Annual Report 2008
2
Table of Content
Telit Communication PLC
Financial Highlights
We live m2m
Chairman’s & Chief Executive’s Statement
Telit’s Board of Directors
Corporate Governance
Report on Directors’ Remuneration
Directors’ Report
Statement of Directors Responsibilities
Independent Auditor’s Report to the
Members of Telit Communication PLC
Financials
Company Information
3
4
6
8
18
20
22
24
29
30
32
93
Telit Communication PLC
3
Telit is a leading global wireless technology company. It develops,
manufactures and markets GSM/GPRS, UMTS/HSDPA, CDMA/EVDO
and short range RF (including WiFi and ZigBee) communication
modules for machine-to-machine (m2m) applications which
streamline business processes by enabling machines, devices and
vehicles to communicate via mobile networks.
As both a producer and marketer of advanced cellular technology
and products, Telit is uniquely positioned in the m2m market.
Telit has attained a strong market position and its management
believes it is ranked third in the world. Telit is one of the few companies
in the industry with full control over the underlying technologies in its
products. Telit owns valuable patents and boasts especially strong
in-house technology and development expertise.
Telit is listed on AIM (Ticker: TCM)
The M2M Market
The international market for machine-to-machine (m2m) wireless
communications is rapidly growing as wireless communications have
become a must-have rather than a luxury technology. Businesses
that were not interested in m2m wireless solutions in the past are
now looking to incorporate this technology in their business as their
operations expand and modernise.
What is m2m?
Machine to machine (m2m)
technology establishes wireless
communication between
machines and the information
centre of a business.
The goal of m2m is to enable
applications that allow
businesses to increase
productivity and competitiveness.
At the heart of each
m2m implementation is
a communication module
which receives, processes
and transmits information.
4
Financial Highlights
Revenue increased by 13% to €59.1 million (2007: €52.2 million)
Revenue includes licence income of €1.5 million for the use of the Telit nominative
trade-name by SEM (2007 included licence income of €1.5 million from the Italian
company, Bardi)
Gross profit increased by 32% to €29.1 million (2007: €22.0 million)
Gross margin increased to 49.2% (2007: 42.1%)
Operating profit for the year €0.6 million (2007: loss of €1.5 million)
Adjusted EBITDA1 for the year €3.7 million (2007: €1.4 million)
Profit before tax from continuing operations of €1.2 million (2007: loss of €1.3 million)
Loss for the year from continuing operations, after writing down deferred tax assets
by €3.0 million, of €1.4 million (2007: loss of €1.9 million)
Loss for the year, including discontinued operations, decreased by 54% to €3.2 million
(2007: €7.1 million).
The second and last investment by BAMES into Telit Wireless Solutions Srl of €7.0
million in cash, out of a total of €16.0 million, was completed in December 2008.
1 Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization and share based payments from
continuing operations and, for 2007 only, expenses related to aborted transaction costs.
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
(cid:60)(cid:103)(cid:100)(cid:104)(cid:104)(cid:21)(cid:69)(cid:103)(cid:100)(cid:210)(cid:105)(cid:21)(cid:29)
(cid:21)(cid:98)(cid:94)(cid:97)(cid:30)
(cid:39)(cid:35)(cid:40)
2003
(cid:40)(cid:35)(cid:37)
2004
(cid:43)(cid:35)(cid:40)
2005
(cid:38)(cid:38)(cid:35)(cid:44)
2006
(cid:71)(cid:90)(cid:107)(cid:90)(cid:99)(cid:106)(cid:90)(cid:104)(cid:21)(cid:29)
(cid:21)(cid:98)(cid:94)(cid:97)(cid:30)
(cid:39)(cid:46)(cid:35)(cid:38)
(cid:39)(cid:39)(cid:35)(cid:37)
2007
2008
5
(cid:42)(cid:46)(cid:35)(cid:38)
(cid:42)(cid:39)(cid:35)(cid:39)
(cid:40)(cid:37)(cid:35)(cid:38)
(cid:38)(cid:45)(cid:35)(cid:40)
2005
2006
2007
2008
(cid:42)(cid:35)(cid:45)
2003
(cid:38)(cid:37)(cid:35)(cid:44)
2004
(cid:60)(cid:103)(cid:100)(cid:104)(cid:104)(cid:21)(cid:69)(cid:103)(cid:100)(cid:210)(cid:105)(cid:21)(cid:29)
(cid:21)(cid:98)(cid:94)(cid:97)(cid:30)
(cid:39)(cid:35)(cid:40)
2003
(cid:40)(cid:35)(cid:37)
2004
(cid:43)(cid:35)(cid:40)
2005
(cid:38)(cid:38)(cid:35)(cid:44)
2006
(cid:71)(cid:90)(cid:107)(cid:90)(cid:99)(cid:106)(cid:90)(cid:104)(cid:21)(cid:29)
(cid:21)(cid:98)(cid:94)(cid:97)(cid:30)
(cid:39)(cid:46)(cid:35)(cid:38)
(cid:39)(cid:39)(cid:35)(cid:37)
2007
2008
(cid:42)(cid:46)(cid:35)(cid:38)
(cid:42)(cid:39)(cid:35)(cid:39)
(cid:40)(cid:37)(cid:35)(cid:38)
(cid:38)(cid:45)(cid:35)(cid:40)
(cid:42)(cid:35)(cid:45)
2003
(cid:38)(cid:37)(cid:35)(cid:44)
2004
2005
2006
2007
2008
6 We live m2m
At the heart of Telit m2m solutions lies a proprietary software platform including
a comprehensive AT-command interface for communication between applications and
modules. Telit’s wireless modules can be easily applied to vertical application areas such as:
• Automated Meter Reading
• Security Systems and
Personal Tracking Devices
• Vending Machines
• Mobile Computing
(Mobile Workforce Automation)
• Fleet Management and Tracking/Logistics
• Industrial Processes
• Point of Sale Terminals/Handhelds
• Information Displays
• Car Telematics
• Healthcare
• Public Transportation and Road Tolling
• Emergency Communication Systems
Telit Worldwide
Telit sells its products
through a network of value
added resellers to more
than 3,000 communications
solution providers and
systems integrators in more
than 50 countries around
the world. Our customers
are served directly by us or
through a global network of
more than 35 distributors.
AMERICAS
Telit Wireless Solutions Inc.
(Americas)
•
Regional headquarters for
the Americas region
Center of competency for
Automotive products
Sales and Marketing for
the Americas
•
•
EMEA
Telit Communications
S.p.A (EMEA)
•
•
Global headquarters
Product Development,
Product Management,
Production of GSM/GPRS
products out of the main
locations Trieste and
Cagliari, Italy
Sales and Marketing for
EMEA
APAC
Telit Wireless Solutions
Co.Ltd (APAC)
•
Regional headquarters for
the APAC region
Product Development,
Product Management,
Production of CDMA and
UMTS products
Sales and Marketing for the
APAC region
•
•
•
Telit’s headquarters are in
Rome, Italy, with regional
headquarters in Trieste,
Italy, Tel-Aviv, Israel,
R a le i g h N C , U S A , S a o
Paulo, Brazil and Seoul, Korea. Its R&D centers are in Trieste and Cagliari, Italy, Seoul,
Korea and Sofia Antipolis, France, with regional sales offices in Brazil, China, Denmark,
France, Germany, Great Britain, Israel, Italy, Korea, Spain, the Republic of South Africa,
Taiwan, and the USA. Telit employs approximately 350 employees worldwide.
Telit provides global support to its international customers covering the entire spectrum
of the m2m market. Its vast experience doing business across the globe has helped the
company establish strong channels and excellent access to key players in all major world
markets. Telit’s diverse worldwide customer base includes cellular operators and cellular
distributors, as well as designers, manufacturers and system integrators of cellular m2m
module-based applications.
7
Telit’s Strategy
Our strategy for 2009 is to continue to leverage our position as a leading player in the m2m
market, offering customers a competitive edge by reducing their total cost of ownership and
optimizing the performance of their products.
We plan on doing this through continued investment in R&D and building on the foundations
laid by our regional operations to date, as expanded during 2008.
Competitive Advantage
Based on its extensive R&D experience, gained through hundreds of engineering man-years,
Telit has developed its own protocol stack as the technological basis of its solutions. This
enables the Company to offer customers solutions ranging from complete devices to embedded
products, including fitting its platform into its customers’ products. Underpinning its superior
growth rate, Telit has three major advantages:
Flexibility
Telit is the first and only m2m manufacturer that offers customers a form factor and family
concept. All modules in a family have the same form factors and full software compatibility,
but offer different functionality to meet the requirements of different vertical applications
segments - the same size, the same shape, the same connectors and the same software
interface. The advantage for users is self-evident: all modules in a family are interchangeable.
Above all, customers can easily replace the modules with successive products without
changing the application. This reduces effort, time and costs associated with development.
As a result, Telit is able to set itself apart from the competition, which often changes the size
and shape of its modules with new models. Customers, however, need modules that can be
used for years in their applications.
Scalability
Telit’s modules are tailored for various applications and different production lot sizes: for
quantities of a few thousand units, the company developed the GM family, which offers
low outlay and costs for integration. For applications that are produced in the tens of
thousands, low production costs are the prime concern. In this case customers can turn
to the GE product range with its Ball Grid Array (BGA) assembly concept. Telit is the first
company offering BGA modules, which can be assembled like electronic components and
integrated easily into the production line - no connectors or cables are needed.
Innovation
Controlling its own intellectual property enables Telit to remain on the cutting edge of
product innovation. Integrating GSM/GPRS, CDMA and UMTS technologies into its product
family concept enables customers to choose between various technologies for each
module - depending on the market in which their application is being used. The main
advantage is that no changes are required to the application. Consequently, Telit supplies
modules that can be used worldwide without restriction. As communication technologies,
such as RFID and Zigbee enter the market, Telit will build on them to ensure its customers
are at the cutting edge of m2m solutions.
8
Chairman’s & Chief Executive’s Statement
Chairman’s Statement
Enrico Testa, Chairman of the Board
We are pleased to present Telit Communications PLC’s 2008 Annual
Report. I am happy to be able to state that our continuing focus on the
strategy we outlined in our previous annual reports and our focus on
our global footprint in the m2m market is bearing fruit. 2008 has been
the first year to show full year positive EBIT from continuing operations
and also marks Telit’s move into a full year profit before tax. Further
information on these and other performance measures are included in the Chief Executive’s
Review.
During 2008 Telit continued its revenue growth while improving its gross margin and profit,
achieved in a year that has seen the worst economic climate in decades. Telit’s continued
growth is due to Telit’s cutting edge technology, its global presence, the streamlining of its
logistics and the dedication, expertise and hard work of Telit’s global workforce.
We expect to leverage on these and other advantages and strengths in 2009 and beyond and
I look forward to presenting to you Telit’s continued growth and increased profitability in the
years to come.
Enrico Testa
Chairman of the Board
29 May 2009
Chief Executive’s Statement
And Review
Oozi Catz, Chief Executive Officer
2008 has been another year of growth for Telit, in spite of the global
economic slowdown. We achieved a revenue growth of 13%, an operating
profit of €0.6 million, a positive adjusted EBITDA of €3.7 million and, I am
very pleased to note, a profit before tax from continuing operations of €1.2
million. Naturally, the global recession has taken its toll on Telit as sales did not achieve the
growth rates of previous years, although the results were in line with market expectations, with
EBIT and adjusted EBITDA above expectations. We acted swiftly in preparing detailed plans for
meeting the immense challenges, and opportunities that the recession presents to us, while
continuing to win new business, gain market share and retain our existing customer base.
Although we have continued to feel the effects of the global recession in the first months
of the current year, we continue to believe in the sound base of the m2m market and of our
growing stake in it and are confident that our business will continue to grow even in these
troubled times.
9
Below are the key financial performance measures for continuing operations for 2008
and 2007:
Revenue 1
Gross profit
Gross margin
Other income
Research & Development 2
Selling & Marketing 2
General & Administrative 2
Share based compensation
Other Expenses
Operating profit / (loss)
Adjusted EBITDA
2008
€’000
59,083
29,096
49.2%
1,002
(9,577)
(10,694)
(8,827)
(436)
-
564
3,673
2007
€’000
52,189
21,988
42.1%
2,457
(8,672)
(8,792)
(6,952)
(1,138)
(400)
(1,509)
1,398
1 Including licence and royalty income (2008: €1.7 million; 2007: €2.3 million)
2 excluding share-based payment charges.
During 2008, Telit continued to invest in its global expansion by opening new offices in the
Republic of South Africa and in Brazil, where local outsourced manufacturing commenced in
July 2008. We see the Brazilian market as a major field for future growth both locally and as
a gateway to the Latin American market. Telit also increased the number of employees in a
number of existing key locations, mainly China and the U.S.
In November 2008, Telit completed the acquisition of One RF Technology S.A.S. (since
renamed Telit RF) for a consideration of 1,300,000 new ordinary shares in the Company. Telit
RF, a private French company which designs wireless data transmission solutions for m2m
and telemetry applications and developed its own ZigBee™ solutions that complement Telit’s
existing product offering and business. Telit RF’s strategic acquisition will enable Telit to
capture m2m market segments that require short range solutions or combined solutions
integrating short range and cellular technologies. Telit RF has two product lines for the
m2m market based on standard ZigBee™ and proprietary mesh IEEE 802.15.4 protocols.
These products are based on proprietary software developed by Telit RF. Telit has already
added these products to its offering to existing and potential m2m customers. Furthermore,
based on this technology Telit will develop and offer routers and gateways that will ease the
deployment of short range mesh networks connected via cellular infrastructure. Telit RF and
its 15 employees have been fully integrated with the 40 employees Telit has in its Solutions
R&D centre located in Sardinia.
10
Chief Executive’s Statement
The second and last installment of the €16.0 million investment by BAMES into Telit Wireless
Solutions was completed in December 2008, as Telit met all the conditions prerequisite to
the investment.
Towards the end of 2008 we entered into a transaction with BAMES’ electronics manufacturing
subsidiary, SEM. This transaction included price reductions for past and future purchases
made by the Group under its existing outsourced manufacturing agreement with SEM and
also provided SEM the right to use the “Telit” nominative trade name in SEM’s line of WiMax
products, for a total consideration of €3.5 million, €1.5 million of which has been recognised
as licence income in 2008 (see notes 1(ab) and 2 to the financial statements for further
details). The agreement provides confirmation of the value and potential of Telit’s brand
name in the m2m and associated markets. The Group holds a 19.9% interest in SEM.
Financial Results
Following the indications we provided in our trading update on 15 December 2008, the results
for the year are in line with market expectations and underline the strength of the Company’s
position in the global m2m market, supported by the geographical expansion begun in 2006
and strengthened during 2007 and 2008. In spite of the global recession, the Company’s
results for 2008 show substantial growth in revenue with a continued improvement of its
results, both in the operational and the bottom line parameters.
The results for the year ended on 31 December 2008 reflect substantial like-for-like growth,
strong margins and underlying sales momentum. Telit increased revenue in 2008 by 13% to
€59.1 million, compared to €52.2 million in 2007.
Revenues include one-time licence income of €1.5 million for the lifetime use of the nominative
trade name “Telit” by the Italian company, SEM, in its line of WIMAX products as detailed in
notes 1(ab) and 2 to the financial statements (2007 revenues included licence income of €1.5
million from the Italian company, Bardi).
The majority of revenue continues to come from repeat business with existing customers.
In addition to the development of existing customer relationships, Telit has increased the
number of customers to more than 3,000 OEMs, communications solutions providers and
system integrators in over 56 countries.
Gross profit increased 32% to €29.1 million, compared to €22.0 million in 2007, resulting in
an overall margin of 49.2% compared to 42.1% for 2007.
During the course of the year Telit continued to benefit from governmental grants related
to our R&D activities in Trieste, Italy and for the first time this year, other European Union
grants and recorded other income amounting to €1.0 million from such grants, compared to
€2.1 million in 2007.
In September 2008 the Company received the first installment of €6.5 million, from the
previously announced grant from the Italian Ministry of Economic Development. The first
instalment of the award, which was obtained in 2006, is split into a €2.6 million grant and a
€3.9 million loan at favourable terms, provided by the Italian government with a repayment
schedule spanning 10 years. The total value of the award is approximately €13 million and
the next installment is expected at the end of 2009.
Research and development expenses, excluding share-based payments, were €9.6 million,
compared to €8.7 million in 2007. Sales and marketing expenses, excluding share-based
payments, were €10.7 million, compared to €8.8 million in 2007, with a majority of the
11
increase stemming from the conversion of the previous Telit Wireless Products (“TWP”)
operations in Israel to a wireless solutions centre, the formation of new sales offices in
the Republic of South Africa and Brazil and the increase in the number of employees in
China. General and administrative expenses, excluding share-based payments, were
€8.8 million, compared to €7.0 million in 2007, with a majority of the increase stemming
from the conversion of the previous TWP operations in Israel to a wireless solutions
centre. Share based compensation charges were €0.4 million in 2008 compared to
€1.1 million in 2007.
This resulted in an operating profit for 2008 of €0.6 million, compared to a loss of €1.5 million in
2007. Profit before tax was €1.2 million, compared to a loss before tax of €1.3 million in 2007.
After writing down deferred tax assets by €3.0 million, the net result for the year from continuing
operations is a net loss of €1.4 million, compared to a net loss of €1.9 million in 2007. Loss from
discontinued operations was €1.9 million, compared to a loss of €5.2 million in 2007.
Basic and diluted earnings per share from continuing operations were a loss of 2.7 Euro cents
for the period compared to a loss of 4.3 Euro cents loss per share in 2007. The total continuing
and discontinued basic and diluted loss per share was 7.0 Euro cents, compared to a 16.3
Euro cents loss per share in 2007.
Liquidity
The Group finances its operations mainly from short term borrowings from banks.
At 31 December 2008 and 2007, the Group’s net debt position was as follows:
Short term borrowings
(continuing operations)
Short-term borrowings
(discontinued operations)
Long term loans
Cash and cash equivalents,
including restricted cash
of €6.0 million (2007: €6.1 million)
Cash and cash equivalents
(discontinued operations)
Net debt
2008
€’000
19,026
-
3,531
2007
€’000
17,336
4,207
500
(10,619)
(11,344)
-
11,938
(42)
10,657
The Directors believe, based on the past performance of the relevant subsidiaries and the
history of the Group’s relationships with its lending banks, that the credit facilities provide
the Group with adequate funding to meet the Group’s current forecast requirements and
will remain available to the Group in the foreseeable future. Further information in respect
of the Directors’ consideration of the going concern assumption that has been used in the
preparation of the financial statements and the liquidity position of the Group is set out in
notes 1(b), 31 and 33 to the financial statements.
12
Chief Executive’s Statement
Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact
on the Group’s long-term performance.
Competitor risks
The Group operates in a highly competitive market with significant product innovations.
If competitors introduce new products that employ new technologies, or if new industry
or new government standards and practices emerge, the Group’s existing technology and
systems may become obsolete.
We are subject to competition from domestic and overseas competitors who have greater
capital and other resources and superior brand recognition than the Group. Consolidation
between competitors may take place in the industry, which may further intensify
competition by creating stronger competitors.
Competitors may launch new products in our markets, including the updating of their
existing product lines, and may adopt more aggressive pricing policies. This may manifest
itself in price pressures which create downward pressure on gross margins.
To manage these risks, the Group invests in the development of new products using
different communication technologies in order to expand the Group’s product portfolio
aimed at attracting new customers and increasing revenue from existing customers. The
Group also monitors market prices on an ongoing basis.
Product development
The Group’s future performance depends upon its ability to develop and introduce new
products, services or enhancements which meet the needs of its customers. The Group
incurs substantial product development expenditure designed to meet customers’ evolving
needs and to ensure compatibility with new technology in its target markets. Significant
delays in product development or introduction could have a material adverse effect on the
Group’s business, financial condition and results of operations. Developing the Group’s
technology and product range entails significant technical and business risks.
The Group manages these risks through its investment in research and development
capabilities, including the recruitment of experienced industry professionals. Our R&D
centres are based in Trieste and Cagliari, Italy and in Seoul, South Korea. Our R&D team
is responsible for managing all aspects of product development and progress reports are
routinely provided to our Chief Operating Officer.
Commercial relationships
The Group has significant contracts with a limited number of suppliers, distributors and other
business partners some of which may be terminated without cause or on written notice at
the expiry of their term. Damage to or loss of any of these relationships, or renewal on less
favourable terms, could have a direct and detrimental effect on the Group’s results, the impact
of which could be material to the trading position and future profitability of the Group.
To manage this risk, the Group meets with individual management from such strategic
partners on a regular basis, as well as seeking to diversify, where appropriate, sources of
supply. In addition the Group has a representative on the board of its principal supplier,
SEM, providing insight into that Company’s activities and operations.
13
Impact of Government Regulation on the Demand in the m2m Market
Government regulations are a significant driver of the growth of the global m2m market,
as such regulations require certain businesses to convert to wireless communications for
a variety of reasons. A cancellation or postponement of the due date of such regulations
could materially decrease demand for our products, as well as those of our competitors,
thus adversely affecting our results of operations.
Manufacturing
The Group’s products are manufactured by third parties, including outsourced
manufacturers. The Group’s supply of products could be disrupted for reasons beyond the
Group’s control such as the closure of outsourced facilities, work force actions or other
issues. In addition, the Group’s quality assurance over its products may be negatively
affected by these outsourced relationships.
The Group manages these risks by monitoring quality assurance at outsourced
manufacturers using its own test equipment on production lines, and through its
representation on the board of SEM.
Impact of Global Economic Conditions on Demand in the m2m Market
The worldwide recession which is well underway has adversely affected demand for our
products, as well as those of our competitors and our suppliers. A deepening recession
and/or a slower than expected global economic recovery may continue to adversely affect
the demand for our products and services or affect our ability to procure components
used in the manufacture of our products.
Effects of Foreign Exchange
49% of Telit’s revenue in the period ended 31 December 2008 was generated in Euro (70.5%
in 2007), with the remaining 51% generated in, or linked to, U.S. dollars and South Korean
Won (29.5% in 2007). However, a substantial part of the Group’s purchased materials cost
was denominated in U.S. dollars during the period.
Therefore, despite the negative impact of the sharp depreciation in the value of the U.S. dollar
and Korean Won against the Euro on Telit’s revenue in 2008 compared to 2007 exchange
rates, there is limited impact on the gross profit in the period.
Regional Information
The split of revenue on a geographical basis for the years ended 31 December 2008 and 2007
is as follows:
2008 (€M)
% of Total
Revenue
2007 (€M)
% of Total Revenue
EMEA
APAC
AMERICAS
Total Revenue
44.2
9.6
5.3
59.1
74.8%
16.2%
9.0%
100%
36.8
13.7
1.7
52.2
70.5%
26.2%
3.3%
100%
14
Chief Executive’s Statement
The performance in the APAC region has been negatively impacted by the sharp devaluation of
the Korean currency against the Euro (the exchange rate of the Korean Won against the Euro
declined by more than 25% during 2008). Revenues from this region are expected to increase
during 2009 and beyond. Revenues generated by Telit Americas, which have also been negatively
affected by the weakening of the U.S. dollar against the Euro during 2008, have began to show
a healthy momentum and are expected to continue to grow during 2009 and beyond.
We expect that the Americas region will continue to increase the weighting of its contribution to
total revenue in 2009 and beyond and that the APAC region will also show renewed growth, mainly
deriving from our sales and marketing operations in China which are now well established.
During 2008, sales offices were established in the Republic of South Africa and in Brazil. Our
Sao Paolo, Brazil office also coordinates local outsourced manufacturing for the Brazilian
market which commenced in the second half of the year.
Employees
The number of employees in the continuing operations of the Group on a geographical basis
as at 31 December 2008 and 2007 is as follows:
31 Dec. 2008
31 Dec. 2007
EMEA
APAC
AMERICAS
Total Employees
252
76
21
349
184
62
11
257
A majority of the increase in EMEA stems from the conversion of the previous TWP operations
in Israel to a wireless solutions centre, and the majority of the increase in the Americas
region stems from the formation of a new sales office in Brazil.
Business Performance & sales
During 2008 the following major developments took place that contributed to the overall
performance of the Company and will contribute to the Company’s future results:
•
Telit acquired One RF Technology S.A.S. (since renamed Telit RF), which designs wireless
data transmission solutions for m2m and telemetry applications and developed its own
ZigBee™ solutions that complement Telit’s existing product offering and business.
•
Telit presented a wide range of new and updated modules at the Mobile World Congress in
Barcelona (3GSM).
•
WE865-DUAL, a WiFi companion module to the GE863-PRO3;
•
GE864-Automotive which is based on the well proven GE864 and designed to be more
rugged to meet the special needs of the automotive industry;
•
GE863-SIM with integrated SIM card; and
•
UMTS/HSDPA module UC864 which is available in three versions.
15
•
•
Telit presented its Firmware Over The Air Update (FOTA) Services at the Mobile World
Congress 2008 in Barcelona. The FOTA services enable Telit customers to update the software
of the M2M modules integrated in their applications remotely over the air. The service helps
customers extend the lifetime of their M2M products, thereby protecting their investment
while saving money and decreasing the total cost of ownership of the products. Telit is one of
the first players in the M2M market to employ such a service in its product range. The FOTA
standard underpins Telit Infinata Services, launched in early 2009.
The primary goal of Telit Infinata Services is to simplify m2m solution deployment and
maintenance of device software. Telit Infinita Services support customers in managing
device populations throughout their lifetime via a powerful back-end solution. The
Premium FOTA Management greatly increases the operational reliability of an m2m
application. Malfunctions due to changes made to the network or new software versions
with additional functions mean regular updates of the module firmware are required.
With Premium FOTA Management, these updates can now be performed remotely over the
air, fast and reliably. Telit m2m modules embed RedBend’s vCurrent® agent, a proven and
tested technology powering hundreds of millions of cellular handsets world-wide (www.
redbend.com). The firmware upgrade process is based on an algorithm sending only the
“delta” of changes in the firmware.
•
Telit has been harnessing the expertise of microcontroller leader Atmel for the development
of its high-performance M2M modules. The GE863-PRO3 is the first product in Telit’s
dual-processor range to feature an Atmel AT91SAM9260 ARM9-based processor running
the customer application in tandem with a dedicated processor for GPRS communication.
It provides extremely high processing power and flexibility to support today’s rapidly
changing M2M market that demands more advanced features and more processing power
at ever-shorter intervals. Its standard form factor and easy integration make it particularly
attractive for applications such as POS terminals or fleet management. The GE863-PRO3
has been enthusiastically received by the market since its launch in Q4 2007.
•
Telit’s M2M technology was certified on the Vivo cellular network in Brazil. The GE863-
QUAD is the first Telit module certified by the largest operator in Brazil.
•
iControl networks selected Telit M2M technology to enhance its next generation home security
solution. Cellular technology provides reliable backup when wired connection is lost, offering
greater peace-of-mind to consumers. Telit’s M2M module with anti-jamming features adds
unmatched cellular back-up capabilities to iControl’s platform, offering home protection
companies and service providers a complete next generation home security solution.
Update on the Strategic alliance with Bartolini After Market Electronics Services s.r.l.
(“BAMES”)
In June 2007 BAMES invested €9.0 million in the share capital of the company’s subsidiary,
Telit Wireless Solutions Srl (TWS), the first installment of a €16.0 million investment in TWS’
share capital. The second installment of €7.0 million was completed in December 2008.
In December 2008 we entered into a transaction with BAMES’ electronics manufacturing subsidiary,
SEM, providing SEM the right to use the “Telit” nominative trade name in SEM’s line of WiMax products,
and providing Telit with price reductions over past and future purchases. The total consideration was €3.5
million, €1.5 million of which has been recognised as licence income in 2008. The agreement provides
confirmation of the value and potential of Telit’s brand name in the m2m and associated markets.
16
Chief Executive’s Statement
Strategy
Our strategy for 2009 is to continue to leverage our position as a leading player in the m2m
market, offering customers a competitive edge by reducing their total cost of ownership
and optimizing the performance of their products. We plan on doing this through continued
investment in R&D and the introduction of our Infinita services and the integration of cellular
and short range technologies into a complete m2m offering.
This strategy takes advantage of key trends in the m2m market:
•
•
The performance trajectory offered by many of the m2m module manufacturers overshoots
the needs of the average customer, resulting in feature-rich, expensive products that
deliver inferior returns on investment;
The inability of many module manufacturers to meet the demands of early adopters due
to the fact that they do not control the protocol stack required for customized product
modifications; and
•
Diversification of technology and increasing requirements for combined solutions based
on cellular and short range technologies.
To execute our strategy, Telit relies on three core competencies that differentiate it from the
competition:
•
•
•
Complete Control of the Protocol Stack: Telit owns and develops the Protocol Stack in
its modules. The Protocol Stack controls all connectivity and communication with the
GSM network and is a critical success factor in being able to offer customers the flexibility
required for rolling out cost-effective m2m solutions.
Commitment to Customer-Driven Innovation: Telit’s comprehensive expertise in R&D
enables it to help its customers win new business by working with them to develop the
most innovative, cost-effective m2m applications.
Multinational Organization Staffed with Industry Experts: Telit’s R&D and Sales and
Marketing units are a team of dynamic experts with proven industry experience in the
m2m and semiconductor industry.
Board changes
In August 2008, Mr. Giovanni Stella, a non-executive director, nominated to the Board of Telit
by Boostt B.V., resigned due to an increased workload from his other commitments.
In February 2009 Boostt B.V. nominated Mr. Massimo Testa to the Board of Telit as
a replacement of Mr. Stella. Mr. Testa, aged 51, established his first company in 1984, which
provided construction, transportation and auxiliary services to the real estate sector. Over
25 years operating in the field, Mr. Testa has established a group that today works alongside
manufacturers of raw materials for international real estate development companies.
Mr. Testa is currently a director and shareholder of Techvisory S.A. and Wireless Solution
Management S.L., which are corporate parents of Boostt B.V., a significant shareholder of
the Company. Mr. Testa is the brother of Mr. Enrico (Chicco) Testa, Chairman of the Board of
Directors of the Company.
Also in February 2009, Mr. Maurizio Gasparri, an independent non-executive director,
resigned from the Board due to an increased workload from his other commitments.
17
Outlook
The outlook for the rest of 2009 and the future looks positive for Telit despite the global
economic downturn, the effects of which have continued to be felt by Telit during the first
months of the year, and fluctuating foreign exchange rates which fuelled the decrease in unit
prices in 2008 and may continue to do so in the future. While our marketplace becomes more
challenging we believe we are well positioned to take advantage of the opportunities ahead.
We are confident in our strong position within our industry and look forward to continued
business expansion. We are constantly seeking further expansion opportunities through new
technologies or by gaining access to new territories and new market segments.
Telit’s management’s main focus is and will continue to be to expand and strengthen our
position as one of the world’s premier m2m technology providers, while striving to anticipate
and respond to market conditions that are beyond our control, such as the effects of the
global downturn and the effect of fluctuating exchange rates on our financial results.
The hard work and dedication of Telit’s staff across the globe is and will continue to be crucial
to Telit’s success. I would like to thank the company’s management team and employees for
their commitment to the company and its success. Their dedication is an invaluable asset,
indeed the core asset of the company.
At the end of this period I very much hope that it is apparent that all the efforts we have
invested and are still investing have created a solid business platform, the benefits of which
our customers, shareholders and other stakeholders can enjoy.
Telit intends to continue to take advantage of the considerable opportunities arising in this
growing global market. I look forward to providing further news of the Company’s progress
over the coming months.
Oozi Cats
Chief Executive Officer
29 May 2009
18 Telit’s Board of Directors
Enrico Testa, Executive Chairman of the Board, aged 58
Between 1996 and 2002 Enrico Testa was Chairman of the Board at ENEL
S.p.A. (the Italian provider of power and gas) and founder and member of the
Board of Directors at WIND S.p.A. Mr. Testa is currently a managing director of
Rothschild S.p.A,. Between 2004 and 2009 Mr. Testa was Executive President at
Roma Metropolitane S.p.A (the company realizing the new Underground lines
in Rome), Chairman of the Organising Committee of the 20th World Energy
Congress and Senior Partner at Franco Bernabè Group, which owns several companies in
the IT sector. Mr. Testa is the brother of Mr. Massimo Testa, a non executive director of the
Company.
Oozi Cats, Chief Executive Officer of Telit Communications, aged 49
An experienced CEO and entrepreneur, Oozi Cats, in 2000, was the founder
of a communications engineering and distribution company (Dai Telecom
Ltd) in Israel. In 2002 he led the takeover of Telit in Italy and its subsequent
transformation into a global player in the m2m market. The complex
turnaround program included strategic redefinition, financial restructuring,
and human resource reorganization. Headed by Mr. Cats as CEO, Telit was
listed in the London Stock Exchange in April 2005. Prior to his role at Telit, Mr. Cats was the
founder and CEO of Auto Depot Ltd, an Israeli mass merchandising chain for vehicle supplies
and services.
Michael Galai, Finance Director & General Counsel Telit Communications
PLC, aged 43
Michael Galai joined Telit Communications PLC in 2006 as VP Legal &
General Counsel. He was previously General Counsel at Lipman Electronic
Engineering Ltd. (Nasdaq, TASE: LPMA) where he took an active part in
a secondary offer to the public and the company’s sale to VeriFone Holdings, Inc.
(NYSE: PAY). Before joining Lipman, Mr. Galai was an associate with Goldfarb,
Levy, Eran and Co., an Israeli full-service general business practice that serves a wide range
of Israeli and foreign clients, with special emphasis on international transactions, financing,
securities, mergers and acquisitions and related activities. Mr. Galai also spent six years in
the Israel Securities Authority, holding a variety of positions, including spokesperson. He has
an MBA (Major in Finance), and an L.L.B from the Tel Aviv University School of Law and is
a member of the Israeli Bar.
19
Andrea Giorgio Mandel-Martello, Independent Non Executive Director,
aged 51
Andrea Giorgio Mandel-Mantello is the founding partner of AdviCorp PLC,
a UK investment bank regulated by the UK Financial Services Authority. Prior
to his work at AdviCorp, Mr. Mandel-Martello spent 9 years at SBC Warburg
(“SBCW” now known as UBS) in London in various management positions
including Executive Director of SBC Warburg, member of the Board of SBC
Warburg Italia SIM S.p.A., and Country Head for Israel. Prior to working at SBCW, Mr. Mandel-
Martello spent two years at Chemical Bank International Limited in London and three years
at Banca Nazionale dell’Agricoltura in Rome. Mr. Mandel-Martello is a director of Coraline
S.p.A., a company which has recently acquired the business of Frette S.p.A., Italy’s leading
producer and retailer of homeware; he is a director of MOTO S.p.A. a joint venture in the
motorway restaurants business between Compass Group PLC and Cremonini S.p.A.; he is
a director of B.O.S. Better On Line systems, a Nasdaq listed Israeli company involved in VoIP
and enterprise solutions. He holds a Bachelor degree in Economics and Political Science
from Yale University.
Amir Scharf, Independent Non-Executive Director and Chairman of the
Audit Committee of Telit, aged 43
Amir Scharf is a Partner and Head of Securities Law practice at Tadmor &
Co., Attorneys at Law, in Tel Aviv. He is also a Director and Chairman of the
audit committee at Analyst I.M.S. Investment Management Services Ltd.,
a full service investment house traded on the Tel Aviv Stock Exchange. Before
joining Tadmor & Co. he was the General Counsel and Corporate Secretary
of El Al Israel Airlines Ltd., and before that he served as Deputy Director of the Legal
Department of the Israeli Securities Authority. In 2004 - 2006 he served as a member of
The “Goshen Committee”, the public committee for setting an Israeli Corporate Governance
code. Mr. Scharf was also a director of Superstar Holidays Limited in the UK between 2005
and 2006.
Massimo Testa, Non-Executive Director, aged 51
Mr. Testa established his first company in 1984, which provided construction,
transportation and auxiliary services to the real estate sector. Over 25 years
operating in the field, Mr. Testa has established a group that today works
alongside manufacturers of raw materials for international real estate
development companies. Mr. Testa is the brother of Mr. Enrico Testa, Chairman
of the Board of Directors of the Company
20 Corporate Governance
Directors
The Board of Directors comprises three Executive Directors, two independent Non-executive
Directors, and one Non-executive Director.
The Board generally meets a minimum of once every quarter and receives a Board pack
comprising a report from senior management together with any other material deemed
necessary for the Board to discharge its duties. It is the Board’s responsibility for formulating,
reviewing and approving the Group’s strategy, budgets, major items of expenditure and
acquisitions.
Audit Committee
The Audit Committee consists of Amir Scharf, Chairman, and Andrea Mandel-Mantello, the
independent non-executive directors, and meets at least once every quarter. Michael Galai,
the Finance Director attends each meeting by invitation. The Audit Committee is primarily
responsible for considering reports from the Finance Director on the half year and annual
financial statements, and for reviewing reports from the auditors on the scope and outcome
of the annual audit. The financial statements are reviewed in the light of these reports and
the results of the review reported to the Board.
Remuneration Committee
The Remuneration Committee consists of Andrea Mandel-Mantello, Chairman, Amir
Scharf and Enrico Testa, and meets at least once a year. The Remuneration Committee has
a primary responsibility to review the performance of the Company’s executive directors and
to set their remuneration and other terms of employment. The Remuneration Committee is
also responsible for administering the employee share option scheme.
Shareholder relations
The Company meets with its institutional shareholders and analysts from time to time and
uses the Annual General Meeting to encourage communication with private shareholders.
In addition, the Company intends to facilitate communication with shareholders via the
annual report and accounts, interim statement, press releases as required during the
ordinary course of business and the Company web site (www.telit.com).
Financial performance
A budgeting process is completed once a year and is reviewed and approved by the Board.
The Group’s results, as compared against budget, are reported to the Board on a quarterly
basis and discussed at each meeting of the Board.
21
Going concern
After making enquiries at the time of approving the accounts, the directors have satisfied
themselves that there is a reasonable expectation that the Company and Group has adequate
resources to continue in operational existence for the foreseeable future. For this reason, the
financial statements are prepared on a going concern basis. Further information in respect
of the Directors’ consideration of going concern is included in note 1(b) to the financial
statements.
Directors share dealings
The Company has adopted a code for dealings in its shares by Directors and senior employees
which is appropriate for an AIM-quoted company.
On behalf of the Board
Michael Galai
Finance Director
29 May 2009
22 Report on Directors’
Remuneration
The remuneration committee is chaired by Andrea Mandel-Mantello and also comprises
Enrico Testa and Amir Scharf.
This report has been prepared in accordance with Schedule 6 of the Companies Act 1985.
As required by the Act, a resolution to approve the report will be proposed at the annual
general meeting of the Company, at which the financial statements will be approved.
The Act requires the auditors to report to the Company’s members on certain parts of the
Directors’ Remuneration Report and to state whether in their opinion those parts of the
report have been properly prepared in accordance with the Act. The report has therefore
been divided into separate sections for audited and unaudited information.
Unaudited Information
Remuneration policy
The remuneration packages of directors and senior managers are structured so as to reward
them on the basis of their responsibilities and achievements, and to encourage them to
remain with the Company for the long-term benefit of shareholders. The main components
of these remuneration packages are:
•
Basic salary:
into account his additional incentives and to align their interests within the Group.
An individual’s salary is reviewed and determined by the committee, taking
•
•
•
•
Service contracts:
No service contracts have notice periods of more than six months.
Bonus arrangements:
The Company operates a discretionary bonus scheme and
the directors have a right to participate in any bonus arrangement. The Remuneration
Committee will determine bonuses for executive directors.
Pension arrangements:
None of the directors receive any pension benefits, except for
Michael Galai, who is entitled to post employment benefits including pension fund benefits
according to his employment agreements, as is customary in Israel.
Share options:
Certain of the executive directors have been granted share options as
described in the directors’ report below. The share options are subject to time-based
vesting conditions to incentivise medium-term performance and assist in retention. None
of the group’s share option schemes are subject to performance conditions.
The services of the directors are provided to the Group as follows:
Enrico Testa was appointed as a director and Chairman of the Board on 4 May 2007.
Oozi Cats is engaged pursuant to a letter of appointment with the Company dated 29 March
2005, terminable by either the Company or the director on six months’ notice except in certain
specific circumstances where short notice can be given by the Company. In addition, since
1 October 2007 Mr. Cats has been employed by Telit Wireless Solutions Srl. in an executive
position. Mr. Cats’ remuneration from Telit Wireless Solutions Srl. includes his remuneration
under the service agreement with the Company.
Andrea Mandel Mantello was appointed pursuant to a letter of appointment with the Company
dated 29 March 2005, terminable on 6 months rolling notice.
23
Michael Galai was appointed as the Finance Director on 13 September 2007. Mr. Galai is
entitled to post employment benefits, as is customary for executives in Israel. The amount
disclosed below represents his cumulative entitlement earned since his appointment.
Giovanni Stella was appointed as a director on 4 May 2007 and resigned on 31 July 2008.
Amir Scharf was appointed as a director on 22 August 2007.
Maurizio Gasparri was appointed as a director on 17 July 2006 and resigned on 13 February 2009.
Audited Information
Salary and
fees
Benefit
in kind
Annual
bonus
Post
employment
benefits
Total
2008
Total
2007
€’000
€’000
€’000
€’000
€’000
€’000
-
100
750
-
114
-
40
-
60
41
40
-
-
95
-
5
-
-
-
-
-
-
-
50
250
-
19
-
-
-
-
-
-
-
-
100
-
24
-
-
-
-
-
-
-
150
1,195
-
162
-
40
-
60
41
40
50
58
925
212
36
14
46
17
60
47
17
1,145
987
100
129
319
340
124
26
1,688
1,482
Executive directors
Avigdor Kelner 1
Enrico Testa 2
Oozi Cats 3
Avi Israel 1
Michael Galai 2
Non-executive
directors
David Hobley 1
Andrea Mandel-
Mantello 3
Pnina Bitterman
Cohen 1
Maurizio Gasparri
Giovanni Stella 1
Amir Scharf 2
Total - 2008
Total - 2007
1 Up to the date of resignation.
2 Since date of appointment.
3 Amounts in respect of the services of Andrea Mandel-Mantello are paid directly to Advicorp plc, a company
under his joint control.
Andrea Mandel-Mantello
Chairman of the Remuneration Committee
29 May 2009
24 Directors’ Report
The directors present their annual report and the financial statements of the Group for the
year ended 31 December 2008.
Principal Activities
Telit is a leading global company in the field of machine-to-machine (m2m) communications.
Telit develops, manufactures and markets communication modules which enable machines,
devices and vehicles to communicate via cellular wireless networks. It is the market leader
in CDMA m2m modules in South Korea and the third largest company in the GSM/GPRS
m2m modules’ business in Europe, Middle East and Africa (EMEA).
Telit’s core strengths are innovative products, complete control over its intellectual property
and its flexible, customised solutions, which enable it to offer customers the lowest cost of
ownership and a future-proof product roadmap.
Review of Business and Future Developments
A review of business, financial position, liquidity and future developments is given within the
Chief Executive Officer’s statement on pages 8 to 17, together with a review of the Group’s
principal risks and uncertainties.
Share Options
On 2 April 2007 executives of the Company were granted 1,300,000 options to purchase
approximately 3 percent of the Company’s issued and outstanding shares at an exercise price
of £0.43 per share. The options vest in two equal instalments on 1 January 2008 and 2009 and
expire five years from the date of grant.
On 10 July 2007 employees of Telit Italy, Telit Wireless Solutions Co., Ltd. (“Telit APAC”)
Telit Wireless Solutions Inc. (“Telit Americas”), Telit Wireless Solutions Ltd. and Telit
Communications Spain S.L. were granted options to purchase approximately 3.4 percent
of the Company’s issued and outstanding shares at an exercise price of £0.60 per share.
100,000 options vest in two equal instalments on 9 July 2008 and 2009 and 1,363,000 vest in
three equal instalments on 9 July 2008, 2009 and 2010. All options expire five years from the
date of grant.
On 11 July 2007 non-executive directors of the Company and consultants to Telit Italy
were granted options to purchase approximately 3.0 percent of the Company’s issued and
outstanding shares at an exercise price of £0.60 per share. 1,100,000 options vest in two equal
instalments on 10 July 2008 and 2009 and 195,000 options vest in three equal instalments on
10 July 2008, 2009 and 2010. All options expire five years from the date of grant.
On 2 April 2008, a grant of 35,000 options was made to an employee of the Group at an exercise
price of £0.70 per share. The options vest over three years in equal annual instalments.
The number of outstanding options as of 31 December 2008 was 3,524,834, equal to
approximately 7.9% of the outstanding share capital of the Company.
25
Research and Development Activities
The Group has made, and expects to continue making in the future, significant investments
in research and development (“R&D”) in order to invest in products aimed at achieving
a steady pipeline of orders from customers in the coming years. R&D costs of €9.7 million
were expensed in the year, compared to €8.9 million in 2007. Internally-generated intangible
assets arising from development costs capitalized amounted to €4.4 million (2007: €2.9
million), after setting off grant contributions received of €2.6 million. Telit’s R&D centres
are based in Trieste and Cagliari, Italy, Seoul, South Korea and Sofia Antipolis, France. For
additional details please see the Chief Executive Officer’s statement and note 1(ab) to the
financial statements.
Use of Financial Instruments
The financial risk management objectives and policies of the Group and the exposure of the
Group to financial risks are disclosed within note 33 to the financial statements.
Donations
The Group made no charitable or political donations during the year ended 31 December
2008 (2007 - €nil).
Dividends
The Company is unable to pay a dividend in respect of the period (2007: nil).
Directors
The following directors have held office during the year and subsequently:
Enrico Testa
Oozi Cats
Michael Galai
Amir Scharf
Andrea Mandel-Mantello
Giovanni Stella
resigned 15 August 2008
Maurizio Gasparri
resigned 13 February 2009
Massimo Testa
appointed 13 February 2009
26 Directors’ Report
Directors’ Indemnities
The company has made qualifying third party indemnity provisions for the benefit of its
directors in respect of their roles as directors of the company and, where applicable, as
directors or senior employees of subsidiary undertakings, which were made during 2007 and
remain in force at the date of this report.
Directors’ Interests in Shares and Share Options
The directors’ interests in shares in the Company are detailed in the table below.
At 31 December 2008
At 31 December 2007
Directors
Number
of ordinary
shares
Percentage of
ordinary share
capital
Number
of ordinary
shares
Percentage of
ordinary share
capital
Oozi Cats1
16,460,357
36.98
16,350,357
37.84
Enrico Testa2
16,460,357
36.98
16,350,357
37.84
Amir Scharf
Andrea Mandel-
Mantello
Maurizio Gasparri
Michael Galai
nil
nil
nil
nil
-
-
-
-
nil
nil
nil
nil
-
-
-
-
1 Mr. Cats directly holds 3,110,357 shares. In addition, Mr. Cats owns 50% of Boostt B.V. (“Boostt”), which holds 12,100,000
shares. Boostt’s corporate parents, Techvisory S.A. and Wireless Solutions Management SL (together: “Techvisory”) hold
an additional 1,250,000 shares. Mr. Cats and Techvisory have subscribed to certain voting understandings. Therefore, Mr.
Cats is deemed to be interested in all of Boostt’s holdings, as well as all of Techvisory’s holdings.
2 Mr. Testa is an interested party in Techvisory and Boostt, by virtue of his holding office therein. Therefore, Mr. Testa
is deemed to be interested in all of Boostt’s and Techvisory’s holdings, as well as all of Mr. Cats’ holdings. Mr. Testa’s
brother, Massimo Testa, was appointed to the board in February 2009. Mr. Massimo Testa is a shareholder of Techvisory
and therefore the Company considers him to be interested in the same amount of shares as Messers Oozi Cats and Enrico
Testa. Mr Massimo Testa also personally holds 323,000 share of the Company and Messers. Oozi Cats and Enrico Testa are
considered as having an interest in these shares as well.
27
Details of directors’ share options are provided below:
1 Jan
2008
Granted Exercised Expired
31 Dec
2008
Exercise
Price
Date from
which
exercisable
Expiry
date
Oozi Cats
925,000
Enrico
Testa
Michael
Galai
Giovanni
Stella1
700,000
100,000
400,000
1 Resigned during the year.
-
-
-
-
-
-
-
-
-
-
-
925,000
43p
01/01/08 01/04/12
700,000
60p
10/07/08 10/07/12
100,000
43p
01/01/08 01/04/12
200,000
200,000
60p
10/07/08 30/06/09
The highest and lowest closing prices of the Company’s shares on AIM during 2008 were 92p
(26 February) and 17.50p (15 December).
On 2 April 2007 Oozi Cats and Michael Galai (prior to his appointment as a director) were
granted 925,000 and 100,000 options respectively, at an exercise price of £0.43 per share. The
options vested in two equal instalments on 1 January 2008 and 2009 and expire within five
years from the date of grant.
On 11 July 2007 Enrico Testa was granted 700,000 options at an exercise price of £0.60 per
share. The options vested in two equal instalments on 10 July 2008 and 2009 and expire five
years from the date of grant.
The aggregate amount of gains made by directors on the exercise of share options in the year
ended 31 December 2008 was €nil (2007: €nil).
Employees
In considering applications for employment from disabled people, the Group seeks to
ensure that full and fair consideration is given to the abilities and aptitudes of the applicant
against the requirements of the job for which he or she has applied. Employees who become
temporarily or permanently disabled are given individual consideration, and where possible
equal opportunities for training, career development and promotions are given to disabled
persons.
Within the bounds of commercial confidentiality, information is disseminated to all levels
of staff about matters that affect the progress of the Group and are of interest and concern
to them as employees. The Group also encourages employees, where relevant, to meet on
a regular basis to discuss matters affecting them.
28
Directors’ Report
Supplier payment policy
The Group does not operate a standard code in respect of payments to suppliers. It has
due regard to the payment terms of suppliers and generally settles all undisputed accounts
within 60 days of the date of invoice, except where different arrangements have been
agreed with suppliers. Trade creditor days of the Group at 31 December 2008, calculated in
accordance with the requirements of the Companies Act 1985, were 83 days (2007: 85 days).
This represents the ratio, expressed in days, between the amounts invoiced to the Group in
the year by its suppliers and the amounts due, at the year end, to trade creditors falling due
for payment within one year.
Provision of information to auditors
Each of the directors at the date of approval of this report confirms that:
•
so far as the director is aware, there is no relevant audit information of which the company’s
auditors are unaware; and
•
the director has taken all the steps that he ought to have taken as a director to make
himself aware of any relevant audit information and to establish that the company’s
auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with s234ZA of the
Companies Act 1985.
By order of the Board
Michael Galai
Finance Director
29 May 2009
Statement of Directors
Responsibilities
29
The directors are responsible for preparing the annual report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year.
The directors are required by the IAS regulation to prepare the group financial statements
under IFRSs (IFRSs) as adopted by the European Union. The financial statements are also
reguired by law to be properly prepared in accordance with the Companies Act 1985 and Article
4 of the IAS Regulation.
International Accounting Standard 1 requires that financial statements present fairly for
each financial year the company’s financial position, financial performance and cash flows.
This requires the faithful representation of the effects of transactions, other events and
conditions in accordance with the definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting Standards Board’s ‘Framework
for the preparation and Presentation of Financial Statements’. In virtually all circumstances,
a fair presentation will be achieved by compliance with all applicable International Financial
Reporting Standards. Directors are also required to:
•
properly select and apply accounting policies;
•
present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information; and
•
provide additional disclosures when compliance with the specific requirements in IFRSs
is insufficient to enable users to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and financial performance.
The directors are responsible for keeping proper accounting records which disclose with
reasonable accuracy at any time the financial position of the company, for safeguarding
the assets, for taking reasonable steps for the prevention and detection of fraud and other
irregularities and for the preparation of a directors’ report and directors’ remuneration report
which comply with the requirements of the Companies Act 1985.
The directors are responsible for the maintenance and integrity of the company website.
Legislation in the United Kingdom governing the preparation and dissemination of financial
statements differs from legislation in other jurisdictions.
30 Independent Auditor’s Report to the
Members of Telit Communications PLC
Independent Auditors’ Report to the Members of Telit Communications PLC
We have audited the group and parent company financial statements (the “financial
statements”) of Telit Communications PLC for the year ended 31 December 2008 which
comprise the group income statement, the group and company balance sheets, the group
and company cash flow statements, the group and company statements of changes in equity
and the related notes 1 to 35. These financial statements have been prepared under the
accounting policies set out therein. We have also audited the information in the Directors’
Remuneration Report that is described as having been audited
This report is made solely to the company’s members, as a body, in accordance with section
235 of the Companies Act 1985. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state to them in an auditors’
report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s members as
a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration
Report and the financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRS) as adopted by the European Union are set out in the
statement of directors’ responsibilities.
Our responsibility is to audit the financial statements and the part of the Director’s
Remuneration Report to be audited in accordance with relevant United Kingdom legal and
regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view
and whether the financial statements and the part of the Directors’ Remuneration Report
to be audited have been properly prepared in accordance with the Companies Act 1985. We
also report to you whether in our opinion the information given in the directors’ report is
consistent with the financial statements.
In addition we report to you if, in our opinion, the company has not kept proper accounting
records, if we have not received all the information and explanations we require for our audit,
or if information specified by law regarding directors’ remuneration and other transactions
is not disclosed.
We read the directors’ report and the other information contained in the Annual Report as
described in the contents section. We consider the implications for our report if we become
aware of any apparent misstatements with the financial statements. Our responsibilities do
not extend to any further information outside the Annual Report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial statements and the part
of the Directors’ Remuneration Report to be audited. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of the financial
statements, and of whether the accounting policies are appropriate to the circumstances of
the company and the group, consistently applied and adequately disclosed.
31
We planned and performed our audit so as to obtain all the information and explanations
which we considered necessary in order to provide us with sufficient evidence to give
reasonable assurance that the financial statements and the part of the Directors’
Remuneration Report to be audited are free from material misstatement, whether caused
by fraud or other irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements and the part of the
Directors’ Remuneration Report to be audited.
Opinion
In our opinion:
•
•
the group financial statements give a true and fair view, in accordance with IFRSs as
adopted by the European Union, of the state of the group’s affairs as at 31 December 2008
and of its loss for the year then ended;
the parent company financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union as applied in accordance with the provisions of
the Companies Act 1985, of the state of the parent company’s affairs as at 31 December
2008;
•
the financial statements and the part of the Directors’ Remuneration Report to be audited
have been properly prepared in accordance with the Companies Act 1985; and
•
the information given in the directors’ report is consistent with the financial statements.
Deloitte LLP
Chartered Accountants
and Registered Auditors
London, United Kingdom
4 June 2009
Neither an audit nor a review provides assurance
on the maintenance and integrity of the website,
including controls used to achieve this, and
in particular whether any changes may have
occurred to the financial information since first
published. These matters are the responsibility
of the directors but no control procedures can
provide absolute assurance in this area.
Legislation in the United Kingdom governing
the preparation and dissemination of financial
information differs from legislation in other
jurisdictions
Telit Communications PLC
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2008
Revenue
Cost of sales
Gross profit
Other operating income
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Other operating expenses
2008
Note
€’000
2007
€’000
2
4
5
59,083
(29,987)
52,189
(30,201)
29,096
21,988
1,002
(9,647)
(10,829)
(9,058)
-
2,457
(8,940)
(8,999)
(7,615)
(400)
Operating profit (loss)
10,11
564
(1,509)
Investment income
Finance costs
Share of results of associated undertakings
Gain on deemed partial disposal of subsidiary
Profit (loss) before income taxes
Income taxes
Loss for the year from continuing operations
Loss for the year from discontinued operations
Loss for the year
Attributable to:
Equity shareholders of the parent
Minority interests
Basic loss per share (in euro cents)
From continuing operations
From discontinued operations
Total continuing and discontinued
Diluted loss per share (in euro cents)
From continuing operations
From discontinued operations
Total continuing and discontinued
32
6
7
16
8
9
12
13
13
192
(1,171)
18
1,614
277
(1,241)
(2)
1,194
1,217
(1,281)
(2,586)
(597)
(1,369)
(1,878)
(1,864)
(5,180)
(3,233)
(7,058)
(3,052)
(181)
(3,233)
(7,027)
(31)
(7,058)
(2.7)
(4.3)
(7.0)
(2.7)
(4.3)
(7.0)
(4.3)
(12.0)
(16.3)
(4.3)
(12.0)
(16.3)
Telit Communications PLC
BALANCE SHEETS
At 31 December 2008
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments in associated undertakings
Other investments
Investments in subsidiaries
Other long term assets
Deferred tax asset
Assets included in disposal group held for sale
Current assets
Inventories
Trade receivables
Other current assets
Deposits - restricted cash
Cash and cash equivalents
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders’ equity
Share capital
Other reserve
Share premium account
Translation reserve
Retained earnings
Total shareholders’ equity
Minority interests
Total equity
Non-current liabilities
Other loans
Post-employment benefits
Deferred tax liabilities
Provisions
Other long-term liabilities
Liabilities included in disposal group held for sale
Current liabilities
Short-term borrowings from banks and other lenders
Trade payables
Provisions
Other current liabilities
Total equity and liabilities
Group
Company
2008
2007
2008
2007
Note
€’000
€’000
€’000
€’000
14
15
16
17
18
20
9
12
19
20
20
22
22
23
31
24
9
28
29
12
25
25
28
25
9,883
3,779
629
1,570
-
3,437
548
19,846
9,050
2,612
568
1,570
-
310
3,130
17,240
-
4
579
-
27,392
-
-
27,975
-
-
579
-
29,637
-
-
30,216
-
8,162
-
-
10,750
14,575
4,799
6,000
4,619
40,743
60,589
8,212
16,591
5,079
6,132
5,212
41,226
66,628
644
(260)
30,188
(3,464)
(15,143)
11,965
77
12,042
627
(260)
29,651
(1,734)
(12,512)
15,772
605
16,377
3,531
1,807
245
748
119
6,450
-
19,026
11,140
142
11,789
42,097
60,589
500
1,555
329
81
4,430
6,895
6,433
17,336
13,498
63
6,026
36,923
66,628
-
247
845
6,000
633
7,725
35,700
644
5,894
30,188
-
(2,498)
34,228
-
34,228
-
-
-
-
-
-
-
-
71
692
6,132
2,402
9,297
39,513
627
5,894
29,651
-
(1,488)
34,684
-
34,684
500
-
-
-
-
500
-
500
74
-
898
1,472
35,700
-
-
-
4,329
4,329
39,513
The financial statements on pages 32 to 92 were approved by the board and authorized for issue on 29 May 2009 and are
signed on its behalf by: Oozi Cats, Director
33
Telit Communications PLC
CASH-FLOW STATEMENTS
For the year ended 31 December 2008
CASH FLOWS - OPERATING ACTIVITIES
Net cash used in continuing operations
(Note 32)
Net cash used in discontinued operations (Note 12)
Net cash used in operating activities
CASH FLOWS - INVESTING ACTIVITIES
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Proceeds from grant contribution
Acquisition of subsidiaries (Group: net of cash acquired)
Loan to subsidiary
Net proceeds from issuance of share capital in a
subsidiary to third party
Decrease in restricted cash deposits
Net cash from / (used in) continuing operations
Net cash used in discontinued operations (Note 12)
Net cash from / (used in) investing activities
CASH FLOWS - FINANCING ACTIVITIES
Short-term borrowings from banks and others
Preferential rate loan (note 31)
Repayment of other loans
Net cash from continuing operations
Net cash from discontinued operations (Note 12)
Net cash from financing activities
Group
Company
2008
2007
2008
2007
€’000
€’000
€’000
€’000
(6,735)
(1,441)
(8,176)(cid:670)
(1,540)
(2,239)
(3,779)
(1,592)
-
(1,592)
(1,435)
-
(1,435)
(1,732)
46
(4,888)
2,606
(15)
-
7,000
-
3,017
-
3,017
757
3,909
-
4,666
-
4,666
(1,251)
-
(3,733)
-
-
-
7,604
1,000
3,620
(741)
2,879
3,000
-
(1,500)
1,500
1,167
2,667
(4)
(23)
(150)
-
-
(177)
-
(177)
-
-
-
(39)
-
1,000
961
-
961
-
-
-
-
-
-
3,000
-
(1,500)
1,500
-
1,500
(Decrease)/ increase in cash and cash equivalents
Cash and cash equivalents - balance at beginning of
year
Effect of exchange rate differences
(493)
1,767
(1,769)
1,026
5,212
(100)
3,926
(439)
2,402
-
1,376
-
Cash and cash equivalents - balance at end of year
4,619
5,254
633
2,402
Consisting of:
Cash and cash equivalents from continuing operations
Cash and cash equivalents from discontinued operations
Supplemental disclosure of cash flow information
(included in cash flow from operating activities):
Interest paid
Interest received
Income taxes paid
4,619
-
4,619
5,212
42
5,254
988
177
92
934
243
139
633
-
633
-
139
-
2,402
-
2,402
-
128
-
34
Telit Communications PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2008
Year ended 31 December 2008
Share
capital
€’000
Share
premium
account
€’000
Other
reserve
€’000
Translation
adjustment
€’000
Retained
earnings
€’000
Total
€’000
Minority
interest
€’000
Total
€’000
1 January 2008
627 29,651
(260)
(1,734)
(12,512)
15,772
605
16,377
Issuance of shares
Arising on deemed
disposal -minority
in Telit Wireless
Solutions Srl
Translation
adjustments
Share-based
payment charge
Loss for the year
31 December 2008
17
537
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,730)
-
-
-
554
-
554
-
(188)
(188)
(1,730)
(174)
(1,904)
-
-
421
(3,052)
421
(3,052)
15
(181)
436
(3,233)
644 30,188
(260)
(3,464)
(15,143)
11,965
77
12,042
Year ended 31 December 2007
Share
capital
€’000
Share
premium
account
€’000
Other
reserve
€’000
Translation
adjustment
€’000
Retained
earnings
€’000
Total
€’000
Minority
interest
€’000
Total
€’000
1 January 2007
627 29,651
(260)
(584)
(6,486)
22,948
796
23,744
Reduction in
minority interest in
Telit APAC
Arising on deemed
disposal -minority
in Telit Wireless
Solutions Srl
Translation
adjustments
Repurchase of share
options
Share-based
payment charge
Loss for the year
31 December 2007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,150)
-
-
-
-
-
-
-
(318)
(318)
-
275
275
(1,150)
(129)
(1,279)
(29)
(29)
-
(29)
1,030
(7,027)
1,030
(7,027)
12
(31)
1,042
(7,058)
627 29,651
(260)
(1,734)
(12,512)
15,772
605
16,377
35
Telit Communications PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2008
Year ended 31 December 2008
Share
capital
€’000
Share
premium
account
€’000
Other
reserve
€’000
Retained
earnings
€’000
Total
€’000
1 January 2008
627
29,651
5,894
(1,488)
34,684
Issuance of shares
17
537
-
-
-
554
(1,010)
(1,010)
644
30,188
5,894
(2,498)
34,228
Loss for the year
31 December 2008
Year ended 31 December 2007
Share
capital
€’000
Share
premium
account
€’000
Other
reserve
€’000
Retained
earnings
€’000
Total
€’000
1 January 2007
627
29,651
5,894
(318)
35,854
Loss for the year
-
-
-
(1,170)
(1,170)
31 December 2007
627
29,651
5,894
(1,488)
34,684
The other reserve arose on the issue of 1,790,785 shares to Polar Investments Ltd. (“Polar”) in
consideration for the transfer to the Company of Polar’s investment in Dai Telecom Holdings
(2000) Ltd. and Dai Telecom Ltd. ("Dai Telecom"), the assets and liabilities of which were
recorded at their previous carrying value.
36
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
1.
ACCOUNTING POLICIES
(a) General information
The consolidated financial statements for the years ended 31 December 2008 and 31 December 2007
have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union and in accordance with the provisions of the Companies Act 1985 applicable to
companies reporting under IFRS and Article 4 of the EU IAS Regulation.
Telit Communications PLC ("the Company") is a public limited company registered in England and
Wales. The registered office is given on page 93. The nature of the Group’s operations and its principal
activities are set out in note 3 and in the Chief Executive's statement and review on pages 8 to 17.
The financial statements have been prepared on the historical cost basis, except for the revaluation of
certain assets and liabilities which are measured at fair value and in accordance with Companies Act
1985 and applicable IFRSs. The principal accounting policies adopted are set out below.
(b) Basis of preparation - Going Concern
The Group’s business activities, together with the factors likely to affect its future development,
performance and position are set out in the Business Review on pages 12 to 15. The financial position of
the Group, its cash flows, liquidity position and borrowing facilities are described in the Chief Executive
Officer’s Review on pages 10 to 11. In addition notes 7, 20, 29, 31 and 33 to the financial statements
include the Group’s objectives, policies and processes for managing its capital; its financial risk
management objectives; details of its financial instruments and hedging activities; and its exposures to
credit risk
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 is provided within note 31. 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 utilizing 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 after taxation
for the year from continuing operations, that the Group has net current liabilities, of the general economic
environment and impact on specific markets supplied, reasonably possible changes in trading
performance, the Group's history of successfully renewing its facilities in the past and the fact that there
are actions available to the Group to address these risks, show that the Group should be able to operate
within the level of its current facilities. The Group has held discussions with its bankers about its future
borrowing needs and the process and timing of renewal negotiations in respect of its facilities, and will
open formal renewal negotiations in due course. The Group has at this stage not sought any written
commitment that the facilities will be renewed, but 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 financial statements.
37
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(c)
Functional and presentational currency
The consolidated financial statements are presented in Euros as this is the primary economic
environment of the Group, which differs from the functional currency of those subsidiaries that are not
located in the Euro zone.
The assets and liabilities of the Company’s subsidiaries that have a functional currency other than the
Euro are translated at the closing exchange rates prevailing on the balance sheet date. Income and
expense items and cash flows are translated at the average exchange rates for the period. Exchange rate
differences arising, from the translation of the above mentioned items, are recorded directly to the
shareholders’ equity as a separate component called "translation adjustment". Goodwill and intangible
assets arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity.
In preparing the financial statements of the individual companies, transactions in currencies other than
the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
(d) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made up to 31 December, each year. Control is achieved
where the Company has the power to govern the financial and operating policies of an investee entity so
as to obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the consolidated income statement
from the effective date of acquisition.
All intra-group transactions and balances between the Group’s companies are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group’s
equity therein. Minority interests consist of the amount of those interests at the date of the original
business combination and the minority’s share of changes in equity since the date of the combination.
Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are
allocated against the interests of the Group except to the extent that the minority has a binding obligation
and is able to make an additional investment to cover the losses.
(e) Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is
measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred
or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any
costs directly attributable to the business combination. The acquiree’s identifiable assets and liabilities
that meet the conditions for recognition under IFRS 3 Business Combinations are recognized at their fair
values at the acquisition date.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess
of the cost of the business combination over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities recognized.
The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of
the net fair value of the assets, liabilities and contingent liabilities recognized.
38
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(e) Business combinations (continued)
For increases in stake in existing subsidiaries, the Company accounts for such transactions based on the
book values of the net assets of the subsidiary at the date of the injection. Where the cost of acquisition is
less than the net book value of the recognized net assets of the acquiree, the excess, representing
negative goodwill, is recognized immediately in profit or loss.
(f) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short term deposits with maturity of
three months or less that are readily convertible to cash and are subject to an insignificant risk of changes
in value.
(g) Trade receivables
Trade receivables classified as current assets are recognized and carried at original invoice amount,
which the Directors consider to be equal to fair value. Approximate allowances for estimated
uncollectible amounts are recognized in profit or loss when there is objective evidence that the asset is
impaired.
Trade receivables classified as non-current assets are recognized at the original invoice amount,
discounted to present value where the effect is material.
(h)
Inventories
Commercial finished goods are presented at the lower of cost or net realisable value, with cost
determined on a "first-in, first-out" method.
Produced finished goods are stated at the lower of cost or net realizable value. Cost comprises direct
materials and, where applicable, direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition. Cost is calculated using the weighted
average method. Net realizable value represents the estimated selling price less all estimated costs of
completion and costs to be incurred in marketing, selling and distribution.
Raw materials are presented at the lower of cost or net realisable value, with cost calculated using the
weighted average method.
(i)
Investments
Investments in associated undertakings
An associate is an entity over which the Group is in a position to exercise significant influence, but not
control, through participation in the financial and operating policy decisions of the associate.
The results, and assets and liabilities of the associate are incorporated in the financial statements using
the equity method of accounting. The investment in the associate is carried in the balance sheet at cost as
adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any
impairment in the value of individual investments. Losses of the associate in excess of the Group’s
interest in those associates are not recognized.
Any excess of the cost of acquisition over the Group’s share of the fair value of the identifiable net assets
of the associate at the date of acquisition is recognized as goodwill.
Company - Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
39
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(j)
Impairment of investments in associated undertakings
The Company considers at each balance sheet date whether there are any indications of impairment in
the value of its investment in associated undertakings. If the book value of an investment in a non-
subsidiary investee exceeds its recoverable value, the Company recognizes an impairment loss.
(k) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognized
impairment loss.
Depreciation is charged so as to write off the cost over the estimated useful life of the assets, using the
straight-line method.
Depreciation rates are as follows:
Office furniture and equipment
Computers and software
Vehicles
Leasehold improvements
Machines and equipment
%
6-15
33
15
10-14
10-25
The gain or loss arising on the disposal of an asset is determined as the difference between the sale
proceeds and the carrying amount of the asset and is recognized in the income statement.
(l) Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the
Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the
entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any
accumulated impairment losses. Goodwill is held in the currency of the acquired entity and re-valued to
the closing rate at each balance sheet date. Goodwill is not subject to amortisation.
For the purposes of impairment testing, goodwill is allocated to the cash-generating unit to which it
relates. Cash generating units to which goodwill has been allocated are tested for impairment annually,
or more frequently when there is an indication that the unit may be impaired. If the recoverable amount
of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the
unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised
for goodwill is not reversed in a subsequent period.
On full or partial disposal of a subsidiary, the attributable amount of goodwill is included in the
determination of the profit or loss recognised in the income statement on disposal.
(m)
Internally developed intangible assets - development costs
The cost of research activities is recognised as an expense in the period in which it is incurred. An
internally generated intangible asset arising from the Group's expenditure on development is recognised
only if all of the following conditions are met:
(cid:120)
(cid:120)
(cid:120)
an asset is created that can be identified (such as hardware, software or a new processes);
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.
40
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(m)
Internally developed intangible assets - development costs (continued)
Internally generated intangible assets are amortised on a straight-line basis over their useful lives,
typically 5 years, from the date at which such assets are available for use. Where the internally generated
intangible asset is not yet available for use, it is tested for impairment annually by comparing its carrying
amount with its recoverable amount.
Where no internally-generated intangible asset can be recognised, development costs are recognised as
an expense in the period in which they are incurred.
(n) Other intangible assets
Other intangible assets with finite lives are stated at cost less accumulated amortisation and impairment
losses. Amortisation is charged to the income statement on a straight-line basis over the estimated useful
lives of intangible assets from the date they are available for use.
Amortisation rates are as follows:
Software and license
Customer relationships
Acquired technology
%
15-33
15
20-40
(o)
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss. Where the asset does not generate cash flows that are independent from other assets,
the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is
recognized as an expense immediately.
(p)
Income taxes
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as
reported in the income statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.
41
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(p)
Income taxes (continued)
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax
liabilities are generally recognized for all taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary
difference arises from the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of
the assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it
relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in
equity.
(q) Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
(r) Retirement benefit costs
For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the
Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date,
except where future service by current employees no longer qualifies for benefits in which case a
Traditional Unit Credit Method is applied. Actuarial gains and losses are recognized in full in the income
statement in the period in which they occur. Gains or losses on the curtailment of a defined benefit plan
are recognized in the income statement when the curtailment or settlement occurs.
The retirement benefit obligation recognized in the balance sheet represents the present value of the
defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value
of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present
value of available refunds and reductions in future contributions to the plan.
The values attributed to plan liabilities that are material to the financial statements are assessed in
accordance with the advice of independent qualified actuaries.
(s) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for goods and services provided in the normal course of business, net of discounts, VAT and
other sales related taxes.
Sales of goods are recognized when goods are delivered and title has passed.
Revenues from services are recognized as the services are provided.
Royalty income is recognized in accordance with the terms of the relevant royalty agreement unless,
there has been an assignment of rights for a fixed fee or non-refundable guarantee under a
non-cancellable contract which permits the licensee to exploit such rights freely and the Company has no
remaining obligations to perform; in such circumstances, revenue is recognized when collection of the
fee is reasonably assured.
42
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(t)
Leases
Rentals payable under operating leases are charged to statement of income on a straight-line basis over
the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight line basis over the lease term.
(u) Borrowing costs
Borrowing costs are recognized in profit or loss in the period in which they are incurred. Finance
charges, including any premiums to be paid on settlement or redemption and direct issue costs and
discounts relating to borrowings, are accounted for on an accruals basis and charged to the income
statement using the effective interest method.
(v) Government grants
Government grants are recognized when it is reasonable to expect that the grants will be received and
that all related conditions will be met.
Government grants received in respect of costs which have been capitalized as development costs are
deducted from the carrying amount of the asset.
Government grants relating to income are recognized in other operating income over the periods
necessary to match them with the related cost.
(w) Non-current assets held for sale
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying
amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be
recovered through the sale transaction rather than through continued use. This condition is regarded as
met only when the sale is highly probable and the asset (or disposal group) is available for immediate
sale in its present condition and the Company is committed to the sale which is expected to qualify for
recognition as a completed sale within one year from the date of classification.
(x) Financial instruments
Financial assets and financial liabilities are recognized on the Group's balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets
Financial assets are initially recorded at fair value, net of transaction costs. Subsequent to initial
recognition, investments in subsidiaries are measured at cost. Subsequent to initial recognition,
investments in associates are accounted for under the equity method in the consolidated financial
statements and the cost method in the company financial statements. The Group classifies its other
financial assets as either available for sale financial assets or loans and receivables; no financial assets at
fair value through profit or loss are held, except for derivative financial instruments, which are set out
below. The classification depends on the nature and purpose of the financial assets and is determined at
the time of initial recognition.
43
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(x) Financial instruments (continued)
Available for sale financial assets
Certain shares held by the Group are classified as being available-for-sale since they are not held for
trading, have not been designated as at fair value through profit or loss and do not meet the accounting
requirements for classification as loans and receivables or held-to-maturity investments. Such assets are
stated at fair value or, where there is insufficient information to reliably determine fair value at the
measurement date, at deemed cost, less impairment. The determination of fair values is described in note
17. Gains and losses arising from changes in fair value are recognized directly in reserves. Where the
investment is disposed of or is determined to be impaired, the cumulative gain or loss previously
recognized in reserves is included in profit or loss for the period.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not
quoted in an active market are classified as “loans and receivables”. Loans and receivables are measured
at amortized cost using the effective interest method less impairment.
Interest is recognized by applying the effective rate, except for short-term receivables when the
recognition of interest would be immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are
impaired where there is objective evidence that, as a result of one or more events that occurred after the
initial recognition of the financial asset, the estimated future cash flows of the investment have been
impacted.
Objective evidence of impairment could include:
(cid:120)
(cid:120)
(cid:120)
significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organization.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be
impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence
of impairment for a portfolio of receivables could include the Group’s past experience of collecting
payments, an increase in the number of delayed payments in the portfolio past the average credit period
of 60 days, as well as observable changes in national or local economic conditions that correlate with
default on receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables, where the carrying amount is reduced through the use of
an allowance account. When a trade receivable is considered uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the allowance account are recognized in profit or
loss.
With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the previously recognized impairment loss is reversed through profit or loss
to the extent that the carrying amount of the investment at the date the impairment is reversed does not
exceed what the amortized cost would have been had the impairment not been recognized.
44
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(x) Financial instruments (continued)
In respect of available for sale equity securities, impairment losses previously recognized through profit
or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment
loss is recognized directly in equity.
De-recognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows from the
asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of
the asset to another entity. If the Group neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred asset, the Group recognizes its retained
interest in the asset and an associated liability for amounts it may have to pay. If the Group retains
substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues
to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
agreements.
An equity instrument is any contract that evidences a residual interest in the assets of the group after
deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
All the Group’s financial liabilities are classified as other financial liabilities. It holds no financial
liabilities ‘at fair value through profit or loss’, except for derivative financial instruments, which are set
out below.
Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs and are subsequently
measured at amortized cost using the effective interest method, with interest expense recognized on an
effective yield basis.
The effective interest method is a method of calculating the amortized cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the financial liability, or, where
appropriate, a shorter period.
De-recognition of financial liabilities
The Group de-recognizes financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or they expire.
Derivative financial instruments
The Group has entered into an interest rate swap to manage its exposure to interest rate risk. Further
details of derivative financial instruments are disclosed in note 29 to the financial statements.
Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are
subsequently re-measured to their fair value at each balance sheet date. A derivative with a positive fair
value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a
financial liability. The resulting gain or loss is recognized in profit or loss immediately as the Group has
not designated the derivative as a hedging instrument.
45
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(x) Financial instruments (continued)
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the
instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Other
derivatives are presented as current assets or current liabilities.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate
derivatives when their risks and characteristics are not closely related to those of the host contracts and
the host contracts are not measured at fair value through profit or loss.
(y) Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payment. In accordance with the
transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November
2002 that were unvested as of 1 January 2005.
The Group issues equity-settled share-based payments to certain employees and directors. Equity-settled
share-based payments are measured at fair value at the date of grant. The fair value determined at the
grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group's estimate of shares that will eventually vest.
Fair value is measured using the Black-Scholes model. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of non-transferability, exercise
restrictions, and behavioral considerations.
Where the Group has settled a grant of equity instruments during the vesting period, the Group accounts
for the settlement as an acceleration of vesting, and recognizes immediately in the income statement the
amount that otherwise would have been recognized for services received over the remainder of the
vesting period. Payments made to the employee on settlement of the grant are accounted for as the
repurchase of equity interest and deducted from equity, except to the extent that the payment exceeds the
fair value of the equity instruments granted, measured at the repurchase date. Any such excess is
recognized as an expense in the income statement.
(z)
Loss per share
Basic and diluted loss per share is computed on the basis of the weighted average of paid up capital
shares during the year in accordance with IAS 33 (Revised) Earnings per share.
(aa) Provisions
A provision for warranty costs is recognized at the date of sale of the relevant products, at the best
estimate of the expenditure required to settle the Group's liability.
(ab) Critical accounting judgments and key sources of estimation uncertainty
Critical accounting judgments
In the process of applying the Group’s accounting policies, management consider the following
judgments, apart from those involving estimates on future uncertain events, which are discussed further
below, to have the most significant effect on the amounts recognized in the financial statements.
46
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(ab) Critical accounting judgments and key sources of estimation uncertainty (continued)
Grant income
Income relating to government grants is recognized when there is reasonable assurance that the
Company has complied with the conditions attaching to it and the grant will be received. Management is
required to exercise judgment in determining when compliance with the terms of the grant and receipt of
the grant are probable. The amount of grant income recognized in the income statement for the year
ended 31 December 2008 was €1,002,000 (2007: €2,139,000). As at 31 December 2008 an amount of
€2,908,000 (2007: €3,143,000) is recorded in other current assets. The amount of grant income offset
against capitalized intangible assets for the year ended 31 December 2008 was €2,606,000 (2007: €nil).
Allocating fair values in a business combination
Acquisitions of shares in subsidiaries are accounted for using the purchase method whereby their
aggregate consideration is allocated to the fair value of the assets acquired and liabilities assumed based
on management’s best estimates. Management is required to exercise judgment in the determination of
the fair value of identified assets and liabilities, and particularly intangible assets.
As at 31 December 2008, the carrying value of intangible assets other than the goodwill acquired in
business combinations was €842,000 (2007: €1,162,000). For applicable amortization rates, see note 1(n)
above.
Investments in unlisted entity
The Group holds equity instruments in an unlisted entity for which no active market exists and hence
which do not have a quoted market price. These are accounted for as available-for-sale investments by
the Group, requiring them to be measured at fair value at inception and at each balance sheet date, unless
such fair values cannot be reliably determined at the measurement date, in which case they are recorded
at deemed cost less any impairment.
Determination of fair value requires the use of valuation techniques which make use of certain
assumptions including historic and forecast revenues and earnings, debt levels, multiples observed for
comparator companies and discounts to such multiples to take account of factors such as illiquidity. As
at 31 December 2008, the Group is not able to make such a determination on the basis of reliable
assumptions in respect of its available for sale investment. The determination of the fair value of
available for sale investment would impact the amount recorded on the balance sheet. Changes in these
assumptions would impact on the amount recorded in the balance sheet. As at 31 December 2008, the
total value of such investments was €1,570,000.
Share-based payments
The Group has granted equity-settled share-based payments to certain directors and employees. Such
options are required to be fair valued in accordance with the requirements of IFRS 2 Share-based
payment. Determination of fair value requires the exercise of judgment regarding the applicable
assumptions to be used as inputs into the fair value model, including the expected volatility, risk-free rate
and expected option life. Changes in these assumptions would affect the fair value of options and hence
the amount recorded in the income statement. For the year ended 31 December 2008, the total amount
recorded in the income statement for continuing operations was €414,000 (31 December 2007:
€859,000).
47
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(ab) Critical accounting judgments and key sources of estimation uncertainty (continued)
Accounting for transactions with Bartolini After Market Electronic Services Srl (“BAMES”)
As disclosed further in note 8, on 20 June 2007, the Group entered into a series of related transactions
with BAMES in which BAMES subscribed for 5.625 per cent of the share capital of Telit Wireless
Solutions Srl for €9.0 million, and the Group acquired a 19.9 per cent interest in BAMES’s subsidiary,
Services for Electronic Manufacturing Srl (“SEM”) for €1. Additionally, the Group entered into a
manufacturing agreement for the manufacture by SEM of machine-to-machine modules, with certain
exceptions, for a period of at least five years, together with minimum purchase quantities. In December
2008, BAMES subscribed for an additional 4.375 per cent of the share capital of Telit Wireless Solutions
Srl for €7.0 million, thus completing the agreed investment and increasing BAMES' holdings to a total of
10 per cent of the share capital of Telit Wireless Solutions Srl.
Accounting for these transactions has required the Group to determine the fair value of the acquired
interest in SEM and the fair value of the interest in Telit Wireless Solutions Srl disposed, in order to
determine the gain on deemed disposal of the interest in Telit Wireless Solutions Srl after attributable
costs. The Group has recognized the premium received in excess of the fair value of Telit Wireless
Solutions Srl given up as deferred income, representing the premium received for minimum purchase
commitments given by the Group. This is being amortized to the income statement within cost of sales
in accordance with the minimum purchase commitments made by the Group. The total amount
amortized to the income statement for the year ended 31 December 2008 was €5,134,000 (2007:
€466,000). At 31 December 2008, the total deferred income recorded in the balance sheet from this
transaction was €7,667,000 (31 December 2007: €7,227,000), which includes an additional premium
arising in December 2008 on completion of the additional 4.375 per cent subscription in Telit Wireless
Solutions Srl.
Accounting for transactions with Services for Electronic Manufacturing Srl (“SEM”)
As disclosed further in note 2, in 2008 the Group entered into a transaction with SEM in which SEM:
(cid:120)
(cid:120)
purchased from the Group a perpetual worldwide license for the "Telit" nominative trade
name and the “Telit by SEM Wimax” trade name and trademark to use within the “Telit
by SEM WiMax” tradename and trademark in the worldwide marketing and sale of base
stations (“BTS”) and customer premises equipment (“CPE”) for commercial networks
running the WiMax technology; and
agreed a price reduction in respect of the Group’s purchases made to 30 September 2009
under the manufacturing agreement with SEM.
The consideration receivable by the Group in respect of these agreements is €3,500,000 payable in three
instalments from March 2010 to March 2012 (€3.1 million net present value). In addition, the credit
terms made available to the Group by SEM have been extended with effect from 1 November 2008. A
further price reduction has been agreed starting from 1 October 2009.
Accounting for this transaction has required the Group to estimate the fair value of the components of
the transaction. The fair values allocated have been determined at present value to reflect the time value
of money. The fair value allocated to the license is €1,500,000, which has been determined by reference
to a comparable transaction entered into by the Group in 2007. The Group has recognized €0.9 million in
respect of the price reduction for 2008 with a further €0.7 million to be recognized in 2009.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the
balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year, are discussed below.
48
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(ab) Critical accounting judgments and key sources of estimation uncertainty (continued)
Recoverability of deferred tax assets
Under IFRS, a deferred tax asset arising on trading losses or deductible temporary differences is only
recognized where it is probable that future taxable profits will be available to utilize the losses. The key
judgments in assessing the recognition of a deferred tax asset are:
(cid:120)
(cid:120)
the probability of taxable profits being available in the future; and
the quantum of taxable profits that are forecast to arise.
This requires management to exercise judgment in forecasting future results. There are a number of
assumptions and estimates involved in estimating the future results of the relevant entity in which the
trading losses arose, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
management’s expectations of growth in revenue;
changes in operating margins;
uncertainty of future technological developments; and
uncertainty over global and regional economic conditions and demand for the Group’s services.
Changing the assumptions selected by management could significantly affect the Group’s results.
As at 31 December 2008,
(2007: €3,130,000). See note 9 for further information.
the Group had recognized a deferred
tax asset of €548,000
Recoverability of internally developed intangible assets
Capitalization of development costs requires the exercise of management judgment in determining
whether it is probable that future economic benefits to the Company arising will exceed the amount
capitalized. This requires management to estimate anticipated revenues and profits from the related
products to which such development costs relate. As at 31 December 2008, the amount of development
costs capitalized (net of amortization) included in the Group balance sheet was €4,356,000 (2007:
€2,917,000).
Recoverability of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-
generating units to which goodwill has been allocated. The value in use calculation requires the Group to
estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate
in order to calculate present value.
There are a number of assumptions and estimates involved in calculating the net present value of future
cash flows from the Group’s cash-generating units, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
management’s expectations of growth in revenue;
changes in operating margins;
uncertainty of future technological developments;
uncertainty over global and regional economic conditions and demand for the Group’s products;
long-term growth rates; and
selection of discount rates to reflect the risks involved.
49
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(ab) Critical accounting judgments and key sources of estimation uncertainty (continued)
Changing the assumptions selected by management, in particular the discount rate and growth rate
assumptions used in the cash flow projections could significantly affect the Group’s results. As at 31
December 2008, the amount of goodwill included in the consolidated balance sheet was €2,301,000
(2007: €2,655,000).
Recoverability of investments in associated undertaking
Asset recoverability is an area involving management judgment, requiring assessment as to whether the
carrying value of assets can be supported by the net present value of future cash flows derived from such
assets using cash flow projections which have been discounted at an appropriate rate. In calculating the
net present value of the future cash flows, certain assumptions are required to be made in respect of
highly uncertain matters, as noted below.
IFRS requires management to test for impairment if events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Group management currently undertakes an annual
impairment test for investments in associated undertakings at least annually to consider whether a full
impairment review is required.
If the book value of an investment in a non-subsidiary investee exceeds its recoverable value, the
Company recognizes an impairment loss. As at 31 December 2008, the book value of the investment in
associated undertakings was €629,000 (2007: €568,000).
Recoverability of investments in unlisted entity
The Group’s balance sheet includes an investment in unlisted securities which is carried at deemed cost
of €1,570,000. The Directors have undertaken an evaluation of whether there are any indicators of
impairment associated with this investment. In doing so, the Directors have considered observable data
about the investee and the outlook for the market in which it operates. This requires the Directors to form
an assessment of the expected future economic benefit that may be realized from its investment holding,
either through disposal or dividend income.
Provisions
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 judgment 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.
(ac) Adoption of new and revised standards
Two new interpretations issued by the International Financial Reporting Interpretations Committee are
effective for the current period. These are: IFRIC11, IFRS2 - Group and treasury share transactions and
IFRIC 14 ‘IAS19 - The limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction. The adoption of these interpretations has not led to any changes in the Group’s accounting
policies.
50
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
(ad) New standards and interpretations not yet applied
During the year, the IASB and IFRIC have issued a number of new standards, interpretations and
amendments to existing standards which will be effective for the Group in future accounting periods,
including:
IAS 1 (Revised 2007) Presentation of financial statements
Borrowing Costs
IAS 23 (Revised)
Business Combinations
IFRS 3 (Revised)
Operating segments
IFRS 8
IAS 27 (Revised 2008) Consolidated and separate financial statements
IFRIC 12
IFRIC 13
IFRIC 15
IFRIC 16
IFRIC 17
IFRIC 18
Improvements to IFRS
Service Concession Arrangements
Customer Loyalty Programmes
Agreements for the Construction of Real Estate
Hedges of a Net Investment in a Foreign Operation
Distributions of Non-cash Assets to Owners
Transfers of Assets from Customers
The directors anticipate that the adoption of these Standards and Interpretations in future periods will
have no material impact on the financial statements of the Group except for the inclusion of additional
disclosures when IFRS 8 comes into effect from 1 January 2009 and, as a result of the amendment to
IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance” as part of the
Improvements to IFRS project, which will require loans received from a government at below market
rates of interest to be recognized in accordance with the measurement principles of IAS 39 “Financial
Instruments: Recognition and Measurement” for loans received after 1 January 2009.
51
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
2.
REVENUE
Sales of goods
Royalties
Revenue
Investment income
Continuing operations
Discontinued operations
Group
2008
€’000
2007
€’000
57,426
1,657
59,083
192
59,275
1,288
60,563
49,842
2,347
52,189
277
52,466
23,331
75,797
In December 2008 Telit entered into a perpetual license agreement with SEM, granting SEM the right to
use the Telit trade name, within the “Telit by SEM WiMax” trade name and trademark, in the worldwide
marketing and sale of Base Stations (BTS) and Customer Premises Equipment (CPE) for communication
networks running the WiMax technology and agreed a price reduction in respect of the Group’s purchases
made to 30 September 2009 under the existing manufacturing agreement with SEM. The consideration of
€3.5 million is payable in three installments between 2010-2012. Of this amount, €1.5 million were
recognized as royalties and recorded in the income statement as revenue. This transaction is discussed
further in note 1(ab).
In November 2007 Telit entered into a lifetime license agreement with the Italian company Bardi, granting
Bardi the right to use the Telit trade-name in the marketing and sale in Europe of cellular phones and
accessories and other electronic equipment excluding, specifically, the m2m arena, for consideration of
€1.5 million. These royalties were recorded in the income statement as revenue.
3.
SEGMENTAL ANALYSIS
The Group was previously organized into two operating divisions, Wireless Solutions and Wireless
Products, the principal activities of which were as follows:
- Wireless Solutions business unit (“TWS”) - designs, develops, manufactures and sells cellular
GSM/GPRS/CDMA/UMTS modules and solutions mainly to the machine-to-machine (m2m) application
markets. The division also earns royalty income from the licensing of the Telit trade-name to the TWP
division (prior to its discontinuance) and to third parties.
- Wireless Products business unit (“TWP”) - distributes third party cellular handsets and accessories in
European and Israel markets, including the products of Far East manufacturers, and provides the
aftermarket activities for all devices sold by it.
As reported in note 12, on 17 May 2007 Telit’s board of directors resolved to sell TWP and to focus solely
on the Wireless Solutions division. During the second half of 2007 Telit sold its Italian TWP business to a
third party, thus marking the final disposal of Telit's European TWP business. During the first half of 2008,
following the termination of the proposed transaction to sell the Israeli TWP business, Telit converted this
division into a wireless solutions centre as an integral part of its ongoing wireless solutions business and
abandoned its TWP activity.
Segmental information for each geographical region in which Telit operates is presented below.
52
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
3.
SEGMENTAL ANALYSIS (continued)
2008
Revenue
External sales
Inter-segment
sales (1)
Total revenue
EMEA APAC AMERICAS
€’000
€’000
€’000
ISRAEL
€’000
operations Eliminations Consolidated
€’000
€’000
€’000
Discontinued
29,035
9,553
5,277
16,506
(1,288)
-
59,083
10,662
39,697
5,109
14,662
-
5,277
-
16,506
-
(1,288)
(15,771)
(15,771)
-
59,083
(240)
5,834
Result
Segment result
Unallocated corporate expenses (2)
Operating profit
Investment income
Finance costs
Share of results of associated undertakings (4)
Gain on deemed partial disposal of subsidiary
Profit before income taxes
Income taxes
Loss for the year from discontinued operations
(2,531)
(1,563)
1,850
-
3,350
(2,786)
564
192
(1,171)
18
1,614
1,217
(2,586)
(1,864)
(3,233)
Discontinued
EMEA APAC AMERICAS
€’000
€’000
€’000
ISRAEL
€’000
operations Eliminations Consolidated
€’000
€’000
€’000
47,016
13,714
1,676
13,114
(23,331)
-
52,189
3,285
50,301
13,714
-
1,676
-
13,114
-
(23,331)
(3,285)
(3,285)
-
52,189
Loss for the year
2007
Revenue
External sales
Inter-segment
sales (1)
Total revenue
(576)
Result
Segment result
Unallocated corporate expenses (2)
Operating loss
Investment income
Finance costs
Share of results of associated undertakings (4)
Gain on deemed partial disposal of subsidiary
Loss before income taxes
Income taxes
Loss for the year from discontinued operations
Loss for the year
(2,296)
(901)
4,480
-
852
(2,361)
(1,509)
277
(1,241)
(2)
1,194
(1,281)
(597)
(5,180)
(7,058)
(1) Transactions between geographic segments are charged at prices based upon intragroup transfer pricing agreements.
(2) Unallocated corporate expenses principally comprise salary, professional fees and other expenses which cannot be
directly allocated to one of the segments.
(3) The segment result for discontinued operations is reported in note 12.
(4) The share of results of associated undertaking arises from activities in Israel.
53
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
3. SEGMENTAL ANALYSIS (continued)
Total assets:
Wireless Products - discontinued operation
EMEA
ISRAEL
APAC
AMERICAS
Fixed asset investments
Investment in associated undertaking
Unallocated assets
Total assets
Total liabilities:
Wireless Products - discontinued operation
EMEA
ISRAEL
APAC
AMERICAS
Unallocated liabilities
Total liabilities
Unallocated assets comprise:
Other long term assets
Deferred tax asset
Other debtors in respect of general entity and head office purposes
Deposits - restricted cash
Cash and cash equivalents
Unallocated assets
Unallocated liabilities comprise:
Other loans
Short-term borrowings from banks and other lenders
Other current liabilities in respect of general entity and head office
purposes
Other long term liabilities
Deferred tax liabilities
Unallocated liabilities
54
2008
€’000
-
27,906
6,300
8,240
3,293
1,570
629
12,651
60,589
-
21,016
2,639
909
475
23,508
48,547
2008
€’000
337
548
1,147
6,000
4,619
12,651
2008
€’000
3,531
19,026
587
119
245
23,508
2007
€’000
8,162
27,428
-
10,601
1,580
1,570
568
16,719
66,628
6,433
22,729
-
1,033
85
19,971
50,251
2007
€’000
310
3,130
1,935
6,132
5,212
16,719
2007
€’000
500
17,336
1,806
-
329
19,971
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
3.
SEGMENTAL ANALYSIS (continued)
2008
Other segment items:
Capitalized tangible and
intangible asset additions
Non-cash items:
Depreciation and
amortization
Bad debt expense
Share-based payments
EMEA APAC
€’000
€’000
AMERICAS
€’000
ISRAEL
€’000
Discontinued
operations Consolidated
€’000
€’000
5,022
1,028
57
513
-
6,620
(1,382)
(629)
688
393
-
17
(61)
79
26
(602)
-
22
-
(2,674)
(688)
(22)
79
436
2007
EMEA APAC
€’000
€’000
AMERICAS
€’000
ISRAEL
€’000
Discontinued
operations Consolidated
€’000
€’000
Other segment items:
Capitalized tangible and
intangible asset additions
Non-cash items:
Depreciation and
amortization
Bad debt expense
Share-based payments
4.
OTHER INCOME
Government grants
Other
4,043
900
41
723
(723)
4,984
1,065
-
893
729
45
14
33
31
15
158
-
154
(158)
-
(154)
1,827
76
922
2008
€’000
1,002
-
1,002
2007
€’000
2,139
318
2,457
The Group’s Italian subsidiary has been declared eligible to receive grants totaling €0.85 million under
annual research and development programs sponsored by the FVG region in Italy.
The Group’s eligibility for the annual programs for 2008 was approved by the relevant grant making
body during the year. The Group only recognizes such income from the regional grant-making body
once it has received confirmation of eligibility and once the qualifying conditions have been satisfied
and the Group is reasonably assured of receipt. The Group has recognized amounts expected to be
received in respect of the grant within other income in the year ended 31 December 2008 as all the
conditions for qualification, which relate to the level of eligible expenditure incurred, have been
satisfied. As at 31 December 2008, the total amount receivable from the grant body was €2,778,800 (31
December 2007 - €3,143,000). Of the total grant income recognized in the year of €1,002,000,
€145,000 relates to a further European program which will run for three years.
€318,000 other income in the year ended 31 December 2007 represents negative goodwill arising
following an increase in the Group’s shareholding of Telit APAC during the year, see note 26.
55
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
5.
OTHER EXPENSES
Other expenses in 2007 relate to professional adviser costs associated with an unsuccessful acquisition
bid. The Company's expenses in connection with this bid process were €400,000 in the year ended 31
December 2007.
6.
INVESTMENT INCOME
Interest income from bank deposits
192
277
7.
FINANCE COSTS
2008
€’000
2007
€’000
Interest expense on factoring arrangements
Interest expense on bank loans and overdrafts
Fair value movement on derivative financial instrument
Exchange rates differences
2008
€’000
370
1,138
119
(456)
1,171
2007
€’000
112
1,012
-
117
1,241
8.
GAIN ON DEEMED PARTIAL DISPOSAL OF SUBSIDIARY UNDERTAKING
The Group’s subsidiary, Telit Wireless Solutions Srl (“TWS”), received in June 2007 a capital injection
of €9.0 million (before costs of €1.4 million) in exchange for new shares issued equal to 5.625% of its
enlarged share capital, with a further capital injection to take place for €7.0 million in December 2008 in
exchange for new shares to be issued equal to 4.375% of the enlarged share capital of TWS. The Group
accounted for this transaction as a deemed disposal. As part of the same transaction, the Group acquired
a 19.9 per cent interest in BAMES’s subsidiary, Services for Electronic Manufacturing Srl (“SEM”) for
€1. As set out in note 17, the fair value of this investment at the date of acquisition was determined to be
€1,570,000. Additionally, the Group entered into a manufacturing agreement for the manufacture by
SEM of machine-to-machine modules, with certain exceptions, for a period of at least five years,
together with minimum purchase quantities.
The gain on deemed disposal was calculated as the difference between the estimated fair value of the
5.625% stake in TWS, net of costs, and the book value as at the date of deemed disposal. Minority
interests of €275,000 were recognized on this transaction.
56
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
8.
GAIN ON DEEMED PARTIAL DISPOSAL OF SUBSIDIARY UNDERTAKING (continued)
In December 2008, TWS received a further capital injection of €7.0 million in exchange for new shares
issued equal to 4.375% of its enlarged share capital. The Group has accounted for this transaction as a
deemed disposal.
Fair value of net assets disposed
Book value of net liabilities disposed to minorities
Gain on deemed partial disposal of subsidiary undertaking
2008
€’000
1,426
188
1,614
TWS holds most of the Group’s investments in its Telit Wireless Solutions division. In estimating the fair
value of net assets disposed, the Directors had regard to the market value of the Telit Communications
PLC group as at the date of the original transaction.
In the year ended 31 December 2007 the Group recognized the net premium received in excess of the fair
value of the stake in TWS given up, amounting to €7,693,000, as deferred income, representing the
premium received for minimum purchase commitments given by the Group. In the year ended 31
December 2008 the Group recognized the net premium received in excess of the fair value of the
additional 4.375% stake in TWS given up, amounting to additional €5,574,000, as deferred income,
representing the premium received for minimum purchase commitments given by the Group. The total net
premium received under the transaction is €13,267,000.
The net premium is being amortized to the income statement within cost of sales in accordance with the
minimum purchase commitments made by the Group. The minimum purchase commitments for 2007 and
2008 were fulfilled and management currently assesses that, given current market conditions and the
expected growth of the Company, the minimum purchase commitment for 2009 is attainable. A total of
€466,000 was recorded in the income statement for the year ended 31 December 2007 and €5,134,000 for
the year ended 31 December 2008. If the minimum purchase commitments were not achieved, BAMES
would have the right to terminate the manufacturing agreement and receive payment from Telit based
upon the impact of the actual level of achieved purchases. Telit would have the right, but not the
obligation, to repurchase from BAMES its entire investment in TWS for €1.
In the event of termination of the manufacturing agreement for any other reason, Telit has the right, but
not the obligation, to repurchase from BAMES its entire investment in TWS for €16.0 million and
BAMES has the right, but not the obligation to repurchase from Telit Italy its entire investment in SEM
for a total of €1. Save for breach of contract, the manufacturing agreement may only be terminated by
either party within six months of the end of the initial term or the subsequent periods of automatic
renewal (yearly). No premium was paid or received in respect of such options. The Directors have
determined that the fair value of such options cannot be reasonably determined.
9.
INCOME TAXES
A.
Overseas corporate tax:
Current year taxes
Deferred taxes:
Overseas deferred taxes
2008
€’000
2007
€’000
(13)
2,599
2,586
158
439
597
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
57
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
9.
INCOME TAXES (continued)
B.
Factors affecting the tax expense for the year
The table below explains the differences between the expected tax credit on continuing operations,
at the UK statutory rate of 28.5% for 2008 and 30% for 2007, and the Group’s total tax expense
for the year:
2008
€’000
2007
€’000
Profit/(loss) before income tax from continuing operations
1,217
(1,281)
Tax (charge)/ credit computed at 28.5% (2007-30%)
(347)
384
Tax adjustments arising from:
Expenses which are not deductible (income exempted) in
determining taxable profit
Impairment of deferred tax asset
Decrease in taxes resulting from a different tax rate of
subsidiaries operating in other jurisdictions
Tax losses not utilised
Decrease in deferred tax asset due to reduction in tax rate
Tax charge for continuing operations
114
(3,000)
197
450
-
(2,586)
(1,007)
-
(158)
1,470
676
(597)
C.
Deferred tax
The following are the major deferred tax liabilities and assets recognized by the Group and
movements thereon during the current and prior year, after offset of balances within countries:
At 1 January 2008
Reclassified from discontinued operations
Arising from acquisition
Translation adjustments
(Charge) / credit to the income statement
At 31 December 2008
Net
operating
loss
€’000
Other
timing
differences
€’000
3,000
122
-
9
(2,700)
431
(199)
18
(67)
19
101
(128)
Total
€’000
2,801
140
(67)
28
(2,599)
303
58
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
9.
INCOME TAXES (continued)
At 31 December 2007, the Group had recorded a deferred tax asset of €3.0 million relating to
losses incurred in its Italian subsidiary, Telit EMEA. The directors consider that under existing
Italian tax law, the time period over which these losses are available for relieving future profits is
unlimited.
In 2006, the Directors approved a four year business plan for Telit EMEA, based on which
management expected to begin to recover the deferred tax asset during the year ended 31
December 2008, with full recovery forecast in the year ending 31 December 2010. The trading
performance of the continuing operations of Telit EMEA for 2007 was in line with the forecast for
2007 in the four year business plan. At December 2007, the Directors approved an updated
business plan for 2008-2010 which continued to support the beginning of recovery of the deferred
tax asset during the year ended 31 December 2008, with full recovery forecast in the year ending
31 December 2010.
Whilst the directors remain confident about the future trading of Telit EMEA, in light of the global
economic conditions and the stringent requirement of IAS 12, this asset has been impaired.
The Group has recognized deferred tax assets in respect of Telit APAC of €0.4 million and Dai
Telecom of €0.2 million in the year ended 31 December 2008. Telit APAC and Dai Telecom have
both generated taxable losses in the year ended 31 December 2008 but have a recent history of
taxable profits and the Directors consider that these businesses will return to profitability within 12
months.
D.
Factors affecting the tax charge in future years
Factors that may affect the Group’s future tax charge include the finalization and acceptance of tax
returns with relevant tax authorities, the resolution of inquiries from tax authorities (discussed
further in note 1(ab), corporate acquisitions and disposals, changes in tax legislation and rates, the
availability and use of brought forward tax losses, and the realization or otherwise of recognized
deferred tax assets.
The gross amount and expiry dates of losses available for carry forward are as follows:
Losses for which a deferred tax asset is recognized
Losses for which no deferred tax asset is recognized
2008
€’000
1,599
42,499
44,098
2007
€’000
10,909
28,766
39,675
59
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
10. LOSS FOR THE YEAR FROM CONTINUING OPERATIONS AND GROUP AUDIT FEE
Loss for the year from continuing operations is stated after charging / (crediting)
Net foreign exchange (gain)/losses
Depreciation of owned fixed assets (note 15)
Amortization of intangible assets (note 14):
Amortization of purchased customer list - included in selling
and marketing expenses
Amortization of acquired technology - included in research and
development expenses
Amortization of software - included in research and
development expenses
Research and development expenditure
Costs of inventories recognized as an expense
Write-downs of inventories recognized as an expense
Pension curtailment losses (see note 24)
Settlement costs on repurchase of share options (see note 30)
Non-recurring credit relating to negative goodwill (see note 26)
Net (gain)/loss on loans and receivables (including interest
received)
Net loss on financial liabilities measured at amortized cost
(including finance charges)
Audit fee
2008
€’000
2007
€’000
(456)
1,154
199
171
1,150
9,647
28,239
474
-
-
-
(113)
115
934
216
261
416
8,940
29,534
249
464
271
(318)
133
1,446
1,241
Group
Company
2008
€’000
2007
€’000
2008
€’000
2007
€’000
Fees payable to the Company’s
auditors for the audit of the
Company’s annual accounts
Fees payable to the Company’s
auditors and their associates for
other services to the Group
The audit of the Company’s
subsidiaries pursuant to
legislation
Total audit fees
Tax services
Total fees
136
41
161
338
13
351
126
13
-
139
-
139
136
41
-
177
9
186
126
24
171
321
4
325
60
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
11. EMPLOYEES
The average monthly number of persons (including executive
directors) during the year was:
Sales and marketing
Research and development
General and administration
Operations
Discontinued operations
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2008
€’000
2007
€’000
54
182
50
43
10
339
12,695
2,256
1,093
16,044
47
131
22
47
50
297
10,678
1,587
595
12,860
Directors’ remuneration disclosures described within the Directors’ Remuneration Report as audited
form part of these financial statements on page 22.
During the second half of 2008 the company directly employed 2 sales persons in the UK.
The cost incurred in respect of employees (including executive directors) from discontinued operations is
set out below:
Discontinued operations:
Wages and salaries
Social security costs
Other pension costs
12. DISCONTINUED OPERATIONS
2008
€’000
197
9
30
236
2007
€’000
1,696
110
11
1,817
On 17 May 2007 the Company’s board of directors resolved to sell the Wireless Products division
(“TWP”) and to focus solely on the Wireless Solutions business unit.
On 28 June 2007 the Company executed a term sheet for the sale of 80.01% of TWP, to a group of third
party investors. This agreement was not consummated. During the second half of 2007 the Company
sold its Italian TWP business to a third party, thus marking the final disposal of Telit's European TWP
business. During the first half of 2008, following the termination of the transaction to sell the Israeli
TWP business, the Company converted this division into a wireless solutions centre as an integral part of
its ongoing wireless solutions business and abandoned its TWP activities.
61
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
12. DISCONTINUED OPERATIONS (continued)
The results of the discontinued operations which have been included in the consolidated statements of
operations for the year ended 31 December 2008 and 2007 are as follows:
Revenue
Cost of sales
Gross profit
Other income
Operating expenses
Net finance costs
Loss before income taxes
Income taxes
Net loss attributable to discontinued operations
2008
€’000
1,288
(1,832)
(544)
43
(1,349)
(14)
(1,864)
-
(1,864)
2007
€’000
23,331
(22,134)
1,197
1,518
(7,195)
(640)
(5,120)
(60)
(5,180)
During the year, net cash used in operations in the Wireless Products Division was €1,441,000 (2007:
€2,239,000), €nil used in respect of investing activities (2006: €741,000) and €nil provided
in respect of financing activities (2007: €1,167,000).
Loss for the year from discontinued operations is stated after charging / (crediting):
Net foreign exchange losses
Depreciation of owned fixed assets
Costs of inventories recognized as an expense
Write-downs of inventories recognized as an expense
Impairment loss recognized on trade receivables
Settlement costs on repurchase of share options (see note 30)
Net loss on financial liabilities measured at amortized cost
(including finance charges)
2008
€’000
2007
€’000
14
-
1,243
589
688
-
-
43
158
20,844
153
900
46
656
The loss from discontinued operations in 2008 includes a charge of €1,031,000 in respect of the Telit
EMEA TWP business arising from adjustments to the gain on disposal of discontinued operations
following resolution of uncertainties arising from the terms of the disposal transaction and arising from
and directly related to the operations of the TWP business before its disposal, including write-downs of
trade receivables not recovered and the resolution of certain legal matters related to the discontinued
activity. The resolution of these uncertainties has resulted in changes to the amounts recorded in respect
of these amounts based on their estimated effect as at 30 June 2008, leading to an increase in the charge
of €877,000
62
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
13. LOSS PER SHARE
2008
€’000
2007
€’000
The calculations of basic and diluted earnings per ordinary share
are based on the following results and numbers of shares:
Loss for the year attributable to the equity shareholders of the
parent
(3,052)
(7,027)
Weighted average number of shares:
For basic and diluted earnings per share
Loss per share from continuing operations (euro cents)
Loss per share from discontinued operations (euro cents)
Loss per share (euro cents)
No. of Shares
No. of Shares
43,430,948
43,214,281
(2.7)
(4.3)
(7.0)
(4.3)
(12.0)
(16.3)
Number of options that are anti-dilutive:
3,524,834
4,062,000
63
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
14.
INTANGIBLE FIXED ASSETS
Finite lived intangible assets
Internally
generated
development
costs
€’000
Customer
relationships
€’000
Software
and
licenses
€’000
1,922
1,195
(18)
3,099
379
2,538
-
2,917
831
-
4,057
(2,606)
-
-
-
523
1,494
-
(170)
1,324
-
-
-
-
Acquired
technology Goodwill
€’000
€’000
644
-
(73)
571
-
-
248
-
2,992
-
(337)
2,655
-
-
249
-
Total
€’000
7,431
3,733
(598)
10,566
4,888
(2,606)
497
523
(130)
3,800
(51)
4,840
(246)
1,078
(127)
692
(603)
2,301
(1,157)
12,711
GROUP
COST
1 January 2007
Additions
Translation
adjustments
31 December 2007
Additions
Grant contribution
Arising on
acquisition
Reclassified from
held for sale
Translation
adjustments
31 December 2008
ACCUMULATED
AMORTIZATION
1 January 2007
Translation
adjustments
Charge for the year
31 December 2007
(373)
6
(416)
(783)
-
-
-
-
Charge for the year
Translation
adjustments
31 December 2008
(666)
(484)
33
(1,416)
-
(484)
Net book value
31 December 2008
2,384
4,356
31 December 2007
2,316
2,917
(176)
23
(216)
(369)
(199)
94
(474)
604
955
(127)
24
(261)
(364)
(171)
81
(454)
238
207
-
-
-
-
-
-
-
(676)
53
(893)
(1,516)
(1,520)
208
(2,828)
2,301
9,883
2,655
9,050
Goodwill, customer relationships and acquired technology relate to the acquisition of Telit APAC which
is included within the Asia Pacific geographical segment, and to the acquisition of One RF Technologies
(subsequently renamed Telit RF) which is included within the EMEA geographical segment. The amount
of goodwill attributable to the Asia Pacific segment is €2,052,000 (2007: €2,639,000) and €249,000 to
the EMEA segment (2007: €nil). The amount of customer relationships and acquired technology
attributable to the Asia Pacific segment is €605,000 (2007: €1,178,000) and €237,000 to the EMEA
segment (2007: €nil)
64
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
14.
INTANGIBLE FIXED ASSETS (continued)
Capitalized development costs relates to development of the UMTS and CDMA modules and will be
amortized over a five year period beginning in 2009. €3 million of the amount capitalised relates to the
UMTS product line with the balance relating to the CDMA product line.
The Group tests goodwill and intangible assets not yet ready for use for impairment annually, or more
frequently if there are indications that they might be impaired.
Telit APAC and Telit RF are determined as the cash generating units for impairment testing purposes,
being the lowest levels within the Group at which goodwill is monitored for internal management
purposes.
The recoverable amount of Telit APAC has been determined based on a value in use calculation using
cash flow projections based on financial budgets for a period of five years. The Group’s five year cash
flow forecast has been derived from the most recent financial budget approved by management adjusted
for expected growth for the following 4 years, based on an average estimated growth rate of 27% per
year over the five year period.
The discount rate applied of 17% is based on the risk free rate for 30 year bonds, issued by the
government in Korea, adjusted for a risk premium to reflect both the increased risk of investing in
equities and the systematic risk of Telit APAC.
In developing its projections, management has had regard to its past experience and external forecasts of
growth in the M2M industry. The key assumptions used in determining value in use are:
Revenue
Management has forecast revenue mainly based on external forecasts of growth in the M2M industry for
the APAC region. A declining growth rate has been applied, decreasing from 20% per year to 18% per
year over the four year period beyond the most recent financial budget. No growth is assumed after this
five year period.
Management has forecast changes in the average sales price based on past experience and external
forecasts of changes in the selling price in the M2M industry for the APAC region.
Expected changes in operating costs
Management has forecast changes in operating costs based on the current and expected future
infrastructure required to execute the assumed revenues.
EBITDA margins
EBITDA margins are expected to be in the range of 20-22% over the five year period covered by the
forecasts.
The Directors do not consider there to be any reasonably possible changes in key assumptions that would
lead to an impairment loss and consequently no sensitivity analysis has been presented.
65
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
15. PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
As at 1 January 2007
Additions for the year
Reclassified as held
for sale
Arising on acquisition
Translation
adjustments
As at 31 December
2007
Arising on acquisition
Reclassified from held
for sale
Additions for the year
Disposals
Translation
adjustments
As at 31 December
2008
DEPRECIATION
1 January 2007
Charge for the year
Reclassified as held
for sale
Translation
adjustments
31 December 2007
Charge for the year
Disposals
Reclassified from held
for sale
Translation
adjustments
Computers
€’000
Office
equipment
€’000
Vehicles
€’000
Leasehold
Improvements
€’000
Total
€’000
861
225
4,005
947
156
-
454
79
5,476
1,251
(240)
(256)
(156)
(418)
(1,070)
-
(85)
846
4,611
5
340
207
(35)
16
42
298
1,502
(2)
(150)
-
-
-
72
22
(39)
5
-
115
-
430
1
-
31
(85)
5,572
47
1,140
1,732
(76)
(98)
1,379
6,301
60
577
8,317
(283)
(124)
(1,975)
(804)
168
45
-
(239)
(278)
10
(213)
(15)
25
(2,709)
(804)
-
(68)
46
(99)
-
99
-
-
(12)
20
(46)
(3)
(41)
19
-
(100)
(6)
94
-
(12)
(60)
-
(144)
(11)
(227)
350
103
(2,457)
(934)
406
25
(2,960)
(1,154)
30
(471)
17
(4,538)
3,779
2,612
31 December 2008
(735)
(3,535)
Net book value
31 December 2008
644
2,766
31 December 2007
607
1,902
66
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
16.
INVESTMENT IN ASSOCIATED UNDERTAKING
GROUP
Investment in associated undertaking, Cell-Time Ltd
Cost
Translation adjustments
Losses accumulated since acquisition
2008
€’000
2007
€’000
1,135
(36)
(470)
629
1,135
(79)
(488)
568
The accounts of Cell-Time Ltd. are drawn up to 31 December 2008 for inclusion in the consolidated
financial statements. The summarized financial information of Cell-Time Ltd is as follows:
Balance sheet
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Long-term liabilities
Total liabilities
Income statement
Revenue
Cost of sales
Gross profit
Operating expenses
Financial expenses, net
Profit/ (loss) for the year
2008
€’000
2007
€’000
1,905
42
1,947
1,849
13
1,862
2008
€’000
14,389
(13,773)
616
(539)
(15)
62
1,454
51
1,505
1,475
9
1,484
2007
€’000
10,915
(10,420)
495
(499)
(1)
(5)
Details of the associated undertakings of the Group are as follows:
Name of company
Country of
incorporation
and
operation
Type of
shares
Effective
ownership
interest and
voting
rights
Principal activity
Cell-Time Ltd
Israel
Ordinary
29.33% Development,
marketing and
operation of pre-paid
billing systems of
cellular phones
67
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
17. OTHER INVESTMENTS
GROUP
Available for sale investments carried at deemed cost:
Unlisted equity securities
2008
€’000
2007
€’000
1,570
1,570
The Group holds 19.9% of the ordinary share capital of SEM, a company providing integrated
technological and logistical services for the high-tech electronics manufacturing market. The Group has a
single representative on the board of SEM, with the remaining 5 directors appointed by the other
shareholder. The Group does not have any voting rights beyond those conveyed by its shareholding.
Fair value at the date of acquisition of €1,570,000 was estimated based on historic and projected
multiples in earnings, revenues and net assets by reference to a basket of comparable companies for
which information is publicly available. In doing so, assumptions were made that are not supported by
prices from observable prices or rates. Financial information on which a fair value determination may be
made is not fully available to the Group as the Group does not receive and does not have access to
financial forecasts or monthly management accounts information and consequently the Directors do not
consider there is sufficient information available to reliably determine the fair value at the balance sheet
date. The investment has therefore been recorded at deemed cost. In doing so, the Directors have
considered whether there have been any factors which may indicate that an impairment has arisen,
including review of the annual financial statements of SEM, and are satisfied that no such factors exist.
18.
INVESTMENTS IN SUBSIDIARIES
COMPANY
Investment in subsidiaries
1 January 2008
Additions
Repayments
Loan capitalized
31 December 2008
Investment in associated
undertaking, Cell-Time Ltd
Loans to
subsidiaries
€’000
Investments in
subsidiaries
€’000
Total
€’000
13,472
150
(2,972)
(2,500)
8,150
16,165
577
-
2,500
19,242
29,637
727
(2,972)
-
27,392
579
27,971
68
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
18.
INVESTMENTS IN SUBSIDIARIES (continued)
Details of the subsidiary undertakings of the Company are as follows (1 indicates the entity is held
directly by the Company; 2 indicates that the subsidiary is indirectly held; 3 indicates that the subsidiary
is held 20% directly by the Company and 80% indirectly):
Name of company
Telit RF Technology S.A.S.1
Country of
incorporation
and
operation
France
Type of
shares
Ordinary
Effective
ownership
interest and
voting
rights
100%
Telit Wireless Solutions Srl1
("TWS")
Telit Communications SpA2
("Telit EMEA")
Sardinia, Italy Ordinary
90%
Italy
Ordinary
90%
Telit Wireless Solutions GmbH2
Germany
Ordinary
90%
Telit Wireless Solutions Inc. 2
("Telit Americas")
United States
of America
Ordinary
90%
Telit Communications Spain SL2
Spain
Ordinary
90%
Telit Wireless Solutions
Tecnologia E Servicos Ltda2
Brazil
Ordinary
90%
Telit Wireless Solutions Co Ltd2
("Telit APAC")
Republic of
Korea
Ordinary
81%
Dai Telecom Holdings (2000) Ltd.1 Israel
Ordinary
100%
Telit Wireless Solutions Ltd.
("Telit IL")2
Dai Telecom Ltd. ("Dai
Telecom")3
Israel
Ordinary
100%
Israel
Ordinary
100%
Telit Wireless Solutions (Pty) Ltd. 2
("Telit RSA")
Republic of
South Africa
Ordinary
100%
69
Principal activity
Development,
manufacturing and
selling short-range
data products
Intermediate holding
company
Development,
manufacturing and
selling data products
and distributing
cellular products
Selling and marketing
data products
Selling and marketing
data products
Selling and marketing
data products
Selling and marketing
data products
Development,
manufacturing and
selling data products
Intermediate holding
company
Selling and marketing
data products
Selling and marketing
data products
Selling and marketing
data products
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
19.
INVENTORIES
GROUP
Finished goods
Raw materials
2008
€’000
8,789
1,961
10,750
2007
€’000
6,589
1,623
8,212
The Directors consider that there is no significant difference between the net book value and replacement
cost of stocks held. Inventories are stated net of provisions for slow moving and obsolete items of
€734,000 (2007: €260,000).
20. RECEIVABLES
Within current assets:
Trade receivables
Other receivables
Due from Group undertakings
Within non-current assets:
Other long term assets
Deferred tax asset (note 9)
Group
Company
2008
€’000
14,575
4,799
-
19,374
3,437
548
3,985
2007
€’000
16,591
5,079
-
21,670
310
3,130
3,440
2008
€’000
247
25
820
1,092
-
-
-
2007
€’000
71
104
588
763
-
-
-
The average credit period on trade receivables that are neither past due nor impaired is 77 days (2007: 60
days). No interest is charged on trade receivables. The Group has provided against receivables based on
estimates of irrecoverable amounts from the sale of goods, determined by reference to past default
experience.
Included in the Group’s trade debtors balance are debtors with a carrying amount of €3,494,000 (2007:
€3,391,000) which are past due at the reporting date against which the Group has not made a loss
provision as there has not been a significant change in credit quality and the Group believes that the
amounts are still recoverable. The Group does not hold any collateral over these balances. The average
age of these receivables is 105 days (2007: 93 days).
Ageing of past due but not impaired trade debtors
0-30 days
30-60 days
60-90 days
90-120 days
2008
€’000
1,842
325
835
492
3,494
2007
€’000
1,510
1,706
150
25
3,391
The Directors consider that the carrying amount of trade and other receivables approximates their fair
value.
70
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
20. RECEIVABLES (continued)
The Group’s trade receivables are stated after allowances for bad and doubtful debts, an analysis of
which is as follows:
At 1 January
Arising from acquisition
Increase in allowance recognized in profit or loss
At 31 December
2008
€’000
2007
€’000
294
227
290
811
218
-
76
294
In determining the recoverability of trade receivables, the Group considers any change in the credit
quality of the trade receivable from the date credit was initially granted up to the reporting date. The
amount outstanding from the Group’s ten largest customers at 31 December 2008 was €11.5 million,
representing 78.9% of the Group’s trade receivables. In addition, €3.1 million (at net present value) is
receivable from SEM in relation to the transaction described in note 1(ab). No other customers
represented more than 5% of the Group’s trade receivables at that date, with the remainder of the balance
arising from a large number of unrelated customers. Management reviews carefully every past due
amount in light of the global economic situation. Accordingly, the directors believe that there is no
further credit provision required in excess of the allowance for doubtful debts. There are no allowances
for credit losses recorded against other financial assets.
21. OTHER FINANCIAL ASSETS
Loans and receivables:
Due from group undertakings
Other long term assets
Other debtors
Assets outside the scope of IFRS 7:
Current assets
Other debtors
Non-current assets
Investments in subsidiaries (note 18)
Investments in associates (note 16)
investments
Available-for-sale
deemed cost:
Non-current
Shares in unlisted entities (note 17)
carried
at
Group
Company
2008
€’000
2007
€’000
2008
€’000
2007
€’000
-
3,437
4,235
7,672
310
3,683
3,993
820
-
-
820
588
-
-
588
564
1,396
25
104
-
629
629
-
568
568
27,392
579
27,971
29,637
579
30,216
1,570
1,570
-
-
Total
2,763
3,534
27,997
30,320
71
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
21. OTHER FINANCIAL ASSETS (continued)
Included within other debtors are amounts receivable in respect of the Group's grant claims amounting to
€2,908,000 (2007: €3,143,000). These debtors do not have a specified date by which payment is due to
the company and hence no ageing information is provided. The directors have assessed the credit quality
of such receivables and are satisfied that as such amounts are receivable from regional government
bodies, no provision for losses is required.
22. CASH
The Group’s cash resources are as follows:
Deposits - restricted cash
Cash and cash equivalents
Total
Group
Company
2008
€’000
2007
€’000
2008
€’000
6,000
4,619
10,619
6,132
5,212
11,344
6,000
633
6,633
2007
€’000
6,132
2,402
8,534
The Group’s cash resources are denominated in the following currencies:
Sterling
Dollar
Euro
Other
Total
Analyzed as:
Cash and cash equivalents from continuing
operations
Cash and cash equivalents from discontinued
operations
Total
Group
Company
2008
€’000
2007
€’000
2008
€’000
332
1,390
8,325
572
10,619
166
861
9,470
931
11,428
332
-
6,301
-
6,633
2007
€’000
166
-
8,368
-
8,534
10,619
11,344
6,633
8,534
-
10,619
42
11,386
-
6,633
-
8,534
Cash and cash equivalents comprise cash held by the Group and short term deposits with an average
period at inception until maturity of three months or less. The carrying amount of these assets
approximates their fair value.
Restricted cash deposits are provided as security for Telit EMEA's borrowings. These deposits attract
interest at 3% per annum, which accrues to the benefit of the Group. The deposits would only become
available to the Group on cancellation of the Group’s borrowing facilities (see note 31).
72
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
23. ALLOTTED SHARE CAPITAL
COMPANY AND GROUP
2008
€’000
2007
€’000
Authorised 80,000,000 ordinary shares of 1 pence each.
Allotted, issued and fully paid:
44,514,281 ordinary shares of 1 pence each (2007: 43,214,281
ordinary shares of 1 pence each).
644
627
1,300,000 ordinary shares were issued in November 2008 as consideration for the purchase of Telit RF
as discussed further in note 26.
The Company has one class of ordinary shares which carry no rights to fixed income.
Share options
The number of outstanding options as of 31 December 2008 was 3,524,834 and at the date of this report
was 6,656,834, equal to 7.9% and 15.0% of the outstanding share capital of the Company (7.3% and
13.0% of the outstanding share capital of the Company, on a fully diluted basis).
24. POST-EMPLOYMENT BENEFITS
A. Until 1 January 2007, employees of Telit EMEA received defined benefit pension arrangements under
which employees were entitled to retirement benefits based on the accumulated contributions upon
attainment of the retirement age or when leaving the company. Due to changes in applicable retirement
and severance benefit legislation in Italy, existing entitlements at 1 January 2007 were frozen. For all
new entitlements, employees can elect to have their entitlements paid into a group defined contribution
plan or alternatively, into an Italian government defined contribution plan for private sector employees.
The accrued benefit at 1 January 2007 is unfunded. The actuarial present value of this frozen defined
benefit obligation, the related current service cost and curtailment loss were measured using the
traditional unit credit method.
B. The Group's liability for severance pay for Israeli resident employees is calculated pursuant to the
Israeli Severance Pay Law, based on the most recent salaries and term of employment, and is covered
by payments to insurance companies and pension funds. Amounts accumulated in the insurance
companies and pension funds are not included in the financial statements since they are not under the
control and management of the Group. The accrued severance pay liability included in the balance
sheet in respect of the Israeli resident employees represents the balance of the liability not covered by
the above-mentioned deposits and/or insurance policies for which a fund is maintained (in the Group's
name) as a recognized pension fund.
73
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
24. POST-EMPLOYMENT BENEFITS (continued)
C. The amount included in the balance sheet arising from the obligations in respect of the defined benefit
scheme of Telit EMEA and the accrued severance pay of Dai Telecom and Telit APAC are as follows:
Movement in post employment benefit obligations
1 January 2008
Discontinued operation
Expense recognised in the income statement
Contributions
31 December 2008
2008
€’000
2007
€’000
1,555
63
470
(281)
1,807
1,226
(63)
713
(321)
1,555
The liability in respect of accrued severance pay is €498,000 (2007: €226,000) and the charge to
the income statement in the year is €428,000, of which €156,000 was actually paid as severance
pay to departing employees (2007: €138,000). The IAS 19 disclosures in respect of the Group’s
unfunded defined benefit obligations in Italy are detailed further in D and E below.
D. Amounts recognized in the income statement in respect of the defined benefit scheme are as follows:
Current service cost
Curtailment loss
Interest cost
Actuarial loss
Total expense included in income statement
2008
€’000
2007
€’000
-
-
68
(26)
42
46
464
65
(101)
474
E. The amount included in the balance sheet arising from changes in the present value of the defined
benefit scheme obligation for Telit EMEA are set out below:
Present value of defined benefit scheme obligation
1 January 2008
Actuarial loss
Service cost
Curtailment loss
Interest cost
Benefits paid
Disposal
31 December 2008
2008
€’000
2007
€’000
1,329
(26)
-
-
68
(62)
-
1,309
1,075
(101)
46
464
65
(112)
(108)
1,329
74
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
24. POST-EMPLOYMENT BENEFITS (continued)
F. Financial assumptions
Discount rate
Expected salary increase rate
Inflation
2008
%
5.90%
-
2.00%
2007
%
4.40%
3.50%
2.00%
G. The experience adjustments arising on the plan liabilities at the balance sheet date, totaled €27,968
(2007: €10,000).
25. CURRENT LIABILITIES
Short-term bank loans and other borrowings
Advances on receivables factoring
Current maturities of long term loans
Total short-term borrowing from banks and other
lenders
Trade creditors (i)
Due to Group undertakings
Provisions
Deferred income
Other current liabilities
Total current liabilities
Group
Company
2008
€’000
2007
€’000
2008
€’000
2007
€’000
17,117
1,031
878
19,026
11,140
-
142
7,667
4,122
15,626
1,710
-
17,336
13,498
-
63
2,797
3,229
-
-
500
500
74
738
-
-
160
-
-
-
-
-
3,725
-
-
604
42,097
36,923
1,472
4,329
The directors consider that the carrying amount of short-term borrowings, trade payables and other
current financial liabilities approximates to their fair value.
(i)
The average credit period on purchases of certain goods is 83 days. No interest is charged on the
trade payables. The Group has financial risk management policies in place to ensure that all
payables are paid within the credit timeframe.
75
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
26. ACQUISITIONS
A. During May and June 2007 Telit increased its interest in Telit APAC from 75% to 90% of the issued
ordinary share capital by way of a further share subscription for cash amounting to €2,403,000. The
Company has accounted for this deemed acquisition based on the book values of the net assets of
Telit APAC at the date of the injection. As a result of this transaction, minority interests have been
reduced by €318,000. The negative goodwill of €318,000 arising was recorded as a credit to the
income statement in the year ended 31 December 2007.
Assets:
Cash
Trade and other receivables
Inventories
Long term assets
Tangible assets
Intangible assets:
Customer list
Development cost
Other
Current and long term liabilities
Deferred tax liabilities
Net assets at date of deemed acquisition
Minority interests:
Prior to share subscription at 25%
Subsequent to subscription at 10%
Negative goodwill arising
Book values
prior to
subscription Subscription
(€’000)
(€’000)
Book values
after
subscription
(€’000)
(1,047)
3,260
1,595
253
668
1,192
377
466
(2,603)
(431)
3,730
2,403
-
-
-
-
-
-
-
-
-
2,403
1,356
3,260
1,595
253
668
1,192
377
466
(2,603)
(431)
6,133
931
613
318
B.
On 5 November 2008 Telit acquired 100% of the issued ordinary share capital of, and voting rights in,
One RF Technology S.A.S., a company incorporated in France, in return for consideration of 1,300,000
newly issued ordinary shares in the Company. The fair value of the shares issued at market price on 5
November 2008 was €554,000. The total cost of the business combination, including directly attributable
costs of €24,000, was €578,000.
76
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
26. ACQUISITIONS (continued)
The final fair value of the assets and liabilities of Telit RF recognised at the acquisition date is as follows:
Assets:
Property, plant and equipment
Acquired technology
Cash
Trade and other receivables
Inventories
Current liabilities
Non-current liabilities
Deferred tax
Goodwill
Total purchase consideration (including directly
attributable costs of €24,000)
Net cash outflow arising on acquisition
Book value
(€’000)
Fair value
adjustments
(€’000)
Fair value
(€’000)
47
-
9
218
316
(348)
(50)
-
192
-
248
-
-
(45)
-
-
(67)
136
47
248
9
218
271
(348)
(50)
(67)
328
249
577
15
The goodwill is attributable to the expected profitability of the acquired business and the synergies that
are expected to arise from the integration of Telit RF’s short-range technology products with the wider
Telit product portfolio and the additional revenue opportunities arising from offering these products to
Telit’s existing customer base.
27. COMMITMENTS AND CONTINGENCIES
Legal proceedings affecting continuing operations
A.
B.
During the first half of 2008 the Company settled the outstanding legal claims which were pending
with Ixfin Magneti Marelli Eletronica Ltda, with no impact on the Company's income statement.
In July 2007 Euroinvest S.r.l. ("Euroinvest") obtained an injunctive degree from the
Montepulciano Court for the sum of €611,945 against Telit EMEA in relation to a claim for a
success fee in connection with assistance allegedly provided to Telit EMEA in connection with the
filing of two grant applications from the Italian Ministero delle Attività Produttive.
In November 2008 Telit EMEA and Euroinvest entered into a settlement agreement and the claim
was withdrawn. According to the settlement, Telit EMEA paid Euroinvest the sum of €140,000,
VAT included and, upon receipt by Telit EMEA of the second installment of the grant from the
Ministry, an additional sum of €140,000, VAT included, will be paid to Euroinvest.
77
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
27. COMMITMENTS AND CONTINGENCIES (continued)
Operating lease commitments
C.
The Group had total outstanding commitments for future minimum lease payments
under non-cancellable operating leases as set out below:
Operating leases which expire:
Within one year
In the second to fifth years inclusive
Minimum lease payments under operating
leases charged to the income statement for
the year
Land and buildings
Other
2008
€’000
895
144
1,039
2007
€’000
970
456
1,426
2008
€’000
2007
€’000
316
202
518
385
561
946
720
732
383
353
Operating lease payments represent rentals payable by the Group for certain of its office
properties.
Guarantees and liens
D.
In 2007, the Company provided guarantees of up to €7 million to certain suppliers of Telit EMEA,
to sustain credit lines to be granted by the suppliers in respect of purchases made. The guarantees
were terminated during 2008.
In addition the Company provides guarantees to certain banks in Italy and Korea, to sustain credit
lines granted by those banks to the Group's subsidiaries. The guarantees shall not exceed the
amount of €12.5 million.
At the balance sheet date the Company had deposited €6.0 million in Italian bank accounts, to act
as security in relation to the credit facility granted by those banks (see note 31).
E.
The Group has pledged in favor of BAMES, and to maintain such pledge in force until termination
of the strategic alliance with BAMES on a quota equal to 3% of TWS’ corporate capital, it being
understood that the rights to votes, dividends and/or other distributions will remain with Telit
Communications PLC in respect of such quotas.
Sardinia Grant
F.
Telit EMEA was previously declared eligible to receive an €11.4 million grant, and a €14.1
million preferential rate loan facility, under a business development program sponsored by the
Ministry of Trade and Commerce in Italy. This program was awarded to Telit EMEA to invest in
research and development in a new R&D centre in preferred areas in Italy. Since the original grant
approval, the Group has reduced the scale of its planned R&D program and has resubmitted a
revised plan to the Ministry of Trade and Commerce in Italy. The Group has received confirmed
of acceptance of this revised plan, which will, subject to satisfaction of certain conditions, provide
the Group with a grant of €5.3 million and a preferential rate loan of €7.8 million.
78
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
27. COMMITMENTS AND CONTINGENCIES (continued)
As of 31 December 2008 Telit Italy has invested approximately €10.5 million (2007: €3.6 million)
in this grant project. A bank loan of €8.0 million was obtained against the expected cash inflow
from the Ministry of Trade and Commerce and was outstanding at 31 December 2007. In
September 2008 the Company received the first instalment of the grant and preferential rate loan
from the Italian Ministry of Trade and Commerce equal to €6.5 million, which was used to pay
down the bank loan. The terms of the bank loan have been revised to a €5.2 million facility
maturing on 1 January 2010, secured against the expected cash inflow from the second instalment
of the grant. The €5.2 million facility has been fully drawn as at 31 December 2008 (see note 31).
Of the €6.5 million received, €3.9 million represents a preferential rate long-term loan (see note
31) and €2.6 million a grant. The grant has been recorded as a reduction in the capitalized
development costs in the consolidated balance sheet (see note 14).
28. PROVISIONS
1 January
Utilized in the year
Provided in the year
Reclassified from/(as) held for sale
31 December
Classified as:
Current liabilities
Non-current liabilities
31 December
2008
€’000
2007
€’000
144
(203)
600
349
890
142
748
890
349
-
144
(349)
144
63
81
144
The Group provides warranties on the sale of its m2m products for a period of 12 to 15 months. The
Group has provided for the estimated cost of replacement or repair of those products on which it
expects to receive warranty claims during that period. The actual cost of warranty repair is dependent
on the number of returns during the warranty period and the nature of the repairs to be undertaken or
the product replacement cost.
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 judgment 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.
79
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
29. OTHER LONG-TERM LIABILITIES
As at 31 December 2008, the Group had outstanding a €3.0 million interest rate swap that started on 10
January 2008 and has an end date of 10 January 2011. The Group pays a fixed rate of interest and
receives floating rate interest. The fair value of the derivative has been determined to be €119,179.
As at 31 December 2007, other long-term liabilities mainly represent deferred income expected to be
recognized after more than one year on the transactions with BAMES (see note 8).
30. SHARE-BASED PAYMENTS
Number
Weighted average exercise
price
(pence)
2008
2007
2008
2007
Outstanding at beginning of year
Settled during the year
Granted during the year
Lapsed during the year
Outstanding at year end
4,062,000
-
35,000
(572,166)
3,524,834
2,216,687
(1,682,570)
4,062,000
(534,117)
4,062,000
0.55
-
0.70
(0.60)
0.54
1.25
1.40
0.55
(0.70)
0.55
Exercisable at year end
1,689,667
-
0.53
-
The options outstanding at 31 December 2008 had an exercise price of between £0.43 to
£0.70, and a weighted average remaining contractual life of 3 years and 5 months. 35,000 options
were granted on 31 March 2008. The aggregate estimated fair value of the options granted on this
date was €30,958, equal to a fair value of £0.70 per share.
The Group recognised a total expense of €436,000 in respect of equity settled share based payment
transactions for the year ended 31 December 2008 (2007: €1,138,000).
80
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
31. BORROWINGS
Group
2008
€ ’000
2007
€’000
Company
2008
€’000
2007
€’000
Unsecured - at amortized cost
Short-term bank loans and other borrowings
Current maturities of long term loans
Total short-term borrowing from banks and other
lenders
Other long-term loans
Total
Secured - at amortized cost
Factoring companies
Short-term bank loans and other borrowings
Total
Disclosed in the financial statements as:
Current borrowings (continuing operations)
Non-current borrowings (continuing operations)
Current borrowings (discontinued operations - see
note 12)
Total
55
878
933
655
-
655
3,531
4,464
500
1,155
1,031
17,062
18,093
1,710
19,178
20,888
19,026
3,531
-
22,557
17,336
500
4,207
22,043
-
500
500
-
500
-
-
-
500
-
-
500
-
-
-
500
500
-
-
-
-
500
-
500
The other long-term loan of €3,531,000 represents the long-term element of a preferential rate loan from
the Ministry of Trade and Commerce in Italy of €3,909,000 provided in connection with the Group’s
business development program in Sardinia (see note 27). The loan is fully drawn. The loan attracts
interest at a rate of 0.75% and is repayable in ten annual installments commencing on 15 March 2010 and
ending on 15 March 2018. The fair value of the loan at the balance sheet date was €3,619,000.
Included within short-term bank loans and other financing are:
- A short-term loan of €500,000 which does not attract interest. The fair value of the loan at the
balance sheet date was €475,000 (2007: €430,000). The loan is held by the Company. The loan is
fully drawn.
- The short-term element of the preferential rate loan from the Ministry of Trade and Commerce in
Italy, amounting to €378,000.
- A drawn amount of €5.2 million on a loan with a maturity date which has been extended post year-
end to 1 January 2010, subject to satisfaction of the lending bank that the Group has met certain
qualifying expenditure targets with regard to its research and development project in Sardinia. The
interest rate on this short-term bank loan is Euribor plus 1.7% per annum. The short-term bank loan
is a bridging loan in advance of funds to be received from a grant from the Italian government to
Telit EMEA to support a development project in Sardinia. The Company has provided a letter of
guarantee of €5.2 million in favour of the lending bank, under which it has guaranteed the prompt
payment to the lending bank of all sums which may become due in connection with the loan. The
loan is fully drawn.
81
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
31. BORROWINGS (continued)
- Bank overdrafts of €5.6 million. The overdraft facilities, which are available up to €6.0 million, are
cancellable on demand but are without a fixed renewal date.
- Drawn letters of credit and borrowings arising from invoice advances totalling €3.6 million in Telit
EMEA. These borrowings, and the bank overdrafts, are secured by cash deposits provided to the
lending banks of €6 million and letters of guarantee issued by the Company of €6.25 million, under
which the Company has guaranteed the prompt payment to the lending bank of all sums which may
become due. As part of this guarantee, the Company has guaranteed not to dispose of any interest in
subsidiaries without the prior consent of the lending bank. The total available lines of credit and
invoice advance facilities at 31 December 2008 was €9.9 million, with the remainder cancellable on
demand, but without a fixed maturity date.
- A short-term bank loan of €1.6 million secured by liens on all the funds due from Dai Telecom
Limited’s major customer in connection with specific orders received from that customer. The total
available facility is €5.2 million.
-
Factoring facilities against qualifying receivables totalling €1 million. These borrowings are secured
against the factored receivables and are with recourse to the company in the event that the
receivables are not collected. The total available factoring facilities in the Group’s Italian subsidiary
are €3 million, provided there exists a satisfactory level of qualifying debtors, which are cancellable
on demand but are without a fixed maturity date.
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 Company in the
foreseeable future and that therefore the Company will be able to continue to fund its operations from
these credit facilities. The Company’s liquidity risks are discussed in note 33.
82
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
32. RECONCILIATION OF NET CASH FLOWS TO OPERATING ACTIVITIES
Group
2008
€’000
2007
€’000
Company
2008
€’000
2007
€’000
Loss for the period from continuing operations
(1,369)
(1,878)
(1,010)
(1,170)
Adjustment for:
Depreciation and amortization
Income tax expense
Investment income
Finance costs
Increase in provision for post-employment
benefits
Share-based payment charge
Non-recurring credit relating to negative
goodwill
Gain on deemed partial disposal of subsidiary
Share in result of associated undertaking
Operating cash flows before movements in
working capital:
Increase in trade receivables
Decrease (increase) in other current assets
Increase in inventories
(Decrease) increase in trade payables
(Decrease) increase in other current liabilities
Increase (decrease) in provisions and other
long term liabilities
Cash used in operations
Income tax paid
Interest received
Interest paid
Net cash used in continuing operations
2,674
2,586
(192)
1,171
302
436
-
(1,614)
(18)
3,976
(1,785)
284
(2,638)
(1,853)
(4,370)
554
(5,832)
(92)
177
(988)
(6,735)
1,854
597
(277)
1,241
402
1,013
(318)
(1,194)
2
1,442
(7,780)
683
(2,228)
5,155
2,647
(629)
(710)
(139)
243
(934)
(1,540)
-
-
(139)
-
-
-
(733)
-
-
-
-
-
-
(1,149)
(176)
(21)
-
74
(459)
-
(1,731)
-
139
-
(1,592)
-
-
-
-
-
(1,903)
(71)
34
-
(16)
393
-
(1,563)
-
128
-
(1,435)
33. FINANCIAL RISK MANAGEMENT
Financial risk management is an integral part of the way the Group is managed. The Board establishes
the Group’s financial policies and the Chief Executive Officer establishes objectives in line with these
policies.
It is the Group's policy that no trading in financial instruments is undertaken.
In the course of its business the Group is exposed mainly to financial market risks and credit risks.
Financial market risks are essentially caused by exposure to foreign currencies and interest rates and
movements in the value of equity in unlisted securities held by the Group.
83
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
33. FINANCIAL RISK MANAGEMENT (continued)
Foreign currency risk
The Group uses short-term borrowings from banks in the same foreign currency of those transactions to
reduce the Group’s exposure to foreign currency risk.
Foreign exchange exposure arises where the Group’s companies transact in a currency different from
their functional currency.
The carrying amount of the Group’s monetary assets and liabilities at the reporting date, denominated in
currency different to the functional currency of the entity in which such monetary assets and liabilities
are held is as follows:
Sterling
US Dollar
Assets
Liabilities
2008
€’000
624
1,652
2007
€’000
2008
€’000
2007
€’000
166
953
-
1,514
-
541
The following table details the Group’s sensitivity to a 10 or 20 per cent change in euro against the
respective foreign currencies, which represent management’s assessment of possible changes in foreign
exchange rates. The sensitivity analyses of the Group’s exposure to foreign currency risk at the reporting
date has been determined based on the change taking place at the beginning of the financial year and
held constant throughout the reporting period. A positive number indicates an increase in profit or loss
and where euro strengthens against the respective currency.
Impact on profit or loss of a 10% change
Impact on profit or loss of a 20% change
Group
2008
€’000
57
114
2007
€’000
58
116
There would be no impact on equity arising from foreign exchange transaction exposures.
Interest rate risk
Interest rate risk comprises the interest cash flow risk resulting from short-term borrowings at variable
rates. As disclosed in note 31, the Group’s working capital is funded through short-term borrowings at
variable rates of interest. Cash at bank earns interest at floating rates based on daily bank deposit rates.
As a result, material fluctuations in the market interest rate can have an impact on the Group’s financial
results. In the current period, the Group has begun to use derivative financial instruments to manage
interest rate risk.
The sensitivity analyses below have been determined based on the exposure to interest rates at the
reporting date and the stipulated change taking place at the beginning of the financial year and held
constant throughout the reporting period. A 1 per cent change is used when reporting interest rate risk
internally to key management personnel and represents management’s assessment of the possible change
in interest rates.
84
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
33. FINANCIAL RISK MANAGEMENT (continued)
At the reporting date, if interest rates had been 1% higher/lower and all other variables were held
constant, the Group’s net loss would increase/decrease by €202,000 (2007: decrease/increase by
€155,000); there is no material impact upon equity. This is mainly attributable to the Group’s exposure
to interest rates on its variable rate borrowings.
The Group’s sensitivity to interest rates has increased during the current period due to the increase in
loan balances.
Other price risks - equity price sensitivity
The Group is exposed to equity price risks arising from the holding of equity investments in unlisted
securities. The equity investment in SEM is held for strategic rather than trading purposes. The Group
does not actively trade this investment which at 31 December 2008, is held at deemed cost of
€1,570,000. It is not practicable to provide sensitivity analysis since it is not possible to reasonably
determine fair value since this investment is an unquoted equity investment.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in
financial loss to the Group.
Financial assets that potentially subject the Company and its subsidiaries to concentration of credit risk
consist principally of trade receivables. The Group’s trade receivables are principally derived from sales
to customers in Israel, Italy, the USA and Korea. The Group performs ongoing credit evaluations of its
customers and to date has not experienced any material losses, other than in its discontinued segment
(see note 3). An allowance for doubtful accounts is determined with respect to those amounts that the
Company has determined to be doubtful from collection.
Credit risk associated with the Group’s cash and cash equivalents and restricted cash deposits is
managed by only placing funds on deposit with internationally recognised banks with suitable credit
ratings.
85
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
33. FINANCIAL RISK MANAGEMENT (continued)
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial
statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk:
Maximum credit risk:
Group
Cash and cash equivalents
Deposits - restricted cash
Trade receivables
Due from Group undertakings
Other long term assets
Loan (or investment in) to subsidiaries
Guarantee provided to banks on subsidiary’s
borrowings
Guarantees provided to suppliers
Group
Company
2008
€’000
4,619
6,000
14,575
-
3,437
-
2007
€’000
5,212
6,132
16,591
-
-
-
2008
€’000
633
6,000
247
820
-
8,150
-
-
-
7,000
12,450
-
2007
€’000
2,402
6,132
71
588
-
13,472
20,700
7,000
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited
to:
(cid:120)
(cid:120) making sales and extending credit terms to customers and placing cash deposits with other entities. In
these cases, the maximum exposure to credit risk is the carrying amount of the related financial
assets;
granting financial guarantees to lending banks which may be called in the event of failure by a
subsidiary to repay amounts due to the lending bank when due. In this case, the maximum exposure
to credit risk is the maximum amount the entity could have to pay if the guarantee is called on, which
may be greater than the amount recognised as a liability as at 31 December 2008 where such
guaranteed borrowings were not fully drawn at that date; and
granting financial guarantees to suppliers which may be called in the event of failure by a subsidiary
to repay amounts due to the supplier when due. In this case, the maximum exposure to credit risk is
the maximum amount the entity could have to pay if the guarantee is called in, which may be greater
than the amount recognised as a payable at 31 December 2008.
(cid:120)
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors. The Group
manages liquidity risk by maintaining adequate reserves and banking facilities by monitoring forecast
and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in
note 31 are details of additional undrawn facilities that the Group has at its disposal to further reduce
liquidity risk.
The following table details the Company’s and the Group’s remaining contractual maturity for its non-
derivative financial liabilities. The tables below have been drawn up based on the undiscounted
contractual maturities of the financial liabilities including interest that will accrue to those liabilities.
86
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
33. FINANCIAL RISK MANAGEMENT (continued)
Group
2008
2007
Weighted
average
effective
interest
rate
%
Less than
1 year
€’000
More than
1 year
€’000
Weighted
average
effective
interest rate
%
Less than
1 year
€’000
More than
1 year
€’000
6.00%
0.75%
2,338
378
4.34%
15,810
-
500
-
3,531
-
-
5.25%
1,862
-
5.65%
15,474
-
-
500
Fixed rate
Fixed rate
preferential loan
Variable rate
debt
Non- interest
bearing debt
Company
Weighted
average
effective
interest
rate
%
2008
Less than
1 year
€’000
More than
1 year
€’000
2007
Less
than
1
year
€’000
Weighted
average
effective
interest rate
%
More than
1 year
€’000
Non- interest
bearing debt
Guarantees
-
-
500
12,450
-
-
-
- 20,700
-
500
-
Fair value of financial instruments
The financial instruments held by the Group are primarily comprised of non-derivative assets and
liabilities (non-derivative assets include cash and cash equivalents, trade accounts receivable and other
receivables; non-derivative liabilities including bank loans, trade accounts payable, other payables and
other current liabilities). Due to the nature of these financial instruments, there are no material
differences between the fair value of the financial instruments and their carrying amount included in the
financial statements, other than as discussed in note 1(ab) in respect of the non-current receivable from
SEM and note 31 in respect of certain liabilities.
87
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
33. FINANCIAL RISK MANAGEMENT (continued)
Categories of financial instruments
Group
Company
2008
€’000
2007
€’000
2008
€’000
2007
€’000
Current financial assets:
Cash and restricted cash
Trade receivables
Loans and receivables - other debtors
Loans and receivables - due from group
undertakings
Assets not meeting the definition of a financial
asset
Inventories
Other debtors
10,619
14,575
4,235
11,344
16,591
3,683
6,633
247
-
8,534
71
-
-
-
820
588
10,750
564
8,212
1,396
-
25
-
104
Current assets
40,743
41,226
7,725
9,297
Non-current financial assets:
Available-for-sale investments
Loans and receivables
Assets not meeting the definition of a financial
asset / outside the scope of IFRS 7
Intangible assets
Property, plant and equipment
Investments in associated undertakings
Investments in subsidiaries
Deferred tax asset
1,570
3,437
1,570
310
-
-
-
-
9,883
3,779
629
-
548
9,050
2,612
568
-
3,130
-
4
579
27,392
-
-
-
579
29,637
-
19,846
17,240
27,975
30,216
Investments in associated undertakings and investments in subsidiaries are accounted for in accordance
with IAS 27 Consolidated and Separate Financial Statements and hence are outside the scope of IFRS 7
Financial instruments: Disclosure.
88
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
33. FINANCIAL RISK MANAGEMENT (continued)
Financial liabilities at amortized cost
Short-term borrowings from banks and other
lenders
Trade payables
Other current liabilities
Due to group undertakings
Other current liabilities
Liabilities not meeting the definition of a
financial liability:
Provisions
Other current liabilities
Total current liabilities
Group
Company
2008
€’000
2007
€’000
2008
€’000
2007
€’000
19,026
11,140
17,336
13,498
-
1,256
-
599
142
10,533
63
5,427
500
74
738
-
160
-
-
3,725
-
-
604
42,097
36,923
1,472
4,329
Non-current financial liabilities at amortized
cost:
Other loans
3,531
500
Financial liabilities at fair value through profit
or loss
Derivative financial instruments
119
-
Liabilities not meeting the definition of a
financial liabilities / outside the scope of IFRS 7
Post-employment benefits
Deferred tax liabilities
Provisions
Other long-term liabilities
Capital risk management
1,807
1,555
245
748
-
329
81
4,430
6,450
6,895
-
-
-
-
-
-
-
500
-
-
-
-
-
500
The Group manages its capital to ensure that entities in the Group will be able to continue as going
concerns while maximising the return to stakeholders through the optimisation of the debt and equity
balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in
note 31, cash and cash equivalents and equity attributable to equity holders of the parent, comprising
issued capital, reserves and retained earnings as disclosed in the statement of changes in equity on page
35.
89
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
33. FINANCIAL RISK MANAGEMENT (continued)
Gearing Ratio
The Group defines debt as both long and short term borrowings as detailed in note 31. Equity includes
all capital and reserves of the Group attributable to the equity holders of the parent. The Group’s gearing
ratio at the year-end is as follows:
Group
2008
€’000
2007
€’000
Debt
Cash and cash equivalents, including restricted
cash
Net debt
22,557
17,836
(10,619)
11,938
(11,344)
6,492
Shareholders’ equity
Net debt to equity ratio
11,965
99.7%
15,772
41.2%
The Group is not subject to any externally imposed capital requirement.
34. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
GROUP
Transactions between the Company and its subsidiaries and associates represent related party
transactions. Transactions with subsidiaries have been eliminated on consolidation.
Except as disclosed below, no material related party transactions have been entered into, during the year,
which might reasonably affect any decisions made by the users of these Consolidated Financial
Statements.
A. On April and July 2007 the Company granted the following key personnel options exercisable into
ordinary shares. Below is a table setting forth the numbers of options that were vested, unvested or
expired as at 31 December, 2008:
Vested
Unvested
Expired
Total
Chairman of the Board
Director (1)
CEO
Finance Director
Total
350,000
200,000
462,500
50,000
1,062,500
350,000
462,500
50,000
862,500
-
200,000
-
-
200,000
700,000
400,000
925,000
100,000
2,125,000
The compensation attributable to the key personnel, calculated as the incremental fair value of the
options to be expensed over the period of vesting, for the year is €71,000 (2007: €582,000)
(1) Resigned during the year.
90
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
34. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued)
B. The key management personnel of the Group consist of the board of directors, whose remuneration is
set out below and in the remuneration report:
Share based payments
Short-term employee benefits
Post employment benefits
Total
Group
2008
€’000
71
1,564
124
1,759
2007
€’000
582
1,456
26
2,064
C. The Company's CEO, Oozi Cats, provided consulting services to Group companies pursuant to an
agreement dated 5 January 2004, as amended on 26 April 2006, between Excalibur Consulting Group
LLC (“Excalibur”) and Telit EMEA. Excalibur charged services amounting to €688,500 for the year
ended 31 December 2007. The Agreement with Excalibur was terminated with effect from 1 October
2007. No amounts were outstanding to Excalibur at 31 December 2008 and 2007.
D. Mr. Cats directly holds 3,110,357 Ordinary Shares, representing 7.0% of the issued share capital of
the Company. Mr. Cats also holds 50% of the issued share capital of Boostt B.V. (“Boostt”). Boostt
holds 12,100,000 Ordinary Shares, representing 27.2% of the issued share capital of the Company.
The other 50% of Boostt is held by Wireless Solutions Management S.L., formerly Franco Bernabe
& T SL and Techvisory S.A. (together, the “Techvisory Group”), which holds an additional
1,250,000 Ordinary Shares, representing 2.80% of the issued share capital of the Company. Mr.
Massimo Testa, a director of the Company and a shareholder in Techvisory S.A. and therefore an
interested party in the Techvisory Group, holds 323,000 Ordinary Shares, representing 0.7% of the
issued share capital of the Company. Mr. Enrico Testa, chairman of the board of the Company is also
a director of the Techvisory Group.
Mr. Cats has certain voting understandings with certain members of the Techvisory Group.
Therefore, the Techvisory Group, Mr. Cats, Mr. Massimo Testa and Mr. Enrico Testa are, in
aggregate, interested in 16,783,357 Ordinary Shares, representing 37.70% of the issued share capital
of the Company.
COMPANY
Related party transactions between the Company and its subsidiaries and associates are summarized
below:
(a) Accounts receivable - See note 20.
(b) Accounts payable - See note 25.
(c) Trading transactions
Revenue from services provided to subsidiary
Cost of sale - purchases from subsidiary
(d) Loans receivable - See note 18.
91
2008
€’000
-
438
2007
€’000
152
55
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
34. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued)
(e) Financing transactions
The Company has no outstanding guarantees to suppliers of Telit EMEA at 31 December 2008
(2007: €7.0 million).
The Company has provided an unlimited guarantee to a supplier of Telit Brazil covering all of Telit
Brazil's undertaking to said supplier according to the agreement between these parties (2007: €nil).
The Company provides guarantees to certain banks in Italy and Korea, amounting to €12.5million
(2007: €20.7 million).
At the balance sheet date the Company had deposited €6.0 million (2007: €6.0 million) in Italian bank
accounts, to act as security in relation to the credit facilities granted by those banks to Telit EMEA.
35.
INFORMATION ON THE COMPANY
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the Company is
not presented in this Annual Report. The loss for the year amounted to €1,010,000 (2007: loss of
€1,170,000).
92
Company Information
93
Directors, Secretary and Advisers
Company Registration No. 05300693
Directors
Enrico Testa, Chairman
Oozi Cats, Chief Executive Officer
Michael Galai, Finance Director
Amir Scharf, Non-Executive Director
Andrea Mandel-Mantello, Non-Executive Director
Massimo Testa, Non-Executive Director
Company Secretary
Michael Galai
Registered Office
7th Floor, 90 High Holborn, London WC1V 6XX
Nominated Adviser and Broker
Seymour Pierce Limited
20 Old Bailey London EC4M 7 EN
Solicitors
Olswang
7th Floor, 90 High Holborn London WC1V 6XX
Independent Auditors
Deloitte LLP
Chartered Accountants London
Registrar
Capita Registrars Limited
The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU
Telit Offices World Wide
CORPORATE HEADQUARTERS
Via San Nicola da Tolentino n.1/5, Roma
Phone: +39 06 42046011
Fax: +39 06 42010930
EMEA
Via Stazione di Prosecco 5/B
34010 Sgonico, Trieste - Italy
Phone: +39 040 4192 491
Fax: +39 040 4192 383
ITALY
Via Lecco,61
20059 Vimercate, Milano - Italyֿ
Phone: + 39 040 41 92 200
NORTH AMERICA
3131 RDU Center Drive
Suite 135
Morrisville, NC 27560
USA
Phone: +1 888 846 9773 or +1 919 439 7977
Fax: +1 888 846 9774 or +1 919 840 0337
LATIN AMERICA
Rua Cunha Gago, 700 - cj 81
Pinheiros
São Paulo - SP, 05421001
Brazil
Phone: +55 11 2679 4654
Fax: +55 11 2679 4654
UNITED KINGDOM
Regus House, Highbridge, Oxford Road
Uxbridge, Middlesex
UB8 1HR
United Kingdom
Phone: +44 870351 7290
Fax: +44 870351 7291
APAC
for Asia Pacific, Australia, New Zealand, India
23rd Floor Construction Finance Center Building
395-70 Shindaebang-dong, Dongjak-gu, Seoul,
Korea
Phone: +82 2 829 8088
Fax: +82 2 829 8090
ISRAEL
3 Nirim St.
Tel Aviv 67060, Israel
Phone: +972 3 791 4000
Fax: +972 3 791 4008
TURKEY
Turkiye Irtibat Ofisi
Armada Alisveris ve Is Merkezi
Eskisehir Yolu No:6 Kat:12
06520, Sogutozu, Ankara, Turkey
Phone: +90 312 295 6319
Fax: +90 312 295 6200
GERMANY
Hanns-Schwindt-Str.11
81829 München, Germany
Phone: +49 (0)89 4373 7902
Fax: +49 (0)89 4373 7902
NORDICS
Walgerholm 3, 3500 Vaerloese, Denmark
Mobile: +45 2345 7112
SPAIN
Paseo della Castellana 141
Planta 20
28046 Madrid, Spain
Phone: +34 91 789 3491
Fax: +34 91 570 7199
TAIWAN
Room 621, 6F, No.6, Sec.4, Kinyi Road
Taipei, Taiwan
Phone: +886 2 2703 6336
SOUTHERN CHINA
Rm.1315, East Bld. Of Coastal City
No.3, Hai De Avenue
Nanshan-Shenzhen, 518059 China
Phone: +86 755 8627 1622
Fax: +86 755 8627 0217
CENTRAL AND NORTHERN CHINA
Room 1407, 14F, Cimic Tower, 1090, Shiji Avenue
Shanghai, 200120 China
Phone: +86 21 5835 6895
Fax: +86 21 5835 2998
REPUBLIC OF SOUTH AFRICA
West Wing, Birchwood Court
Montrose Street, Vorna Valley
Midrand 1685
RSA, Republic of South Africa
Switchboard: +27 11 655 7190
Phone direct: +27 11 655 7251
Fax: +27 11 655 7011
Company & Share Information:
Listing | London AIM, Ticker: TCM
Core Business | Machine-to-Machine Wireless Solutions
Number of Employees worldwide | 350
Number of Shares Outstanding | 44.5M
Financial Year End | December 31
Accounting Standards | IFRS