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Telit Communications (TCM)

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Tuesday 04 September, 2018

Telit Communications

Interim results - turnaround plan on course

RNS Number : 6389Z
Telit Communications PLC
04 September 2018
 

4 September 2018

 

Telit Communications PLC

 

Interim results - turnaround plan on course

 

Telit Communications PLC ("Telit", "the Group", AIM: TCM), a global enabler of the Internet of Things (IoT), has published its results for the six months ended 30 June 2018.

 

Key corporate developments 

·  Implementation of turnaround plan and focusing strategy, both progressing well including cost optimisation, reorganisation and stabilization in gross margins

·  Sale of automotive division for $105 million is expected to complete by the end of 2018

 

Financial highlights1

·  Revenues up by 13.6% to $201.7 million (H1 2017: $177.6 million) - back to double digit growth

IoT Cloud and connectivity revenues up 16.2% to $16.5 million (H1 2017: $14.2 million)

·  Gross profit $67.8 million (H1 2017: $69.6 million) with gross margin of 33.6% (H1 2017: 39.2% and H2 2017: 31.5%)

·  Adjusted EBITDA $12.5 million (H1 2017: $14.7 million) - following a $4.2 million reduction in capitalisation of development costs  

·  Significant improvement in cash flow from operating activities; $21.1 million cash generated (H1 2017: $3.3 million cash used)

·  Profit in cash2 improved to $5.7 million loss (H1 2017: $9.8 million loss), driven by cash OPEX decrease to $70.1 million (H1 2017: $74.7 million)

·   Net debt as at 30 June 2018 $25.0 million (31 December 2017: $30.2 million)

Operational highlights

·  New partnerships with IBM and Siemens to accelerate industrial IoT integration

·  Received multiple certifications in several jurisdictions for LTE CAT-1 and CAT-M1 modules, including VoLTE from Verizon, Telstra and Softbank

·  Completion of full organisational integration between IoT products and IoT services

· Completion of implementation of SAP IBP operational system will help Telit with better planning of customers' demand, for better service and shortening the lead time of product deliveries.

 

__________

 

       1 For reconciliation from IFRS financial results to adjusted financial results, see Note 3.

       2 Profit in cash defined as Adjusted EBITDA less development costs capitalised less capital expenditures

 

 

Yosi Fait, Chief Executive Officer, said:

 

"During H1 2018 we made good progress in implementing our turnaround plan based on the main objectives: focus on industrial IoT products and solutions; return to double digit revenue growth; stabilize gross margin; and reduce our cash operating expenses.

 

"The sale of the automotive division together with our organisational changes will enable us to solely focus on the considerable opportunities in the industrial IoT space as well as reducing our operational cost base.

 

"We have seen double digit revenue growth, improved gross margins from H2 2017 and our cost optimization plan is well underway.  

 

"Current trading remains in line with our expectations.  We expect to maintain double-digit revenue growth during the rest of 2018, which coupled with good progress with the other objectives, leads us to expect to deliver positive results including 'profit in cash' for the full year."     

 

For further information:

 

Telit Communications PLC

Yosi Fait, Chief Executive Officer

Yariv Dafna, Finance Director

Tel: +44 203 289 3831

 

finnCap (Nomad and joint broker)

Henrik Persson/Giles Rolls/Hannah Boros (corporate finance)

Tim Redfern/Richard Chambers (corporate broking)

Tel: +44 20 7220 0500

 

 

Berenberg (Joint Broker)

Chris Bowman/Mark Whitmore

Tel: +44 20 3465 2722

 

 

Instinctif Partners

Tel: +44 20 7457 2077

Adrian Duffield/Chantal Woolcock

 

 

 

 

 

 

 

 

Overview

 

During H1 2018 Telit made good progress in implementing its turnaround plan based on the following main objectives:

-     increase our focus on industrial IoT products and solutions and integrating the capabilities

-     return to double- digit revenue growth

-     stabilization of gross margin

-     cost optimization and focus on cash generation

 

The Group focued its efforts on its core business, the industrial IoT products, services and solutions. This included the sale of the automotive division for $105 million, which is expected to close towards the end of the year.

 

In addition, to better implement the Group's strategy, Telit have changed its organization and completed recently a full integration of the products and services teams under a single structure.

 

The integrated business structure will enable Telit to better define and develop the products required by the market; to focus more on synergies from leveraging the combination of its modules (cellular, GNSS and short range) and the IoT Platform and Portal; gaining differentiation through these synergies and to better utilise Telit's sales force; and generally, become a more efficient and focused organisation.

 

Telit's saw a return to double digit growth in total revenue in H1 2018.  Following the completion of the LTE IoT products certifications, the Group was able to achieve total revenue growth of 13.6% in H1 2018, and IoT cloud and connectivity revenues growth of 16.2%. Telit also saw better traction in the market, more design wins, including customers with significant IoT projects and better service level to customers.

Stabilisation and improving gross margin was a major objective of the plan. Despite a challenging component market, Telit has been able to address the pressures on gross margins faced in H2 2017 and improve it by more than 2%. This was done through several actions including optimization of product's bill of material and manufacturing costs.

As part of the turnaround plan, Telit acknowledged that gross margin will stabilize at a lower level than seen in the last few years.  It therefore initiated a cost optimization plan which included analysing return on investment on its products and activities and rationalizing its investments on the different product lines and activities. The intention is to remove approximately $10 million from annual cash OPEX this year compared to 2017. The Group has already achieved approximately $4.6 million of cash OPEX savings during the first half.

Another important parameter of the plan is to reduce the number of R&D sites in order to improve efficiencies and streamline R&D management.  The Group reduced the number of sites from eleven to nine in H1 2018.  After completion of the sale of the automotive division, the Group will reduce the number of R&D sites to six.

In addition, as stated last year the Board introduced a new KPI, the "profit in cash".  This is adjusted EBITDA less R&D capitalisation less capital expenditures and is designed to increase the Group's focus on cash generation. 

In the first half of the year, profit to cash was still negative but shown significant improvement compared to H1 2017.  The Board expects additional improvement in the profit in cash in H2 2018.

In terms of the profit in cash metrics, H1 2018 saw a $4.1 million improvement in the loss in cash at $5.7 million (H1 2017: loss of $9.8 million) supported by cash OPEX saving of $4.6 million to $70.1 million (H1 2017: $74.7 million).

Adjusted EBITDA $12.5 million (H1 2017: $14.7 million) reflecting mainly lower gross profit of $1.8 million and $4.2 million reduction in capitalisation of development costs.

 

Adjusted EBIT loss $0.6 million (H1 2017: profit $1.6 million). Operating loss of $9.8 million including $3.9 million of non-recurring expenses (H1 2017: loss $4.8 million including $0.7 million of non recurring expenses).

Adjusted basic loss per share of 3.0 cents (H1 2017: 0.8 cents). Basic loss per share of 9.1 cents (H1 2017: loss 3.5 cents).

 

Strategy

 

Telit's strategy, as laid out earlier this year, remains unchanged - the Group targets the industrial IoT market which it believes is the prime driver of the digital transformation for enterprises.  IDC forecast spend in the IoT market by 2021 forecast will reach $1.4 trillion. Telit is focussed to maintain its leading position in the IoT products market and increasingly on the development of IoT solutions capabilities and become a leading end-to-end IoT provider that enables enterprises' digital transformation.

 

A key element of the strategy is growing by expanding into the enterprise market, as companies of all sizes around the world are now exploiting more and more digital transformation via IoT that will drive down their cost base, improve efficiencies, will lead innovation and will create new revenue streams. Despite its tremendous potential to impact the enterprise, IoT project delivery remains complex and difficult. Telit is well positioned to deliver the key components and the necessary know how to complete IoT projects successfully.


Together with the Group's extensive ecosystem of blue chip customers and suppliers, technology partners, system integrators, implementer communities and MNOs, Telit has best in class products for its customers and will continue to be an innovative global leader for IoT solutions.

 

Outlook

 

The Group has made good progress in its turnaround plan returning to double digit revenue growth, stabilising gross margin and rationalising its cost base structure.

 

IoT remains a fast growing and exciting space, and Telit with the established transition to LTE is well positioned in this growing market. The Board is fully committed to continue to position Telit as a leading enabler in the IoT space, delivering value and growth for our business. The recent operational successes including design wins, securing significant IoT projects and delivering better service level to customers, positions the business well for H2 2018 and subsequent years.

 

Trading remains in line with the Board's expectations for 2018.

 

Board changes

 

Paolo Dal Pino was appointed as Chairman of the Board on 1 September 2018. On the same date, Miriam Greenwood, who was reappointed to the Board on an interim basis on 25 June 2018 to ensure the Board and its committees remained quorate, stepped down as intended when she was reappointed.

 

In addition to Paolo Dal Pino's previous director appointments disclosed on 14 August 2018, in the past five years he was previously a director of Associacao Reciclanip, Associacao Nacional da Industria de Pneumaticos Anip, Prometeon Tyre Group S.R.L, Prometeon Tyre Group S.R.L (PTG S.R.L) and Prometeon Tyre Group (Suisse) S.A. There is no further information required to be disclosed under paragraph (g) of Schedule Two of the AIM Rules.

 

Operational review

 

Telit's end-to-end capabilities

 

Today's competitive markets demand creative and innovative solutions to stay ahead in business. The new digital transformation impact is being felt broadly. The underlying objective is to collect the right information, process it into actionable knowledge, transmit that knowledge to the right person, and act on it - achieved with increasing affordability. In doing so, this allows us to solve an increasing number of problems, including many that we had not originally considered.

 

Telit's business is at the forefront of this digital transformation - providing the key ingredients critical to fulfil the need for real time data from the physical world. These include the following components:

 

-   IoT Products (modules). A diversified portfolio of connected modules that allow "things" to be connected using the best available and most suitable technology (Cellular - from 2G to 4G, GNSS, Wi-Fi and BLE) for the application being developed. These provide cost performance and a significant reduction in time-to-market.

The Group markets its IoT modules to numerous verticals including asset tracking, health care, security, telematics, point of sale, wearables, telemetry, industry and energy and smart metering. These verticals are set to continue to grow significantly during the next few years, with a substantial number of projects already in advanced stages around the world.

In order to cater to all of these verticals, Telit continues to develop a wide range of cellular LTE products and a wide range of CAT-M1 and NB-IoT modules.

-     IoT Services. A diversified portfolio of services under a unified IoT Portal designed to enable customers to manage their IoT deployments through a single portal that makes them easier, more efficient and cuts time to market. The IoT Portal provides customers with access to Connectivity Management, Device Management, Data Management and facilitates interaction with mobile network operators, dash boarding tools, security and administration.

 

The Telit IoT portal ties with our modules in the field and is a significant tool to manage any IoT deployment very efficiently, save costs, be flexible, solve issues remotely and more. The IoT platform, deviceWISE, integrates any devices, production assets and remote sensors with web-based and mobile apps and enterprise systems. deviceWISE reduces risk, time-to-market, complexity and cost of deploying solutions for monitoring and control, industrial automation, asset tracking and field service operations across all industries and market segments around the world.

 

-      IoT solutions. Overall, Telit enables the creation of solutions and applications for fast deployment of IoT projects with complete life cycle management (long and short-range connectivity devices, global data plans and IoT platform), both in the traditional IoT verticals such as asset tracking, logistics, remote industrial monitoring, automated utility meter reading, telematics, mobile health devices, and for the fast-growing enterprise market.

 

Telit's investments in the last few years include not only the development of each of the above-mentioned components but also, increasingly, the integration of the different components in order to transform its products and services into a cohesive solution which is ready to connect and send data.

 

Innovative products and solutions will be a major part in the Group's future, such as simWISE which was launched on the 2G products and soon will be launched on the low category LTE products (in partnership with IDEMIA as previously announced).

 

simWISE is a cellular module-embedded SIM technology, the first of its kind. The new technology can act as a replacement or complement for manufacturers of cellular-connected devices using traditional SIM cards and tray. Manufacturers of connected products using Telit IoT modules with simWISE significantly reduce complexity and time to market and improve flexibility and customer experience.

 

The Internet of Things (IoT) market opportunity

 

Market Analyst firm ABI Research refers to the Internet of Everything (IoE) as a technology concept aggregating the Internet of Digital (IoD), the Internet of Things (IoT), and the Internet of Humans (IoH). The firm characterizes the IoE as the combined installed base of end markets for connected devices including Connected Car, PCs and Digital Home, Smart Home, Wearable Computing, Mobile Devices, Retail, Advertising and Supply Chain, Smart Cities and Buildings, Utilities and Industrial IoT plus other minor fragmented verticals. 

In its report entitled "Internet of Everything Market Tracker, 3Q 2018" published August 16, 2018, ABI Research estimates that the installed base of devices connected by technologies in Telit's hardware, software, platforms, managed and subscription services supply domain (Bluetooth, Wi-Fi, 802.15.4 (incl. Zigbee, Z-Wave, and Others), Cellular (incl. M2M/IoT), GPS/GNS and LPWAN; will grow from 26 billion connected devices in 2016 to about 44 billion by 2022  (CAGR of about 9% in the period).

Cellular modules remain Telit's top revenue producers.  ABI Research in its report entitled "M2M Embedded Cellular Modules" published on August 9, 2018, estimates that 247 million units will be shipped globally in 2018 and 2.4 billion in 2023 (CAGR of 58% in the period).  The immense growth forecasted by the firm stems from aggressive shipments in Mobile IoT modules (LTE-M and NB-IoT) in the coming years.  ABI estimates global revenue for these shipments to grow from $3.6 billion in 2018 to $21.4 billion in 2023 (CAGR of 43% in the period).

Berg Insight in the global M2M/IOT communications market estimates that the number of cellular IoT subscribers will grow at a compound annual growth rate (CAGR) of 33.1% to reach 2.7 billion by the end of 2022. During the same period, cellular IoT network revenues are forecasted to grow at a CAGR of 27.3% from €6.3 billion in 2017 to approximately €21.2 billion in 2022. 

IoT analyst firm MachNation in its 2018 IoT application enablement scorecard published in January 2018, forecast that worldwide IoT application enablement and device management revenue will be $3.3 billion in 2017 growing to $64.6 billion by 2026 at a CAGR of 45%. Enterprises now realise that a well-built IoT Application Enablement Platform (AEP) saves significant development time and money in the creation and operation of an IoT solution.

 

Financial review

 

Financial results

 

 

H1 2018

$m

H1 2017

$m

FY 2017

$m

Revenue

201.7

177.6

374.5

Gross profit

67.8

69.6

131.6

Gross margin

33.6%

39.2%

35.1%

Other operating income

1.0

1.3

2.4

Research and development

(30.9)

(25.5)

(66.9)

Selling and marketing

(33.0)

(35.1)

(66.8)

General and administrative

(13.2)

(14.4)

(28.6)

Exceptional expenses related to restructuring

(0.6)

-

(16.0)

Other non-recurring expenses

(0.9)

(0.7)

(5.4)

Adjusted EBITDA

12.5

14.7

18.1

Operating loss (EBIT)

(9.8)

(4.8)

(49.7)

Adjusted EBIT

(0.6)

1.6

(10.7)

Loss in cash

(5.7)

(9.8)

(27.0)

Loss before tax

(12.8)

(6.7)

(56.8)

Adjusted loss before tax

(3.6)

(0.3)

(17.8)

Basic (loss) per share (cents)

(9.1)

(3.5)

(41.9)

Adjusted basic (loss) per share (cents)

(3.0)

(0.8)

(16.4)

 

Adjusted EBIT is defined as Earnings Before Interest, Tax, share based payment expenses, amortisation of acquired intangibles, impairment of intangible assets, exceptional expenses related to restructuring and non-recurring expenses; Adjusted EBITDA as Adjusted EBIT plus depreciation and other amortisation; Adjusted Profit before tax as Profit before tax plus share based payment expenses, amortisation of acquired intangibles, impairment of intangible assets, exceptional expenses related to restructuring and non-recurring expenses; and Adjusted net profit for the year as net Profit for the year plus share based payment expenses, amortisation of acquired intangibles, impairment of intangible assets, exceptional expenses related to restructuring and non-recurring expenses less change in deferred tax assets, net.

 

 

Revenues

 

Group revenues increased by 13.6% to $201.7 million (H1 2017: $177.6 million), out of which Cloud and connectivity revenues were $16.5 million (H1 2017: $14.2 million), an increase of 16.2%.

 

The split of revenues by geographical markets is as follows:

 

 

H1 2018

$m

% of total revenue

H1 2017

$m

% of total revenue

Change H1-18 over H1-17

2017

$m

% of total revenue

Americas

86.9

43.1%

76.8

43.2%

13.1%

160.2

42.8%

EMEA

78.6

38.9%

68.2

38.4%

15.2%

147.4

39.4%

APAC

36.2

18.0%

32.6

18.4%

11.0%

66.9

17.8%

Total

201.7

 

177.6

 

 

374.5

 

 

Americas- revenues were up by 13.1% to $86.9 million (H1 2017: $76.8 million), reflecting the growing demand to the LTE products - Telit expects further growth to come from the transition to LTE.

 

EMEA- revenues increased by 15.2% to $78.6 million (H1 2017: $68.2 million). This growth derived mainly from the strong performance of the Automotive business.

 

APAC- revenues increased by 11.0% to $36.2 million (H1 2017: $32.6 million), a significant improvement after the decline in 2017. The performance was slightly below expectations as Telit still suffered a delay in a big project in this region that negatively impacted the overall performance.

 

Gross margin and gross profit

 

Gross profit in H1 2018 was $67.8 million (H1 2017: $69.6 million), explained by increased revenues being offset by lower gross margins than the comparable period, albeit improved against H2 2017. The Group is pleased that margins appear to have stabilised and improved half-on-half, with the decline against H1 2017 a result of the faster than expected shift from 2G and CDMA, both mature technologies with higher gross margins, to LTE, which is a relatively new technology, with lower margins at this stage.

 

LTE product margin has started to improve through the maturity and growth in volumes, and Telit saw improvement in margin compare with H2-2017. The Group is working hard to adjust its cost structure and to increase its share of higher margin cloud and connectivity revenues.

 

Operating expenses

 

Gross R&D expenses as follows:

 

H1 2018

$m

H1 2017

m$

 (Gross research & development expenses (1

34.7

35.4

(Less - Capitalisation (2

(13.7)

(17.9)

Add - Amortisation

7.5

8.0

(Add - Impairment (3

2.4

-

Research and development, net

30.9

25.5

 

  

(1) Gross research and development expenses decreased slightly to $34.7 million, 17.2% of revenues (H1 2017: $35.4 million, 19.9% of revenues) reflecting mainly the restructuring of the short range business including the closure of the R&D centre in San Jose from the acquisition of GainSpan in February 2017.

 

(2) The amount capitalised in respect of internally generated development assets decreased from $17.9 million in H1 2017 to $13.7 million in H1 2018. The decrease is also shown, as a percentage of gross R&D expenses from 50.6% in H1 2017 to 39.5% in H1 2018. This amount capitalised mainly relate to the development of additional high category LTE products for both industrial and automotive and low categories including the CAT-M1 and NB-IoT for the industrial IoT.

 

(3)  An impairment of a capitalised development asset as a result of integration of a new software that made this development asset redundant. 

 

Selling and marketing expenses decreased to $33.0 million, 16.3% of revenues (H1 2017: $35.1 million, 19.8% of revenues). The decrease was mainly due to the cost optimisation plan.

 

General and administrative expenses decreased to $13.2 million, 6.5% of revenues (H1 2017: $14.4 million, 8.1% of revenues). The decrease reflects mainly the impact of the departure of the former CEO.

 

Other non recurring expenses:

 

 

H1 2018

$m

H1 2017

$m

Integration and transaction costs (1)

-

0.7

Legal and other expenses related to crisis management (2)

0.7

-

Other

0.2

-

Total

0.9

0.7

 

  

(1)  Costs in H1-2017 were mainly relating to the integration GainSpan acquired in February 2017.

(2)  Costs related mainly to legal and advisory costs in association with the 2017 crisis management, FCA investigation and the BAMES litigation.

 

Cash OPEX decrease to $70.1 million (H1 2017: $74.7 million):

 

 

H1 2018

$m

H1 2017

$m

Gross research & development expenses

34.7

35.4

Selling and marketing

33.0

35.1

General and administrative

13.2

14.4

GainSpan integration costs

-

0.6

 

80.9

85.5

Less share based payment charges

(3.4)

(3.3)

Less other depreciation and amortisation

(7.4)

(7.5)

Total Cash OPEX

70.1

74.7

  

 

 

Restructuring plan

 

Following the review of the Group's activities, cost base and product portfolio initiated in 2017, Telit continues with its actions in order to rationalise the operating cost structure and improve future profitability as part of a restructuring plan with the aim of cutting $10 million in cash operating expenses compared to 2017.

 

Restructuring costs recognised in H1 2018 include termination fees and other employee related costs and inventory write-off related to the restructuring plan.

 

Finance Cost

 

Net finance cost increased by $1.1 million mainly reflecting higher interest costs and bank fees, driven from the increase in credit facility utilisation and interest rates and exchange rates differences.

 

Dividend

 

The Board is not proposing to pay a dividend for the period.

 

Net debt and cash flow

 

As at June 2018, net debt was $25.0 million (31 December 2017: $30.2 million). The $5.2 million decrease was a result of the significant improvement in the cash generated from operating activities.  

 

Cash flow from operating activity was $21.1 million, an improvement of $24.4 million, from net cash used in operating activities of $3.3 million in H1 2017.

 

Cash flow used in investing activity was $18.1 million (H1 2017: $36.2 million). The decrease was mainly due to a decrease in the amount spent on acquisition and in R&D capitalization.

 

Cash flow used in financing activity was $6.6 million (H1 2017: generated $42.1 million). The decrease was mainly due to the proceeds of $49.7 million from issue of new shares in H1 2017.

 

Bank covenants

 

Telit relies on financing mainly in the form of committed credit facilities from HSBC Bank plc and certain of its affiliates and Bank Hapoalim B.M. ("Credit Facilities").

 

As previously announced in 2017, Telit obtained several waivers from one of its banks and in March 2018, agreed to amend the financial covenants with that bank. The new covenants are more appropriate for the Group. Telit have met all covenants so far and the Board is closely monitoring compliance with the covenants on an ongoing basis.

 

Financial review

 

As previously announced, in 2017 the Board mandated Grant Thornton to undertake a review undertaken by Grant Thornton of certain elements of the Group's financial policies, controls, and procedures related to consolidation, third party distributors and revenue recognition. The final Grant Thornton report has been received with no material shortfalls identified and the Group has implemented a number of the recommendations as to best practice improvements made in the reports.

 

Internally generated development assets, net

 

As at 30 June 2018, the net amount of internally generated development assets is split as the following:

 

Technology

Internally generated development assets, net as at 30 June 2018

Internally generated development assets, net as at 31 December 2017

Change from 31 December 2017

 

$m

%

$m

%

$m

%

IoT Services

8.6

11%

8.7

12%

(0.1)

(1.1%)

 

 

 

 

 

 

 

4G

51.1

67%

49.7

67%

1.4

2.8%

3G

7.9

11%

9.4

12%

(1.5)

(16%)

Other IoT Modules

8.3

11%

6.8

9%

1.5

22.1%

IoT Products

67.3

89%

65.9

88%

1.4

2.1%

 

 

 

 

 

 

 

 

75.9

100%

74.6

100%

1.3

1.7%

 

Internally generated development assets that have started to be amortised, increased to 62% of the total internally generated development assets (31 December 2017: 47%).

 

 

30 June 2018

$m

%

31 December 2017

$m

%

Net assets in development process (not amortised yet)

28.6

38%

39.9

53%

Net assets in amortisation phase

47.3

62%

34.7

47%

Total

75.9

 

74.6

 

 

The net assets that are in development phase, before starting to be amortised, are mainly 4G products and IoT services software. The period of amortisation is three to five years.

 

Total equity

 

Net shareholders' equity decreased from $124.5 million as at 31 December 2017 to $112.1 million as at 30 June 2018 mainly due to the net loss in the period.

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

Six months ended

30 June

Year ended 31 December

 

 

2018

2017

2017

 

 

Unaudited

Audited

 

 

$'000

$'000

$'000

 

 

 

 

 

 

Revenue

201,669

177,558

374,531

 

Cost of sales

(133,866)

(107,970)

(242,949)

 

 

 

 

 

 

Gross profit

67,803

69,588

131,582

 

 

 

 

 

 

Other operating income

1,014

1,288

2,437

 

Research and development expenses, net (see note 3)

(30,943)

(25,460)

(66,870)

 

Selling and marketing expenses

(32,967)

(35,072)

(66,786)

 

General and administrative expenses

(13,209)

(14,443)

(28,640)

 

Exceptional expenses related to restructuring

(621)

-

(15,979)

 

Other operating expenses

(892)

(682)

(5,412)

 

 

 

 

 

 

Operating loss

(9,815)

(4,781)

(49,668)

 

 

 

 

 

 

Operating loss

(9,815)

(4,781)

(49,668)

 

Share based payment charges

3,443

3,318

4,324

 

Exceptional expenses related to restructuring

621

-

15,979

 

Impairment of internally generated development assets

2,362

-

8,414

 

Other non-recurring expenses

892

673

5,412

 

Amortisation of intangible assets acquired

1,907

2,406

4,834

 

 

 

 

 

 

Adjusted EBIT (*)

(590)

1,616

(10,705)

 

 

 

 

 

 

Finance income

86

189

155

 

Finance costs

(3,062)

(2,083)

(7,268)

 

 

 

 

 

 

Loss before income taxes

(12,791)

(6,675)

(56,781)

 

 

 

 

 

 

Tax credit

881

2,109

4,565

 

 

 

 

 

 

Loss for the period from continuing operations

(11,910)

(4,566)

(52,216)

 

 

 

 

 

Profit for the period from discontinued operations

-

440

-

 

 

 

 

 

 

Net loss

(11,910)

(4,126)

(52,216)

 

 

 

 

 

 

               

 

*   Adjusted EBIT is a company specific non GAAP measure which excludes share based payment charges, exceptional expenses related to restructuring, impairment of internally generated development assets, other non-recurring expenses and amortisation of intangible assets acquired. The Group's management believes that non-GAAP measures provide useful information to investors to evaluate operating results and profitability for financial and operational decision-making purposes and to provide comparability between the companies in this sector, as they eliminate non-cash items and non-recurring expense, which are not inherent to the business. 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued)

 

 

 

Six months ended

30 June

Year ended 31 December

 

2018

2017

2017

 

Unaudited

Audited

 

$'000

$'000

$'000

 

 

 

 

 

 

 

 

Net loss

(11,910)

(4,126)

(52,216)

 

 

 

 

Other comprehensive income

 

 

 

Items to be reclassified in subsequent periods to profit and loss:

 

 

 

Foreign currency translation differences

(3,936)

6,308

11,801

Items not to be reclassified in subsequent periods to profit and loss:

 

 

 

Remeasurement loss on defined benefit plan, net of tax

-

-

(242)

 

 

 

 

Total comprehensive income for the period

 

 

 

 

         

 

 

 

 

 

 

Basic and diluted loss per share (in USD cents)

Adjusted basic and diluted loss per share3 (in USD cents)

Basic and diluted weighted average number of equity shares

 

 

 

 

 

 

3   Adjusted basic and diluted profit per share is defined as adjusted profit for the year divided by diluted weighted average number of equity shares.

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

 

30 June

31 December

 

 

2018

2017

2017

 

 

Unaudited

Audited

 

 

$'000

$'000

$'000

ASSETS

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

108,773

123,770

110,436

Property, plant and equipment

 

25,296

26,364

26,545

Other long term assets

 

1,689

1,321

1,909

Deferred tax asset

 

16,125

10,837

15,068

 

 

151,883

162,292

153,958

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

27,120

37,899

23,829

Trade receivables

 

82,816

97,293

100,410

Income tax receivables

 

505

133

934

Other current assets

 

13,551

18,072

15,968

Deposits - restricted cash

 

546

5,745

393

Cash and cash equivalents

 

37,025

29,726

41,908

 

 

161,563

188,868

183,442

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

Share capital

 

2,165

2,144

2,165

Share premium account

 

49,778

49,647

49,778

Other reserve

 

(2,727)

(2,727)

(2,727)

Treasury stock fund

 

-

(1,085)

-

Translation reserve

 

(16,633)

(18,190)

(12,697)

Retained earnings

 

79,557

140,113

88,024

Total equity

 

112,140

169,902

124,543

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Long term borrowings

 

43,428

20,621

42,203

Post-employment benefits

 

3,093

3,131

3,272

Deferred tax liabilities

 

1,366

2,124

1,109

Provisions

 

1,138

25

923

 

 

49,025

25,901

47,507

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

Short-term borrowings

 

19,184

24,118

30,256

Trade payables

 

105,510

105,798

104,012

Provisions

 

702

232

708

Income tax payables

 

2,255

1,880

2,190

Accruals and other current liabilities

 

24,630

23,329

28,184

 

 

152,281

155,357

165,350

 

 

 

 

 

Total equity and liabilities

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

Six months ended

30 June

Year ended 31 December

 

2018

2017

2017

 

Unaudited

Audited

 

$'000

$'000

$'000

CASH FLOWS - OPERATING ACTIVITIES

 

 

 

Loss for the period from continued operations

(11,910)

(4,566)

(52,216)

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

4,603

4,185

8,765

Amortization of intangible assets

10,367

11,331

32,883

Impairment of intangible assets

2,362

-

10,024

Loss on sale of property, plant and equipment

-

10

99

Loss on disposal of intangible assets

-

-

446

Change in provision for post-employment benefits

(75)

(50)

(325)

Change in long term provisions, net

450

(4,564)

(3,857)

Finance costs, net

2,977

1,893

7,113

Tax income

(881)

(2,109)

(4,565)

Share-based payment charge

3,443

3,318

1,805

Operating cash flows before movements in working capital

11,336

9,448

172

Decrease in trade receivables

17,481

9,896

11,468

Decrease (increase) in other current assets

2,221

(1,781)

(376)

(Increase) decrease in inventories

(3,985)

(4,157)

8,521

Increase (decrease) in trade payables

1,697

(11,245)

(15,027)

Decrease in other current liabilities

(5,569)

(2,982)

(3,284)

Cash from operations

23,181

(821)

1,474

Income tax paid

(179)

(1,122)

(3,196)

Interest received

86

98

155

Interest paid

(2,020)

(1,447)

(3,247)

Net cash from / (used in) operating activities from continued operations

21,068

(3,292)

(4,814)

Profit for the period from discontinued operations

-

440

-

Decrease in provisions

-

(440)

-

Net cash from/ (used in) operating activities from discontinued operation

-

-

-

 

 

 

 

CASH FLOWS - INVESTING ACTIVITIES

 

 

 

Acquisition of property, plant and equipment

(4,376)

(5,679)

(10,167)

Acquisition of intangible assets

(190)

(912)

(3,997)

Proceeds from disposal of property, plant and equipment

334

79

231

Capitalised development expenditure

(13,725)

(17,944)

(31,098)

Acquisition of subsidiaries, net of cash acquired

-

(6,676)

(6,672)

Increase in restricted cash deposits

(129)

(5,052)

(196)

Net cash (used in) investing activities

(18,086)

(36,184)

(51,899)

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

 

           

 

 

Six months ended

30 June

Year ended 31 December

 

2018

2017

2017

 

Unaudited

Audited

 

$'000

$'000

$'000

CASH FLOWS - FINANCING ACTIVITIES

 

 

 

Proceeds from exercise of options

-

4

196

Issued of shares

-

49,700

49,660

Dividend paid

-

(5,682)

(5,682)

Proceeds from other loans

4,814

14,308

21,530

Repayment of other loans

(4,547)

(3,390)

(4,116)

Short-term borrowings from banks

(6,898)

(12,811)

10,606

Net cash from financing activities

(6,631)

42,129

72,194

 

 

 

 

(Decrease) increase in cash and cash equivalents

(3,649)

2,652

15,481

 

 

 

 

Cash and cash equivalents-balance at beginning of period

41,908

26,547

26,547

Effect of exchange rate differences

(1,234)

527

(120)

Cash and cash equivalents-balance at end of period

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

Six months ended 30 June 2018 (Unaudited)

 

 

Share capital

Share premium

Other reserve

Translation reserve

Retained earnings

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

Balance at 1 January 2018

2,165

49,778

(2,727)

(12,697)

88,024

124,543

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

Loss for the period

-

-

-

-

(11,910)

(11,910)

Other comprehensive income

-

-

-

(3,936)

-

(3,936)

Total comprehensive loss for the period

-

-

-

(3,936)

(11,910)

(15,846)

 

 

 

 

 

 

 

Transaction with owners:

 

 

 

 

 

 

Share based payment charge

-

-

-

-

3,443

3,443

Total transactions with owners

-

-

-

-

3,443

3,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2018

 

 

Six months ended 30 June 2017 (Unaudited)

 

 

Share capital

Share premium

Other reserve

Treasury stock fund

Translation reserve

Retained earnings

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

 

Balance at 1 January 2017

1,984

103

(2,727)

(1,929)

(24,498)

147,447

120,380

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

-

(4,126)

(4,126)

Other comprehensive income

-

-

-

-

6,308

-

6,308

Total comprehensive income for the period

-

-

-

-

6,308

(4,126)

2,182

 

 

 

 

 

 

 

 

Transaction with owners:

 

 

 

 

 

 

 

Exercise of options

4

-

-

850

-

(850)

4

Dividend

-

-

-

-

-

(5,682)

(5,682)

Issue of shares

156

49,544

-

(6)

-

6

49,700

Share based payment charge

-

-

-

-

-

3,318

3,318

Total transactions with owners

160

49,544

-

844

-

(3,208)

47,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2017

 

 

NOTES TO THE INTERIM FINANCIAL STATEMENT AT 30 JUNE 2017 (Unaudited)

 

1.      The Company was incorporated and registered in England and Wales as a public limited company on 30 November 2004 under the Companies Act 1985.

 

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 2018. 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 2017 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 435 of the Companies Act 2006. The financial information for the year ended 31 December 2017 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 498 (2) or (3) of the Companies Act 2006.

 

3.   Reconciliation of operating profit, profit before tax and net profit to the adjusted figures:

 

EBITDA is not a financial measure defined by IFRS as a measurement of financial performance and may not be comparable to other similarly-titled indicators used by other companies. Adjusted EBIT, adjusted EBITDA, adjusted profit before tax and profit in cash are provided as additional information only and should not be considered as a substitute for operating profit/loss (EBIT) or net cash provided by operating activities. 

Adjusted EBIT is defined as Earnings Before Interest, Tax, share based payment expenses, amortisation of acquired intangibles, impairment and non-recurring and exceptional expenses; Adjusted EBITDA as Adjusted EBIT plus depreciation and other amortisation; profit/loss in cash as Adjusted EBITDA less capitalisation of internally generated development assets, less acquisition of tangible and intangible assets net of proceeds from disposal of assets.

Adjusted (Loss) / Profit before tax as (Loss) / Profit before tax plus share based payment expenses, amortisation of acquired intangibles and non-recurring and exceptional expenses; and Adjusted net (loss) / profit for the year as net (Loss) / Profit for the year plus share based payment expenses, amortisation of acquired intangibles and non-recurring items less deferred tax (credit) / expense. The Group's management believes that these non-GAAP measures provide useful information to investors to evaluate operating results and profitability for financial and operational decision-making purposes and to provide comparability between the companies in this sector, as they eliminate non-cash items and non-recurring items, which are not inherent to the business. Consequently, Adjusted EBIT, Adjusted EBITDA, (loss) / profit in cash, Adjusted (loss) / profit before tax and Adjusted net (loss) / profit for the year are presented in addition to the reported results.

 

 

 

 

H1 2018

$'000

H1 2017

$'000

FY 2017

$'000

Operating loss - EBIT

(9,815)

(4,781)

(49,668)

Share based payments

3,443

3,318

4,324

Exceptional expenses related to restructuring

621

-

15,979

Impairment of internally developed assets

2,362

-

8,414

Non-recurring expenses

892

672

5,412

Amortization intangibles acquired

1,907

2,406

4,834

Adjusted EBIT

(590)

1,615

(10,705)

Depreciation and amortization

13,063

13,110

28,757

Adjusted EBITDA

12,473

14,725

18,052

Capitalisation of internally generated development assets

(13,725)

(17,944)

(31,098)

Acquisition of tangible and intangible assets, net of proceeds from disposal of assets

 

(4,468)

 

(6,591)

(13,933)

 

 

 

 

Loss in cash

(5,720)

(9,809)

(26,979)

 

 

 

 

 

 

 

 

Loss before tax (PBT)

(12,791)

(6,675)

(56,781)

Share-based payments

3,443

3,318

4,324

Exceptional expenses related to restructuring

621

-

15,979

Impairment of internally developed assets

2,362

-

8,414

Other non-recurring expenses

892

672

5,412

Amortisation - intangibles acquired

1,907

2,406

4,834

 

 

 

 

Adjusted loss before tax

(3,566)

(279)

(17,818)

 

 

 

 

 

 

 

 

Net loss for the period

 

(11,910)

 

(4,126)

(52,216)

Share-based payments

3,443

3,318

4,324

Exceptional expenses related to restructuring

621

-

15,979

Impairment of internally developed assets

2,362

-

8,414

Other non-recurring expenses

892

672

5,412

Amortisation of intangibles acquired

1,907

2,406

4,834

Deferred tax credit

(1,189)

(3,178)

(7,241)

 

 

 

 

Adjusted net loss for the period

(3,874)

(908)

(20,494)

 

4.     Net debt position:

 

 

H1 2018

H1 2017

FY 2017

 

$'000

$'000

$'000

 

 

 

 

Cash and cash equivalent

37,025

29,726

41,908

Deposits

546

5,745

393

Working capital borrowings (1)

(12,658)

-

(22,112)

Long term loans (2)

(22,783)

(23,001)

(23,351)

Governmental loan (3)

(25,049)

(19,415)

(24,657)

Mortgage loan (4)

(2,122)

(2,323)

(2,339)

 

 

 

 

Net debt

 

(1)  Short term borrowings, less than one year, based on committed credit facilities used for working capital. The credit facilities bear interest at a rate of 2.2% to 3.7%.

 

                                               

(2)  Representing long term loan from HSBC in the amount of $20 million with interest at a rate of Libor plus 2.95% and is being repaid in 7 semi-annual instalments that will commence in October 2018, and long term loan from banks in Italy with an interest rate of Euribor 6 months plus + 5.5% and is repayable in 6 semi-annual instalments that will commence in December 2020.

 

(3)  Representing preferential long term loan with fixed-rate of 0.5% and is repayable in 14 semi-annual instalments that commenced in December 2016, supported by the Italian MISE (Ministry of Economic Development) to develop an innovative platform for the application of M2M technologies. The loan is initially recognised at fair value and subsequently measured at amortised cost.

 

(4)  Representing a preferential rate mortgage loan from a regional fund in Italy provided in connection with the Group's acquisition of the campus used for the Company's main R&D facility in Trieste, Italy. The mortgage loan is denominated in Euro, attracts interest at a rate of 80% of Euribor 6 months, with a minimum interest rate of 0.85%, and is repayable in 15 semi-annual instalments that commenced in June 2012. The loan is initially recognised at fair value and subsequently measured at amortised cost.

 

The directors believe that the credit facilities will remain available to the Group in the foreseeable future and that the Group will be able to continue to fund its operations from these credit facilities.

 

5.   Sales of automotive division  

As announced on 13 July 2018, Telit Communications PLC has agreed to sell its automotive division to TUS International Limited ("TUS") for a cash consideration of $105 million (subject to adjustments on completion and an overall cap of $125 million). The transaction is expected to complete by the end of 2018, subject to conditions being satisfied. The transaction requires a reorganisation of the automotive division within the Group and transfer of the IP, assets and employees who support the automotive business in R&D and sales offices in several countries.

On an unaudited proforma basis, the automotive division generated in H1 2018 approximately $34.2 million revenues (Full year 2017: $63.2 million) with an adjusted EBITDA (excluding allocated overhead costs) of $2.4 million (Full year 2017: $10.1 million).

 

6.   Tax assessment

 

In August 2018, from the first stage of a tax audit, the group affiliates Telit Wireless Solutions Ltd. and Telit Wireless Services Ltd. received tax assessments from the Israeli Tax Authorities for FY 2013 and FY 2013-2016 respectively. These assessments relate to the treatment of losses arising from a statutory reorganization performed in 2014 which were offset against taxable income. The potential additional tax charge to the Group is $3m but the Group intends to appeal against these charges and considers, based on professional advice and the particular facts of the situation (including that the statutory reorganization was performed in accordance with the conditions set out in the Israeli Income Tax Ordinance) that it has strong arguments against the disallowance of the losses. Accordingly, no provision has been made for this amount.


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