(TCM.L) Telit Communications PLC Buy/Sell

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1 Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization and share based payments from continuing operations.

Commenting on the results, Oozi Cats, Chief Executive of Telit, said: "The first six months of the year have been challenging in terms of revenues but positive for Telit in terms of improved operating results and number of units sold, which showed a substantial improvement."
"We are pleased to have been able to achieve such performance during the first six months of the year in spite of the effects of the worldwide economic recession on the m2m industry and the effects of foreign exchange rate fluctuations on our business. The global demand for m2m cellular wireless solutions has grown in terms of units but the strong erosion in the average sales price offset the increase in units sold. Market research indicates that the number of modules sold will increase slightly in 2009 after a decline of 1.5% in 2008, leading to no growth in the m2m market in terms of revenue in 2009 but with a rebound of revenue in 2010, gaining momentum in 2011. Telit presented significant growth in 2008 against the market trend and continued to grow in terms of units sold above the market performance. During the first half of 2009, Telit also continued to improve its operating effectiveness and in spite of the decline in the top line Telit achieved a higher - and positive - EBITDA compared to the first half of 2008. As part of the ongoing cost structure improvement process which is reflected in the first half results by reducing the operating costs from EUR15.5 million to EUR14.3 million, Telit also invested in creating new outsourced manufacturing in China, which commenced in August 2009 and which will help the Company sustain the profitability levels achieved in H1 2009. The half year results demonstrate the considerable effectiveness being achieved by our business and the opportunities going forward."

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

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

1 Excluding share based payments

For further information:
Telit Communications PLC Tel: 00 972 3 791 40 40
Michael Galai, Finance Director michaelg@telit.com
www.telit.com
Seymour Pierce Limited Tel: +44 (0) 20 7107 8000
Chris Howard, Corporate Finance www.seymourpierce.com
CHIEF EXECUTIVE'S STATEMENT AND REVIEW - INTERIM RESULTS 2009

Introduction

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

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

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

Financial Results

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

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

H1 2009 gross profit decreased only slightly to EUR12.7 million, compared to EUR12.9 million in H1 2008, in spite of the decline in revenue, resulting in an overall margin of 45.8% compared to 43.0% for H1 2008.

Research and development expenses, excluding share-based payments, were EUR5.4 million, including the new R&D centre in Sofia Antipolis which was acquired in November 2008, compared to EUR5.2 million in H1 2008.

Sales and marketing expenses, excluding share-based payments, were EUR5.2 million, compared to EUR6.3 million in H1 2008.

General and administrative expenses, excluding share-based payments, were EUR3.9 million, compared to EUR3.8 million in H1 2008. The H1 2009 expenses include general and administrative expenses of the new entities in France and Brazil which were not included in H1 2008.

Share based compensation charges were EUR0.3 million in H1 2009 compared to EUR0.2 million in H1 2008.

The overall net operating expenses were EUR14.3 compared to EUR15.5 in H1 2008 resulting in an operating loss for the period of EUR1.6 million, a significant improvement from a loss of EUR2.6 million in H1 2008, especially considering the decline in revenue. Loss before tax was EUR2.1 million, compared to a loss of EUR3.5 million in H1 2008, due to the decrease in operating losses of EUR1.0 million and lower net financing costs of EUR0.4 million.

Net loss for the period was EUR2.0 million compared to a net loss of EUR4.2 million in H1 2008.

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

Regional Information

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

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

H1 2009 (MEUR) % of Total Revenues H1 2008 % of Total Revenues FY 2008 % of Total Revenues

EMEA 17.0 61% 23.7 79% 44.2 75%
APAC 5.8 21% 4.8 16% 9.6 16%
AMERICAS 4.9 18% 1.6 5% 5.3 9%
Total Revenues 27.7 100% 30.1 100% 59.1 100%

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

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

June 30, June 30, 2008 December 31,

Total Employees 369 297 365

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

Effects of Foreign Exchange

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

Business Performance & sales

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

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

Major R&D Developments

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

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

In June 2007 BAMES invested EUR9 million in the share capital of the company's subsidiary, Telit Wireless Solutions Srl. (TWS), the first installment of a EUR16 million investment in TWS' share capital. Under the terms of the transaction, BAMES invested the second sum of EUR7 million, in TWS' share capital in December 2008, after Telit met certain milestones.

In July 2009 the Company signed an agreement with BAMES to convert the manufacturing agreement with SEM (the Vimercate, Italy based manufacturing arm of BAMES) to be non-exclusive. As a result of the cancellation of the exclusivity, SEM is entitled to a compensation of EUR2.75-3.50 million. In addition, manufacturing costs will remain fixed through the end of the year. Telit and SEM will continue to cooperate in various projects and SEM will continue to provide specific manufacturing services to Telit, such as manufacturing of prototypes, on a non-exclusive basis.

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

Outstanding Shares

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

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

Board changes

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

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

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

Outlook

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

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

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

Appreciation

Telit's management's main focus is and will continue to be to expand and strengthen our position as one of the world's premier m2m technology providers, while striving to anticipate and respond to market conditions that are beyond our control, such as the effects of the global downturn on our financial results.

The hard work and dedication of Telit's staff across the globe is, and will continue to be, crucial to Telit's success. I would like to thank the company's management team, directors and employees for their commitment to the company and its success. Their dedication is an invaluable asset, indeed the core asset of the company.

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

Oozi Cats

Chief Executive

Six months ended Year ended 31 December
30 June

Unaudited Audited
EUR'000 EUR'000 EUR'000
Revenue 27,720 30,112 59,083
Cost of sales (15,026) (17,175) (29,987)
Gross profit 12,694 12,937 29,096
Other income 408 - 1,002
Research and development (5,410) (5,230) (9,647)

expenses
Selling and marketing expenses (5,337) (6,353) (10,829)
General and administrative (3,992) (3,956) (9,058)

expenses

Operating profit (loss) (1,637) (2,602) 564
Investment income 67 214 192
Finance costs (493) (1,087) (1,171)
Share of results in associated 11 8 18

undertakings
Gain on partial deemed - - 1,614

disposal of subsidiary

Profit (Loss) before income (2,052) (3,467) 1,217

taxes

Income taxes (tax benefit) (89) (281) 2,586

Loss for the period from
continuing operations (1,963) (3,186) (1,369)
Loss for the period from - (987) (1,864)

discontinued operations

Loss for the period (1,963) (4,173) (3,233)
Other comprehensive income (1,904)
Translation adjustments 57 (1,291)
Total comprehensive income for (1,906) (5,464) (5,137)

the period

Attributable to:
Equity shareholders of the (1,969) (3,974) (3,052)

parent
Minority interests 6 (199) (181)
(1,963) (4,173) (3,233)

Basic and diluted loss per share (in euro cents)
From continuing operations (4.4) (6.9) (2.7)
From discontinued operations - (2.3) (4.3)
Total continuing and (4.4) (9.2) (7.0)

discontinued

Weighted average number of 44,514,281 43,214,281 43,430,948

equity shares in issue

. CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 June 31 December

Unaudited Audited
EUR'000 EUR'000 EUR'000

Non-current assets
Intangible assets 10,207 10,400 9,883
Property, plant and equipment 3,419 3,221 3,779
Investments in associated undertakings 613 616 629
Other investments 1,570 1,570 1,570
Other long term assets 311 195 3,437
Deferred tax asset 574 3,430 548
16,695 19,432 19,846

Current assets
Inventory 8,764 8,453 10,750
Trade receivables 16,969 19,125 14,575
Other current assets 4,655 3,191 4,799
Deposits - restricted cash 6,000 6,328 6,000
Cash and cash equivalents 2,250 2,773 4,619
38,639 39,870 40,743
Total assets 55,334 59,302 60,589

LIABILITIES AND SHAREHOLDERS' EQUITY

Shareholders' equity
Share capital 644 627 644
Other reserve (260) (260) (260)
Share premium 30,188 29,651 30,188
Translation reserve (3,401) (2,916) (3,464)
Retained deficit (16,852) (16,246) (15,143)
Total shareholders' equity 10,319 10,856 11,965
Minority interests 77 304 77
Total equity 10,396 11,160 12,042

Non-current liabilities
Other loans 3,150 500 3,531
Post-employment benefits 1,790 1,725 1,807
Deferred tax liabilities 180 226 245
Provisions 761 - 748
Other long-term liabilities 199 2,658 119
6,080 5,109 6,450

Current liabilities
Short-term borrowings from banks and other 21,119 21,376 19,026

lenders
Trade payables 7,858 14,305 11,140
Provisions 122 112 142
Other current liabilities 9,759 7,240 11,789
38,858 43,033 42,097
Total equity and liabilities 55,334 59,302 60,589

Year ended 31
December
Six months ended 30 June

Unaudited Audited
EUR'000 EUR'000 EUR'000

Net cash used in continuing (2,472) (3,622) (6,735)

operations
Net cash from / (used in) - 4,707 (1,441)

discontinued operations
Net cash from / (used in) (2,472) 1,085 (8,176)

operating activities

Net proceeds from issue of - - 7,000

shares in subsidiary to a third party
Grant contribution towards - - 2,606

intangible assets
Acquisition of subsidiaries - - (15)
Purchase of property, plant (369) (1,219) (1,686)

and equipment
Purchase of intangible assets (1,673) (2,687) (4,888)
Net cash (used in) / from (2,042) (3,906) 3,017

continuing operations
Net cash used in discontinued - 1,187 -

operations
Net cash (used in) / from (2,042) (2,719) 3,017

investing activities

Preferential rate loan - - 3,909
Repayment of long term loans (381) - -
Short-term borrowings from 2,161 3,742 757

banks and others
Net cash (used in) / from 1,780 3,742 4,666

continuing operations
Net cash (used in) / from - (4,249) -

discontinued operations
Net cash (used in) / from 1,780 (507) 4,666

financing activities

(Decrease) / increase in cash (2,734) (2,141) (493)

and cash equivalents

Cash and cash 4,619 5,212 5,212

equivalents-balance at beginning of period
Effect of exchange rate 365 (382) (100)

differences

Cash and cash 2,250 2,773 4,619

equivalents-balance at end of period

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 June 2009 (Unaudited)

Share capital Share premium Other reserve Translation Retained earnings Total Minority interest Total
adjustment
EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000

1 January 2009 644 30,188 (260) (3,464) (15,143) 11,965 77 12,042

Total comprehensive income for the period
Loss for the period (1,969) (1,969) 6 (1,963)

Other comprehensive income
Translation adjustment 63 63 (6) 57
Total comprehensive income for 63 (1,969) (1,906) - (1,906)

the period Transaction with owners, recorded directly in equity Contributions by and distributions to owners
Share-based payment charge 260 260 260
Total transaction with owners 260 260 260

30 June 2009 644 30,188 (260) (3,401) (16,852) 10,319 77 10,396

Six months ended 30 June 2008 (Unaudited)

Share capital Share premium Other reserve Translation Retained earnings Total Minority interest Total
adjustment
EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000

1 January 2008 627 29,651 (260) (1,734) (12,512) 15,772 605 16,377

Total comprehensive income for the period
Loss for the period (3,974) (3,974) (199) (4,173)

Other comprehensive income
Translation adjustment (1,182) (1,182) (109) (1,291)
Total comprehensive income for (1,182) (3,974) (5,156) (308) (5,464)

the period Transaction with owners, recorded directly in equity Contributions by and distributions to owners
Share-based payment charge 240 240 7 247
Total transaction with owners 240 240 7 247

30 June 2008 627 29,651 (260) (2,916) (16,246) 10,856 304 11,160

Year ended 31 December 2008 (Audited)

Share capital Share premium Other reserve Translation Retained earnings Total Minority interest Total
adjustment
EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000 EUR*000

1 January 2008 627 29,651 (260) (1,734) (12,512) 15,772 605 16,377

Total comprehensive income for the period
Loss for the period (3,052) (3,052) (181) (3,233)

Other comprehensive income
Translation adjustment (1,730) (1,730) (174) (1,904)
Total comprehensive income for (1,730) (3,052) (4,782) (355) (5,137)

the period Transaction with owners, recorded directly in equity Contributions by and distributions to owners
Issuance of shares 17 537 554 554
Share-based payment charge 421 421 15 436
Total changes in ownership (188) (188)

interests in subsidiaries
Total transactions with owners 17 537 421 975 (173) 802

31 December 2008 644 30,188 (260) (3,464) (15,143) 11,965 77 12,042

NOTES TO THE INTERIM FINANCIAL STATEMENT

AT 30 JUNE 2009 (UNAUDITED)

2. The interim financial statements include the results of operations and the financial position of the Company and its subsidiaries (together the "Group") as at and for the six months ended 30 June 2009. The Group is engaged in the development, manufacture and sale of wireless communications (primarily cellular) modules - products for transmitting electronic data designed for the m2m telecom market, and services entailing the development and licensing of cellular technology to third parties based on the Company's technological property. The consolidated interim financial statements of the Company have been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the AIM Rules using the accounting policies set out in the Group's 31 December 2008 statutory accounts. The AIM Rules do not require compliance with the requirements of IAS 34 "Interim Financial Statements" and these consolidated interim financial statements have not been prepared in compliance with the disclosure requirements of that standard. The consolidated interim financial statements have not been audited or reviewed and do not constitute the company's statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2008 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

3. The Directors have not declared an interim dividend.

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

The Remuneration Committee determined that the current economic downturn has created exceptional circumstances whereby the proposed grant is imperative for the continued incentivisation and retention of executives and key employees. The grant benefits the participants of the plan by offering options over the ordinary shares in the Company at an exercise price of 20p (12.5% above the average price of the shares in the 2-week period before the date of the grant, and 8.1% above the closing price of the shares on the date of the grant) which is more representative of the share's current market value.

5.During July 2009 the Company signed an agreement with BAMES in order to convert the agreement with SEM, a leading global electronics service provider, (the Vimercate, Milan based manufacturing arm of BAMES), to be non-exclusive.

The agreement provided for SEM to produce all of Telit's m2m modules (with some exceptions) for a five year period starting from March 12, 2007. As a result of the cancellation of the exclusivity, SEM is entitled to a compensation of EUR2.75-3.50 million to be settled by set-off against the receivable balance Telit has from the license agreement entered into by the parties in December 2008. In addition, manufacturing costs will remain fixed through the end of the year. Telit and SEM will continue to cooperate in various projects and SEM will continue to provide specific manufacturing services to Telit, such as manufacturing of prototypes, on a nonexclusive basis.

Telit has begun parallel manufacturing with a new, leading, manufacturer in China and expects that a majority of its products will be manufactured in China starting from 2010. The new manufacturing arrangements will allow Telit to improve its competitive position within the m2m market. 6. Reconciliation of operating profit to Adjusted EBITDA:

EUR*000 EUR*000 EUR*000

Operating profit (loss) (1,636) (2,602) 564
Depreciation & amortization 1,947 1,249 2,673
Shared based payment 260 246 436

Adjusted EBITDA 571 (1,107) 3,673
7. Borrowings:

EUR'000 EUR'000 EUR'000
Current borrowings 21,119 21,376 19,026
Non-current borrowings 3,150 500 3,531
Total 24,269 21,876 22,557

The non-current borrowing of EUR3.15 million represents the long-term element of a preferential rate loan from the Ministry of Trade and Commerce in Italy of EUR3.9 million provided in connection with the Group's business development program in Sardinia. The loan attracts interest at a rate of 0.75% p.a. and is repayable in ten annual instalments commencing in March 2009 and ending in March 2018.

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

This information is provided by RNS The company news service from the London Stock Exchange

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