Preliminary Results

3rd Apr 2009 07:00



Press Release

3 April 2009

Telit Communications PLC

("Telit" or "the Company")

Unaudited Preliminary Results for the twelve months ended 31 December 2008

TELIT ACHIEVES ADJUSTED EBITDA OF €3.7 MILLION; OPERATING PROFIT OF €0.6 MILLION AND PROFIT BEFORE TAX OF €1.2 MILLION

Rome, Italy, 3 April 2009 - Telit Communications PLC (AIM: TCM), a global leader in machine-to-machine (m2m) communications, announces its unaudited preliminary results for the year ended 31 December 2008:

Financial and Business Highlights:

Revenue increased by 13% to €59.1 million (2007: €52.2 million)

Revenue includes licence income of €1.5 million for the use of the Telit nominative trade-name by SEM (2007 included licence income of €1.5 million from the Italian company, Bardi)

Gross profit increased by 32% to €29.1 million (2007: €22.0 million)

Gross margin increased to 49.2% (2007: 42.1%) 

Operating profit for the year €0.6 million (2007: loss of €1.5 million)

Adjusted EBITDA for the year €3.7 million (2007: €1.4 million)

Profit before tax from continuing operations of €1.2 million (2007: loss of €1.3 million)

Loss for the year from continuing operations, after writing down deferred tax assets by €3.0 million, of € 1.4 million (2007: Loss of €1.9 million)

Loss for the year, including discontinued operations, decreased by 54% to €3.2 million (2007: €7 million).

The second and last investment by BAMES into Telit Wireless Solutions Srl of €7.0 million in cash, out of a total of €16.0 million, was completed in December 2008.

________________________

1. Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization and share based payments from continuing operations and, for 2007 only, expenses related to aborted transaction costs.

 

Commenting on the results, Oozi Cats, Chief Executive Officer of Telit Communications PLC, said: "2008 has been another year of growth for Telit, in spite of the global economic turmoil. We achieved a revenue growth of 13%, an operating profit of €0.6 million, a positive adjusted EBITDA of €3.7 million and, I am very pleased to note, a profit before tax from continuing operations of €1.2 million. Naturally, the global recession has taken its toll on Telit as sales did not achieve the growth rates of previous years although the results are in line with market expectations. We acted swiftly in preparing detailed plans for meeting the immense challenges, and opportunities that the recession presents to us, while continuing to win new business, gain market share and retain our existing customer base."

"Although we have continued to feel the effects of the global recession in the first months of the current year, we continue to believe in the sound base of the m2m market and of our growing stake in it and are confident that our business will continue to grow even in these troubled times."

Below are the key financial performance measures for continuing operations for 2008 and 2007:

	2008 €'000	2007 €'000
Revenue1	59,083	52,189
Gross profit	29,096	21,988
Gross margin	49.2%	42.1%
Other income	1,002	2,457
Research & Development2	(9,577)	(8,672)
Selling & Marketing2	(10,694)	(8,792)
General & Administrative2	(8,827)	(6,952)
Share based compensation	(436)	(1,138)
Other Expenses	-	(400)
Operating profit / (loss)	564	(1,509)
Adjusted EBITDA	3,673	1,398
1 Including  licence and royalty income (2008: €1.7 million; 2007: €2.3 million) 2 excluding share-based payment charges.

  For further information:

Telit Communications PLC
Michael Galai		Tel: +972 (3) 7914040
[email protected]

Seymour Pierce Limited
Stuart Lane	Tel: +44 (0) 20 7107 8000
	www.seymourpierce.com

CHIEF EXECUTIVE'S STATEMENT AND REVIEW - PRELIMINARY RESULTS 2008

Introduction

2008 has been another year of growth for Telit, in spite of the global economic slowdown. We achieved a revenue growth of 13%, an operating profit of €0.6 million, a positive adjusted EBITDA of €3.7 million and, I am very pleased to note, a profit before tax from continuing operations of €1.2 million. Naturally, the global recession has taken its toll on Telit as sales did not achieve the growth rates of previous years, although the results are in line with market expectations, with EBIT and adjusted EBITDA above expectations. We acted swiftly in preparing detailed plans for meeting the immense challenges, and opportunities that the recession presents to us, while continuing to win new business, gain market share and retain our existing customer base.

During 2008 Telit continued to invest in its global expansion by opening new offices in the Republic of South Africa and in Brazil, where local outsourced manufacturing commenced in July 2008. We see the Brazilian market as a major field for future growth both locally and as a gateway to the Latin American market. Telit also increased the number of employees in a number of existing key locations, mainly China and the U.S.

In November 2008 Telit completed the acquisition of One RF Technology S.A.S. (since renamed Telit RF), for consideration of 1,300,000 new ordinary shares of the Company. Telit RF, a private French company 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 strategic acquisition will enable Telit to capture m2m market segments that require short range solutions or combined solutions integrating short range and cellular technologies. Telit RF has two product lines for the m2m market based on standard ZigBee™ and proprietary mesh IEEE 802.15.4 protocols. These products are based on proprietary software developed by Telit RF. Telit has already added these products to its offering to existing and potential m2m customers. Furthermore, based on this technology Telit will develop and offer routers and gateways that will ease the deployment of short range mesh networks connected via cellular infrastructure. Telit RF and its 15 employees have been fully integrated with the 40 employees Telit has in its Solutions R&D centre located in Sardinia.

The second and last installment of the €16.0 million investment by BAMES into Telit Wireless Solutions was completed in December 2008, as Telit met all the conditions prerequisite to the investment. 

Towards the end of 2008 we entered into a transaction with BAMES' electronics manufacturing subsidiary, SEM. This transaction included price reductions for past and future purchases made by the Group under its existing outsourced manufacturing agreement with SEM and also provided SEM the right to use the "Telit" nominative trade name in SEM's line of WiMax products, for a total consideration of €3.5 million, €1.5 million of which has been recognised as licence income in 2008 (see note 8 to the preliminary announcement for further details). The agreement provides confirmation of the value and potential of Telit's brand name in the m2m and associated markets. The Group holds a 19.9% interest in SEM.

Financial Results

Following the indications we provided in our trading update on 15 December 2008, the results for the year are in line with market expectations and underline the strength of the Company's position in the global m2m market, supported by the geographical expansion begun in 2006 and strengthened during 2007 and 2008. In spite of the global recession, the Company's results for 2008 show substantial growth in revenue with a continued improvement of its results, both in the operational and the bottom line parameters.

The results for the year ended on 31 December 2008 reflect substantial like-for-like growth, strong margins underlying sales momentum. Telit increased revenue in 2008 by 13% to €59.1 million, compared to €52.2 million in 2007. 

 

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 customers to more than 3,000 OEMs, communications solutions providers and system integrators in over 56 countries. 

2008 gross profit increased 32% to €29.1 million, compared to €22.0 million in 2007, resulting in an overall margin of 49.2% compared to 42.1% for 2007.

During the course of the year Telit continued to benefit from governmental grants related to our R&D activities in Trieste, Italy and for the first time this year, other European Union grants and recorded other income amounting to €1.0 million from such grants, compared to €2.1 million in 2007.

In September 2008 the Company received the first installment, in the amount of €6.5 million, from the previously announced grant from the Italian Ministry of Economic Development. The award, which was obtained in 2006, is split into a €2.6 million grant and a €3.9 million loan at favorable terms, provided by the Italian government with a repayment schedule spanning 10 years. The total value of the award is approximately €13 million and the next installment is expected at the end of 2009.

Research and development expenses, excluding share-based payments, were €9.6 million, compared to €8.7 million in 2007. Sales and marketing expenses, excluding share-based payments, were €10.7 million, compared to €8.8 million in 2007, with a majority of the increase stemming from the conversion of the previous TWP operations in Israel to a wireless solutions centre, the formation of new sales offices in the Republic of South Africa and Brazil and the increase in the number of employees in China. General and administrative expenses, excluding share-based payments, were €8.8 million, compared to €7.0 million in 2007, with a majority of the increase stemming from the conversion of the previous TWP operations in Israel to a wireless solutions centre. Share based compensation charges were €0.4 million in 2008 compared to €1.1 million in 2007. 

This resulted in an operating profit for 2008 of €0.6 million, compared to a loss of €1.5 million in 2007. Profit before tax was €1.2 million, compared to a loss before tax of €1.3 million in 2007. After writing down deferred tax assets by €3.0 million, the net result for the year from continuing operations is a net loss of €1.4 million, compared to a net loss of €1.9 million in 2007. Loss from discontinued operations was €1.9 million, compared to a loss of €5.2 million in 2007. 

Basic and diluted earnings per share from continuing operations were 2.7 Euro cents for the period compared to a loss of 4.3 Euro cents loss per share in 2007. The total continuing and discontinued basic and diluted loss per share was 7.0 Euro cents, compared to a 16.3 Euro cents loss per share in 2007.

Liquidity

The Group finances its operations mainly from short term borrowings from banks. At 31 December 2008 and 2007, the Group's net debt position was as follows:

  

	2008	2007
	€'000	€'000
Short term borrowings (continuing operations)	19,026	17,336
Short-term borrowings (discontinued operations)	-	4,207
Long term loans	3,531	500
Cash and cash equivalents, including restricted cash of €6.0 million (2007: €6.1 million)	(10,619)	(11,344)
Cash and cash equivalents (discontinued operations)	-	(42)
Net debt	11,938	10,657

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 provide the Group with adequate funding to meet the Company's current forecast requirements and will remain available to the Company in the foreseeable future. Further information in respect of the Directors' consideration of the going concern assumption that has been used in the preparation of the accompanying financial information and the liquidity position of the Group is set out in notes 2 and 10 to the preliminary announcement.

Effects of Foreign Exchange

49% of Telit's revenue in the period ended 31 December 2008 was generated in Euro (70.5% in 2007), with the remaining 51% generated in, or linked to, U.S. dollars and South Korean Won (29.5% in 2007). However, a substantial part of the Company's purchased materials cost was denominated in U.S. dollars during the period. 

Therefore, despite the negative impact of the sharp depreciation in the value of the U.S. dollar and Korean Won against the Euro on Telit's revenue in 2008 compared to 2007 exchange rates, there is limited impact on the gross profit in the period.

Regional Information

The split of revenue on a geographical basis for the years ended 31 December 2008 and 2007 is as follows:

  

	2008 (M€)	% of Total Revenue	2007 (M€)	% of Total Revenue
EMEA	44.2	74.8%	36.8	71%
APAC	9.6	16.2%	13.7	26%
AMERICAS	5.3	9.0%	1.7	3%
Total Revenue	59.1	100%	52.2	100%

The performance in the APAC region has been negatively impacted by the sharp devaluation of the Korean currency against the Euro (the exchange rate of the Korean Won against the Euro declined by more than 25% during 2008). Revenues from this region are expected to increase during 2009 and beyond. Revenues generated by Telit Americas, which have also been negatively affected by the weakening of the U.S. dollar against the Euro during 2008, have began to show a healthy momentum and are expected to continue to grow during 2009 and beyond.

We expect that the Americas region will continue to increase the weightings of its contribution to total revenue performance in 2009 and beyond and that the APAC region will also show renewed growth mainly deriving from our sales and marketing operations in China which are now well established. 

During 2008, sales offices were established in the Republic of South Africa and in Brazil. Our Sao Paolo, Brazil office also coordinates local outsourced manufacturing for the Brazilian market which commenced in the second half of the year. 

Employees

The number of employees in the continuing operations of the Group on a geographical basis as at 31 December 2008 and 2007 is as follows:

	31 Dec. 2008	31 Dec. 2007
EMEA	252	184
APAC	76	62
Americas	21	11
Total Employees	349	257

A majority of the increase in EMEA stems from the conversion of the previous TWP operations in Israel to a wireless solutions centre, and the majority of the increase in the Americas region stems from the formation of a new sales office in Brazil.

Business Performance & sales 

During 2008 the following major developments took place that contributed to the overall performance of the Company and will contribute to the Company's future results:

 

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

In June 2007 BAMES invested €9.0 million in the share capital of the company's subsidiary, Telit Wireless Solutions Srl (TWS), the first installment of a €16.0 million investment in TWS' share capital. The second installment, of €7.0 million, was completed in December 2008.

Towards the end of 2008 we entered into a transaction with BAMES' electronics manufacturing subsidiary, SEM, providing SEM the right to use the "Telit" nominative trade name in SEM's line of WiMax products, and providing Telit with price reductions over past and future purchases, for a total consideration of €3.5 million, €1.5 million of which has been recognised as licence income in 2008 (see note 8 to the preliminary announcement for further details). The agreement provides confirmation of the value and potential of Telit's brand name in the m2m and associated markets.

Strategy

Our strategy for 2009 is to continue to leverage our position as a leading player in the m2m market, offering customers a competitive edge by reducing their total cost of ownership and optimizing the performance of their products. We plan on doing this through continued investment in R&D and the introduction of our Infinita services and the integration of cellular and short range technologies into a complete m2m offering.

This strategy takes advantage of key trends in the m2m market:

	The performance trajectory offered by many of the m2m module manufacturers overshoots the needs of the average customer, resulting in feature-rich, expensive products that deliver inferior returns on investment;
	The inability of many module manufacturers to meet the demands of early adopters due to the fact that they do not control the protocol stack required for customized product modifications; and
	Diversification of technology and increasing requirements for combined solutions based on cellular and short range technologies.

To execute our strategy, Telit relies on three core competencies that differentiate it from the competition:

	Complete Control of the Protocol Stack: Telit owns and develops the Protocol Stack in its modules. The Protocol Stack controls all connectivity and communication with the GSM network and is a critical success factor in being able to offer customers the flexibility required for rolling out cost-effective m2m solutions.
	Commitment to Customer-Driven Innovation: Telit's comprehensive expertise in R&D enables it to help its customers win new business by working with them to develop the most innovative, cost-effective m2m applications.
	Multinational Organization Staffed with Industry Experts: Telit's R&D and Sales and Marketing units are a team of dynamic experts with proven industry experience in the m2m and semiconductor industry.

Board changes

In August 2008, Mr. Giovanni Stella, a non-executive director, nominated to the Board of Telit by Boostt B.V., resigned due to an increased workload from his other commitments. 

In February 2009 Boostt B.V. nominated Mr. Massimo Testa to the Board of Telit as a replacement of Mr. Stella. Mr. Testa, aged 51, established his first company in 1984, which provided construction, transportation and auxiliary services to the real estate sector. Over 25 years operating in the field, Mr. Testa has established a group that today works alongside manufacturers of raw materials for international real estate development companies. Mr. Testa is currently a director and shareholder of Techvisory S.A. and Wireless Solution Management S.L., 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 and the future looks positive for Telit, despite the global economic downturn, the effects of which have continued to be felt by Telit during the first months of the year, and fluctuating foreign exchange rates which fuelled the decrease in unit prices in 2008 and may continue to do so in the future. While our marketplace becomes more challenging we believe we are well positioned to take advantage of the opportunities ahead. We are confident in our strong position within our industry and look forward to continued business expansion. We are constantly seeking further expansion opportunities through new technologies or by gaining access to new territories and new market segments.

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 and the effect of fluctuating exchange rates 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 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 hope 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. 

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.

Oozi Cats

Chief Executive

 

  

CONSOLIDATED INCOME STATEMENT (Unaudited)

	2008	2007
	€'000	€'000
Revenue	59,083	52,189
Cost of sales	(29,987)	(30,201)
Gross profit	29,096	21,988
Other income	1,002	2,457
Research and development expenses	(9,647)	(8,940)
Selling and marketing expenses	(10,829)	(8,999)
General and administrative expenses	(9,058)	(7,615)
Other expenses	-	(400)
Operating profit (loss)	564	(1,509)
Investment income	192	277
Finance costs	(1,171)	(1,241)
Share of results of associated undertakings	18	(2)
Gain on deemed partial disposal of subsidiary	1,614	1,194
Profit (loss) before income taxes	1,217	(1,281)
Income taxes	(2,586)	(597)
Loss for the year from continuing operations	(1,369)	(1,878)
Loss for the year from discontinued operations	(1,864)	(5,180)
Loss for the year	(3,233)	(7,058)
Attributable to:
Equity shareholders of the parent	(3,052)	(7,027)
Minority interests	(181)	(31)
	(3,233)	(7,058)
Basic loss per share (in euro cents)
From continuing operations	(2.7)	(4.3)
From discontinued operations	(4.3)	(12.0)
Total continuing and discontinued	(7.0)	(16.3)
Diluted loss per share (in euro cents)
From continuing operations	(2.7)	(4.3)
From discontinued operations	(4.3)	(12.0)
Total continuing and discontinued	(7.0)	(16.3)
Weighted average number of equity shares in issue	43,430,948	43,214,281

  

CONSOLIDATED BALANCE SHEET (Unaudited)

	2008	2007
	€'000	€'000
ASSETS
Non-current assets
Intangible assets	9,883	9,050
Property, plant and equipment	3,779	2,612
Investments in associated undertakings	629	568
Other investments	1,570	1,570
Other long term assets	3,437	310
Deferred tax asset	548	3,130
	19,846	17,240
Assets included in disposal group held for sale	-	8,162
Current assets
Inventories	10,750	8,212
Trade receivables	14,575	16,591
Other current assets	4,799	5,079
Deposits - restricted cash	6,000	6,132
Cash and cash equivalents	4,619	5,212
	40,743	41,226
Total assets	60,589	66,628
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Share capital	644	627
Share premium account	30,188	29,651
Other reserve	(260)	(260)
Translation reserve	(3,464)	(1,734)
Retained earnings	(15,143)	(12,512)
Total shareholders' equity	11,965	15,772
Minority interests	77	605
Total equity	12,042	16,377
Non-current liabilities
Other loans	3,531	500
Post-employment benefits	1,807	1,555
Deferred tax liabilities	245	329
Provisions	748	81
Other long-term liabilities	119	4,430
	6,450	6,895
Liabilities included in disposal group held for sale	-	6,433
Current liabilities
Short-term borrowings from banks and other lenders	19,026	17,336
Trade payables	11,140	13,498
Provisions	-	63
Other current liabilities	11,931	6,026
	42,097	36,923
Total equity and liabilities	60,589	66,628

  

CONSOLIDATED CASH FLOW STATEMENT (Unaudited)

	2008	2007
	€'000	€'000
CASH FLOWS - OPERATING ACTIVITIES
Net cash used in continuing operations	(6,735)	(1,540)
Net cash used in discontinued operations	(1,441)	(2,239)
Net cash used in from operating activities	(8,176)ׂ	(3,779)
CASH FLOWS - INVESTING ACTIVITIES
Purchase of property, plant and equipment	(1,732)	(1,251)
Disposal of property, plant and equipment	46	-
Purchase of intangible assets	(4,888)	(3,733)
Grant contribution towards intangible assets	2,606	-
Acquisition of subsidiaries ( net of €9,000 cash acquired)	(15)	-
Net proceeds from issuance of share capital in a subsidiary to third party	7,000	7,604
Decrease in restricted cash deposits	-	1,000
Net cash from continuing operations	3,017	3,620
Net cash used in discontinued operations	-	(741)
Net cash from investing activities	3,017	2,879
CASH FLOWS - FINANCING ACTIVITIES
Short-term borrowings from banks and others	757	3,000
Preferential rate loan	3,909	-
Repayment of other loans	-	(1,500)
Net cash from continuing operations	4,666	1,500
Net cash from discontinued operations	-	1,167
Net cash from financing activities	4,666	2,667
(Decrease) / increase in cash and cash equivalents	(493)	1,767
Cash and cash equivalents - balance at beginning of year	5,212	3,926
Effect of exchange rate differences	(100)	(439)
Cash and cash equivalents - balance at end of year	4,619	5,254
Consisting of:
Cash and cash equivalents from continuing operations	4,619	5,212
Cash and cash equivalents from discontinued operations	-	42
	4,619	5,254
Supplemental disclosure of cash flow information (included in cash flow from operating activities):
Interest paid	988	934
Interest received	177	243
Income taxes paid	92	139

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)

Year ended 31 December 2008

	Share capital	Share premium account	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
Reduction in minority interest in Telit APAC
Issuance of shares	17	537				554		554
Arising on deemed disposal -minority in Telit Wireless Solutions Srl							(188)	(188)
Translation adjustments				(1,730)		(1,730)	(175)	(1,905)
Share-based payment charge					421	421	15	436
Loss for the year					(3,052)	(3,052)	(181)	(3,233)
31 December 2008	644	30,188	(260)	(3,464)	(15,143)	11,965	77	12,042

Year ended 31 December 2007 (Audited)

	Share capital	Share premium account	Other reserve	Translation adjustment	Retained earnings	Total	Minority interest	Total
	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000
1 January 2007	627	29,651	(260)	(584)	(6,486)	22,948	796	23,744
Reduction in minority interest in Telit APAC	-	-	-	-	-	-	(318)	(318)
Arising on deemed disposal -minority in Telit Wireless Solutions Srl	-	-	-	-	-	-	275	275
Translation adjustments	-	-	-	(1,150)	-	(1,150)	(129)	(1,279)
Repurchase of share options	-	-	-	-	(29)	(29)	-	(29)
Share-based payment charge	-	-	-	-	1,030	1,030	12	1,042
Loss for the year	-	-	-	-	(7,027)	(7,027)	(31)	(7,058)
31 December 2007	627	29,651	(260)	(1,734)	(12,512)	15,772	605	16,377

NOTES TO THE UNAUDITED PRELIMINARY ANNOUNCEMENT

 

1. While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs by May 2009. The financial information included in this preliminary announcement has been prepared with consistent accounting policies to those set out in the Group's 2007 published financial statements, with the exception of new and revised standards and interpretations adopted during 2008.

 

2. The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2008 or 2007. The financial information for the year ended 31 December 2007 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s. 237(2) or (3) Companies Act 1985. The auditors have not reported on the financial information as at and for the year ended 31 December 2008 and as such the information set out herein is unaudited.

 

3. The Group meets its day to day working capital requirements through overdraft facilities, invoice advance facilities and factoring. In the main, 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. Further information on the Group's borrowings is provided in note 10. The current economic conditions create uncertainty particularly over (a) the level of demand for the Group's products which may also affect the possibility of utilising 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 U.S. dollars 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 uncertainty over forecasts in current market environments.

 

The Group's forecasts and projections, taking account of the fact that there has been a loss for the year from continuing operations, that the Group has net current liabilities, of the general economic environment and impact on specific markets supplied, reasonably possible changes in trading performance, 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 risks, show that the Group should be able to operate within the level of its current facilities. The Group will open renewal negotiations with the banks in due course and has at this stage not sought any written commitment that the facilities will be renewed. However, the Group has held discussion with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that renewal may not be forthcoming on acceptable terms.

 

After making enquiries, the directors have a reasonable expectation that the Company and 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 accompanying financial information.

 

4. Revenue

	2008	2007
	€'000	€'000
Sales of goods	57,426	49,842
Licence and royalty income	1,657	2,347
Revenue	59,083	52,189
Investment income	192	277
Continuing operations	59,275	52,466
Discontinued operations	1,288	23,331
	60,563	75,797

5. On 5 November 2008 Telit acquired 100% of the issued ordinary share capital of, and voting rights in, One RF Technology S.A.S., a company incorporated in France, in return for consideration of 1,300,000 newly issued ordinary shares in the Company. The fair value of the shares issued at market price on 5 November 2008 was €554,000. The total cost of the business combination, including directly attributable costs of €24,000, was €578,000.

 

The final fair value of the assets and liabilities of Telit RF recognised at the acquisition date is as follows:

  

6. The Group is currently the subject of ongoing tax audits in respect of tax returns made in certain jurisdictions. The calculation of the Group's charges to taxation, including income tax, employment tax, sales taxes and other taxes involves the exercise of judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The probable outcome of the tax audits has been considered in determining the appropriate level of provision for such taxes. The final resolution of some of these items may give rise to material profit and loss and/or cash flow variances.

 

7.Telit entered into an investment agreement with Bartolini After Market Electronic Services S.r.l. ("BAMES") in prior periods.

 

The Group's subsidiary, Telit Wireless Solutions Srl ("TWS"), received in June 2007 a capital injection of €9.0 million (before costs of €1.4 million) in exchange for new shares issued equal to 5.625% of its enlarged share capital, with a further capital injection to take place for €7.0 million in December 2008 in exchange for new shares to be issued equal to 4.375% of the enlarged share capital of TWS. The Group accounted for this transaction as a deemed disposal. As part of the same transaction, the Group acquired a 19.9 per cent interest in BAMES's subsidiary, Services for Electronic Manufacturing Srl ("SEM") for €1.The fair value of this investment at the date of acquisition was determined to be €1,570,000. Additionally, the Group entered into a manufacturing agreement for the manufacture by SEM of machine-to-machine modules, with certain exceptions, for a period of at least five years, together with minimum purchase quantities.

 

The gain on deemed disposal was calculated as the difference between the estimated fair value of the 5.625% stake in TWS, net of costs, and the book value as at the date of deemed disposal. Minority interests of €275,000 were recognized on this transaction.

 

In December 2008, TWS received a further capital injection of €7.0 million in exchange for new shares issued equal to 4.375% of its enlarged share capital. The Group has accounted for this transaction as a deemed disposal.

	2008
	€'000
Fair value of net assets disposed	1,426
Book value of net liabilities disposed to minorities	188
Gain on deemed partial disposal of subsidiary undertaking	1,614

 

TWS holds most of the Group's investments in its Telit Wireless Solutions division. In estimating the fair value of net assets disposed, the Directors had regard to the market value of the Telit Communications PLC group as at the date of the original transaction.

8. Towards the end of 2008 Telit entered into a transaction with SEM, in which SEM 

purchased from the Group a perpetual worldwide license for the "Telit" nominative trade name and the "Telit by SEM Wimax" trade name and trademark, to use within the "Telit by SEM WiMax" trade name and trademark, in the worldwide marketing and sale of Base Stations (BTS) and Customer Premise Equipment (CPE) for communication networks running the WiMax technology; and

agreed a price reduction in respect of the Group's purchases to 30 September 2009 under the manufacturing agreement with SEM.

 

The consideration receivable by the Group in respect of these agreements is €3,500,000 payable in three instalments from March 2010 to March 2012 (€3.1 million net present value). In addition, the credit terms made available to the Group by SEM have been extended with effect from 1 November 2008. A further price reduction has been agreed starting from 1 October 2009.

 

Accounting for this transaction has required the Group to estimate the fair value of the components of the transaction. The fair values allocated have been determined at present value to reflect the time value of money. The fair value allocated to the license is €1,500,000, which has been determined by reference to a comparable transaction entered into by the Group in 2007. The Group has recognised €0.9 million in respect of the price reduction for 2008 with a further €0.7 million to be recognised in 2009. 

 

9. At 31 December 2007, the Group had recorded a deferred tax asset of €3.0 million relating to losses incurred in its Italian subsidiary, Telit Italy. The directors consider that under existing Italian tax law, the time period over which these losses are available for relieving future profits is unlimited. 

 

Whilst the directors remain confident about the future trading of Telit Italy, in light of the global economic conditions and the stringent requirement of IAS 12, this asset has been written off.

10. Borrowings

	2008	2007
	€ '000	€'000
Current borrowings (continuing operations)	19,026	17,336
Non-current borrowings (continuing operations)	3,531	500
Current borrowings (discontinued operations)	-	4,207
Total	22,557	22,043

The other long-term loan of €3,531,000 represents the long-term element of a preferential rate loan from the Ministry of Trade and Commerce in Italy of €3,909,000 provided in connection with the Group's business development program in Sardinia. The loan attracts interest at a rate of 0.75% and is repayable in ten annual installments commencing on 15 March 2010 and ending on 15 March 2018.

Included within short-term bank loans and other financing are:

A short-term loan of €500,000 which does not attract interest and other loans of €55,000. The €500,000 loan is held by the Company.

The short-term element of the preferential rate loan from the Ministry of Trade and Commerce in Italy, amounting to €378,000. 

A drawn amount of €5.2 million on a loan with a maturity date of 1 January 2010. Management believes the availability of this facility will be extended beyond 1 January 2010, subject to satisfaction of the lending bank that the Group has met certain qualifying expenditure targets with regard to its research and development project in Sardinia. The interest rate on this short-term bank loan is Euribor plus 1.7% per annum. The short-term bank loan is a bridging loan in advance of funds to be received from a grant from the Italian government to Telit Italy to support a development project in Sardinia. 

Bank overdrafts of €5.6 million. The overdraft facilities, which are available up to €6.0 million, is cancellable on demand but is without a fixed renewal date.

Drawn letters of credit and borrowings arising from invoice advances totaling €4.5 million in Telit Italy. 

A short-term bank loan of €1.6 million secured by liens on all the funds due from the major customer of the Company's Israeli subsidiary in connection with specific orders received from that customer.

Factoring facilities against qualifying receivables totaling €1.2 million. These borrowings are secured against the factored receivables and are with recourse to the company in the event that the receivables are not collected. 

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.

 

11. Discontinued operations

 

On 17 May 2007 the Company's board of directors resolved to sell the Wireless Products division ("TWP") and to focus solely on the Wireless Solutions business unit.

 

On 28 June 2007 the Company executed a term sheet for the sale of 80.01% of TWP, to a group of third party investors. This agreement was not consummated. During the second half of 2007 the Company sold its Italian TWP business to a third party, thus marking the final disposal of Telit's European TWP business. During the first half of 2008, following the termination of the transaction to sell the Israeli TWP business, the Company converted this division into a wireless solutions centre as an integral part of its ongoing wireless solutions business and abandoned its TWP activities.

 

12. Reconciliation of operating profit to EBITDA and Adjusted EBITDA

	2008	2007
	€ '000	€'000
Operating profit (loss)	564	(1,509)
Depreciation & amortization	2,673	1,369
EBITDA	3,237	(140)
Share-based payments	436	1,138
Other expenses	-	400
Adjusted EBITDA	3,673	1,398

ENDFR EALLDESANEEE

---

Related Shares:

TCM.L