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Table of Contents
Introduction
Chairman's Statement
Chief Executive's Statement
Principal Risks and Uncertainties
Board of Directors
Corporate Governance
Report on Directors' Remuneration
Strategic Report
Directors' Report
Statement of Directors' Responsibilities
Independent Auditor's Report to the Members of
Telit Communications PLC
Financial Statements
Company Information
1
Introduction
Telit Communications PLC
Telit Communications PLC ("the Company" or "Telit") is a leading global enabler of the Internet of Things
(IoT). The unique combination of products and services feed data directly into applications and business IT
systems to deliver real-time intelligence to businesses across industries. ONE STOP. ONE SHOP is the
company’s go-to-market model offering cellular, short-range and GNSS modules plus all value added services
to connect them over the air, into the cloud and business systems.
From Telit Automotive Solutions come 4G LTE and other products meeting strict automotive OEM standards.
Through its business unit m2mAIR, the company provides an IoT focused Platform as a Service (PaaS), based
on the industry acclaimed deviceWISE platform, managed and value added services, application enablement
and connectivity covering the mobile network domain and device to cloud/backend services. With over 13
years exclusively in m2m, Telit constantly advances technology through eight R&D centres around the globe,
marketing products and services in over 80 countries.
Telit supplies scalable product families which are fully interchangeable for different market applications,
technologies and generations, with rapid prototyping tools for application design. The Company provides
customer support and design-in assistance from 35 sales and support offices, a global distributor network of
experts, and the Telit Technical Support Forum.
Telit is listed on the LSE:AIM (Ticker: TCM).
The machine to machine and internet of things market
Machine to machine (m2m or M2M) technology establishes wireless communication between machines and
information systems at the enterprise. m2m is the key enabler of the IoT, which is turning into the next
evolution of the Internet. It has the power to enable a quantum leap in the ability to gather, analyse and
distribute data that can turn into information, knowledge and, ultimately, improve business processes and
deliver productivity gains in all economic sectors. At the heart of each IoT implementation is a communication
module which receives, processes and transmits information.
The international market for m2m wireless communications remains strong, as wireless communication is a
feature consistently seen in more and more devices such as connected cars, smart meters and wearable
consumer electronics.
The IHS Technology report on the m2m sector "Cellular Modules for M2M - 2014", predicts that this market
will enjoy robust growth over the coming years. IHS believes the number of units to be shipped will reach
166.6 million by 2018, representing a 2012-18 CAGR of 22.8%. The report, which was published June 2014,
projects an average selling price decline for the period 2012-18 of 10% CAGR for 2G modules, 12.5% CAGR
for WCDMA/HSPA (3G) and 13.6% for LTE (4G). Considering the product mix forecast by IHS, the market
will grow in monetary value at a CAGR of 20.2 % from 2012 through 2018 with a total value of m2m module
market of $3 billion in 2018.
2
Financial Highlights1
Revenues for the full year ended 31 December 2014 increased year on year by 20.9% to $294.0 million
(2013: $243.2 million).
Revenues include a contribution of $20 million from m2mAIR, Telit’s Platform as a Service (PaaS),
the Company’s value added, connectivity, cloud platform and other services (2013: $9.8 million) an
increase of 104.1%.
Gross margin increased significantly from 38.02% in 2013 to 39.55% in 2014.
Adjusted EBITDA for the year increased by 29% to $34.7 million (2013: $26.9 million).
EBITDA for the year increased by 19.3% to $29.7 million (2013: $24.9 million)
Operating Profit / EBIT increased by 7.8% to $15.2 million (2013: $14.1 million).
Adjusted EBIT increased by 31.4% to $24.7 million (2013: $18.8 million).
Profit before tax for the year increased by 16.8% to $13.9 million (2013: $11.9 million).
Adjusted net profit for the year increased by 33.5% to $20.7 million (2013: $15.5 million)
Adjusted basic earnings per share increased by 23.5% to 18.4 cents (2013: 14.9 cents).
Basic Earnings per share from continuing operations was 11.1 cents (2013:10.5 cents)
Cash flow from operating activities increased by 81.9% to $46.2 million (2013: $25.4 million).
Total equity at 31 December, 2014 increased by $18.4 million to $97.8 million (31 December 2013:
$79.4 million).
Net debt at 31 December 2014 decreased by $7.8 million to $3.9 million (31 December 2013: net debt
of $11.7 million).
Operational highlights
Revenues increased by 20.9% to $294.0 million (2013: $243.2 million). For the fifth year in a row, the
Company has achieved double-digit growth with an average CAGR of 27%.
Gross margin increased from 38.02% in 2013 to 39.55% in 2014, due to improvements in the hardware
gross margins and a greater mix of services revenues, which provide a higher gross margin.
Gross profit for the year increased by 25.7% to $116.3 million (2013: $92.5 million).
Research and development operating expenses (expenses before capitalization and amortization of
internally generated development costs) increased by $17.4 million to $48.8 million (16.6% of
revenues) compared to $31.4 million in 2013 (12.9% of revenues). R&D expenses increased mainly
due to the acquisitions of ILST in late 2013 and the ATOP automotive division from NXP
semiconductors in April 2014, as well as due to the development of LTE modules designed for use in
the most demanding automotive and industrial M2M applications, continued development of many
automotive customized products, continuing investment in m2mAIR, Telit’s Platform as a Service
(PaaS), the Company’s value added, connectivity, cloud platform and a significant investment in the
ONE STOP. ONE SHOP concept.
Sales and marketing expenses increased by $11.8 million to $50.4 million (17.1% of revenues)
compared to $38.6 million in 2013 (15.9% of revenues). The increase is mainly due to the acquisitions
of ILST and ATOP.
General and administrative expenses increased by $4.2 million to $26.5 million compared to $22.3
million in 2013 but decreased to a lower proportion of revenues at 9% compared to 9.2% in 2013.
Each and every financial parameter including: EBIT, PBT, EBITDA, EPS and cash flow from
operational activities, improved during 2014 compared to the prior year.
The Company’s total equity increased significantly to $97.8 million in the year ended 31 December
2014 (2013: $79.4 million). This increase is mainly due to the Company’s continued profit making
and the issuance of new shares as part of the acquisition of the ATOP business unit from NXP and in
connection with the exercise of options, offset in part by the significant increase in the value of the US
dollar, particularly against the euro, which had a negative impact on the value of some of the Group’s
assets which are denominated in euro.
1 For reconciliation from IFRS financial results to adjusted financial results please refer to note 10 in the attached financial statements.
3
Acquisitions
On 31 March 2014 Telit completed the acquisition from NXP Semiconductors N.V. (Nasdaq: NXPI), of NXP's
ATOP business. ATOP is an automotive grade solution for vehicle manufacturers enabling them, amongst
other features, to implement telematics services like eCall, the European initiative to bring rapid assistance to
motorists involved in a collision anywhere in the EU, on a single compact and cost efficient package, whilst
reducing complexity and minimizing costs in vehicle designs. The final consideration was $2.1 million in cash
and $8.9 million by way of allotment to NXP of 2,255,943 ordinary shares of the Company.
The acquisition of ATOP includes sales, engineering and support staff, which were fully integrated during the
year into Telit's automotive organization, extends the Company's market reach with solutions leveraging the
expanded engineering and sales expertise serving to better address automotive and telematics customers.
Regional Information
The split of revenue on a geographical basis for the years ended 31 December 2014 and 2013 is as follows:
2014
($'000)
135,678
117,494
40,832
294,004
% of Total
Revenue
2013
($'000)
105,216
46.1%
110,099
40.0%
13.9%
27,909
100% 243,224
% of Total
Revenue
43.3%
45.3%
11.4%
100%
Americas
EMEA
APAC
Total Revenue
Americas
In 2014 we continued to see strong sales growth in the Americas, which became our largest geographic market.
A strong economy and an increase in the average selling price (ASP) due to technology migration, contributed
to the significant growth in the region.
In North America, we continued to benefit from the transition from 2G to 3G technology. There has been a
strong trend over the past 18 months, particularly in fixed applications like home security, to upgrade existing
alarm panels from 2G to 3G technology due to the planned shutdown of the AT&T GPRS network in December
2016, resulting in additional business above normal run rate business. The financial benefit we have enjoyed
as a result of the AT&T 2G to 3G conversion is expected to be mostly completed by the end of 2015.
In 2014 we certified our first industrial LTE module (LE910), on both AT&T and Verizon. Although sales in
2014 were modest due to LTE price points and customer design cycles, we expect to see LTE sales become a
more relevant percentage of our business in 2015, serving customer applications that require higher bandwidth
and long term network availability, such as applications in the energy and router markets. However, the most
significant growth in LTE is likely to come with the launch of modules that support LTE Category Zero (Cat-
0). Expected to be included in Release 12 of the LTE specification in 2015, it will be further refined into a
Machine Type Communications (MTC) specification in Release 13, which is expected to be finalized in March
2016. Unlikely to be supported by global mobile network operators (MNOs) until 2017, Cat 0 devices will
have many of the advantages that made GPRS such a suitable technology for M2M, including low cost, better
battery performance, low latency and improved in-building coverage.
2014 was a challenging year in Latin America due to the impact of the Brazilian presidential election, the
World Cup and economic instability in Argentina. These macro-economic issues resulted in modest unit
growth year-to-year and a slight decline in revenue. On the positive side, we continued to see very strong sales
growth in our GNSS portfolio and secured a number of key design wins which should help to improve our
performance in 2015.
2015 is expected to be another year of strong growth in the Americas as we continue to benefit from the
increase in popularity of LTE, continued deployments of 3G technology and the early results from our One
Stop. One Shop strategy of combining hardware with value-added services, network connectivity, and
application development platform.
4
EMEA
The challenging conditions in the Eurozone economy continued in 2014. The slowdown in the European
economy became evident in the second half of the year, with fears of re-entering a recession. This, combined
with the ongoing political uncertainty created by the situation in Greece, the conflict in the Ukraine and the
Ukraine-related sanctions against Russia, resulted in delays in the deployments of some projects in various
verticals including Sales and Payment, Energy and Telematics, meaning that the growth rate was slightly lower
than could otherwise have been achieved. Despite this adverse backdrop, Telit still managed to keep growing
over market average, reaffirming our leadership in EMEA
We achieved important design wins in different verticals with new customers that are well-established players
in various verticals like Energy, Telematics, Security, Vending Machines and Gateways & routers that will
contribute to our growth during 2015 and beyond, but visibility on how the economy will evolve in EMEA
during 2015 remain unclear, with many challenges facing Telit and the market as a whole.
The shift towards 3G and 4G cellular technologies that we see in other regions is not replicated in EMEA yet
and 2G is still largely the dominant technology. This limits the growth possibilities in revenue despite the
growth in the number of units sold. We expect to see a substantial increase in revenues when the shift to 3G
and 4G technologies in EMEA begins in earnest, but it is difficult to predict when the shift will begin.
Looking forward to 2015 these uncertainties in the political situation in EMEA continue to prevail and may
block the progress of certain projects and consequently slow down the market growth. Based on this we can
expect a modest growth and many big projects shifting into 2016. Our OSOS strategy and diversification
towards services will contribute into softening the effects of the political climate in this area and will allow us
to reinforce our leadership.
APAC
Revenues in APAC enjoyed substantial growth of 45% over 2013 revenues, despite fierce price pressure in
low end applications utilizing 2G modules in certain countries in the region. The growth was driven by our
focus on high value added segment in 2G and expansion in 3G and 4G modules.
Certain consumer and low end industrial segments 2G applications continue to face fierce price pressure due
to low requirement on quality and differentiable features. Although the low end 2G price floor seemed to have
stabilized, this segment remains challenging from a margin perspective.
Many of the key APAC countries are accelerating the adoption of 3G and 4G technologies for M2M
applications. We were able to capture many of these opportunities. In 2014, we saw multiple key accounts
launching new systems in remote health, point of sales devices and remote monitoring resulting in significant
module sales growth in these segments. We expect these key accounts to continue to drive the system sales in
the coming years and our module sales will benefit from it.
Technology, Services & Products:
Technological innovation is Telit’s core capability. Thanks to its 8 R&D centres, the Company was again able
in 2014 to provide outstanding module quality ranging from cellular to short-range RF and location
technologies. Our 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 addition, Telit’s m2m Air division expanded its offering of PaaS
cloud services and premium managed connectivity plans. Highlights in 2014 include:
Following the acquisition ATOP business unit from NXP, a new product line of automotive connectivity
modules was added to the Telit portfolio, expanding its offering for this market segment. The new
products offer embedded security features and processing power.
5
During the second half of the year, we launched the m2mAir Cloud platform, powered by deviceWISE
to provide customized network connectivity as well as a host of value added services. Our deviceWISE
M2M/IoT Application Enablement Platform (AEP) provides seamless connectivity and integration
across any remote device, any network and any enterprise application in the back office - without any
programming. The developer-friendly platform reduces the risk, time-to-market, complexity and cost
of deploying solutions for remote monitoring and control, industrial automation, asset tracking and field
service operations across operations around the world.
Continued investment and development of the m2mAIR Mobile managed services business, which
provides Telit with a recurring revenue stream in addition to the revenues achieved by the Company
from its established module business. The m2mAIR Mobile offering covers all customer connectivity
needs, including subscription management, remote module management, security, reporting and
monitoring, supply of SIM cards, rate plans and customer support. With Telit's wireless module
technology, these services enable M2M solution providers to easily create and manage their M2M
applications, reducing total cost of ownership (TCO) necessary to operate and support M2M user-
applications while ensuring the highest network quality and reliability. The m2mAIR Mobile offering
is currently available for European and North American customers with planned rollouts in other
regions.
The 2013 acquisition of ILS Technology and the integration into Telit of its management, engineering
and support staff created the m2mAir Cloud services unit, expanding Telit’s successful ONE STOP.
ONE SHOP market approach with solutions to boast a broader offering in value added services. With
ILST enabling m2mAIR Cloud, Telit expanded the reach of m2mAIR much deeper into Internet-side
services where M2M adopters have been seeking better, more integrated solutions, particularly for on-
boarding M2M assets to Cloud enabled IT infrastructures in low entry-cost, PaaS service models.
The Company integrated the m2m Cloud connector in its cellular modules, launching “Cloud Ready”
products that significantly shorten the development time and reduces the risks of developing solutions
from scratch.
The Company continued to invest in the development of its flagship xE910 family of wireless modules
featuring a single, compact form factor that is interchangeable so that solution providers and integrators
can easily deploy their applications under most of the top regional cellular networks, with ubiquitous,
cost effective coverage for M2M connected assets and consumer electronics devices worldwide. Based
on a Land-Grid-Array (LGA) form factor with a footprint of just 795mm2 and a total size of 28.2 x 28.2
x 2.2mm, the Telit xE910 family's uniform design gives customers the ability to choose between global
or regional cellular technologies depending upon the location and requirements of a specific application
for optimum data rates and module costs. Supporting GSM/GPRS, UMTS/HSPA+ and CDMA/EV-DO
and LTE cellular technologies, the xE910 family also allows applications to be easily upgraded, such as
when migrating from 2G to 3.5G, while maintaining the core design of an application or device
throughout its lifecycle.
The Company completed the certification of LE910 variants for the US market, which include a single
mode LTE variant for Verizon Wireless and a multi-mode LTE variant for the AT&T network. Also
new regional variants of LTE products including the EU, Japan and Korea were introduced to the market.
The Company continued the development of third generation multi-constellation GNSS modules which
dramatically improve navigation performance by providing access to both the Russian GLONASS
global navigation satellite system and Chinese Beidou, supplementing GPS. Third generation modules
offer improved performance and power consumption. In 2014 the Jupiter family was further expanded
with the addition of the new variants: SL869-V2S, SL871 and SL871-S.
During 2014 we followed the deployment of LPWA (Low Power Wide Area) networks in different
countries, specifically Spain and the UK. As part of our Short Range offering, we have extended our
product portfolio to support Sigfox technology by adding a new member to our family concept that
facilitate the adoption to our customers and allow them to address the new opportunities arising in the
market.
6
We live the Internet of Things
The traditional m2m/IoT value chain is fragmented: different companies market different components, and
although the industry has been very successful, this fragmentation is impacting on future growth. There is a
clear and compelling need to defrag the value chain, to mask its complexity delivering a one-vendor
connectivity offer that spans data collection through to data processing. Solving this challenge is a process that
starts with cellular and other wireless modules at one end; mobile network connectivity and value added
services in the middle; and an application enablement and data integration platform services at the other. That
is the foundation of Telit’s ONE STOP. ONE SHOP (OSOS) offering which we have built for more than a
decade to service customers and markets in:
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. At the end of 2014, Telit
employed 794 employees worldwide, an increase of 23.9% (2013: 641).
Telit provides world-class global logistics support to customers of all sizes, covering substantially all verticals
in the m2m/IoT market. The 13 years of experience doing business around the globe have helped Telit establish
strong channels and excellent access to key suppliers, customers and distributors in all major regional markets.
Telit's diverse customer base includes Automotive OEMs and Tier One automotive suppliers, as well as a
broad range of engineering/design firms, manufacturers and system integrators of cellular connected devices
and applications.
7
Competitive Advantage
With extensive R&D experience, gained through hundreds of engineering staff-years, Telit has developed a
number of differentiators including deviceWISE, the industry’s first and most secure IoT Application
Enablement Platform developed from the ground up for data integration of “Thing” into business systems and
enterprise applications; and its own GSM/GPRS stack which the company uses as the technological basis of
solutions in this technology.
1. Flexibility: Telit offers customers all products and services to take a stand-alone device and connect
it to the IoT and to business Apps. Customers have the flexibility of sourcing any single or combination
of these services and products. Telit modules are all designed in a family concept: all modules in a
family have the same form factor and full software compatibility, but offer different functionality to
meet the requirements of different vertical application segments and regional markets. The advantage
for users is substantial: all modules in a family are interchangeable. Above all, customers can easily
replace the modules with successive products without changing the application. This reduces effort,
time and costs associated with development.
2. Scalability: The Telit portfolio of services and modules includes offerings for an extensive set of
application types and different deployment scales with products and services to cover quantities from
a few, to millions of units. 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: Being the owner of key intellectual property enables Telit to remain on the cutting edge
of innovation for solutions to connect “things” to the IoT. Delivering GSM/GPRS, CDMA/EV-DO,
UMTS/HSPA+, LTE, short range RF and GNSS technologies in product families, enables customers
to choose among the various technologies, selecting the best solution considering the market their
application is to be deployed in. Key advantages include no need for changes to the application for use
of different modules in a family and embedded intellectual property to enhance module use with Telit
services like m2mAIR Mobile data connectivity and the m2mAIR Cloud pay-as-you-grow application
enablement platform.
4. Focus: Telit’s clear focus is on the IoT market. Telit is a pure-play IoT business, allowing it to focus
on customer needs to connect and maximize value from assets on the Internet of Things. Our R&D
and M&A effort is focused on creating the best portfolio of products and services to provide customers
with the solutions necessary to effectively run and grow their businesses deriving value from
connection to the IoT.
8
CHAIRMAN'S STATEMENT
Enrico Testa, Chairman of the Board
I am pleased to deliver our 2014 results. Our strong competitive position has helped us to continue to achieve
significant growth.
Outlook
The outlook for 2015 looks positive for the m2m industry as a whole and for Telit in particular.
Notwithstanding the fact that we are operating in a competitive environment, we believe we are well positioned
to continue to take advantage of the opportunities in the market and believe that our acquisitions over the past
few years enhance our platform as a service (PaaS) including M2M managed and value added services,
application enablement and connectivity, including the mobile network side and cloud back-end services. Telit
is M2M's top ONE STOP. ONE SHOP offering synergistic hardware and value added services bundles along
with low-entry cost PaaS for rapid application development. With our new m2mAIR business unit, this will
reinforce our already strong position within our industry. We look forward to continued organic business
growth and are constantly seeking further expansion opportunities through investment in new technologies or
by gaining access to new territories and new market segments.
We look to 2015 and beyond with excitement, as we continue to gain market share and strive constantly to
improve our profitability while continuing to provide the market with first rate products as well as value added
services.
Board changes
On March 11, 2014, Mr. Sergio Buonanno resigned from the board.
On April 1, 2014 Mr. Lars Reger was appointed to Board.
On June, 19, 2014 the term of office of Mr. Nicola Miglietta expired, at the end of the annual general
meeting of the shareholders of the Company. Mr. Miglietta retired by rotation from the Board, in
accordance with the Company’s articles of association and did not stand for re-election.
People
At the end of 2014, Telit employed 794 employees worldwide, an increase of 23.9% (2013: 641). During 2014
we 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
personally to 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 the most recent acquisitions.
Dividend
The Company is not proposing to pay a dividend in respect of the period (2013: $ nil).
__________________
Enrico Testa
Chairman of the Board
20 March 2015
9
CHIEF EXECUTIVE'S STATEMENT
Oozi Cats, Chief Executive
2014 was the fifth consecutive year of double-digit revenue growth for Telit and improvements in absolute
profitability. In 2014 we implemented another major step within our strategic roadmap - the acquisition of the
ATOP business from NXP that augmented our position in the automotive sector.
During the year, we continued to invest in Telit's Platform as a Service (PaaS), generating revenues of $20
million, representing a year over year growth rate of 104%. Our strategic investments and acquisitions in recent
years have added a layer of recurring revenues to Telit’s traditional business and we expect them to increase
their contribution over the coming years.
Our hard work and significant investments over the past few years have created a market-leading platform to
capitalise on the ‘Internet of Things’ (“IoT”) through which we will continue to pursue the many exciting
opportunities in the market and continue increasing our market share. We are very excited about the ONE
STOP. ONE SHOP concept we are already delivering to IoT customers and adopters and are confident that
with the unparalleled simplification it provides, Telit is very strongly positioned to continue leading the space
of M2M solutions providers worldwide.
Financial Results2
Revenue
Gross profit
Gross margin
Research and development
Selling and marketing
General and administrative
Other operating income, net
EBIT
Adjusted EBIT
Adjusted EBITDA
Profit before tax
Adjusted profit before tax
Profit for the year from continuing operations
Adjusted net profit for the year
Adjusted basic profit per share (in USD cents)
2014
$'000
2013
$'000
294,004
116,270
39.55%
(26,986)
(50,393)
(26,529)
2,855
15,217
24,687
34,657
13,908
23,378
12,487
20,709
18.4
243,224
92,482
38.02%
(24,049)
(38,617)
(22,348)
6,668
14,136
18,795
26,901
11,951
16,610
10,886
15,466
14.9
Basic and diluted earnings per share for 2014 were 10.6 cents and 10.2 cents respectively for the period
compared to 10.5 and 9.8 cents per share in 2013.
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.
2
For reconciliation from IFRS financial results to adjusted financial results please refer to note 10 in the attached financial statements.
10
Net debt position
The table below presents the net debt position at the year-end:
Cash and cash equivalents
Restricted cash deposits
Working capital borrowing (1)
Long term loans (2)
Governmental loans (3)
Mortgage loan (4)
Net Debt
2014
$'000
25,399
845
(9,949)
(5,372)
(11,183)
(3,605)
(3,865)
2013
$'000
23,886
291
(10,960)
(7,482)
(13,060)
(4,422)
(11,747)
(1) Short term borrowing, for less than one year, arising from invoice advances used for working capital
financing.
(2) Representing two long term loans from banks in Italy- (i) $6.2 million with interest at a rate of Euribor 3
months plus 3.25%, repayable in 20 quarterly instalments that commenced in September 2013, and (ii) $1.3
million with an interest rate of Euribor 6 months plus + 5.5%, repayable in 6 semi-annual instalments that
will commence in December 2020.
(3) Representing preferential two long term loans (i) $7.7 million with fixed-rate of 0.5%, repayable in 14
semi-annual instalments that will commence in December 2016, supported by the Italian MISE (Ministry
of Economic Development) to develop an innovative platform for the application of M2M technologies
and, (ii) $6.1 million with a fixed-rate of 0.75%, repayable in 10 annual instalments that commenced in
March 2009, supported by the Ministry of Trade and Commerce in Italy, provided in connection with the
Group’s business development program in Sardinia.
(4) 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 loan
is denominated in Euro, attracts interest at a rate of Euribor 6 months less 20% and is repayable in 15 semi-
annual instalments that commenced in June 2012.
Employees
The number of employees of the Group on a geographical basis at the end of 2014 and 2013 is as follows:
EMEA
Americas
APAC
Total Employees
2014
2013
449
159
186
794
373
122
146
641
Effects of Foreign Exchange
12.8% of Telit's revenue in the period was generated in Euro (2013: 15.4%). 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.
11
Acquisition of ATOP
On 31 March 2014 Telit completed the acquisition (announced in December 2013) from NXP Semiconductors
N.V. (Nasdaq: NXPI), of NXP's ATOP business. ATOP is an automotive grade solution for vehicle
manufacturers enabling them, amongst other features, to implement telematics services like eCall, the
European initiative to bring rapid assistance to motorists involved in a collision anywhere in the EU, on a
single compact and cost efficient package, whilst reducing complexity and minimizing costs in vehicle designs.
The final consideration was $2.1 million in cash and $8.9 million by way of allotment to NXP of 2,255,943
ordinary shares of the Company.
The acquisition of ATOP includes sales, engineering and support staff, which were fully integrated during the
year into Telit's automotive organization, extending the Company's market reach with solutions leveraging the
expanded engineering and sales expertise serving to better address automotive and telematics customers.
Strategy
Having successfully integrated the ILST Platform as a Service in 2013 into the Company’s global organization
and our m2mAIR business unit, Telit is confident in its position as a leading global company in the IoT industry
and intends to continue to focus on its strategy of becoming a single point of reference, with its unique ONE
STOP. ONE SHOP concept, while increasing our recurring revenues.
Telit’s portfolio of value added services includes connectivity, value added services and cloud platform as a
service (PaaS). These services, delivered to our customers with full project support, are designed to provide
the building blocks required to implement an IoT/m2m solution and easily run applications in the cloud, with
a quick time to market.
Our ONE STOP. ONE SHOP concept enables customers to source from Telit the necessary products and
services it needs to connect assets and devices to enterprise systems and business processes. The combination
of Telit’s hardware products coupled with m2mAir connectivity and PaaS and other value added services,
delivers features and performance exceeding the sum of the standalone capabilities.
Our hardware strategy continues to focus on the industrial and automotive segments. Our position in the
automotive segment was greatly enhanced by the acquisition of the ATOP business from NXP semiconductors,
which included highly skilled engineering and support staff, fully integrated during the year into Telit's
automotive organization, extending the Company's market reach and catering to the Connected Car trend,
driven by such factors as safety, regulation, and smart infotainment.
While the driverless car may still be in research stage, vehicles equipped with location receivers and cellular
connectivity have become the norm today. Telit is an established key supplier in this area and has 6 dedicated
Automotive sales offices in Detroit, Munich, Hamburg, Shanghai, Seoul and Tokyo in order to address the car
makers as well as their the relevant 1-st tier suppliers.. Telit’s long-term strategy is to become the market leader
in this segment not only with cellular and location products but also with V2X (vehicle to
vehicle/infrastructure) solutions and to service those clients with our value added services offering.
In the industrial segment, we deal with many verticals including; asset tracking, health care, security, point of
sale, wearables, telemetry, industry and energy and smart metering. These verticals are set to grow strongly
during the next few years, with significant projects at advanced stages around the world (like SMIP in the UK)
in energy and smart metering) and the Company is well positioned to be a major player in this field.
Telit looks forward to continuing the implementation of this strategy, both through its robust organic growth
(which is buoyed by the strong growth in the m2m industry and other verticals of the IoT) and through the
selective acquisition of businesses that will enhance our products and services offering with strong synergies
with our current portfolio.
12
Outlook
2015 has started positively and in line with our expectations. The outlook for the rest of 2015 and the future
looks positive for the m2m industry and promising for Telit. Our strong position in the m2m market and
enhanced position in the automotive segment following the acquisition of the ATOP business unit, 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.
Telit intends to continue to take advantage of the considerable opportunities arising in this growing global
market. 2015 has started well, and I look forward to providing further news of the Group’s progress over the
coming months.
_______________________
Oozi Cats
Chief Executive
20 March 2015
13
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. In addition, 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.
14
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 the future success of
the Company depends, among other things, on Telit's ability to:
Enhance its existing products and services.
Address the increasingly sophisticated and varied needs of its customers.
Respond to technological advances and emerging industry standards or government regulations and
practices on a cost-effective and timely basis.
Developing Telit's technology, 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.
15
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.
Dependency on suppliers
Our products include components some of which are purchased from single source suppliers. From time to
time, certain components used in our products have been, and may continue to be, in short supply and shortages
in allocation of components may result in a delay in filling orders from our customers, which may adversely
affect our business and our reputation.
We depend on a limited number of manufacturer partners that purchase components and manufacture our
products. If these manufacturers do not manufacture our products properly or cannot meet our needs in a timely
manner, we may be unable to fulfil orders received from our customers and our revenues may decrease
accordingly.
We may encounter the following risks due to our reliance on such manufacturer partners - the absence of
guaranteed or adequate manufacturing capacity; potential violations of laws and regulations by our
manufacturers that may subject us to additional costs for duties, monetary penalties, and damage to our
reputation; potential business interruption due to unexpected events such as natural disasters, labour unrest or
geopolitical events; reduced control over delivery schedules, production levels, manufacturing yields, costs
and product quality; the inability of our contract manufacturers to secure adequate volumes of components in
a timely manner at a reasonable cost; and unexpected increases in manufacturing costs.
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.
16
Board of Directors
Enrico Testa, Executive Chairman of the Board, aged 63
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.
Oozi Cats, Founder, Member of the Board and Chief Executive Officer, aged 54
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.
Yosi Fait, President and Finance Director, aged 54
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 Audit and Remuneration
Committees of the Board, aged 58
Mr. 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 and DSP Communication (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.
Ram Zeevi, Independent Non-Executive Director and Member of the Remuneration Committee and
Audit Committee of the Board, aged 52
For the past five 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. 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 Director of Rinc. Green, Crowdit Ltd.,
Profility Inc., WizeDSP and Gnrgy Ltd.
Lars Reger, Non-Executive Director, aged 44
Lars Reger is Vice President of New Business and R&D for the Automotive business unit at NXP
Semiconductors, the global market leader in automotive technologies including car infotainment; in-vehicle
networking; and car access and immobilizers. Prior to joining NXP in 2008, Lars gained deep insight into the
microelectronics industry - with a strong focus on the automotive sector - in various functions with Siemens,
Infineon, Siemens VDO and Continental. Before joining NXP, Mr Reger was Director of Business
Development and Product Management within the Connectivity business unit at Continental. His past roles at
Infineon included Head of the Process and Product Engineering departments, Project Manager for Mobile
System Chips, and Director of IP Management. He began his career with Siemens Semiconductors as Product
Engineer in 1997. Lars holds a university degree in physics from Rheinische-Friedrich-Wilhelms University
of Bonn and an executive MBA from London Business School.
17
Corporate Governance
Directors
The Board of Directors comprises three executive directors, two 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 Davidi Gilo (Chairman) and Ram Zeevi, who are independent non-executive
directors, and meets periodically. The Finance Director, CFO and Chief Legal Officer 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 external auditors on the scope and
outcome of the annual audit. The financial statements are reviewed in light of these reports and the results of
the review reported to the Board.
Remuneration Committee
The Remuneration Committee consists of Davidi Gilo (Chairman) and Ram Zeevi, the independent non-
executive directors, and meets at least once a year. The Remuneration Committee has a primary responsibility
to review the performance of the Company's executive directors and to set their remuneration and other terms
of employment. The Remuneration Committee is also responsible for administering the employee share option
scheme.
Shareholder relations
The Company meets with its institutional shareholders and analysts from time to time and uses the Annual
General Meeting to encourage communication with private shareholders. In addition, the Company facilitates
communication with its 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
Group, as compared against budget, are reported to the Board on a quarterly basis and discussed at meetings
of the Board.
18
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.
By order of the Board,
_________________
Yosi Fait
President & Finance Director
20 March 2015
19
Report on Directors' Remuneration
Chairman's Statement
The aim of the Company's Remuneration Committee (the "Committee") is to reward and encourage excellent
performance as well as to promote the interests and business of the Company. As the Company grows, both in
its performance levels and in its global reach, the Committee's aim is to ensure that the Company's
remuneration packages are appropriate in attracting, incentivising and retaining high calibre individuals, yet
remain in line with the industry.
During the financial year ending 31 December 2014, the Committee undertook a review, in conjunction with
Spencer Stuart, an independent consultancy firm, of the remuneration package for its President & Finance
Director, Mr. Yosi Fait and of its Chairman of the Board, Mr. Enrico (Chicco) Testa, and, as a result of this
evaluation, has implemented certain changes to Mr. Fait’s and Mr. Testa’s remuneration packages. The
Committee also implemented certain changes to the remuneration package of its CEO, Mr. Oozi Cats, as a
follow-up to the revision of Mr Cats’ remuneration package in 2013. A material aspect of the revised
remuneration packages of these executives is linking their long term incentive plan to the Company’s share
price. Further details of the results of both of these activities are set out below.
During the year the Committee also implemented new parameters for the grant of options to managers and
employees, that in the opinion of its members are likely to promote the success of the Company.
These actions reflect the Committee's intent to monitor closely and guide the levels and structure of
remuneration for the Executive Directors and senior management as well as the Company's wider employee
base.
I am pleased to present the Directors' Remuneration Report for the year ended 31 December 2014.
______________
Davidi Gilo
Chairman of the Remuneration Committee
20 March 2015
20
The Remuneration Committee’s Responsibilities
The Committee's main responsibilities are to determine the Company's overall remuneration policy, to
determine the remuneration of Executive Directors and other senior executives, to monitor and review the
levels and structure of remuneration for senior management, and the on-going effectiveness of the overall
remuneration policy, to review the targets for any performance-related bonus or pay schemes operated for
senior executives and to review any material termination payment.2
Remuneration Committee Members
The Remuneration Committee comprises two independent Non-Executive Directors: Davidi Gilo (Chairman)
and Ram Zeevi3.
Davidi Gilo (Chairman)
Ram Zeevi
Nicola Miglietta 3
Sergio Buonanno 3
Committee Member
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
Attendance Record
11 out of 11 meetings
11 out of 11 meetings
7 out of 7 meetings
1 out of 1 meetings
The Remuneration Committee may invite members of management to attend meetings as appropriate, unless
they have a conflict of interest, in order to assist the committee to discharge its duties.
This Report has been approved by the Board together with the financial statements for the year ended 31
December 2014.
Remuneration Policy
The Committee aims to set levels of remuneration for Executive Directors that are sufficient to attract, retain
and motivate directors of the calibre required to deliver the Company's business strategy.
Individual remuneration packages are structured to align rewards with the performance of the Company and
to be appropriate for the size and complexity of the Group.
The main principles are: to ensure that salaries are set at a market competitive level relative to external
comparators; support a high performance culture with commensurate rewards appropriately linked to
performance; maintain an appropriate balance of fixed and performance-related pay; and ensure that the overall
package reflects market practice, reward individuals, over both the short and the long term, for their
contributions to the success of the Group in a fair, consistent and reasonable manner, and reward high
performance with high rewards.
The main components of these remuneration packages are:
Basic salary: Executive Directors salaries are reviewed and determined by the Committee, taking into
account their additional incentives, in order to align their interests within the Telit Group.
Service contracts: No service contracts have notice periods of more than twelve months.
Bonus arrangements: The Company operates a discretionary bonus scheme which provides a link
between remuneration and both personal and Company achievement. The Remuneration Committee
determines bonuses for Executive Directors.
Pension arrangements: None of the directors receive any pension benefits, except for the executive
directors, Mr. Cats, Mr. Testa and Mr. Fait, who are entitled to post-employment benefits including
pension fund benefits according to their employment agreements, as is customary in Italy and Israel.
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 (such as linkage to the
Company’s share price) to incentivise medium-term performance and assist in retention.
2
3 Mr. Nicola Miglietta, whose term of office expired at the end of the 2014 AGM and Mr. Sergio Buonanno, who resigned from the board in March
2014, were members of the remuneration committee during part of 2014.
21
The services of the Executive Directors are provided to the Group as follows:
Enrico Testa was appointed as a director and Chairman of the Board on 4 May 2007. Mr. Testa was also
appointed as CEO of Telit Italy on 21 April 2013. For further details about Mr. Testa's remuneration package
see below.
Oozi Cats has been employed by Telit Italy in an executive position since 1 October 2007. Mr. Cats serves as
a director of a number of the Company's subsidiaries. For further details about Mr. Cats' remuneration package
see below.
Yosi Fait was appointed as the Finance Director on 21 June 2011, as the Deputy CEO as of 1 July 2012 and
on 12 September 2014 was named President and Finance Director of the Company. Mr. Fait also serves as a
director of a number of the Company's subsidiaries. For further details about Mr. Fait's remuneration package
see below.
The Remuneration Committee: main activities in 2014
Evaluation of Remuneration Packages of the Chairman of the Board and of the President and Finance
Director
In 2013, the Remuneration Committee, acting upon the Board's instructions and following discussions with
shareholders, engaged in a process to evaluate Mr. Cats' remuneration package. The Committee's guidelines
for the process were to agree on a remuneration package that would reflect Mr. Cats' continuing contribution
to the Company and incentivise Mr. Cats to continue his efforts. As detailed in the Company’s annual report
for 2013, the Committee ultimately engaged Spencer Stuart, a leading consulting group, as an independent
firm, to provide the report.
After consultation with the Committee, Spencer Stuart produced a report which included a review of 17
companies comparable to the Company4. The Committee then considered the remuneration package to be
offered to Mr. Cats and in doing so it took into account Spencer Stuart's report.
In 2014, the Committee again engaged Spencer Stuart, in relation to the remuneration package of the Chairman
of the Board and of the President and Finance Director. Spencer Stuart produced a report which included a
review of the same 17 companies comparable to the Company which Spencer Stuart used for the report in
relation to Mr. Cats’ remuneration. The Committee deliberated on the proposed remuneration packages for
Mr. Testa and Mr. Fait at four Committee meetings between March and September 2014 and held frequent
consultations with Spencer Stuart.
The remuneration packages of the Executive Directors comprise of the following -
Salary
Mr. Cats will receive a gross salary of Euro 1,064,800 per year for 2014 - 2016 (approximately $1,293,000 at
the EURO-USD exchange rate as at 31 December 2014). The Company covers certain of Mr. Cats' expenses,
including his accommodation in Italy and the use of a company car.
Mr. Fait’s annual remuneration, as from 1 April 2014 shall be ILS 1,980,000 (approximately $510,000 at the
ILS-USD exchange rate as at 31 December 2014). 15% of this amount will be paid to Mr. Fait directly and
85% to a company under his control.
Mr. Testa’s annual remuneration, as from 1 July 2014 shall be €150,000 as fees for his role as chairman of the
Company’s board of directors and €150,000 as salary for his role as CEO of Telit Italy (in the aggregate,
approximately $365,000 at the EURO-USD exchange rate as at 31 December 2014).
4 Among other identifiers, listed companies on LSE and NASDAQ having a presence in Italy and the UK and with revenues of between $250 million
to $400 million.
22
Bonus Schemes
Mr. Cats' and Mr. Fait’s variable compensation plans provide a link between their respective remuneration and
the Company's performance. This link is achieved by making their variable annual award conditional upon the
achievement of targets and aggressive stretch performance thresholds which are set by reference to agreed
Company financial performance measures, calculated according to the Company's audited annual financial
statements, which include - adjusted EBITDA margin growth, cash flow from operations, revenue growth,
gross margin, and a discretionary element decided by the Board (comprising 20% of the variable
compensation).
The variable compensation is capped at a maximum of 150% of the Executives’ gross annual pay.
The terms of the scheme in relation to Mr. Cats will be reviewed at the end of 2016. The business results of
any new acquisitions made by the Telit Group will not be taken into account for the bonus scheme for the
calendar year of the acquisition. In the year following an acquisition, the base year for the bonus calculation
(meaning the acquisition year), will not include the acquisition results.
Mr. Cats and Mr. Fait shall be paid an advance payment on account of the yearly variable compensation
("Advance Payment"), based on the half-year results. Mr. Cats and Mr. Fait shall return to the Company any
amount received as Advance Payment that exceeds the annual bonus based on the audited annual financial
statements.
The audited emoluments in respect of the year ended 31 December 2014 for the directors who held office
during the year were as follows:
Salary
and fees
$'000
Benefit in
kind
$'000
Bonus
$'000
Post-
employment
benefits
$'000
Total 2014 Total 2013
$'000
$'000
Bonus paid
in 2014 on
account of
2013 3
Executive directors
Enrico Testa
Oozi Cats
Yosi Fait 2
Non-executive directors
Ram Zeevi 4
Nicola Miglietta 5
Davidi Gilo
Lars Reger 6
Sergio Buonanno 5
Steven Sherman 5
Total - 2014
Total - 2013
363
1,454
538
53
55
125
-
10
-
2,598
2,383
13
202
199
2,007
796
7
98
3
215
195
3,002
2,352
108
87
582
3,761
1,337
53
55
125
-
10
-
5,923
-
533
3,599
627
53
66
53
-
53
33
5,017
387
387
1 Reserved.
2 Amounts in respect of the services of Mr. Fait are paid: 85% to Jeopal Ltd., a company under his control and 15% to Mr. Fait directly (but the
3
bonus is paid solely to Jeopal Ltd.).
This bonus was approved by the remuneration committee during 2014 on account of 2013 and therefore is included in the financial statements for
2014.
4 Amounts in respect of the services of Mr. Zeevi are paid directly to Zuri Inc, a company under his control.
5 Up to the date of resignation.
6 Mr. Reger, who was appointed to the board by NXP B.V., within the context of the acquisition of NXP’s ATOP business unit by Telit, receives no
pay for his role as director.
23
Directors' Interests in Shares
The directors' interests in shares in the Company are detailed in the table below:
Directors
Oozi Cats5
Enrico Testa6
Yosi Fait7
Lars Reger8
Davidi Gilo
Ram Zeevi
At 31 December 2014
At 31 December 2013
Number of ordinary
shares
Percentage of
ordinary
share capital
Number of
ordinary
shares
Percentage of
ordinary
share capital
22,861,977
1,500,000
315,000
2,255,943
-
-
20.08
2.42
0.28
1.98
-
-
19,580,357
20,330,357
165,000
-
-
-
18.72
19.44
0.16
-
-
-
5
In May 2014 Mr. Cats acquired 50% of the outstanding shares of Boostt B.V. ("Boostt"), a holding company in which Mr. Cats previously held
50% through a company under his sole control. At the closing of the transaction Boostt, which previously held 15,600,000 Ordinary Shares,
transferred 1,080,000 Ordinary Shares (the "Equity Kicker") to Viola Credit Funds ("Viola"), as detailed below. Mr. Cats financed the acquisition
by an interest bearing secured loan from Viola of approximately $25.5 million (the "Loan"). The principal of the Loan will be repaid in one payment
on the third anniversary of the closing of the acquisition (the "Maturity Date"), while the interest will be partially repaid in instalments and the
balance together with the principal amount. Viola can extend the Maturity Date to the fourth anniversary of the closing and Mr. Cats has the right,
under certain circumstances, to make an early repayment of all, or part of the Loan. The Equity Kicker may increase by an additional 120,000
shares from Boostt if the Company's share price is 194p or less on the Maturity Date. A pledge has been registered on the Boostt Shares in favour
of Viola as a security interest for the Loan; such pledge shall decrease over the life of the Loan, in-line with any prepayments. Mr. Cats shall retain,
during such time, the voting rights in connection with the Equity Kicker shares. Any dividends paid by Telit during the life of the Loan and received
on account of Boostt's Shares or Mr. Cats' other holdings in the Company must be used to repay the Loan. Following this transaction, Mr. Cats’
holdings are comprised of: (i) personally held (6,900,357), (ii) Boost (14,520,000), a company held by Mr. Cats through Mariselia Ltd. (50%) and
VAG Holdings Ltd (50%), (iii) Mariselia Ltd. (361,620), a company in which Mr. Cats is the beneficial owner; and (iv) Viola Credit Funds
(1,080,000), over which shares Mr. Cats has a power of attorney over the voting rights.
6 Following the acquisition of 50% of the shares of Boostt by Mr. Cats, as detailed above, Mr Enrico Testa is no longer considered an interested
party in Boostt’s holdings in the Company’s shares, nor in Mr. Cats’ other holdings.
7 Mr. Fait’s holdings are comprised of: (i) personally held (265,000), (ii) Jeopal Ltd., a company in which Mr. Fait is the beneficial owner (50,000).
8 Mr. Reger was nominated as a director on behalf of NXP B.V. and is therefore considered as having an interest in NXP’s holdings of 2,255,943
shares.
24
Details of directors' share options as at 31 December 2014 are provided below:
Executive
directors
Grant date
Enrico Testa 29 January 2009
30 June 2010
1 April 2011
16 September 2014 *
29 January 2009
30 June 2010
1 April 2011
16 September 2014 *
29 January 2009 9
25 May 2010 9
19 September 2011 10
26 March 2012 10
19 March 201311
16 April 2014
16 September 2014 *
Total
Oozi Cats
Total
Yosi Fait
Total
Number
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
600,000
500,000
500,000
2,000,000
Exercise
price (pence)
0.20
0.32
0.81
2.60
0.20
0.32
0.81
2.60
0.20
0.25
0.80
0.80
0.80
2.06
2.60
Vested
-
-
520,000
-
520,000
-
-
1,952,000
-
1,952,000
-
-
150,000
150,000
600,000
-
-
900,000
Unvested
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500,000
500,000
1,000,000
Exercised
during 2014
1,000,000
500,000
-
1,500,000
2,000,000
1,100,000
3,100,000
50,000
50,000
100,000
The Options granted up to and including 16 April 2014 vest in 3 equal instalments beginning one year
following the date of grant and expiring 5 years from the date of grant.
* On 16 September 2014 the Committee committed to grant Messers. Testa, Cats and Fait, options over up
to 250,000, 2,000,000 and 1,000,000 shares, respectively. These Options will vest in four equal tranches
subject to the achievement of share price targets of 325.0p, 375.0p, 425.0p and 475.0p (in each case the
closing share price shall be equal to, or above, each target price over 20 consecutive trading days) but will
also be subject to vesting over time, so that 1/4 of the options will vest on each anniversary of the grant (the
grant date being 16 September 2014) provided the executive is employed by the Company at such time. By
way of example, even if the share price should reach 475.0p before the first anniversary of the grant, the
relevant executive would only be entitled to 1/4 of the options on the first anniversary of the grant; 1/2 on
the second anniversary and so on. The Options expire 5 years from the date of grant. The Company has
nearly reached the overall limit on the granting of options over newly issued shares contained in the rules
of its option plan. The Committee had therefore resolved to grant 500,000 options to Mr. Fait on 16
September 2014, with the balance of Mr. Fait’s award and the entirety of Messers Testa’s and Cats’ awards
to be granted only as headroom becomes available under the overall limit under the plan (or any
replacement, or follow-on plan). Accordingly, Messers. Testa, Cats and 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 and on the same terms as the options set out above, until the full number of options mentioned
above are granted within this framework
9 Mr. Fait was not a director on this date.
10 On September 19 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 80p per share. The options vest in three equal annual instalments starting from September 19 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.
11 On March 19 2013, Mr Fait was granted 600,000 options, at an exercise price equal to 80p with a three year vesting schedule starting on September
19 2011, such that vesting occurs in three equal instalments on each of September 19 2012, 2013 and 2014 and shall expire on September 19 2016.
Such options were related to an earlier resolution by the Company, dated September 19 2011 (the "Original Resolution") that approved the future
grant of 600,000 options, conditional upon the Company successfully completing a public fundraising on a major stock exchange, at an exercise
price equal to 80p (the "Exercise Price"), with a vesting schedule of 3 years, starting on September 19 2011. The Company decided to amend the
Original Resolution, so that the grant of options not be contingent upon the Company completing its listing on a major stock exchange. Since at the
time of the grant of the options (March 19 2013) the Company had nearly reached the overall limit on the granting of options under the Company's
share options plan, Mr Fait received 200,000 options, and the remuneration committee resolved that, as the overall limit under the plan increases,
Mr Fait would be granted additional options (either in one tranche or in a series of separate grants) at the same exercise price and on the same terms
as aforesaid. Mr. Fait received the remaining 400,000 options on 13 January 2014.
25
No options have expired in respect of any grants.
The share based compensation attributable to the directors in 2014 is $1,432,338 (2013: $568,158).
The aggregate of the amount of gains made by directors on the exercise of share options in 2014 was
$11,800,274 (2013: nil). The exercised options were granted in 2009 and 2010 with exercise prices ranging
between 20p and 32p, equal to the share price at the dates of grant. The underlying shares were retained by the
directors and are still in their possession at the date of this report.
The highest and lowest closing prices of the Company's shares on AIM during 2014 were 277.25p (12
September 2014) and 171.75p (8 January 2014).The Company's share price on the close of trading on 31
December 2014 was 241p.
By order of the Remuneration Committee
_______________
Davidi Gilo
Chairman of the Remuneration Committee
20 March 2015
26
Strategic Report
The directors present the Strategic Report of the Group for the year ended 31 December 2014.
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.
Review of Business and Future Developments
A review of strategy, financial position and future developments, including the key performance indicators, is
given within the operational highlights on page 3, the Chief Executive's statement on pages 10 to 13, the
regional information on pages 4 to 5, technology, services and products on page 5 to 6, together with a review
of the Group's principal risks and uncertainties on pages 14 to 16.
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 $27 million were expensed in the year, compared to $24 million
in 2013. Internally-generated intangible assets arising from development costs capitalized amounted to $26.1
million compared to $11.2 million in 2013.
Telit has been granted by decree a US$44 million facility supported by the Italian MISE (Ministry of Economic
Development) to develop an innovative platform for the application of M2M technologies. Of the US$44
million, 10% is to be provided as a grant by the Italian government, 81% is to be made available as a loan by
Cassa Depositi e Prestiti, a joint stock company under public control in Italy, with a preferred interest rate of
0.5% per annum, and 9% is a loan issued directly by a financial institution. The company received
approximately $28 million from this facility up to the date of this report.
By order of the Board
___________________
Yosi Fait
Financial Director
20 March 2015
27
Directors' Report
The directors present their annual report and the financial statements of the Group for the year ended 31
December 2014.
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.
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 $56,000 in charitable donations during the year ended 31 December 2014 (2013: $137,000).
The Group does not have a policy regarding donations.
Dividends
The Company is not proposing to pay a dividend in respect of the period (2013: $ nil).
Significant shareholders
At 31 December 2014
At 31 December 2013
Number of
ordinary shares
22,861,977
7,049,539
6,035,284
4,981,250
4,560,089
3,883,940
Percentage of
ordinary share
capital
20.08
6.19
5.30
4.37
4.00
3.41
Number of
ordinary shares
19,580,357
-
9,375,000
5,081,250
5,128,578
1,593,645
Percentage of
ordinary share
capital
18.72
-
8.96
4.86
4.90
1.52
Oozi Cats 12
Old Mutual Global Investors
Idea Capital Funds
Herald Investment Management
Sherman Capital
JP Morgan Asset Management
Directors
The directors who held office during the year were as follows:
Enrico Testa
Oozi Cats
Yosi Fait
Ram Zeevi
Davidi Gilo
Nicola Miglietta
Sergio Luciano Buonanno
Lars Reger
(retired by rotation from the Board on June 19, 2014)
(resigned on March 11, 2014)
(appointed on 31 March, 2014 )
12 Mr. Cats’ holdings are comprised of: (i) personally held (6,900,357), (ii) Boost (14,520,000), a company held by Mr. Cats through Mariselia Ltd.
(50%) and VAG Holdings Ltd (50%), (iii) Mariselia Ltd. (361,620), a company in which Mr. Cats is the beneficial owner; and (iv) Viola Credit
Funds (1,080,000), over which shares Mr. Cats has a power of attorney over the voting rights.
28
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 2014, calculated in accordance with the requirements of the Companies Act 2006, were 105 days
(2013: 92 days). This represents the ratio, expressed in days, between the amounts invoiced to the Group in
the year by its suppliers and the amounts due, at the year end, to trade creditors falling due for payment within
one year.
Provision of information to 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 appointment of Ernst & Young
LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting.
By order of the Board
___________________
Yosi Fait
President & Finance Director
20 March 2015
29
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.
30
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 2014
which comprise the Consolidated Statement of Comprehensive Income, the Statements of Financial Position,
the Statement of Cash Flows, the Consolidated Statement of Changes in equity, the Company Statement of
Changes in Equity and the related Notes 1 to 29 The financial reporting framework that has been applied in
their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union 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' Statement of Responsibilities set out on page 30 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
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient
to give reasonable assurance that the financial statements are free from material misstatement, whether caused
by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's
and the Parent Company's circumstances and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the directors; and the overall presentation of the
financial statements. In addition, we read all the financial and non-financial information in the Annual Report
to identify material inconsistencies with the audited financial statements and to identify any information that
is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in
the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
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 2014 and of the Group's profit for the year then ended;
the Consolidated financial statements have been properly prepared in accordance with IFRSs as adopted
by the European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as
adopted by the European Union 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 Strategic Report and the Directors' Report for the financial year for
which the financial statements are prepared is consistent with the financial statements.
31
Independent auditor's report to the members of Telit Communications PLC
(continued)
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.
Philip Young (Senior statutory auditor)
For and on behalf of Ernst & Young LLP, Statutory Auditor
London
20 March 2015
32
Telit Communications PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2014
Revenue
Cost of sales
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Other operating income
Operating profit
Investment income
Finance costs
Profit before income taxes
Tax expense
Profit for the year from continuing operations
Loss for the year from discontinued operations
Net profit
Other comprehensive income
Items which will be reclassified in subsequent periods to profit
and 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 earnings per share (in USD cents)
Diluted earnings per share (in USD cents)
Basic weighted average number of equity shares
Diluted weighted average number of equity shares
33
Note
3,4
5
10
6
7
8
23
2014
$'000
2013
$'000
294,004
(177,734)
243,224
(150,742)
116,270
92,482
(26,986)
(50,393)
(26,529)
2,855
15,217
1,502
(2,811)
13,908
(1,421)
12,487
(540)
11,947
(9,381)
2,566
11,954
(7)
11,947
2,567
(1)
2,566
(24,049)
(38,617)
(22,348)
6,668
14,136
25
(2,210)
11,951
(1,065)
10,886
-
10,886
1,092
11,978
10,933
(47)
10,886
12,033
(55)
11,978
11
11
11
11
10.6
10.2
112,427,822
117,111,456
10.5
9.8
103,826,885
111,067,069
Telit Communications PLC
STATEMENT OF FINANCIAL POSITION
At 31 December 2014
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
Note
12
13
14
16
8
15
16
16
17
17
18
18
18
18
18
LIABILITIES AND SHAREHOLDERS'
EQUITY
Shareholders' equity
Share capital
Share premium account
Other reserve
Merger reserve
Translation reserve
Retained earnings
Equity
attributable
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
to
Current liabilities
Short-term borrowings from
banks and other lenders
Trade payables
Provisions
Accruals and Other current
liabilities
Total equity and liabilities
26
20
23
20
Group
Company
2013
$'000
2014
$'000
2013
$'000
49,459
16,182
-
807
3,954
70,402
18,520
63,118
14,338
291
23,886
120,153
190,555
1,791
78,678
(2,993)
1,235
(3,867)
4,181
79,025
367
79,392
22,134
3,780
21
2,236
369
28,540
13,790
51,860
1,217
15,756
82,623
190,555
6,395
49
95,794
222
1,244
103,704
135
3,403
33,479
-
2,711
39,728
143,432
1,942
90,533
11,157
1,235
444
(18,658)
86,653
-
86,653
-
-
-
-
-
-
6,599
64
84,793
232
-
91,688
46
696
13,972
88
3,068
17,870
109,558
1,791
78,678
8,692
1,235
2,048
(24,360)
68,084
-
68,084
-
-
-
-
-
-
-
672
-
56,107
56,779
143,432
-
1,112
-
40,362
41,474
109,558
2014
$'000
72,576
20,113
-
851
4,658
98,198
21,506
63,967
15,306
845
25,399
127,023
225,221
1,942
90,533
(2,727)
1,235
(13,254)
20,048
97,777
-
97,777
17,612
4,537
10
2,626
23
24,808
12,497
70,463
1,446
18,230
102,636
225,221
The financial statements on pages 33 to 87 were approved by the board and authorized for issuance on 20 March
2015 and are signed on its behalf by: Oozi Cats, Director
Company number: 05300693
34
Telit Communications PLC
STATEMENT OF CASH FLOWS
For the year ended 31 December 2014
CASH FLOWS - OPERATING ACTIVITIES
Profit/(loss) for the year from continued operations
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Change in fair value of earn-out
Gain on sale of property, plant and equipment
Loss on transfer of investment in subsidiary
Increase / (decrease) in provision for post-employment
benefits
Finance costs, net
Tax expenses
Fair value of preferential 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
increase /(decrease) in provisions and other long term
liabilities
Cash from/(used in) operations
Income tax paid
Interest received
Interest paid
Net cash from operating activities from continued operations
Loss for the year from discontinued operations
Increase in provisions
Net cash from operating activities from discontinued
operations
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
Settlement of earn out
Additional investment in subsidiary
Additional loans made to subsidiaries
Repayment of loans from subsidiaries
(Increase)/ decrease in restricted cash deposits
Net cash used in investing activities
(*) Reclassified.
35
Group
Company
2014
$'000
2013
$'000
2014
$'000
2013
$'000
12,487
10,886
4,276
(4,274)
4,092
10,396
(301)
(99)
-
791
1,309
1,421
-
4,011
34,107
(6,237)
(1,196)
(869)
23,073
(262)
394
49,010
(980)
135
(1,941)
46,224
(540)
540
2,800
7,994
(1,667)
(37)
-
(50)
2,185
1,065
(3,754)
742
20,164
(3,807)
(3,678)
3,776
11,487
(273)
320
27,989
(741)
25
(1,901)
25,372
-
-
32
2,229
-
-
1,599
-
(6,710)
(1,168)
-
1,508
1,766
(2,748)
(20,176)
(92)
(377)
23,286
-
1,659
(147)
1,584
(8)
3,088
-
-
17
1,623
(1,714)
-
-
-
(1,078)
271
-
658
(4,497)
447
(2,133)
(16)
531
8,920
-
3,252
-
-
-
3,252
-
-
-
-
-
-
(9,611)
(2,651)
362
(26,071)
(2,100)
-
-
-
-
(700)
(40,771)
(4,847)
(*) (3,320)
51
(*) (11,177)
(9,509)
(1,149)
-
-
-
56
(29,895)
(20)
(481)
-
(1,935)
-
-
(493)
(2,100)
688
88
(4,253)
(66)
(1,231)
-
-
-
(1,149)
-
(4,860)
2,356
-
(4,950)
Telit Communications PLC
STATEMENT OF CASH FLOWS (continued)
For the year ended 31 December 2014
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from exercise of options
Acquisition of non-controlling interest
Short-term borrowings from banks and others
Proceeds from other loans
Repayment of other loans
Net cash fromfinancing activities
Group
Company
2014
$'000
2013
$'000
2014
$'000
2013
$'000
3,119
(100)
1,647
-
(2,924)
1,742
259
-
(10,870)
19,301
(2,361)
6,329
3,119
-
-
-
-
3,119
259
-
-
-
-
259
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
7,195
1,806
1,954
(1,439)
23,886
(5,682)
25,399
21,044
1,036
23,886
3,068
(2,311)
2,711
4,418
89
3,068
Non – cash transactions:
a.
b.
At April 2014 the Company issued 2,255,943 shares for a value of $8.9 million, as part of ATOP BU acquisition (see
note 2A).
During 2013 a loan to subsidiary in the amount of $210,000 was converted to equity. See note 14(4).
36
Telit Communications PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2014
Year ended 31 December 2014
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
1,791
78,678
1,235
(2,993)
(3,867)
4,181
79,025
367
79,392
-
-
-
38
113
-
-
-
-
-
8,849
3,006
-
-
151
11,855
-
-
-
-
-
-
-
-
-
-
-
-
-
266
-
266
-
11,954
11,954
(7)
11,947
(9,387)
-
(9,387)
6
(9,381)
(9,387)
11,954
2,567
(1)
2,566
-
-
-
-
-
-
-
-
8,887
3,119
-
-
8,887
3,119
266
(366)
(100)
3,913
3,913
-
3,913
3,913
16,185
(366)
15,819
1,942
90,533
1,235
(2,727)
(13,254)
20,048
97,777
-
97,777
Balance at 1 January
2014
Total comprehensive
income/(loss) for the year
Profit /(loss) for the year
Foreign currency
translation differences
Total comprehensive
income/(loss)
Transactions with
owners:
Issue of shares
Exercise of options
Purchase of minority
interest
Share-based payment
charge
Total transactions with
owners
Balance at 31 December
2014
Year ended 31 December 2013
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
1,781
78,429
1,235
(2,993)
(4,967)
(7,494)
65,991
422
66,413
-
-
-
10
-
10
-
-
-
249
-
249
-
-
-
-
-
-
-
-
-
-
-
-
-
10,933
10,933
(47)
10,886
1,100
-
1,100
(8)
1,092
1,100
10,933
12,033
(55)
11,978
-
-
-
-
742
259
742
742
1,001
-
-
-
259
742
1,001
1,791
78,678
1,235
(2,993)
(3,867)
4,181
79,025
367
79,392
Balance at 1 January
2013
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
2013
37
Telit Communications PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2014
Year ended 31 December 2014
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 2014
1,791
78,678
1,235
8,692
2,048
(24,360)
68,084
Total comprehensive income
/(loss) for the year
Profit for the year
Foreign currency translation
differences
Total comprehensive income/
(loss)
Transactions with owners
Issue of shares
Exercise of options
Share-based payment charge
Capital contribution
Total transactions with owners
-
-
-
38
113
-
-
151
-
-
-
8,849
3,006
-
-
11,855
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,465
2,465
-
4,276
4,276
(1,604)
-
(1,604)
(1,604)
4,276
2,672
-
-
-
-
-
-
-
1,426
-
1,426
8,887
3,119
1,426
2,465
15,897
Balance at 31 December 2014
1,942
90,533
1,235
11,157
444
(18,658)
86,653
Year ended 31 December 2013
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 2013
1,781
78,429
1,235
8,606
2,107
(20,744)
71,414
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
-
-
-
10
-
-
10
-
-
-
249
-
-
249
-
-
-
-
-
-
-
-
-
-
-
-
86
86
-
(4,274)
(4,274)
(59)
(59)
-
-
-
-
-
(59)
(4,274)
(4,333)
-
658
-
658
259
658
86
1,003
Balance at 31 December 2013
1,791
78,678
1,235
8,692
2,048
(24,360)
68,084
38
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES
(a) General information
Telit Communications PLC (the "Company") is a company incorporated and domiciled in the UK.
The Company is a global enabler of machine-to-machine (M2M) communications providing cellular, short range
and positioning modules via its brand Telit Wireless Solutions. Through its business unit m2mAIR, Telit provides
platform as a service (PaaS) including M2M managed and value added services, application enablement and
connectivity including mobile network side and cloud backend services. Telit is M2M's top ONE STOP. ONE
SHOP offering synergistic hardware and value added services bundles along with low-entry cost PaaS for rapid
application development. With over 12 years exclusively in M2M, the company constantly advances technology
through eight R&D centres around the globe, marketing products and services in over 80 countries.
By supplying scalable products interchangeable across families, technologies and generations, rapid prototyping
tools for application development, and m2m tailored connectivity, Telit is able to curb development costs, protect
design investments and reduce technical risk. The company provides customer support and design-in assistance
through 35 sales and support offices, a global distributor network of experts, and the Telit Technical Support
Forum.
The company 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.
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 group financial statements.
(b) Basis of presentation of the financial statements:
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"). The Company's financial statements have been prepared on a historical cost basis, except for:
investment property; financial assets and liabilities (including derivatives) which are presented at fair value
through profit or loss.
The Company has elected to present profit or loss items using the function of expense method.
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 10 to 13. 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.
39
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
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.
(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.
(d) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled
by the Company (its subsidiaries) made up to 31 December, each year. Control is achieved where the Company
has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its
activities.
40
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
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. 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.
(e) Business combination
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.
For acquisitions the Group measures goodwill at the acquisition date as:
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
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
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.
41
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
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
42
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(l) Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition and the amount
recognised for the non-controlling interest 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
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.
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.
43
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(n) Impairment of tangible and intangible assets excluding goodwill (continued)
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.
(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 which for the company are immaterial 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.
44
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(q) Retirement benefit costs (continued)
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).
(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.
45
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(u) Government grants (continued)
Government grants relating to income are recognized in other operating income over the periods necessary to
match them with the related costs.
In accordance with IAS 20, government loans that have a below-market rate of interest are recognised and
measured in accordance with IAS 39 at their fair value. The difference between the initial carrying value of the
loan (its fair value) and the proceeds received is treated as a government grant
(v) 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 cost method in the Company’s financial statements less provision for impairment.
The Group classifies its other financial assets as 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.
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
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organization.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for
a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the
number of delayed payments in the portfolio past the average credit period of 90 days, as well as observable
changes in national or local economic conditions that correlate with default on receivables.
46
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(v) Financial instruments (continued)
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.
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.
47
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(v) Financial instruments (continued)
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 27 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.
(w) 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.
(x) Earnings per share
Basic and diluted earnings 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.
48
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(y) 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.
(z) 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.
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.
Fair value of government grants and loans
The Group have received grants and loans and judgement is made on the criteria regarding how and over which
period the grant should be recorded and the estimated fair value of the loan element.
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 involved in various legal or other proceedings incidental to the ordinary course of its business. The process
of determining the appropriate provision for such uncertainties requires judgment. The final resolution of some
of these items may give rise to material profit and loss and/or cash flow variances.
49
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(z) Critical accounting judgments and key sources of estimation uncertainty (continued)
Recoverability of deferred tax assets
Under IFRS, a deferred tax asset arising on trading losses or deductible temporary differences is only recognised
where it is probable that future taxable profits will be available to utilize the losses. The key judgments in assessing
the recognition of a deferred tax asset are:
the probability of taxable profits being available in the future; and
the quantum of taxable profits that are forecast to arise.
This requires management to exercise judgment in forecasting future results. There are a number of assumptions
and estimates involved in estimating the future results of the relevant entity in which the trading losses arose,
including:
management's expectations of growth in revenue;
changes in operating margins;
uncertainty of future technological developments; and
Uncertainty over global and regional economic conditions and demand for the Group's services.
Changing the assumptions selected by management could significantly affect the Group's results.
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:
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.
50
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
1.
ACCOUNTING POLICIES (continued)
(aa)
The Group’s significant accounting policies are listed below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
Changes in accounting policies
The following new standards, amendments to standards and interpretations were mandatory for the first
time for the financial year beginning 1 January 2014, but had no significant impact on the Group:
IFRS 10 – Consolidated Financial Statements
IFRS 11 – Joint Arrangements
IFRS 12 – Disclosure of Interests in Other Entities
IAS 27 (revised) – Separate Financial Statements
IAS 28 (revised) – Investments in Associates and Joint Ventures
IAS 32 (amendment) – Offsetting Financial Assets and Financial Liabilities
IAS 36 (amendment) – Recoverable Amount Disclosures for Non-financial Assets
IAS 39, IFRS 9 (amendment) – Novation of Derivatives
IFRS 10, IFRS 12 and IAS 27 (amendment) – Investment Entities
IFRIC 21 – Levies
New Standards and amendments not applied
Standards, interpretations and amendments to existing standards that have been published as mandatory
for later accounting periods but are not yet effective and have not been adopted early by the Group are as
follows:
IFRS 9 – Financial Instruments (effective for accounting periods beginning on or after 1 January 2015);
IFRS 14 – Regulatory Deferral Accounts (effective date not yet published);
IAS 19 (amendment) – Employee contributions (effective for accounting periods beginning on or after 1
July 2014);
Annual Improvements (2010-2012 Cycle) (effective for accounting periods beginning on or after 1 July
2014);
Annual Improvements (2011- 2013 Cycle) (effective for accounting periods beginning on or after 1 July
2014);
Annual Improvements (2012- 2014 Cycle) (effective for accounting periods beginning on or after 1
January 2016);
IFRS 10, IAS 28 (amendment) – Sale or Contribution of Assets (effective for accounting periods
beginning on or after 1 January 2016);
IFRS 11 (amendment) – Accounting for Acquisition of Interests in Joint Operations (effective for
accounting periods beginning on or after 1 January 2016);
IFRS 14 Regulatory Deferral Accounts (effective for accounting periods beginning on or after 1 January
2016);
IAS 16 and IAS 38 (amendment) – Clarification of Acceptable Methods of Depreciation and Amortisation
(effective for accounting periods beginning on or after 1 January 2016);
IAS 16 and IAS 41 (amendment) – Bearer Plants (effective for accounting periods beginning on or after
1 January 2016);
IAS 27 (amendment) – Equity Method in Separate Financial Statements (effective for accounting periods
beginning on or after 1 January 2016);
IFRS 15 – Revenue from Contracts with Customers (effective for accounting periods beginning on or
after 1 January 2017)
The Directors do not expect that the adoption of the Standards and amendments listed above will have a
material impact on the financial statements of the Group in future periods, although the detailed impact
has not yet been quantified.
51
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 2:- BUSINESS COMBINATIONS
A. On 31 March 2014 Telit Automotive Solutions NV, a fully owned subsidiary of Telit Communications PLC,
completed the acquisition (announced in December 2013) from NXP Semiconductors N.V. (Nasdaq: NXPI),
of NXP's ATOP business,, related assets and certain liabilities of NXP (“ATOP BU”).
The acquisition of ATOP includes sales, engineering and support staff, which were fully integrated during
the year into Telit's automotive organization, extending the Company's market reach with solutions
leveraging the expanded engineering and sales expertise serving to better address automotive and telematics
customers.
Under the terms of the agreement, the total consideration of $11 million for the acquisition is comprised of:
- Cash payment of $2.1 million
-
2,255,943 Telit Shares at a total value of $8.9 million.
The assessment of the fair values of the assets and liabilities acquired has been completed:
Inventory
Tangible assets
Prepaid Expenses
Technology
Customer relationships
Liabilities (employees related)
Loss (onerous) contract
Severance Arrangements
Total identifiable assets
Consideration paid
Excess of cost - goodwill
Fair value
$'000
1,630
1,179
176
5,683
2,458
(924)
(587)
(441)
9,174
10,989
1,815
The goodwill is attributable mainly to the skills and experience of the workforce.
In the year from the acquisition date to 31 December 2014 the activity that was purchased from NXP was
integrated into the Group and therefore the Company cannot estimate the impact of the ATOP BU, by itself, on
the consolidated results.
52
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 2:- BUSINESS COMBINATIONS (continued)
B. On September 3, 2013 – Telit Wireless Solutions Inc. a fully owned subsidiary of Telit Communications
PLC, purchased 100% of the membership interest of US-based ILS Technology LLC ("ILST"), a leading
provider of a ready-to-use, off-the-shelf, cloud platform to connect enterprise IT systems to m2m-connected
devices and machines for business-critical use. The consideration was $8.5 million in cash.
The assessment of the fair values of the assets and liabilities acquired has been completed:
Accounts Receivables
Prepaid Expenses
Tangible assets, net
Technology
Customer relationships
Accounts Payables
Other Payables
Total identifiable assets
Consideration paid
Excess of cost - goodwill
Fair value
$'000
1,705
190
371
1,808
3,170
(202)
(394)
6,648
8,500
1,852
There are no material adjustments from book value to fair value.
The goodwill is attributable mainly to the synergies expected to be achieved from expending the m2mair
business to include also cloud based services, and to the skills and experience of the workforce.
The goodwill recognised is deductible for income tax purposes.
From the acquisition date to 31 December 2013, ILST contributed to the consolidated revenues a turnover
of $3,062,000 and net loss of $170,000.
If the business combination had taken place at the beginning of the year, the consolidated net loss would
have been $1,489,000 and the consolidated revenue turnover would have been $8,261,000, without pro
forma assumptions.
C.
In August 2013, Telit wireless solutions Co. Ltd, a subsidiary of Telit communication PLC, acquired
substantially all of the assets and business of a small technology company that provided GPS products in
the Korean market. The total consideration was approximately $1 million in cash. Goodwill arising from
this acquisition is in the amount of $292,000.
53
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 3:-
REVENUE
Sales of goods
Services income
NOTE 4:-
SEGMENTAL ANALYSIS
Group
2014
$'000
273,910
20,094
294,004
2013
$'000
233,455
9,769
243,224
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.
Segment performance is evaluated based on operating profit or loss.
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, which includes services income and sales
of modules.
Segmental information for each geographical region in which Telit operates is presented below:
2014
EMEA
$'000
APAC
$'000
Americas
$'000
Total
$'000
Eliminations Consolidated
$'000
$'000
Revenue
External sales
Inter-segment sales (1)
Total revenue
117,494
105,917
223,411
40,832
19,323
60,155
135,678
415
136,093
294,004
125,655
419,659
-
(125,655)
(125,655)
5,272
808
26,292
-
20,212
Result
Segment result (2)
Unallocated corporate expenses (3)
Operating profit
Investment income
Finance costs
Profit before income taxes
Income taxes
Profit for the year from
continued operations
Loss for the year from
discontinued operation
Net profit
294,004
-
294,004
26,292
(11,075)
15,217
1502
(2,811)
13,908
(1,421)
12,487
(540)
11,947
54
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 4:- SEGMENTAL ANALYSIS (continued)
2013
EMEA
$'000
APAC
$'000
Americas
$'000
Total
$'000
Eliminations Consolidated
$'000
$'000
Revenue
External sales
Inter-segment sales (1)
Total revenue
110,099
81,547
191,646
27,909
14,758
42,667
105,216
40
105,256
243,224
96,345
339,569
-
(96,345)
(96,345)
243,224
-
243,224
16,203
Result
Segment result
Unallocated corporate expenses (2)
Operating profit
Investment income
Finance costs
Profit before income taxes
Income taxes
Profit for the year
890
2,346
19,439
-
19,439
(5,303)
14,136
25
(2,210)
11,951
(1,065)
10,886
(1) Transactions between geographic segments are charged at market prices.
(2) During the year, the Group recognised grant income which was recorded in EMEA. See note 5 for further detail.
(3) 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.
In the EMEA segment, UK revenue in 2014 was $9.8 million (2013 $2.9 million)
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
55
2014
$'000
2013
$'000
112,808
17,744
67,758
26,911
225,221
79,055
12,407
4,631
31,205
127,298
95,070
15,228
55,284
24,973
190,555
58,519
9,366
6,111
37,167
111,163
2014
$'000
2013
$'000
667
845
25,399
26,911
796
291
23,886
24,973
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 4:- SEGMENTAL ANALYSIS (continued)
Unallocated liabilities comprise:
2014
$'000
2013
$'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
17,612
12,497
1,242
31,351
22,134
13,790
1,243
37,167
2014
Non-cash items:
Depreciation and amortization
Bad debt expense
Share-based payments
2013
EMEA
$'000
APAC
$'000
Americas
$'000
Consolidated
$'000
9,638
1
3,084
1,310
6
284
3,540
26
643
14,488
33
4,011
EMEA
$'000
APAC
$'000
Americas
$'000
Consolidated
$'000
Non-cash items:
Depreciation and amortization
Bad debt expense
Share-based payments
8,209
160
709
1,322
26
11
1,263
48
22
10,794
234
742
NOTE 5:- OTHER OPERATING INCOME
Change in fair value of earn out (a)
Governmental grants and benefits (b)
Gain on sale of assets
Integration and transaction costs
Other
2014
$'000
2013
$'000
301
3,241
99
(941)
155
2,855
1,667
6,120
37
(814)
(342)
6,668
(a) In 2014, represents the change in the fair value of the contingent consideration related to the acquisition of
Navman in 2012 (see note 24).
In 2013, represents the change in the fair value of the contingent consideration related to the acquisition of
Cross Bridge and Navman in 2012 and GlobalConect Ltd. in 2011 (see note 24).
(b) 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 2013 and 2014 as all the conditions for qualification,
which relate to the level of eligible expenditure incurred, have been satisfied.
56
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 6:- INVESTMENT INCOME
Exchange rate differences, net
Interest income from bank deposits
NOTE 7:- FINANCE COSTS
Interest expense on bank loans and overdrafts
Exchange rate differences, net
Other bank expenses
NOTE 8:- INCOME TAXES
A. Tax recognised in statement of comprehensive income
Current year taxes
Prior year taxes
Deferred taxes
Tax expense
2014
$'000
2013
$'000
1,367
135
1,502
-
25
25
2014
$'000
2013
$'000
2,025
-
786
2,811
1,170
298
742
2,210
2014
$'000
2013
$'000
1,409
960
(948)
1,421
1,020
121
(76)
1,065
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 21.50% for
2014 and 23.25% for 2013, and the Group's total tax expense for the year:
Profit before income tax from continuing operations
Tax charge computed at 21.50% (2013: 23.25%)
Tax adjustments arising from:
Non-deductible expenses
Deferred tax assets recognized and other timing differences, net
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
2014
$'000
2013
$'000
13,908
(2,990)
(1,761)
(415)
1,315
(544)
3,934
(960)
(1,421)
11,951
(2,779)
(237)
(896)
3,416
(1,345)
898
(121)
(1,065)
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.
57
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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 2013
Translation adjustments
Credit to the statement of comprehensive income
At 1 January 2014
Translation adjustments
Credit to the statement of comprehensive income
At 31 December 2014
Net
operating
loss
$'000
Temporary
differences
$'000
Total
$'000
3,321
31
(268)
3,084
(71)
(176)
2,837
486
19
344
849
(162)
1,124
1,811
3,807
50
76
3,933
(233)
948
4,648
In the year ended 31 December 2014, the Group recognised deferred tax assets of $2,342,000, $661,000, $529,000
and $1,116,000 in respect of Telit EMEA, Telit APAC, Telit Inc. 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, 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
2014
$'000
2013
$'000
11,790
21,730
33,520
11,195
34,748
45,943
The losses for which no deferred tax asset has been recognized primarily relates to our UK entity.
The Group recognised deferred tax assets to the extent that it is probable that these will be utilised in future
periods.
The Finance Act 2013 enacted on 17 July 2013, provides for a 21% tax rate effective from 1 April 2014 and 20%
effective from 1 April 2015. This will reduce the Company's future tax charge accordingly. The deferred tax asset
at 31 December 2014 and 2013 was calculated based on the rate of 20%.
58
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 9:- EMPLOYEES AND DIRECTORS’ EMOLUMENTS
Employees emoluments:
The average number of persons (not 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
Director's emoluments
2014
2013
369
224
101
694
297
190
86
573
2014
$'000
2013
$'000
58,934
6,581
1,588
67,103
35,111
5,378
2,562
43,051
The directors, deemed to be key management personnel, received the following remuneration in respect of
services rendered to the Group:
Remuneration
Post-employment benefits
Total emoluments
(*)
including a bonus of $387,000 paid in 2014 on account of 2013.
The emoluments in relation to the highest paid director are as follows:
Total emoluments
Post-employment benefits
Year ended
31 December
2014
$'000
Year ended 31
December
2013
$'000
5,959 (*)
108
6,067
4,930
87
5,017
Year ended
31 December
2014
$'000
Year ended 31
December
2013
$'000
3,663
98
3,761
3,512
87
3,599
59
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 10:- PROFIT FOR THE YEAR, ADJUSTED MEASURES AND GROUP AUDIT FEE
(i)
EBIT for the year is stated after charging / (crediting)
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
Research and development expenditure
Costs of inventories recognised as an expense
Write-downs of inventories recognised as an expense
2014
$'000
2013
$'000
4,092
2,800
2,298
258
3,576
4,264
26,986
169,974
317
1,078
899
3,129
2,888
24,049
144,337
808
(i)
Adjusted EBIT, Adjusted EBITDA, Adjusted profit before tax and Adjusted net Profit for the
Year
EBIT
Share-based payments
Non-recurring expenses
Amortization - intangibles acquired
Adjusted EBIT
Depreciation & amortization3
Adjusted EBITDA
Profit before tax
Share-based payments
Non-recurring expenses
Amortization - intangibles acquired
Adjusted profit before tax
Net profit for the year
Loss attributable to non-controlling interest
Profit attributable to the owners of the
Company
Share-based payments
Non-recurring expenses
Amortization of intangibles acquired
Change in deferred tax asset, net
Adjusted net profit for the year
2014
$'000
2013
$'000
15,217
4,011
941
4,518
24,687
9,970
34,657
13,908
4,011
941
4,518
23,378
11,947
(7)
11,954
4,011
941
4,518
(715)
20,709
14,136
742
1,229
2,688
18,795
8,106
26,901
11,951
742
1,229
2,688
16,610
10,886
(47)
10,933
742
1,229
2,688
(126)
15,466
3 Excluding amortisation on acquired intangibles.
60
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 10:- PROFIT FOR THE YEAR, ADJUSTED MEASURES AND GROUP AUDIT FEE (continued)
EBITDA is not a financial measure defined by IFRS as a measurement of financial performance and may
not be comparable to other similarly-titled indicators used by other companies. Adjusted EBIT, adjusted
EBITDA and adjusted profit before tax are provided as additional information only and should not be
considered as a substitute for EBIT or net cash provided by operating activities.
The Group's management believes that Adjusted EBIT (Earnings before Interest, Tax, share based payments
expenses, amortisation of acquired intangibles and non-recurring expenses), Adjusted EBITDA (Adjusted
EBIT plus depreciation and other amortisation) , Adjusted Profit before tax (Profit before tax plus share
based payments expenses, amortisation of acquired intangibles and non-recurring expenses) and Adjusted
net profit for the year (net Profit for the year attributed to the owners of the company plus share based
payments expenses, amortisation of acquired intangibles and non-recurring expenses less change in
deferred tax assets, net) are meaningful for investors because they provide an analysis of operating results
and profitability using the same measures used by management. As a consequence, Adjusted EBIT,
Adjusted EBITDA , Adjusted profit before tax and Adjusted net profit for the year are presented in addition
to EBIT.
(ii)
Audit fee
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 (1)
Group
Company
2014
$'000
2013
$'000
2014
$'000
2013
$'000
183
268
271
722
24
746
267
194
242
703
69
772
183
241
-
424
10
434
267
188
-
455
10
465
(1) The 2013 fees relating to Ernst & Young are $579K. The rest of the 2013 fees were paid to KPMG Audit
plc.
61
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 11:- EARNINGS PER SHARE
Basic earnings 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 from
continues operations
Loss for the year attributable to the owners of the Company from
discontinued operations
Profit for the year attributable to the owners of the Company
2014
$'000
2013
$'000
12,494
(540)
11,954
10,933
-
10,933
No. of Shares No. of Shares
Basic weighted average number of equity shares(1)
Diluted weighted average number of equity shares (2)
Basic earnings per share from continuing operations (in US dollar cents)
Basic loss per share from discontinued operations (in US dollar cents)
Basic earnings per share (in US dollar cents)
Diluted earnings per share from continuing operations (in US dollar cents)
Diluted loss per share from discontinued operations (in US dollar cents)
Diluted earnings per share (in US dollar cents)
Adjusted basic earnings per share (in USD cents)
Adjusted diluted earnings per share (in USD cents)
112,427,822
117,111,456
11.1
(0.5)
10.6
10.7
(0.5)
10.2
18.4
17.7
103,826,885
111,067,069
10.5
-
10.5
9.8
-
9.8
14.9
13.9
(1) Basic weighted average number of equity shares:
Issued ordinary shares at 1 January
Effect of issue of shares (see note 2A)
Effect of share options exercised
Basic weighted average number of equity shares at 31 December
(2) Diluted weighted average number of equity shares:
2014
No. of Shares
2013
No. of Shares
104,592,692
1,691,957
6,143,173
112,427,822
103,304,206
-
522,679
103,826,885
2014
No. of Shares
2013
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
112,427,822
4,683,634
117,111,456
103,826,885
7,240,184
111,067,069
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.
62
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 11:- EARNINGS PER SHARE (continued)
Adjusted earnings 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. The Group's management believes that Adjusted profit
for the year and other adjusted measures such as Adjusted EBITDA are meaningful for investors because they
provide an analysis of operating results and profitability using the same measures used by management.
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
Change in deferred taxes, net
Adjusted profit for the year attributable to the equity shareholders
2014
$'000
2013
$'000
11,947
7
11,954
4,011
4,518
941
(715)
20,709
10,886
47
10,933
742
2,688
1,229
(126)
15,466
63
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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
12,494
3,333
1,808
465
18,100
2,938
(2,292)
5,683
(1,916)
22,513
(7,807)
(2,418)
(711)
(364)
(11,300)
(1,614)
546
(1,962)
1,089
(13,241)
9,272
6,800
21,564
9,909
-
1,005
32,478
25,643
2,292
-
(5,001)
55,412
(8,934)
(2,888)
-
(363)
(12,185)
(4,264)
(546)
-
1,259
(15,736)
39,676
20,293
8,012
-
3,830
25
11,867
-
-
2,458
(314)
14,011
(3,363)
-
(1,078)
(2)
(4,443)
-
-
(2,298)
45
(6,696)
7,315
7,424
4,220
-
-
(3)
4,217
-
-
-
-
4,217
(2,774)
-
(899)
3
(3,670)
-
-
(258)
-
(3,928)
289
547
12,247
-
2,144
4
14,395
-
-
1,815
(186)
16,024
-
-
-
-
-
-
-
-
-
-
16,024
14,395
58,537
13,242
7,782
1,496
81,057
28,581
-
9,669
(7,130)
112,177
(22,878)
(5,306)
(2,688)
(726)
(31,598)
(5,878)
-
(4,518)
2,393
(39,601)
72,576
49,459
GROUP
COST
1 January 2013
Additions
Arising from acquisitions
Translation adjustments
31 December 2013
Additions
Transfer
Arising from acquisitions
Translation adjustments
31 December 2014
AMORTIZATION
1 January 2013
Charge for the year
Arising from Acquisitions
Translation adjustments
31 December 2013
Charge for the year
Transfer
Arising from acquisitions
Translation adjustments
31 December 2014
Net book value
31 December 2014
31 December 2013
A. Goodwill, customer relationships and acquired technology relate to the acquisition of Telit APAC in 2006,
the acquisition of MAT in 2013 (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 the acquisition of ATOP BU in 2014 (included within the EMEA geographical
segment); the acquisition of Navman and CrossBridge in 2012; the acquisition of ILST in 2013 (included
within the Americas geographical segment)
B.
Capitalized development costs related mainly to the HSPA, CDMA, WCDMA, EVDO, LTE product lines
and PaaS are amortized over a three to five year period.
C. As at 31 December 2014 there are no borrowing costs capitalized.
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 ATOP BU.
Other than the goodwill arising on acquisitions made during the year, management considers the product lines
developed by Modules Americas, Modules APAC, Modules EMEA, Services EMEA & Services Americas
(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.
64
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 12:- INTANGIBLE FIXED ASSETS (continued)
The recoverable amount of the business units (expect for Modules APAC, due to the immaterial carrying
value of its goodwill) have been determined based on a value in use calculation using discounted five-year
cash flow projections. An external appraiser has prepared the valuations. 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 double digit growth rates in each CGU.
The carrying value of goodwill by CGU at 31 December is as follows:
CGU Group
2014
2013
$'000
Modules Americas APAC
Navman
Modules APAC
Modules EMEA Motorola m2m
APAC
Telit RF
ATOP BU
Services EMEA
Services Americas CrossBridge
GlobalConnect
ILST
Total
3,396
1,095
4,491
291
3,255
329
1,641
5,225
1,926
2,239
1,852
4,091
16,024
3,393
1,095
4,488
303
3,255
332
-
3,587
1,926
2,239
1,852
4,091
14,395
The main assumption for each CGU is sales growth which is based on recent history and expectations of
future changes in the market. The pre-tax discount rate being between 21% and 29% (2013: 14% to 20%):
In developing its projections, management have taken into account the CGU's past performance as well as
external forecasts of growth in the m2m industry. The key assumptions used in determining value in use are:
Revenue
The forecast mainly relies on external forecasts of growth in the m2m industry. A double-digit annual growth
rate is expected over the next four years for the entire m2m market, with higher rates among the services
CGU's. The appraiser has also forecasted 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
Changes in operating costs have been forecasts based on the current and expected future infrastructure
required to execute the assumed revenues.
EBITDA margins
EBITDA margins are expected to reach 15%-30% by the end of the five year period covered by the forecasts.
Sensitivity analysis on the carrying value of goodwill
Management has performed sensitivity analyses which include lower growth rates 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.
65
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 12:- INTANGIBLE FIXED ASSETS (continued)
COMPANY
COST
1 January 2013
Additions
Translation adjustments
31 December 2013
Additions
Transfer
Translation adjustments
31 December 2014
AMORTIZATION
1 January 2013
Charge for the year
Translation adjustments
31 December 2013
Charge for the year
Transfer
Translation adjustments
31 December 2014
Net book value
31 December 2014
31 December 2013
Trademark
$'000
Software
$'000
Internally
generated
development
costs
$'000
9,547
-
221
9,768
-
-
(564)
9,204
(3,804)
(1,143)
(166)
(5,113)
(1,216)
-
362
(5,967)
3,237
4,655
1,357
1,231
79
2,667
481
(2,292)
(48)
808
(209)
(480)
(34)
(723)
(220)
546
22
(375)
433
1,944
-
-
-
-
1,935
2,292
(237)
3,990
-
-
-
-
(793)
(546)
74
(1,265)
2,725
-
Total
$'000
10,904
1,231
300
12,435
2,416
-
(849)
14,002
(4,013)
(1,623)
(200)
(5,836)
(2,229)
-
458
(7,607)
6,395
6,599
66
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 13:- PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
1 January 2013
Additions
Acquisitions
through
business combinations
Disposals
Translation adjustments
31 December 2013
Additions
Disposals
Translation adjustments
31 December 2014
DEPRECIATION
1 January 2013
Charge for the year
Acquisitions
through
business combinations
Disposals
Translation adjustments
31 December 2013
Charge for the year
Disposals
Translation adjustments
31 December 2014
Net book value
31 December 2014
31 December 2013
Land and
Buildings(1)
$'000
Computers
$'000
Office
equipment
$'000
Vehicles
$'000
Leasehold
Improvements
$'000
Total
$'000
7,014
-
-
-
317
7,331
106
-
(868)
6,569
(210)
(182)
-
-
(17)
(409)
(169)
-
64
(514)
4,147
1,085
2,021
(223)
4
7,034
1,468
(241)
(365)
7,896
(2,416)
(899)
(1,744)
150
(55)
(4,963)
(1,008)
124
221
(5,626)
14,265
3,281
182
(141)
576
18,163
8,226
(327)
(2,242)
23,820
(10,177)
(1,546)
-
200
(410)
(11,934)
(2,714)
328
1,282
(13,038)
6,055
6,922
2,270
2,071
10,782
6,229
485
32
-
-
2
519
-
(77)
(25)
417
(71)
(81)
-
-
1
(152)
(75)
48
1
(178)
239
367
681
139
-
-
3
823
440
(133)
(24)
1,106
(130)
(92)
-
-
(9)
(231)
(126)
15
2
(339)
26,592
4,537
2,203
(364)
902
33,870
10,240
(778)
(3,524)
39,808
(13,004)
(2,800)
(1,744)
350
(490)
(17,688)
(4,092)
515
1,570
(19,695)
767
592
20,113
16,182
(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 2014 and 2013 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.
(2) Regarding liens on certain of the Group’s assets see note 22.
67
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 14:- INVESTMENTS IN SUBSIDIARIES
COMPANY
Investment in subsidiaries
1 January 2013
Additions (1,2)
Additions - subsidiaries share-based payment charge (3)
Repayments (4)
Loan converted to equity (5)
Translation adjustments
Move to current liability
1 January 2014
Additions (1,2)
Transfer (6)
Additions - subsidiaries' share-based payment charge (3)
Repayments (4)
Translation adjustments
31 December 2014
Loans to
subsidiaries
$'000
Investments
in
subsidiaries
$'000
19,661
4,860
-
(2,356)
(210)
227
(2,000)
20,182
15,054
-
-
(688)
(568)
33,980
64,315
-
86
-
210
-
-
64,611
490
(5,752)
2,465
-
-
61,814
Total
$'000
83,976
4,860
86
(2,356)
-
227
(2,000)
84,793
15,544
(5,752)
2,465
(812)
(444)
95,794
(1) In 2014 the Company completed the purchase of the 8% minority interest in Telit Wireless Solutions Co. Ltd. for a
consideration of $100,000, bringing its holdings to 100%.
In addition, in 2014 the Company established an additional subsidiary in Belgium: Telit Automotive Solutions NV
with an initial share capital of $390,000.
(2) During 2014, as part of ATOP BU acquisition, a loan in the amount of approximately $9.5 million was made available
to Telit Automotive Solutions NV, a loan in the amount of approximately $1.0 million was made available to Telit
Automotive Solutions SARL and a loan in the amount of approximately $0.4 million was made available for Telit
Wireless Solutions GMBH. In addition, a loan in the amount of $4.15 million was made available to ILST.
During 2013, a loan in the amount of $4.25 million was made available to Telit Wireless Solutions Inc., a loan in the
amount of $0.4 million was made available to Telit Wireless Solutions Hong Kong Limited and a loan in the amount
of approximately $0.2 million was made available to Telit Automotive Solutions SARL.
(3) For further information in respect of share-based payment see note 25.
(4) The repayment in 2014 is due to loan balance repayments made by DAI telecom holdings.
The repayment in 2013 is due to loan balance repayments made by Telit Wireless Solutions Ltd, Telit Hong Kong and
Global connect.
(5) During 2013 the Company converted the loan to Telit RF Technologies Sarl to equity.
(6) In 2014 the Company transferred the investment in CrossBridge to ILST for a consideration of $4.15 million, recorded
as a loan, resulting in a loss to the Company of $1.6 million.
68
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 14:- INVESTMENTS IN SUBSIDIARIES (continued)
Details of the subsidiary undertakings of the Company at 31 December 2014 are as follows:
Germany
Ordinary
100%
United States
Ordinary
Name of company
Telit Automotive Solutions S.a.r.l
(previously
Telit RF
named
Technologies S.a.r.l) .1
of
Country
incorporation
and operation
France
Type of shares
Ordinary
Telit Wireless Solutions Srl1 ("TWS") Italy
Telit Communications SpA1 ("Telit
EMEA")
Italy
Ordinary
Ordinary
Telit Wireless Solutions GmbH
(previously
m2mapps
named
GmbH)1
Telit Wireless Solutions, Inc. 1 ("Telit
Americas")
Telit Communications Spain SL1
Telit Wireless Solutions Tecnologia E
Serviços Ltda2
Spain
Brazil
Telit Wireless Solutions Co Ltd1
("Telit APAC")
Republic of
Korea
Dai Telecom Holdings (2000) Ltd.1
Israel
Telit Wireless Solutions Ltd. ("Telit
Israel")1
Israel
Telit Wireless
Ltd.
(previously named Dai Telecom
Ltd.)2
Services
Israel
GlobalConect Ltd1
Israel
Telit Wireless Solutions (Pty) Ltd. 2
("Telit RSA")
Republic
South Africa
of
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Telit Wireless Solutions Hong Kong
Limited1
Hong Kong
Ordinary
Telit Communications Cyprus Ltd. 2 Cyprus
Ordinary
Telit Location Solutions LP2
United States
CrossBridge Solutions, Inc2
United States
Telit Wireless Solutions (Australia)
Pty Limited2
Australia
Telit GPS Solutions GP LLC2
United States
Telit Automotive Solutions NV1 (5% is
indirectly held)
ILS Technology LLC2
Belgium
Partnership
Units
Ordinary
Ordinary
Membership
Interests
Ordinary
United States
Ordinary
China
Ordinary
Telit Wireless Solutions (Shenzen)
Ltd. 2
1
2
indicates that the entity is held directly by the Company.
indicates that the entity is indirectly held by the Company.
69
Effective
ownership interest
and voting rights Principal activity in 2014
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Development and presales of
m2m wireless products
Non-trading Company
Development,
manufacturing selling and
distributing m2m wireless
products
Presales of m2m wireless
products
Development, Selling and
distributing m2m wireless
products
Presales of m2m wireless
products
Manufacturing, Selling and
marketing m2m wireless
products
Development,
manufacturing selling and
distributing m2m wireless
products
No trading activities
products
of m2m
and
holding
Development
wireless
intermediate
company
Manufucturing, Selling and
distributing m2m wireless
products
Provides
connectivity services
Distributing m2m wireless
products
cellular
Distributing m2m wireless
products
No trading activities
No trading activities
and marketing
Selling
managed services.
Presales m2m wireless
products
No trading activities
of m2m
Development
wireless products
Development and Selling of
platform
service
(PAAS)
Presales of m2m wireless
products
as
a
Ordinary
100%
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 15:- INVENTORIES
Finished goods
Raw materials and work in progress
Group
2014
$'000
11,505
10,001
21,506
2013
$'000
10,233
8,287
18,520
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 $1,144,000 (2013:
$445,000).
NOTE 16:- TRADE RECEIVABLES AND OTHER ASSETS
Within current assets:
Trade receivables
Other current assets
Due from Group undertakings
Within non-current assets:
Long term assets
Group
2014
$'000
2013
$'000
Company
2014
$'000
2013
$'000
63,967
15,306
-
79,273
63,118
14,338
-
77,456
3,403
667
32,812
36,882
696
468
13,504
14,668
851
807
222
232
Included within other current assets are prepaid expenses, supplier rebates and government grant to receive.
The average credit period on trade receivables in 2014 was 76 days (2013: 76 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 $14,888,000 (2013:
$14,596,000) 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 credit period of these
receivables is 93 days (2013: 111 days).
Ageing of past due but not impaired trade debtors
1-30 days
30-60 days
60-90 days
Above 90 days
2014
$'000
2013
$'000
10,595
2,329
228
1,736
14,888
5,736
4,844
810
3,206
14,596
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
70
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 16:- TRADE RECEIVABLES AND OTHER CURRENT ASSETS (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
2014
$'000
2013
$'000
661
6
(70)
(53)
544
663
234
(262)
26
661
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.
NOTE 17:- CASH
The Group's cash resources are as follows:
Group
Company
2014
$'000
2013
$'000
2014
$'000
2013
$'000
Deposits – restricted cash
Cash and cash equivalents
Total
845
25,399
26,244
291
23,886
24,177
-
2,711
2,711
88
3,068
3,156
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.
The Group's cash resources are denominated in the following currencies:
Group
2014
$'000
2013
$'000
Company
2014
$'000
2013
$'000
Sterling
US dollar
Euro
KRW
Brazilian Real
HKD
ILS
Other
Total
39
10,069
10,616
634
297
1,760
517
245
24,177
175
2,419
117
-
-
-
-
-
2,711
38
2,481
637
-
-
-
-
-
3,156
177
17,784
5,543
185
396
132
1,581
446
26,244
71
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 18:- ALLOTTED SHARE CAPITAL
COMPANY AND GROUP
Allotted, issued and fully paid:
113,861,225 ordinary shares of 1 penny each (2013: 104,592,690 ordinary shares
of 1 penny each).
2014
$'000
2013
$'000
1,942
,1 791
The Company has one class of ordinary shares which carry no rights to fixed income.
During 2014, 7,012,592 options were exercised by employees into ordinary shares. (2013: 1,288,486), and
2,255,943 shares were issued as part of the acquisition of the ATOP BU (see note 2A).
Share options
The number of outstanding options as at 31 December 2014 and at the date of this report was 11,487,085 and
10,946,415 equal to 10.1% and 9.6% respectively, of the outstanding share capital of the Company (9.2% and
8.7%, respectively of the outstanding share capital of the Company, on a fully diluted basis).
Share premium account
The share premium account is used to record the premium on shares issued.
Merger and other reserve
The reserves arose from the acquisition of one of the group trading entities, Telit Wireless Solutions Srl and a
subsequent stake in another entity, SEM.
This transaction resulted in changes in ownership interests while retaining control and is accounted for as a
transaction with equity holders in their capacity as equity holders. As a result, the difference in 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.
Translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of
financial statements of overseas subsidiaries.
72
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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,
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 $52,000 (2013: $39,000)
and the charge to the statement of comprehensive income in the year is $19,000 (2013: $26,000).
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. Following the acquisition of ATOP BU the Group has liability for severance pay for Germany resident
employees in the amount of $360,000.
E. 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
2014
$'000
2013
$'000
134
404
538
116
429
545
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
The effect of changes in foreign exchange
31 December
73
2014
$'000
2013
$'000
3,704
538
(327)
553
(342)
4,126
3,656
545
(144)
(466)
113
3,704
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
19. POST-EMPLOYMENT BENEFITS (continued)
The financial assumptions used to determine the present value of the defined benefit scheme were as follows:
Discount rate
Expected salary increase rate
Inflation
2014
1.49%/3.47%
1.95%/5.00%
0.00%/0.6%
2013
3.17% /4.50%
3.00% /5.00%
0.00% /2.00%
The experience adjustments arising on the plan liabilities at the balance sheet date, totalled $20,852 (2013:
$19,318) and the expected contributions to be paid in 2014 total $132,204.
NOTE 20:- CURRENT LIABILITIES
Short-term bank loans and other borrowings
Current maturities of long term loans
Total short-term borrowing from banks and
Group
2014
$'000
9,895
2,602
2013
$'000
10,802
2,988
other lenders
12,497
13,790
Trade creditors (i)
Due to Group undertakings
Provisions
Accruals and other current liabilities
70,463
-
1,446
18,084
51,860
-
1,217
15,756
Company
2014
$'000
2013
$'000
-
-
-
672
54,865
-
1,096
-
-
-
1,112
39,163
-
1,199
Total current liabilities
102,490
82,623
56,633
41,474
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 2014 was 105 days (2013: 92 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.
74
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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 trade name "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 an appeal to the assessment in the Tel Aviv District Court. On July 19 2013, following an agreement
between the Company and the Israeli Customs Authority, the court dismissed all proceedings in this matter,
without any payment required to be made by the Company.
B. Claims filed by M2M Solutions LLC (“M2M”)
(a) The 2012 Case:
On January 13, 2012, M2M filed a Complaint in the United States District Court for the District of
Delaware against Motorola Solutions, Inc. (“Motorola”), the Company and Telit Americas
(collectively with the Company, the “Telit Defendants”), alleging that Motorola infringed one of the
asserted patents, and that the Telit Defendants infringed two patents.
In February 2012, Motorola asserted a claim for indemnification against the Company. Motorola, the
Company and their relevant subsidiaries entered into a Tolling Agreement, reserving all rights to
challenge Motorola’s claim in an arbitration to be held after the resolution of the litigation.
On November 12, 2013, the Court entered its claim construction order, which invalidated the patent
asserted against Motorola. Claims against Motorola have been stayed until the case against the Telit
Defendants (and other co-pending cases filed by M2M) are resolved. The Telit Defendants’ case is in
the expert discovery stage. The parties exchanged expert reports in 2014, and expert depositions are
scheduled to be held in April and May 2015.
As of May 5, 2014, M2M’s damages expert report demands a royalty of approximately $4.2 million
for the period January 10, 2012 to mid-May 2015. The Telit Defendants’ damages expert report
estimates a non-material lump-sum royalty or running royalty rate for the period January 10, 2012 to
mid-2014, if the remaining patent is found to be valid and enforceable, and the Telit Defendants are
found to infringe. In addition, regardless of which damages analysis is adopted, M2M has asked the
Court to award it damages for future alleged infringements, treble damages, post-judgment interest,
and attorneys’ fees. M2M has also asked the Court to issue an injunction prohibiting the Telit
Defendants from selling any allegedly infringing products in the future.
In the opinion of the Company’s management based, among other things, on the opinion of its
professional advisers, no provision is considered necessary.
75
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 21:- CONTINGENT LIABILITIES (continued)
(b) The 2014 Case:
On August 26, 2014, M2M filed another Complaint in the same Court against the Telit Defendants,
alleging infringement of a related patent. Telit Americas moved for a stay pending the outcome of
the prior litigation, which M2M has opposed. On January 26, 2015, the Company filed a motion to
dismiss M2M’s claim against it, which M2m has opposed. The motion is still pending.
The prayers for relief in the Complaint include damages for past alleged infringements, damages for
future alleged infringements, treble damages, post-judgment interest, and attorneys’ fees. The Company
does not believe that M2M would be entitled to duplicative damages on the same allegedly infringing
products and/or features that were identified in the earlier case. M2M has also asked the Court to issue
an injunction prohibiting the Telit Defendants from selling any allegedly infringing products in the
future.
In the opinion of the Company’s management based, among other things, on the opinion of its
professional advisers, and as M2M has not disclosed the amount of damages it seeks in connection
with the 2014 Case, no provision is considered 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 ("Mentor Graphics"), 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 on 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. During 2013, the parties were engaged in pre-trial motions. Telit intends
to continue to contest the counterclaims vigorously and to seek the remedies included in its complaint.
On August 11, 2014, the Company amicably resolved these legal proceedings. The parties entered into a
settlement agreement, which fully and finally settled all disputes among the parties, and dismissed all claims
and counterclaims in the case with prejudice.
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. See Note 23 regarding tax assessments issued
to certain Group companies.
76
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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
2014
2013
$'000
$'000
Other
2014
$'000
2013
$'000
2,975
3,834
-
6,809
2,045
5,557
-
7,602
939
1,102
-
2,041
607
433
-
1,040
2,818
1,794
1,107
1,059
Operating lease payments represent rentals payable by the Group for certain of its office properties.
Guarantees and liens
A.
B.
C.
The Company provided guarantees of up to $18 million to certain suppliers of the Group to sustain credit
lines granted by the suppliers to Group companies in respect of purchases actually made.
The Company provides guarantees to certain banks in Italy, the US, Israel and Korea, to sustain credit lines
granted by those banks to the Group's subsidiaries. The guarantees are for a total amount of $91.3 million
but shall not exceed the amount of current borrowings from these banks.
In connection with the borrowings mentioned above, the Group companies which are the beneficiaries of
the borrowings have placed certain liens over some of their assets and/or agreed to comply with certain
financial covenants, including floating charges and negative pledges in favour of the respective lending
banks, as typical for such borrowings. See Note 26 for details on the borrowings.
77
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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) Warranties (B)
$'000
$'000
VAT (D)
$'000
Other (C)
$'000
Total
$'000
Balance at 1 January 2014
Utilized in the year
Arising from acquisition
Provided in the year
Exchange differences
Balance at 31 December
2014
Classified as:
Current liabilities
Non-current liabilities
956
(97)
-
-
(107)
752
752
-
752
261
(51)
-
9
(19)
200
200
-
200
-
-
-
540
(46)
494
494
-
494
2,236
-
57
401
(68)
2,626
-
2,626
2,626
3,453
(148)
57
950
(240)
4,072
1,446
2,626
4,072
A. In 2011, Telit EMEA received assessments and/or penalty notices for the years 2004, 2005 and 2006 in the
approximate aggregate amount of €1.6 million (approximately $2.0 million). Telit EMEA’s appeals against such
assessments and penalty notices were upheld by the relevant tax court; the tax authorities filed appeals against
these decisions, which are still pending.
In 2012 Telit EMEA received an assessment, penalty notice and R&D recovery deed for the 2007tax year, in the
approximate aggregate amount of €1.3 million (approximately $1.6 million). Telit EMEA’s appeals against such
assessments and penalty notices were mostly upheld by the relevant tax court and Telit EMEA’s appeal before a
higher court is still pending.
In 2013 Telit EMEA received a Vat assessment for the year 2004, and two assessments for the years 2008 and
2009 in the approximate aggregate amount of €1.7 million (approximately $2 million). The Company is in various
stages of attempting to settle or otherwise to appeal such assessments. Telit EMEA’s appeals against said VAT
and tax assessments were upheld by the relevant tax court.
Also in 2013 Telit Wireless Solutions Srl. received tax assessments for the years 2008 and 2009 in the approximate
aggregate of €1.2 million (approximately $1.5 million). Following discussions with the tax authorities, these
assessments were annulled by the authorities.
B. The Group provides warranties on the sale of its m2m products for a period of 12 to 18 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.
In December 2014 Telit EMEA received 3 VAT assessments from the Italian tax authorities in the amount of
approximately €15.6 million including interest and penalties (approximately $19 million), in connection with tax
years 2005, 2006 and 2007. The assessments are wholly related to the Company's discontinued EVAR business
unit which was divested in January 2008 and have no relation to the Company's current business. The Company
believes it has strong arguments against the assessments to be brought before the Tax Court and intends to defend
its position vigorously.
78
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 24:- OTHER LONG-TERM LIABILITIES
Earn out from acquisitions (a)
Other
Group
2014
$'000
23
-
23
2013
$'000
303
66
369
a. During 2014, the Company reassessed the fair value of the contingent consideration related to the
acquisition of Navman and decreased the liability by $280,000 to $23,000.
NOTE 25:- SHARE-BASED PAYMENTS
The Group and Company operate a share-based option plan for executive directors, senior managers and employees.
On March 19 2013, a director of the Company was granted 600,000 options, at an exercise price equal to 80p with
a three year vesting schedule starting on 19 September 2011, such that vesting occurs in three equal instalments on
each of 19 September 2012, 2013 and 2014 and shall expire on 19 September 2016. Such options were related to
an earlier resolution by the Company, dated September 19 2011 (the "Original Resolution"), that approved the
future grant of 600,000 options, conditional upon the Company successfully completing a public fundraising on a
major stock exchange, at an exercise price equal to 80p (the "Exercise Price"), with a vesting schedule of 3 years,
starting on 19 September 2011. The Company decided to amend the Original Resolution, so that the grant of options
not be contingent upon the Company completing its listing on a major stock exchange. Since at the time of the grant
of the options (March 19 2013) the Company had nearly reached the overall limit on the granting of options under
the Company's share options plan, the remuneration committee resolved that, as the overall limit under the plan
increases, the director would 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 and on the same terms as aforesaid.
On January 13, 2014 and March 17, 2014, employees of the Company’s subsidiaries were granted 3,041,000 and
928,000 options, respectively, at an exercise price of £1.78 per share. The options vest in four equal annual
instalments starting from 13 January 2014 and expire five years from the date of grant.
On April 16, 2014, a director and employees of the Company and its subsidiaries were granted 1,460,000 options,
at an exercise price of £2.06 per share. 660,000 of the options vest in three equal annual instalments and 800,000
vest in four equal annual instalments, starting from 16 April 2014 and expire five years from the date of grant.
On May 15, 2014, an employee of the Company’s subsidiary was granted 150,000 options, at an exercise price of
£1.90 per share. The options vest in four equal annual instalments starting from 15 May 2014 and expire five years
from the date of grant.
On June 10, 2014, employees of the Company’s subsidiaries were granted 50,000 options, at an exercise price of
£2.09 per share. The options vest in four equal annual instalments starting from 10 June 2014 and expire five years
from the date of grant.
79
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 25:- SHARE-BASED PAYMENTS (continued)
On 16 September 2014, the Company committed to grant three executive directors options over up to 3,250,000
shares in the aggregate at an exercise price of 260p per share. These options will vest in four equal tranches subject
to the achievement of share price targets of 325.0p, 375.0p, 425.0p and 475.0p (in each case the closing share price
shall be equal to, or above, each target price over 20 consecutive trading days) but will also be subject to vesting
over time, so that 1/4 of the options will vest on each anniversary of the grant provided the executive is employed
by the Company at such time. By way of example, even if the share price should reach 475.0p before the first
anniversary of the grant, the relevant executive would only be entitled to 1/4 of the options on the first anniversary
of the grant; 1/2 on the second anniversary and so on.
The Company had nearly reached the overall limit on the granting of options over newly issued shares. It was
therefore resolved to grant 500,000 options to one of the directors immediately, with the balance of his award and
the entirety of the other executive directors’ awards granted only as headroom becomes available under the overall
limit under the option plan (or any replacement, or follow-on plan). Accordingly, the executive directors 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 and on the same terms as the options set out above, until the full number of options mentioned
above are granted within this framework.
On November 13, 2014, an employee of the Company’s subsidiary was granted 70,000 options, at an exercise price
of £2.40 per share. The options vest in four equal annual instalments starting from 13 November 2014 and expire
five years from the date of grant.
The number of outstanding options as at 31 December 2014 was 11,487,085, equal to approximately 10.1% of the
issued share capital of the Company.
Starting from June 2014, substantially all options under the Company’s share option plans are exercised on a
cashless basis, which is a mechanism according to which an optionholder is issued such number of shares that is
equal to the spread between the exercise price and the market price of the shares on the day of exercise, and does
not pay the exercise price to the Company.
The number and weighted average exercise prices of share options are as follows:
Number
Weighted average exercise
price
(pence)
2014
2013
2014
2013
Outstanding at beginning of year
Granted during the year
Exercised during the year
Cancelled due to cashless exercise during the
year
Lapsed during the year
Outstanding at year end
12,710,387
6,199,000
(7,012,592)
(99,345)
(310,365)
11,487,085
13,529,905
600,000
(1,288,486)
-
(131,032)
12,710,387
Exercisable at year end
5,418,419
11,011,547
0.47
1.88
0.26
0.48
1.66
1.32
0.71
0.43
0.80
0.27
-
0.63
0.45
0.40
The weighted average share price at the date of exercise for share options exercised in 2014 was £1.90 (2013:
£1.17).
80
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 25:- SHARE-BASED PAYMENTS (continued)
The options outstanding at 31 December 2014 have an exercise price in the range of £0.25 to £2.6 (2013: £0.20 to
£0.905) and a weighted average contractual life of 2.7 years (2013: 1.3 years).
The Group recognised a total expense of $4,011,000 in respect of equity settled share based payment
transactions for the year ended 31 December 2014 (2013: $742,000). Of this amount, $1,508,000 is attributed to
the Company (2013: $658,000).
The fair value of services received in return for share-based options is measured by reference to the fair value of
the share-based options granted. The estimate of the fair value of the services received is measured using the
Black-Scholes pricing model except for the grant dated 16 September, 2014, which is measured using the Monte
Carlo 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
19 March 2013
13 January, 2014
17 March, 2014
16 April, 2014
16 April, 2014
15 May, 2014
10 June, 2014
16 September, 2014
13 November, 2014
Share
price
(pence)
Exercise
price
(pence)
Expected
volatility
(%)
Option
life
(years)
Risk free
rate (%)
Dividen
d yield
(%)
0.185
0.29
0.33
0.845
0.845
0.90
0.905
0.735
0.465
0.526
0.835
1.78
1.78
2.06
2.06
1.90
2.088
2.60
2.398
0.20
0.25
0.32
0.81
0.845
0.81
0.905
0.80
0.80
0.80
0.80
1.78
2.09
2.06
2.06
1.90
2.09
2.60
2.398
60
60
60
60
60
60
60
60
60
60
60
44
42
45
43
44
44
43
5
5
5
5
5
5
5
5
5
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
0.85
1.83
1.77
1.78
1.78
1.75
1.94
1.51
0
0
0
0
0
0
0
0
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
0
20
0
0
5
5
5
5
5
5
5
0.05
0.11
0.12
0.31
0.30
0.31
0.32
0.24
0.11
0.24
0.37
0.64
0.82
0.68
0.67
0.63
0.70
0.78
81
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 26:- BORROWINGS
Group
2014
$ '000
2013
$'000
Company
2014
$'000
2013
$'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
2,602
17,612
20,214
9,895
9,895
12,497
17,612
30,109
2,988
22,134
25,122
10,802
10,802
13,790
22,134
35,924
-
-
-
-
-
-
-
-
Borrowings breakdown
Working capital borrowing (1)
Long term loan (2)
Governmental loan (3)
Mortgage loan (4)
Total
Group
2014
$ '000
2013
$'000
Company
2014
$'000
2013
$'000
9,949
5,372
11,183
3,605
30,109
10,960
7,482
13,060
4,422
35,924
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Short term borrowings, for less than one year, arising from invoice advances used for working capital
financing.
(2) Representing two long term loans from banks in Italy- (i) $6.2 million with interest at a rate of Euribor
3 months plus 3.25%, repayable in 20 quarterly instalments that commenced in September 2013, and
(ii) $1.3 million with an interest rate of Euribor 6 months plus + 5.5%, repayable in 6 semi-annual
instalments that will commence in December 2020.
(3) Representing preferential two long term loans (i) $7.7 million with fixed-rate of 0.5%, repayable in 14
semi-annual instalments that will commence in December 2016, supported by the Italian MISE
(Ministry of Economic Development) to develop an innovative platform for the application of M2M
technologies and, (ii) $6.1 million with a fixed-rate of 0.75%, repayable in 10 annual instalments that
commenced in March 2009, supported by the Ministry of Trade and Commerce in Italy, provided in
connection with the Group’s business development program in Sardinia.
(4) 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 loan is denominated in Euro, attracts interest at a rate of Euribor 6 months less 20% and is
repayable in 15 semi-annual instalments that commenced in June 2012.
The directors believe, based on the past performance of the relevant subsidiaries and the history of the relationships
with the lending banks, that the credit facilities will remain available to the Group in the foreseeable future and that
therefore the Group will be able to continue to fund its operations from these credit facilities.
82
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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
Liabilities
2014
$'000
2013
$'000
2014
$'000
2013
$'000
26,284
3,191
6,955
409
27,305
3,248
4,531
39
55,406
279
1,128
-
36,615
687
801
405
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
2014
$'000
2013
$'000
1,997
338
The impact on equity would be equal and opposite of the impact on the profit or loss.
Interest rate risk
Interest rate risk comprises the interest cash flow risk resulting from short-term borrowings at variable rates. 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.
83
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 27:- FINANCIAL RISK MANAGEMENT (continued)
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 $309,000 (2013: $240,000); 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 a 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.
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
subsidiary's borrowings
to banks on
Group
2014
$'000
2013
$'000
Company
2014
$'000
2013
$'000
25,399
845
63,967
-
851
-
--
23,886
291
63,118
-
807
-
-
2,711
-
3,403
32,812
222
33,980
91,310
3,068
88
696
13,504
232
20,182
99,241
Activities that give rise to credit risk and the associated maximum exposure include, but not limited to:
Making sales and extending credit terms to customers and placing cash deposits with other entities. In these
cases, the maximum exposure to credit risk is the carrying amount of the related financial assets;
granting financial guarantees to lending banks which may be called in the event of failure by a subsidiary to
repay amounts due to the lending bank when due.
In this case, the maximum exposure to credit risk is the maximum amount the entity would have to pay if the
guarantee is called on, which may be greater than the amount recognised as a liability as at 31 December 2014
where such guaranteed borrowings were not fully drawn at that date.
84
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 27:- FINANCIAL RISK MANAGEMENT (continued)
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.
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
%
2014
Less than
1 year
$'000
Fixed rate
Variable rate
0.58%
2.91%
1,140
11,616
Company
2013
Weighted
average
effective
interest rate
%
Less than
1 year
$'000
More than 1
year
$'000
0.61%
3.14%
1,295
12,849
12,988
10,186
More
than 1
year
$'000
10,392
7,877
Weighted
average
effective
interest rate
%
2014
Less than
1 year
$'000
More
than 1
year
$'000
Weighted
average
effective
interest rate
%
2013
Less than
1 year
$'000
More than 1
year
$'000
Guarantees
-
91,310
-
-
99,241
-
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.
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 38.
85
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 27:- FINANCIAL RISK MANAGEMENT (continued)
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
Shareholders' equity
Net debt to equity ratio
Group
2014
$'000
2013
$'000
25,399
845
26,244
(12,497)
(17,612)
(30,109)
(3,865)
97,923
3.95%
23,886
291
24,177
(13,790)
(22,134)
(35,924)
(11,747)
79,025
14.86%
The Company is not subject to any externally imposed capital requirement.
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
As of December 31, 2013 the Company does not have any financial instruments at the Level 1 and Level 2
categories.
Level 3 instruments included liabilities related to contingent consideration in business combination. During the year
ended December 31 2013 the change in the fair value of such liabilities was immaterial (see also note 24)
The management assessed that cash and short-term deposits, trade receivables, trade payables, bank overdrafts and
other current liabilities approximate their carrying amounts largely due to the short-term maturities of these
instruments.
Long-term fixed-rate and variable-rate borrowings are evaluated by the company based on current interest rates. As
at 31 December 2013, the carrying amounts of loans were not materially different from their calculated fair values.
86
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2014
NOTE 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
2014
$'000
2013
$'000
12,556
(6,585)
3,149
4,809
(1,651)
1,882
*
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. The percentage was increased in 2014.
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 20 to 26. 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.
NOTE 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 profit for the year amounted to $4,276,000 (2013: loss of $4,274,000).
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
Lars Reger, Non-executive director
Company Secretary
Michael Galai
Registered Office
7th Floor, 90 High Holborn,
London WC1V 6XX
Nominated Adviser
And Broker
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
Solicitors
Olswang
7th Floor, 90 High Holborn
London WC1V 6XX
Independent Auditor
Ernst & Young LLP
1 More London Place,
London SE1 2AF
Registrar
Capita Asset Services
40 Dukes Place
London
EC3A 7NH
88