Table of Content
Introduction
Chairman's Statement
Chief Executive's Statement
Principal Risks and Uncertainties
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
Financial Statements
Company Information
1
8
9
13
16
17
19
24
28
29
31
88
Introduction
Telit Communications PLC
Telit Communications PLC is a leading global wireless technology company (hereinafter "the Company" or
"Telit"). It develops, manufactures and markets GSM/GPRS, CDMA/WCDMA, UMTS/HSPA, EVDO, LTE,
short range RF (including ZigBee) and GPS 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 intellectual property and boasts strong in-house technology and research
and development expertise.
Through its m2mAIR service portfolio, Telit provides its customers with managed services, including remote(cid:3)
SIM and module management, security, location based services, software update over the air and connectivity.
Telit is listed on AIM (Ticker: TCM).
The m2m market
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 international market for machine to machine 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 into their business as their
operations expand and modernise.
The IMS Research (now part of IHS) report on the m2m sector “The World Market for Modules in m2m
Communications - 2012 Edition”, predicts that the market will enjoy high growth over the coming years. IMS
Research believes that the number of units to be shipped will reach 118.5 million by 2016 representing a
2010-16 CAGR of 24.1%. Beecham Research in its “m2m Cellular Modules Forecast” report issued in July
2012 projects an average selling price decline of 8.9% p.a. resulting in a CAGR of 13.3 % growth in monetary
value of the sector from 2010 through 2016 with a total value of m2m module market of $1.96 billion in 2016.
1
Financial highlights1
(cid:120) Revenue for the year increased by 16.9% to $207.4 million (2011: $177.4 million) largely attributed
to sales in the US and EMEA markets.
(cid:120) Gross profit for the year increased by 13.4% to $76.9 million (2011: $67.8 million) with gross margin
of 37.1% (2011: 38.2%).
(cid:120) Research & Development expenses decreased by $1.0 million to $20.1 million (9.7% of revenues)
compared to $21.1 million in 2011 (11.9% of revenues). Sales & marketing expenses increased by
$5.2 million to $30.5 million (14.7% of revenues) compared to $25.3 million in 2011 (14.2% of
revenues). The increase is mainly due to the Navman acquisition, the set-up of the m2mAIR business
unit and the opening of new sales offices. General & administrative expenses increased to $19.7
million (9.5% of revenues) compared to $17.5 million in 2011 (9.9% of revenues).
(cid:120) Adjusted EBIT increased from $6.9 million in 2011 to $10.6 million.
(cid:120) Adjusted EBIT for the year increased by 53.1% to $10.6 million (2011: $6.9 million).
(cid:120) Adjusted Profit before tax for the year increased by 68.7% to $9.6 million (2011: $5.7 million).
(cid:120) Adjusted Profit for the year increased by 100.8% to $8.9 million (2011: $4.4 million).
(cid:120) Adjusted basic earnings per share for the year were 8.6 cents compared to 4.5 cents in 2011.
(cid:120) Net equity increased by 9.2% to $66.4 million (2011: $60.8 million).
(cid:120) Adjusted EBITDA increased to $17.3 million reflecting an EBITDA margin of 8.4% (2011: $13.1
million; 7.4%).
(cid:120) Basic earnings per share for the year were 3.8 cents compared to 1.6 cents in 2011.
Operational highlights
(cid:120) The Group made a number of significant investments in 2012 including the set-up of the m2mAIR
business unit, the integration of Navman Wireless OEM Solutions LP and the opening of new sales
offices in Australia, Hong Kong, Canada, Russia and the Czech Republic. As a result of these new
sales offices, sales and marketing expenditure increased to $30.5 million (2011: $25.3 million). All of
these activities are expected to contribute towards Telit’s growth in 2013.
(cid:120) Launch of m2mAIR in 2012, a business unit dedicated to aggregating value to the module business
with value added services, including connectivity. This strategic move will enable the Company to
add an increasing layer of recurring revenues to its business model during 2013.
In 2012, the Company entered into an underlying agreement with Telefónica, a top tier
telecommunications company, for the purpose of facilitating m2mAIR. m2mAIR offers its customers:
(cid:120)
(cid:131) Global coverage through the footprint of Telefónica and its roaming partners.
(cid:131) Blue-chip customer pricing for mid-size/small customers.
(cid:131) High quality m2m service management platform.
(cid:131) m2m value added services and connectivity including over the air Remote Module
Management.
According to 2011 Berg Insight market research, 2013 revenues for the market in which m2mAIR
operates are expected to be $7.3 billion, growing to $15.5 billion in 2016. These revenues are
currently captured by operators and service providers around the world.
(cid:120) Successful integration of Navman Wireless OEM Solutions LP (“Navman”), a leading designer and
manufacturer of location technologies, including the Global Positioning System (GPS) and Global
Navigation Satellite System (GNSS). Navman Wireless augmented our location product portfolio and
enhances our ability to service the needs of our customers.
(cid:120) Development of 4G LTE designed for use in the most demanding automotive applications.
1
For reconciliation from IFRS financial results to adjusted financial results please refer to the table on page 9.
2
Acquisitions
(cid:120) Acquisition of Navman Wireless OEM Solutions LP, a leading designer and manufacturer of world-
class GPS modules and solutions, completed in January 2012. This acquisition has enhanced Telit’s
location product portfolio.
(cid:120) Acquisition of CrossBridge Solutions Inc. (“CrossBridge”), a premier US based m2m data and value
added services provider located in Lincolnshire, Illinois, USA in December 2012. The acquisition of
CrossBridge and its US based engineering and sale staff will allow us to expand Telit m2mAIR
business unit offerings in m2m value added services and connectivity to the USA.
Regional Information
The split of revenue on a geographical basis for the years ended 31 December 2012 and 2011 is as follows:
2012
($'000)
% of Total
Revenue
107,076
74,966
25,350
207,392
51.6%
36.2%
12.2%
100%
2011
($'000)
88,861
57,317
31,187
177,365
% of Total
Revenue
50.1%
32.3%
17.6%
100%
EMEA
Americas
APAC
Total Revenue
EMEA
The EMEA results for 2012 epitomize one of the key words defining the m2m market: Diversification.
Telit’s strategy is, and has been, not just to focus on a few large projects, but to follow many diverse projects
in the m2m market, either directly or through our distribution network. As a result, over the years we have
managed to build a very broad customer base, with diverse applications. This is one of the pillars of our
success and is designed to lead to stability and long term growth.
The acquisition of Navman at the beginning of 2012 gave us access to the Global Navigation Satellite Systems
(“GNSS”) market. We successfully integrated Navman’s sales network into Telit and the new products have
been well received amongst our customers. Navman’s growth in revenues has been over 100% in 2012 and we
are aiming for the same success in 2013. Our target is to be a leader in GNSS space in the telematics vertical
just as we are today for cellular modules.
Another significant milestone for Telit EMEA during last year was the launch of m2mAIR. The take-up of our
value added services and connectivity has exceeded our expectations. This is confirmation that our value
added proposition corresponds with our customers’ needs. It brings them an easy and straightforward way to
deploy their projects, allowing them to focus on their core business and relying on Telit for the remote
management and connection of their devices in the field. We see 2013 as a phenomenal growth opportunity
for m2mAIR, based on number of pilots in place and customers already showing interest in our proposals.
We still see uncertainties in the broader eurozone economy which may not stabilize until 2014 or later.
Nevertheless and regardless of the slowdown of the economy in 2012, our strategy during 2012 was to keep
investing resources in key markets, including Germany, France and Central Eastern Europe. This strategy has
allowed us to strengthen our leadership position in EMEA and is expected to contribute to our growth in the
general market during the coming years.
3
Americas
In 2012, the transition from 2G to 3G/4G technology continued at a rapid pace. The trend away from GPRS to
3G and CDMA was dramatic in North America. For Telit, the 910-form factor was very popular with
customers who have multi region and multi carrier requirements. Telit received certification for many variants
of the 910-product family on the major US carriers, including HSPA, HSPA+, EV-DO and low-cost 1xRTT
products.
Telit became an associate member of Intel’s Intelligence Systems Alliance and met new customers in the
embedded computing space that provide industrial grade computers for a variety of computing intensive
applications, such as gaming machines, medical devices, kiosks and digital signage. With the introduction of
the Mini PCI Express card application developers are now able to integrate m2m capabilities into their
solutions that need high-performance and cellular connectivity. Moreover, Telit, with Intel as the platinum
sponsor, hosted its second Developers Conference in San Diego, Telit DevCon 2012, which connected
industry experts with embedded application developers.
During 2012, Telit was involved in several major projects including the following:
(cid:120) For an industry leading m2m communications solutions provider, which develops end devices, such as
cellular routers and modems, Telit provided HE910-D penta-band HSPA+ modules and DE910-DUAL
EV-DO CDMA modules to offer faster communication speeds with the newest network technologies.
(cid:120) A customer which is an innovative global player in Internet of Things, m2m and connected devices and
solutions, now uses the low power consumption of Telit's C24, G24L and H24 modules, for fleet and
asset tracking applications.
(cid:120) A leading global provider of innovative and sustainable solutions for the management of waste and
recycling now enables connectivity for solar compactors and waste receptacles with Telit's GE864-
QUAD V2 module.
(cid:120) Another customer provides a hand-held device that helps field technicians optimize 3G m2m device
installations using Telit’s CC864-DUAL, UC864-G and DE910-DUAL modules.
(cid:120) A leading wireless medical technology company that focuses on the diagnosis and monitoring of cardiac
arrhythmias, uses the CC864-DUAL to capture and transmit cardiac data while a patient is ambulatory.
(cid:120) A developer of ready, off-the-shelf telematics products, selected Telit’s HE910 to enable connectivity in
their solution for monitoring people, pets, personal belongings and commercial assets. They also selected
the HE863 for their next-generation Interface, which monitors vehicle usage and driver behaviour with
instant access to fuel levels, idling times, maintenance status and more.
(cid:120) A customer with innovative out-of-the box remote wireless monitoring solutions, selected Telit's G24 and
H24 modules for its product lines, to enable real-time monitoring of a wide range of mobile and fixed
industrial assets, such as gas lines, irrigation systems, chemical tanks and automotive fleets.
Telit’s acquisition in December 2012 of CrossBridge, a premier US based m2m data and value added services
provider located in Lincolnshire, Illinois, allows Telit to expand its m2mAIR business unit offerings to North
America. Value added services from m2mAIR combine solutions for module and subscription management
with m2m connectivity, delivering business value through enhanced network performance, cost control,
security and troubleshooting.
2012 was a standout year for Telit Latin America in terms of sales growth, manufacturing improvements and
introduction of new products. The Company gained new important accounts in the Telematics and Metering
segments, reinforcing its leadership position in the Latin American market. The sales and backlog grew in
units 25% compared to 2011.
Telit concluded the manufacturing migration of its production plant in Brazil to a top quality ISO TS
Contracted Manufacturer. This migration ensures a significant manufacturing cost reduction, as well as a
production capacity increase. In 2012 the Company successfully introduced its GNSS business with great
acceptance from the market. The Company also started innovating in 3G local manufacturing, which is
expected to generate important opportunities in new 3G applications.
4
APAC
In 2012 our business in APAC came under strong price pressure and it was also a year of investments and
restructuring. We recruited a new president for the region as well as additional sales force. We also decreased
our costs of production, all in order to build the necessary infrastructure for future growth.
In Korea, operators are migrating to LTE technology. Telit, with years of market leadership and experience
working with local operators, began the transition of our product offerings. In addition, the Navman
acquisition added a brand new portfolio of GPS/GNSS modules to complement our cellular modules to
Telematics customers, providing faster time to market and lower cost of development. Both changes offer
potential growth to an otherwise mature and stable m2m market.
In China, the largest m2m market in APAC, Telit has once again grown in market segment share. Telit
attained leadership in market segment share of m2m cellular modules shipped against all other major foreign
brand module suppliers. In addition, Telit was the only foreign branded module supplier that participated in
the standard setting committee advising the State Grid Corporation of China on the next generation wireless
module standard which will have significant impact on smart meters in China that are going to be deployed in
the next few years. Telit’s brand and expertise is well recognized among the Chinese industry leaders.
With respect to the rest of APAC, Telit continues to invest in new markets like Australia, New Zealand, and
Japan that are ripe for substantial growth. In Australia, Telit opened an office in Melbourne. In Japan, Telit
signed distributor agreements and forged business partnership with prominent Japanese customers. Telit will
continue to leverage its presence in APAC to provide the highest quality service and product to our regional
customers.
Technology & products
Technological innovation is Telit’s core capability. Thanks to its six R&D centres the Company was again
able, in 2012, to provide outstanding module quality ranging from cellular, to short-range RF and location
technologies. The modules are currently integrated in a wide range of applications, including asset tracking,
remote industrial monitoring, automated utility meter reading, insurance telematics, consumer electronics,
mobile health devices and many more.
In 2012 we expanded our offering based on the (X) E910 form factor. We introduced the CE910 (CDMA-1x)
and DE910 (EVDO) products to extend our offering for the CDMA markets. We also introduced new UE910
(UMTS, HSPA) variants to complete our WCDMA offering with additional bands and throughput. To
complete the offering we launched the GE910 (GPRS) product and announced the extension of this family to
LTE in 2013. This module family, the Telit (X) E910 features a series of wireless modules based on the Land-
Grid-Array (LGA) form factor to ensure software and hardware, forward and backward compatibility across
technologies, while maintaining the application design and guaranteeing the same form factor and the same
software interface through all cellular technologies throughout the product’s industrial lifetime.
Another 2012 highlight are the new automotive products based on the new form factor (X)E920. The new
HE920 (HSPA) and LE920 (LTE) will be commercialized during 2013 and will expand our offering to the
automotive market. We also extended our automotive portfolio with the new GE910 (GPRS) automotive
grade variant.
Furthermore, during 2012 we launched a series of new GNSS modules. Our offering now includes the JF2 and
JN3 (GPS) products added with the Navman acquisition and the newly launched SL869 (GPS/Glonass) and
SE880 (GPS) products.
5
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:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
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 5,000 direct and indirect
customers and systems integrators in more than 80 countries around the world. Our customers are served both
directly or through a global network of more than 50 distributors.
At the end of 2012, Telit employed 519 employees worldwide, an increase of 14.1% (2011: 455).
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 cellular operators and cellular distributors, as well as designers,
manufacturers and system integrators of cellular m2m module-based applications.
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 four major advantages:
1. Flexibility: Telit 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.
6
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 was 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.
3. Innovation: Controlling its own intellectual property enables Telit to remain on the cutting edge of
product innovation. Integrating GSM/GPRS, CDMA/WCDMA, UMTS/HSPA, EVDO, LTE, short
range RF and GPS 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.
4. Focus: Telit’s clear focus is on the m2m market. Telit is a pure-play m2m business, allowing it to
focus on the needs of its m2m customers and the m2m products which provide such customers with
the solutions necessary for them to effectively run and grow their businesses.
7
CHAIRMAN’S STATEMENT
Enrico Testa, Chairman of the Board
I am pleased to deliver the 2012 results. Our strong competitive position has helped us to achieve significant
growth.
Outlook
The outlook for 2013 looks positive for the m2m industry as a whole and for Telit in particular.
Notwithstanding the fact we are operating in a competitive environment, we believe we are well positioned to
take advantage of the opportunities ahead and believe that our acquisitions in 2011 and 2012 together with our
new m2mAIR business unit will strengthen our already strong position within our industry. We look forward
to continued organic business expansion and are constantly seeking further expansion opportunities through
new technologies or by gaining access to new territories and new market segments.
We look to 2013 and beyond with excitement, as we continue to gain market share and strive to constantly
improve our profitability while continuing to provide the market with first rate products as well as value added
services.
Board changes
(cid:120) On July 5, 2012, Mr Steven Sherman and Mr Sergio Luciano Buonanno were appointed to the board
as Non-Executive Directors. Mr Buonanno is an Independent Director. Mr Sherman is a member of
the remuneration committee of the Board.
(cid:120) Mr Alexander Sator, Non-Executive Director, resigned from the board as of December 31, 2012.
People
At the end of 2012, Telit employed 519 employees worldwide, an increase of 14.1% (2011: 455). During 2012
we have made significant progress and this is a reflection of the excellent team we are proud to have at Telit.
The Board believes that our skilled staff is, and will continue to be, the cornerstone of Telit’s success. I would
like to personally thank all of the Company’s employees for their hard work and to welcome all the new
employees that have joined the Telit family, including those joining us from CrossBridge.
Dividend
The Company is not proposing to pay a dividend in respect of the period (2011: $ nil).
Enrico Testa
__________________
Chairman of the Board
15 March 2013
8
CHIEF EXECUTIVE'S STATEMENT
Oozi Cats, Chief Executive
2012 was the third year in a row of double digit growth for Telit and improvements in absolute profitability.
In 2012 we implemented two major steps from our strategic roadmap - the acquisition of Navman that
augmented our location product portfolio and enhances our ability to service the needs of our customers, and
the launch of m2mAIR, a business unit dedicated to aggregating value to the module business with value
added services including connectivity.
Financial Results
Revenue
Gross profit
Gross margin
Other income
Research and development
Selling and marketing
General and administrative
Other expenses1
Operating profit
Adjusted EBIT
Adjusted EBITDA
Profit before tax
Adjusted profit before tax
Profit for the year
Adjusted profit for the year2
2012
$'000
207,392
76,884
37.1%
1,086
(20,085)
(30,472)
(19,707)
(1,769)
5,937
10,573
17,335
4,915
9,551
3,880
8,888
2011
$'000
177,365
67,807
38.2%
778
(21,114)
(25,257)
(17,486)
(1,258)
3,470
6,904
13,116
2,226
5,660
1,448
4,427
Reconciliation of operating profit and profit before tax to the adjusted figures:
2012
$'000
2011
$'000
Operating profit
Share-based payments
Non-recurring income
Non-recurring expenses
Amortization - intangibles acquired
Adjusted EBIT
Depreciation & amortization3
Adjusted EBITDA
Profit before tax
Share-based payments
Non-recurring income
Non-recurring expenses
Amortization - intangibles acquired
Adjusted profit before tax
5,937
1,008
-
1,769
1,859
10,573
6,762
17,335
4,915
1,008
-
1,769
1,859
9,551
3,470
1,356
(83)
1,126
1,035
6,904
6,212
13,116
2,226
1,356
(83)
1,126
1,035
5,660
1 See note 5 to the attached Financial Statements.
2See note 11 to the attached Financial Statements for reconciliation of profit for the year to adjusted profit for the year.
3 Excluding intangibles acquired.
9
Basic and diluted earnings per share for 2012 were 3.8 cents and 3.5 cents respectively for the period
compared to 1.6 and 1.4 cents per share in 2011.
Inventory levels as at 31 December 2012 were $21.7 million, compared to $13.7 million as at 31 December
2011. The increase is mainly due to inventory purchase specific to certain products. The 2012 inventory level
represents 50 days (2011: 51 days).
The consolidated financial statements are prepared in accordance with IFRS on a basis consistent for all
periods presented. In addition we use adjusted financial measures as supplemental indicators of our operating
performance. We disclose adjusted amounts as we believe that these measures provide better information on
actual operating results and assist in comparisons from one period to another.
Net cash position
The table below presents the net (debt) / cash position at the year-end:
Cash and cash equivalents
Restricted cash deposits
Working capital borrowing (1)
Governmental loan (2)
Mortgage loan (3)
Net (Debt) /Cash
2012
$’000
21,044
365
(23,189)
(6,924)
(4,019)
(12,723)
2011
$’000
19,781
185
(8,539)
(6,781)
(4,097)
549
(1) Drawn letters of credit and borrowings arising from invoice advances used for working capital financing.
Increase in working capital borrowing is mainly due to the growth of the company and the increase in
receivables and inventory.
(2) Representing the preferential rate loan supported by the Ministry of Trade and Commerce in Italy provided
in connection with the Group’s business development program in Sardinia. The loan is denominated in
Euro, attracts interest at a rate of 0.75% and is repayable in ten annual instalments that commenced on 20
March 2009. In December 2012, an additional loan of $975,000, carrying the same terms, was received.
(3) Representing a preferential rate loan from a regional fund in Italy provided in connection with the Group’s
acquisition of the campus used for the Company's main R&D facility in Trieste, Italy. The mortgage is
denominated in Euro, attracts interest at a rate of Euribour 6 months less 20% and is repayable in 15 semi-
annual instalments that commenced in June 2012.
10
Employees
The number of employees of the Group on a geographical basis at the end of 2012 and 2011 is as follows:
EMEA
Americas
APAC
Total Employees
2012
2011
356
(*)52
111
519
332
30
93
455
(*)Not including 15 employees from the acquisition of CrossBridge who joined Telit at year-end.
Effects of Foreign Exchange
26.8% of Telit's revenue in the period was generated in Euro (2011: 26.3%) Part of the Euro exposure is
covered by Telit’s operating expenses in Euro. A substantial part of the Group's materials purchase cost was
denominated in US dollar during the period.
Integration of Navman Wireless OEM Solutions LP
The acquisition of Navman, which completed on 3 January 2012, strengthened Telit’s position as the premier
product and consultative partner in the m2m industry, by leveraging the synergies of both companies to better
serve our global customers.
The acquisition of Navman's technology and the engagement of its US based executive engineering and sales
staff has made Telit a major contender in the GNSS (Global Navigation Satellite System) market. Our
enhanced product portfolio resulting from the acquisition, as well as Navman's reputation for delivering state-
of-the-art GPS technology and the global reach of Telit's sales and marketing organization put us in a strong
position of growth in the GPS sector. In particular, the Navman acquisition provided us with access to new
GPS customers beyond the traditional m2m industry and rights to the “Jupiter” product line which dates back
over 20 years to the development of GPS systems at Rockwell International and which has become almost
synonymous with GPS.
Acquisition of CrossBridge Solutions Inc.
In December 2012 the Company acquired CrossBridge, a premier US based m2mAIR data and value added
services provider located in Lincolnshire, Illinois, USA. The acquisition of CrossBridge and its US based
engineering and sales staff will allow us to expand the Telit m2mAIR offerings in m2m value added services
and connectivity to the USA, which is expected to contribute to the recurring revenues starting 2013.
Strategy
Having successfully integrated the most recent businesses acquired by Telit (Motorola m2m, GlobalConect,
Navman and CrossBridge) into the Company’s global organization, and with our significant market share,
Telit is confident in its position as a leading global company in the m2m industry. Telit looks forward to
continuing toimplement its strategy which is to grow the Company through a three-pronged approach:
(cid:120)
(cid:120)
(cid:120)
Organically alongside general growth in the m2m industry;
Via recurring income through our valued added services unit which will leverage the long-standing
relationships with our customers; and
Via appropriate acquisition opportunities to the extent that these become available.
11
Outlook
The outlook for the rest of 2013 and the future looks positive for the m2m industry and promising for Telit.
Our strong position in the m2m market together with our m2mAIR business unit is expected to lead Telit to
further growth and further improvement in our financial results.
The hard work and dedication of Telit's staff across the globe is and will continue to be crucial to Telit's
success. I would like to thank the Company's management team and 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 Crossbridge into the Telit family.
Telit intends to continue to take advantage of the considerable opportunities arising in this growing global
market. 2013 has started well, and I look forward to providing further news of the Group’s progress over the
coming months.
_______________________
Oozi Cats
Chief Executive
15 March 2013
12
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 the average selling price or the number of units sold which is not matched by
a proportionate increase in the other, or a decline in both the average selling price and the number of units
sold, would decrease Telit’s addressable market and its growth opportunities.
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. Telit's competitors may be able to respond more quickly than Telit 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. In order to retain its key staff and to attract new personnel, Telit works to ensure that its staff is
sufficiently incentivised and offers key potential personnel sufficiently attractive terms of employment.
Financing
Telit relies on credit lines mainly in the form of trade receivable financing 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.
The management maintains close relationship with several banks and has obtained secured credit lines beyond
the current needs of the business to address this risk.
13
Product lifespan, changes in standards and technology and product and service development
The Group is in a market that sees continuous technological development and therefore future success of the
Company depends, inter alia, on Telit’s ability to:
(cid:120) Enhance its existing products and services.
(cid:120) Address the increasingly sophisticated and varied needs of its customers.
(cid:120) Respond to technological advances and emerging industry or government standards and practices on a
cost-effective and timely basis.
Developing Telit’s technology and product and service 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. Additionally, Telit may face
regulatory hurdles with respect to its products and services which could affect Telit’s ability to supply such
products and services or which could expose Telit to liability which could have a material adverse effect on
Telit’s business, financial condition or results of operations.
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 pressure on the pricing of
existing products. Telit’s success depends on its ability to anticipate changes in technology and in industry
standards and to successfully develop and introduce new, enhanced and competitive products and services on
a timely basis. Telit cannot give assurances that it will successfully develop new products or enhance and
improve its existing products and services, that new products and services and enhanced and improved
existing products and services will achieve market acceptance or that the introduction of new products and
services or enhancing existing products and services by others will not render Telit's products obsolete. Telit's
inability to develop products and services 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.
In order to address the concerns above, Telit is constantly monitoring the market, its customers’ current and
potential needs and technological advances and changes in standards in the m2m field. As well, Telit
continuously invests in R&D in order to remain an m2m market leader.
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.
The industry in which Telit operates has many participants that own, or claim to own, proprietary intellectual
property. In the past Telit has received, and in the future may receive assertions or claims from third parties
alleging that Telit’s products or services violate or infringe their intellectual property rights. Telit may be
subject to these claims directly or through indemnities against these claims which Telit 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. Telit is currently involved in
certain intellectual property litigation (see note 21 of the Financial Statements attached hereto). In many cases,
third party claimants may be companies with substantially greater resources than Telit, and they may be able
to, and may choose to, pursue complex litigation to a greater degree than Telit could.
In the event of an unfavourable outcome in such a claim and Telit's inability to either obtain a license from the
third party or develop a non-infringing alternative, then Telit’s business, operating results and financial
condition may be materially adversely affected and Telit may have to restructure its business.
14
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
existing and potential partners will not enter into relationships with competitors. Telit’s failure to establish
further strategic alliances or the loss of relationships with existing or future material partners could have a
material adverse effect on its business and financial condition. In order to mitigate this risk, in certain cases
Telit maintains relationships with secondary manufacturing partners to provide backup manufacturing in the
event of inability to manufacture via Telit’s primary partner.
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. In order to
mitigate this risk Telit continuously invests in the improvement and strengthening of the relevant systems in
order to minimize the risk of system failures.
15
Board of Directors
Enrico Testa, Executive Chairman of the Board, aged 61
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. Between 2004 and 2009
Mr. Testa was Executive President at Roma Metropolitane S.p.A, 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. In addition between 2004 and August 2012 Mr. Testa was Managing Director of Rothschild
S.p.A.(cid:3)
Oozi Cats, Chief Executive, aged 52
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 on 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.
Yosi Fait, Deputy CEO, Finance Director and member of the Audit Committee of the Board, aged 52
Mr. Fait is a Certified Public Accountant and has held a number of executive positions with private and public
companies. Mr. Fait's previous roles with listed companies have included CEO of both Alony Group and
H&O. Mr. Fait also served as CFO of Pelephone Communications Ltd, the first cellular operator in Israel. Mr.
Fait began his professional career as an accountant with Ernst & Young Israel.
Davidi Gilo, Independent Non-Executive Director and Chairman of the Remuneration Committee of
the Board and Member of the Audit Committee of the Board, aged 56
Davidi Gilo has more than 25 years of technology and business expertise and a proven track record of
innovation and execution in identifying and fostering the growth of emerging trends and technologies
including DSP chips, cell phones, medical information technology and broadband networks. Mr. Gilo was the
founder of DSP Group (which was sold to Intel for $1.6 billion), Ceva, Nogatech and Zen Research, among
others. He is currently the Managing partner of GiloVentures II LP and the CEO of INVeSHARE Inc.(cid:3)
Nicola Miglietta, Independent Non-Executive Director, Chairman of the Audit Committee of the Board
and Member of the Remuneration Committee of the Board, aged 45
Mr. Miglietta is a Professor of Capital Markets and Corporate Finance (Advanced Degree) at the University of
Torino. Between 1992 and 1994 he was auditor in PriceWaterhouseCoopers. Mr. Miglietta sits on the board of
several companies and currently is a member of the Board of statutory auditors at Impregilo S.p.A. (Italy's
leading General Contractor and one of the world's top-ranking construction groups) and First Capital S.p.A.,
both listed on the Italian Stock Exchange.
Ram Zeevi, Independent Non-Executive Director and Member of the Remuneration Committee and
Audit Committee of the Board, aged 50
For the past four years, Mr. Zeevi has been a private investor successfully investing in a number of high
growth companies, largely in the technology sector. From 2001 to 2008, Mr. Zeevi was managing director of
Caribbean Petroleum Corporation. Mr. Zeevi remains a Non-Executive Director of CPC. From 1998 to 2001,
Mr. Zeevi was CEO of Zeevi Computers and Technology Ltd., a technology investment company which was
listed on the Tel Aviv stock exchange and during this period Mr. Zeevi held a number of chairmanships,
largely in high growth technology businesses. From 1992 to 1998, Mr. Zeevi was CEO of Oil Investment
Consolidated, Inc. and prior to this he was CEO of Property Investment Inc., a real estate company. Mr. Zeevi
is also a Non-Executive Director of R Inc. Green and DoNanza.
16
Steven Sherman, Non-Executive Director and Member of the Remuneration Committee of the Board,
aged 67
Mr Sherman has been, since 1988, the managing member of Sherman Capital Group, a merchant banking
organisation with a portfolio of private and public investments. Mr. Sherman is currently Chairman of Purple
Wave Inc. Mr. Sherman’s former directorships include the following: Co-founder, Chairman and CEO of
Novatel Wireless, Inc.; Chairman of Airlink Communications, Inc.; founder of Vodavi Communications
Systems Inc. where he served as Chairman and CEO; Chairman of Executone Information Systems; and a
director of Inter-Tel (Delaware) Incorporated. Mr. Sherman was also founder, Chairman and CEO of Main
Street and Main Inc., the world’s largest franchisee of T.G.I. Friday’s Restaurants.
Sergio Luciano Buonanno, Independent Non-Executive Director, aged 42
Mr. Sergio Luciano Buonanno, is Managing Director at Idea Capital Funds SGR S.p.A. Previously, Mr.
Buonanno worked for the Enel Group for ten years where he held various positions, including Head of
Organisational Development. Mr. Buonanno obtained a PhD degree in Electrical Engineering from
Politecnico di Milano. He is also a director of Domotecnica S.p.A. and Elemaster S.p.A. He is a member of
the VC Committee at AIFI, the Italian private equity and venture capital association.
Corporate Governance
Directors
The Board of Directors comprises three executive directors, four independent non-executive directors, and one
non-executive director. The Company's Articles of Association require that at each Annual General Meeting
(“AGM”): (i) any directors who have been appointed by the board since the last AGM shall offer themselves
for re-election; and (ii) any director who was elected or last re-elected as a director at or before the AGM held
in the third calendar year before that AGM shall retire by rotation and, if required, such further directors shall
retire by rotation as would bring the number retiring by rotation up to one-third of the number of directors in
office at the date of the notice of AGM. Any directors retiring by rotation at an AGM may offer themselves
for re-election.
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 to formulate, review and approve the Telit group’s strategy, budgets,
major items of expenditure and acquisitions.
Audit Committee
The Audit Committee consists of Nicola Miglietta (Chairman), Davidi Gilo and Ram Zeevi, who are
independent non-executive directors and Yosi Fait, the Finance Director, and meets periodically. The CFO
and General Counsel attend each meeting by invitation. The Audit Committee is primarily responsible for
considering reports from the CFO on the half year and annual financial statements, and for reviewing reports
from the auditors on the scope and outcome of the annual audit. The financial statements are reviewed in the
light of these reports and the results of the review reported to the Board.
Remuneration Committee
The Remuneration Committee consists of Davidi Gilo (Chairman), Nicola Miglietta, Ram Zeevi and Steven
Sherman, 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.
17
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 website (www.telit.com).
Financial performance
A budgeting process is completed once a year and is reviewed and approved by the Board. The results of the
Telit group, as compared against budget, are reported to the Board on a quarterly basis and discussed at
meetings of the Board.
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.
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 or 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 per cent 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.
By order of the Board,
_________________
Yosi Fait
Finance Director
15 March 2013
18
Report on Directors' Remuneration
This Report has been approved by the Board together with the financial statements for the year ended 31
December, 2012.
The remuneration committee is chaired by Davidi Gilo and also comprises Nicola Miglietta, Ram Zeevi and
Steven Sherman.
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:
(cid:120) Basic salary: directors and senior managers' salaries are reviewed and determined by the committee,
taking into account their additional incentives and to align their interests within the Telit Group.
(cid:120) Service contracts: No service contracts have notice periods of more than six months.
(cid:120) 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.
(cid:120) Pension arrangements: None of the directors receive any pension benefits, except for Oozi Cats who is
entitled to post-employment benefits including pension fund benefits according to his employment
agreements, as is customary in Italy.
(cid:120) Share options: The executive directors have been granted share options as described below. The share
options are subject to time-based (and in certain cases other) vesting conditions to incentivise medium-
term performance and assist in retention. None of the Group’s share option schemes are subject to
performance-based vesting 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
shorter 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 Italy includes his remuneration under
the service agreement with the Company. Mr. Cats is entitled to an annual bonus equal to 5% of the
Company’s Adjusted EBITDA.
Yosi Fait was appointed as the Finance Director on 21 June 2011 and as the Deputy CEO as of 1 July 2012,
subject to such terms as provided in an agreement between him and the Company. Pursuant to such
agreement, Mr. Fait was also appointed as a director of a number of the Company’s subsidiaries, and Mr. Fait
agreed to provide up to 160 hours per month to the business of the Company and its subsidiaries. Mr. Fait’s
engagement is terminable by either Mr. Fait or Telit on three months' notice, except in certain special
circumstances where shorter notice can be given by the Company.
19
The audited emoluments in respect of the year ended 31 December 2012 for the directors who held office
during the year were as follows:
Salary
and fees
$’000
Benefit in
kind
$’000
Executive directors
Enrico Testa3
Oozi Cats
Yosi Fait4
Yariv Dafna2
Non-executive directors
Andrea Mandel-Mantello2
Amir Scharf 2
Alexander P. Sator5
Nicola Miglietta
Davidi Gilo
Ram Zeevi6
Sergio Buonanno1,7
Steven Sherman1
Total - 2012
Total - 2011
258
1,140
363
-
-
-
52
51
51
51
25
26
2,017
1,870
-
184
-
-
-
-
-
-
-
-
-
-
184
193
Bonus
$’000
257
1,524
-
-
-
-
-
-
-
-
-
-
1,781
2,309
Post-
employment
benefits
$’000
-
131
-
-
-
-
-
-
-
-
-
-
131
207
Total
2012
$’000
515
2,979
363
-
-
-
52
51
51
51
25
26
4,113
Total
2011
$’000
572
3,357
162
281
22
22
56
34
34
39
-
-
-
-
4,579
1 From date of appointment.
2 Up to the date of resignation.
3Amounts in respect of the services of Mr. Testa are paid directly to Testa Sallusto & Partners, a partnership of which he
is the general partner.
4Amounts in respect of the services of Mr. Fait are paid directly to Jeopal Ltd., a company under his control.
5Amounts in respect of the services of Mr. Sator are paid directly to Sapfi Kapital Management GmbH, a company under
his control.
6Amounts in respect of the services of Mr. Zeevi are paid directly to Zuri Inc, a company under his control.
7Amounts in respect of the services of Mr. Buonanno are paid directly to IDEA Capital Funds S.G.R. S.P.A.
20
Directors' Interests in Shares
The directors' interests in shares in the Company are detailed in the table below:
Directors
Oozi Cats1
Enrico Testa2
Yosi Fait
Alexander P. Sator3
Nicola Miglietta
Davidi Gilo
Ram Zeevi
Steven Sherman4 5
Sergio Buonanno4
At 31 December 2012
At 31 December 2011
Number of
ordinary
shares
20,330,357
20,330,357
165,000
4,965,742
20,000
nil
nil
4,128,578
nil
Percentage of
ordinary
share capital
19.68
Number of
ordinary
shares
20,280,357
Percentage of
ordinary
share capital
19.75
19.68
20,280,357
0.16
4.81
0.02
-
-
4.00
-
165,000
4,704,742
20,000
nil
nil
-
-
19.75
0.16
4.58
0.02
-
-
-
-
1 Mr. Cats directly holds 3,480,357 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. (known as GT Srl from February 2013) 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. 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’ holdings.
3 Mr. Sator is the controlling shareholder of Sapfi Kapital Management GmbH, which holds 4,965,742 shares and is
therefore considered as having an interest in these shares.
4 Appointed as a director on July 5, 2012.
5 Mr. Sherman is Managing Director of Sherman Capital Group which holds 4,128,578 shares and is considered as
having an interest in these shares.
21
Details of directors’ share options are provided below:
Grant date
Number
Exercise
price (pence)
Vested
Unvested
Executive directors
Enrico Testa
Total
Oozi Cats
Total
Yosi Fait
Total
29 January 2009
30 June 2010
1 April 2011
29 January 2009
30 June 2010
1 April 2011
29 January 20091
25 May 20101
19 September 20112
26 March 20122
1,000,000
500,000
520,000
2,020,000
2,000,000
1,100,000
1,952,000
5,052,000
50,000
50,000
150,000
150,000
400,000
0.20
0.32
0.81
0.20
0.32
0.81
0.20
0.25
0.80
0.80
1,000,000
333,334
173,333
1,506,667
2,000,000
733,334
650,667
3,384,001
50,000
33,334
50,000
50,000
183,334
-
166,666
346,667
513,333
-
366,666
1,301,333
1,667,999
-
16,666
100,000
100,000
216,666
1 Mr Fait was not a director on this date.
2 On 19 September 2011 Mr. Fait was granted 150,000 options to purchase approximately 0.15 percent of the Company's
issued and outstanding shares at the time, at an exercise price of £0.80 per share. The options vest in three equal annual
instalments starting from 19 September 2012 and expire five years from the date of grant. In addition, since the
Company had nearly reached the overall limit on the granting of options over newly issued shares contained in the rules
of its unapproved option scheme, the remuneration committee resolved that, as the overall limit under the scheme
increases, Mr. Fait will from time to time be formally granted additional options (either in one tranche or in a series of
separate grants) at the same exercise price, vesting from the same date, and on the same terms as the options set out
above, in the total amount of 150,000 further options being granted within this framework. Mr. Fait received such
additional 150,000 options on March 26, 2012. Further, the remuneration committee resolved that, should the Company
successfully complete a public fundraising on a major stock exchange, then Mr. Fait will immediately thereafter be
granted further options over a total of 600,000 shares at an exercise price of £0.80 per share, with all other terms being
equal to the options mentioned above.
Options typically vest in 3 equal instalments beginning one year following the date of grant and
expiring 5 years from the date of grant. No options have been exercised or expired in respect of all
grants.
The compensation attributable to the directors in 2012 is $564,000 (2011: $717,000).
The highest and lowest closing prices of the Company's shares on AIM during 2012 were 65p (14 September
2012) and 43.75p (10 February 2012).The Company's share price as of 31 December 2012 was 54p.
22
Arrangements relating to shares held by Boostt B.V.
Boostt is interested in 20,330,357 Ordinary shares in the Company, representing approximately 19.68 per cent
of the Company's issued share capital as of 31 December 2012. With respect to certain liens held over
ordinary shares (“Shares”) of the Company owned by Boostt the Company has been informed as follows:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
On 15 February 2011, Boostt completed the payment to Polar of the remaining consideration under the
16 April 2007 agreement pursuant to which it purchased 12 million ordinary shares in the Company
from Polar (the “Share Purchase Agreement”). The payments were made as a result of funds lent to
Boostt (the “Loan”) by Mr. Enrico Testa (Chairman of Telit’s Board of Directors and a Director of
Boostt). As a result of such payment, the charges in favour of Polar on Shares purchased under the
Share Purchase Agreement were released and such Shares were released from escrow and provided to
Boostt.
On 9 March 2011, those 6 million Shares held by Boostt against which the shareholders of Boostt had
registered a charge were released from the charge by Boostt’s shareholders, for no consideration.
On 10 March 2011, following receipt of the Loan, Boostt charged 6 million Shares in favour of Mr.
Enrico Testa. As of February 25, 2013 all 6 million of such charges have been eliminated from the
shares.
On 27 April 2011, 1,500,000 Shares that had been placed in escrow as a result of a loan granted to
Boostt by related parties (the “Related Party Loan”) for the repayment by Boostt of a loan by a third
party lender (the “Third Party Lender”), were released from such escrow, following partial repayment of
the Related Party Loan. The Third Party Lender had a charge on 9.6 million Shares held by Boost which
has subsequently been released in relation to 3 million Shares.
On 3 June 2011, the remaining 1,500,000 Shares that had been placed in escrow as a result of the
Related Party Loan were released from escrow following the additional repayment of the Related Party
Loan.
As at the report date and as a consequence of the actions described above, of the 20,330,357 Shares in which
Boostt is interested, 6.6 million Shares are charged in favour of the Third Party Lender (the “Pledged
Shares”). Under the terms of the charge, title to the Pledged Shares can be transferred to the Third Party
Lender following the occurrence of certain events including but not limited to a default event on the financing
provided by the Third Party Lender.
The Pledged Shares represent approximately 6.38 per cent of the Company’s issued share capital as at the
report date.
By order of the Remuneration Committee
_______________
Davidi Gilo
Chairman of the Remuneration Committee
15 March 2013
23
Directors' Report
The directors present their annual report and the financial statements of the Group for the year ended 31
December 2012.
Principal Activities
Telit is a leading global company in the field of m2m communications.
Telit develops, manufactures and markets communication modules which enable machines, devices and
vehicles to communicate via cellular wireless networks. It is a market leader and one of the three largest
companies in the m2m module business worldwide in terms of market share. Through its m2mAIR service
portfolio, Telit provides its customers with managed services, including remote SIM and module
management, security, location based services, software update over the air and connectivity.
Telit’s core strengths are innovative products, complete control over its core intellectual property and its
flexible, customised solutions, which enable it to offer customers the lowest cost of ownership and a future-
proof product roadmap.
Going concern
After making enquiries at the time of approving the accounts, the directors are confident that the Company
and the Telit Group have 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.
Review of Business and Future Developments
A review of business, financial position, and liquidity and future developments is given within the Chief
Executive’s statement on pages 9 to 12, together with a review of the Group’s principal risks and uncertainties
on pages 13 to 15.
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 $20.1 million were expensed in the year, compared to $21.1
million in 2011. Internally-generated intangible assets arising from development costs capitalized amounted to
$7.7 million compared to $3.7 million in 2011.
24
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 27 to the financial statements.
Donations
The Group made $39,000 charitable donations during the year ended 31 December 2012 (2011: $100,000).
Dividends
The Company is not proposing to pay a dividend in respect of the period (2011: $ nil).
Significant shareholders
Boostt1
Techvisory SA2
Oozi Cats3
Idea Capital
Algebris Investments (UK)
Morgan Stanley
Herald Investment Management
Sapfi Kapital Management GmbH4
Kairos Partners
Greylock Partners
Sherman Capital Group5
360 Capital One
At 31 December 2012
At 31 December 2011
Number
of ordinary
shares
Percentage of
ordinary
share capital
Number
of ordinary
shares
Percentage of
ordinary
share capital
15,600,000
15.10
15,600,000
15.19
1,250,000
3,480,357
9,375,000
9,337,500
8,725,000
5,381,250
4,965,742
4,785,000
4,375,000
4,128,578
3,607,500
1.21
3.37
9.08
9.04
8.45
5.21
4.81
4.63
4.24
4.00
3.49
1,250,000
3,430,357
9,375,000
1.22
3.34
9.13
20,662,500
20.12
-
5,381,250
4,704,742
1,750,000
4,375,000
4,153,578
3,607,500
-
5.24
4.58
1.70
4.26
4.05
3.51
1 Mr. Cats and Mr. Testa and Techvisory (as defined below) are deemed to be interested in all holdings of Boostt.
2 Techvisory's shares listed in this chart include shares held by Wireless Solutions Management SL.(together
“Techvisory”) Mr. Cats and Mr. Testa are deemed to be interested in all holdings of Techvisory SA (known as GT Srl
from February 2013) and Wireless Solutions Management SL.
3 Mr. Testa is deemed to be interested in all holdings of Mr. Cats. See notes 1 and 2 to this chart for additional holdings
in which Mr. Cats is deemed to be interested.
4 Mr. Sator is deemed to be interested in all holdings of this company.
5 Mr. Sherman is deemed to be interested in all holdings of this company.
25
Directors
The directors who held office during the year were as follows:
Enrico Testa
Oozi Cats
Yosi Fait
Alexander P. Sator (resigned on 31 December 2012)
Ram Zeevi
Davidi Gilo
Nicola Miglietta
Steven Sherman (appointed on 5 July 2012)
Sergio Luciano Buonanno (appointed on 5 July 2012)
Directors' Indemnities
The Company has made qualifying third party indemnity provisions for the benefit of its directors in respect
of their roles as directors of the Company and, where applicable, as directors or senior employees of
subsidiary undertakings, which were made during 2007 and which were replaced with an updated version in
2012 and remain in force at the date of this report.
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 2012, calculated in accordance with the requirements of the Companies Act 2006, were 75 days
(2011: 66 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.
26
Provision of information to auditor
The directors who held office at the date of approval of this directors’ report confirm that, so far as they are
each aware, there is no relevant audit information of which the company’s auditor is unaware; and each
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 auditor is 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 auditor of the Company is to be proposed at the forthcoming Annual General Meeting.
By order of the Board
___________________
Yosi Fait
Financial Director
15 March 2013
27
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 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 judgements 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.
28
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF TELIT COMMUNICATIONS PLC
We have audited the financial statements of Telit Communications PLC for the year ended 31 December 2012
set out on pages 31 to 87. 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 auditor's 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 auditor
As explained more fully in the Directors' Responsibilities Statement set out on page 28, 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 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 Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate
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 2012 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.
29
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:
• 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
• Certain disclosures of directors' remuneration specified by law are not made; or
• 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, Chartered Accountants and Statutory Auditor
8 Salisbury Square, London EC4Y 8BB
15 March 2013
30
Telit Communications PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2012
Revenue
Cost of sales
Gross profit
Other operating income
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Other operating expenses
Operating profit
Investment income
Finance costs
Profit before income taxes
Tax expense
Profit for the year
Other comprehensive income/ (loss)
Foreign currency translation differences
Total comprehensive income/ (loss) for the year
Profit/(loss) attributable to:
Owners of the Company
Non-controlling interest
Profit 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 per share (in USD cents)
Diluted profit per share (in USD cents)
Basic weighted average number of equity shares
Diluted weighted average number of equity shares
Note
2,3
4
5
10
6
7
8
2012
$’000
2011
$’000
207,392
(130,508)
177,365
(109,558)
76,884
67,807
1,086
(20,085)
(30,472)
(19,707)
(1,769)
5,937
250
(1,272)
4,915
(1,035)
3,880
479
4,359
3,914
(34)
3,880
4,424
(65)
4,359
778
(21,114)
(25,257)
(17,486)
(1,258)
3,470
507
(1,751)
2,226
(778)
1,448
(1,802)
(354)
1,564
(116)
1,448
(244)
(110)
(354)
11
11
11
11
3.8
3.5
102,968,936
112,265,553
1.6
1.4
98,294,356
108,356,180
31
Telit Communications PLC
STATEMENT OF FINANCIAL POSITION
At 31 December 2012
Group
Company
Note
2012
$’000
2011
$’000
2012
$’000
2011
$’000
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
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
Total assets
12
13
14
16
8
15
16
16
17
17
18
18
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 interest
Total equity
Non-current liabilities
Other loans
Post-employment benefits
Deferred tax liabilities
Provisions
Other long-term liabilities
26
19
8
23
24
Current liabilities
Short-term borrowings from
banks and other lenders
Trade payables
Provisions
Other current liabilities
Total equity and liabilities
26
20
23
20
35,659
13,588
-
568
3,840
53,655
21,659
56,502
8,845
365
21,044
108,415
162,070
1,781
78,429
(2,993)
1,235
(4,967)
(7,494)
65,991
422
66,413
9,839
3,671
33
1,728
3,372
18,643
24,293
38,883
2,254
11,584
77,014
162,070
22,588
12,557
-
732
4,190
40,067
13,688
39,834
7,488
185
19,781
80,976
121,043
1,772
78,198
(2,993)
1,235
(5,477)
(12,416)
60,319
487
60,806
10,311
2,828
45
2,134
478
15,796
9,106
25,496
1,329
8,510
44,441
121,043
6,891
13
83,976
18
-
90,898
29
1,109
9,616
296
4,418
15,468
106,366
1,781
78,429
8,606
1,235
2,107
(20,744)
71,414
-
71,414
-
-
-
-
2,864
2,864
-
569
-
31,519
32,088
106,366
6,760
21
63,052
11
-
69,844
-
652
6,655
83
5,646
13,036
82,880
1,772
78,198
8,388
1,235
1,830
(15,332)
76,091
-
76,091
518
-
-
-
200
718
129
173
-
5,769
6,071
82,880
The financial statements on pages 31 to 87 were approved by the board and authorized for issuance on 15 March
2013 and are signed on its behalf by: Oozi Cats, Director
Company number: 05300693
32
Telit Communications PLC
STATEMENT OF CASH FLOWS
For the year ended 31 December 2012
CASH FLOWS - OPERATING ACTIVITIES
Profit/(loss) for the year
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Gain on disposal of associated undertaking
Change in fair value of earn-out
Loss /(gain) on sale of property, plant and equipment
Impairment losses on intangible assets
Impairment of investments in subsidiaries
Change in deferred taxes, net
Increase / (decrease) in provision for post-employment
benefits
Finance costs, net (1)
Tax expenses (1)
Fair value of preferential mortgage rate loan
Share-based payment charge
Operating cash flows before movements in working
capital:
(Increase)/decrease in trade and other receivables
Increase in other current assets
(Increase) /decrease in inventories
Increase/(decrease) in trade payables
Increase/(decrease) in other current liabilities (1)
increase /(decrease) in provisions and other long term
liabilities
Cash from/(used in) operations
Income tax paid (1)
Interest received
Interest paid
Net cash from/(used in) operating activities
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of property, plant and equipment
Capitalized development expenditure
Acquisition of subsidiaries, net of cash acquired
Additional investment in subsidiary
Settlement of financial assets
Gain from reduction of non-controlling interest
Proceeds from sale of associated undertaking
Additional loans made to subsidiaries
Repayment of loans from subsidiaries
(Increase)/ decrease in restricted cash deposits
Net cash (used in)/from investing activities
33
Group
2012
$’000
2011
$’000
Company
2012
$’000
2011
$’000
3,880
1,448
(6,202)
(4,378)
2,315
6,306
-
(85)
312
-
-
432
722
1,022
1,035
-
1,008
16,947
(14,361)
(1,368)
(7,222)
12,061
1,192
(751)
6,498
(374)
72
(801)
5,395
(3,411)
(3,064)
68
(7,664)
(5,303)
-
-
-
-
-
-
(218)
(19,592)
2,211
5,036
(83)
-
(10)
132
-
(673)
(17)
1,244
778
(528)
1,356
10,894
(998)
(1,995)
5,997
4,066
(1,134)
55
16,885
(1,035)
469
(954)
15,365
(10,067)
(1,604)
101
(3,669)
(23,423)
-
-
(20)
528
-
-
856
(37,298)
9
1,375
-
-
-
-
1,500
-
-
(823)
-
-
789
(3,352)
(429)
(2,885)
(29)
388
5,420
(94)
(981)
-
6
(12)
(987)
-
(1,212)
-
-
(2,600)
(16)
-
-
-
(856)
5,000
-
316
6
1,177
-
-
-
-
1,821
-
-
1,777
-
-
1,020
1,423
86
(3,646)
-
(83)
(3,326)
-
(5,546)
-
56
-
(5,490)
(19)
(119)
-
-
(712)
(1,103)
597
-
-
(28,035)
10,685
(83)
(18,789)
Telit Communications PLC
STATEMENT OF CASH FLOWS (continued)
For the year ended 31 December 2012
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from the issuance of share capital
Proceeds from exercise of options
Short-term borrowings from banks and others
Proceeds from other loans
Repayment of other loans
Net cash from/(used in) financing activities
Group
Company
2012
$’000
2011
$’000
2012
$’000
2011
$’000
-
240
15,696
1,258
(1,753)
15,441
29,292
317
(4,329)
5,354
(1,504)
29,130
-
240
-
-
(619)
(379)
29,292
317
-
680
-
30,289
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
1,244
7,197
(1,050)
6,010
19,781
19
21,044
13,521
(937)
19,781
5,646
(178)
4,418
499
(863)
5,646
(1) The Company has re-presented the tax expenses and the net finance expenses costs in the 2011 cash flow
statement so it provides better information on the cash flow involved in income tax as presented in the income
statement and net finance cost. In the revised presentation, movement in deferred taxes, tax paid in cash and net
finance cost paid, has been presented in separate lines, while the other non-cash tax expenses have been
reflected within the movement in other current liabilities balance.
Non – cash transactions:
a. On 11 July 2011 The Company completed the acquisition of 100% of the shares of GlobalConect
Ltd for a consideration of $0.7 million in cash and 800,000 newly issued ordinary shares with a
value of $1.2 million at the closing date.
b. During 2012 a loan to subsidiary in the amount of $250,000 was converted to equity.
c. In January, 2012 the Company purchased all of the shares in Telit SPA from the Company’s
subsidiary Telit SRL for the book value amount of $20.5 million which remains on the books of the
Company.
34
Telit Communications PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2012
Year ended 31 December 2012
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
1,772
78,198
1,235
(2,993)
(5,477)
(12,416)
60,319
487
60,806
-
-
-
9
-
9
-
-
-
231
-
231
-
-
-
-
-
-
-
-
-
-
-
-
-
3,914
3,914
510
-
510
(34)
(31)
3,880
479
510
3,914
4,424
(65)
4,359
-
-
-
-
240
1,008
1,008
1,008
1,248
-
-
-
240
1,008
1,248
1,781
78,429
1,235
(2,993)
(4,967)
(7,494)
65,991
422
66,413
Balance at 1 January
2012
Total comprehensive
income/(loss) for the year
Profit /(loss) for the year
Foreign currency
translation differences
Total comprehensive
income/(loss)
Transactions with
owners:
Exercise of options
Share-based payment
charge
Total transactions with
owners
Balance at 31 December
2012
Year ended 31 December 2011
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
1,361
47,800
1,235
(2,993)
(3,669)
(15,336)
28,398
617
29,015
-
-
-
-
-
-
396
15
30,096
302
-
-
-
-
411
30,398
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,564
1,564
(116)
1,448
(1,808)
-
(1,808)
6
(1,802)
(1,808)
1,564
(244)
(110)
(354)
-
-
-
-
-
-
-
30,492
317
1,356
1,356
-
-
-
30,492
317
1,356
-
-
(20)
(20)
1,356
32,165
(20)
32,145
1,772
78,198
1,235
(2,993)
(5,477)
(12,416)
60,319
487
60,806
Balance at 1 January
2011
Total comprehensive
income (loss) for the year
Profit/(loss) for the year
Foreign currency
translation differences
Total comprehensive
(Loss) / income
Transactions with
owners:
Issuance of shares
Exercise of options
Share-based payment
charge
Arising on acquisition of
non-controlling interests in
Telit APAC
Total transactions with
owners
Balance at 31 December
2011
35
Telit Communications PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2012
Year ended 31 December 2012
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 2012
1,772
78,198
1,235
8,388
1,830
(15,332)
76,091
Total comprehensive income
/(loss) for the year
Loss for the year
Foreign currency translation
differences
Total comprehensive
income/ (loss)
Transactions with owners
Exercise of options
Share-based payment charge
Capital contribution
Total transactions with owners
-
-
-
9
-
-
9
-
-
-
231
-
-
231
-
-
-
-
-
-
-
-
-
-
-
-
218
218
-
(6,202)
(6,202)
277
277
-
-
-
-
-
277
(6,202)
(5,925)
-
790
-
790
240
790
218
1,248
Balance at 31 December 2012
1,781
78,429
1,235
8,606
2,107
(20,744)
71,414
Year ended 31 December 2011
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 2011
1,361
47,800
1,235
8,052
2,805
(11,974)
49,279
Total comprehensive loss for the
year
Loss for the year
Foreign currency translation
differences
Total comprehensive income/
(loss)
Transactions with owners
Issuance of shares
Exercise of options
Share-based payment charge
Capital contribution
Total transactions with owners
-
-
-
396
15
-
-
411
-
-
-
30,096
302
-
-
30,398
-
-
-
-
-
-
-
-
-
-
-
-
-
-
336
336
-
(4,378)
(4,378)
(975)
(975)
-
(975)
(4,378)
(5,353)
-
-
-
-
-
-
-
1,020
-
1,020
30,492
317
1,020
336
32,165
Balance at 31 December 2011
1,772
78,198
1,235
8,388
1,830
(15,332)
76,091
36
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2012
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 as well as the financial position of the Group, its cash flows, liquidity position and borrowing
facilities are set out in the Chief Executive’s Statement on pages 9 to 12. In addition notes 16, 24, 26 and 27 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 long-term
preferential rate loans supported by the Ministry of Trade and Commerce in Italy. Further information is
provided within note 26. 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 US 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
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 renewing and increasing the credit facilities to meet the required working capital
for the Group's future growth.
After making enquiries, the directors are confident that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the financial statements.
37
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(c) Functional and presentational currency
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 Company functional currency is
the GBP.
The Group and Company report in US dollars to fully reflect the Group’s global operations as a result of the
following: 1) the production of its products in China resulting in manufacturing costs denominated in US
dollars; and 2) revenues in US dollars, or linked to the US dollar, 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 in 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.
Foreign exchange rates of the US dollar:
At 31 December :
2012
2011
Average for the year ended 31 December:
2012
2011
(d) Basis of consolidation
Exchange rate
(Euro/US dollar)
1.3194
1.2939
1.2848
1.3920
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.
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.(cid:3)
Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests
even if doing so causes the non-controlling interests to have a deficit balance.
38
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(e) Business combination
From 1 January 2010 the Group has applied IFRS 3 Business Combinations (2008). The change in accounting
policy was 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
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:
(cid:120) the fair value of the consideration transferred; plus
(cid:120) the recognised amount of any non-controlling interests in the acquiree; plus
(cid:120) the fair value of the existing equity interest in the acquiree; less
(cid:120) 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.
(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 no impact on earnings per share.
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 the 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.
(g) 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.
39
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(h) Inventories
Produced finished goods are stated at the lower of cost or net realisable value. Cost comprises direct materials
and, where applicable, directs labour costs and those overheads that have been incurred in bringing the
inventories to their present location and condition. Cost is calculated using the weighted average method. Net
realizable value represents the estimated selling price less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution.
Raw materials are presented at the lower of cost or net realisable value, with cost calculated using the weighted
average method.
(i) Investments
Investments in subsidiaries are stated at cost less impairment.
A gain or losses on partial disposal of investments in subsidiary that do not result in a loss of control are
recognised in the statement of comprehensive income.
(j) 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. Land is not depreciated.
Depreciation rates are as follows:
Buildings
Office furniture and equipment
Computers and software
Vehicles
Leasehold improvements
Machines and equipment
%
3
6-15
33
15-25
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.
(k) 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 licenses
Customer relationships
Acquired technology
Trademark
%
15-33
20-22
20-40
12.5
40
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(l) Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity 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. 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 attributable amount of goodwill is included in the determination of the
profit or loss recognised in the statement of comprehensive income on disposal.
(m) Internally developed intangible assets – development costs
The cost of research activities is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the Group's expenditure on development is recognised only
if all of the following conditions are met:
an asset is created that can be identified (such as hardware, software or a new process);
it is probable that the asset created will generate future economic benefits; and
(cid:120)
(cid:120)
(cid:120) 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.
(n) 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.
41
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(n) Impairment of tangible and intangible assets excluding goodwill (continued)
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.
(o) 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 enacted or substantially enacted by the reporting date. 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.
(p) Trade payables
Trade payables are non-interest bearing and are stated at their fair value.
42
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(q) Retirement benefit costs
For defined benefit retirement 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 Projected 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.
(r) 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.
Revenue from the sales of goods is recognised when the significant risks and rewards of ownership have been
passed to the buyer, which is usually on delivery of the goods.
Revenues from services are recognised by reference to stage of completion of the transaction when the amount
of revenue can be measured reliably, it is probable that economic benefits will be received and the costs
incurred and costs to complete the transaction can be measured reliably.
Services or royalty income is recognised in accordance with the terms of the relevant agreement unless there has
been an assignment of rights for a fixed or non-refundable fee and the Company has no remaining obligations to
perform; in such circumstances, revenue is recognised when collection of the income is reasonably assured.
(s) 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.
(t) 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.
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 according to IAS 23 Borrowing Costs (2007).
43
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(u) 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.
(v) Non-current assets held for sale
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount
and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
through the sale transaction rather than through continued use. This condition is regarded as met only when the
sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition
and the Company is committed to the sale which is expected to qualify for recognition as a completed sale
within one year from the date of classification.
(w) 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. Subsequent to initial recognition, investments in subsidiaries
are accounted for under the equity method in the consolidated financial statements and the cost method in the
Company’s financial statements less provision for impairment.
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.
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.
44
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(w) Financial instruments (continued)
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are
impaired where there is objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
Objective evidence of impairment could include:
significant financial difficulty of the issuer or counterparty; or
(cid:120)
(cid:120) default or delinquency in interest or principal payments; or
(cid:120)
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.
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.
45
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(w) Financial instruments (continued)
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
agreements. An equity instrument is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
All the Group’s financial liabilities are classified as other financial liabilities. It holds no financial liabilities ‘at
fair value through profit or loss’, except for derivative financial instruments, which are set out below.
Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs and are subsequently
measured at amortized cost using the effective interest method, with interest expense 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 24 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.
46
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(x) Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payment.
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 behavioural considerations.
Where the Group has settled a grant of equity instruments during the vesting period, the Group accounts for the
settlement as an acceleration of vesting, and 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.
(y) Profit per share
Basic and diluted profit 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.
(z) 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 recognise in accordance with IAS 37 at
the best estimate of the expenditure required to settle the Group's liability.
(aa) 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.
47
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(aa) Critical accounting judgments and key sources of estimation uncertainty (continued)
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.
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.
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.
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.
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:
(cid:120)
(cid:120)
the probability of taxable profits being available in the future; and
the quantum of taxable profits that are forecast to arise.
This requires management to exercise judgment in forecasting future results. There are a number of assumptions
and estimates involved in estimating the future results of the relevant entity in which the trading losses arose,
including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
management’s expectations of growth in revenue;
changes in operating margins;
uncertainty of future technological developments; and
Uncertainty over global and regional economic conditions and demand for the Group’s services.
Changing the assumptions selected by management could significantly affect the Group’s results.
48
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
1.
ACCOUNTING POLICIES (continued)
(aa) Critical accounting judgments and key sources of estimation uncertainty (continued)
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.
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 estimating the future cash flows
expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.
There are a number of assumptions and estimates involved in calculating the net present value of future cash
flows from the Group’s cash-generating units, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
management’s expectations of growth in revenue;
changes in operating margins;
uncertainty of future technological developments;
uncertainty over global and regional economic conditions and demand for the Group’s products;
long-term growth rates; and
Selection of discount rates to reflect the risks involved.
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.
(ab) 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 but are not expected to
have a material impact on the Group.
49
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
2.
REVENUE
Sales of goods
Services income
3.
SEGMENTAL ANALYSIS
The Group
Group
2012
$’000
205,827
1,565
207,392
2011
$’000
176,179
1,186
177,365
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.
The Group is organized on a worldwide basis into three geographical segments: EMEA, APAC and Americas.
There are no other segments. All segments offer similar product lines. In the year ended 31 December 2012 and
31 December 2011 no single customer accounted for more than 10% of the Group's revenue.
Segmental information for each geographical region in which Telit operates is presented below:
2012
Revenue
External sales
Inter-segment sales (1)
Total revenue
EMEA
$’000
APAC
$’000
Americas
$’000
Total
$’000
Eliminations Consolidated
$’000
$’000
107,076
62,977
170,053
25,350
7,848
33,198
74,966
1,085
76,051
207,392
71,910
279,302
-
(71,910)
(71,910)
207,392
-
207,392
4,739
Result
Segment result
Unallocated corporate expenses (2)
Operating profit
Investment income
Finance costs
Profit before income taxes
Income taxes
Profit for the year
4,093
2,138
10,970
-
10,970
(5,033)
5,937
250
(1,272)
4,915
(1,035)
3,880
50
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
3. SEGMENTAL ANALYSIS (continued)
2011
Revenue
External sales
Inter-segment sales (1)
Total revenue
EMEA
$’000
APAC
$’000
Americas
$’000
Total
$’000
Eliminations Consolidated
$’000
$’000
88,861
47,178
136,039
31,187
2,527
33,714
57,317
-
57,317
177,365
49,705
227,070
-
(49,705)
(49,705)
177,365
-
177,365
269
Result
Segment result
Unallocated corporate expenses (2)
Operating profit
Investment income
Finance costs
Profit before income taxes
Income taxes
Profit for the year
5,169
3,069
8,507
-
8,507
(5,037)
3,470
507
(1,751)
2,226
(778)
1,448
(1) Transactions between geographic segments are charged at market prices.
(2) Unallocated corporate expenses principally comprise expenses arising from corporate activity on the Company level,
including directors compensation (other than such compensation specifically allocated to one of the traded companies)
salaries of certain senior executives, professional fees (e.g. audit fees) and other expenses which cannot be directly
allocated to one of the segments.
Total assets:
EMEA
APAC
Americas
Unallocated assets
Total assets
Total liabilities:
EMEA
APAC
Americas
Unallocated liabilities
Total liabilities
Unallocated assets comprise:
Other debtors in respect of general entity and head office purposes
Deposits - restricted cash
Cash and cash equivalents
Unallocated assets
51
2012
$’000
2011
$’000
100,370
12,596
26,986
22,118
162,070
51,028
6,258
3,392
34,979
95,657
71,824
11,714
17,372
20,133
121,043
32,653
5,056
2,519
20,009
60,237
2012
$’000
2011
$’000
709
365
21,044
22,118
167
185
19,781
20,133
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
3. SEGMENTAL ANALYSIS (continued)
Unallocated liabilities comprise:
2012
$’000
2011
$’000
Other loans
Short-term borrowings from banks and other lenders
Other current liabilities in respect of general entity and head office
purposes
Unallocated liabilities
9,839
24,293
847
34,979
10,311
9,106
592
20,009
2012
Other segment items:
Capitalized tangible and intangible
asset additions
Non-cash items:
Depreciation and amortization
Bad debt expense
Share-based payments
2011
Other segment items:
Capitalized tangible and intangible
asset additions
Non-cash items:
EMEA
$’000
APAC
$’000
Americas
$’000
Consolidated
$’000
10,177
2,420
9,021
21,618
6,967
197
935
888
49
27
766
32
46
8,621
278
1,008
EMEA
$’000
APAC
$’000
Americas
$’000
Consolidated
$’000
26,054
572
575
27,201
Depreciation and amortization
Bad debt expense
Share-based payments
6,016
1,348
1,241
1,125
6
45
106
10
70
7,247
1,364
1,356
52
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
4. OTHER OPERATING INCOME
Change in fair value of earn out (a)
Gain from increase of investment value (b)
Governmental grants (c)
Other
2012
$’000
2011
$’000
85
-
960
41
1,086
-
83
628
67
778
(a) Represents the change in the fair value of the contingent consideration related to the acquisition of
GlobalConect LTD in 2011 (see note 24).
(b) On 17 August 2011, the Company's Israeli subsidiary, signed together with the other shareholders in Cell-
time Ltd. an agreement to sell 100% of the shares held in Cell-time for an aggregate consideration of $1.65
million. The transaction was completed in September 2011. The Company’s part in the consideration was
$528,000. In accordance with this a gain of $83,000 was recognised for subsequent increase in fair value
less costs to sell this investment.
(c) The Group’s eligibility for the annual programs for 2012 and 2011 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 2012 as all the
conditions for qualification, which relate to the level of eligible expenditure incurred, have been satisfied.
5. OTHER OPERATING EXPENSES
Provision in the year
Loss on sale of assets
Integration and transaction costs
Others
6.
INVESTMENT INCOME
Exchange rate differences, net
Interest income from bank deposits
7. FINANCE COSTS
Interest expense on factoring arrangements
Interest expense on bank loans and overdrafts
Exchange rate differences, net
Other bank expenses
53
2012
$’000
2011
$’000
726
312
486
245
1,769
-
134
1,096
28
1,258
2012
$’000
2011
$’000
178
72
250
-
507
507
2012
$’000
2011
$’000
-
842
-
430
1,272
89
699
428
535
1,751
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
8.
INCOME TAXES
A. Tax recognised in statement of comprehensive income
Current year taxes
Prior year taxes
Deferred taxes
Tax expense
2012
$’000
2011
$’000
781
(182)
436
1,035
851
600
(673)
778
B. Factors affecting the tax expense for the year
The table below explains the differences between the expected tax charge, at the UK statutory rate of 24.5% for
2012 and 26.5% for 2011, and the Group’s total tax expense for the year:
Profit before income tax from continuing operations
Tax charge computed at 24.5% (2011: 26.5%)
Tax adjustments arising from:
Non-deductible expenses
Deferred tax assets recognized
and other timing differences, net
Utilization of deferred tax asset previously recognised
Recognition of previously unrecognised tax losses
Effect of tax rates in foreign jurisdictions
Utilization of carry forward losses for which no deferred tax was
recorded
Tax for previous years
Tax expense
2012
$’000
2011
$’000
4,915
(1,204)
(535)
(1,196)
-
-
(347)
2,065
182
(1,035)
2,226
(590)
(199)
(1,224)
(392)
547
(273)
1,953
(600)
(778)
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The UK statutory tax rate used is not materially differing from the average tax rates applicable in the Group’s
main foreign jurisdictions in which it operates.
54
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
8.
INCOME TAXES (continued)
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:
At 1 January 2011
Translation adjustments
Reclassified from other current assets
Arising on acquisition
Credit to the statement of comprehensive income
At 1 January 2012
Translation adjustments
Credit to the statement of comprehensive income
At 31 December 2012
Net
operating
loss
$’000
Other
timing
differences
$’000
Total
$’000
3,336
(127)
26
-
550
3,785
60
(524)
3,321
238
50
-
(51)
123
360
34
92
486
3,574
(77)
26
(51)
673
4,145
94
(432)
3,807
In the year ended 31 December 2012, the Group has recognised deferred tax assets of $3,266,000, $500,000,
$23,000 and $18,000 in respect of Telit EMEA, Telit APAC, Telit Spain and Telit Israel, respectively.
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(aa) 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 amounts 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
2012
$’000
2011
$’000
11,680
44,992
56,672
11,763
39,495
51,258
The losses for which no deferred tax asset has been recognized primarily relates to our Italian and UK entities.
The Group has recognised deferred tax assets to the extent that it is probable that these will be utilised in future
periods.
55
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
8. INCOME TAXES (continued)
The Autumn Statement on 5 December 2012 announced that the UK corporation tax rate will reduce to 21% by
2014. A reduction in the rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July
2011, and further reductions to 24% (effective from 1 April 2012) and 23% (effective from 1 April 2013) were
substantively enacted on 26 March 2012 and 3 July 2012 respectively.
This will reduce the company's future current tax charge accordingly. The deferred tax asset at 31 December
2012 has been calculated based on the rate of 23% substantively enacted at the balance sheet date.
It has not yet been possible to quantify the full anticipated effect of the announced further 2% rate reduction,
although this will further reduce the company's future current tax charge and reduce the company's deferred tax
asset accordingly(cid:856)(cid:3)
9. EMPLOYEES
The average number of persons (including executive directors) during
the year was:
Research and development
Sales, marketing and operation
General and administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
10. PROFIT FOR THE YEAR AND GROUP AUDIT FEE
Operating profit for the year is stated after charging / (crediting)
Net foreign exchange (gain) / loss
Depreciation of owned fixed assets (note 13)
Amortization of intangible assets (note 12):
Amortization of purchased customer list – included in selling and
marketing expenses
Amortization of acquired technology – included in R&D expenses
Amortization of software – included mainly in R&D expenses
Amortization of Internally generated development costs – included
mainly in R&D expenses
Impairment loss / (recovery) 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 (income)
56
2012
2011
251
142
81
474
212
137
63
412
2012
$’000
2011
$’000
32,978
4,664
2,346
39,988
28,084
5,062
1,899
35,045
2012
$’000
2011
$’000
(178)
2,315
627
899
1,892
2,888
-
20,085
127,577
270
428
2,211
478
284
1,557
2,717
(83)
21,114
107,536
73
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
10. PROFIT FOR THE YEAR AND GROUP AUDIT FEE (continued)
Audit fee
Group
2012
$’000
2011
$’000
Company
2012
$’000
2011
$’000
200
33
173
406
19
425
190
80
310
580
67
647
200
5
-
205
-
205
190
66
-
256
13
269
Fees payable to the Company’s auditor
for the audit of the Company’s
annual accounts
Fees payable to the Company’s auditor
and their associates for other
services to the Group:
The audit of the Company’s
subsidiaries pursuant to legislation:
Total audit fees
Other services relating to taxation
Total fees
11. PROFIT PER SHARE
Basic profit per share
The calculations of basic and diluted earnings per ordinary share are
based on the following results and numbers of shares:
Profit for the year attributable to the owners of the Company
3,914
1,564
2012
$’000
2011
$’000
Basic weighted average number of equity shares(1)
Diluted weighted average number of equity shares (2)
Basic profit per share (in US dollar cents)
Diluted profit per share (in US dollar cents)
Adjusted basic profit per share (in USD cents)
Adjusted diluted profit per share (in USD cents)
(1) Basic weighted average number of equity shares:
No. of Shares No. of Shares
102,968,936
112,265,553
3.8
3.5
8.6
7.9
98,294,356
108,356,180
1.6
1.4
4.5
4.1
57
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
11. PROFIT PER SHARE (continued)
Issued ordinary shares at 1 January
Effect of share options exercised
Effect of shares issued related to a business acquired
Effect of shares issued in February 2011
Basic weighted average number of equity shares at 31 December
(2) Diluted weighted average number of equity shares:
2012
No. of Shares
2011
No. of Shares
102,678,769
290,167
-
-
102,968,936
77,169,734
602,242
379,178
20,143,202
98,294,356
2012
No. of Shares
2011
No. of Shares
Basic weighted average number of equity shares
Effect of share options on issue
Diluted weighted average number of equity shares at 31 December
102,968,936
9,296,617
112,265,553
98,294,356
10,061,824
108,356,180
At 31 December 2012 4,684,000 options were excluded from the diluted weighted average number of ordinary
shares calculation as their effect would have been anti-dilutive.
The average market value of the Company's shares for purposes of calculating the dilutive effect of shares was
based on quoted market prices for the period during which the options were outstanding.
Adjusted profit per share
A reconciliation of the profit attributable to the equity shareholders for the year to the adjusted profit for the
year attributable to the equity shareholders is presented below:
Profit for the year
Loss attributable to non-controlling interest
Profit for the year attributable to the owners of the Company
Share-based payments
Amortization of intangibles acquired
Other non-recurring expenses
Other non-recurring income
Change in deferred taxes, net
Adjusted profit for the year attributable to the equity shareholders
2012
$’000
2011
$’000
3,880
34
3,914
1,008
1,859
1,769
-
338
8,888
1,448
116
1,564
1,356
1,035
1,126
(83)
(571)
4,427
58
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
12.
INTANGIBLE FIXED ASSETS
Intangible assets with finite life
Internally
generated
development
costs
$’000
Software and
licenses
$’000
Customer
relationships
$’000
Acquired
technology
$’000
Goodwill
$’000
Total
$’000
6,116
1,604
-
1,000
(266)
8,454
3,064
-
750
226
12,494
(4,394)
(1,284)
-
(273)
209
(5,742)
(1,559)
-
(333)
(173)
(7,807)
4,687
2,712
10,639
3,669
(369)
-
(565)
13,374
7,664
-
-
526
21,564
(3,601)
(2,717)
237
-
293
(5,788)
(2,888)
-
-
(258)
(8,934)
12,630
7,586
1,613
-
-
2,894
(20)
4,487
-
1,178
2,347
-
8,012
(1,613)
-
-
(478)
20
(2,071)
-
(670)
(627)
5
(3,363)
4,649
2,416
1,025
-
-
1,494
(20)
2,499
-
627
1,037
57
4,220
(1,025)
-
-
(284)
20
(1,289)
-
(537)
(899)
(49)
(2,774)
1,446
1,210
3,534
-
-
5,181
(51)
8,664
-
-
3,333
250
12,247
-
-
-
-
-
-
-
-
-
-
22,927
5,273
(369)
10,569
(922)
37,478
10,728
1,805
7,467
1,059
58,537
(10,633)
(4,001)
237
(1,035)
542
(14,890)
(4,447)
(1,207)
(1,859)
(475)
(22,878)
12,247
8,664
35,659
22,588
GROUP
COST
1 January 2011
Additions
Impairment
Arising from acquisitions
Translation adjustments
31 December 2011
Additions
Acquisitions through
business combinations
Arising from acquisitions
Translation adjustments
31 December 2012
AMORTIZATION
1 January 2011
Charge for the year
Impairment
Arising from acquisitions
Translation adjustments
31 December 2011
Charge for the year
Acquisitions through
business combinations
Arising from acquisitions
Translation adjustments
31 December 2012
Net book value
31 December 2012
31 December 2011
A. The impairment charge of internally generated development costs, net in 2011, in the amount of $132,000 is
included in R&D expenses.
B. Goodwill, customer relationships and acquired technology relate to the acquisition of Telit APAC in 2006
(included within the APAC geographical segment); the acquisition of One RF Technologies (subsequently
renamed Telit RF) in 2008; the acquisition of Motorola m2m and of GlobalConect Ltd. in 2011 (included
within the EMEA geographical segment); the acquisition of Navman and CrossBrige in 2012 (included within
the Americas geographical segment).
The amount of goodwill attributable to the APAC segment is $3,404,000 (2011: $3,161,000), to the EMEA
segment is $5,510,000 (2011: $5,503,000) and to the Americas segment is $3,333,000 (2011: nil). The amount
of customer relationships and acquired technology attributable to the EMEA segment is $2,719,000 (2011:
$3,626,000) and to the Americas segment is $3,376,000 (2011: nil).
59
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
12.
INTANGIBLE FIXED ASSETS (continued)
C. Capitalized development costs related mainly to the HSPA, CDMA, WCDMA, EVDO and LTE product
lines and are being amortized over a three to five year period.
D. The Group tests goodwill for impairment annually or more frequently if there are indications that they might
be impaired. Management has not identified any indications for impairment of goodwill recognised in the
current year in respect of the acquisition of Navman and CrossBridge.
Other than the goodwill arising on acquisitions made during the year, management considers the product
line developed by Telit APAC and Telit RF, the customer base that was purchased from “Motorola” and the
m2mAIR business unit (collectively, “business units”) to be the cash generating units (CGU) for goodwill
allocated to them. The cash generating units have been identified based on the lowest levels at which
goodwill is monitored for internal management purposes.
The recoverable amount of the business units has been determined based on a value in use calculation using
discounted 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 10%
per year.
The main assumption for each CGU is sales growth which is based on recent history and expectations of
future changes in the market. The discount rate applied to the cash flow forecasts for each CGU is based on
the long term bond yields adjusted for a country and risk premium. The discount pre tax rate applied was
14% for Telit APAC, 20% for Crossbridge and 15% for all other CGUs.
In developing its projections, management has taken into account its past experience as well as 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 conservative growth rate of 10% per year over the next four years has been assumed for the entire
m2m market. Management has also 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 4%-19% over the five year period covered by the
forecasts.
Sensitivity analysis on the carrying value of goodwill
The management has performed sensitivity analyses which assumes lower growth rate applied to the
revenue forecasts of the CGUs and different discount rates. Based on such the Group would still not
recognise any impairment charge.
The directors consider it unlikely that there will be any changes in key assumptions that would lead to an
impairment loss.
60
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
12.
INTANGIBLE FIXED ASSETS (continued)
E. On 3 January 2012 the Company consummated, by subsidiary in the US, the binding agreement it entered
into on 20 December 2011 to purchase 100% of the shares of Navman Wireless OEM Solutions LP, a
designer and manufacturer of world-class GPS modules and solutions, for approximately $3.038 million in
cash. The amount is subject to an additional earn-out amount of up to $750,000 subject to certain
conditions.
The acquisition of Navman’s technology and its US based executive engineering and sales staff will make
Telit a major contender in the GPS market while providing an enhanced product portfolio for its m2m
customers.
The assessment of the fair values of the assets and liabilities acquired has been completed:
Cash
Accounts Receivables
Inventory, net
Prepaid Expenses
Tangible assets, net
Technology
Customer relationships
Accounts Payables
Other Payables
Total identifiable assets
Consideration paid
Contingent consideration
Excess of cost - goodwill
Fair value
$’000
3
1,141
485
13
72
1,127
474
(671)
(283)
(2,361)
3,038
418
1,095
The contingent consideration represents the fair value of an earn-out of $418,000 at the acquisition date.
The goodwill is attributable mainly to the skills and experience in the connectivity market of Navman's founders,
and the synergies expected to be achieved from developing the value added services business.
The goodwill recognised is deductible for income tax purposes
In the year from the acquisition date to 31 December 2012 the activity that was purchased from Navman was
integrated into the Telit Group and therefore the Company cannot estimate the impact of Navman, by itself, on
the consolidated results.
61
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
12.
INTANGIBLE FIXED ASSETS (continued)
COMPANY
COST
1 January 2011
Additions
Translation adjustments
31 December 2011
Additions
Translation adjustments
31 December 2012
AMORTIZATION
1 January 2011
Charge for the year
Translation adjustments
31 December 2011
Charge for the year
Translation adjustments
31 December 2012
Net book value
31 December 2012
31 December 2011
Trademark
$’000
Software
$’000
Total
$’000
9,167
-
(20)
9,147
-
400
9,547
(1,368)
(1,177)
43
(2,502)
(1,170)
(132)
(3,804)
5,743
6,645
-
119
(4)
115
1,212
30
1,357
-
-
-
-
(205)
(4)
(209)
1,148
115
9,167
119
(24)
9,262
1,212
430
10,904
(1,368)
(1,177)
43
(2,502)
(1,375)
(136)
(4,013)
6,891
6,760
62
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
13. PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
1 January 2011
Additions
Arising from acquisition
Disposals
Translation adjustments
31 December 2011
Additions
Acquisitions through
business combinations
Disposals
Translation adjustments
31 December 2012
DEPRECIATION
1 January 2011
Charge for the year
Disposals
Translation adjustments
31 December 2011
Charge for the year
Acquisitions through
business combinations
Disposals
Translation adjustments
31 December 2012
Net book value
31 December 2012
31 December 2011
Land and
Buildings(1)
$’000
Computers
$’000
Office
equipment
$’000
Vehicles
$’000
Leasehold
Improvements
$’000
Total
$’000
-
7,400
-
-
(522)
6,878
-
-
-
136
7,014
-
(32)
-
2
(30)
(175)
-
-
(5)
(210)
6,804
6,848
2,347
1,328
304
(451)
(152)
3,376
10,592
1,204
988
(115)
(425)
12,244
748
1,945
35
(18)
6
4,147
(1,684)
(563)
447
73
(1,727)
235
(431)
272
14,265
(7,635)
(1,497)
52
336
(8,744)
(659)
(1,362)
(15)
16
(31)
(2,416)
(83)
252
(240)
(10,177)
1,731
1,649
4,088
3,500
121
94
-
(46)
1
170
315
-
-
-
485
(23)
(26)
25
-
(24)
(47)
-
-
-
(71)
414
146
942
41
-
(52)
(53)
878
403
-
(613)
13
681
(450)
(93)
49
30
(464)
14,002
10,067
1,292
(664)
(1,151)
23,546
3,411
270
(1,062)
427
26,592
(9,792)
(2,211)
573
441
(10,989)
(72)
(2,315)
-
414
(8)
(130)
(98)
682
(284)
(13,004)
551
414
13,588
12,557
(1) In October 2011 Telit Communications S.p.A., the Company's Italian subsidiary completed the
acquisition of the premises where its business is located, for a total purchase price of $7.9 million. The
building acquisition presented at 31 December 2011 and 2012 is net of the fair value measurement impact
of the preferential loan obtained to fund the acquisition. The Company has pledged the buildings as
collateral for the mortgage loan received to fund the acquisition. See also note 26.
At 31 December 2012 properties and equipment with a carrying amount of $3,156,000 (2011:
$2,214,000) are subject to a floating charge to secure credit lines provided to subsidiaries.
63
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
14. INVESTMENTS IN SUBSIDIARIES
COMPANY
Investment in subsidiaries
1 January 2011
Additions (1,2)
Additions - subsidiaries share-based payment charge (1)
Repayments (3)
Translation adjustments
Provision for impairment (5)
1 January 2012
Additions (1,2)
Additions - subsidiaries share-based payment charge (1)
Repayments (3)
Loan converted to equity
Translation adjustments
Provision for impairment (5)
31 December 2012
Loans to
subsidiaries
$’000
Investments
in
subsidiaries
$’000
6,867
28,035
-
(10,685)
(241)
-
23,976
856
-
(5,000)
(250)
79
-
19,661
37,346
3,215
336
-
-
(1,821)
39,076
26,271
218
-
250
-
(1,500)
64,315
Total
$’000
44,213
31,250
336
(10,685)
(241)
(1,821)
63,052
27,127
218
(5,000)
-
79
(1,500)
83,976
(1) In January, 2012 the Company purchased all the shares in Telit SPA from the Company’s subsidiary Telit SRL
for the book value amount of $20.5 million which amount remains on the books of the Company. At the end of
2012 the company acquired 100% of the shares of CrossBridge Solutions Inc., a premier US based m2m data
and value added services provider located in Lincolnshire, Illinois, U.S.A, for $3million in cash. The amount is
subject to an additional earn-out amount of up to $6 million subject to certain conditions (fair value – $2.7
million). See also note 14(A).
In addition, in 2012 the Company established two additional subsidiaries as follows: Telit Wireless Solutions
Hong Kong Limited for $3,000 and DJSP INVESTMENTS LIMITED for $13,000.
On 30 November 2011 the Company increased its interest in Telit Wireless Solutions Co Ltd (Telit APAC)
from 90% to 92% of the issued ordinary share capital by way of a further share subscription for cash amounting
to $1,103,000. The Company accounted for this deemed acquisition on the book values of the net assets of Telit
APAC at the date of the injection. As a result of this transaction, non-controlling interests have been reduced
by $20,000. The amount of $20,000 arising was recorded as a credit to the statement of comprehensive income
in the year ended 31 December 2011. In addition, on 11 July 2011 the Company acquired 100% of the shares
of GlobalConect for total consideration of $1,912,000 which it paid in cash and shares and contingent
consideration of $200,000.
For further information in respect of share-based payment see note 25.
(2) During 2012 $856,000 loan was made available to Telit Hong Kong.
During 2011 the Company made additional loans to its subsidiaries as follows: $24,085,000 loan was made
available to Telit Wireless Solutions Israel to fund the acquisition of Motorola m2m.; $2,500,000 loan was
made available to Telit Communications Spain SL; $720,000 loan was made available to m2mapps GmbH;
$500,000 loan was made available to Telit Wireless Solutions Co Ltd; $130,000 loan was made available to
Telit RF Technology S.A.S. and $100,000 loan was made available to GlobalConect Ltd.
64
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
14. INVESTMENTS IN SUBSIDIARIES (continued)
(3) The repayment in 2012 is all due to loan balance repayments made by Telit Wireless Solutions Ltd.
The repayments in 2011 include a partial repayment of the loan balance payable by Telit Wireless Solutions
Ltd. in the amount of $7,085,000; $2,500,000 repayment of the loan made in 2010 to Telit Wireless Solutions
Inc.; $1,000,000 repayment of the loan made to Telit APAC, and repayment of $100,000 out of the loan
balance made to Telit Communications Spain SL.
(4) During 2012 the Company converted the loan to Telit RF to equity.
(5) At 31 December 2012 and 31 December, 2011 the Company’s investments in subsidiaries were assessed for
indicators of impairment using the discounted future cash flow method. Due to the continued decline in the
performance of Dai Telecom Holdings (2000) Ltd the recoverable amount of this subsidiary was estimated
based on its value in use. Based on this assessment in 2011, the carrying amount of the investment was
determined to be higher than its recoverable amount and an impairment loss of $1,821,000 was recognised in
the Company's accounts for 2011. In 2012 the Company reassessed its estimates and recorded an additional
impairment loss of $1,500,000.
The impairment loss is included in other operating expenses in the Company's accounts and had no impact on
the consolidated accounts.
The estimate of value in use in 2012 was determined using a pre-tax discount rate of 12% (2011:11.7%)
65
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
14. INVESTMENTS IN SUBSIDIARIES (continued)
ACQUISITIONS
A. In December, 2012, the Company completed the acquisition of 100% of the shares of CrossBridge
Solutions Inc., a premier US based m2m data and value added services provider located in
Lincolnshire, Illinois, U.S.A, for approximately $3 million in cash, with a possible earn-out of up to $6
million based on the amount of gross profit achieved by CrossBridge during the earn out period. The
earn-out is payable in shares or in cash, at the Company’s discretion, provided that no less than 25% is
paid in cash. As of 31 December 2012 $400,000 was not yet paid.
The acquisition of CrossBridge and its U.S. based engineering and sale staff will allow Telit to expand
m2mAIR business unit offerings in m2m value added services and connectivity to the USA.
The provisional assessment of the fair values of the assets and liabilities acquired is as follows:
Cash
Accounts Receivables
Other current assets
Tangible assets, net
Technology
Customer relationships
Long term deposit
Accounts Payables
Other current liabilities
Other non-current liabilities
Total identifiable assets
Consideration paid
Consideration to be paid
Contingent consideration
Excess of cost - goodwill
Fair value
$’000
333
469
57
100
750
2,381
11
(91)
(410)
(90)
3,510
2,600
400
2,749
2,239
The contingent consideration represents the fair value of the earn-out of $2,749,000 at the acquisition date.
The goodwill is attributable mainly to the skills and experience in the connectivity market of Crossbrige's
founders, and the synergies expected to be achieved from developing the value added services business.
66
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
14. INVESTMENTS IN SUBSIDIARIES (continued)
Details of the subsidiary undertakings of the Company at 31 December 2012 are as follows:
Name of company
Telit RF Technology S.A.S.1
Telit Wireless Solutions Srl1
("TWS")
Telit Communications SpA1
("Telit EMEA")
Country of
incorporation
and operation
France
Type of
shares
Ordinary
Effective
ownership
interest and
voting rights Principal activity
100%
Development, manufacturing
and selling short-range data
products
Sardinia, Italy
Ordinary
100%
Inactive Company
Italy
Ordinary
100%
m2mapps GmbH1
Germany
Ordinary
100%
Telit Wireless Solutions Inc. 1 ("Telit
Americas")
United States
of America
Ordinary
100%
Telit Communications Spain SL1
Telit Wireless Solutions Tecnologia E
Servicos Ltda2
Telit Wireless Solutions Co Ltd1
("Telit APAC")
Dai Telecom Holdings (2000) Ltd.1
Spain
Brazil
Republic of
Korea
Israel
Telit Wireless Solutions Ltd. ("Telit Israel
")1
Dai Telecom Ltd. ("Dai Telecom")2
Israel
Israel
GlobalConect Ltd1
Israel
Telit Wireless Solutions (Pty) Ltd. 2 ("Telit
RSA")
Republic of
South Africa
Ordinary
Ordinary
100%
100%
Ordinary
92%
Ordinary
Ordinary
100%
100%
Ordinary
100%
Ordinary
Ordinary
100%
100%
Telit Wireless Solutions Hong Kong
Limited1
DJSP INVESTMENTS LIMITED 1
Telit Location Solutions LP2
CrossBridge Solutions. Inc1
Telit Wireless Solutions (Australia) Pty
Limited2
Telit GPS Solutions GP LLC2
Hong Kong
Ordinary
100%
Cyprus
United States
Of America
Ordinary
Partnership
Units
United States
of America
Australia
Ordinary
Ordinary
100%
100%
100%
100%
Development, manufacturing
and selling data products and
distributing cellular products
Selling and marketing data
products
Selling and marketing data
products
Selling and marketing data
products
Selling and marketing data
products
Development, manufacturing
and selling data products
Intermediate holding
company
Selling and marketing data
products
Selling and marketing data
products
Provides cellular connectivity
services
Selling and marketing data
products
Selling and marketing data
products
Inactive Company
Selling and marketing data
products
Selling and marketing
managed services.
Selling
data products
and marketing
United States
Of America
Membership
Interests
100%
Holding Company
1 indicates that the entity is held directly by the Company.
2 indicate that the subsidiary is indirectly held;
67
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
15. INVENTORIES
Finished goods
Raw materials and work in progress
Group
2012
$’000
2011
$’000
13,169
8,490
21,659
9,190
4,498
13,688
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 $1,027,000 (2011:
$757,000).
16. RECEIVABLES
Within current assets:
Trade receivables
Other receivables
Due from Group undertakings
Within non-current assets:
Long term receivables
Group
Company
2012
$’000
2011
$’000
2012
$’000
2011
$’000
56,502
8,845
-
65,347
39,834
7,488
-
47,322
1,109
709
8,907
10,725
568
732
18
652
167
6,488
7,307
11
The average credit period on trade receivables is 85 days (2011: 79 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 $8,253,000 (2011:
$5,763,000) 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
104 days (2011: 117 days).
Ageing of past due but not impaired trade debtors
1-30 days
30-60 days
60-90 days
Above 90 days
2012
$’000
2011
$’000
4,856
914
543
1,940
8,253
2,139
1,033
1,273
1,318
5,763
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
68
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
16. RECEIVABLES (continued)
The Group’s trade receivables are stated after allowances for doubtful debts, an analysis of which is as follows:
At 1 January
Increase in allowance for the year
Amounts written off
Translation adjustments
At 31 December
2012
$’000
2011
$’000
421
278
(43)
7
663
872
1,364
(1,870)
55
421
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.
Included within other receivables are amounts receivable in respect of the Group's grant claims amounting to
$231,000 (2011: $2,746,000). 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.
17. CASH
The Group’s cash resources are as follows:
Group
Company
2012
$’000
2011
$’000
2012
$’000
2011
$’000
Deposits – restricted cash
Cash and cash equivalents
Total
365
21,044
21,409
185
19,781
19,966
296
4,418
4,714
83
5,646
5,729
Restricted cash deposits are provided as security for borrowings and bank guarantees provided by banks in
EMEA.
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.
69
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
17. CASH (continued)
The Group’s cash resources are denominated in the following currencies:
Sterling
US dollar
Euro
KRW
Brazilian Real
ILS
Other
Total
Group
Company
2012
$’000
2011
$’000
2012
$’000
2011
$’000
613
14,386
4,304
723
426
579
378
21,409
1,965
11,698
3,376
1,753
840
-
334
19,966
604
3,584
526
-
-
-
-
4,714
1,959
2,948
822
-
-
-
-
5,729
18. ALLOTTED SHARE CAPITAL
COMPANY AND GROUP
Allotted, issued and fully paid:
103,304,206 ordinary shares of 1 penny each (2011: 102,678,769
ordinary shares of 1 penny each).
2012
$’000
2011
$’000
1,781
1,772
The Company has one class of ordinary shares which carry no rights to fixed income.
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 $30.6 million (£19.0 million) before issuance
expenses of approximately $1.3 million (£0.8 million). The placing proceeds were used to fund the acquisition
of Motorola Solutions Inc's m2m module business.
On 11 July 2011 the Company issued 800,000 new ordinary shares as part of the consideration paid in the
acquisition of GlobalConect.
During 2012 625,438 options were exercised by employees into ordinary shares. (2011: 915,285)
Share options
The number of outstanding options as at 31 December 2012 and at the date of this report was 13,513,238 and
13,375,404 equal to 13.08% and 12.93% respectively, of the outstanding share capital of the Company(11.56%
and 11.45%, respectively of the outstanding share capital of the Company, on a fully diluted basis).
Reserves
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, 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. As of 1
February 2011, the value of the 2.7 million shares was greater than €1.5 million, and BAMES paid the
Company, according to the agreement, 50% of the amount between €1.5 million and the actual value.
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.
70
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
18. ALLOTTED SHARE CAPITAL (continued)
As a result, 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 other 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 and was included in
merger reserve.
19. POST-EMPLOYMENT BENEFITS
A. Until 1 January 2007, employees of Telit’s Italian subsidiaries 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 as 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 as at 1 January 2007 is unfunded. The actuarial present value of this frozen defined benefit obligation,
and the related current service cost were measured using the unit credit method. The majority of the employees
are still paid under the Italian government defined contribution plan and the Company only accrues for the
future termination indemnity.
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 mostly 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 the Group bears no material actuarial risk. 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.
The liability in respect of accrued severance pay for the Israeli resident employees is $16,000 (2011: $43,000)
and the charge to the statement of comprehensive income in the year is $27,000 (2011: $7,000).
C. The Group's liability for severance pay for APAC resident employees is calculated pursuant to the local
severance pay law, based on the most recent salaries and term of employment. The actuarial present value of
the related current service cost and curtailment loss was measured using the traditional unit credit method.
D. The IAS 19 disclosures in respect of the Group’s unfunded defined benefit obligations in Italy and APAC are
detailed further below.
Expense recognised in the statement of comprehensive income
Interest cost
Current service costs
2012
$’000
2011
$’000
131
358
489
133
276
409
71
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
19. POST-EMPLOYMENT BENEFITS (continued)
The amount included in the balance sheet arising from changes in the present value of the defined benefit
scheme obligation for Telit EMEA and Telit APAC are set out below:
Present value of defined benefit scheme obligation
1 January
Current service costs and interest
Contributions paid by the Company
Actuarial gains
Translation adjustments
31 December
2012
$’000
2011
$’000
2,785
489
(288)
521
149
3,656
2,869
409
(406)
16
(103)
2,785
The financial assumptions used to determine the present value of the defined benefit scheme were as follows:
Discount rate
Expected salary increase rate
Inflation
2012
2.70% /3.93%
3.00% /5.00%
0.00% /2.00%
2011
4.75% /4.80%
3.00% /5.00%
0.00% /2.00%
The experience adjustments arising on the plan liabilities at the balance sheet date, totalled $377,419 (2011:
$162,799) and the expected contributions to be paid in 2013 total $68,491.
Historical information
Present value of the defined benefit scheme obligation
Experience adjustments arising on the plan liabilities
3,656
377
2,785
163
2,869
241
2,014
206
1,822
29
2012
$’000
2011
$’000
2010
$’000
2009
$’000
2008
$’000
72
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
20. CURRENT LIABILITIES
Short-term bank loans and other borrowings
Current maturities of long term loans
Total short-term borrowing from banks and
other lenders
Trade creditors (i)
Due to Group undertakings
Provisions
Other current liabilities
Total current liabilities
Group
2012
$’000
2011
$’000
Company
2012
$’000
2011
$’000
22,904
1,389
24,293
38,883
-
2,254
11,584
7,850
1,256
9,106
25,496
-
1,329
8,510
-
-
-
569
30,672
-
847
77,014
44,441
32,088
-
129
129
173
5,177
-
592
6,071
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 in 2012 was 75 days (2011: 66 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.
21. CONTINGENT LIABILITIES
Legal proceedings
A. In October 2009, the Israeli customs authority began assessment proceedings regarding the value of products
imported into Israel by Dai Telecom for the purpose of customs duties for the period from 2005 to 2008. On
April 21, 2010, an assessment was served on Dai Telecom demanding additional import taxes relating to (1)
the declared value of the imported products equal to the royalties paid by Dai Telecom to Telit Italy in
connection with the use, by Dai Telecom, of the trademark and the tradename “Telit” (the “Royalties Issue”)
and (2) the declared value of the imported products equal to development fees paid to the Korean
manufacturer of the products imported by Dai Telecom, while some of the development was carried out
outside of Israel (the “Development Fees Issue”). In total, the assessment was for approximately $3.2 million
excluding $1.5 million deductible VAT, with the Royalties Issue being the major part of the assessments. On
July 24, 2012 Dai Telecom signed a settlement agreement with the customs authority pursuant to which Dai
paid $90,000 and the customs authority dropped all claims under the Development Fees Issue. Thereafter, the
customs authority issued a new assessment with respect to the Royalties Issue only in the total amount of $3.9
million excluding $1.4 million deductible VAT. On March 14, 2013 Dai filed its appeal of the assessment in
the Tel Aviv District Court. Based on the opinions of our professional advisors, among other things, we
believe Dai Telecom has valid and strong arguments regarding its claim (1) that the royalties should not have
been added to the value of the trademark and the tradename “Telit” and that there is a strong likelihood Dai
Telecom’s arguments will prevail.
73
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
21. CONTINGENT LIABILITIES (continued)
B. On 13 January 2012, M2M Solutions LLC, a company allegedly incorporated under the laws of the State of
Delaware, USA ("M2M Solutions"), filed a complaint in the United States District Court for the District of
Delaware (the "Court") against Motorola Solutions Inc. ("Motorola"), the Company and Telit Wireless
Solutions Inc. (“Wireless” and together with the Company “Telit”), asserting that Motorola allegedly
infringed one and the Telit defendants allegedly infringed two patents allegedly owned by M2M Solutions
(the "Complaint").
M2M Solutions asserted that the products of the Company and Wireless allegedly infringed, and continue to
infringe, one or more of the claims covered by the asserted patents, and asked the Court to award damages as
well as to issue an injunction prohibiting the Company and Wireless from selling any allegedly infringing
products in the future. M2M Solutions has not disclosed the amount of damages that they seek.
Both Telit and Motorola answered M2M Solutions complaint denying the allegations of patent infringement
and also asserted affirmative defences including non-infringement, patent invalidity, improper inventor and
lack of patent ownership.
In connection with the Complaint, on 2 February 2012, the Company received a letter from Motorola
asserting that the Company is allegedly required to indemnify Motorola pursuant to provisions of the Asset
Purchase Agreement pursuant to which Wireless purchased the assets of Motorola Israel Ltd.
On 14 February 2012, the Company, together with Wireless, signed a Tolling Agreement with Motorola and
Motorola Israel Ltd. agreeing, inter alia, that during the pendency of the lawsuit none of the parties will make
claims against each other arising from the causes of action asserted by M2M Solutions or seek any cost
recovery or indemnity.
In the opinion of the Company’s management based, inter alia, on the opinion of its professional advisers, as
well as on the preliminary stage of the claim. No provision is consider necessary.
C. On December 11, 2012 the Company and its subsidiary, Telit Communications S.p.A (collectively, “Telit”)
filed a complaint in the United States District Court for the Eastern District of New York against Mentor
Graphics Corporation, an Oregon corporation, asserting that Mentor Graphics had sought unjustified license
fees from Telit in breach of a License Agreement entered into between Telit Communications S.p.A and
Mentor Graphics Ireland Ltd. on or about May 3, 2003. Telit seeks declaratory judgment and preliminary and
permanent injunctions against Mentor Graphics. On or about February 11, 2013, Mentor Graphics
Corporation interposed defenses and counterclaims against Telit, including for copyright Infringement,
breach of contract, and equitable claims for relief in connection with the License Agreement and based upon
Mentor Graphics software related to Telit’s purchase of certain assets of Motorola Israel Ltd. The
counterclaims seek unspecified compensatory, actual, and statutory damages, as well as injunctive and
declaratory relief. Telit intends to contest the case vigorously and is planning to file a motion to dismiss
certain of Mentor Graphics’ counterclaims.
D. The Group is currently the subject of on-going 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.
74
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
21.
CONTINGENT LIABILITIES (continued)
E. In February 2010 a former employee of Dai Telecom filed a claim with the Labour court in Tel-Aviv against
Dai Telecom, Telit Israel and Telit Labs, claiming, inter alia, for wrongful dismissal and requesting a
payment of approximately $155,000, later reduced to $118,000. In March 2013 the labor court found against
the former employee on most grounds of his complaint and ordered him to pay attorneys’ costs of Dai
Telecom. On that part of the ruling found against Dai Telecom, Dai Telecom was required to pay the former
employee the approximate amount of $7,000.
F. The Company’s subsidiary, Telit Communications SpA has settled two outstanding employment litigations in
Italy previously reported by the Company. In addition, with respect to another claim previously reported by
the Company the Italian court ruled in favour of a dismissed employee. The Company is considering whether
or not to appeal result of such decision. In addition to the above, the Company is, from time to time, engaged
in employment disputes with respect to former employees whose employment with the Company has been
terminated.
22. COMMITMENTS AND GUARANTEES
Operating lease commitments
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
Above five years
Minimum lease payments under operating
leases charged to the statement of
comprehensive income for the year
Land and buildings
2011
2012
$’000
$’000
Other
2012
$’000
2011
$’000
1,791
3,085
89
4,965
1,703
3,844
119
5,666
687
883
-
1,570
772
1,002
-
1,774
924
1,313
869
1,045
Operating lease payments represent rentals payable by the Group for certain of its office properties.
Guarantees and liens
a. The Company provided guarantees of up to $22.3 million to a certain suppliers of the Group, to sustain
credit lines to be granted by the suppliers in respect of purchases made.
b. 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 are for total amount of $32.1 million but shall
not exceed the amount current borrowing from these banks.
c. The Company has provided unlimited guarantees to suppliers of Telit Brazil and Dai Telecom covering all
of their undertaking to said supplier according to the agreement between these parties.
75
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
23. PROVISIONS
A provision is recognised when the Group has a legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of
the amount can be made. The Company's management does not expect that certain legal matters for which
provision was recognised will be settled within 12 months and therefore the provision for such legal matters was
included in non-current liabilities.
Tax (A)
$’000
Warranties (B)
$’000
Other (C)
$’000
Total
$’000
Balance at 1 January 2012
Utilized in the year
Provided in the year
Exchange differences
Balance at 31 December 2012
Classified as:
Current liabilities
Non-current liabilities
975
-
264
21
1,260
1,260
-
1,260
448
(205)
-
6
249
249
-
249
2,040
(1,316)
1,713
36
2,473
745
1,728
2,473
3,463
(1,521)
1,977
63
3,982
2,254
1,728
3,982
A. The Group is currently subject to on-going tax audits. A tax assessment received in late 2010 by the
Company's subsidiary, Telit Communications S.p.A, in respect of the 2005 tax year was settled in full ,on
1 May 2011, by the payment of $1.3 million (€0.9 million).
In addition, in 2011, Telit Communications S.p.A. received assessments and/or penalty notices for the
years 2004, 2005 and 2006 in the approximate aggregate amount of $2.0 million. The Company is in
various stages of attempting to settle or otherwise appeal such assessments and penalty notices.(cid:3)(cid:3)
In 2012 Telit received assessments, and/or penalty notices and/or R&D recovery deeds for the years
2005, 2007 and 2009 in the approximate aggregate amount of $1.7 million. The Company is in various
stages of attempting to settle or otherwise appeal such assessments and penalty notices.
Telit Wireless Solutions S.r.l received tax assessments from the Italian Tax Authority for the years 2006
and 2007 in the approximate aggregate amount of $0.85 million (€0.62 million). The Company paid a
nominal amount in settlement of the 2006 tax assessment, and settled the 2007 tax assessment in February
2012 based on the opinion of its legal and tax advisors by payment of $0.3 million (€0.24 million).
The company has included satisfactory provisions with regard to all of the above.
B. 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.
C. 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.
76
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
24. OTHER LONG-TERM LIABILITIES
A. As at 31 December 2012 the Group had outstanding a €3.0 million (2011: €3.0 million) interest rate swaps
that started on 10 January 2008 and has an end date of 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 $46,904 (2011:
$177,835). The fixed interest rate payable by the Group is Euribor + 1%.
B. During 2012 the company reassess the fair value of the contingent consideration related to GlobalConect Ltd
acquisition in 2011 and therefore decreased the liability in the amount of $85,000, to $115,000.
For contingent consideration included in other long-term liabilities related to Navman acquisition see note
12(E). For contingent consideration included in other long-term liabilities related to Crossbridge acquisition
see note 14(A).
25. SHARE-BASED PAYMENTS
The Group and Company operate share-based option plan for executive directors, senior managers and
employees.
On 1 April 2011 executives, employees and consultants of the Company and its subsidiaries were granted
3,959,000 options to purchase approximately 3.9 per cent of the Company's issued and outstanding shares at the
time, at an exercise price of £0.81 per share (3,799,000) and £0.845 per share (160,000). The options vest in three
equal annual instalments starting from 1 April 2012 and expire five years from the date of grant.
On 6 April 2011 executives, employees and consultants of the Company and its subsidiaries were granted
175,000 options to purchase approximately 0.2 per cent of the Company's issued and outstanding shares at the
time, at an exercise price of £0.81 per share (165,000 options) and £0.90 (10,000 options). The options vest in
three equal annual instalments starting from 1 April 2012 and expire five years from the date of grant, except for
10,000 options which vest over a 4-year period and 50,000 options which were granted as fully vested.
On 27 July 2011 a consultant of the Company and its subsidiaries was granted 100,000 options to purchase
approximately 0.10 per cent of the Company's issued and outstanding shares at the time, at an exercise price of
£0.905 per share. The options vest in three equal annual instalments starting from 27 July 2012 and expire five
years from the date of grant.
On 4 January, 2012, executives and employees of the Company and its subsidiaries were granted 150,000 options
to purchase approximately 0.15 per cent of the Company's issued and outstanding shares at the time, at an
exercise price of £0.80 per share. The options vest in three equal annual instalments starting from 4 January 2013
and expire five years from the date of grant.
In addition, on March 26, 2012 a director of the Company was granted 150,000 options (the “Additional
Options”). Such options were related to an earlier grant by the Company to such Director on 19 September 2011
of 150,000 options to purchase approximately 0.15 per cent of the Company's issued and outstanding shares at the
time, at an exercise price of £0.80 per share, such options vesting in three equal annual instalments starting from
19 September 2012 and expiring five years from the date of grant. (the “Original Options”). Since at the time of
the grant of the Original Options the Company had nearly reached the overall limit on the granting of options over
newly issued shares contained in the rules of its unapproved option scheme, the remuneration committee resolved
that, as the overall limit under the scheme increases, the director would from time to time be formally granted the
Additional Options (either in one tranche or in a series of separate grants) at the same exercise price and on the
same terms as the Original Options with the result that the Additional Options at the time of grant representing
approximately 0.15 per cent of the Company’s issued and outstanding shares, are exercisable at £0.80 per share,
such options vesting in three equal annual instalments starting from 19 September 2012 and expiring five years
from 19 September 2011.
The number of outstanding options as at 31 December 2012 was 13,513,238, equal to approximately 13.08% of
the issued share capital of the Company.
77
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
25. SHARE-BASED PAYMENTS (continued)
The number and weighted average exercise prices of share options are as follows:
Outstanding at beginning of year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at year end
Number
2012
2011
13,913,508
300,000
(625,438)
(74,832)
13,513,238
10,764,458
4,384,000
(915,285)
(319,665)
13,913,508
Exercisable at year end
8,968,567
6,393,556
Weighted average
exercise price
(pence)
2012
2011
0.42
0.80
0.23
0.32
0.43
0.33
0.24
0.81
0.21
0.50
0.42
0.23
The weighted average share price at the date of exercise for share options exercised in 2012 was £0.56
(2011: £ 0.88).
The options outstanding at 31 December 2012 have an exercise price in the range of £0.20 to £0.905 (2011:
£0.20 to £0.905) and a weighted average contractual life of 2.3 years (2011: 3.2 years).
The Group recognised a total expense of $1,008,000 in respect of equity settled share based payment
transactions for the year ended 31 December 2012 (2011: $1,356,000).
The Company charge for the year was $790,000 (2011: $1,020,000).
The fair value of services received in return for share-based options is measured by reference to the fair value of
the share-based option granted. The estimate of the fair value of the services received is measured using the
Black-Scholes pricing model. The assumptions used in the measurement of the fair values at the grant date of
the options are as follows:
Grant date
29 January 2009
25 May 2010
30 June 2010
1 April 2011
1 April 2011
6 April 2011
27 July 2011
19 September 2011
4 January 2012
26 March 2012
Share
price
(pence)
Exercise
price
(pence)
Expected
volatility
(%)
Option
life
(years)
Risk free
rate (%)
Dividend
yield (%)
0.185
0.29
0.33
0.845
0.845
0.90
0.905
0.735
0.465
0.526
0.20
0.25
0.32
0.81
0.845
0.81
0.905
0.80
0.80
0.80
60
60
60
60
60
60
60
60
60
60
5
5
5
5
5
5
5
5
5
5
2.04
2.01
1.79
2.24
2.24
2.24
1.56
0.85
0.85
0.85
0
0
0
0
0
0
0
0
0
0
Expected volatility is estimated by considering historic average share price volatility.
Employee
turnover
before
vesting/non
-vesting
condition
(%)
Fair value
per option
(pence)
25%
20%
20%
20%
20%
20%
20%
20%
20%
20%
0.05
0.11
0.12
0.31
0.30
0.31
0.32
0.24
0.11
0.24
78
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
26. BORROWINGS
Group
2012
$ ’000
2011
$’000
Company
2012
$’000
2011
$’000
Unsecured – at amortized cost
Current maturities of long term loans
Other long-term loans
Total
Secured – at amortized cost
Short-term bank loans and other borrowings
Total
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
Total
1,389
9,839
11,228
22,904
22,904
24,293
9,839
34,132
1,256
10,311
11,567
7,850
7,850
9,106
10,311
19,417
-
-
-
-
-
-
-
-
129
518
647
-
-
129
518
647
Borrowings breakdown
Working capital borrowing (1)
Governmental loan (2)
Mortgage loan (3)
Total
Group
2012
$ ’000
2011
$’000
Company
2012
$’000
2011
$’000
23,189
6,924
4,019
34,132
8,539
6,781
4,097
19,417
-
-
-
-
647
-
-
647
(1) Drawn letters of credit and borrowings arising from invoice advances use for working capital financing.
These borrowings secured partially by letters of guarantee issued by the Company, see note 22.
Increase in working capital borrowing mainly due to the growth of the company and increase in
receivables and inventory.
(2) Representing the preferential rate loan supported by the Ministry of Trade and Commerce in Italy
provided in connection with the Group’s business development program in Sardinia. The loan is
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. In December 2012 an additional loan of $975,000, carrying the same
terms, was received.
(3) Representing a preferential rate loan supported by a regional fund in Italy provided in connection with the
Group’s acquisition of the campus used for the Company's main R&D facility in Italy. The mortgage loan
is denominated in Euro and attracts interest at a rate of Euribour 6 months less 20% and is repayable in 15
semi-annual instalments that commenced in June 2012. The loan is presented at its discounted fair value.
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 27.
79
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
27. 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 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.
Foreign currency risk
The Group operates in a wide number of geographic areas. While change in currency might affect our revenue
and gross profit, we estimate the impact on our operating profits not material. Foreign exchange exposure arises
where the Group’s companies transact in a currency different from their functional currency.
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.
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:
US Dollar
Euro
ILS
Other
Assets
2012
$’000
2011
$’000
Liabilities
2012
$’000
2011
$’000
23,031
1,920
2,910
172
10,941
1,951
3,787
34
27,828
341
369
-
13,961
717
92
12
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
Group
2012
$’000
2011
$’000
50
193
The impact on equity would be equal and opposite of the impact on the profit or loss.
80
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
27. FINANCIAL RISK MANAGEMENT (continued)
Interest rate risk
Interest rate risk comprises the interest cash flow risk resulting from short-term borrowings at variable rates.
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 analyses below have been determined based on the exposure to interest rates at the reporting date
and the stipulated change taking place at the beginning of the financial year and held constant throughout the
reporting period. A 1% 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 $119,000 (2011: $138,000); there is no material impact upon
equity. This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss
to the Group, and arises principally from the Group's trade receivables.
The Group’s trade receivables are principally derived from sales to customers in Israel, Italy, the USA and
Korea. The Group performs ongoing credit evaluations of its customers and until 2010 did not experience any
material losses. Following recognition of material bad debt during 2011, the Group began insuring part of its
trade receivables balance. Allowance for doubtful accounts is determined with respect to those amounts that the
Group 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.
81
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
27. FINANCIAL RISK MANAGEMENT (continued)
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial
statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk:
Maximum credit risk:
Group
Cash and cash equivalents
Deposits – restricted cash
Trade receivables
Due from Group undertakings
Other long term asset
Loan (or investment in) to subsidiaries
Guarantee provided to banks on
subsidiary’s borrowings
Group
Company
2012
$’000
2011
$’000
2012
$’000
2011
$’000
21,044
365
56,502
-
568
-
-
19,781
185
39,834
-
732
-
-
4,418
296
1,109
8,907
18
19,661
32,148
5,646
83
652
6,488
11
23,976
21,727
Activities that give rise to credit risk and the associated maximum exposure include, but not limited to:
(cid:120) Making sales and extending credit terms to customers and placing cash deposits with other entities. In these
cases, the maximum exposure to credit risk is the carrying amount of the related financial assets;
(cid:120) 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 2012
where such guaranteed borrowings were not fully drawn at that date.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. 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.
82
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
27. 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 excluding interest that will accrue to those liabilities.
Group
Weighted
average
effective
interest rate
%
2012
Less than
1 year
$’000
More
than 1
year
$’000
Weighted
average
effective
interest rate
%
Fixed rate
2.93%
5,696
5,791
1.56%
Variable rate
2.13%
18,597
4,048
3.38%
2011
Less than
1 year
$’000
More than 1
year
$’000
2,112
6,994
5,833
4,478
Company
Weighted
average
effective
interest rate
%
2012
Less than
1 year
$’000
More
than 1
year
$’000
Weighted
average
effective
interest rate
%
2011
Less than
1 year
$’000
More than 1
year
$’000
Guarantees
-
32,148
-
-
21,727
-
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 include bank loans, trade accounts payable, other payables and other current liabilities). Due
to the nature of these financial instruments, there is no material differences between the fair value of the financial
instruments and their carrying amount included in the financial statements.
83
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
27. FINANCIAL RISK MANAGEMENT (continued)
Categories of financial instruments
Current financial assets
Cash and restricted cash
Trade receivables
Loans and receivables – other debtors
Loans and receivables – due from
group undertakings
Current assets not meeting the
definition of a financial asset
Inventories
Other debtors
Total current assets
Group
Company
2012
$’000
2011
$’000
2012
$’000
2011
$’000
21,409
56,502
-
-
21,659
8,845
19,966
39,834
-
-
13,688
7,488
4,714
1,109
-
8,907
29
709
5,729
652
17
6,488
-
150
108,415
80,976
15,468
13,036
2012
$’000
2011
$’000
2012
$’000
2011
$’000
Non-current financial assets
Loans and receivables
Non-current assets not meeting the
definition of a financial asset
Intangible assets
Property, plant and equipment
Investments in subsidiaries
Deferred tax asset
568
732
18
11
35,659
13,588
-
3,840
22,588
12,557
-
4,190
6,891
13
83,976
-
6,760
21
63,052
-
Total Non-current assets
53,655
40,067
90,898
69,844
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.
84
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
27. FINANCIAL RISK MANAGEMENT (continued)
Current financial liabilities at
amortized cost
Short-term borrowings from banks and
other lenders
Trade payables
Due to group undertakings
Other current liabilities
Current liabilities not meeting the
definition of a financial liability
Provisions
Other current liabilities
Group
Company
2012
$’000
2011
$’000
2012
$’000
2011
$’000
24,293
38,883
-
10,520
2,254
1,064
9,106
25,496
-
6,709
1,329
1,801
-
569
30,672
-
-
847
129
173
5,177
-
-
592
Total current liabilities
77,014
44,441
32,088
6,071
Non-current financial liabilities at
amortized cost
Other loans
Non-current financial liabilities at fair
value through profit or loss
Derivative financial instruments
Non-current liabilities not meeting the
definition of a financial liabilities
Post-employment benefits
Deferred tax liabilities
Provisions
Other long term liabilities
9,839
10,311
47
177
3,671
33
1,728
3,325
2,828
45
2,134
301
Total Non-current liabilities
18,643
15,796
Fair value hierarchy
-
-
-
-
-
2,864
2,864
518
-
-
-
-
200
718
Effective from 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 related only to the derivative financial instruments. 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 (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
All derivative financial instruments for both accounting periods are measured applying level 2 of the fair value
hierarchy. During 2012 a loss of $130,513 (2011: $108,352) was recognised in the statement of comprehensive
income in relation to these financial instruments.
85
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
27. 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 26, cash and cash
equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained
earnings as disclosed in the statement of changes in equity on page 35.
Gearing Ratio
The Group defines debt as both long and short term borrowings as detailed in note 26. 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:
Cash and cash equivalent
Restricted cash deposits
Total cash
Current borrowings
Non-current borrowing
Total borrowings
Net (debt) / cash
Shareholders’ equity
Net (debt) / cash to equity ratio
The Company is not subject to any externally imposed capital requirement.
Group
2012
$’000
2011
$’000
21,044
365
21,409
(24,293)
(9,839)
(34,132)
(12,723)
65,991
19.28%
19,781
185
19,966
(9,106)
(10,311)
(19,417)
549
60,319
0.91%
86
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2012
28. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Transactions with subsidiaries
Transactions between the Company and its subsidiaries represent related party transactions. Transactions with
subsidiaries have been eliminated on consolidation.
Outstanding balances at the year-end are unsecured and settlement occurs in cash.
Related party transactions between the Company and its subsidiaries are summarized below:
(a) Accounts receivable - See note 16.
(b) Accounts payable - See note 20.
(c) Trading transactions:
Royalties *
Cost of sale
Interest income
2012
$’000
2011
$’000
3,923
1,081
806
3,302
754
891
* The Company signed a license agreement with some of its subsidiaries according to which the subsidiaries shall
pay royalties of a certain percentage of their revenues in consideration of their use of the Company's trade name
and trademarks.
In addition, the Company signed an agreement with certain of its subsidiaries for allocation of some shared costs.
Transactions with key management personnel
A. Key management personnel are determined as the directors of Telit Communications PLC. Details of
transactions with the directors and their compensation are detailed in the Report on Directors’ Remuneration
on pages 19 to 23. There are no outstanding balances as at the year end.
B. On August 1, 2011, the Company waived any and all claims it then had or in the future may have against the
Company's Chief Executive, Oozi Cats in relation to certain indemnification letters provided to the
Company by Mr. Cats and to any other tax related claims in connection with Mr. Cats’ service and
employment agreements. Pursuant to the indemnification letters, Mr. Cats had personally undertaken to
satisfy in full certain potential tax liabilities if applicable. The underlying potential liability stems from
possible tax exposures relating to Mr. Cats’ past and current employment and service arrangements. After
due and careful consideration of the matters, our Board of Directors authorized the release of Mr. Cats from
any liability under those indemnification letters.
29. 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 $6,202,000 (2011: loss of $4,378,000).
87
Company Information
Directors, Secretary and Advisers
Company Registration No. 05300693
Directors
Enrico Testa, Chairman
Oozi Cats, Chief Executive
Yosi Fait, Finance director
Davidi Gilo, Independent Non-executive director
Ram Zeevi, Independent Non-executive director
Nicola Miglietta, Independent Non-executive director
Steven Sherman, Non-Executive Director
Sergio Luciano Buonanno, Independent Non-Executive
Director
Company Secretary
Yossi Weinstock
Registered Office
7th Floor, 90 High Holborn,
London WC1V 6XX
Nominated Adviser
And Broker
Canaccord Genuity Plc
7th Floor, Cardinal Place
80 Victoria Street
London SW1E 5JL
Solicitors
Olswang
7th Floor, 90 High Holborn
London WC1V 6XX
Independent Auditor
KPMG Audit Plc
Chartered Accountants
8 Salisbury Square,
London EC4Y 8BB
Registrar
Capita Registrars Limited
The Registry
34 Beckenham Road, Beckenham, Kent BR3 4TU
88
Telit Main Offices Worldwide
Telit Wireless Solutions EMEA
Telit Communications S.p.A.
Via Stazione di Prosecco 5/B
34010 Sgonico, Trieste - Italy
Phone: +39 040 4192 491
Fax: +39 040 4192 383
Via San Nicola da Tolentino n.1/5 , Rome
Phone: + 39 06 4204601
Fax: +39 06 42010930
Telit Wireless Solutions United Kingdom
Regus Building, Lakeside House
1 Furzeground Way
Stockley Park East
Uxbridge UB11 1BD
United Kingdom
Phone: +44 870351 7290
Fax: +44 870351 7291
Telit Wireless Solutions Israel
10 Habarzel Street
Tel Aviv 69710, Israel
Phone: +972 3 7914000
Fax: +972 3 791 4008
Telit Wireless Solutions 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
89
Telit Wireless Solutions Latin America
Rua Cunha Gago, 700 - cj 81 Pinheiros
São Paulo - SP, 05421001 Brazil
Phone: +55 11 2679 4654
Fax: +55 11 2679 4654
Telit Wireless Solutions APAC
Telit Wireless Solutions Co., Ltd.
12th Floor, Shinyoung Securities Bld., 34-12,
Yeouido-dong, Yeongdeungpo-gu, Seoul, Korea
Phone: +82 2 368 4600
Fax: +82 2 368 4606
Telit Wireless Solutions for China
Rm. 2106, East Bld. Of Coastal City
No.3, Hai De Avenue
Nanshan, Shenzhen, 518059, China
Phone: +86 755 8627 1598
Fax: +86 755 8627 0217
90