TelitCommunicationsPLC7thFloor,90HighHolbornLONDON,WC1V6XXUnitedKingdom Table Of Contents
Introduction
Chairman’s Statement
Chief Executive’s Statement and Review
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
Communications Plc
Financials
Company Information
Telit offices Worldwide
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Introduction
Telit Communication PLC
Telit is a leading global wireless technology company. It develops, manufactures and
markets GSM/GPRS, UMTS/HSPA, CDMA and short range RF (including WiFi and
ZigBee) communication modules for machine-to-machine (m2m) applications. The
Company’s technology and products enable other electronic devices and equipment
manufacturers to utilise cellular infrastructure to relay and accept information without
human intervention. m2m applications therefore enable machines, devices and vehicles to
communicate via wireless 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 strong in-house technology and research and development
expertise.
Telit is listed on AIM (Ticker: TCM).
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.
The m2m Market
The international market for machine-to-machine (m2m) wireless communications is
rapidly growing as wireless communications are now 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.
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Financial highlights
•
•
•
•
•
•
•
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Revenue increased by 48.2% to $131.7 million (2009: $88.8 million).
Gross profit increased by 24.0% to $52.9 million (2009: $42.7 million)
Operating profit for the year of $6.6 million (2009: operating loss of $3.0 million)
EBITDA1 for the year of $12.5 million (2009: $1.4 million)
Adjusted EBITDA1 for the year of $12.4 million (2009: $5.8 million)
Profit before tax of $6.4 million (2009: loss of $4.1 million)
Profit for the year of $8.4 million (2009: loss of $4.2 million)
Net debt decreased to $7.2 million (2009: $10.4 million).
Operational highlights
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•
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Strengthened position in Eastern Europe with an office opened in St Petersburg,
Russia
Continued strong growth in the Americas region
Continued successful product development
Completed unwinding of relationship with Bartolini After Market Electronic
Services ("BAMES")
Change in reporting currency from Euros to US dollars to fully reflect the core
currency flow of the Group's global operations.
Acquisition
Telit makes an important step to substantially enhance its global position in the
m2m market
• On 1 March 2011 Telit completed the acquisition of Motorola Solutions' m2m
modules business and assets, including 33 employees who transferred to Telit. An
additional 8 employees were hired in order to complete the structure necessary to
support the acquired business.
• The acquisition would bring Telit's consolidated pro forma unaudited revenues to
approximately $182 million for the year ended 31 December 2010. This is
equivalent to a pro forma market share of the m2m market of approximately 20%
based on current market analysis (Beecham Research Market Brief: Worldwide
Cellular M2M Modules Forecast, August 2010).
• The Directors believe that the benefits to Telit of acquiring Motorola m2m include
further expansion into the growing m2m market;
o
o opportunities for cross-selling of products and increased customer account
development;
1
EBITDA is defined as earnings before interest, tax, depreciation and amortization and Adjusted EBITDA is
defined as EBITDA excluding share based payments and non-recurring expenses and income
2
o
o
o
enhanced research and development capabilities;
a broadening of Telit's m2m product offering;
enhancement of Motorola m2m’s products through Telit’s commitment to
long-term product support; and
o other cost synergies (including procurement efficiencies and utilisation of
lower manufacturing costs).
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:
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Automated Meter Reading
Car Telematics
Fleet Management and Tracking/Logistics
Point of Sale Terminals/Handhelds
Security Systems and Personal Tracking Devices
Public Transportation and Road Tolling
Vending Machines
Mobile Computing (Mobile Workforce Automation)
Industrial Processes
Information Displays
Healthcare
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 both directly by us or through a global
network of more than 30 distributors.
Telit's headquarters are in Rome, Italy, with regional headquarters in Raleigh NC, USA
and Seoul, Korea. Its R&D centres are in Trieste and Cagliari, Italy, Seoul, Korea and
Sofia Antipolis, France, with regional sales offices in Brazil, China, Denmark, France,
Germany, Great Britain, India, Israel, Italy, Korea, Russia, Spain, the Republic of South
Africa, Taiwan, Turkey and the USA. In 2010, Telit employed approximately 366
employees worldwide.
Telit provides global support to its international customers covering substantially all of
the m2m market verticals. Its vast experience doing business across the globe has helped
Telit establish strong channels and excellent access to key suppliers, customers and
distributors in all major world markets. Telit's diverse worldwide customer base includes
3
cellular operators and cellular distributors, as well as designers, manufacturers and
system integrators of cellular m2m module-based applications.
Telit's Strategy
Our strategy for 2011 is to continue to leverage our position as a leading vendor 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. Through the acquisition of Motorola m2m we acquired
relationships with strong global customers, mainly in the U.S. and the addition of
Motorola m2m's line of products will enable us to service these customers and to offer
our existing and acquired customers an even broader range of products.
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 Group to offer customers solutions ranging from complete
devices to embedded products, including fitting its platform into its customers’ products.
Underpinning its rapid growth rate since it entered the m2m business in 2003, Telit has
three major advantages:
1. 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 application segments - the same size, the
same shape, the same connectors and the same software interface. The advantage
for users is substantial: all modules in a product 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 its competition,
which often changes the size and shape of its modules with new models.
Customers, however, need modules that can be used for many years in their
applications.
2. Scalability: Telit’s modules are tailored for various applications and different
production lot sizes: for quantities of a few thousand units, Telit 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.
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3. 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.
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CHAIRMAN’S STATEMENT
Enrico Testa, Chairman of the Board
2010 has been a year of recovery for the global economy, and the m2m market was no
exception. Within this context, we have continued to focus on continued organic revenue
growth which we have increased by 48.2% over 2009 revenues with significant
improvements at operating and net profitability levels despite a decrease in the gross
profit margin, resulting in a net profit of $8.4 million. The transfer of manufacturing to
China was substantially completed by the beginning of 2010 and provided us with the
competitiveness and flexibility necessary to support our continued revenue growth and
continued increase in market share.
Outlook
We expect to continue with the organic growth in addition to the future growth expected
from the acquisition of Motorola's m2m business unit, completed in Q1 2011, which will
enable us also to improve our operating margins beyond what we achieved in 2010.
We look to 2011 and beyond with excitement, as we continue to gain market share in our
bid to achieve our strategic goal - becoming the number 1 supplier to the m2m market.
Board changes
In June 2010 Michael Galai, Finance Director and General Counsel, stepped down from
the Board of Directors due to an increased workload resulting from his other
commitments. Mr. Galai remains VP Legal & General Counsel of the Company.
Also in June 2010, Mr. Yariv Dafna, the Company's CFO since 2007, was appointed to
the Board of Directors. Mr. Dafna, aged 37, is a Certified Public Accountant (Israel).
In November 2010 Mr. Alexander P. Sator was nominated to the Board of Telit,
replacing Mr. Massimo Testa, who resigned from the Board due to an increased workload
from his other commitments. Mr. Sator, aged 40, was a co-founder of one of the first
software companies in Germany in 1983. After a short career in the scientific industry he
founded Sator Laser in 1996, which focused on the development of lasers and laser
systems for industrial applications, soon becoming market leader for its specific field. In
2001 Domino Printing Services took a stake in this business and in 2005 Mr. Sator sold
his remaining shares. Over the last two years Mr. Sator has been Strategy Advisor for the
mobile business of Deutsche Telekom AG.
Enrico Testa
Chairman of the Board
31 March 2011
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CHIEF EXECUTIVE’S STATEMENT AND REVIEW
Oozi Cats, Chief Executive Officer
INTRODUCTION
2010 has been another year of strong growth for Telit, as the m2m industry emerged with
renewed strength from the economic downturn. Telit continued to gain market share and
2010 revenues represent about 16% market share based on the forecast size of the market
in the Beecham report from August 20102. During the year we achieved a revenue growth
of 48.2%, an operating profit of $6.6 million and an increase of adjusted EBITDA3 to
$12.4 million (2009: $5.8 million). Following the minor increase of revenues from 2008
to 2009 (while the market itself decreased) our growth rate returned to the trend of
previous years and our revenues grew at a rate above the market and our major
competitors.
Below are the key financial figures for 2010 compared to 2009 (note that starting from 1
January 2010, Telit is reporting the results of its operations in US dollars. All
comparative figures have been translated from Euros into US dollars):
Revenue
Gross profit
Gross margin
Other income
Research & Development
Selling & Marketing
General & Administrative
Other Expenses
EBIT
EBITDA
Adjusted EBITDA
2010
$'000
131,678
52,924
40.2%
1,942
(17,606)
(17,300)
(12,500)
(904)
6,556
12,528
12,438
2009
$'000
88,838
42,681
48.0%
68
(15,140)
(15,517)
(11,293)
(3,832)
(3,033)
1,438
5,831
2 Beecham Research Market Brief: Worldwide Cellular M2M Modules Forecast, August 2010
3 EBITDA is defined as earnings before interest, tax, depreciation and amortization and Adjusted EBITDA is defined as EBITDA excluding share based
payments and non-recurring expenses and income.
7
Effects of Foreign Exchange
38% of Telit's revenue in the period ended 31 December 2010 was generated in Euro
(40% in 2009), with the remaining generated in, or linked to other currencies but mainly
to U.S. dollar (USD). However, a substantial part of the Group's purchased materials cost
was denominated in USD during the period.
Following the transfer of the majority of the Group's production to China in 2009
(purchasing in USD) Telit decided to change the reporting currency from Euro to USD
starting from 1 January 2010.
This decision assists management to better manage the Company's currency exposure
and is expected to lead to better reflect the currency environment of the Group
operations. The management will continue to follow and monitor the currency risk on a
quarterly basis and will take the necessary actions to limit these risks.
Financial Results
The indications we provided in our trading update on 20 January 2011 underline the
strength of Telit's position in the global m2m market. The Company's results for 2010
show substantial growth in revenue with a continued improvement in the adjusted
EBITDA and profit before tax.
The results for the year ended on 31 December 2010 reflect substantial like-for-like
growth, strong margins and underlying sales momentum.
•
•
•
•
•
•
•
•
Revenue increased by 48.2% to $131.7 million (2009: $88.8 million).
Gross profit increased by 24.0% to $52.9 million (2009: $42.7 million)
Operating profit for the year of $6.6 million (2009: operating loss of $3.0)
EBITDA4 for the year of $12.5 million (2009: $1.4 million)
Adjusted EBITDA4 for the year $12.4 million (2009: $5.8 million)
Profit before tax of $6.4 million (2009: loss of $4.1 million)
Profit for the year of $8.4 million (2009: loss of $4.2 million)
Net debt decreased to $7.2 million (2009: $10.4 million).
This resulted in an operating profit for 2010 of $6.6 million, a significant improvement
compared to a loss of $3.0 million in 2009 and a profit before tax of $6.4 million,
compared to a loss before tax of $4.1 million in 2009.
Basic and diluted earnings per share from continuing operations were 11 cents and 10
cents respectively for the period compared to a loss of 10 cents per share in 2009.
EBITDA is defined as earnings before interest, tax, depreciation and amortization and Adjusted EBITDA is defined as EBITDA excluding share based
4
.
payments and non-recurring expenses and income
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Inventory levels as at 31 December 2010 were $17.1 million, compared to $8.7 as at 31
December 2009. The increase is mainly due to the shortage of components in late 2009
which resulted in lower than usual inventory levels at the end of 2009 while the 2010
inventory level is higher than usual due to the strong demand in 2010. The 2010
inventory level represents 75 days while the company target is to hold inventory at level
of 45 days.
Net debt position
The Group continues to use cash in its operating activities, investing heavily in research
and development as well as sales and marketing. Despite this, the Group has achieved net
profitability in 2010 and the net debt position at the end of 2010 improved to $7.2 million
(2009: net debt of $10.4 million).
Current borrowings (1)
Non-current borrowings (2)
Cash and cash equivalents
Restricted cash deposits
Total
(1) Included within current borrowings are:
2010
$ ’000
2009
$’000
14,917
7,365
(13,521)
(1,546)
7,215
22,161
4,598
(11,378)
(4,979)
10,402
- The short-term element of the preferential rate loan from the Ministry of Trade
and Commerce in Italy, amounting to $1.0 million and a short-term element of
other bank loans in the amount of $0.1 million.
- Drawn letters of credit and borrowings arising from invoice advances totalling
$12.4 million
- Factoring facilities against qualifying receivables totalling $1.4 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.
(2) Non-current borrowings include $7.0 million represents the long-term element
of a preferential rate loan from the Ministry of Trade and Commerce in Italy
provided in connection with the Group’s business development program in
Sardinia. The loan denominated in Euro and attracts interest at a rate of 0.75%
and is repayable in ten annual instalments that commenced on 20 March 2009.
The Directors believe, based on the past performance of the relevant subsidiaries and the
history of the relationships with the lending banks, that the credit facilities will remain
available to the Group in the foreseeable future and that the Group will be able to
continue to fund its operations from these credit facilities.
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Regional Information
In 2010, a rebound year, the Group increased its revenues by 48.2%. The split of revenue
on a geographical basis for the years ended 31 December 2010 and 2009 is as follows:
EMEA
APAC
AMERICAS
Total Revenue
2010
($'000)
76,529
21,167
33,982
131,678
% of Total
Revenue
58.1%
16.1%
25.8%
100%
2009
($'000)
53,544
21,036
14,258
88,838
% of Total
Revenue
60.3%
23.7%
16.0%
100%
We expect that the Americas and APAC regions will increase their weighting of total
revenue in 2011 and beyond.
Employees
The number of employees of the Group on a geographical basis in 2010 and 2009 is as
follows:
EMEA
APAC
Americas
Total Employees
2010
268
76
22
366
2009
266
74
22
362
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.
Market growth
Telit’s future success is dependent in a large part on the continued growth in the overall
size of the m2m market which is, in turn, a product of the number of m2m modules sold
and the average selling price of an m2m module. A decline in either (i) the average
selling price or the number of units sold which is not matched by a proportionate increase
in the other, or (ii) a decline in both the average selling price and the number of units
sold, would decrease Telit’s addressable market and its growth opportunities.
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Successful growth management
Telit’s future success will depend in part on its ability to manage its anticipated
expansion. If Telit is unable to manage its expansion effectively, including through its
control environment, then its business, financial condition and results of operations could
suffer an adverse effect.
Telit’s strategy
The Group’s strategy carries inherent risks and there can be no guarantee that the
objectives of the Group will be achieved.
Competition
Telit has experienced, and expects to continue to experience, strong competition from a
number of companies. Telit’s competitors may announce or develop new products,
services or enhancements that better meet the needs of customers or changing industry
standards. Further, new competitors or alliances among competitors could emerge.
Increased competition may cause price reductions, reduced gross margins and loss of
market share, any of which could have a material adverse effect on Telit's business,
financial condition and results of operations.
Some of Telit's competitors and potential competitors have significantly greater financial
resources than Telit and have a larger installed base of products or longer operating
histories. Telit's competitors may be able to respond more quickly than Telit can to
changes in customer requirements and devote greater resources to the enhancement,
promotion and sale of its products.
Key management
Telit depends on the services of its key technical, sales, marketing and management
personnel. The loss of the services of any of these persons could have a material adverse
effect on Telit's business, results of operations and financial condition. Telit's success is
also highly dependent on its continuing ability to identify, hire, train, motivate and retain
highly qualified technical, sales, marketing and management personnel in its various
geographical locations. Competition for such personnel can be intense, and Telit cannot
give assurances that it will be able to attract or retain highly qualified technical, sales,
marketing and management personnel in the future. Telit's inability to attract and retain
the necessary technical, sales, marketing and management personnel may adversely affect
its future growth and profitability.
Further details on the Directors and senior management may be found on pages 20 - 21 of
this document.
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Tax
• The Company is subject to the effect of future changes in tax legislation and practice
in the United Kingdom and any other tax jurisdiction affecting the Company or any
other company within its group and such changes could materially and adversely
affect the the Company's ability to achieve its business objectives, decrease post-tax
returns to Shareholders.
• As announced on 15 November 2010, the Company's Italian subsidiary, has received
an assessment from the Italian tax authorities in the amount of approximately €2.7
million in connection with the 2005 tax year - the company is now in discussion with
the tax authorities to settle this assessment.
• As disclosed in the Company's 2009 annual report, the Company's Israeli subsidiary,
is subject to an assessment by the Israeli customs and sales tax authority in relation to
custom duties payable in respect of imports into Israel. It is possible that any
attempts to challenge these assessments will not prove successful, and that provisions
made against the liabilities will prove to be insufficient, which in either case could
have a material adverse effect on Telit's business, financial condition and results of
operations.
Financing
Telit relies on recourse advances invoicing facilities to finance its working capital needs.
There is a risk that this financing will cease to be available to the Group in the future,
potentially at short notice. Should such finance cease to be available there is a risk that
the Group may not be able to secure alternative financing. The lack of availability of
such financing, without having alternative financing source, could have a material
adverse effect on Telit's business, financial condition or results of operations.
Product lifespan, technological change and product development
The Group is in a market that sees continuous technological development. If competitors
introduce new products that employ new technologies, or if new industry or government
standards and practices emerge, Telit’s existing technology and systems may become
obsolete. The future success of the Company will depend, inter alia, on Telit’s ability to:
• enhance its existing products and services;
• address the increasingly sophisticated and varied needs of its customers; and
•
respond to technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
Developing Telit’s technology and product range entails significant technical and
business risks. The Group may use or procure new technologies ineffectively or fail to
adapt its systems to customer requirements or emerging industry standards. If Telit faces
material delays in introducing new products, services or enhancements, it may be at a
significant competitive disadvantage.
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The markets for Telit's products and services are characterised by rapidly changing
technology, evolving industry standards and increasingly sophisticated customer
requirements. Changing customer requirements and the introduction of products
embodying new technology and the emergence of new industry standards can render
Telit's existing products obsolete and unmarketable and can exert downward pressures on
the pricing of existing products. It is critical to the success of Telit to be able to anticipate
changes in technology or in industry standards and to successfully develop and introduce
new, enhanced and competitive products on a timely basis. Telit cannot give assurances
that it will successfully develop new products or enhance and improve its existing
products, that new products and enhanced and improved existing products will achieve
market acceptance or that the introduction of new products or enhancing existing
products by others will not render Telit's products obsolete. Telit's inability to develop
products that are competitive in technology and price and meet customer needs could
have a material adverse effect on Telit's business, financial condition or results of
operations.
The Group may need to incur substantial product development expenditure to keep pace
and ensure compatibility with new technology in its target markets. If Telit fails to
develop and introduce new products, services or enhancements on a timely basis, its
products and services may no longer be acceptable in the marketplace and Telit may be
unable to attract new customers or retain existing customers.
Additionally, as is normal in the software and hardware industry, Telit has in the past
experienced delays in the development, introduction and marketing of new or enhanced
products, and there can be no assurance that Telit will not experience similar delays in the
future. Any significant delays in product development or introduction could have a
material adverse effect on Telit’s business, financial condition and results of operations.
Dependence upon key intellectual property and risk of infringement
Telit's success depends in part on its ability to protect its rights in its intellectual property.
Telit relies upon various intellectual property protections, including patents, copyright,
trade-marks, trade secrets and contractual provisions to preserve its intellectual property
rights. Despite these precautions, it may be possible for third parties to obtain and use
Telit's intellectual property without its authorisation.
Policing unauthorised use of intellectual property is difficult and some foreign laws do
not protect proprietary rights to the same extent as the laws of the United Kingdom. To
protect Telit's intellectual property, Telit may become involved in litigation, which could
result in substantial expenses, divert the attention of its management, cause significant
delays, materially disrupt the conduct of Telit's business or adversely affect its revenue,
financial condition or results of operations.
The industry in which the Group operates has many participants that own, or claim to
own, proprietary intellectual property. In the past the Group has received, and in the
future may receive assertions or claims from third parties alleging that the Group's
13
products violate or infringe their intellectual property rights. The Group may be subject to
these claims directly or through indemnities against these claims which the Group has
provided to certain customers. Rights to intellectual property can be difficult to verify and
litigation may be necessary to establish whether or not we have infringed the intellectual
property rights of others. In many cases, these third parties may be companies with
substantially greater resources than the Group, and they may be able to, and may choose
to, pursue complex litigation to a greater degree than the Group could. Regardless of
whether these infringement claims have merit or not, the Group may be subject to the
following:
•
•
•
•
•
•
•
the Group may be liable for potentially substantial damages, liabilities and litigation
costs, including legal fees;
the Group may be prohibited from further use of the intellectual property and may be
required to cease selling its products that are subject to the claim;
the Group may have to license the third party intellectual property, incurring royalty
fees that may or may not be on commercially reasonable terms. In addition, there is
no assurance that the Group will be able to successfully negotiate and obtain such a
license from the third party;
the Group may have to develop a non-infringing alternative, which could be costly
and delay or result in the loss of sales. In addition, there is no assurance that the
Group will be able to develop such a non-infringing alternative;
the diversion of management’s attention and resources;
the Group's relationships with customers may be adversely affected; and
the Group may be required to indemnify its customers for certain costs and damages
they incur in such a claim.
In the event of an unfavourable outcome in such a claim and the Group's inability to
either obtain a license from the third party or develop a non-infringing alternative, then
the Group's business, operating results and financial condition may be materially
adversely affected and the Group may have to restructure its business.
Strategic partnerships
Part of Telit’s strategy is to leverage its relationships with strategic and manufacturing
partners. There can be no guarantee that Telit will be able to enter into further strategic
alliances or partnership arrangements, or that potential and existing partners will not enter
into relationships with competitors. The Group’s failure to establish further strategic
alliances or the loss of existing partners could have a material adverse effect on its
business and financial condition.
Government and legislative change
There may be changes in future government policy in relation to mobile and wireless
telecommunications which may have a material effect on Telit’s business.
14
Further issues of Ordinary Shares
It may be desirable for the Company to raise additional capital by way of a fresh issue of
Ordinary Shares to enable the Group to progress through further stages of development.
Any additional equity financing may be dilutive to Shareholders. There can be no
assurance that such funding, if required, will be available to the Company.
Non-applicability of the City Code
The Company is not subject to the City Code as the place of central management and
control of the Company is currently located outside of the UK, the Channel Islands and
the Isle of Man. The Panel on Takeovers and Mergers does not regard the Company as
resident in the UK, the Channel Islands of the Isle of Man and therefore, Rule 9 of the
City Code (which requires a shareholder acquiring shares which (taken together with
shares held or acquired by persons acting in concert with him) carry 30 percent or more
of the voting rights of a company to make a mandatory offer for all remaining equity
capital of the company) does not apply. Accordingly, a takeover of the Company would
not be regulated by The Panel on Takeovers and Mergers.
System failures and breaches of security
The successful operation of Telit's business depends upon maintaining the integrity of
Telit's computer, communication and information technology systems. However, these
systems and operations are vulnerable to damage, breakdown or interruption from events
which are beyond Telit's control. Any such damage or interruption could cause
significant disruption to the operations of Telit. This could be harmful to Telit's business,
financial condition and reputation and could deter current or potential customers from
using its services. There can be no guarantee that Telit's security measures in relation to
its computer, communication and information systems will protect it from all potential
breaches of security, and any such breach of security could have an adverse effect on
Telit's business, results of operations or financial condition.
Foreign Exchange
Most of Telit’s revenues and expenses are denominated in either USD or Euros. As a
result, fluctuations in the exchange rate between either USD or the Euro can have a
material impact on Telit’s financial results.
Strategy
Our strategy for 2011 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, through our Infinita services and the integration
of cellular and short range technologies into a complete m2m offering. The strengthening
of our competitive edge and continued acquisition of market share will be supported, to a
15
large degree, by the cost reduction achieved by the move of manufacturing to China in
the second half of 2009.
This strategy takes advantage of key trends in the m2m market:
•
•
The performance
the m2m module
trajectory offered by many of
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.
16
ACQUISITION OF MOTOROLA M2M
On 1 March 2011 Telit completed the acquisition of Motorola m2m from Motorola Israel
Ltd., a subsidiary of Motorola Solutions, Inc. A detailed description of the transaction
was provided to our shareholders in the circular that was posted on 28 January 2011,
ahead of the shareholders meeting that took place on 16 February 2011. The highlights of
this transaction are as follows:
Terms of the Acquisition
Under the terms of the APA, Telit Wireless Solutions Ltd. acquired Motorola m2m, for
an aggregate purchase price of $22.5 million. The assets and liabilities include:
• all rights relating to the existing product portfolio and customer database of the
business;
• other assets related to the business including equipment, inventory and trade
account receivables;
• warranty liability in relation to products already sold by the business (such
warranties typically having a duration of 15 months);
• a perpetual licence of a certain Motorola software (known as P2K) used across
some of the product portfolio (entered into with Motorola Mobility, Inc.); and
• 33 employees. A majority of the employees are located in Israel, with the
remaining employees located in the U.S., the U.K., Germany, Brazil and
Singapore. An additional 8 employees were hired in order to complete the
structure necessary to support the acquired business.
Information on Motorola m2m
Motorola m2m specialises in the design, development, integration, evaluation and
deployment of m2m applications worldwide and offers a variety of m2m modules for
wireless technologies such as GSM/GPRS, CDMA and WCDMA.
Motorola m2m has more than 100 customers and distributors globally, and has developed
partnerships with telecommunications carriers throughout the world.
Motorola m2m’s headquarters are in Tel-Aviv, Israel, while manufacturing of its
products is undertaken in Israel, China and Brazil. The business has not been operated as
a standalone entity and has been dependent on the provision of centralised services from
Motorola.
Unaudited accounting information provided by Motorola indicates that Motorola m2m's
estimated financial performance on a standalone basis over the past four years is as stated
below.
$m
Revenue
Gross Profit
2007
71.7
23.2
2009
43.5
9.4
2010
50.1
10.2
2008
75.8
19.7
17
An analysis of Motorola m2m’s sales for the year ending 31 December 2010 indicates
that the top ten customers contributed approximately 70% of revenues.
Rationale for the acquisition
The Directors believe that the benefits to Telit of acquiring Motorola m2m include:
further expansion into the growing m2m market;
•
• opportunities for cross-selling of products and increased customer account
development;
• enhanced research and development capabilities;
• a broadening of Telit's m2m product offering;
• enhancement of Motorola m2m’s products through Telit’s commitment to long-
term product support; and
• other cost synergies (including through procurement efficiencies and utilisation of
lower manufacturing costs).
Based on Telit’s revenues for the year ended 31 December 2010 and information
provided to the Directors by Motorola, the combined business would have had
consolidated pro forma unaudited revenues of approximately $182 million in 2010. Based
on independent market forecasts, it is estimated that the combined business therefore
would have had pro forma market share of approximately 20% for the year ended 31
December 2010. The Directors believe that the acquisition will enhance Company
earnings in the first year of ownership (excluding amortisation of Group's intangibles
acquired).
Unwinding of Relationship with BAMES
In July 2010 the Company completed an agreement with Bartolini After Market
Electronics Services s.r.l. (“BAMES”), whereby it acquired from BAMES its 10 per cent.
of the ordinary shares in Telit Wireless Solutions s.r.l (“Telit srl”), subsequently owning
100 per cent of the ordinary shares in Telit s.r.l. and the cross-holdings between the two
groups ended.
By way of consideration for the shares in Telit srl, Telit transferred to BAMES its stake
in BAMES' subsidiary, Services for Electronic Manufacturing Srl (“SEM”), being 19.9
per cent of the corporate capital of SEM.
In addition, Telit allotted to BAMES 2,700,000 ordinary shares of Telit. The Parties
further agreed that -
•
•
If, as of 1 February 2011, the value of the 2,700,000 Telit shares is less than €1.5
million, Telit will pay a further amount in cash to bring this element of the
consideration to €1.5 million.
If, on that date, the value of these shares is greater than €1.5 million, Bames will
pay Telit 50% of amount from €1,500,001 and €2,500,000 and 100% of the
amount above €2,500,000, as applicable.
18
In 2010, based on the mechanism described above, Telit recorded a gain from fair
valuation of a financial instrument of $1.2 million and in February 2011 an amount of
$571 thousands was paid to Telit, after BAMES sold the shares.
Outlook
The outlook for the rest of 2011 and the future looks very positive for the m2m industry
as a whole and for Telit in particular. While our marketplace has returned to the robust
growth rate it experienced before the economic downturn, competition has remained
strong. We believe we are well positioned to take advantage of the opportunities ahead
and believe that the acquisition of Motorola m2m will strengthen our strong position
within our industry and we 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. We will focus strongly
on providing the customers of the acquired Motorola m2m business with the excellent
technical and other support that our own customers have come to expect of us, and intend
to maintain Motorola m2m's product line as previously planned by Motorola m2m (i.e.,
no unplanned end of life of Motorola products), to minimize the disruption to the
business of the acquired customers
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 all
employees for their continued commitment to the Company and its success. Their
dedication is an invaluable asset, indeed the core asset of the company. I would also like
to welcome the employees of Motorola m2m into the Telit family.
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, from which our
customers, shareholders and other stakeholders can benefit.
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 Group’s
progress over the coming months.
____________________________
Oozi Cats
Chief Executive Officer
31 March 2011
19
Telit’s Board of Directors
Enrico Testa, Executive Chairman of the Board, aged 60
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 Organizing Committee of the 20th World Energy
Congress and Senior Partner at Franco Bernabè Group, which owns several companies in the IT
sector.
Oozi Cats, Chief Executive Officer of Telit Communications, aged 51
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.
Yariv Dafna, Chief Financial Officer of Telit Communications, aged 37
Yariv Dafna has held the position of CFO of the Telit Wireless Solutions business unit (TWS)
since June 2006 and was actively involved in the purchase of the m2m division of Bellwave
(currently named Telit APAC) and the set up of Telit Americas. Prior to his current position, from
2003 to 2006, he was a financial manager at Dai Telecom Ltd and took an active role in Telit's
IPO on AIM in 2005. Yariv holds a BA in Business Administration and Accounting from the
College of Management Academic Studies (Rishon LeZion, Israel), and is a Certified Public
Accountant. He originally trained as an accountant at Brightman Almagor (Deloitte's Israeli
affiliate) between 1999 and 2000 and he then became a senior auditor and Audit manager in the
TMT audit team until 2003.
Andrea Giorgio Mandel-Martello, Independent Non Executive Director, aged 53
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 home wear; 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.
20
Amir Scharf, Independent Non-Executive Director and Chairman of the Audit
Committee of Telit, aged 45
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.
Alexander P. Sator, aged 40
Mr. Sator, aged 40, was a co-founder of one of the first software companies in Germany in 1983,
while still in his teens. After a short career in the scientific industry he founded Sator Laser in
1996, which focused on the development of lasers and laser systems for industrial applications,
soon becoming market leader for its specific field. In 2001 Domino Printing Services took a stake
in this business and in 2005 Mr. Sator sold his remaining shares. Over the last two years Mr.
Sator has been Strategy Advisor to Deutsche Telekom AG for the mobile business.
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. Yariv Dafna, the
CFO, and Michael Galai, General Counsel, attend 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.
21
Remuneration Committee
The Remuneration Committee consists of Andrea Mandel-Mantello, Chairman, Amir Scharf and
Alexander Sator (having replaced Enrico Testa in 2011), 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.
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
22
Report on Directors' Remuneration
This Report has been approved by the Board together with the financial statements for 2010.
The remuneration committee is chaired by Andrea Mandel-Mantello and also comprises Amir
Scharf and Alexander Sator.
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: An individual’s salary is reviewed and determined by the committee, taking
into account his additional incentives and to align their interests within the Group.
• 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
Oozi Cats and Yariv Dafna, who are entitled to post employment benefits including
pension fund benefits according to their employment agreements, as is customary in Italy.
• Share options: 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 Italy. in an executive position. Mr. Cats'
remuneration from Telit Wireless Solutions Srl. includes his remuneration under the service
agreement with the Company. In addition to his salary, Mr. Cats is entitled to an annual bonus
equal to 3% of the Group's consolidated annual profit before tax.
Andrea Mandel Mantello was appointed pursuant to a letter of appointment with the Company
dated 29 March 2005, terminable on 6 months rolling notice.
Michael Galai was appointed as the Finance Director on 13 September 2007 and resigned in 30
June 2010, returning to his previous position of VP Legal & General Counsel.
23
Yariv Dafna was appointed as the group CFO in February 2007 and joined the board on 30 June
2010, replacing Mr. Galai as Finance Director.
Amir Scharf was appointed as a director on 22 August 2007.
Massimo Testa was appointed as a director on 13 February 2009 and resigned on 5 November
2010.
Alexander P. Sator was appointed as a director on 5 November 2010, replacing Mr. Massimo
Testa.
The emoluments in respect of the year ended 31 December 2010 for the Directors who held office
during the year were as follows:
Salary
and fees
$’000
Benefit in kind
$’000
Annual
bonus
$’000
Post
employment
benefits
$’000
123
926
59
115
26
52
9
13
-
591
64
-
-
115
17
30
49
49
41
8
_______
1,370
-
-
-
-
_______
100
-
-
-
-
_______
655
1,357
164
-
-
-
-
_______
162
106
Total
2010
$’000
149
1,684
149
158
49
49
41
8
______
2,287
Total
2009 1
$’000
216
1,097
173
-
49
49
43
-
_______
1,627
Executive directors
Enrico Testa
Oozi Cats
Michael Galai 2
Yariv Dafna 3
Non-executive directors
Andrea Mandel-Mantello 4
Amir Scharf
Massimo Testa 2
Alexander P. Sator 3
Total - 2010
Total - 2009 1
1 2009 figures were translated from Euro to USD.
2 Up to the date of resignation.
3 From Date of appointment
4 Amounts in respect of the services of Andrea Mandel-Mantello are paid directly to
Advicorp plc, a company under his joint control.
24
Directors' Interests in Shares and Share Options
The directors' interests in shares in the Company are detailed in the table below:
Directors
Oozi Cats1
Massimo Testa2
Enrico Testa3
Alexander P. Sator4
Yariv Dafna
Amir Scharf
Andrea Mandel- Mantello
Michael Galai5
At 31 December 2010
Number of
ordinary
shares
Percentage
of ordinary
share capital
At 31 December 2009
Number
ordinary
shares
Percentage
of ordinary
share capital
of
19,960,357
25.87
20,283,357
-
-
20,283,357
19,960,357
25.87
20,283,357
5,555,742
50,000
nil
nil
nil
7.20
0.06
-
-
-
nil
50,000
nil
nil
nil
27.97
27.97
27.97
-
0.07
-
-
-
1. Mr. Cats directly holds 3,110,357 shares. In addition, Mr. Cats owns 50% of Boostt B.V.
("Boostt"), which holds 15,600,000 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. Massimo Testa is a shareholder of Techvisory and therefore the Company considered
him to be interested in the same amount of shares as Messers Oozi Cats and Enrico Testa,
during his tenure as a director. Mr. Massimo Testa also personally held during his tenure as
director 323,000 shares of the Company and Messers. Oozi Cats and Enrico Testa were
considered as having an interest in these shares as well during that time.
3. Mr. Enrico 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’ and Mr. Massimo Testa's holdings (during
his tenure as director).
4. Mr. Sator is the controlling shareholder of Sapfi Kapital Management GmbH, which holds
5,555,742 shares and is therefore considered as having an interest in these shares.
5. Resigned as director during the year.
_____ ____________________
Andrea Mandel-Mantello
Chairman of the Remuneration Committee
31 March 2011
25
Directors' Report
The directors present their annual report and the financial statements of the Group for the year
ended 31 December 2010.
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 7 to 19, together with a review of the Group’s
principal risks and uncertainties.
Share Options
On 29 January 2009 executives, employees and consultants of the Company and its subsidiaries
were granted 6,407,000 options to purchase approximately 14.4 percent of the Company's issued
and outstanding shares at the time, at an exercise price of £0.20 per share. The options vest in two
or three equal annual installments starting from 29 January 2009 and expire five years from the
date of grant.
On 25 May 2010 executives, employees and consultants of the Company and its subsidiaries were
granted 2,201,000 options to purchase approximately 3.0 percent of the Company's issued and
outstanding shares at the time, at an exercise price of £0.25 per share. The options vest in three
equal annual installments starting from 25 May 2011 and expire five years from the date of grant.
On 30 June 2010 executives, employees and consultants of the Company and its subsidiaries were
granted 2,704,000 options to purchase approximately 3.6 percent of the Company's issued and
outstanding shares at the time, at an exercise price of £0.32 per share. The options vest in three
equal annual installments starting from 30 June 2011 and expire five years from the date of grant.
The number of outstanding options as at 31 December 2010 was 10,764,458, equal to
approximately 13.95% of the outstanding share capital of the Company on said date, and 12.24%
on a fully diluted basis.
26
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 $17.6 million were
expensed in the year, compared to $15.1million in 2009. Internally-generated intangible assets
arising from development costs capitalized amounted to $3.0 million. 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 28 to the financial statements.
Donations
The Group made no charitable or political donations during the year ended 31 December 2010
(2009 - $nil).
Dividends
The Company is unable to pay a dividend in respect of the period (2009: $ nil).
Directors
The following directors have held office during the year and subsequently:
Enrico Testa
Oozi Cats
Michael Galai
Yariv Dafna
Amir Scharf
Andrea Mandel-Mantello
Massimo Testa
Alexander P. Sator
Directors' Indemnities
(resigned on 30 June 2010)
(appointed on 30 June 2010)
(resigned on 5 November 2010)
(appointed on 5 November 2010)
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.
Arrangements relating to shares held by Boostt B.V.
Boostt is currently (31 March 2011) interested in 19,960,357 Ordinary Shares in aggregate (being
approximately 19.75% of the Existing Ordinary Shares). Boostt has entered into financing
arrangements in relation to the Ordinary Shares held by it, such arrangements as at the date of this
27
annual report being as summarised below. Announcements will be made by the Company as
appropriate when it is notified by Boostt of any change in these arrangements.
As previously announced by the Company, on 16 April 2007 Boostt entered into an agreement
with Polar Investments Limited ("Polar") (the "Boostt Share Purchase Agreement") pursuant to
which it purchased 12 million Ordinary Shares from Polar, which was at the time the controlling
shareholder of the Company. Pursuant to the Boostt Share Purchase Agreement, 50% of the
consideration was paid by Boostt immediately, and the remaining 50% was to be paid in six equal
interest-bearing instalments beginning in November 2009 and every six months thereafter, with
the interest being payable every six months beginning from 4 November 2007. 6 million Ordinary
Shares were transferred to Boostt by Polar in May 2007 and 6 million were charged in favour of
Polar and placed in escrow (the "Escrow Shares"), to be released to Boostt in proportion to the
payment of the instalments or to Polar, in the event that the instalments were not paid. Subject to
the escrow arrangements, and according to the provisions of the Boostt Share Purchase
Agreement, Boostt has, from 16 April 2007, been entitled to exercise all rights attaching to all of
the 12 million Ordinary Shares purchased, including but not limited to the rights to nominate
directors, voting rights and the right to participate in dividends and other distributions.
Shares held in escrow
As at the date of this document, 6 million Ordinary Shares remain in escrow pursuant to these
arrangements. In July 2010, Boostt and Polar agreed a change in the terms of payment under the
Boostt Share Purchase Agreement, pursuant to which it is provided that the consideration due
from Boostt is to be settled in full by no later that 1 July 2011 and that upon such settlement the
Escrow Shares will be released from Escrow. If settlement is not made by 1 July 2011, then Polar
will be entitled to enforce its security and take a transfer of the Escrow Shares.
Shares charged to related parties of Boostt
Telit announced on 24 April 2009 that it had been notified that Boostt had granted a charge in
favour of Boostt’s shareholders over 6 million of the Ordinary Shares held by it (the "Charged
Shares"). The charge was granted because Boostt’s shareholders had financed the purchase of
the Charged Shares.
Since 10 December 2010, Boostt has charged a further 3,000,000 of its Ordinary Shares to related
parties of Boostt in order to secure certain funding used to repay part of the loan noted below.
Shares charged in favour of a third party finance provider
As previously announced by the Company, Boostt subscribed for, in aggregate, 3.5 million
further Ordinary Shares in July 2009 and December 2009. Boostt has since notified Telit that it
secured a bank loan of €0.9 million in order to fund these subscriptions, and secured this
financing by charging 9.6 million Ordinary Shares (being all of the Ordinary Shares (including
the Charged Shares) held directly by Boostt except for the Escrow Shares) to the bank. This
charge has since been partially released in relation to 3 million Ordinary Shares as a result of the
part repayment noted above. 6.6 million of the Charged Shares accordingly remain subject to
charges in favour of both the shareholders of Boostt and a third party lender.
28
Details of directors’ share options are provided below:
Existing on
1.1.2010
(exercise price
20p)
2,000,000
1,000,000
200,000
Oozi Cats
Enrico Testa
Yariv Dafna
Expired Exercised
-
-
-
-
-
-
Granted
during the
year (exercise
price 32p)
1,100,000
500,000
250,000
Existing on
31.12.2010
3,100,000
1,500,000
450,000
Date from
which options
granted during
the year are
exercisable
30/06/11
30/06/11
30/06/11
Expiry
date of
options
granted
during the
year
30/06/15
30/06/15
30/06/15
The highest and lowest closing prices of the Company's shares on AIM during 2010 were 22p (20
January to 1 February 2010) and 81.5p (15 December 2010).
On 29 January 2009, Messers Cats, Testa and Dafna were granted 2,000,000, 1,000,000 and
200,000 options, respectively, at an exercise price of £0.20 per options. Mr. Dafna was not a
director at that time.
On 30 June 2010, Messers Cats, Testa and Dafna were granted 1,100,000, 500,000 and 250,000
options, respectively, at an exercise price of £0.32 per option. The options vest in 3 equal
installments on 30 June 2011, 2012 and 2013 and expire, unless previously exercised, on 30 June
2015
The aggregate amount of gains made by directors on the exercise of share options in the year
ended 31 December 2010 was $nil (2009: $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.
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 90 days of
the date of invoice, except where different arrangements have been agreed with suppliers. Trade
creditor days of the Group at 31 December 2010, calculated in accordance with the requirements
of the Companies Act 2006, were 76 days (2009: 94 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.
29
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.
In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment
of KPMG Audit Plc as auditors of the Company is to be proposed at the forthcoming Annual
General Meeting.
By order of the Board
30
Statement of Directors Responsibilities in respect of the annual report and the
financial statements
The directors are responsible for preparing the Annual Report and the group and parent company
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for
each financial year. As required by the AIM Rules of the London Stock Exchange they are
required to prepare the group financial statements in accordance with IFRSs as adopted by the EU
and applicable law and have elected to prepare the parent company financial statements on the
same basis.
Under company law the directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the group and parent company
and of their profit or loss for that period. In preparing each of the group and parent company
financial statements, the directors are required to:
•
•
•
•
select suitable accounting policies and then apply them consistently;
make judgments and estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the group and the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the parent company’s transactions and disclose with reasonable accuracy at any time
the financial position of the parent company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets of the group and to prevent and
detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation in other jurisdictions.
31
Independent Auditors’ Report to the Members of Telit Communications PLC
We have audited the financial statements of Telit Communications PLC for the year ended 31
December 2010 set out on pages 34 to 93. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. 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
As explained more fully in the Directors’ Responsibilities Statement set out on page 31, the
directors are responsible for the preparation of the financial statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s
web-site at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 31 December 2010 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as
adopted by the EU;
the parent company financial statements have been properly prepared in accordance with
IFRSs as adopted by the EU and as applied in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
•
•
•
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements.
32
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006
requires us to report to you if, in our opinion:
(cid:120)
(cid:120)
adequate accounting records have not been kept by the parent company, or returns adequate
for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and
returns; or
(cid:120)
certain disclosures of directors’ remuneration specified by law are not made; or
(cid:120) we have not received all the information and explanations we require for our audit.
______________________
David Neale (Senior Statutory Auditor)
for and on behalf of
KPMG Audit Plc, Statutory Auditor and Chartered Accountants
8 Salisbury Square, London EC4Y 8BB
31 March 2011
33
Telit Communications PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2010
Note
2010
$’000
2009
$’000
Revenue
Cost of sales
Gross profit
Other operating income
Research and development expenses
Selling and marketing expenses
Administrative expenses
Other operating expenses
Operating profit/(loss)
Investment income
Finance costs
Profit/(loss) before income taxes
Tax income/ (tax expense)
Profit/(loss) for the year
2
3
4
9
5
6
7
Other comprehensive income/(loss)
Foreign currency translation differences (net of tax)
Total comprehensive income/(loss) for the year
Profit/(loss) attributable to:
Owners of the Company
Non-controlling interest
Profit/(loss) for the year
Total comprehensive income/(loss) attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income/(loss) for the year
Basic profit/(loss) per share (in USD)
Diluted profit/(loss) per share (in USD)
10
10
131,678
(78,754)
88,838
(46,157)
52,924
42,681
1,942
(17,606)
(17,300)
(12,500)
(904)
68
(15,140)
(15,517)
(11,293)
(3,832)
6,556
(3,033)
47
(155)
6,448
2,001
8,449
(893)
7,556
8,173
276
8,449
7,447
109
7,556
0.11
0.10
118
(1,194)
(4,109)
(113)
(4,222)
532
(3,690)
(4,864)
642
(4,222)
(4,228)
538
(3,690)
(0.10)
(0.10)
Basic weighted average number of equity shares
Diluted weighted average number of equity shares
74,855,355
45,608,802
83,704,528
45,608,802
34
Telit Communications PLC
STATEMENT OF FINANCIAL POSITION
At 31 December 2010
Note
2010
$’000
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investment in associated undertaking
Other investments
Investments in subsidiaries
Other long term assets
Deferred tax asset
Current assets
Inventories
Trade receivables
Other current assets
Deposits – restricted cash
Cash and Cash equivalents
Assets classified as held for sale
Total assets
11
12
13
14
15
17
7
16
17
17
19
19
13
20
LIABILITIES AND SHAREHOLDERS'
EQUITY
Shareholders’ equity
Share capital
Share premium account
Other reserve
Merger reserve
Translation reserve
Retained earnings
Equity attributable to owners of the
Company
Non- controlling interests
Total equity
Non-current liabilities
Other loans
Post-employment benefits
Deferred tax liabilities
Provisions
Other long-term liabilities
27
21
7
24
25
Current liabilities
Short-term borrowings from banks and
other lenders
Trade payables
Provisions
Other current liabilities
Total equity and liabilities
27
22
24
22
12,294
4,210
-
-
-
610
3,574
20,688
17,127
29,560
5,728
1,546
13,521
479
67,961
88,649
1,361
47,800
(2,993)
1,235
(3,669)
(15,336)
28,398
617
29,015
7,365
2,906
-
2,138
295
12,704
14,917
22,199
2,317
7,497
46,930
88,649
Group
2009
$’000
12,705
4,745
669
2,262
-
566
455
21,402
8,674
31,226
8,001
4,979
11,378
-
64,258
85,660
1,293
47,145
(354)
-
(2,943)
(23,886)
21,255
1,654
22,909
4,598
2,925
99
1,199
318
9,139
22,161
25,968
218
5,265
53,612
85,660
Company
2008
$’000
2010
$’000
2009
$’000
2008
$’000
13,754
5,259
669
2,185
-
4,783
763
27,413
14,961
20,284
6,679
544
6,428
-
48,896
76,309
845
38,712
(354)
-
(3,579)
(19,583)
16,041
512
16,553
4,991
2,515
341
1,041
166
9,054
18,596
15,504
197
16,405
50,702
76,309
7,799
8
-
-
44,213
14
-
52,034
-
776
3,604
-
499
-
4,879
56,913
9,284
4
-
-
37,969
6
-
47,263
42
654
980
7,203
4,571
-
13,450
60,713
1,361
47,800
8,052
1,235
2,805
(11,974)
1,293
47,145
8,052
-
3,824
(11,087)
49,279
-
49,279
49,227
-
49,227
-
-
-
-
-
-
-
-
-
-
-
-
-
6
644
36,582
-
-
37,232
-
344
1,176
8,350
881
-
10,751
47,983
845
38,712
8,052
-
1,814
(3,489)
45,934
-
45,934
-
-
-
-
-
-
-
257
-
7,377
7,634
56,913
-
596
-
10,890
11,486
60,713
696
103
-
1,250
2,049
47,983
The financial statements on pages 34 to 93 were approved by the board and authorized for issue on 31 March 2011 and
are signed on its behalf by: Oozi Cats, Director
Company number: 05300693
35
Telit Communications PLC
STATEMENT OF CASH FLOWS
For the year ended 31 December 2010
CASH FLOWS - OPERATING ACTIVITIES
Profit/(loss) for the period from continuing operations
Adjustments for:
Depreciation and amortization
Impairment of investments in subsidiaries
Impairment loss on asset classified as held for sale
Gain on disposal of associated undertaking
Tax (income)/expense
Investment income
Finance costs
Increase in provision for post-employment benefits
Interest on loan provided to subsidiary
Share-based payment charge
Operating cash flows before movements in working
capital:
Decrease/(increase) in trade receivables
Decrease/(increase) in other current assets
(Increase)/decrease in inventories
(Decrease) /increase in trade payables
Increase/(decrease) in other current liabilities
Increase in provisions and other long term liabilities
Cash from/(used in) operations
Income tax paid
Interest received
Interest paid
Net cash from/(used in) operating activities
CASH FLOWS - INVESTING ACTIVITIES
Purchase of property, plant and equipment
Proceeds from disposal of assets
Purchase of intangible assets
Acquisition of other investments from subsidiary
Acquisition of subsidiaries
Additional investment in subsidiary
Change in loan to subsidiary, net
Decrease/(increase) in restricted cash deposits
Net cash (used in)/from investing activities
Group
Company
2010
$’000
2009
$’000
2010
$’000
2009
$’000
8,449
(4,222)
(1,113)
(7,903)
6,005
-
437
-
(2,001)
(47)
155
106
-
377
13,481
793
1,217
(8,482)
(2,706)
5,299
1,025
10,627
(1,209)
47
(155)
9,310
(1,679)
65
(3,654)
-
-
-
-
3,072
(2,196)
4,542
-
-
-
113
(118)
1,194
292
-
561
2,362
(5,891)
2,573
6,979
9,843
(12,433)
268
3,701
(33)
118
(1,194)
2,592
(1,312)
138
(4,434)
-
-
-
-
(4,416)
(10,024)
1,085
1,596
-
(245)
-
-
-
-
(77)
226
1,472
(158)
(3,260)
40
(313)
(2,310)
-
(4,529)
-
-
-
(4,529)
(8)
-
-
(1,936)
(33)
(6)
(3,805)
6,893
1,105
286
4,322
-
(232)
-
(118)
-
-
-
305
(3,340)
(304)
237
(42)
489
7,313
-
4,353
-
118
-
4,471
-
-
(9,579)
-
(36)
-
(2,409)
1,441
(10,583)
36
Telit Communications PLC
STATEMENT OF CASH FLOWS (continued)
For the year ended 31 December 2010
CASH FLOWS - FINANCING ACTIVITIES
Issuance of shares
Exercise of options
Short-term borrowings from banks and others
Proceeds from preferential rate loan (note 27)
Repayment of other loans
Net cash (used in)/from financing activities
Group
2010
$’000
2009
$’000
Company
2010
$’000
2009
$’000
-
64
(6,821)
4,341
(524)
(2,940)
8,881
-
3,667
-
(569)
11,979
-
64
-
-
-
64
8,881
-
-
-
-
8,881
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents - balance at beginning of
year
Effect of exchange rate differences
Cash and cash equivalents - balance at end of year
4,174
4,547
(3,360)
2,769
11,378
(2,031)
13,521
6,428
403
11,378
4,571
(712)
499
881
921
4,571
Non – cash transactions:
1) On January 1, 2009 the Company sold its investments in Cell time Ltd to Dai Telecom Holdings (2000)
Ltd for a consideration of $876 thousand. The Company provided Dai Telecom Holdings (2000) Ltd
with a new loan to fund this acquisition. See also note 15.
2) On June 30, 2009 the Company converted a loan in the amount of $1.4 million in consideration for 1,865
ordinary shares of Dai Telecom (2000) Ltd.
3) On January 1, 2010 the Company sold its direct holding in Dai Telecom Ltd to its subsidiary Dai
Telecom Holdings (2000) Ltd for a consideration of $927 thousand. The Company provided Dai
Telecom Holdings (2000) Ltd with additional loan to fund this acquisition. See also note 15.
4) On May 20 2010 the Company settled a loan in the amount of $720 thousand by assigning the loan to a
third party in consideration for the allotment of 1,703,578 ordinary shares of 1 pence each.
5) On July 1, 2010 the Company acquired its non - controlling interests in the Company's subsidiary, Telit
Wireless Solutions Srl. In consideration, the non - controlling interests acquired from Telit Wireless
Solutions Srl its holdings in the subsidiary of the non-controlling interest and received 2,700,000
ordinary shares of the Company. See also note 1(ab).
6) On December 31, 2010 the Company purchased from Dai Telecom Holdings (2000) Ltd 100% of its
holding in Telit Wireless Solutions Ltd. for a consideration of $700 thousand that was paid by offset
from the shareholders loan. On December 31, 2010 the Company converted $173 thousand of the loan
balance owed by Dai Telecom Holdings (2000) Ltd into 188 ordinary shares of Dai Telecom Holdings
(2000) Ltd.
37
Telit Communications PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2010
Year ended 31 December 2010
Share
capital
$’000
Share
premium
Account
$’000
Merger
reserve
$’000
Other
reserve
$’000
Translation
reserve
$’000
Retained
earnings
$’000
Total
$’000
Non-
controlling
interest
$’000
Total
$’000
1,293
47,145
-
(354)
(2,943)
(23,886)
21,255
1,654
22,909
-
-
-
25
3
-
40
68
-
-
-
594
61
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,235
(2,639)
655
1,235
(2,639)
-
8,173
8,173
276
8,449
(726)
-
(726)
(167)
(893)
(726)
8,173
7,447
109
7,556
-
-
-
-
-
-
-
377
619
64
377
-
-
-
619
64
377
-
(1,364)
(1,146)
(2,510)
377
(304)
(1,146)
(1,450)
1,361
47,800
1,235
(2,993)
(3,669)
(15,336)
28,398
617
29,015
Balance at 1 January
2010
Total Comprehensive
Income for the year
Profit for the year
Foreign currency
translation differences
Total comprehensive
income
Transactions with
owners:
Issuance of shares
Exercise of options
Share-based payment
charge
Arising on acquisition
of non-controlling
interests in Telit
Wireless Solutions Srl
Total transactions with
owners
Balance at 31
December 2010
Year ended 31 December 2009
Share
capital
$’000
Share
premium
Account
$’000
Other
reserve
$’000
Translation
reserve
$’000
Retained
earnings
$’000
Total
$’000
Non-
controlling
interest
$’000
Total
$’000
845
38,712
(354)
(3,579)
(19,583)
16,041
512
16,553
-
-
-
-
-
-
448
8,433
-
-
-
-
448
8,433
-
-
-
-
-
-
-
-
(4,864)
(4,864)
642
(4,222)
636
-
636
(104)
532
636
(4,864)
(4,228)
538
(3,690)
-
-
-
-
-
8,881
561
561
-
-
8,881
561
-
-
561
9,442
604
604
604
10,046
1,293
47,145
(354)
(2,943)
(23,886)
21,255
1,654
22,909
Balance at 1 January
2009
Total Comprehensive
Income for the year
Loss for the year
Foreign currency
translation differences
Total comprehensive
income
Transactions with
owners
Issuance of shares
Share-based payment
charge
Arising on deemed
disposal -minority in
Telit Wireless
Solutions Srl
Total transactions with
owners
Balance at 31
December 2009
38
Telit Communications PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2010
Year ended 31 December 2010
Share
capital
$’000
Share
premium
account
$’000
Merger
reserve
$’000
Other
reserve
$’000
Translation
Reserve
$’000
Retained
earnings
$’000
Total
$’000
Balance at 1 January 2010
1,293
47,145
Total Comprehensive Income for
the year
Loss for the year
Foreign currency translation
differences
Total comprehensive income
Transactions with owners
Issuance of shares
Exercise of options
Share based payment charge
Arising on acquisition of non-
controlling interests in Telit
Wireless Solutions Srl
Total transactions with owners
-
-
-
25
3
-
40
68
-
-
-
594
61
-
-
655
-
-
-
-
-
-
-
1,235
1,235
8,052
3,824
(11,087)
49,227
-
-
-
-
-
-
-
-
-
(1,113)
(1,113)
(1,019)
(1,019)
-
(1,113)
(1,019)
(2,132)
-
-
-
-
-
-
-
226
-
226
619
64
226
1,275
2,184
Balance at 31 December 2010
1,361
47,800
1,235
8,052
2,805
(11,974)
49,279
Year ended 31 December 2009
Share
capital
$’000
Share
premium
account
$’000
Other
reserve
$’000
Translation
Reserve
$’000
Retained
earnings
$’000
Total
$’000
Balance at 1 January 2009
845
38,712
8,052
1,814
(3,489)
45,934
Total Comprehensive Income
for the year
Loss for the year
Foreign currency translation
differences
Total comprehensive income
Transactions with owners
Issuance of shares
Share based payment charge
Total transactions with owners
-
-
-
448
-
448
-
-
-
8,433
-
8,433
-
-
-
-
-
-
-
(7,903)
(7,903)
2,010
2,010
-
(7,903)
2,010
(5,893)
-
-
-
-
305
305
8,881
305
9,186
Balance at 31 December 2009
1,293
47,145
8,052
3,824
(11,087)
49,227
39
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES
(a) General information
Telit Communications PLC (the “Company”) is a company incorporated and domiciled in the UK.
The group financial statements consolidate those of the Company and its subsidiaries (together referred to as
the “Group”) and equity account the Group’s interest in associates and jointly controlled entities. The parent
company financial statements present information about the Company as a separate entity and not about its
Group.
Both the parent company financial statements and the Group financial statements have been prepared and
approved by the directors in accordance with International Financial Reporting Standards as adopted by the
EU (“Adopted IFRSs”). On publishing the parent company financial statements here together with the
Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act
2006 not to present its individual statement of comprehensive income and related notes that form a part of
these approved financial statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods
presented in these consolidated financial statements.
(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 Chief Executive’s Statement and Review on pages 7 to 19. The financial
position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Chief
Executive’s Statement and Review on pages 7 to 19. In addition notes 17, 25, 27 and 28 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. Some of 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 from the Ministry of Trade and Commerce in Italy. Further information is provided
within note 27. The management considers the uncertainty 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 into account 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 maintains constant
negotiations with the banks for renew and increase the credit facilities to meet the required working capital
for the group future growth. In addition, in February 2011 the Company raised additional funds of £19
million ($30 million) through a share issue in the stock market while $22.5 million used for the acquisition of
Motorola m2m and the rest will be used to support the Group's growth.
After making enquiries, the directors have the confidence 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.
40
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(c)
Functional and presentational currency
Commencing on 1 January 2010, the consolidated financial statements are presented in US dollars, which
differs from the functional currency of the Company and those subsidiaries that are not located in the dollar
zone.
The Group and Company decided to change its reporting currency from Euros to US dollars to fully reflect
the Group’s global operations, while increasing management’s ability to react to the effects of foreign
exchange fluctuations as a result of the following developments: 1) moving the production of its products to
China resulting in manufacturing costs denominated in US dollars, compared to the previous arrangement,
with a European manufacturer, where production costs were denominated in Euros; and 2) revenues in US
dollars, or linked to the US dollar, now comprise the biggest share of the Group's overall revenues.
The assets and liabilities of the Company’s subsidiaries that have a functional currency other than the US
dollar are translated at the closing exchange rates prevailing at 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 other comprehensive
income as a separate component called "translation differences". 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 at the balance sheet date.
Following is data on the foreign exchange rates of the US dollar:
At December 31:
2010
2009
2008
Average for the year ended December 31:
2010
2009
exchange
rate
(Euro/US dollar)
1.3362
1.4406
1.3917
1.3268
1.3933
(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 statement of
comprehensive income from the effective date of acquisition.
All intra-group transactions and balances between the Group’s companies are eliminated on consolidation.
41
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
Non- controlling interests in the net assets of consolidated subsidiaries are identified separately from the
Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the
original business combination and the non-controlling’s share of changes in equity since the date of the
combination. Losses applicable to the non-controlling interests in excess of the non-controlling interests in
the subsidiary’s equity are allocated against the interests of the Group except to the extent that the non-
controlling interests has a binding obligation and is able to make an additional investment to cover the losses.
(e) Business combination
From 1 January 2010 the Group has applied IFRS 3 Business Combinations (2008) in accounting for
business combinations. The change in accounting policy has been applied prospectively and has had no
material impact on earnings per share. Business combinations are accounted for using the acquisition method
as at the acquisition date, which is the date on which control is transferred to the Group.
Acquisitions on or after 1 January 2010
For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:
•
•
•
•
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities
assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are
expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent
consideration is classified as equity, it is not re-measured and settlement is accounted for within equity.
Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or
loss. On a transaction-by-transaction basis, the Group elects to measure non-controlling interests either at its
fair value or at its proportionate interest in the recognised amount of the identifiable net assets of the
acquiree at the acquisition date.
Acquisitions before 1 January 2010
For acquisitions before 1 January 2010, goodwill represents the excess of the cost of the acquisition over the
Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised
immediately in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group
incurred in connection with business combinations were capitalised as part of the cost of the acquisition.
(f) Acquisition of non - controlling interests
From 1 January 2010 the Group has applied IAS 27 Consolidated and Separate Financial Statements (2008)
in accounting for acquisitions of non-controlling interest. The change in accounting policy has been applied
prospectively and has had no impact on earnings per share.
42
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
Under the new accounting policy, acquisitions of non-controlling interests are accounted for as transactions
with owners in their capacity as owners and therefore no goodwill is recognised as a result of such
transactions. The adjustments to non-controlling interest are based on proportionate amount of the net assets
of the subsidiary.
Any difference between the price paid or received and the amount by which non-controlling interests are
adjusted is recognised directly in equity and attributed to the owners of the parent.
Prior to the adoption of IAS 27 (2008), goodwill was recognised on the acquisition of non-controlling
interests in a subsidiary, which represented the excess of the cost of the additional investment over the
carrying amount of the interest in the net assets acquired at the date of the transaction.
(g) 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.
(h) Trade receivables
Trade receivables classified as current assets are recognised and carried at original invoice amount, which
the Directors consider to be equal to fair value. Approximate allowances for estimated uncollectible amounts
are recognised in profit or loss when there is objective evidence that the asset is impaired.
Trade receivables classified as non-current assets are recognised at the original invoice amount, discounted
to present value where the effect is material.
(i)
Inventories
Produced finished goods are stated at the lower of cost or net realizable value. Cost comprises direct
materials and, where applicable, direct labor 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.
(j)
Investments
Investments in associated undertakings
An associate is an entity over which the Group or the Company 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 or Company’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 or Company’s interest in those associates are not recognised.
Any excess of the cost of acquisition over the Group’s or Company’s share of the fair value of the
identifiable net assets of the associate at the date of acquisition is recognised as goodwill.
43
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(j)
Investments (continued)
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 recognises an impairment loss.
Company - Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
A gain or loss on partial disposal of investments in subsidiary that do not result in a loss of control are
recognised in the statement of comprehensive income.
(k) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised
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 recognised in the statement of comprehensive income.
(l)
Intangible assets
Other intangible assets with finite lives are stated at cost less accumulated amortisation and impairment
losses. Amortisation is charged to the statement of comprehensive income 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
Trademark
(m) Goodwill
%
15-33
15
20-40
12.5
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 or business recognised at the date of acquisition.
Goodwill is initially recognised as an asset held 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, but is subject to testing for
impairment.
44
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(m) Goodwill (continued)
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 statement of comprehensive income on disposal.
(n)
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:
•
•
•
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.
Internally generated intangible assets are amortised on a straight-line basis over their useful lives, typically
3-5 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.
(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
(excluding goodwill) 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 recognised as an
expense immediately.
45
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(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 statement of comprehensive income 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.
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 recognised for all taxable temporary differences and deferred tax assets
are recognised 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 recognised 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 statement of comprehensive income, 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 non-interest bearing and are stated at their fair 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 recognised in full in the statement of comprehensive
income in the period in which they occur. Gains or losses on the curtailment of a defined benefit plan are
recognised in the statement of comprehensive income when the curtailment or settlement occurs.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined
benefit obligation as adjusted for unrecognised 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.
46
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(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 recognised when goods are delivered and title has passed and revenues from services are
recognised as the services are provided.
Royalty income is recognised 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 recognised when collection of the fee is reasonably assured.
(t)
Leases
Rentals payable under operating leases are charged to statement of comprehensive 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 recognised 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 statement of comprehensive income
using the effective interest method.
In respect of borrowing costs relating to qualifying assets for which the commencement date for
capitalisation is on or after 1 January 2009, the Group capitalises borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset as part of the cost of that asset. Previously the
Group immediately recognised all borrowing costs as an expense charged to the statement of comprehensive
income. This change in accounting policy was due to the adoption of IAS 23 Borrowing Costs (2007) in
accordance with the transitional provisions of such standard; comparative figures have not been restated. The
change in accounting policy had no material impact on earnings per share.
(v) Government grants
Government grants are recognised 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 recognised in other 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.
47
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(w) Non-current assets held for sale (continued)
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 recognised 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 fair value less impairment. 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’s 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.
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 14. Gains and losses arising from changes in fair value are recognised directly in reserves. Where the
investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised
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 recognised 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.
48
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(x) Financial instruments (continued)
Objective evidence of impairment could include:
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 90 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 recognised 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 recognised, the previously recognised 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 recognised.
In respect of available for sale equity securities, impairment losses previously recognised through profit or
loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is
recognised directly in equity.
De-recognition of financial assets
The Group derecognises 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 recognises 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 recognise the financial asset and
also recognises collateralized borrowings 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.
49
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(x) Financial instruments (continued)
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 recognised 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-recognises financial liabilities when, and only when, the Group’s obligations are discharged,
cancelled or expired.
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 25 to the financial statements.
Derivatives are initially recognised 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 recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial
liability. The resulting gain or loss is recognised in profit or loss immediately as the Group has not designated
the derivative as a hedging instrument.
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 had not
vested 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 an appropriate valuation model, for example 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.
50
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(y)
Share-based payments (continued)
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 recognises immediately in the statement of comprehensive
income the amount that otherwise would have been recognised 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 recognised as
an expense in the statement of comprehensive income.
(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 recognised at the date of sale of the relevant products, at the best estimate
of the expenditure required to settle the Group's liability. Other provisions are recognise in accordance with
IAS 37 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 recognised in the financial statements.
Grant receivable
Income relating to government grants is recognised when there is reasonable assurance that the Company has
complied with the conditions attaching to them 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 regional grant income recognised in the statement of comprehensive income for the
year ended 31 December 2010 was $726,000 (2009: $68,000).
As at 31 December 2010 an amount of $2,651,000 (2009: $5,352,000) is recorded in other current assets.
Allocating fair values in a business combination
Acquisitions of shares in subsidiaries are accounted for using the acquisition 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 2010, the carrying value of intangible assets other than the goodwill acquired in business
combinations was $ nil (2009: $512,000). For applicable amortization rates, see note 1(l) above.
51
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(ab) Critical accounting judgments and key sources of estimation uncertainty (continued)
Investments in unlisted entity
Until 30 June 2010, the Group held equity instruments in an unlisted entity for which no active market exists
and hence a quoted market price does not exist. 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 entity specific factors such as liquidity.
On July 1 2010, the Group sold the investment for its book value which was equal to the fair value of the
investment at the date of transfer. See also note 14.
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 statement of comprehensive income. For the year ended 31 December 2010, the total amount recorded in
the statement of comprehensive income was $377,000 (31 December 2009: $561,000).
Accounting for transactions with Bartolini After Market Electronic Services Srl (“BAMES”)
On 20 June 2007, the Group entered into a series of related transactions with BAMES in which BAMES
subscribed for 10% of the share capital of Telit Wireless Solutions Srl for €16.0 million, and the Group
acquired a 19.9% 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 July 2010 the Company and BAMES concluded the unwinding of the cross holdings between the groups,
whereby the Company acquired from BAMES its entire stake in Telit Wireless Solutions Srl giving the
Company 100% ownership of Telit Wireless Solutions Srl share capital, in consideration for Telit Wireless
Solutions Srl 19.9% stake in SEM and the allotment to BAMES by the Company of 2.7 million new ordinary
shares. If, as of 1 February 2011, the value of the 2.7 million shares is less than €1.5 million, the Company
will pay BAMES a further cash sum to bring this element of the consideration to €1.5 million. If, on that
date, the value of these shares is greater than €1.5 million, BAMES will pay the Company 50% of the
amount between €1.5 million and €2.5 million and 100% of the amount above €2.5 million, as applicable.
Accounting for the additional payment required the Group to estimate the fair value of the contingent
consideration initially at the acquisition date and at each reporting date until the contingency is resolved. A
change in the amount of $1,161,000 has been recognised in the statement of comprehensive income.
This transaction resulted in changes in ownership interests while retaining control and is accounted for as a
transaction with equity holders in their capacity as equity holders. As a result, no gain or loss on such
changes is recognised. Also no change in the carrying amounts of assets or liabilities is recognised.
52
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(ab) Critical accounting judgments and key sources of estimation uncertainty (continued)
The difference in the amount of $2,639,000 between the consideration which made up of combination of the
fair value of the shares issued and the contingent consideration plus the elimination of the fair value of the
investment held in SEM was included in merger reserve as a component of equity. The fair value of the
shares issued determined based on the share price at the date of the transaction. The value of the investment
in SEM was determined at its fair value at the date of the transactions which is equal to the acquisition cost.
See note 14.
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.
Recoverability of deferred tax assets
Under IFRS, a deferred tax asset arising on trading losses or deductible temporary differences is only
recognised 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:
•
•
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:
•
•
•
•
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 2010, the Group have recognised a deferred tax asset of $3,574,000 (2009: $455,000).
See note 7 for further information.
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 2010, the amount of development costs capitalized (net of
amortization and grants) included in the Group balance sheet was $7,038,000 (2009: $6,376,000).
Impairment of goodwill
Determining whether goodwill is impaired, requires an estimation of the value in use of the cash-generating
unit to which goodwill has been allocated. The value in use calculation requires 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.
53
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(ab) Critical accounting judgments and key sources of estimation uncertainty (continued)
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:
•
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.
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 2010, the amount of goodwill included in the consolidated balance sheet was $3,534,000 (2009:
$3,495,000).
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 impairment
test for investments in associated undertakings at least annually to consider whether a full impairment review
is required.
Recoverability of investments in associated undertaking (continued)
If the book value of an investment in a non-subsidiary investee exceeds its recoverable value, the Company
recognises an impairment loss. As at 31 December 2010, the book value of the investment in associated
undertakings after the effect of impairment loss provision recorded to reduce the value of the investment to
its expected recoverable amount was $479,000 (2009: $669,000). This asset is included as held for sale this
year. See note 13.
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.
54
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(ac) New Accounting Standards, interpretations and amendments to existing standards that are adopted
for the first time in these financial statements
The Group adopted the following standards as from January 1, 2010:
IFRS 3 (revised in 2008) Business Combinations
IFRS 3 (2008) allows a choice on transaction by transaction basis for the measurement of non-
controlling interests at the date of acquisition (previously referred to as 'minority' interests) either at
fair value or at the non-controlling interests' share of recognised identifiable net assets of the acquiree.
IFRS 3 (2008) changed the recognition and subsequent accounting requirements for contingent
consideration. Previously, contingent consideration was recognised as the acquisition date only if
payment of the contingent consideration was probable and it could be measured reliably; any
subsequent adjustments to the contingent consideration were always made against the cost of the
acquisition. Under the revised standard, contingent consideration is measured at fair value at the
acquisition date and subsequent adjustments to the consideration is recognised against the cost of
acquisition only to the extent that they arise from new information obtained within the measurement
period (a maximum of 12 months from the acquisition date) about the fair value at the date of
acquisition. All other subsequent adjustments to contingent consideration classified as an asset or
liability are recognised in the statement of comprehensive income.
IFRS 3 (2008) requires the recognition of a settlement gain or loss when the business combination in
effect settles a pre-existing relationship between the Group and the aquiree.
IFRS 3 (2008) requires acquisition-related costs to be accounted for separately from the business
combination, generally leading to those costs being recognised as an expense in the statement of
comprehensive income as incurred, whereas previously they were accounted for as part of the cost of
the acquisition. As part of the Improvements to IFRSs issued in 2010, IFRS 3 (2008) was amended to
clarify that the measurement choice regarding non-controlling interests at the date of a acquisition is
only available in respect of non-controlling interests that are present ownership interests and that
entitle their holders to a proportionate share of the entity's net assets in the event of liquidation. All
other types of non-controlling interests are measured at their acquisition-date fair value, unless
another measurement basis is required by other standards.
In addition, as part of Improvements to IFRSs issued in 2010, IFRS 3 (2008) was amended to give
more guidance regarding the accounting for share based payment awards held by the aquiree's
employees. Specifically, the amendments specify that share based payment transactions of the
acquiree that are not replaced should be measured in accordance with IFRS 2 Share based Payment at
the acquisition date.
IAS 27 (revised in 2008) Consolidated and Separate Financial Statements
The application of IAS 27 (2008) has resulted in changes in the Group's accounting policies for
changes in ownership interests in subsidiaries.
Specifically, the revised standard has affected the Group's accounting policies regarding changes in
ownership interests in its subsidiaries that do not result in loss of control. In prior years, in the absence
of specific requirements in IFRSs, increases in interests in existing subsidiaries were treated in the
same manner as the acquisition of subsidiaries, with goodwill or bargain purchase gain being
recognised, when appropriate; for decreases in interest in existing subsidiaries that did not involve a
loss of control, the difference between the consideration received and the adjustment to the non-
controlling interest was recognised in the statement of comprehensive income. Under IAS 27 (2008),
all such increases or decreases are dealt with in equity, with no impact on goodwill or comprehensive
income.
55
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
1.
ACCOUNTING POLICIES (continued)
(ac) New Accounting Standards, interpretations and amendments to existing standards that are adopted
for the first time in these financial statements (continued)
IAS 28 (revised in 2008) Investments in Associates
The principle adopted under IAS 27 (2008) that a loss of control is recognised as a disposal and re-
acquisition of any retained interest at fair value is extended by consequential amendments to IAS 28.
Therefore, when significant influence over an associate is lost, the investor measures any investment
retained in the former associate at fair value, with any consequential gain or loss recognised in
comprehensive income.
As part of Improvements to IFRSs issued in 2010, IAS 28(2008) has been amended to clarify that the
amendments to IAS 28 regarding transactions where the investor loses significant influence over an
associate should be applied prospectively.
(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:
Amendments to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for first time adopters
Amendment to IFRS 7 - Disclosures-Transfers of Financial Assets
IFRS 9 (as amended in 2010) - Financial Instruments
IAS 24 (Revised in 2009) - Related party disclosures
Amendment to IAS 32 - Classification of Rights Issues
Amendment to IFRIC 14 -Prepayments of Minimum Funding Requirement
IFRIC 19 - Extinguishing Financial Liabilities with Equity Instrument
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.
56
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
2.
SEGMENTAL ANALYSIS
The Group
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker in the Group. The chief operation decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments and makes strategic decisions, has been
identified as the Chief Executive Officer.
The Group is organized on a worldwide basis into three geographical segments: EMEA, APAC and
Americas. There are no other segments.
Segmental information for each geographical region in which Telit operates is presented below:
EMEA
$’000
APAC
$’000
Americas
$’000
Total
$’000
Eliminations
$’000
Consolidated
$’000
2010
Revenue
External sales
Inter-segment sales (1)
Total revenue
76,529
34,929
111,458
21,167
3,151
24,318
33,982
-
33,982
131,678
38,080
169,758
-
(38,080)
(38,080)
2,307
2,358
4,179
8,844
-
Result
Segment result
Unallocated corporate expenses (2)
Operating profit
Investment income
Finance costs
Profit before income taxes
Income taxes
Profit for the year
131,678
-
131,678
8,844
(2,288)
6,556
47
(155)
6,448
2,001
8,449
2009
EMEA
$’000
APAC
$’000
Americas
$’000
Total
$’000
Eliminations
$’000
Consolidated
$’000
53,544
36,245
89,789
21,036
874
21,910
14,258
309
14,567
88,838
37,428
126,266
-
(37,428)
(37,428)
3,746
460
(2,214)
1,992
-
Revenue
External sales
Inter-segment sales (1)
Total revenue
Result
Segment result
Unallocated corporate expenses (2)
Operating (loss)
Investment income
Finance costs
Profit before income taxes
Income taxes
Loss for the year
88,838
-
88,838
1,992
(5,025)
(3,033)
118
(1,194)
(4,109)
(113)
(4,222)
Transactions between geographic segments are charged at market prices.
(1)
(2) Unallocated corporate expenses principally comprise salary, professional fees and other expenses which cannot be
directly allocated to one of the segments.
57
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
2.
SEGMENTAL ANALYSIS (continued)
Total assets:
EMEA
APAC
Americas
Unallocated assets
Total assets
Total liabilities:
EMEA
APAC
Americas
Unallocated liabilities
Total liabilities
Unallocated assets comprise:
2010
$’000
2009
$’000
46,013
9,973
8,168
24,495
88,649
27,685
3,414
2,180
26,355
59,634
42,856
13,422
4,705
24,677
85,660
28,204
2,397
951
31,199
62,751
2010
$’000
2009
$’000
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
610
3,574
5,244
1,546
13,521
24,495
566
455
7,299
4,979
11,378
24,677
Unallocated liabilities comprise:
2010
$’000
2009
$’000
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
7,365
14,917
3,778
295
-
26,355
4,598
22,161
4,023
318
99
31,199
58
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
2.
SEGMENTAL ANALYSIS (continued)
2010
Other segment items:
Capitalized tangible and
intangible asset additions
Non-cash items:
Depreciation and
amortization
Bad debt expense
Share-based payments
2009
Other segment items:
Capitalized tangible and
intangible asset additions
Non-cash items:
Depreciation and
amortization
Bad debt expense
Share-based payments
3.
OTHER INCOME
EMEA
$’000
APAC
$’000
Americas
$’000
Consolidated
$’000
4,828
475
30
5,333
4,035
570
329
1,873
35
22
97
4
26
6,005
609
377
EMEA
$’000
APAC
$’000
Americas Consolidated
$’000
$’000
4,115
1,507
124
5,746
3,503
340
491
964
32
32
75
46
38
4,542
418
561
Change in fair value of contingent consideration(a)
Government grants (b)
Other
2010
$’000
2009
$’000
1,161
726
55
1,942
-
68
-
68
(a) The $1,161,000 included in other income is in respect of the change in the fair value of a contingent
consideration element agreed between the Company and BAMES, see also note 1 (ab).
(b) The Group’s eligibility for the annual programs for 2009 and 2010 was approved by the relevant grant
making body during the year. The Group only recognises 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 recognised amounts expected to
be received in respect of the regional grant within other income in the year ended 31 December 2010 as
all the conditions for qualification, which relate to the level of eligible expenditure incurred, have been
satisfied.
59
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
4.
OTHER EXPENSES
Other expense in 2009 related to a compensation payment agreed during July 2009 with BAMES in order to
convert the exclusive agreement with SEM, a leading global electronics service provider, (the Vimercate,
Milan based manufacturing arm of BAMES), to be non-exclusive. As a result of the cancellation of the
exclusivity, the Company paid to SEM a one-time compensation of $3.8 million.
Other expenses in 2010 mainly consists of an impairment loss of $437,000 recorded in respect of the
investment in associate undertaking, (see note 13), and $257,000 expenses related to the Company's
participation in the auction proceedings of a leading market share company in the m2m market.
5.
INVESTMENT INCOME
Interest income from bank deposits
47
118
6.
FINANCE COSTS
2010
$’000
2009
$’000
Interest expense on factoring arrangements
Interest expense on bank loans and overdrafts
Fair value movement on derivative financial instrument
Exchange rate differences
7.
INCOME TAXES
A.
Overseas corporate tax:
Current year taxes
Deferred taxes:
Overseas deferred taxes
2010
$’000
107
1,043
-
995
)
155
(
2010
$’000
(230)
(1,771)
(2,001)
2009
$’000
109
1,042
142
(99)
1,194
2009
$’000
50
63
113
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
60
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
7.
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% for 2010 and 28% for 2009, and the Group’s total tax expense for the
year:
2010
$’000
2009
$’000
Profit/(loss) before income tax from continuing operations
6,448
(4,109)
Tax (credit)/ charge computed at 28% (2009:28%)
(1,805)
1,151
Tax adjustments arising from:
Expenses which are not deductible in determining
taxable profit/(Income exempted)
Allowance of deferred tax asset
Impairment of deferred tax asset
Decrease/(Increase) in taxes resulting from a different
tax rate of subsidiaries operating in other jurisdictions
Utilization of carry forward losses for which no deferred
tax were recorded
Tax losses not utilised
Tax for previous years
Other differences
Tax income/(charge) for continuing operations
64
3,432
(38)
(342)
2,474
(726)
(1,058)
-
2,001
(2,855)
-
(173)
(21)
-
2,225
-
(440)
(113)
C.
Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements
thereon during the current and prior year, after offset of balances within countries:
Net
operating
loss
$’000
Other
timing
differences
$’000
At 1 January 2009
Translation adjustments
(Charge) / credit to the statement of comprehensive
income
At 1 January 2010
Translation adjustments
Credit to the statement of comprehensive income
At 31 December 2010
600
47
(215)
432
(37)
2,941
3,336
(178)
(47)
149
(76)
-
314
238
Total
$’000
422
-
(66)
356
(37)
3,255
3,574
In the year ended 31 December 2010, the Group has recognised deferred tax assets of $2,821,000,
$728,000 and $25,000 in respect of Telit EMEA, Telit APAC and Telit Israel, respectively.
61
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
7.
INCOME TAXES (continued)
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 recognised 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 recognised
Losses for which no deferred tax asset is recognised
2010
$’000
10,259
50,794
61,053
2009
$’000
1,964
63,902
65,866
Following announcements made within the UK Emergency Budget of 22 June 2010, it was proposed
that the full rate of corporation tax be reduced by 1% per annum for 4 years from April 2011,
ultimately bringing the corporation tax down to 24%. The reduction to 27% has now been
substantively enacted and the impact on deferred tax balances has been reflected in these financial
statements. Subsequent to this announcement it has further been announced that this rate will reduce to
23% as a 2% decrease is anticipated from April 2011. This second announcement has not yet been
subsequently enacted.
8.
EMPLOYEES
The average monthly number of persons (including executive
directors) during the year was:
Sales and marketing
Research and development
General and administration
Operations
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2010
2009
78
193
57
38
366
2010
$’000
20,377
3,308
1,586
25,271
64
186
58
54
362
2009
$’000
17,450
3,750
769
21,969
Directors’ remuneration disclosures described within the Directors’ Remuneration Report as audited form
part of these financial statements on page 23.
The Company directly employed 2 persons in the UK during 2010.
62
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
9.
PROFIT/(LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS AND GROUP AUDIT FEE
Profit/(loss) for the year from continuing operations is stated after charging / (crediting)
Net foreign exchange gain
Depreciation of owned fixed assets (note 12)
Amortization of intangible assets (note 11):
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
Impairment loss on investment classified as held for sale
Research and development expenditure
Costs of inventories recognised as an expense
Write-downs of inventories recognised as an expense
Audit fee
2010
$’000
2009
$’000
(995)
1,900
692
-
3,413
437
17,606
76,440
(196)
(99)
1,922
399
332
1,889
-
15,140
45,661
4
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:
Current auditors
Preceding auditors
The audit of the Company’s
subsidiaries pursuant to
legislation:
Current auditors
Preceding auditors
Total audit fees
Other services relating to taxation
Total fees
Group
2010
$’000
2009
$’000
Company
2010
$’000
2009
$’000
153
171
153
171
17
26
173
28
415
26
441
46
-
-
-
199
13
212
8
-
-
-
179
7
186
129
-
209
42
533
103
636
63
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
10. PROFIT/(LOSS) PER SHARE
The calculations of basic and diluted earnings per ordinary share
are based on the following results and numbers of shares:
Profit/ (loss) for the year attributable to the equity shareholders
of the Company
8,173
(4,864)
2010
$’000
2009
$’000
No. of Shares
No. of Shares
Basic weighted average number of equity shares
74,855,355
45,608,802
Diluted weighted average number of equity shares
Basic profit/(loss) per share (USD)
Diluted profit/(loss) per share (USD)
Number of options that are anti-dilutive:
83,704,528
0.11
0.10
45,608,802
(0.10)
(0.10)
-
6,286,667
64
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
11.
INTANGIBLE FIXED ASSETS
Finite lived intangible assets
Internally
generated
development
costs
$’000
Customer
relationships
$’000
Software
and
licenses
$’000
Acquired
technology Goodwill
$’000
$’000
Total
$’000
5,288
243
-
(68)
209
5,672
703
88
(347)
6,116
(1,972)
(1,267)
(111)
(3,350)
(1,242)
198
(4,394)
1,722
2,322
6,736
4,191
(3,614)
-
404
7,717
2,951
-
(29)
10,639
(674)
(622)
(45)
(1,341)
(2,171)
(89)
(3,601)
7,038
6,376
1,501
-
-
-
147
1,648
-
-
(35)
1,613
(659)
(399)
(78)
(1,136)
(692)
215
(1,613)
-
512
963
-
-
-
73
1,036
-
-
(11)
1,025
(632)
(332)
(72)
(1,036)
-
11
(1,025)
3,203
-
-
-
292
3,495
-
-
39
3,534
17,691
4,434
(3,614)
(68)
1,125
19,568
3,654
88
(383)
22,927
-
-
-
-
-
-
-
(3,937)
(2,620)
(306)
(6,863)
(4,105)
335
(10,633)
-
-
3,534
3,495
12,294
12,705
GROUP
COST
1 January 2009
Additions
Grant contribution
Disposals
Translation adjustments
31 December 2009
Additions
Transfer of assets
Translation adjustments
31 December 2010
ACCUMULATED
AMORTIZATION
1 January 2009
Charge for the year
Translation adjustments
31 December 2009
Charge for the year
Translation adjustments
31 December 2010
Net book value
31 December 2010
31 December 2009
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 $3,202,000 (2009: $3,136,000) and $332,000 to the
EMEA segment (2009: $359,000). The amount of customer relationships and acquired technology
attributable to the Asia Pacific segment is $nil (2009: $512,000) and $nil to the EMEA segment (2009: $nil)
Capitalized development costs related to the UMTS/WCDMA and CDMA product lines and will be
amortized over a three to five years period commenced in 2009.
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 goodwill impairment testing
purposes, being the lowest levels within the Group at which goodwill is monitored for internal management
purposes.
65
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
11.
INTANGIBLE FIXED ASSETS (continued)
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 17.5% (2009: 15%)
per year.
The discount pre tax rate applied of 15% (2009: 17%) is based on the long term bond yield, issued by the
government in Korea, adjusted for a country and industry risk premium to reflect both the increased risk of
investing in equities and the systematic risk of Telit APAC.
The recoverable amount of Telit RF 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 cash generating unit'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 5 years, based on an average estimated growth rate of 43% (2009: 51%).
The discount pre tax rate applied of 15% (2009: 15%) is based on the long term bond yield, adjusted for a
country and industry risk premium to reflect both the increased risk of investing in equities and
the systematic risk of Telit RF.
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 considering external forecasts of growth in the M2M industry. An
average growth rate of 16% per year over the next four years has been assumed for the entire m2m market.
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.
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 14.6%-18.5% over the four year period covered by the
forecasts.
Sensitivity analysis on the carrying value of goodwill
If the estimated growth rate applied to the revenue forecasts of Telit APAC had been limited to only 50%, i.e.
8.75% and not 17.5%, the Group would still not recognise any impairment charge.
If the estimated growth rate applied to the revenue forecasts of Telit RF had been limited to only 50%, i.e.
21.5% and not 43%, the Group would have recognised an impairment charge for the entire goodwill of
$332,000.
The Directors consider it unlikely that there will be any changes in key assumptions that would lead to an
impairment loss.
66
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
11.
INTANGIBLE FIXED ASSETS (continued)
COMPANY
COST
1 January 2009
Additions
31 December 2009
Additions
Translation adjustments
31 December 2010
ACCUMULATED AMORTIZATION
1 January 2009
Additions
Translation adjustments
31 December 2010
Charge for the year
Translation adjustments
31 December 2010
Net book value
31 December 2010
31 December 2009
Trademark
$’000
-
9,579
9,579
-
(412)
9,167
-
(285)
(10)
(295)
(1,082)
9
(1,368)
7,799
9,284
On 30 September, 2009 the Company purchased from its subsidiary the entire subsidiary’s right, title and
interest in the IP Rights for a purchase price of $9,579,000 which is equal to the fair market value of the IP
Rights.
67
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
12. PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
1 January 2009
Additions for the year
Disposals
Translation
adjustments
31 December 2009
Additions for the year
Reclassifications
Disposals
Translation
adjustments
31 December 2010
DEPRECIATION
1 January 2009
Charge for the year
Disposals
Translation
adjustments
31 December 2009
Charge for the year
Disposals
Translation
adjustments
31 December 2010
Net book value
31 December 2010
31 December 2009
Computers
$’000
Office
equipment
$’000
Vehicles
$’000
Leasehold
Improvements
$’000
Total
$’000
1,918
175
)1(
63
2,155
429
(79)
(102)
(56)
2,347
(1,023)
(350)
1
(39)
(1,411)
(367)
99
(5)
(1,684)
8,770
1,067
(70)
379
10,146
1,060
(28)
(245)
(341)
10,592
(4,920)
(1,477)
-
(244)
(6,641)
(1,420)
202
224
(7,635)
663
744
2,957
3,505
84
46
-
2
132
77
-
(90)
2
121
(57)
(14)
-
(1)
(72)
(18)
71
(4)
(23)
98
60
803
24
-
11
838
113
20
(68)
39
942
(316)
(81)
-
(5)
(402)
(95)
68
(21)
(450)
11,575
1,312
(71)
455
13,271
1,679
(87)
(505)
(356)
14,002
(6,316)
(1,922)
1
(289)
(8,526)
(1,900)
440
194
(9,792)
492
436
4,210
4,745
68
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
13.
INVESTMENT IN ASSOCIATED UNDERTAKING/ASSETS CLASSIFIED AS HELD FOR SALE
Group
2010
$’000
2009
$’000
Balance at 1 January
Impairment loss
Translation adjustments
Amount reclassified to assets held for sale
Balance at 31 December
669
(437)
247
(479)
-
669
-
-
-
669
In January 2009 the Company entered into and executed agreement with its subsidiary - Dai Telecom
Holdings (2000) Ltd subject to which the subsidiary purchased from the Company its holding rights in its
associated company - Cell-Time Ltd for a consideration of $876,000, which reflected book value at that time.
To finance the purchase the Company provided its subsidiary with a vendor loan for the entire amount.
In December 2010 Dai Telecom Holdings (2000) Ltd entered, together with the other shareholders of Cell-
time, into a letter of Intent, for the sale of 100% of Cell-time's shares to a third party, at an aggregate
consideration of $1.63 million. The Company's part in the expected consideration is $479 thousands. In
accordance with that, an impairment of $437 thousands was recognised and the investment included in assets
classified as held for sale.
The accounts of Cell-Time Ltd. are drawn up to 31 December 2010 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 for the year
2010
$’000
2009
$’000
2,464
48
2,512
2,112
-
2,112
2010
$’000
18,523
(17,682)
841
(637)
(4)
200
2,199
46
2,245
2,069
-
2,069
2009
$’000
17,222
(16,448)
774
(704)
(15)
55
69
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
13.
INVESTMENT IN ASSOCIATED UNDERTAKING/ASSETS CLASSIFIED AS HELD FOR SALE
(continued)
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
14. OTHER INVESTMENTS
GROUP
The Group held 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 had a single
representative on the board of SEM, with the remaining 5 directors appointed by the other shareholder and
had no voting rights beyond those conveyed by its shareholding.
Fair value at the date of acquisition and until the disposal was €1,570,000 ($2,108,000). This was carried at
deemed cost which was 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 was not fully available to the Group as the
Group did not receive and did not have access to financial forecasts or monthly management accounts
information and consequently the Directors did not consider there was sufficient information available to
reliably determine the fair value and the investment was recorded at deemed cost. In July 2010 the Company
sold its entire holdings in SEM, see also note 1(ab).
15.
INVESTMENTS IN SUBSIDIARIES
COMPANY
Investment in subsidiaries
1 January 2009
Additions
Repayments/Disposals
Provision for impairment
Translation adjustments
1 January 2010
Additions(a)
Repayments/Disposals(b)
Interest added to loan principal
Translation adjustments
Conversion of loan to equity(c)
Provision for Impairment(d)
31 December 2010
Loans to
subsidiaries
$’000
Investments in
subsidiaries
$’000
25,239
14,010
-
(4,322)
-
34,927
4,524
(682)
-
-
173
(1,596)
37,346
11,343
4,792
(13,441)
-
348
3,042
4,986
(954)
77
(111)
(173)
-
6,867
70
Total
$’000
36,582
18,802
(13,441)
(4,322)
348
37,969
9,510
(1,636)
77
(111)
-
(1,596)
44,213
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
15.
INVESTMENTS IN SUBSIDIARIES (continued)
(a) During 2010, the Group continued with the reorganization of its legal entity structure to provide a more
simplified operational structure. This has led to an increase in the value of subsidiary investments held in
respect of Telit Wireless Solutions Ltd and m2mapps GmbH. The investment in Telit Wireless Solutions
Ltd transferred from Dai Telecom Holdings (2000) Ltd at fair value and the investment in m2mapps
GmbH transferred from Telit Communications SpA at the book value. In addition the 16.67% held in
Telit Communications Spain SL by Telit Wireless Solutions Inc. transferred to the Company at the book
value. Out of the increase in the value of investment, an amount of $3,785,000 has been recorded in
connection with the purchase of the non-controlling interests in Telit Wireless Solutions Srl. See also
note 1(ab).
During 2010 the Company made additional loans to its subsidiaries as follows: $2,500,000 loan made to
Telit Wireless Solutions Inc.; $500,000 loan made to Telit Wireless Solutions Co Ltd; $927,000 loan
made to DAI Telecom Holdings (2000) Ltd to fund the acquisition from the Company of the 20%
holdings in Dai Telecom Ltd; $149,000 loan made to Telit RF Technology S.A.S. and $910,000 loan
made to Telit Communications Spain SL.
(b) The repayments in 2010 related to the repayment of $254,000 loan balance by Telit RF Technology
S.A.S. and the deduction of $700,000 from the loan balance owed by Dai Telecom Holdings (2000)
which was used to fund the Company's purchase of Telit Wireless Solutions Ltd from Dai Telecom
Holdings (2000) Ltd.
During 2010 the Company had a disposal related to the sale of 20% directly held by the Company in Dai
Telecom Ltd to its subsidiary Dai Telecom Holdings (2000) Ltd.
(c) At December 31, 2010 the Company converted part of an outstanding loan owed by Dai Telecom
Holdings (2000) Ltd in the amount of $173,000 into 188 ordinary shares.
(d) At December 31, 2010 the Company’s Investments in subsidiaries were assessed for indicators of
impairment using the discounted future cash flow method. As a result the Company has recorded a
provision for impairment on its investment in Dai Telecom Holdings (2000) Ltd in the amount of
$1,596,000.
Details of the subsidiary undertakings of the Company at 31 December 2010 are as follows (1 indicates that
the entity is held directly by the Company; 2 indicates that the subsidiary is indirectly held;
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 Principal activity
100%
Telit Wireless Solutions Srl1
("TWS")
Telit Communications SpA2
("Telit EMEA")
Sardinia, Italy Ordinary
100%
Italy
Ordinary
100%
71
Development,
manufacturing and
selling short-range data
products
Intermediate holding
company
Development,
manufacturing and
selling data products
and distributing cellular
products
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
15.
INVESTMENTS IN SUBSIDIARIES (continued)
Country of
incorporation
and
operation
Germany
Type of
shares
Ordinary
Effective
ownership
interest and
voting
rights
100%
Name of company
m2mapps GmbH1
(Previously Telit Wireless
Solutions GmbH)
Telit Wireless Solutions Inc. 1
("Telit Americas")
United States
of America
Ordinary
100%
Telit Communications Spain SL1
Spain
Ordinary
100%
Telit Wireless Solutions
Tecnologia E Servicos Ltda2
Brazil
Ordinary
100%
Telit Wireless Solutions Co Ltd1
("Telit APAC")
Republic of
Korea
Ordinary
90%
Dai Telecom Holdings (2000) Ltd.1
Israel
Ordinary
100%
Telit Wireless Solutions Ltd.
("Telit Israel IL")1
Israel
Ordinary
100%
Principal activity
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
Dai Telecom Ltd. ("Dai
Telecom")2
Israel
Ordinary
100%
Selling and marketing
data products
Telit Labs Ltd 2
Israel
Ordinary
100%
Dormant
Telit Wireless Solutions (Pty) Ltd. 2
("Telit RSA")
Republic of
South Africa
Ordinary
100%
Selling and marketing
data products
16.
INVENTORIES
2010
$’000
12,697
4,430
17,127
Group
2009
$’000
2008
$’000
2010
$’000
Company
2009
$’000
2008
$’000
6,288
2,386
8,674
12,232
2,729
14,961
-
-
-
42
-
42
-
-
-
Finished goods
Raw materials
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 $830,000
(2009: $1,026,000).
72
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
17. RECEIVABLES
Within current assets:
Trade receivables
Other receivables
Due from Group undertakings
Within non-current assets:
Long term receivables
2010
$’000
Group
2009
$’000
2008
$’000
2010
$’000
Company
2009
$’000
2008
$’000
29,560
5,728
-
35,288
31,226
8,001
-
39,227
20,284
6,679
-
26,963
776
705
2,899
4,380
654
29
951
1,634
344
36
1,140
1,520
610
566
4,783
14
6
-
The average credit period on trade receivables that are neither past due nor impaired is 62 days (2009: 81
days). No interest is charged on trade receivables unless previously agreed with the customer. 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 $9,199,000 (2009:
$6,508,000) 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 110 days (2009: 104 days).
Ageing of past due but not impaired trade debtors
1-30 days
30-60 days
60-90 days
90-120 days
2010
$’000
2009
$’000
2008
$’000
4,626
1,078
687
2,808
9,199
3,284
1,360
741
1,123
6,508
2,564
452
1,162
685
4,863
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
The Group’s trade receivables are stated after allowances for bad and doubtful debts, an analysis of which is
as follows:
2010
$’000
2009
$’000
2008
$’000
At 1 January
Arising from acquisition
(Decrease)/increase in allowance recognised in profit or loss
Translation adjustments
At 31 December
1,601
-
(609)
(120)
872
1,129
-
418
54
1,601
433
334
426
(64)
1,129
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 concentration of
credit risk in the Group’s continuing activities is limited due to the customer base being large and unrelated,
but the 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.
73
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
18. OTHER FINANCIAL ASSETS
Loans and receivables:
Due from group undertakings
Other long term assets – note 17
Other receivables
Available-for-sale investments
carried at deemed cost:
Non-current
Shares in unlisted entities (note 14)
Assets outside the scope of IFRS 7:
Current assets
Other receivables
Non-current assets
Investments in subsidiaries (note
15)
Investments in associates (note
13)
Total
2010
$’000
-
610
5,114
5,724
Group
2009
$’000
2008
$’000
2010
$’000
Company
2009
$’000
-
566
7,099
7,665
-
4,783
6,010
10,793
2,899
14
571
3,484
951
6
-
957
2008
$’000
1,140
-
-
1,140
-
2,262
2,185
-
-
-
614
902
669
134
29
36
Group
Company
2010
$’000
2009
$’000
2008
$’000
2010
$’000
2009
$’000
2008
$’000
-
-
-
-
669
669
-
44,213
37,969
36,582
669
669
-
44,213
-
37,969
644
37,226
Included within other receivables are amounts receivable in respect of the Group's grant claims amounting to
$2,651,000 (2009: $5,352,000). These debtors do not have a specified date by which payment is due to the
Group 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 body, no
provision for losses is required.
19. CASH
The Group’s cash resources are as follows:
Group
2010
$’000
2009
$’000
Deposits – restricted cash
Cash and cash equivalents
Total
1,546
13,521
15,067
4,979
11,378
16,357
2008
$’000
544
6,428
6,972
Company
2010
$’000
2009
$’000
-
499
499
7,203
4,571
11,774
2008
$’000
8,350
881
9,231
74
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
19. CASH (continued)
The Group’s cash resources are denominated in the following currencies:
2010
$’000
87
9,413
3,411
1,772
384
Group
2009
$’000
3,784
2,015
7,372
2,255
931
2008
$’000
2010
$’000
Company
2009
$’000
462
1,934
3,780
765
31
87
181
231
-
-
3,784
-
7,990
-
-
2008
$’000
462
-
8,769
-
-
15,067
16,357
6,972
499
11,774
9,231
Sterling
Dollar
Euro
KRW
Other
Total
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 and Telit US. These deposits
attract interest at 1.75% and 0.75%, respectively, 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 27).
20. ALLOTTED SHARE CAPITAL
COMPANY AND GROUP
2010
$’000
2009
$’000
2008
$’000
Allotted, issued and fully paid:
77,169,734 ordinary shares of 1 pence each (2009 and 2008:
72,514,281 and 44,514,281 ordinary shares of 1 pence each,
respectively).
1,361
1,293
845
The Company has one class of ordinary shares which carry no rights to fixed income.
1,500,000 and 26,500,000 ordinary shares were issued in August and December 2009, respectively, for a
gross consideration of £5.7 million.
On 20 May 2010, the Company allotted 1,703,578 ordinary shares of 1 pence each at a price of 29.35 Euro
cents per ordinary share in consideration for a full settlement of a debt owed by the Company to its
previously controlling shareholders.
On July 1 2010 the Company issued 2,700,000 ordinary shares as part of the consideration paid in
connection with the purchase of the non- controlling interest in Telit Wireless Solutions Srl. See also note
1(ab) and note 3.
During 2010 251,875 options were exercised by employees into ordinary shares.
75
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
20. ALLOTTED SHARE CAPITAL (continued)
Share options
The number of outstanding options as of 31 December 2010 and at the date of this report was 10,764,458 and
10,719,458 equal to 13.95% and 10.62% respectively, of the outstanding share capital of the Company
(12.24% of the outstanding share capital of the Company, on a fully diluted basis).
21. 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 recognised pension fund.
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, Telit APAC are as follows:
Movement in post- employment benefit obligations
1 January
Expense recognised in the statement of
comprehensive income
Translation adjustments
Contributions
31 December
2010
$’000
2009
$’000
2,925
570
(125)
(464)
2,906
2,515
614
100
(304)
2,925
The liability in respect of accrued severance pay is $884,000 (2009: $911,000) and the charge to the
statement of comprehensive income in the year is $240,000. The IAS 19 disclosures in respect of the
Group’s unfunded defined benefit obligations in Italy are detailed further in D and E below.
76
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
21. POST-EMPLOYMENT BENEFITS (continued)
D.
Amounts recognised in the statement of comprehensive income in respect of the defined benefit
scheme are as follows:
2010
$’000
2009
$’000
Interest cost
Expense recognised in the statement of comprehensive
income
Disposal
Total expense included in statement of comprehensive
income
84
72
174
330
96
201
(45)
252
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
Actuarial gain
Interest cost
Benefits paid
Disposal
Translation adjustments
31 December
F. Financial assumptions
Discount rate
Expected salary increase rate
Inflation
2010
$’000
2009
$’000
2,014
72
84
(176)
174
(146)
2,022
2010
%
4.40%
-
2.00%
1,822
201
96
(128)
(45)
68
2,014
2009
%
4.60%
3.00%
2.00%
G. The experience adjustments arising on the plan liabilities at the balance sheet date, totaled $241,041
(2009: $205,860).
H. The expected contributions to be paid in 2011 total $175,805.
77
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
22. 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
2010
$’000
12,413
1,421
1,083
14,917
22,199
-
2,317
-
7,497
2009
$’000
19,359
2,253
549
22,161
25,968
-
218
-
5,265
2008
$’000
15,939
1,435
1,222
18,596
15,504
-
197
10,670
5,735
Company
2010
$’000
2009
$’000
-
-
-
-
257
6,807
-
-
570
-
-
-
-
596
9,988
-
-
902
2008
$’000
-
-
696
696
103
1,027
-
-
223
46,930
53,612
50,702
7,634
11,486
2,049
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 76 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.
23. COMMITMENTS AND CONTINGENCIES
Legal proceedings affecting continuing operations
A.
B.
In February 2010 a former employee of Dai Telecom Ltd. filed a claim with the Labor court in Tel-
Aviv against Dai, Telit Israel and Telit Labs, claiming for wrongful dismissal and requesting a
payment of $167 thousands, later reduced to $127 thousands. In the opinion of Company's
management, based, inter alia, on the opinion of its professional advisors, it is not possible at this stage
of the legal proceedings, to assess the chances of the claim.
In October 2009 the Israeli customs authority (the "Authority") began assessment proceedings
regarding the value for the purpose of custom duties of products imported into Israel by Dai, while
examining the need to add to the declared value of the products certain additions, for the period from
2005 to 2008. on 21st April 2010 an assessment (the "Assessment") was served on Dai, demanding
additional import taxes due to two main issues:
1. An addition to the declared value of the imported products equal to the royalties paid by Dai
to Telit Italy in connection with the use, by Dai, of the trademark and the tradename "Telit"
(the "Royalties Issue") (this issue is apparently the major part in the assessment).
2. An addition to the declared value of the imported products equal to development fees paid
to the Korean manufacturer of the products imported by Dai, while some of the
development was carried out outside of Israel (the "Development Fees Issue").
78
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
23. COMMITMENTS AND CONTINGENCIES (continued)
The Assessment is composed of the following components:
1. Purchase tax regarding the Royalties Issue at the sum of $1.1 million.
2. Purchase tax regarding the Development Fees Issue at the sum of $135 thousands.
3. VAT: $1.6 million.
4. Interest and linkage differentials to the CPI: $824 thousands.
5. Penalty due to late payment: $1.2 million.
`
The VAT amount contained within the Assessment, if levied, could be deducted from ongoing VAT
payments made by Dai.
The Assessment does not detail the calculation of interest, linkage differentials and penalties.
The estimations of Company's management, based, inter alia, on the opinion of its professional
advisors are as follow:
1. Dai has valid and strong arguments regarding its claim that the royalties should not have been
added to the value of the products, and there is a strong likelihood that Dai's arguments will
prevail.
2. Dai's arguments that a substantial part of the development fees need not have been added to the
value of the products are valid and it is more likely than not that Dai's arguments will prevail.
3. The VAT portion of the Assessment could, in any case, and in whatever amount, be deducted from
ongoing VAT payments made by Dai.
Dai Telecom Ltd also has the right to appeal the Assessment.
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
Land and buildings
Other
2010
$’000
2009
$’000
2010
$’000
2009
$’000
1,598
1,179
2,777
1,674
1,665
3,339
571
436
1,007
573
1,124
1,697
Minimum lease payments under operating
leases charged to the statement of
comprehensive income for the year
1,710
2,266
820
846
Operating lease payments represent rentals payable by the Group for certain of its office properties.
79
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
23. COMMITMENTS AND CONTINGENCIES (continued)
Guarantees and liens
D.
E.
F.
In 2010, the Company provided guarantees of up to $15 million to certain supplier of Telit EMEA, to
sustain credit line to be granted by the supplier in respect of purchases made.
The Company provides guarantees to certain banks in Italy, Israel and Korea, to sustain credit lines
granted by those banks to the Group's subsidiaries. The guarantees shall not exceed the amount of
$17.4 million.
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 Telit Wireless Solutions Srl capital, it
being understood that the rights to votes, dividends and/or other distributions will remain with the
Company in respect of such quotas. On July 2010 the parties terminated all previous agreements and
as such the Company is in a process to waive such pledge.
24. PROVISIONS
1 January
Utilized in the year
Provided in the year
Exchange differences
31 December
Classified as:
Current liabilities
Non-current liabilities
31 December
2010
$’000
1,417
(1,010)
4,145
(97)
4,455
2,317
2,138
4,455
2009
$’000
1,283
(71)
205
-
1,417
218
1,199
1,417
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.
The Group is involved in various legal or other proceedings incidental to the ordinary course of its business.
Management believes, based on the opinions of the legal advisers handling the different claims, that the
provisions recorded in the financial statements in connection with said claims are sufficient under the
circumstances , and that none of these proceedings, individually or in the aggregate, will have a material
adverse effect on the Group's business, financial position or operating results.
80
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
25. OTHER LONG-TERM LIABILITIES
As at 31 December 2010 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. During 2009 the contract ending date changed to 12
January 2013. The Group pays a fixed rate of interest and receives floating. The fair value of the derivative
has been determined to be $295,130 (2009: $317,864; 2008:$165,861). The fixed interest rate payable by the
Group is Euribor + 1%.
26. SHARE-BASED PAYMENTS
On 2 April 2007 executives of the Company were granted 1,300,000 options to purchase approximately 3%
of the Company's issued and outstanding shares at an exercise price of £0.43 per share. The options vest in
two equal installments 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% of the Company's issued and outstanding shares at an
exercise price of £0.60 per share. 100,000 options vest in two equal installments on 9 July 2008 and 2009
and 1,363,000 vest in three equal installments 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% 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 installments on 10 July 2008 and 2009 and 195,000
options vest in three equal installments 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 installments.
On 29 January 2009 the majority of the options were cancelled by their holders, for no consideration. On the
same date, executives, employees and consultants of the Company and its subsidiaries were granted
6,407,000 options to purchase approximately 14.4% of the Company's issued shares at the time, at an
exercise price of £0.20 per share. The options vest in two or three equal annual installments starting from 29
January 2009 and expire five years from the date of grant.
On 25 May 2010 executives, employees and consultants of the Company and its subsidiaries were granted
2,201,000 options to purchase approximately 3% of the Company's issued and outstanding shares at the time,
at an exercise price of £0.25 per share. The options vest in three equal annual installments starting from 25
May 2011 and expire five years from the date of grant.
On 30 June 2010 executives, employees and consultants of the Company and its subsidiaries were granted
2,704,000 options to purchase approximately 3.6% of the Company's issued and outstanding shares at the
time, at an exercise price of £0.32 per share. The options vest in three equal annual installments starting from
30 June 2011 and expire five years from the date of grant.
81
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
26. SHARE-BASED PAYMENTS (continued)
The number of outstanding options as at 31 December 2010 was 10,764,458, equal to approximately 13.95%
of the issued share capital of the Company.
The number and weighted average exercise prices of share options are as follows:
Number
2010
2009
Weighted average
exercise price
(pence)
2010
2009
Outstanding at beginning of year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at year end
6,286,667
4,905,000
(251,875)
(175,334)
10,764,458
3,524,834
6,407,000
-
(3,645,167)
6,286,667
0.20
0.29
(0.20)
(0.21)
0.24
0.54
0.20
-
(0.53)
0.20
Exercisable at year end
4,019,312
2,647,333
0.20
0.20
The Group recognised a total expense of $377,000 in respect of equity settled share based payment
transactions for the year ended 31 December 2010 (2009: $561,000).
The fair value of these options has been calculated using the parameters set out below:
The weighted average fair value of options granted during the period determined using the Black –Scholes
valuation model was £ 0.013 and £0.014 (2009: £0.0725).
The significant inputs into the model were share price of £ 0.29 and £ 0.33 (2008: £0.185) at the grant dates,
the applicable exercise price for each grant , volatility of 60% (2009:60%), an expected vesting period of
between two to three years, and an applicable five years risk-free interest rate at the grant date of 2.01% or
1.79% (2009: 2.043%). Expected volatility is estimated by considering historic average share price volatility.
27. BORROWINGS
Unsecured – at amortized cost
Current maturities of long term loans
Other long-term loans
Total
2010
$ ’000
1,083
7,365
8,448
Group
2009
$’000
549
4,598
5,147
1,222
4,991
6,213
2008
$’000
2010
$’000
Company
2009
$’000
Secured – at amortized cost
Factoring companies
Short-term bank loans and other borrowings
Total
1,421
12,413
13,834
2,253
19,359
21,612
1,435
15,939
17,374
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
Total
14,917
7,365
22,282
22,161
4,598
26,759
18,596
4,991
23,587
82
2008
$’000
696
-
696
-
-
-
696
-
696
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
27. BORROWINGS (continued)
The other long-term loan includes $7.0 million represents the long-term element of a preferential rate loan
from the Ministry of Trade and Commerce in Italy of $8.0 million with the remaining represents long-term
element of other bank loans provided to the Group. The preferential rate loan provided in connection with the
Group’s business development program in Sardinia. The loan attracts interest at a rate of 0.75% and is
repayable in ten annual installments that commenced on 20 March 2009 and ending on 20 March 2018.
Current borrowings include:
- The short-term element of the preferential rate loan from the Ministry of Trade and Commerce in Italy,
amounting to $971,000 and the short term element of other bank loan provided to the Group in the
amount of $112,000.
- Working capital of credit and borrowings mainly in the form of invoice advances totaling $12.4 million.
These borrowings secured partially by letters of guarantee issued by the Company, see note 23.
Additional available line of credit and invoice advance facilities at 31 December 2010 was $14.9 million.
- Factoring facilities against qualifying receivables totaling $1.4 million. These borrowings are secured
against the factored receivables and are with recourse to the Company in the event that the receivables
are not collected.
The Directors believe, based on the past performance of the relevant subsidiaries and the history of the
relationships with the lending banks, that the credit facilities will remain available to the 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 28.
28. 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.
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:
83
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
28. FINANCIAL RISK MANAGEMENT (continued)
2010
$’000
-
12,982
231
76
Assets
2009
$’000
2008
$’000
2010
$’000
Liabilities
2009
$’000
3,784
3,428
-
-
868
2,299
-
-
-
13,433
-
-
-
5,383
-
-
2008
$’000
-
2,107
-
-
Sterling
US Dollar
Euro
Other
The following table details the Group’s sensitivity to a 10% change in US dollar against the respective
foreign currencies. 10% represents management’s assessment of the possible change in foreign exchange
rates. The sensitivity analysis 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 US
dollar strengthens against the respective currency.
Impact on profit or loss of a 10% change
Impact on profit or loss of a 20% change
2010
$’000
(14)
(29)
Group
2009
$’000
183
366
2008
$’000
106
212
The impact on equity would be equal and opposite to the impact on the profit or loss.
Interest rate risk
Interest rate risk comprises the interest cash flow risk resulting from short-term borrowings at variable rates.
As disclosed in note 27, 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.
The sensitivity analysis 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% 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.
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 $204,000 (2009: decrease/increase by $264,000); 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 decreased during the current period due to the decrease in loan
balances.
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.
84
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
28. FINANCIAL RISK MANAGEMENT (continued)
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. 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
placing funds on deposit with internationally recognised banks with suitable credit ratings.
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 asset
Loan (or investment in) to subsidiaries
Guarantee provided to banks on
subsidiary’s borrowings
2010
$’000
13,521
1,546
29,560
-
610
-
Group
2009
$’000
11,378
4,979
31,226
-
566
-
2008
$’000
2010
$’000
Company
2009
$’000
6,428
544
20,284
-
4,783
-
499
-
776
2,899
14
6,867
4,571
7,203
654
951
6
3,042
2008
$’000
881
8,350
344
1,140
-
11,343
-
-
-
17,353
14,046
17,327
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited to:
• 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 would have to pay if the guarantee is called on, which may be greater
than the amount recognised as a liability as at 31 December 2010 where such guaranteed borrowings
were not fully drawn at that date;
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 27 are details of
additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
85
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
28. FINANCIAL RISK MANAGEMENT (continued)
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.
Group
Fixed rate
Variable
rate
Non-
interest
bearing
debt
Company
Non-
interest
bearing
debt
Guarantees
2010
2009
2008
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
Weighted
average
effective
interest
rate
%
Less
than
1 year
$’000
More
than 1
year
$’000
1.69%
3,665
7,003
0.75%
549
4,598
0.75%
526
4,991
3.91%
11,252
362
2.77%
21,612
-
-
-
-
-
-
-
4.58%
17,374
-
696
-
-
2010
2009
2008
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
Weighted
average
effective
interest
rate
%
Less
than
1 year
$’000
More
than 1
year
$’000
-
-
-
17,353
-
-
-
-
-
14,046
-
-
-
-
696
17,327
-
-
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.
86
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
28. FINANCIAL RISK MANAGEMENT (continued)
Fair value hierarchy
Effective 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are
measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the
following fair value measurement hierarchy:
Level 1 – Quoted prices (unadjusted)in active markets for identical assets or liabilities
Level 2 – Inputs other than Quoted prices included within level 1 that are observable for the asset or liability,
either directly (as prices) or indirectly (derived from prices).
Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December
2010:
Non-current financial liabilities
Derivative financial liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
295
-
87
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
28. FINANCIAL RISK MANAGEMENT (continued)
Categories of financial instruments
Current financial assets:
Assets classified as held for sale
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
2010
$’000
479
15,067
29,560
Group
2009
$’000
-
16,357
31,226
6,828
2008
$’000
2010
$’000
Company
2009
$’000
2008
$’000
-
6,972
20,284
5,894
-
499
776
-
-
11,774
654
-
-
9,231
344
-
-
-
-
2,899
951
1,140
17,127
5,728
8,674
1,173
14,961
785
-
705
42
29
-
36
Total current assets
67,961
64,258
48,896
4,879
13,450
10,751
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
Total Non-current assets
2010
$’000
Group
2009
$’000
2008
$’000
2010
$’000
Company
2009
$’000
2008
$’000
-
610
2,262
566
2,185
4,783
-
14
-
6
-
-
12,294
4,210
-
-
3,574
20,688
12,705
4,745
669
-
455
21,402
13,754
5,259
669
-
763
27,413
7,799
8
-
44,213
-
52,034
9,284
4
-
37,969
-
47,263
-
6
644
36,582
-
37,232
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 IFRS 7 Financial instruments: Disclosure.
88
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
28. FINANCIAL RISK MANAGEMENT (continued)
2010
$’000
Group
2009
$’000
2008
$’000
2010
$’000
Company
2009
$’000
2008
$’000
Financial liabilities at amortized cost
Short-term borrowings from banks and other
lenders
Trade payables
Due to group undertakings
Other current liabilities
Liabilities not meeting the definition of a
financial liability:
Provisions
Other current liabilities
14,917
22,199
-
22,161
18,596
25,968
15,504
-
257
-
-
6,807
6,540
4,699
1,748
-
-
596
9,988
720
696
103
1,027
-
2,317
957
218
566
197
14,657
-
570
-
182
-
223
Total current liabilities
46,930
53,612
50,702
7,634
11,486
2,049
Non-current financial liabilities at
amortized cost:
Other loans
7,365
4,598
4,991
Financial liabilities at fair value through
profit or loss
Derivative financial instruments
Liabilities not meeting the definition of a
financial liabilities / outside the scope of
IFRS 7
Post-employment benefits
Deferred tax liabilities
Provisions
295
318
166
2,906
-
2,138
2,925
99
1,199
2,515
341
1,041
Total Non-current liabilities
12,704
9,139
9,054
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
89
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
28. FINANCIAL RISK MANAGEMENT (continued)
Capital risk management
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 27, 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 38.
Gearing Ratio
The Group defines debt as both long and short term borrowings as detailed in note 27. 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:
2010
$’000
Group
2009
$’000
2008
$’000
Debt
Cash and cash equivalents, including restricted
cash
Net debt
22,282
26,759
23,587
(15,067)
7,215
(16,357)
10,402
(6,972)
16,615
Shareholders’ equity
Net debt to equity ratio
28,398
25.4%
21,255
48.9%
16,041
103.6%
The Company is not subject to any externally imposed capital requirement.
29. 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 29 January 2009, after having waived their existing options, Messers Cats, Testa and Galai were
granted 2,000,000, 1,000,000 and 200,000 options, respectively, at an exercise price of £0.20 per option.
The options vest over a 2 years period, as follows: 925,000 (Mr. Cats), 700,000 (Mr. Testa) and 100,000
(Mr. Galai) of the options, respectively, were vested on the date of the grant with the remaining options
vesting in 2 equal annual installments on January 29 2010 and 2011.
B. On 30 June 2010, Messers Cats, Testa and and Dafna were granted 1,100,000, 500,000 and 250,000
options, respectively, at an exercise price of £0.32 per option. The options vest in three year equal
annual installments starting from June 30, 2011 and expire five years from the date of grant.
90
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
29. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued)
Vested
Unvested
Expired
Total
Chairman of the Board
CEO
CFO
Total
1,000,000
2,000,000
150,000
3,150,000
500,000
1,100,000
300,000
1,900,000
-
-
-
-
1,500,000
3,100,000
450,000
5,050,000
The compensation attributable to the key personnel, calculated as the incremental fair value of the
options to be expensed over the period of vesting, is $251,000 (2009: $67,000).
C. The following disclosures in respect of directors’ remuneration should be read in conjunction with those
included within the Directors’ Remuneration Report:
Share based payments
Directors’ emoluments
Company contributions to money purchase
pension plans
Total
Group
2010
$’000
148
2,125
162
2,435
2009
$’000
248
1,521
106
1,875
D. Mr. Cats directly holds 3,110,357 Ordinary Shares, representing 4.03% 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
15,600,000 Ordinary Shares, representing 20.22% 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 1.62% 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
19,960,357 Ordinary Shares, representing 25.87% 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 17.
(b) Accounts payable - See note 22.
(c) Trading transactions
Cost of sale - purchases from subsidiary
501
1,137
2010
$’000
2009
$’000
91
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
29. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (continued)
(d) Loans receivable – See note 15.
(e) Financing transactions
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.
The Company provides guarantees to certain banks in Italy, Israel and Korea, amounting to $17.4 million
(2009: $14.05 million).
At the balance sheet date the Company had deposited $nil million (2009: $7.2 million) in Italian bank
accounts, to act as security in relation to the credit facilities granted by those banks to Telit EMEA.
30.
INFORMATION ON THE COMPANY
As permitted by the Companies Act 2006, the profit and loss account of the Company is not presented in this
Annual Report. The loss for the year amounted to $1,113,000 (2009: loss of $7,903,000).
31. SUBSEQUENT EVENTS
A. On 16 February 2011 the general meeting of the Company's shareholders approved a placement of
23,793,750 new ordinary shares at 80 pence each to raise approximately $30 million (£19.0 million)
before issuance expenses. The raised money used to fund the acquisition of Motorola Solutions' m2m
modules business.
B. On March 1, 2011 the Company's subsidiary Telit Wireless Solutions Ltd ("Telit Israel) completed the
acquisition of Motorola Solutions' m2m modules ("Motorola m2m") business and assets from Motorola
Israel Ltd., a subsidiary of Motorola Solutions Inc for a sum of $22.5 million excluded VAT. Motorola
m2m specialist in the design, development, integration, evaluation and deployment of m2m applications
worldwide and offers a variety of m2m modules for wireless technologies. The Company's directors
believe that the acquisition of Motorola m2m will strengthen Telit's strong position within the industry.
Under the terms of the Asset Purchase Agreement, the assets and liabilities in the transaction include:
all rights relating to the existing product portfolio and customer database of the business;
•
• other assets related to the business including equipment, inventory and trade account receivables;
• warranty liability in relation to products already sold by the business (such warranties typically
•
having a duration of 15 months);
a perpetual license of a certain Motorola software (known as P2K) used across some of the product
portfolio (entered into with Motorola Mobility, Inc.); and
• 33 employees. A majority of the employees are located in Israel, with the remaining employees
located in the U.S., the U.K. Germany, Brazil and Singapore.
92
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2010
31. SUBSEQUENT EVENTS (continued)
No assessment of the fair values of the assets and liabilities acquired has yet been completed due to the
proximity of the transaction completed compared to the finalization of these financial statements. The book
value of the assets purchased is as follows:
Accounts receivable, net
Inventory
Property, plant and equipment
License
Total identifiable assets
Consideration paid
Excess of cost
Book value
$’000
9,651
3,343
1,385
1,000
15,379
22,530
7,151
93
Company Information
Directors, Secretary and Advisers
Company Registration No. 05300693
Directors
Enrico Testa, Chairman
Oozi Cats, Chief Executive Officer
Yariv Dafna, Chief Financial Officer
Amir Scharf, Independent Non-Executive director
Andrea Mandel-Mantello, Independent Non-Executive director
Alexander P. Sator, Non-Executive Director
Company Secretary
Michael Galai
Registered Office
7th Floor, 90 High Holborn, London WC1V 6XX
Nominated Adviser
and Broker
Investec Bank Plc
Solicitors
Olswang
7th Floor, 90 High Holborn
London WC1V 6XX
Independent Auditors KPMG Audit Plc
Chartered Accountants
8 Salisbury Square,
London EC4Y 8BB
Registrar
Capita Registrars Limited
The Registry
34 Beckenham Road, Beckenham, Kent BR3 4TU
94
Telit Offices Worldwide
CORPORATE HEADQUARTERS
Via San Nicola da Tolentino n.1/5
Rome, Italy
Phone: + 39 06 4204601
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
UNITED KINGDOM
Lakeside House
1 Furzeground Way
Stockley Park
Heathrow UB11 1BD
United Kingdom
Phone: +44 784197 9110
ISRAEL
3 Nirim St., Tel Aviv 67060, Israel
Phone: +972 3 7914000
Fax: +972 3 791 4025
TURKEY
Turkiye Irtibat Ofisi
Armada Alisveris ve Is Merkezi
Eskisehir Yolu No:6 Kat: 12
06520, Sogutozu, Ankara, Turkey
Phone: +90 312 295 63 19
Fax: +90 312 295 62 00
GERMANY
Hanns-Schwindt-Str.11
81829 München, Germany
Phone: +49 (0)89 43737902
Fax: +49 (0)89 43737902
NORDICS
Kirke Vaerloesevej 22, 3500
Vaerloese, Denmark
Mobile: +45 2345 7112
SPAIN
Paseo de la Castellana, 141. Planta 20
28046 Madrid - Spain
Phone: +34 91 7893491
Fax: +34 91 5707199
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
ASIA PACIFIC
For APAC, Australia, New Zealand
23rd Floor Construction Finance Center Building
395-70 Shindaebang-dong, Dongjak-gu,
Seoul, Korea
Phone: +82 2 829 8088
Fax: +82 2 829 8090
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 86271622
Fax: +86 755 86270217
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
Building 1, Prism Office Park
Ruby Close, Fourways 2055
Republic of South Africa
Phone: +27 11 367 0607
Fax: +27 11 467 3708
INDIA
#606, Mahatta Tower, B-Block,
Community Centre, Janak Puri,
New Delhi - 110058, India
Phone: +91 11 45066240-42
Fax: +91 11 45066243
95
TelitCommunicationsPLC7thFloor,90HighHolbornLONDON,WC1V6XXUnitedKingdom