ENABLING IoT
IS WHAT WE DO
2015 Annual Report
Thing IntegrationEnd-to-End SecurityEnterprise IntegrationNetwork IntegrationDevice ManagementCloud Data StorageApplication Integration 2
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TABLE OF CONTENTS
Introduction
Chairman's Statement
Finance Director’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 (the “Group" or "Telit") operates in the field of the Internet of Things (IoT) and
machine to machine (M2M) communications. M2M refers to aggregate of technologies that allow both
wireless and wired systems to communicate, exchanging data with devices typically in remote locations (i.e.
edge devices) and is considered an integral part of the IoT industry.
The Group offers the industry’s broadest portfolio of integrated products and services for end-to-end IoT
deployments – including cellular communication modules in all technologies, GNSS, short-to-long range
wireless modules, IoT connectivity plans and IoT platform services. Through the IoT Portal, Telit makes IoT
onboarding easy, reduces risk, time to market, complexity and costs for asset tracking, remote monitoring and
control, telematics, industrial automation and others, across many industries and vertical markets worldwide.
Telit is listed on the LSE:AIM (Ticker: TCM).
The Internet of Things (IoT) market opportunity
IoT has the power to completely transform businesses and industries, enhance the way in which they gather,
analyse and distribute data and in turn, convert that data into productivity gains.
The ABI Research report, "M2M and IoT Embedded Modules - 2015", predicts that the demand for cellular
IoT modules will grow significantly over the coming years. ABI predicts that the number of units in all cellular
technologies to be shipped globally will reach 208 million by 2020, representing a 2015-20 CAGR of 23%.
The report, which was published in June 2015, projects an average selling price decline for the period 2015-
20 of 5% CAGR for 2G modules, 5% CAGR for WCDMA/HSPA (3G), 9% for LTE multi-mode (4G) and
14% for LTE single-mode (4G), this trend of declining prices is fueling the growth of the industry.
Considering the product mix forecast by ABI, the market will grow in monetary value at a CAGR of 22% from
2015 to 2020, with total revenues from cellular module sales reaching $4.1 billion in 2020.
In IoT services for connectivity and platforms, growth is estimated to be even more robust. According to IoT
expert analyst firm Berg Insight in its Global M2m/IoT Communications Market, M2M Research Series 2015
report published in December 2015, until 2020, the number of cellular IoT subscribers is expected to grow at
a CAGR of 22.9%, reaching 744.2 million at the end of the period. During the same period, cellular IoT cellular
connectivity revenues grow at a CAGR of 23.3% from $9 billion in 2015 to approximately $25.5 billion in
2020. Meanwhile the monthly ARPU is expected to remain stable at around $2.80.
In its IoT Platforms and Software, M2M Research Series 2015 report, Berg Insight estimates that total revenues
from IoT platform third-party services (excludes in-house solutions) will grow at a CAGR of 32.2% from $580
million in 2014 to $3 billion in 2020.
Telit Worldwide
Telit sells its products through a network of value added resellers to more than 6,500 direct and indirect
customers and systems integrators in more than 80 countries around the world. At the end of 2015, Telit
employed 883 employees worldwide, an increase of 11.2% (2014: 794).
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.
2
Financial Highlights0F
1
Revenues up 13.4% to $333.5 million (2014: $294 million)
o
IoT services revenues grew 30% to $26 million (2014: $20 million)
Gross margin increased to 39.9% (2014: 39.55%)
All operational expenses as percentage of revenues decreased: Gross R&D to 15.4%(2014: 16.6%),
Sales and marketing to 16.6% (2014: 17.1%) and General and Administration to 8% (2014: 9%).
Adjusted EBITDA up 31% to $45.3 million (2014: $34.7 million); as a percentage of revenues, increased
to 13.6% (2014: 11.8%)
EBIT increased 23.7% to $18.8 million (2014: $15.2 million)
Adjusted EBIT increased 23.9% to $30.6 million (2014: $24.7 million)
Adjusted profit before tax increased 18.4% to $27.7 million (2014: $23.4 million)
Adjusted basic earnings per share up 18% to 21.7 cents (2014: 18.4 cents)
At the period end, net cash was $1.1 million (31 December 2014: net debt $3.9 million)
Operational highlights
Jump in APAC revenues, up 74% to $70.9 million (2014: $40.8 million)
Continued investment in product line for automotive modules
Continued investment in Services division
o
o
IoT Portal tool developed and launched
deviceWISE for Factory, enterprise-grade industrial automation business unit, launched
1 For reconciliation from IFRS financial results to adjusted financial results please refer to note 10 in the attached financial statements.
3
CHAIRMAN'S STATEMENT
Enrico Testa, Chairman of the Board
Telit’s strong competitive positioning and global reach has enabled us to continue to achieve double-digit
growth.
The focus in 2015 was on the continued investment in the IoT Services division, which consists of Telit’s
connectivity and platform capabilities as well as the Telit IoT Portal tool. We have seen good growth in our
Services business, with revenues up 30%.
After several years of making acquisitions and high R&D investment, we are now in a position to scale the
business and benefit from the Group’s operational leverage. We plan to continue to reduce gross R&D, Sales
and Marketing and G&A costs as a percentage of Group revenue and in the medium term, we are targeting
gross R&D as a percentage of Group revenue at 14%, Sales and Marketing at 14% and G&A at 6%.
As these cost elements are reduced as a percentage of revenue and the Group continues to scale, we also
anticipate that the business will start to generate significant free cash flows.
The combination of products and services needed to deliver IoT capabilities for global enterprises is now in
place. Major corporates around the world are poised to exploit this new development to drive down their cost
base, improve efficiencies and create new revenue streams. With our market leading position in modules as
well as our connectivity, connectivity management and Platform as a Service, we are well positioned to exploit
this market developments.
People
At the end of 2015, Telit has a total of 883 employees worldwide, an increase of 11.2% (2014: 794). The
headcount increase is largely driven by Telit’s R&D centres and IoT Services business.
The significant progress made in 2015 is a reflection of the quality of Telit’s team of highly skilled employees.
The Board believes that Telit’s staff are, and will continue to be, the cornerstone of the Group’s success.
I would like personally to thank all of the Company’s employees for their hard work and to welcome all of the
new employees.
Outlook
The outlook for the automotive and Industrial IoT sectors, including the automotive sector, continues to be
very encouraging as all the technology and connectivity elements of end-to-end IoT solutions are now in place.
Our acquisitions over the past few years have materially enhanced our cloud Platform capabilities, which is a
key factor in delivering on our strategy to increase our recurring revenues from our IoT Services division.
Telit will continue implementing this strategy, both through its robust organic growth, which is buoyed by the
strong growth in the industrial and other IoT verticals, and through selective acquisitions to enhance its
products and services offering.
With our market leading position in modules, connectivity, connectivity management and Platform as a
Service, we are poised to exploit the numerous opportunities developing across the Group as well as increase
our recurring revenues.
The Board is confident of maintaining Telit’s double-digit revenue growth in the current financial year.
Enrico Testa
Chairman of the Board
4 March 2016
4
FINANCE DIRECTOR’S STATEMENT
Yosi Fait, President and Finance Director
2015 was the sixth consecutive year of double-digit revenue growth for Telit and improvements in all
profitability parameters.
Financial results1F
2
Revenue
Gross profit
Gross margin
Research and development
Selling and marketing
General and administrative
Other operating income
Adjusted EBITDA
Adjusted EBIT
Operating profit
Profit before tax
Adjusted profit before tax
Adjusted basic profit per share (US cents)
Revenue
2015
$'000
333,493
133,060
39.90%
(32,768)
(55,508)
(26,582)
593
45,333
30,617
18,795
15,873
27,695
21.7
2014
$'000
294,004
116,270
39.55%
(26,986)
(50,393)
(26,529)
2,855
34,657
24,687
15,217
13,908
23,378
18.4
Group revenue increased by 13.4% to $333.5 million (2014: $294.0 million), driven by organic growth. The
automotive business unit, which is one of the fast growing vertical with considerable potential, saw revenues
increase by 60% to $39.6 million (2014: $24.8 million). The Services division generated revenues of $26
million (2014: $20 million), up 30%.
Geographical revenue
The split of revenue on a geographical basis is as follows:
2015
$m
129.3
133.3
70.9
333.5
% of total revenue
38.8%
40%
21.2%
100%
2014
$m
135.7
117.5
40.8
294.0
% of total revenue
46.1%
40%
13.9%
100%
Americas
EMEA
APAC
Total
Americas
After six years of strong revenue growth (2009 to 2015 CAGR of 44%), revenues were $129.3 million (2014:
$135.7 million), down 4.6%.
Revenues were affected by the faster than expected technology shift in the US market, mainly as a result of
the imminent shutdown of the 2G networks and the resulting strong shift into 4G technology. Some customers,
mainly those in the home security, energy and transportation markets, subsequently delayed their LTE
deployment plans as a result, while waiting for the LTE-Cat 1 products to be ready and certified.
2 For reconciliation from IFRS financial results to adjusted financial results, please refer to the table in note 4.
5
2015 was also a challenging year in Latin America. The economic downturn significantly impacted sales in
Brazil, Telit’s largest market in Latin America. However, several competitors reduced their presence in the
Brazilian market, which created an additional pipeline of new business opportunities. We anticipate these
opportunities will have a positive impact in 2017.
EMEA
Revenues saw a return to double digit growth following a notable slowdown in the region in previous years.
Revenues increased 13.4% to $133.3 million (2014: $117.5 million).
2G remains the dominant technology in the region, enjoying a growth in shipments, while 3G saw a substantial
ramp-up which we expect to continue. 4G is still in a nascent stage.
The EMEA team secured significant design wins in the energy sector for utilities in the Netherlands and a
robust share of the UK’s SMIP project, as well as substantial automotive wins. As a result, the Group
maintained its market leading position within the region and is confident of maintaining it in the coming years.
APAC
Performed strongly with revenues up 74% to $70.9 million (2014: $40.8 million), reflecting the coming of age
of this market and the fruition of Telit’s investment in its penetration during the last few years.
The growth in the region was driven by multiple key projects and customers moving into mass production
during the year. As we continue to strengthen our presence in the region, including the recently added Japan
and Singapore sales offices, we are winning new customers and designs to secure further growth in the region.
Gross margin and gross profit
Gross margin continued to improve, from 39.55% in 2014 to 39.9% in 2015, due to the Group’s strong
positioning in the IoT industry, further improvements in the hardware business and the increasing share of
revenues from the higher margin IoT services business.
Gross profit increased by 14.4% to $133.1 million (2014: $116.3 million).
Operating expenses
Gross R&D operating expenses (expenses before capitalisation and amortisation of internally generated
development costs) increased slightly to $51.2 million (2014: $48.8 million), As a percentage of revenues,
2015 expenses decreased to 15.4% out of revenue (2014: 16.6%).
The amount capitalised in respect to internally generated development costs in 2015 is $26.1 million, which is
similar year-on-year, but represents a decline as a percentage of revenues to 7.8% (2014: 8.9%). This figure
mainly relates to the development of 3.5G, 4G, automotive products and the Platform as a Service.
The amortisation of internally generated development costs increased by 77% to $7.6 million in 2015 (2014:
$4.3 million). This increase relates mainly to the release of 3G and 4G products to the market during the course
of 2015.
As planned, Sales and Marketing expenses increased by $5.1 million to $55.5 million (2014: $50.4 million)
but decreased as a percentage of revenues to 16.6% (2014: 17.1%).
General and Administrative expenses remained virtually unchanged at $26.6 million, but decreased, as a
percentage of revenues to 8% (2014: 9%).
We expect a decrease over the next few years of gross R&D, Sales and Marketing, as well as General and
Administrative expenses, as a percentage of Group revenues.
6
Finance costs, net
Non-cash expenses as fair value on
Italian preferred loan
Interest on loans and overdrafts
Bank fees
Exchange rate differences
Interest income from bank deposits
Total
2015
$m
1.1
2014
$m
0.8
Difference
0.3
0.9
0.5
0.4
-
2.9
1.2
0.8
(1.4)
(0.1)
1.3
(0.3)
(0.3)
1.8
0.1
1.6
The finance costs, net increased by 123.2% to $2.9 million (2014: $1.3 million), mainly due to exchange rate
differences which moved from $1.4 million income in 2014 to $0.4 million expense in 2015.
Finance costs includes $1.1 million non-cash expenses as fair value of interest on Italian preferred loan (2014:
$0.8 million). The interest expenses related to loans and overdrafts decreased by 18% to $0.9 million (2014:
$1.1 million) and the bank fees decrease by 34% to $0.5 million (2014: $0.8 million).
Profitability
Adjusted EBITDA increased by 31% to $45.3 million (2014: $34.7 million); as a percentage of revenues it
increased to 13.6% (2014: 11.8%).
Adjusted EBIT increased by 24% to $30.6 million (2014: $24.7 million); as a percentage of revenues it
increased to 9.2% (2014: 8.4%).
These improvements reflects the operational leverage that the Group has now obtained.
Adjusted profit before tax increased by 18.4% to $27.7 million (2014: $23.4 million) and reported profit before
tax increased by 14.1% to $15.9 million (2014: $ 13.9 million).
The adjusted figures exclude a share based payment charge of $6.3 million (2014; $4.0 million), a non-
recurring expense of $1.3 million (2014: $0.9 million) and amortisation of intangible acquired of $4.1 million
(2014: $4.5 million).
The Group income tax rate increased slightly from 10.2% in 2014 to 11% in 2015.
Adjusted basic earnings per share increased by 18% to 21.7 cents (2014: 18.4 cents), basic earnings per share
increased to 12.3 cents (2014: 11.1 cents) and reported diluted earnings per share was 11.8 cents (2014: 10.2
cents).
7
Balance sheet
Internally generated development assets, net as of 31 December 2015 increased by $14.5 million to $54.2
million (2014: $39.7 million). The split is as follows:
Assets in development process (not amortised yet)
Assets after development process (started to be amortised)
Total
2015
$m
29.9
24.3
54.2
%
55
45
100
2014
$m
29.8
9.9
39.7
%
75
25
100
Internally generated development assets that completed the development phase, moved to mass production
phase and started the 3 to 5 years of amortisation period increased to 45% of the total internally generated
development assets (2014: 25% only).
The net assets that are in development phase, before starting the amortisation phase, are mainly automotive
products, 4G products and the Platform as a Service.
Total equity grew from $97.8 million as of 31 December 2014 to $110.2 million as of 31 December 2015. This
increase is mainly due to growth in profits.
In October 2015, following approval by the High Court of Justice in England and Wales, Telit cancelled
substantially all of its share premium account ($92 million) and subsequently increased the retained earnings
by this amount.
The Group repurchased 409,400 ordinary shares for a consideration of $1.3 million during the year.
Cash
As of 31 December 2015, the Group held net cash of $1.1 million (2014: net debt of $3.9 million).
The operating cash flow before movement in working capital items increased by 30% to $44.3 million (2014:
$34.1 million). For more details see note 27.
Yosi Fait
President & Finance Director
4 March 2016
8
CHIEF EXECUTIVE'S STATEMENT
Oozi Cats, Chief Executive
Strategic overview
The Group’s strategy over the last years has been to invest heavily in new product development and our
operational infrastructure and we have also acquired a number of businesses to widen and enhance our product
and services capabilities, and geographical coverage.
In addition to widening our product range, we have also built our Services division, which enables us to provide
an IoT end-to-end solution (IoT as a Service), while increasing our recurring revenue base.
The Group has now established a leading position in the IoT industry and intends to continue to focus on its
strategy of becoming a single point of reference, with its unique IoT as a Service concept.
After a number of years of both acquisitive and high R&D investment, we are now in a position to scale the
business and benefit from the Group’s operational leverage. Gross R&D, Sales and Marketing and General
and Administrative costs are all coming down as a percentage of Group revenue and will continue to go down
in the coming years.
The combination of products and services needed to deliver IoT capabilities for global enterprises is now in
place. Major Corporates around the world are poised to exploit this new development to drive down their cost
base, improve efficiencies and create new revenue streams.
Our hardware strategy focuses on the industrial and automotive segments. Our position in the automotive
segment was greatly enhanced by the acquisition of the ATOP business in 2014, which included highly skilled
engineering and support staff. ATOP, which is fully integrated into Telit, has become the cornerstone of the
automotive division. It has extended the Group’s market reach and is catering to the Connected Car trend,
driven by factors such as safety, regulation, and smart infotainment.
The Services division, encompasses the Group’s connectivity and Platform as a Service (PaaS) capabilities.
Telit IoT Portal is a unified platform of these services that enables customers to manage their IoT products and
services through a single portal, while having unique set of value added services.
Acquisition
In February 2016 Telit acquired Bluetooth Smart, otherwise known as Bluetooth Low Energy ("BLE"), assets
from Stollmann Entwicklungs und Vertriebs Gmbh ("Stollmann"), a developer and marketer of low power
hardware products and software solutions for wireless communications for a cash consideration of €3.6
million, before adjustments. The Company has not yet completed the purchase price allocation required under
IFRS 3.
The acquired assets include Stollmann's Bluetooth IP, NFC and other wireless communications IP. Thirty-five
Stollmann employees, mainly R&D engineers, transferred to Telit.
The acquisition will materially enhance Telit's short-range low-power Bluetooth product offering and is
another step in the Group's strategy to provide a comprehensive solution to connect edge devices, such as
sensors, to the Telit IoT enablement platform.
MarketsandMarkets estimates the global BLE and "Smart-Ready" market will be worth $5.6bn by 2020. BLE
shipments are expected to surpass 1.2 billion units in five years, up from just 49 million units in 2013.
9
Products
Technological innovation is Telit’s core capability. The Group’s nine R&D centres provide a comprehensive
portfolio of quality modules 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 the industrial IoT products division, the Group markets to numerous verticals including asset tracking, health
care, security, telematics, point of sale, wearables, telemetry, industry and energy and smart metering. These
verticals are set to grow significantly during the next few years, with substantial projects already in advanced
stages around the world such as SMIP in the UK with energy and smart metering.
To cater to all these verticals, the Group continuously develops a wide range of LTE products, from the high-
end categories down to the Cat-1, with a roadmap to launch Cat-M and narrow-band IoT.
In addition, we continued the development of multi-constellation GNSS (GPS, GLO, GAL and BDS) and Dead
Reckoning (DR) enabled modules, which dramatically improve navigation performance. New GNSS variants
were released with improved performance, integrated LNA and DC blocking capacitor.
Vehicles equipped with location receivers and cellular connectivity have now become mainstream and Telit is
an established key supplier in this area. The Group has six dedicated automotive sales offices in Detroit,
Munich, Hamburg, Shanghai, Seoul and Tokyo with access to car makers and the relevant tier one suppliers.
Telit continued its investments in its ATOP product line, a product line of automotive connectivity modules
that offer embedded security features and processing power. In 2015 we delivered the ATOP 2.5G and ATOP
3.5G products to several Tier1 customers.
IoT Services
Telit has continued to expand its IoT services offering and premium managed connectivity as well as a range
of complementary value added services.
The Group developed and launched its IoT Portal. This tool is designed to enable customers to manage
Telit’s products and services through a single portal that makes IoT deployments easier, cuts the time to
market and saves money.
The IoT Portal provides customers with access to data management, including collection, storage and
big data export, connectivity management, it facilitates interaction with mobile network operators, dash
boarding tools, security and administration.
We continued to invest and develop the IoT connectivity business, which provides Telit with a recurring
revenue stream in addition to the revenues from its established module business. The IoT connectivity
offering covers all customer connectivity needs, including subscription management, integration of
several MNO’s through the IoT portal CDP pro, remote module management, security, reporting and
monitoring, supply of SIM cards, rate plans and customer support.
As part of the IoT Platforms business and the Industry 4.0 trend, the Group launched deviceWISE for
Factory, an enterprise-grade industrial automation platform designed to easily connect complex,
disparate production equipment from different suppliers with different protocols and interfaces to
enterprise systems and applications without custom programming.
The scalable architecture is configurable to any manufacturing environment in any industry by
leveraging a vast library of built-in standardised device drivers and enterprise connectors. deviceWISE
is perfectly suited to all manufacturing verticals including automotive, pharmaceuticals, machinery, oil
and gas, electrical power generation, water and more.
10
Telit’s secureWISE solution has been widely recognised as the leading solution for highly secured
remote access. Connecting more FABs and OEMs than any other platform in the industry, secureWISE
delivers secure, configurable end-to-end remote connectivity across private networks, providing OEMs
role-based, real-time and on-demand access to their equipment installed at production facilities around
the globe.
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.
Oozi Cats
Chief Executive
4 March 2016
11
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. Telit is well positioned to detect any
change within the m2m and IoT markets, accordingly, the management team reviews the strategy and long-
term product development plans to test that Telit is developing the technology to meet the future needs of the
industry.
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. Telit has
mechanisms and strategies in place to mitigate the challenges provided by competitors and we constantly
review our trading channels and customer relationships.
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 always a risk that this type of financing will cease to be available to companies including Telit in the
future. 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.
12
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.
13
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.
14
BOARD OF DIRECTORS
Enrico Testa, Executive Chairman of the Board, aged 64
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 55
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 55
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 59
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 53
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 45
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, Mr. Reger 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. Mr. Reger holds a university degree in physics from Rheinische-Friedrich-Wilhelms
University of Bonn and an executive MBA from London Business School.
15
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. 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.
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
4 March 2016
16
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 2014 the Committee undertook an extensive 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, resulting in an implementation of certain changes
to the remuneration packages these executive directors.
During 2015 the Committee maintained mainly a monitoring position and in February 2016 made an
adjustment to the variable compensation component of the remuneration packages of Mr Cats and Mr. Fait
with effect from 2015 (see further details below). This change was implemented in order to better align the
remuneration of the executives directors with the Group financial results.
I am pleased to present the Directors' Remuneration Report for the year ended 31 December 2015.
Davidi Gilo
Chairman of the Remuneration Committee
4 March 2016
17
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. The Remuneration Committee is also
responsible for administering the employee share option schemes.2F
3
Remuneration Committee Members
The Remuneration Committee comprises two independent Non-Executive Directors: Davidi Gilo (Chairman)
and Ram Zeevi.
Davidi Gilo (Chairman)
Ram Zeevi
Committee Member
Independent Non-Executive Director
Independent Non-Executive Director
Attendance Record
11 out of 11 meetings
11 out of 11 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 2015.
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.
3
18
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.
Evaluation of Remuneration Packages of the Chief Executive, 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
4. The Committee then considered the remuneration package to be
companies comparable to the Company3F
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 $1,159,000 at
the EURO-USD exchange rate as at 31 December 2015). 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 is ILS 1,980,000 (approximately $507,000 at the ILS-
USD exchange rate as at 31 December 2015). 15% of this amount is paid to Mr. Fait directly and 85% to a
company under his control.
Mr. Testa’s annual remuneration, as from 1 July 2014 is €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 $327,000 at the EURO-USD exchange rate as at 31 December 2015).
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.
19
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 after deducting the
5, revenue growth, gross margin, and a discretionary element decided
effect of the working capital movements4F
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 are 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 2015 for the directors who held office
during the year were as follows:
Bonus paid
in 2014 on
account of
2013 3
$'000
387
Salary
and fees
$'000
Benefit in
kind
$'000
Bonus
$'000
Post-
employment
benefits
$'000
Total 2015 Total 2014
$'000
$'000
Executive directors
Enrico Testa
Oozi Cats 1
Yosi Fait 2
375
1,438
507
-
150
-
-
1,758
761
13
157
3
Non-executive directors
Ram Zeevi 4
Nicola Miglietta 5
Davidi Gilo
Lars Reger 6
Sergio Buonanno 5
Total – 2015
Total – 2014
43
-
135
-
-
2,498
2,598
150
215
2,519
3,002
173
108
388
3,503
1,271
43
-
135
-
-
5,340
582
3,761
1,337
53
55
125
-
10
5,923
387
Salary in 2015 includes $222,000, as payment for unused vacation days.
1
2 Amounts in respect of the services of Mr. Fait are paid: 85% to a company under his control and 15% to Mr. Fait directly (but the bonus is paid
3
solely to the company under his control).
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 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.
5 As amended in February 2016. The Committee believes that this parameter is better reflects the Group’s cash flows from operations. Had this
parameter been applied to the bonus calculations of 2013 and 2014, there would have been no effect on the result.
20
Directors' Interests in Shares
The directors' interests in shares in the Company are detailed in the table below:
Directors
6
Oozi Cats5F
Enrico Testa
7
Yosi Fait6F
8
Lars Reger7F
Davidi Gilo
Ram Zeevi
At 31 December 2015
At 31 December 2014
Number of ordinary
shares
Percentage of
ordinary
share capital
Number of
ordinary
shares
Percentage of
ordinary
share capital
22,861,977
1,038,000
315,000
2,255,943
-
-
19.92
0.90
0.27
1.97
-
-
22,861,977
1,500,000
315,000
2,255,943
-
-
20.08
1.31
0.28
1.98
-
-
6 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.
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.
21
Details of directors' share options as at 31 December 2015 are provided below:
Executive
directors
Grant date
Enrico Testa 1 April 2011
16 September 2014 *
Total
Oozi Cats
Total
Yosi Fait
Total
1 April 2011
16 September 2014 *
9
19 September 2011 8F
26 March 2012 10
10
19 March 20139F
16 April 2014
16 September 2014 *
Exercise
price (pence)
0.81
2.60
0.81
2.60
0.80
0.80
0.80
2.06
2.60
Number
520,000
520,000
1,952,000
1,952,000
150,000
150,000
600,000
500,000
1,000,000
2,400,000
Vested
520,000
-
520,000
1,952,000
-
1,952,000
150,000
150,000
600,000
133,334
250,000
1,283,334
Unvested
-
-
-
-
-
-
-
-
-
366,666
750,000
1,116,666
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 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 had 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). The balance of Mr. Fait’s options were issued on 2 November 2015. Accordingly, Messers. Testa
and Cats 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
No options have expired in respect of any grants.
The share based compensation attributable to the directors in 2015 is $2,684,877 (2014: $1,461,178).
No options were exercised by directors in 2015. The aggregate of the amount of gains made by directors on
the exercise of share options in 2014 was $11,800,274. The exercised options were granted in 2009 and 2010
9 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.
10 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.
22
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 2015 were 356.08p (3
September 2015) and 180p (17 November, 2015).The Company's share price on the close of trading on 31
December 2015 was 213.50p.
By order of the Remuneration Committee
Davidi Gilo
Chairman of the Remuneration Committee
4 March 2016
23
STRATEGIC REPORT
The directors present the Strategic Report of the Group for the year ended 31 December 2015.
Principal Activities
Telit enables the creation of solutions and applications for fast deployment of IoT projects with complete life
cycle management in segments including asset tracking, remote industrial monitoring, automated utility meter
reading, insurance telematics, consumer electronics, mobile health devices, and others.
Telit develops, and markets cellular, GNSS, short-to-long range wireless modules plus mobile connectivity
services (global MVNO) and application enablement platform to onboard edge devices to the Internet of
Things.
The Group’s IoT services portal delivers managed and value added services; application enablement; and
connectivity management in a Platform-as-a-Service (PaaS) model. In addition, the Group offers mobile data
plans in EMEA and the Americas that are packaged and priced specifically for IoT business models.
For the Automotive OEM and Tier One segment, Telit sells modules that are certified and manufactured in
compliance with regulations like ISO/TS16949 and delivered through one of industry’s most scalable
industrial and logistics apparatus.
Telit products and services are sold directly and through a network of value added resellers, solution providers,
engineering/design firms, device manufacturers, and system integrators of connected devices solutions and
applications.
Review of Business and Future Developments
A review of strategy, financial position and future developments, including the key performance indicators, is
given within the financial and operational highlights on page 3, the Chief Executive's statement on pages 9 to
11, the Finance Director’s report on pages 5 to 8, together with a review of the Group's principal risks and
uncertainties on pages 12 to 14.
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 $32.8 million were expensed in the year, compared to $27 million
in 2014. The amount capitalized in respect to internally generated development costs in 2015 is $26.1 million,
which is similar year-on-year, but represents a decline as a percentage of revenues to 7.8% (2014: 8.9%). This
figure mainly relates to the development of 3.5G, 4G, automotive products and the Platform as a Service.
In 2013 Telit EMEA was granted a $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 $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. Telit EMEA received approximately $24
million from this facility up to the date of this report.
By order of the Board
Yosi Fait
Financial Director
4 March 2016
24
DIRECTORS' REPORT
The directors present their annual report and the financial statements of the Group for the year ended 31
December 2015.
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 Finance Director’s statement on pages 5 to 8 and in notes 16, 24, 26 and 27 to the
financial statements. These pages also 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.
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 $59,000 in charitable donations during the year ended 31 December 2015 (2014: $56,000).
The Group does not have a policy regarding donations.
Dividends
The Company is not proposing to pay a dividend in respect of the period (2014: $ nil).
Significant shareholders
0F
11
Oozi Cats 1
Kabouter Management LLC
JP Morgan Asset Management
Lazard Asset Management
Herald Investment Management
Idea Capital Funds
Sherman Capital
Old Mutual Global Investors
At 31 December 2015
At 31 December 2014
Number of
ordinary shares
22,861,977
6,250,751
4,488,183
3,957,333
3,704,211
1,271,249
1,114,232
-
Percentage of
ordinary share
capital
19.91
5.44
3.91
3.45
3.23
1.11
0.97
-
Number of
ordinary shares
22,861,977
-
3,883,940
2,519,906
4,981,250
6,035,284
4,560,089
7,049,539
Percentage of
ordinary share
capital
20.08
-
3.41
2.19
4.37
5.30
4.00
6.19
Directors
The directors who held office during the year were as follows:
Enrico Testa
Oozi Cats
Yosi Fait
Ram Zeevi
Davidi Gilo
Lars Reger
11 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.
25
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 executives 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 2015, calculated in accordance with the requirements of the Companies Act 2006, were 135 days
(2014: 126 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.
Subsequent events research and development activities and Future developments
Please see Chief Executive Statement and Strategic Report.
By order of the Board
Yosi Fait
President & Finance Director
4 March 2016
26
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Reports and the group and parent company financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each
financial year. Under that law, and as required by the AIM Rules of the London Stock Exchange, the directors
have elected to prepare group and parent company financial statements under International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
Under Company Law the directors must not approve the group and parent company 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 the profit or loss of the group for that period. In preparing the group and parent company financial statements
the directors are required to:
• present fairly the financial position, financial performance and cash flows of the group and parent company;
• select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting
Estimates and Errors and then apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable
and understandable information;
• make judgements and estimates that are reasonable and prudent;
• provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the
European Union is insufficient to enable users to understand the impact of particular transactions, other events
and conditions on the group‘s and the company’s financial position and financial performance;
• prepare the Group and Company financial statements on the going concern basis unless it is inappropriate to
presume that the Group or Company will continue in business; and
• state whether the group and parent company financial statements have been prepared in accordance with
IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the
financial statements.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the group‘s and parent company’s transactions and disclose with reasonable accuracy at any time the financial
position of the group and parent company and enable them to ensure that the group and parent company
financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the
assets of the group and parent company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
27
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 2015
which comprise the Group and Parent Company Statements of Financial Position, the Group Statement of
Comprehensive Income, the Group and Parent Company Statements of Cash Flow, the Group and Parent
Company Statements of Changes in Equity and the related notes 1 to 30. 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’ Responsibilities Statement set out on page 27, 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 2015 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the
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.
28
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.
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
4 March 2016
29
Telit Communications PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2015
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 for the year
Profit attributable to:
Owners of the Company
Non-controlling interest
Profit for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income for the year
Note
3,4
5
10
6
7
8
23
2015
$'000
2014
$'000
333,493
(200,433)
294,004
(177,734)
133,060
116,270
(32,768)
(55,508)
(26,582)
593
18,795
12
(2,934)
15,873
(1,757)
14,116
-
14,116
(7,002)
7,114
14,116
-
14,116
7,114
-
7,114
(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
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
11
11
11
11
12.3
11.8
114,809,803
119,192,610
11.1
10.7
112,427,822
117,111,456
30
Telit Communications PLC
STATEMENT OF FINANCIAL POSITION
At 31 December 2015
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
LIABILITIES AND SHAREHOLDERS'
EQUITY
Shareholders' equity
Share capital
Share premium account
Other reserve
Merger reserve
Treasury stock fund
Translation reserve
Retained earnings
Total equity
18
18
18
18
18
18
18
Non-current liabilities
Other loans
Post-employment benefits
Deferred tax liabilities
Provisions
Other long-term liabilities
Current liabilities
Short-term borrowings from
banks
Trade payables
Provisions
Accruals and Other current
liabilities
Total equity and liabilities
26
19
8
23
24
26
20
23
20
2015
$'000
81,877
21,792
-
2,198
5,907
111,774
20,080
72,157
13,040
75
29,844
135,196
246,970
1,969
24
(2,727)
-
(1,323)
(20,256)
132,494
110,181
23,812
4,737
262
3,894
39
32,744
4,968
77,627
585
20,865
104,045
246,970
Group
Company
2014
$'000
2015
$'000
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
17,612
4,537
10
2,626
23
24,808
12,497
70,463
1,446
18,230
102,636
225,221
2,210
29
70,375
33,327
1,577
107,518
240
3,747
22,995
-
898
27,880
135,398
1,969
24
14,667
-
(1,323)
(690)
75,713
90,360
-
-
-
-
-
-
6,395
49
61,814
34,202
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
-
-
-
-
-
-
-
1,710
-
43,328
45,038
135,398
-
672
-
56,107
56,779
143,432
The financial statements on pages 33 to 85 were approved by the board and authorized for issuance on 4 March
2016 and are signed on its behalf by: Oozi Cats, Director
Company number: 05300693
31
Telit Communications PLC
STATEMENT OF CASH FLOWS
For the year ended 31 December 2015
CASH FLOWS - OPERATING ACTIVITIES
Profit/(loss) for the year from continued operations
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Change in fair value of earn-out
Gain on sale of property, plant and equipment
Gain on sale of intangible assets
Loss on transfer of investment in subsidiary
Increase
benefits
Finance costs, net
Tax expenses
Share-based payment charge
in provision
for post-employment
Operating cash flows before movements in working
capital:
Increase in trade and other receivables
Increase in other current assets
Decrease / (increase) in inventories
Increase/(decrease) in trade payables
Increase/(decrease) in other current liabilities
Increase in provisions and other long term
liabilities
Cash from 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
discontinued operations
from operating activities
from
Note
13
12
5
12, 28
14
19
6,7
8
25
Group
2015
$'000
2014
$'000
Company
2015
$'000
2014
$'000
14,116
12,487
(427)
4,276
5,306
13,532
-
(227)
-
-
567
2,922
1,757
6,349
44,322
(12,486)
(1,556)
11
13,231
1,231
1,472
46,225
(3,047)
12
(1,978)
41,212
-
-
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
30
2,480
-
-
(183)
-
-
(4,852)
200
2,817
65
(523)
(450)
(115)
1,102
3,162
-
3,241
(605)
2,083
(5)
4,714
-
-
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
-
-
-
-
-
-
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of property, plant and
equipment
Capitalized development expenditure
Acquisition of subsidiaries, net of cash acquired
Additional investment in subsidiary
Additional loans made to subsidiaries
Repayment of loans from subsidiaries
Decrease / (increase) in restricted cash deposits
Net cash used in investing activities
13
12
12
2
14
16
16
14
(8,823)
(1,397)
(9,611)
(2,651)
677
(26,106)
(352)
-
-
-
657
(35,344)
362
(26,071)
(2,100)
-
-
-
(700)
(40,771)
(12)
(34)
-
(1,464)
-
(5,051)
(1,479)
3,000
-
(5,040)
(20)
(481)
-
(1,935)
-
(493)
(2,100)
688
88
(4,253)
32
Telit Communications PLC
STATEMENT OF CASH FLOWS (continued)
For the year ended 31 December 2015
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from exercise of share options
Acquisition of non-controlling interest
Purchase of own shares
Short-term borrowings from banks
Proceeds from other loans
Repayment of other loans
Net cash from financing activities
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
Note
25
14
18
26
26
26
Group
Company
2015
$'000
264
-
(1,323)
(4,949)
11,562
(2,337)
3,217
2014
$'000
2015
$'000
2014
$'000
3,119
(100)
-
1,647
-
(2,924)
1,742
264
-
(1,323)
-
-
-
(1,059)
3,119
-
-
-
-
-
3,119
9,085
7,195
(1,385)
1,954
25,399
(4,640)
23,886
(5,682)
2,711
(428)
3,068
(2,311)
17
29,844
25,399
898
2,711
Non – cash transactions:
a.
In April 2014 the Company issued 2,255,943 shares for a value of $8.9 million, as part of ATOP BU acquisition (see
note 2B).
33
Telit Communications PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2015
Year ended 31 December 2015
Share
capital
$'000
Share
premium
Account
$'000
Merger
reserve
$'000
Other
reserve
$'000
Treasury
stock fund
$'000
Translation
reserve
$'000
Retained
earnings
$'000
Total
$'000
1,942
90,533
1,235
(2,727)
Balance at 1 January 2015
Total comprehensive
income/(loss) for the year
Profit for the year
Foreign currency translation
differences
Total comprehensive
income/(loss)
Transactions with owners:
Exercise of options
Reduction of share premium and
merger reserve
Purchase of own shares
Share-based payment charge
-
-
-
27
-
-
-
-
-
-
237
(90,746)
-
-
-
-
-
-
(1,235)
-
-
Total transactions with owners
27
(90,509)
(1,235)
-
-
-
-
-
-
(1,323)
-
(1,323)
(13,254)
20,048
97,777
-
14,116
14,116
(7,002)
-
(7,002)
(7,002)
14,116
7,114
-
-
-
-
-
-
264
91,981
-
6,349
-
(1,323)
6,349
98,330
5,290
-
-
-
-
-
-
-
-
Balance at 31 December 2015
1,969
24
-
(2,727)
(1,323)
(20,256)
132,494
110,181
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
34
Telit Communications PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2015
Year ended 31 December 2015
Share
capital
$'000
Share
premium
account
$'000
Merger
reserve
$'000
Other
reserve
$'000
Treasury
stock
fund
$'000
Translation
reserve
$'000
Retained
earnings
$'000
Total
$'000
Balance at 1 January 2015
1,942
90,533
1,235
11,157
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
Reduction of share premium
and merger reserve
Purchase of own shares
Share-based payment charge
Capital contribution
Total transactions with
owners
-
-
-
-
-
-
27
237
-
-
-
-
-
-
-
-
-
-
-
-
(90,746)
-
-
-
(1,235)
-
-
-
-
-
-
3,510
-
(1,323)
-
-
27
(90,509)
(1,235)
3,510
(1,323)
-
-
-
-
-
444
(18,658)
86,653
-
(427)
(1,134)
-
(1,134)
(427)
-
-
-
-
-
-
-
91,981
-
2,817
-
94,798
(427)
(1,134)
(1,561)
264
-
(1,323)
2,817
3,510
5,268
Balance at 31 December 2015
1,969
24
-
14,667
(1,323)
(690)
75,713
90,360
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
35
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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:
financial assets and liabilities 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 Finance Director’s statement on pages 5 to 8 and in notes 16, 24, 26 and 27 to the financial
statements. These pages also 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.
36
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
The Group meets its day to day working capital requirements through overdraft facilities, invoice advance and
loans facilities. 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 its subsidiaries
controlled by the Company for the years to 31 December 2015 and 31 December 2014. Control is achieved when
the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and
only if, the Group has:
-
-
power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities
of the investee),
exposure, or rights, to variable returns from its involvement with the investee.
The ability to use its power over the investee to affect its returns.
37
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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 acquire; plus
the fair value of the existing equity interest in the acquire; 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.
38
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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.
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect
of any changes in estimate accounted for on a prospective basis.
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
Useful life - Years
33
7-17
3
4-7
7-10
4-10
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
Useful life - Years
3-7
4.5-5
2.5-5
8
39
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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
when the Group can demonstrate:
Its intention to complete and its ability and intention to use or sell the asset
The technical feasibility of completing the intangible assets so that the asset will be available for use or sale
How the asset will generate future economic benefits
The availability of resources to complete the asset
The ability to measure reliably the expenditure during development
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
40
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the
asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense
immediately.
(o) Income taxes
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported
in the statement of comprehensive income because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability
for current tax is calculated using tax rates that have been enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilized.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss
• In respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future
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.
41
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
(q) Retirement benefit costs
The Group operates a defined benefit pension plan in Euroland, which requires contributions to be made to a
separately administered fund. The Group also provides certain additional post employment healthcare benefits to
employees in the United States. These benefits are unfunded.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.
Re-measurement, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts
included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts
included in net interest on the net defined benefit liability), are recognised immediately in the statement of
financial position with a corresponding debit or credit to retained earnings through OCI in the period in which
they occur. Re-measurement are not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of:
The date of the plan amendment or curtailment, and
The date that the Group recognises related restructuring costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group
recognises the following changes in the net defined benefit obligation under 'cost of sales', 'administration
expenses' and 'selling and distribution expenses' in the consolidated statement of profit or loss (by function):
Service costs comprising current service costs, past-service costs, gains and losses on curtailments and
non-routine settlements
Net interest expense or income
(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.
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) Operating 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.
42
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
(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.
(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.
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 amortised 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.
43
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired
where there is objective evidence that, as a result of one or more events that occurred after the initial recognition
of the financial asset, the estimated future cash flows of the investment have been impacted.
Objective evidence of impairment could include:
significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organization.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for
a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the
number of delayed payments in the portfolio past the average credit period of 90 days, as well as observable
changes in national or local economic conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with
the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in profit or loss.
With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the
carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised 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.
44
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs and are subsequently
measured at amortised 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 amortised 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.
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) Provisions
Provisions are recognised when: the group has a present legal or constructive obligation as a result of past events;
it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably
estimated. Provisions are not recognised for future operating losses.
45
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
(y) 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. See
also note 5.
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. See also note 2.
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. See also note 25.
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.
Amortisation of internally generated development assets
Amortisation shall begin when the asset is available for use, that is when it is in the location and condition
necessary for it to be capable of operating in the manner intended by management. The amortisation charge for
each period shall be recognised in profit or loss over the period in which the asset's future economic benefits are
expected to be consumed by the entity, estimated to be 3 – 5 years.
46
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
(y) Critical accounting judgments and key sources of estimation uncertainty (continued)
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.
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.
47
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
(y) Critical accounting judgments and key sources of estimation uncertainty (continued)
Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions
used in the cash flow projections could significantly affect the Group's results.
(z) Treasury shares
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity.
No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own
equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised
in the share premium. Share options exercised during the reporting period are satisfied with treasury shares.
(aa) Changes in accounting policies
In the preparation of these consolidated financial statements, the Group followed the same accounting policies
and methods of computation as compared with those applied in the previous year.
New/Revised standards and interpretations not applied
The following new and amended standards and interpretations in issue at 31 December 2015 are not yet effective
and have not been adopted by the group:
IFRS 2 Share-based Payment
Annual Improvements to IFRSs 2010-2012 Cycle
Annual Improvements to IFRSs 2012-2014 Cycle
IFRS 9 Financial Instruments (i)
IFRS 15 Revenue from Contracts with Customers (i)
Amendments to IAS 1 Presentation of Financial Statements:
Disclosure Initiative
IAS 16 Property, Plant and Equipment and IAS 38 Intangible assets:
Clarification of Acceptable Methods of Depreciation and
Amortisation (Amendments)
IAS 19 Defined benefit plans – Employee contributions
(Amendments)
IAS 27 Separate Financial Statements (Amendments)
Effective dates*
1 February 2015
1 February 2015
1 January 2016
1 January 2018+
1 January 2018+
1 January 2016
1 January 2016
1 January 2016
1 January 2016+
(i) With the exception of IFRS 9 and IFRS 15 the directors do not expect the adoption of these standards and
interpretations to have a material impact on the consolidated or company financial statements in the period
of initial application. The company has yet to evaluate the impact of IFRS 9 and IFRS 15.
* The effective dates stated above are those given in the original IASB/IFRIC standards and
interpretations. As the group prepares its financial statements in accordance with IFRS as adopted by
the European Union (EU), the application of new standards and interpretations will be subject to their
having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases
this will result in an effective date consistent with that given in the original standard or interpretation
but the need for endorsement restricts the group’s discretion to early adopt standards.
48
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
1.
ACCOUNTING POLICIES (continued)
(aa) Changes in accounting policies (continued)
+ At the date of authorisation of these financial statements, these standards and interpretation have not
yet been endorsed or adopted by the EU.
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.
NOTE 2:- BUSINESS COMBINATIONS
A. In August 2015, Telit IoT Platforms, LLC (formerly ILS Technology LLC), acquired substantially all of the
assets and business of a U.S. company that provided hardware, software and professional services in the
wireless communications industry. The total consideration was $352,000 in cash. No goodwill arising from
this acquisition.
B. 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.
49
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 3:-
REVENUE
Sales of goods
Services income
NOTE 4:-
SEGMENTAL ANALYSIS
Group
2015
$'000
307,751
25,742
333,493
2014
$'000
273,910
20,094
294,004
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 is presented below:
2015
EMEA
$'000
APAC
$'000
Americas
$'000
Total
$'000
Eliminations Consolidated
$'000
$'000
Revenue
External sales
Inter-segment sales (1)
Total revenue
133,320
138,783
272,103
70,863
27,447
98,310
129,310
3,355
132,665
333,493
169,585
503,078
-
(169,585)
(169,585)
14,340
376
32,125
-
17,409
Result
Segment result (2)
Unallocated corporate expenses (3)
Operating profit
Investment income
Finance costs
Profit before income taxes
Income taxes
Net profit
333,493
-
333,493
32,125
(13,330)
18,795
12
(2,934)
15,873
(1,757)
14,116
50
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 4:- SEGMENTAL ANALYSIS (continued)
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
Unallocated corporate expenses (2)
Operating profit
Investment income
Finance costs
Profit before income taxes
Income taxes
Profit for the year
294,004
-
294,004
26,292
(11,075)
15,217
1,502
(2,811)
13,908
(1,421)
12,487
(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.
(4) Total assets and liabilities are not disclosed as from 2015 this information is not provided by segment to the Chief
Operating decision maker on a regular basis.
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
2015
$'000
2014
$'000
-
1,753
226
(1,129)
(257)
593
301
3,241
99
(941)
155
2,855
(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).
(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.
51
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 6:- INVESTMENT INCOME
Interest income from bank deposits
Exchange rate differences, net
NOTE 7:- FINANCE COSTS
Fair value of interest on loans beneficiary (see note 26)
Interest expense on bank loans and overdrafts (see note 26, 27)
Bank fees and other bank expenses
Exchange rate differences, net
NOTE 8:- INCOME TAXES
A. Tax recognised in statement of comprehensive income
Current year taxes
Prior year taxes
Deferred taxes
Tax expense
2015
$'000
2014
$'000
12
-
12
135
1,367
1,502
2015
$'000
2014
$'000
1,098
873
535
428
2,934
811
1,214
786
-
2,811
2015
$'000
2014
$'000
3,327
(308)
(1,262)
1,757
1,409
960
(948)
1,421
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 20.25% for 2015
and 21.50% for 2014, and the Group's total tax expense for the year:
Profit before income tax from continuing operations
Tax charge computed at 20.25% (2014: 21.50%)
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
2015
$'000
2014
$'000
15,873
(3,214)
(4,058)
978
-
957
3,272
308
(1,757)
13,908
(2,990)
(1,761)
(415)
1,315
(544)
3,934
(960)
(1,421)
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
52
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 8:- INCOME TAXES (continued)
The Group is currently the subject of ongoing tax audits in respect of tax returns in certain jurisdictions. See note
21 for further details.
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 2014
Translation adjustments
Credit to the statement of comprehensive income
At 1 January 2015
Translation adjustments
Credit to the statement of comprehensive income
At 31 December 2015
D. Factors affecting the tax charge in future years
Net
operating
loss
$'000
Temporary
differences
$'000
Total
$'000
3,084
(71)
(176)
2,837
(98)
586
3,325
849
(162)
1,124
1,811
(167)
676
2,320
3,933
(233)
948
4,648
(265)
1,262
5,645
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
2015
$'000
2014
$'000
13,098
16,851
29,949
11,790
21,730
33,520
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.
Announcements were made during 2015 by the Chancellor of the Exchequer of proposed changes to corporation
tax rates that will have an effect on future tax charges of the Group. A reduction to 19%, effective from 1 April
2017, and a further reduction to 18% effective from 1 April 2020 were enacted on 18 November 2015.
The deferred tax asset at 31 December 2015 and 2014 was calculated based on the rate of 20%.
53
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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
2015
2014
421
266
113
800
369
224
101
694
2015
$'000
2014
$'000
60,264
8,732
3,392
72,388
58,934
6,581
1,588
67,103
The directors, deemed to be key management personnel, received the following remuneration in respect of
services rendered to the Group. Please refer to the table on page 20 of the Annual Report:
Remuneration (1)
Share based payment charge
Post-employment benefits
Total emoluments
Year ended
31 December
2015
$'000
Year ended 31
December
2014
$'000
4,989
2,685
173
7,847
5,959
1,461
108
7,528
(1) In 2015 includes payment of $222,000 for unused vacation days to one executive director. In 2014 includes a bonus of $387,000 paid
in 2014 on account of 2013 to another executive director.
The emoluments in relation to the highest paid director are as follows:
Year ended
31 December
2015
$'000
Year ended 31
December
2014
$'000
3,346
1,496
157
4,999
3,663
713
98
4,474
Total emoluments (1)
Share based payment charge
Post-employment benefits
(1)
In 2015 includes payment of $222,000 for unused vacation days.
54
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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)
Amortisation of intangible assets (note 12):
Amortisation of purchased customer list – included in selling and
marketing expenses
Amortisation of acquired technology – included in R&D expenses
Amortisation of software – included mainly in R&D expenses
Amortisation 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
2015
$'000
2014
$'000
5,306
4,092
2,335
244
3,296
7,657
26,106
189,113
1,713
2,298
258
3,576
4,264
26,071
169,699
317
(i)
Adjusted EBIT, Adjusted EBITDA, Adjusted profit before tax and Adjusted net Profit for the
Year
2015
$'000
2014
$'000
18,795
6,349
1,351
4,122
30,617
14,716
45,333
15,873
6,349
1,351
4,122
27,695
14,116
-
14,116
6,349
1,351
4,122
(997)
24,941
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
EBIT
Share-based payments
Non-recurring expenses 3a
Amortisation - intangibles acquired
Adjusted EBIT
Depreciation & amortisation1
Adjusted EBITDA
3
1F
Profit before tax
Share-based payments
Non-recurring expenses 3a
Amortisation - 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 3a
Amortisation of intangibles acquired
Change in deferred tax asset, net
Adjusted net profit for the year
3 Excluding amortisation on acquired intangibles.
3a Non-reoccurring expenses mainly relate to integration and transaction costs.
55
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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
Group
Company
2015
$'000
2014
$'000
2015
$'000
2014
$'000
213
284
277
774
64
838
183
268
271
722
24
746
213
169
-
382
12
394
183
241
-
424
10
434
56
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 11:- EARNINGS PER SHARE
The calculations of basic and diluted earnings per ordinary share are based on the following results and numbers of
shares:
Basic earnings per share
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
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)
(1) Basic weighted average number of equity shares:
Issued ordinary shares at 1 January
Effect of issue of shares (see note 2B)
Effect of purchase of own shares (see note 18)
Effect of share options exercised
Basic weighted average number of equity shares at 31 December
2015
$'000
2014
$'000
14,116
-
14,116
12,494
(540)
11,954
No. of Shares No. of Shares
114,809,803
112,427,822
119,192,610
117,111,456
12.3
-
12.3
11.8
-
11.8
11.1
(0.5)
10.6
10.7
(0.5)
10.2
2015
No. of Shares
2014
No. of Shares
113,861,227
-
(8,474)
957,050
114,809,803
104,592,692
1,691,957
-
6,143,173
112,427,822
57
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 11:- EARNINGS PER SHARE (continued)
(2) Diluted weighted average number of equity shares:
2015
No. of Shares
2014
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
114,809,803
4,382,807
119,192,610
112,427,822
4,683,634
117,111,456
The average market value of the Company's shares for purposes of calculating the dilutive effect of shares was
based on quoted market prices for the period during which the options were outstanding.
Adjusted 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
Amortisation of intangibles acquired
Other non-recurring expenses
Change in deferred taxes, net
Adjusted profit for the year attributable to the equity shareholders
Adjusted basic earnings per share (in USD cents)
Adjusted diluted earnings per share (in USD cents)
2015
$'000
2014
$'000
14,116
-
14,116
6,349
4,122
1,351
(997)
24,941
11,947
7
11,954
4,011
4,518
941
(715)
20,709
No. of Shares No. of Shares
21.7
20.9
18.4
17.7
58
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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
18,100
2,938
(2,292)
5,683
(1,916)
22,513
1,397
70
222
(1,595)
22,607
(11,300)
(1,614)
546
(1,962)
1,089
(13,241)
(1,753)
(58)
(1,543)
957
(15,638)
6,969
9,272
32,478
25,643
2,292
-
(5,001)
55,412
25,965
(145)
-
(4,842)
76,390
(12,185)
(4,264)
(546)
-
1,259
(15,736)
(7,657)
133
-
1,117
(22,143)
54,247
39,676
11,867
-
-
2,458
(314)
14,011
-
-
-
(266)
13,745
(4,443)
-
-
(2,298)
45
(6,696)
-
-
(2,335)
65
(8,966)
4,779
7,315
4,217
-
-
-
-
4,217
-
-
-
-
4,217
(3,670)
-
-
(258)
-
(3,928)
-
-
(244)
-
(4,172)
45
289
14,395
-
-
1,815
(186)
16,024
-
-
-
(187)
15,837
-
-
-
-
-
-
-
-
-
-
-
15,837
16,024
81,057
28,581
-
9,669
(7,130)
112,177
27,362
(75)
222
(6,890)
132,796
(31,598)
(5,878)
-
(4,518)
2,393
(39,601)
(9,410)
75
(4,122)
2,139
(50,919)
81,877
72,576
GROUP
COST
1 January 2014
Additions
Transfer
Arising from acquisitions
Translation adjustments
31 December 2014
Additions
Transfer
Arising from acquisitions
Translation adjustments
31 December 2015
AMORTISATION
1 January 2014
Charge for the year
Transfer
Charges for the year from
intangible assets acquired
Translation adjustments
31 December 2014
Charge for the year
Transfer
Charges for the year from
intangible assets acquired
Translation adjustments
31 December 2015
Net book value
31 December 2015
31 December 2014
A. Capitalized development costs related mainly to development of 3.5G, 4G, automotive products and the
Platform as a Service and are amortised over a three to five year period.
B. As at 31 December 2015 there are no borrowing costs capitalized.
C. The Group tests goodwill for impairment annually or more frequently if there are indications that they might be
impaired.
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.
59
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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. Management engaged an external appraiser to assist in the preparation of 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
2015
2014
$'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
273
3,255
329
1,473
5,057
1,926
2,239
1,852
4,091
15,838
3,396
1,095
4,491
291
3,255
329
1,641
5,225
1,926
2,239
1,852
4,091
16,024
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 19% and 26% (2014: 21% to 29%):
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 13%-26% 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.
60
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 12:- INTANGIBLE FIXED ASSETS (continued)
COMPANY
COST
1 January 2014
Additions
Transfer
Translation adjustments
31 December 2014
Additions
Transfer
Disposal (1)
Translation adjustments
31 December 2015
AMORTISATION
1 January 2014
Charge for the year
Transfer
Translation adjustments
31 December 2014
Charge for the year
Transfer
Disposal (1)
Translation adjustments
31 December 2015
Net book value
31 December 2015
31 December 2014
Trademark
$'000
Software
$'000
Internally
generated
development
costs
$'000
9,768
-
-
(564)
9,204
-
-
-
(445)
8,759
(5,113)
(1,216)
-
362
(5,967)
(1,128)
-
-
320
(6,775)
1,984
3,237
2,667
481
(2,292)
(48)
808
34
70
-
(43)
869
(723)
(220)
546
22
(375)
(238)
(58)
-
28
(643)
226
433
-
1,935
2,292
(237)
3,990
1,464
(70)
(5,307)
(77)
-
-
(793)
(546)
74
(1,265)
(1,113)
58
2,296
24
-
-
2,725
Total
$'000
12,435
2,416
-
(849)
14,002
1,498
-
(5,307)
(565)
9,628
(5,836)
(2,229)
-
458
(7,607)
(2,479)
-
2,296
372
(7,418)
2,210
6,395
(1) In December 2015 the Company sold these assets at fair market value to a subsidiary, for $3.1 million.
61
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 13:- PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
1 January 2014
Additions
Disposals
Translation adjustments
31 December 2014
Additions
Acquisitions
through
business combinations
Disposals
Translation adjustments
31 December 2015
DEPRECIATION
1 January 2014
Charge for the year
Disposals
Translation adjustments
31 December 2014
Charge for the year
Disposals
Translation adjustments
31 December 2015
Net book value
31 December 2015
31 December 2014
Land and
Buildings(1)
$'000
Computers
$'000
Office
equipment
$'000
Vehicles
$'000
Leasehold
Improvements
$'000
Total
$'000
7,331
106
-
(868)
6,569
7,034
1,468
(241)
(365)
7,896
18,163
8,226
(327)
(2,242)
23,820
-
1,757
7,155
-
-
(679)
5,890
(409)
(169)
-
64
(514)
(141)
-
56
(599)
40
(115)
(465)
9,113
(4,963)
(1,008)
124
221
(5,626)
(962)
101
226
(6,261)
-
(685)
(2,087)
28,203
(11,934)
(2,714)
328
1,282
(13,038)
(3,945)
270
1,182
(15,531)
5,291
6,055
2,852
2,270
12,672
10,782
519
-
(77)
(25)
417
75
-
(44)
1
449
(152)
(75)
48
1
(178)
(68)
22
2
(222)
227
239
823
440
(133)
(24)
1,106
33,870
10,240
(778)
(3,524)
39,808
193
9,180
-
-
(31)
1,268
(231)
(126)
15
2
(339)
(190)
-
11
(518)
40
(844)
(3,261)
44,923
(17,688)
(4,092)
515
1,570
(19,695)
(5,306)
393
1,477
(23,131)
750
767
21,792
20,113
(1) The Company has pledged the buildings as collateral for the mortgage loan received to fund the purchase
of this assets. See also note 26.
(2) Regarding liens on certain of the Group’s assets see note 22.
62
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 14:- INVESTMENTS IN SUBSIDIARIES
COMPANY
1 January 2014
Additions (1)
Transfer (3)
Additions - subsidiaries share-based payment charge (2)
1 January 2015
Additions (1)
Additions - subsidiaries' share-based payment charge (2)
31 December 2015
Investments in
subsidiaries
$'000
64,611
490
(5,752)
2,465
61,814
5,051
3,510
70,375
(1) In 2015 the Company established an additional subsidiary in Japan, Telit Wireless Solutions Japan KK, with an initial
share capital of $83,000.
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. During 2015 there was additional investment of $5 million.
(2) For further information in respect of share-based payment see note 25.
(3) 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.
63
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 14:- INVESTMENTS IN SUBSIDIARIES (continued)
Details of the subsidiary undertakings of the Company at 31 December 2015 are as follows:
BName of company
Telit Automotive Solutions 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 1
Germany
Ordinary
Telit Wireless Solutions, Inc. 1 ("Telit
Americas")
United States
Ordinary
Telit Communications Spain SL1
Telit Wireless Solutions Tecnologia E
Serviços Ltda2
Telit Wireless Solutions Co Ltd1
("Telit APAC")
Spain
Brazil
Republic of
Korea
Dai Telecom Holdings (2000) Ltd.1
Israel
Telit Wireless Solutions Ltd. ("Telit
Israel")1
Israel
Telit Wireless Services Ltd. 2
GlobalConect Ltd1
Israel
Israel
Telit Wireless Solutions (Pty) Ltd. 2
("Telit RSA")
Republic
South Africa
of
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Telit Wireless Solutions Hong Kong
Limited1
Hong Kong
Ordinary
Telit Communications Cyprus Ltd. 2 Cyprus
Ordinary
Telit Technologies (Cyprus) Ltd. 2
Cyprus
Ordinary
Telit Location Solutions LP2
United States
Telit IoT Services, Inc. (formerly:
CrossBridge Solutions, Inc)2
Telit Wireless Solutions (Australia)
Pty Limited2
United States
Partnership
Units
Ordinary
Australia
Ordinary
Membership
Interests
Ordinary
Telit GPS Solutions GP LLC2
United States
Telit Automotive Solutions NV1 (0.88 %
is indirectly held)
Telit IoT Platforms, LLC (formerly:
ILS Technology LLC)2
Belgium
United States
Ordinary
Telit Wireless Solutions (Shenzen)
Ltd. 2
China
Telit Wireless Solutions Japan KK1
Japan
Ordinary
Ordinary
1
2
indicates that the entity is held directly by the Company.
indicates that the entity is indirectly held by the Company.
64
Effective
ownership interest
and voting rights Principal activity in 2015
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Development services and
presales of m2m wireless
products
No trading activities
sale
Development,
and
distribution of m2m wireless
products
Presales of m2m wireless
products
sale
Development,
and
distribution of m2m wireless
products
Presales of m2m wireless
products
sale and marketing of m2m
wireless products
Development,
and
distribution of m2m wireless
products
No trading activities
sale
Development
of m2m
wireless products and other
intra-Group services.
Distribution and sale of
m2m wireless products
Development and cellular
connectivity services
Distribution
wireless products
m2m
of
Distribution
m2m
wireless products and intra-
Group services.
of
intra-
supply of m2m
Supply chain and
Group
wireless products.
Development
wireless products.
No trading activities
of m2m
and marketing of
Sale
managed services.
Presales of m2m wireless
products
No trading activities
a
as
Development and sale of
m2m wireless products
Development and sale of
platform
service
(PAAS)
Presales of m2m wireless
products, and other intra-
Group services
Presales of m2m wireless
products, and other intra-
Group services
0
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 15:- INVENTORIES
Finished goods
Raw materials and work in progress
Group
2015
$'000
12,545
7,535
20,080
2014
$'000
11,505
10,001
21,506
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 $1,544,000 (2014:
$1,144,000).
NOTE 16:- TRADE RECEIVABLES AND OTHER ASSETS
Within current assets:
Trade receivables
Other current assets
Due from Group undertakings
Within non-current assets:
Due from Group undertakings
Other long term assets
Group
2015
$'000
2014
$'000
Company
2015
$'000
2014
$'000
72,157
13,040
-
85,197
-
2,198
2,198
63,967
15,306
-
79,273
-
851
851
3,747
1,070
21,925
26,742
33,144
183
33,327
3,403
667
32,812
36,882
33,980
222
34,202
Included within other current assets are prepaid expenses, supplier rebates and government grant to receive.
The average credit period on trade receivables in 2015 was 74 days (2014: 79 days). No interest is charged on
trade receivables unless previously agreed with the customer. The Group has provided against receivables based
on estimates of irrecoverable amounts from the sale of goods, determined by reference to past default experience.
Included in the Group's trade debtors balance are debtors with a carrying amount of $11,036,000 (2014:
$14,888,000) 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 97 days (2014: 93 days).
Ageing of past due but not impaired trade debtors
1-30 days
30-60 days
60-90 days
Above 90 days
2015
$'000
2014
$'000
6,778
2,477
263
1,518
11,036
10,595
2,329
228
1,736
14,888
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
65
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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
2015
$'000
544
768
(202)
(38)
1,072
2014
$'000
661
6
(70)
(53)
544
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.
The loans that the Company provided to its subsidiaries are as follows:
COMPANY
1 January 2014
Additions (1)
Repayments (2)
Translation adjustments
1 January 2015
Additions (1)
Repayments (2)
Translation adjustments
31 December 2015
Loans to
subsidiaries
$'000
20,182
15,054
(688)
(568)
33,980
1,479
(1,000)
(1,315)
33,144
(1) During 2015 the Company increased the Loan to Telit Automotive Solutions NV by $1.5 million.
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.
(2) The repayment in 2015 is due to loan balance repayments made by Telit Wireless Solutions LTD.
The repayment in 2014 is due to loan balance repayments made by DAI Telecom Holdings.
66
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 17:- CASH
The Group's cash resources are as follows:
Group
Company
2015
$'000
2014
$'000
2015
$'000
2014
$'000
Deposits – restricted cash
Cash and cash equivalents
Total
75
29,844
29,919
845
25,399
26,244
-
898
898
-
2,711
2,711
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:
Sterling
US dollar
Euro
KRW
Brazilian Real
HKD
ILS
Other
Total
Group
2015
$'000
2014
$'000
Company
2015
$'000
2014
$'000
68
20,686
6,132
424
271
142
1,596
600
29,919
177
17,784
5,543
185
396
132
1,581
446
26,244
65
619
214
-
-
-
-
-
898
175
2,419
117
-
-
-
-
-
2,711
NOTE 18:- ALLOTTED SHARE CAPITAL
COMPANY AND GROUP
Allotted, issued and fully paid:
114,740,976 ordinary shares of 1 penny each (2014: 113,861,225 ordinary shares
of 1 penny each).
2015
$'000
2014
$'000
1,969
1,942
The Company has one class of ordinary shares which carry no rights to fixed income.
During 2015, 1,289,149 options were exercised by employees into ordinary shares (2014: 7,012,592).
During 2014 2,255,943 shares were issued as part of the acquisition of the ATOP BU (see note 2B).
Share options
The number of outstanding options as at 31 December 2015 and at the date of this report was 16,261,99612 and
16,191,99712 equal to 14.2% and 14.1% respectively, of the outstanding share capital of the Company (12.4% and
12.4%, 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.
12 Not including 2,250,000 options that the Company committed to grant two executive directors on 16 September 2014. See note 25.
67
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 18:- ALLOTTED SHARE CAPITAL (continue)
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.
Reduction of share premium and merger reserve
In October 2015, following approval by the High Court of Justice in England and Wales, the Company cancelled
substantially all of its share premium account ($91,981,000) and subsequently increased the retained earnings by
this amount.
Treasury shares fund
During 2015 the group repurchased 409,400 ordinary shares for a total consideration of $1,323,000.
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 projected 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 $41,000 (2014: $52,000)
and the charge to the statement of comprehensive income in the year is $10,000 (2014: $19,000).
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 $339,000 (2014: $360,000).
68
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
19. POST-EMPLOYMENT BENEFITS (continued)
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
2015
$'000
2014
$'000
101
572
673
134
404
538
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
2015
$'000
2014
$'000
4,126
673
(202)
102
(352)
4,347
3,704
538
(327)
553
(342)
4,126
The financial assumptions used to determine the present value of the defined benefit scheme were as follows:
Discount rate
Expected salary increase rate
Inflation
2015
2.03%/2.95%
2.63%/5.00%
0.00%/1.5%
2014
1.49%/3.47%
1.95%/5.00%
0.00%/0.6%
The experience adjustments arising on the plan liabilities at the balance sheet date, totalled $16,602 (2014:
$20,852) and the expected contributions to be paid in 2015 total $105,636.
69
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 20:- CURRENT LIABILITIES
Short-term bank loans and other borrowings
Current maturities of long term loans
Total short-term borrowing from banks and
other lenders
Trade creditors (i)
Due to Group undertakings
Provisions (see also note 23)
Accruals and other current liabilities (ii)
Group
2015
$'000
2,664
2,304
2014
$'000
9,895
2,602
4,968
12,497
77,627
-
585
20,866
70,463
-
1,446
18,230
Company
2015
$'000
2014
$'000
-
-
-
1,710
42,397
-
931
-
-
-
672
54,865
-
1,096
Total current liabilities
104,046
102,636
45,038
56,633
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 2015 was 135 days (2014: 126 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.
(ii) Mainly due to current liabilities related to employees and accrued expenses. Includes $1.9 million for
corporate tax (2014: $1.7 million) and $0.8 million for vat authorities (2014: $0.4 million).
NOTE 21:- CONTINGENT LIABILITIES
Legal proceedings
A. Claims filed by M2M Solutions LLC (“M2M”)
(a) The 2012 Case:
On January 13, 2012, M2M Solutions 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 Solutions) are resolved. Fact and expert
discovery in the Telit Defendants’ case is now complete.
M2M Solutions’ damages expert reports stated that a reasonably royalty for use of the patented
technology is approximately $4.2 million for the period January 10, 2012 to mid-May 2015; however,
the Court has excluded their opinions on the basis of unreliable methodology. In addition, M2M has
70
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 21:- CONTINGENT LIABILITIES (continued)
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.
The Telit Defendants’ damages expert report estimated that if the patent is found to be valid and
enforceable, and the Telit Defendants are found to infringe, a reasonable royalty for the period
January 10, 2012 to mid-2014 would be a non-material lump-sum royalty or running royalty rate.
The Court has dismissed M2M Solutions’ allegations of willfulness (effectively denying M2M’s request
for treble damages), excluded damages based on foreign (non-U.S.) shipments, and dismissed any
damages against the Company from the case (leaving only the U.S. subsidiary).
Trial is expected to commence on March 28, 2016. In the opinion of the Company’s management based,
among other things, on the opinion of its professional advisers, no provision is considered necessary.
(b) The 2014 Case:
On August 26, 2014, M2M Solutions filed another Complaint in the same Court against the Telit
Defendants, alleging infringement of a related patent. On August 5, 2015, the Company was
dismissed from the case.
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.
On September 10, 2015, the parties agreed to stay the 2014 case, pending the outcome of several
petitions for Inter Partes Review that have been filed in the U.S. Patent Office, challenging the
validity of the asserted patent.
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.
B. 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. 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. 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.
71
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 21:- CONTINGENT LIABILITIES (continued)
C. 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.
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
2015
2014
$'000
$'000
Other
2015
$'000
2014
$'000
3,203
4,336
370
7,909
2,975
3,834
-
6,809
941
824
-
1,765
898
1,102
-
2,000
3,236
2,818
1,015
1,051
Operating lease payments mainly 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 $17.1 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 and Israel, to sustain credit lines granted by
those banks to the Group's subsidiaries. The guarantees are for a total amount of $80.2 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.
72
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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 (C)
$'000
Other (D)
$'000
Total
$'000
Balance at 1 January 2015
Utilized in the year
Provided in the year
Exchange differences
Balance at 31 December
2015
Classified as:
Current liabilities
Non-current liabilities
752
(675)
-
(77)
-
-
-
-
200
(63)
20
(15)
142
142
-
142
494
-
-
(51)
443
443
-
443
2,626
-
1,255
13
3,894
-
3,894
3,894
4,072
(738)
1,275
(130)
4,479
585
3,894
4,479
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, both at first and second instances. The Tax
Authorities did not file appeals before the Italian Supreme Court. Therefore, these decisions have become final.
In 2012 Telit EMEA received an assessment, penalty notice and R&D recovery deed for the 2007 tax 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, both at first and second instances.
Since no appeal was filed against the second level decision related to tax assessment for the 2007 tax year, this
decision became final and Telit EMEA has already paid the amount due. The second instance decision related to
the R&D recovery deed was appealed by the Tax Authorities before the Italian Supreme Court. The case 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 tax court of first instance. The Tax Authorities appealed such decisions
before the second level tax court. The cases are still pending.
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. 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 appeals
filed by Telit EMEA with the first level tax court, against these VAT assessments, were upheld by the tax court
in December 2015 and the assessments were therefore annulled.
73
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 23:- PROVISIONS (continued)
In August 2015 Telit EMEA received 3 penalty deeds from the Italian tax authorities in the approximate aggregate
amount of €5 million (approximately $6.2 million), which are related to the above mentioned VAT assessments
for tax years 2005, 2006 and 2007. Telit EMEA filed appeals against such penalty deeds with the first level tax
court. The cases are still pending.
D. 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. While this provision is reviewed on a regular basis and adjusted
for management’s best current estimates, the judgmental nature of these items means that future amounts settled
may differ from those provided.
NOTE 24:- OTHER LONG-TERM LIABILITIES
Earn out from acquisitions (a)
Other
Group
2015
$'000
2014
$'000
-
39
39
23
-
23
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. As of 31 December, 2015 the
liability classifies as current liability - accrued expenses.
NOTE 25:- SHARE-BASED PAYMENTS
The Group and Company operate a share-based option plan for executive directors, senior managers and employees.
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.
74
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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 Options expire 5 years from the date of grant.
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). The balance of the first director’s options were
issued on 2 November 2015. Accordingly, the other 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.
On January 13, 2015, employees of the Company’s subsidiary were granted 131,000 options, at an exercise price
of £2.280 per share. The options vest in four equal annual instalments starting from 13 January 2015 and expire
five years from the date of grant.
On August 3, 2015, employees of the Company’s subsidiary were granted 3,703,333 options, at an exercise price
of £3.275 per share and 1,506,000 restricted stock units (‘RSU’s’).
For those employees, who were granted a combination of options and RSU’s or only options, the vesting will be as
follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
All RSU’s in a combined package will vest on the fourth anniversary of this grant date.
For those employees, who were granted only RSU’s vesting will be as follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
All options will expired on August 3, 2020.
On August 12, 2015, employees of the Company’s subsidiary were granted 240,000 options, at an exercise price of
£3.3675 per share and 36,000 RSU’s.
The vesting will be as follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
All RSU’s in a combined package will vest on the fourth anniversary of this grant date.
All options will expired on August 12, 2020.
75
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 25:- SHARE-BASED PAYMENTS (continued)
On August 31, 2015, employees of the Company’s subsidiary were granted 160,000 options, at an exercise price of
£3.2825 per share and 132,000 RSU’s.
For those employees, who were granted a combination of options and RSU’s or only options, the vesting will be as
follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
All RSU’s in a combined package will vest on the fourth anniversary of this grant date.
For those employees, who were granted only RSU’s vesting will be as follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
All options will expired on August 31, 2020.
On October 13, 2015, employees of the Company’s subsidiary were granted 253,333 options, at an exercise price
of £2.7175 per share and 8,000 RSU’s.
For those employees, who were granted a combination of options and RSU’s or only options, the vesting will be as
follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
All RSU’s in a combined package will vest on the fourth anniversary of this grant date.
For those employees, who were granted only RSU’s vesting will be as follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
All options will expired on October 13, 2020.
On November 12, 2015, an employee of the Company’s subsidiary was granted 32,000 RSU’s. Vesting will be as
follows:
25% will vest on the second anniversary of this grant date
25% will vest on the third anniversary of this grant date
The remaining 50% will vest on the fourth anniversary of this grant date
The number of outstanding options as at 31 December 2015 was 16,261,996, equal to approximately 14.2% 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 option holder 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.
76
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 25:- SHARE-BASED PAYMENTS (continued)
The number and weighted average exercise prices of share options and RSU’s are as follows:
Number
Weighted average exercise
price
(pence)
2015
2014
2015
2014
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
11,487,085
6,701,662
(1,289,149)
(283,351)
(354,251)
16,261,996
12,710,387
6,199,000
(7,012,592)
(99,345)
(310,365)
11,487,085
Exercisable at year end
6,255,083
5,418,419
1.32
2.54
0.46
1.09
1.86
1.82
1.20
0.47
1.88
0.26
0.48
1.66
1.32
0.71
The weighted average share price at the date of exercise for share options exercised in 2015 was £1.20 (2014:
£1.90).
The options outstanding at 31 December 2015 have an exercise price in the range of £0.80 to £3.3675 (2014: £0.25
to £2.6) and a weighted average contractual life of 2.8 years (2014: 2.7 years).
The RSU’s outstanding at 31 December 2015 have an exercise price zero and a weighted average contractual life
of 3.1 years (2014: 0).
The Group recognised a total expense of $6,349,000 in respect of equity settled share based payment
transactions for the year ended 31 December 2015 (2014: $4,011,000). Of this amount, $2,817,000 is attributed
to the Company (2014: $1,508,000).
77
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 25:- SHARE-BASED PAYMENTS (continued)
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 ,as only this grant has market performance conditions associated with it. The assumptions
used in the measurement of the fair values at the grant date of the options are as follows:
Grant date
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
13 January, 2015
3 August, 2015
3 August, 2015 RSU’s
12 August, 2015
12 August, 2015 RSU’s
31 August, 2015
31 August, 2015 RSU’s
13 October, 2015
13 October, 2015 RSU’s
12 November
2015
RSU’s
Share
price
(pence)
Exercise
price
(pence)
Expected
volatility
(%)
Option
life
(years)
Risk free
rate (%)
Dividend
yield (%)
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
2.280
3.353
3.353
3.378
3.378
3.283
3.283
2.718
2.718
2.328
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
2.280
3.275
0
3.368
0
3.283
0
2.718
0
0
60
60
60
60
60
60
60
60
44
42
45
43
44
44
43
40
39
39
39
39
41
41
41
41
41
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
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
1.07
1.32
1.32
1.32
1.32
1.32
1.32
1.21
1.21
1.21
0
0
0
0
0
0
0
0
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)
20
20
20
20
0
20
0
0
5
5
5
5
5
5
5
0
0
0
0
0
0
0
0
0
0
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
0.72
1.14
3.353
1.13
3.378
1.09
3.283
0.94
2.718
2.328
78
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 26:- BORROWINGS
Group
2015
$ '000
2014
$'000
Company
2015
$'000
2014
$'000
Secured – at amortised cost
Current maturities of long term loans
Other long-term loans
Total
Unsecured – at amortised cost
Short-term bank loans and other borrowings
Total
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
Total
2,304
23,812
26,116
2,664
2,664
4,968
23,812
28,780
2,602
17,612
20,214
9,895
9,895
12,497
17,612
30,109
-
-
-
-
-
-
-
-
Borrowings breakdown
Working capital borrowing (1)
Long term loan (2)
Governmental loan (3)
Mortgage loan (4)
Total
Group
2015
$ '000
2014
$'000
Company
2015
$'000
2014
$'000
2,663
4,899
18,234
2,984
28,780
9,949
5,372
11,183
3,605
30,109
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Short term borrowings, less than one year, arising from invoice advances used for working capital.
(2) Representing long term loans from banks in Italy- (i) for $6.2 million with interest at a rate of Euribor 3
months plus 3.25% and is being repaid in 20 quarterly instalments that commenced in September 2013, and
(ii) $1.3 million and $1.1 million with an interest rate of Euribor 6 months plus + 5.5% and is repayable in 6
semi-annual instalments that will commence in December 2020
(3) Representing preferential long term loans (i) for $7.7 million and $8.3 million with fixed-rate of 0.5% and is
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) for $6.1 million with a fixed-rate of 0.75% and is 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.
79
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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
2015
$'000
2014
$'000
2015
$'000
2014
$'000
35,029
5,755
5,924
224
26,284
3,191
6,955
409
67,806
709
926
235
55,406
279
1,128
-
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.
Impact on profit or loss of a 10% decrease
Impact on profit or loss of a 10% increase
Group
2015
$'000
2,298
(2,298)
2014
$'000
1,997
(1,997)
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.
80
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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 $260,000 (2014: $309,000); 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
2015
$'000
2014
$'000
Company
2015
$'000
2014
$'000
29,844
75
72,157
-
2,198
-
-
25,399
845
63,967
-
851
-
-
898
-
3,747
21,925
183
33,144
80,171
2,711
-
3,403
32,812
222
33,980
91,310
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 2015
where such guaranteed borrowings were not fully drawn at that date.
81
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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
%
2015
Less than
1 year
$'000
Fixed rate
Variable rate
0.52%
2.36%
1,077
4,128
Company
2014
Weighted
average
effective
interest rate
%
Less than
1 year
$'000
More than 1
year
$'000
0.58%
2.91%
1,140
11,616
10,392
7,877
More
than 1
year
$'000
17,621
6,767
Weighted
average
effective
interest rate
%
2015
Less than
1 year
$'000
More
than 1
year
$'000
Weighted
average
effective
interest rate
%
2014
Less than
1 year
$'000
More than 1
year
$'000
Guarantees
-
80,171
-
-
91,310
-
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 34.
82
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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 cash / (debt)
Shareholders' equity
Net cash / (debt) to equity ratio
Group
2015
$'000
2014
$'000
29,844
75
29,919
(4,968)
(23,812)
(28,780)
1,139
110,181
1.03%
25,399
845
26,244
(12,497)
(17,612)
(30,109)
(3,865)
97,777
(3.95%)
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 31 December 2015 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 31 December 2015 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 2015, the carrying amounts of loans were not materially different from their calculated fair values.
83
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
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) Intercompany transactions:
Royalties (i)
Revenues from sale of products and services
Cost of sale
Gain from sale of assets (ii)
Interest income
Guarantee fees
2015
$'000
2014
$'000
10,185
1,545
(7,465)
183
1,606
1,539
12,556
1,126
(6,585)
-
1,465
1,685
(i)
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.
(ii)
In December 2015 the Company sold assets at fair market value to a subsidiary, for $3.1 million.
In addition, the Company signed an agreement with certain subsidiaries for allocation of 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 17 to 23. There are no outstanding balances as at the year end.
B. On August 1, 2011, the Company waived any and all claims it then had or in the future may have against the
Company's Chief Executive, Oozi Cats in relation to certain indemnification letters provided to the Company
by Mr. Cats and to any other tax related claims in connection with Mr. Cats' service and employment
agreements. Pursuant to the indemnification letters, Mr. Cats had personally undertaken to satisfy in full
certain potential tax liabilities if applicable. The underlying potential liability stems from possible tax
exposures relating to Mr. Cats' past and current employment and service arrangements. After due and careful
consideration of the matters, our Board of Directors authorized the release of Mr. Cats from any liability under
those indemnification letters.
84
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the year ended 31 December 2015
NOTE 29:- SUBSEQUENT EVENTS
In February 2016 Telit acquired Bluetooth Smart, otherwise known as Bluetooth Low Energy ("BLE"), assets
from Stollmann Entwicklungs und Vertriebs Gmbh ("Stollmann"), a developer and marketer of low power
hardware products and software solutions for wireless communications for a cash consideration of €3.6
million, before adjustments. The Company has not yet completed the purchase price allocation required under
IFRS 3.
The acquired assets include Stollmann's Bluetooth IP, NFC and other wireless communications IP. Thirty-
five Stollmann employees, mainly R&D engineers, are also being transferred to Telit.
NOTE 30:- INFORMATION ON THE COMPANY
As permitted by the Companies Act 2006, the profit and loss account of the Company is not presented in this
Annual Report. The loss for the year amounted to $427,000 (2014: profit of $4,276,000).
85
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 Joint-Broker
Joint-Broker
Solicitors
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
Berenberg Bank
60 Threadneedle Street
London, EC2R 8HP
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
86
Telit communications PLC
7th Floor, 90 High Holborn
LONDON, WC1V 6XX
United Kingdom
www.telit.com