletion of the transaction. In addition to the abovementioned transaction, FB Net Holding B.V., led by Mr.Franco Bernabe, which effectively controls the corporate entity that holds 50%of Boostt B.V. (50% is held by Mr. Oozi Cats), purchased an additional 1 millionshares of the Company in July 2007, at a price of €0.78 per share. Following thepurchase, FB Net, Boostt, and Oozi Cats are interested in a total of 36.56% ofthe Company's outstanding shares. Israeli Large Institution Invests in Telit July also saw one of Israel's largest insurance and finance company, ClalInsurance Enterprise Holdings Ltd., purchase 1,750,000 shares in Telit,representing 4.05% of the Company's issued shares. Outlook Our strategy for the rest of 2007 into 2008 will be to continue to leverage ourposition as a leading player in the m2m market, throughout our regionaloperations and through the continued investment in R&D. Telit now has anexcellent portfolio of products and distribution capabilities and we will beactively seeking ways of expanding our operations during the remainder of theyear. With strong market conditions continuing, we expect to reach a break-evenposition at the operating level, by the end of 2007. I look forward to reportingfurther progress early in 2008. Oozi Cats CONSOLIDATED INCOME STATEMENT Six months ended Year ended 30 June 31 December 2006 2006 2007 (Restated*) (Restated*) Unaudited Audited •'000 •'000 •'000 Revenue 22,882 11,388 30,140Cost of sales (13,687) (7,735) (18,487) Gross profit 9,195 3,653 11,653 Other income 1,200 683 729Non-recurring credit relating to negative goodwill 318 - -Research and development expenses (4,144) (2,913) (8,058)Selling and marketing expenses (4,251) (1,807) (4,948)General and administrative expenses (4,301) (2,232) (6,446) Operating loss (1,983) (2,616) (7,070) Investment income 96 180 190Finance costs (580) (311) (492)Share of results in associated undertakings (2) (23) (41)Gain on partial deemed disposal of subsidiary 1,255 - - Loss before income taxes (1,214) (2,770) (7,413) Income taxes (72) (61) (91) Loss for the period from continuing operations (1,286) (2,831) (7,504) Loss for the period from discontinued operations (3,688) (667) (3,636) Loss for the period (4,974) (3,498) (11,140) Attributable to:Equity shareholders of the parent (5,128) (3,510) (11,136)Minority interests 154 12 (4) (4,974) (3,498) (11,140) Basic and diluted loss per share (in euro cents)From continuing operations (3.4) (6.6) (17.4)From discontinued operations (8.5) (1.5) (8.4)Total continuing and discontinued (11.9) (8.1) (25.8) Weighted average number of equity shares in issue 43,214,281 43,214,281 43,214,281 (*) Restated. See note 5. CONSOLIDATED BALANCE SHEET 30 June 31 December 2006 2006 2007 (Restated*) (Restated*) Unaudited Audited •'000 •'000 •'000ASSETS Non-current assetsIntangible assets 8,072 5,785 6,755Property, plant and equipment 2,434 1,806 3,019Investments 2,132 670 579Other long term assets 287 94 303Deferred tax asset 3,726 3,676 3,696 16,651 12,031 14,352 Current assetsInventory 7,622 9,284 10,284Trade receivables 10,846 20,781 17,452Other current assets 5,764 5,094 6,806Deposits - restricted cash 7,186 4,044 7,115Cash and cash equivalents 11,365 7,725 3,926 42,783 46,928 45,583Assets included in disposal group held for sale 11,354 - - Total assets 70,788 58,959 59,935 LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equityShare capital 627 627 627Other reserve (260) (260) (260)Share premium 29,651 29,651 29,651Translation reserve (851) (521) (584)Retained earnings (11,100) 504 (6,486)Total shareholders' equity 18,067 30,001 22,948 Minority interests 975 816 796 Total equity 19,042 30,817 23,744 Non-current liabilitiesLoan from parent company - 3,055 2,035Post-employment benefits 1,536 1,034 1,226Deferred tax liabilities 432 585 507Other long-term liabilities 7,762 106 244 9,730 4,780 4,012Current liabilitiesShort-term borrowings from banks and other lenders 18,278 10,230 17,375 Trade payables 7,720 9,922 10,584Other current liabilities 5,039 3,210 4,220 31,037 23,362 32,179 Liabilities included in disposal group held for sale 10,979 - - Total equity and liabilities 70,788 58,959 59,935 (*) Restated. See note 5. CONSOLIDATED CASH FLOW STATEMENT Six months ended Year ended 31 30 June December 2006 2006 (restated*) 2007 Unaudited Audited •'000 •'000 •'000 CASH FLOWS - OPERATING ACTIVITIESNet cash (used in) / from continuing operations (2,906) 2,498 (9,588)Net cash from discontinued operations 170 9,897 17,634Net cash (used in) / from operating activities (2,736) 12,395 8,046 CASH FLOWS - INVESTING ACTIVITIESPurchase of property, plant and equipment (603) (394) (1,760)Purchase of intangible assets (1,961) (7) (513)Acquisition of subsidiaries (nil cash acquired) - (5,396) (5,396)Increase in restricted cash deposits - - (3,000)Additions to long term receivables - (54) (56)Net cash used in continuing operations (2,564) (5,851) (10,725)Net cash used in discontinued operations (137) (15) (289)Net cash used in investing activities (2,701) (5,866) (11,014) CASH FLOWS - FINANCING ACTIVITIESNet proceeds from issue of shares in subsidiary to third party 7,737 - -Repayment of short-term borrowings from banks and others - (2,130) -Short-term borrowings from banks 3,943 - 8,660Net cash from / (used in) continuing operations 11,680 (2,130) 8,660Net cash from / (used in) discontinued operations 1,250 (9,882) (14,903)Net cash from / (used in) financing activities 12,930 (12,012) (6,243) Increase / (decrease) in cash and cash equivalents 7,493 (5,483) (9,211) Cash and cash equivalents-balance at beginning of period 3,926 13,207 13,207Effect of exchange rate differences (54) 1 (70) Cash and cash equivalents-balance at end of period 11,365 7,725 3,926 (*) Restated. See note 9. CONSOLIDATED STATEMENT OF CHANGES IN EQUITYSix months ended 30 June 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 359 359disposal -minority inTelit WirelessSolutions srlArising on deemed (318) (318)acquisition - Telit APACTranslation adjustments (267) (267) (16) (283)Share-based payment 514 514 514charge(Loss) / profit for the (5,128) (5,128) 154 (4,974)period 30 June 2007 627 29,651 (260) (851) (11,100) 18,067 975 19,042 Six months ended 30 June 2006 (Unaudited) (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- 412 412as previously reportedArising on acquisition- 392 392adjustments (note 5)Translation adjustments (237) (237) (237)Share-based payment 582 582 582charge(Loss) / profit for the (3,510) (3,510) 12 (3,498)period 30 June 2006 627 29,651 (260) (521) 504 30,001 816 30,817 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 5)31 December 2006 627 29,651 (260) (584) (6,486) 22,948 796 23,744 NOTES TO THE INTERIM FINANCIAL STATEMENTAT 30 JUNE 2007 (UNAUDITED) 1. The Company was incorporated and registered in England and Wales as apublic limited company on 30 November 2004 under the Companies Act 1985. 2. The interim financial statements include the results of operations and thefinancial position of the Company and its subsidiaries (together the "Group") asat and for the six months ended 30 June 2007. The Group is currently engaged,through its Wireless Solutions business unit, in the development, manufactureand sale of cellular modules - products for transmitting electronic datadesigned for the m2m telecom market, and services entailing the development andlicensing of cellular technology to third parties based on the Company'stechnological property. On 2 July 2007, the Company announced its intention todivest its Wireless Products business unit and this activity has been designatedas a discontinued operation in the six months ended 30 June 2007. See note 4below. 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 2006 statutory accounts. The consolidated interimfinancial statements have not been audited or reviewed and do not constitute thecompany's statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. The financial information for the year ended 31 December 2006 isderived from the statutory accounts for that year, as restated as set out innote 5, which have been delivered to the Registrar of Companies. The auditorsreported on those accounts; whilst their report was unqualified, it included anemphasis of matter paragraph referring to the uncertainty over therecoverability of the deferred tax asset of €3,696,000. The audit report did notcontain a statement under s. 237(2) or (3) Companies Act 1985. 3. The Directors have not declared an interim dividend. 4. Discontinued operations On 17 May 2007 the Company's board of directors resolved to sell the WirelessProducts business unit and to focus solely on the Wireless Solutions businessunit. On 28 June 2007 the Company concluded negotiations and executed a binding termsheet for the sale of its Wireless Products division ("TWP"), as follows: theCompany sold 80.1% of TWP to a group of third party investors. The considerationreceivable is calculated according to TWP's equity as at 30 June 2007, which is€375,000. In conjunction with the sale of TWP, Telit Communications SpA willenter into a license agreement with TWP for the use of the Telit brand by TWPfor marketing of cellular and other electronic products but excluding its use inthe m2m arena. Under the license agreement, the Group will receive royaltiesover a period of 5.5 years, calculated as a percentage of applicable turnover,up to a maximum of €6 million and subject to such royalties not exceeding aspecified percentage of EBITDA of the TWP business. Telit will retain 19.9% ofTWP, but will have no representation on its board of directors. NOTES TO THE INTERIM FINANCIAL STATEMENTAT 30 JUNE 2007 (UNAUDITED) The results of the discontinued operations which have been included in theconsolidated income statement and cash flow statement were as follows: Six months ended Year ended 31 December 30 June 2007 2006 2006 Unaudited Audited •'000 •'000 •'000Revenue 14,364 29,091 56,640Cost of sales (13,510) (25,661) (52,087)Gross profit 854 3,430 4,553Other income - 124 709Operating expenses (4,042) (3,950) (8,209)Net finance costs (478) (174) (677)Loss before income taxes (3,666) (570) (3,624)Income taxes (22) (97) (12)Loss for the period from discontinued operations (3,688) (667) (3,636) Net cash from operating activities 170 9,897 17,634Net cash used in investing activities (137) (15) (289)Net cash from / (used in) financing activities 1,250 (9,882) (14,903) 5. 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 WirelessSolutions Co. Ltd ("Telit APAC")), a company incorporated and located in Korea,engaged in the production and sale of cellular communication products for themachine 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 monthsended 30 June 2007. This has resulted in a reduction in the amount allocated tocustomer lists from €4,306,000 to €1,500,000 and development costs from €689,000to €645,000 with a consequential reduction in the related deferred tax liabilityfrom €1,374,000 to €590,000. As a result, goodwill has increased from €1,445,000to €2,998,000. The transaction has been accounted for by the purchase method of accounting. Thefair value of the assets and liabilities of Bellwave recognised at theacquisition 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 NOTES TO THE INTERIM FINANCIAL STATEMENT AT 30 JUNE 2007 (UNAUDITED) 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 period (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. The impact of the restatement on the six months ended 30 June 2006 is presentedbelow. There was no impact on operating loss, loss for the period orshareholders' equity. Balance as at 30 Restatement Restated Balance June 2006 •'000 •'000 •'000Intangible assets 4,808 977 5,785Deferred tax liabilities - (585) (585)Minority interests (424) (392) (816) 6. 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 forcash amounting to €2,403,000. The Company has accounted for this deemedacquisition based on the book values of the net assets of Telit APAC at the dateof the injection. As a result of this transaction, minority interests have beenreduced by €318,000. The negative goodwill of €318,000 arising has been recordedas a credit to the income statement. 7. Telit has entered into an investment agreement with Bartolini After MarketElectronic 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 SolutionsS.r.l ("TWS"), and an additional €7 million will be invested in December 2008,providing Telit meets certain m2m module minimum purchase commitments. Uponcompletion of the second investment BAMES will receive an additional 4.375% ofthe share capital of TWS. Management currently assesses that, given currentmarket conditions and the expected growth of the Company, these minimum purchasecommitments are attainable. In addition to the investment agreement, Telit Communications SpA entered into astrategic manufacturing agreement with Services for Electronic ManufacturingS.r.l ("SEM"), BAMES' electronics manufacturing subsidiary, for all present andfuture production of Telit's m2m modules, with certain exceptions, atcompetitive market prices for a term of not less than five years. This enablesTelit to consolidate its European manufacturing into one geographical location,streamline operations while keeping control of the Company's intellectualproperty and increasing its control over its supply chain. This has beenachieved by the Telit taking a 19.9% equity stake in SEM and the right tonominate one director to SEM's board of directors. SEM has also provided Telitwith a €7 million line of credit for finished goods, which will defer paymentuntil the second equity investment referred to above. NOTES TO THE INTERIM FINANCIAL STATEMENTAT 30 JUNE 2007 (UNAUDITED) 8. As at 30 June 2007, the Group has recorded an intangible asset of€1,440,000 relating to development expenditure for its W-CDMA products (31December 2006 - •nil; 30 June 2006 - •nil). The Group's accounting policy forresearch and development expenditure is set out below: The cost of research activities is recognised as an expense in the period inwhich it is incurred. An internally generated intangible asset arising from the Group's expenditure ondevelopment is recognised only if all of the following conditions are met: • an asset is created that can be identified (such as hardware, softwareor a new processes); • it is probable that the asset created will generate future economicbenefits; and • the development cost of the asset can be measured reliably. Internally generated intangible assets are amortised on a straight-line basisover their useful lives. Where no internally-generated intangible asset can berecognised, development costs are recognised as an expense in the period inwhich they are incurred. 9. Restatement and reclassification of cash flows for the six months ended 30June 2006 Restricted cash of €4.0 million, previously reported within cash and cashequivalents in the cash flow statement for the six months ended 30 June 2006,has been excluded as it does not meet the definition set out in IAS 7 "Cash flowstatements". Additionally cash outflows of €631,000, previously reported in acquisition ofsubsidiaries within investing activities have been reclassified to operatingactivities as they relate to ongoing services rather than the acquisition. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
TCM.L