(TCM) Telit Communications

RNS Number : 2056I Telit Communications PLC 08 March 2010

PressRelease 8 March 2010

Telit Communications PLC

("Telit" or "the Company")

Preliminary Results for the year ended 31 December 2009 (unaudited)

Telit Returns to Strong Growth; H2 Revenues increase by 30%

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

Highlights

Financial

· Revenue increased by 10.7% to EUR63.8 million (2008: EUR57.6 million, excluding non-recurring royalties of EUR1.5 million).

· Revenue in H2-2009 increased by 30% to EUR36.0 million (H1-2009: EUR27.8 million).

· Gross profit increased by 11% to EUR30.6 million (2008: EUR27.6 million, excluding non-recurring royalties of EUR1.5 million)

· Operating profit for the year (excluding one time compensation charges of EUR2.75 million) of EUR0.6 million (2008: EUR0.6 million)

· Adjusted EBITDA1 for the year EUR4.2 million (2008: EUR3.7 million)
· Loss before tax of EUR2.9 million (2008: profit of EUR1.2 million)
· Loss for the year of EUR3.0 million (2008: loss of EUR3.2 million)

_____________________

1 Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization and share
based payments from continuing operations and, for 2009 only, expenses related to manufacture
restructuring costs.

Operational

· Accelerated growth of Telit's Americas and APAC regions increases Telit's diversification.

· The transfer of the manufacturing of Telit's products to China was substantially completed at the end of the year.

· The Company continued its penetration of the automotive sector by entering into agreements with Magneti Marelli (Italy), a leading global supplier in the sector; with MetaSystem (Italy) and with Positron (Brazil), a PST Electronics company.

· The Company entered into a strategic collaboration agreement with Deutsche Telekom and T-Mobile which will see the three companies working closely together, worldwide, on sales and marketing in their target markets and to jointly develop innovative M2M products and services in the future.

Services and Products

· Launched INFINITA Services offering with Premium FOTA and extended Hardware warranty

· Presented new Short-Range product series and the smallest GSM/GPRS m2m module in the world

· Presented extremely powerful and cost-effective GPS module SE867-AGPS

Commenting on the results, Oozi Cats, Chief Executive, said: "2009 has been a supremely challenging year for the global economy in general, and Telit's market, the machine to machine industry, in particular. Despite the difficulties, Telit continued its acquisition of market share and trend of year-on-year revenue growth, albeit at a slower pace than in previous years but with the pace picking up in H2-2009, showing an increase of 30% over H1-2009. We successfully transferred our production to China in order to increase efficiency and are confident in our ability to continue our leading performance in the m2m industry and increase our rate of growth in 2010. Telit has emerged from the turmoil of 2009 as a much stronger company, ready to continue its ascent in its markets".

For further information:
Telit Communications PLC Tel: +39 06 42046020

Oozi Cats, CEO Oozicats@telit.com Yariv Dafna, CFO Yariv@telit.com

Astaire Securities Plc, Nomad & Broker Tel: +44 (0) 20 7448 4400

Shane Gallwey / Sebastian Wykeham

Chairman's statement

2009 has been a very challenging year for the global economy, and the m2m market was no exception. We focused this year on continued revenue growth, while trying to minimize operating costs. In 2009 we did incur substantial costs in connection with the transfer of the manufacturing of our products to our new manufacturing partner in China, and this is reflected in our results for the year. These expenses were an investment facilitating the achievement of our goal of decreasing manufacturing costs and we believe that the long term return on this investment will be substantial and will cement Telit's position as a market leader in the m2m arena.

Results

· Revenues for the year increased by 10.7% to EUR63.8 million (2008: EUR57.6 million, excluding non-recurring royalties of EUR1.5 million received in 2008). After a slow start to the year, H2 revenues increased 30% to EUR36.0 million over the EUR27.8 million revenues in H1.
· Gross profit increased by 11% to EUR30.6 million (2008: EUR27.6 million excluding non-recurring royalties of EUR1.5 million).
· Other income decreased to EUR0.05 million (2008: EUR1.0 million). This is due to a delay in obtaining the necessary approvals for the recognition of EUR0.8 million in relation to governmental grants in Italy. The grants had initially been expected to be recognised in 2009 but this was delayed due to external reasons which are not under the Company's control.

· Research & Development expenses (EUR10.9 million during the year), as a percentage of revenues, increased slightly to 17.0% (2008: 16.3%, EUR9.6 million).

· Sales & Marketing expenses (EUR11.1 million during the year), as a percentage of revenues, decreased to 17.4% (2008: 18.3%, EUR10.8 million).

· General & Administrative expenses (EUR8.1 million during the year), as a percentage of revenues, decreased to 12.7% (2008: 15.3%, EUR9.0 million).

· Operating profit for the year, excluding one-time charges of EUR2.75 million in connection with the transfer of manufacturing to China, EUR0.6 million (2008: EUR0.6 million).
· Adjusted EBITDA increased to EUR4.2 million (2008: EUR3.7 million).

Trading

In spite of the global economic crisis, Telit continued to increase its revenues. This was achieved in a period when the m2m market did not grow at all, with certain segments even contracting. The weakness in the European market was more than compensated for by the strong growth in the Americas and APAC regions, resulting in an increasingly diversified geographical split of our revenues, as follows:
2009 (MEUR) % of Total Revenue 2008 (MEUR) % of Total Revenue
EMEA 38.5 60.3% 44.2 74.8%
APAC 15.1 23.7% 9.6 16.2%
AMERICAS 10.2 16.0% 5.3 9.0%
Total Revenue 63.8 100% 59.1 100%

The Group's natural hedging reduces the impact of currency fluctuations; 37% of Telit's revenue in 2009 was generated in Euro, with the remaining 63% generated in, or linked to, other currencies (mainly US dollar and Korean Won), with a substantial part of the Company's material purchases materials denominated in those currencies.

Cash

The Group continues to use cash in its operating activities, investing heavily in R&D and S&M. Despite this, the Group's net debt position at the end of 2009 improved to EUR7.2 million (2008: net debt of EUR11.9 million) due the successful placing of 28 million shares in August and December 2009 for a gross consideration of £5.7 million.

Outlook

The outlook for the rest of 2010 and beyond looks promising for Telit. We believe we are well positioned to take advantage of the opportunities ahead with the heavy investments made during the year in R&D and in the transfer of the manufacturing of our products to China. This will enable us to maintain our gross profitability in spite of the erosion in the average sale price. We are confident in our ability to maintain and enhance our strong position within our industry as we did in 2009 and look forward to continue business expansion.

I would like to thank the company's management team and employees across the globe for their commitment to the company and its success. Their dedication is an invaluable asset, and core strength of the company.

Enrico Testa

Chairman

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

EUR'000 EUR'000
Revenue 63,761 59,083
Cost of sales (33,129) (29,987)
Gross profit 30,632 29,096
Other income 49 1,002
Research and development expenses (10,866) (9,647)
Selling and marketing expenses (11,137) (10,829)
General and administrative expenses (8,105) (9,058)
Other expenses (2,750) -
Operating profit (loss) (2,177) 564
Investment income 85 192
Finance costs (857) (1,171)
Share of results of associated undertakings - 18
Gain on deemed partial disposal of subsidiary - 1,614
Profit (loss) before income taxes (2,949) 1,217
Income taxes (81) (2,586)
Loss for the year from continuing operations (3,030) (1,369)
Loss for the year from discontinued operations - (1,864)
Loss for the year (3,030) (3,233)

Other comprehensive income
Translation adjustments (140) (1,904)
Total comprehensive income for the period (3,170) (5,137)

Attributable to:
Equity shareholders of the parent (3,466) (3,052)
Minority interests 436 (181)
(3,030) (3,233)

Basic loss per share (in euro cents)
From continuing operations (7.6) (2.7)
From discontinued operations - (4.3)
Total continuing and discontinued (7.6) (7.0)

Diluted loss per share (in euro cents)
From continuing operations (7.6) (2.7)
From discontinued operations - (4.3)
Total continuing and discontinued (7.6) (7.0)
45,608,802 43,430,948

Weighted average number of equity shares in issue

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

EUR'000 EUR'000

Non-current assets
Intangible assets 8,819 9,883
Property, plant and equipment 3,294 3,779
Investments in associated undertakings 605 629
Other investments 1,570 1,570
Other long term assets 393 3,437
Deferred tax asset 316 548
14,997 19,846

Current assets
Inventories 6,021 10,750
Trade receivables 21,676 14,575
Other current assets 5,554 4,799
Deposits - restricted cash 5,500 6,000
Cash and cash equivalents 7,898 4,619
46,649 40,743
Total assets 61,646 60,589

LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity
Share capital 956 644
Share premium account 36,043 30,188
Other reserve (260) (260)
Translation reserve (3,604) (3,464)
Retained earnings (18,207) (15,143)
Total shareholders' equity 14,928 11,965
Minority interests 1,115 77
Total equity 16,043 12,042

Non-current liabilities
Other loans 3,150 3,531
Post-employment benefits 2,030 1,807
Deferred tax liabilities 69 245
Provisions 832 748
Other long-term liabilities 221 119
6,302 6,450

Current liabilities
Short-term borrowings from banks and other lenders 17,469 19,026
Trade payables 18,026 11,140
Other current liabilities 3,806 11,931
39,301 42,097
Total equityandliabilities 61,646 60,589

CONSOLIDATED CASH FLOW STATEMENT (Unaudited)

EUR'000 EUR'000

Net cash from (used in) continuing operations 1,913 (6,735)
Net cash used in discontinued operations - (1,441)
Net cash from (used in) from operating activities 1,913 (8,176)*

Purchase of property, plant and equipment (940) (1,732)
Proceed from disposal of property, plant and equipment 50 46
Decrease in restricted cash deposits 500 -
Purchase of intangible assets (3,182) (4,888)
Grant contribution towards intangible assets 49 2,606
Acquisition of subsidiaries ( net of EUR9,000 cash - (15)

acquired)
Net proceeds from issuance of share capital in a - 7,000

subsidiary to third party
Net cash (used in) from investing activities (3,523) 3,017

Short-term borrowings from banks and others (1,010) 757
Preferential rate loan - 3,909
Repayment of long term loans (381) -
Net proceeds from issuance of share capital 6,167 -
Net cash from financing activities 4,776 4,666
(Decrease) / increase in cash and cash equivalents 3,166 (493)
Cash and cash equivalents - balance at beginning of year 4,619 5,212
Effect of exchange rate differences 113 (100)
Cash and cash equivalents - balance at end of year 7,898 4,619

Supplemental disclosure of cash flow information (included in cash flow from (used in) operating activities):
Interest paid 857 988
Interest received 85 177
Income taxes paid 29 92

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)

Year ended 31 December 2009

Share capital Share premium Other reserve Translation adjustment Retained earnings Total Minority interest Total
account
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

Comprehensive income for the period
Loss for the year (3,466) (3,466) 436 (3,030)

Other comprehensive income
Translation adjustment (140) (140) 183 43
Total comprehensive income for the period (140) (3,466) (3,606) 619 (2,987)

Transaction with owners, recorded directly in equity
Issuance of shares 312 5,855 6,167 6,167
Share-based payment charge 402 402 402
Arising on deemed disposal - minority in Telit 419 419

Wireless Solutions Srl
Total transaction with owners 312 5,855 402 6,569 419 6,988

31 December 2009 956 36,043 (260) (3,604) (18,207) 14,928 1,115 16,043

Year ended 31 December 2008

Share capital Share premium Other reserve Translation Retained earnings Total Minority interest Total
account 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

Comprehensive income for the period
Loss for the year (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
Issuance of shares 17 537 554 554
Share-based payment charge 421 421 15 436
Arising on deemed disposal - (188) (188)

minority in Telit Wireless Solutions Srl
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 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 April 2010. The financial information included in this preliminary announcement has been prepared with consistent accounting policies to those set out in the Group's 2008 published financial statements.

2. The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008. 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 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 2009 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 7. 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, 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 evidence that the facilities will not be renewed. 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

EUR'000 EUR'000
Sales of goods 63,761 57,426
Licence and royalty income - 1,657
Revenue 63,761 59,083
Investment income 85 192
Continuing operations 63,846 59,275
Discontinued operations - 1,288
63,846 60,563
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.

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. Reconciliation of operating profit to EBITDA and Adjusted EBITDA

EUR '000 EUR'000
Operating profit (loss) (2,177) 564
Depreciation & amortization 3,259 2,673
EBITDA 1,082 3,237
Share-based payments 402 436
Other expenses (*) 2,750 -
Adjusted EBITDA 4,234 3,673

(*) See note 5.

8. Net Debt position

EUR '000 EUR'000
Current borrowings (1) 17,469 19,026
Non-current borrowings (2) 3,150 3,531
Cash and cash equivalents (7,898) (4,619)
Restricted cash deposits (5,500) (6,000)
Total 7,221 11,938

(1) Included within current borrowings are: