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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Telit Communications Plc | LSE:TCM | London | Ordinary Share | GB00B06GM726 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 229.00 | 229.00 | 229.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
IoT Services business revenues increase 36.5% as multinational enterprises embrace end-to-end IoT solutions
Telit Communications PLC (AIM: TCM, “Telit”, the “Group”), a global enabler of the Internet of Things (IoT), has published its results for the year to 31 December 2016 today.
Financial highlights*
Operational highlights
* For the definition of ‘Adjusted’ figures and reconciliation from IFRS financial results to adjusted financial results see note 4.
Oozi Cats, Group Chief Executive, commented:
“Our strong competitive positioning and global reach has enabled us to continue to achieve double-digit growth in revenue and profits with our IoT Services unit reporting a significant jump in revenue, up 36.5%. This reflects our continued investment in this unit and the increasing take up, across a range of industries, of our comprehensive IoT capabilities.
“We have now established a very strong position in the communication products market, particularly after our recent purchase of the GainSpan Wi-Fi business. We have a full scope of communications technologies in order to provide the comprehensive end to end IoT solutions that our multi-national customers require.
“The IoT market is rapidly gaining momentum across an increasing number of industrial enterprises - large and small - around the world. With our wide range partners and our unique end to end IoT solution capabilities, we are very well positioned to address the numerous opportunities.”
Analyst and investor meeting and call
There is an analyst meeting at 9:30am UK time today at the offices of Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ. There is also an investor call at 1:00pm UK time / 9:00am ET (NB revised UK time – see link for dial in details http://www.telit.com/uploads/media/Notice_of_full_year_results_13_March_2017_RNS_FINAL.pdf)
Telit and the Internet of Things
Telit is a global enabler of the IoT. Collectively the IoT is the numerous technologies that allow both wireless and wired systems to communicate, exchange data with an extremely wide range of devices typically in a vast number of locations.
The Group sells its products and services directly, and through a network of distributors, to approximately 7,000 direct and indirect customers, in more than 80 countries around the world. Telit’s customers are of all sizes, covering substantially all verticals in the IoT market.
With over 15 years of experience doing business around the globe, Telit has established strong channels and excellent access to key suppliers, customers and distributors in all major markets.
The Group offers the industry’s broadest portfolio of integrated products and services for end-to-end IoT deployments. This includes cellular communication modules, GNSS, short-to-long range wireless modules, low power WI-Fi and Bluetooth, IoT connectivity and IoT platform services. Combining these unmatched IoT expertise and developer resources enables end-to-end IoT solutions across markets and industries around the world.
Working with our extensive ecosystem of blue chip companies, technology partners, system integrators, maker communities and mobile network operators, we enable companies, with IoT concept ideas, system architecture, prototype development and commercial deployments. Our customers see material returns on investment from IoT deployments through efficiencies on cost and increase in through-put was as well as other areas such as improved compliance.
At the end of 2016 the Group employed 972 people worldwide, an increase of 10.1% over 2015 (2015: 883). The acquisition of GainSpan Corporation in February 2017 increased this number to approximately 1,070.
Overview
Telit’s strong competitive positioning and global reach has enabled it to continue to achieve double-digit growth during the year.
The focus in 2016 was on the continued investment in the IoT Services business unit, which Telit considers to be the future growth engine of the Group. The Group has seen good growth in its Services business, with revenues up 36.5%.
As expected, this business unit recorded an operating loss of $10.2 million in 2016 (2015: loss $8.2 million), which is the result of the continued heavy investment in this growing business (see segmental analysis).
The Group’s IoT Products business unit increased its operating profit to $55.4 million in 2016 (2015: $49.4 million), while improving the gross margin to 38.3% (2015: 37.3%). In 2016, Telit sold over 22.0 million modules (2015: 17.9 million).
The Group continued to invest heavily also in its modules product line, focusing on LTE products, both low category products (Cat-1, NB-IoT and Cat-M) and high category products for the automotive business line.
As LTE technology is expected to be viable for many years to come, Telit expects to see good returns from these investments in the coming years and believes LTE deployments will continue to increase.
Another area of focus was the portfolio of short range connectivity technology products, mainly low power Bluetooth. The recent acquisition, post year end, of GainSpan is a notable development as it will allow the Group to enhance its short-range portfolio with low power Wi-Fi products, an increasingly important component in IoT connectivity.
deviceWISE for Factory continues to grow and has established itself as a leader for data exchange within and outside of the factory. Outside of the factory’s four walls, Telit’s deviceWISE cloud provides remote data collection and seamlessly integrates into the factory products.
In addition, the IoT platform, secureWISE, has been widely recognised as the leading solution for highly secured remote access. With over 98% acceptance in 300mm FABs, more OEMs are using secureWISE for secure, configurable end-to-end remote connectivity across private networks than any other platform.
During the year, the automotive business achieved a number of design wins with Car OEMs and tier-1 companies including one major tier-1 supporting a premium car OEM in Korea, for worldwide markets; three tier 1s in China, supporting five different local and international brand OEMs and an Emerging North America car OEM.
All these projects involve LTE products and will begin production in 2018 onwards. The significant number of Telit’s design wins helps underpin the growth of business during the next five years.
With the addition of Wi-Fi products through the recent acquisition of GainSpan, the combination of products and services needed to deliver IoT capabilities for global enterprises is now in place. Major corporations around the world are poised to exploit this new development to drive down their cost base, improve efficiencies and create new revenue streams.
With the Group’s market leading position in modules as well as its connectivity, connectivity management and Platform as a Service, Telit is well positioned to exploit these market developments.
Due to the Stollmann acquisition in February 2016 and the structuring of a global end-to-end solution sales team that started in late 2015, the 2016 operating expenses as a percentage of revenues were flat or marginally above 2015 numbers. As stated previously, the Group expects that gross R&D, sales and marketing and G&A expenses will decline as percentage of revenues in the next few years.
Strategy
The Group’s strategy in recent years has been to focus increasingly on the development of its IoT services and end-to-end IoT solutions capabilities in order to leverage its best-in-class product portfolio. This has been accompanied by continued heavy investments in new product development, on the operational infrastructure and the acquisition of several businesses to widen and enhance the Group’s product and services capabilities, as well as geographical coverage.
The rapidly growing IoT Services business unit is increasing Telit’s recurring revenues.
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.
The combination of products and services needed to deliver IoT capabilities for global enterprises is now in place. Major corporations around the world are poised to exploit this connected environment to drive down their cost base, improve efficiencies and create new revenue streams.
Outlook
The outlook for the IoT sector overall, including all industrial sectors, continues to be very encouraging.
Telit’s acquisitions over the past few years have materially enhanced its cloud platform capabilities, which is a key factor in delivering one of its strategies to increase recurring revenues from the IoT Services business unit.
Telit will continue to make selective acquisitions to enhance its products and services capabilities.
With the Group’s market leading position in modules, its wide range of industry partners and its comprehensive range of IoT services and connectivity technologies, Telit is well positioned to exploit the numerous opportunities developing around the world in growing markets.
The Board is confident of increasing its recurring revenues and maintaining Telit’s double-digit revenue growth in the current financial year.
Operational review
Telit’s end-to-end capabilities
Today’s competitive markets demand creative and innovative solutions to stay ahead in business. The new digital led paradigm of a data-driven-economy or data-driven-innovation is still in its early days yet its impact is already being felt broadly.
The underlying assumption is that it is possible and increasingly affordable to collect the right information, process it into actionable knowledge, transmit that knowledge to the right person, and act on it. In doing so, this allows us to solve an increasing number of problems, including many that we had never thought of.
Cheap sensors and transmission capacity are used to generate enormous amounts of fresh data, which can then be fed into a system capable of analysing and acting on it to solve existing problems.
Telit’s business is at the forefront of this new industrial revolution, Industry 4.0 - providing the key ingredients critical to fulfil the need for real time data from the physical world. These include:
Telit’s core business of hardware and service is aligned with the industry’s compelling need for driving data from sensor to applications. Cloud computing has increased the power of the information system.
The ability to lease cheap storage and processing power has two important economic impacts. First, it transforms a large fixed cost into a variable cost on an easily scalable, as-needed basis. Second, even the smallest companies now have access to the fastest servers and most sophisticated processing power at affordable rates.
Telit’s IoT Platform leverages these benefits for IoT and makes it easier for all companies to enter new and existing markets benefiting from data sourced from IoT Sensors.
IoT Products
Technological innovation and enabling the Group’s customers to easily integrate its state-of-the art products and benefit from them is Telit’s core capability. The Group’s R&D centres provide a comprehensive portfolio of quality modules ranging from cellular to short-range, Low Power Wide Area (LPWA) and location technologies.
The Group’s 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 business unit, 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 continue to grow significantly during the next few years, with substantial projects already in advanced stages around the world.
To cater to all these verticals, the Group continuously develops a wide range of cellular LTE products, from the high-end Cat-11 for automotive, routers and gateways down to Cat-1 for industrial verticals.
With the standardization of the new IoT centric LTE technologies, the Group is also developing a wide range of Cat-M1 and NB-IoT modules. It is in the front line with MNOs, test equipment manufacturers and silicon vendors, to accelerate the technology commercialisation and enable the Group’s customers to be the first to exploit its benefits.
In addition, Telit continued the development of multi-constellation GNSS (GPS, GLO, GAL and BDS) and Dead Reckoning (DR) enabled modules, including its innovative MEMS-only Dead Reckoning (MoDR), which dramatically improve navigation performance. New GNSS variants were released with improved performance, integrated antenna, LNA and DC blocking capacitor.
Furthermore, the Group has made significant progress in extending its portfolio of short range and LPWA modules based on BT/BLE, Wi-Fi, and other technologies in a wide range of configurations tailored to the unique requirements of different verticals.
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 their relevant tier one suppliers.
Telit continued its investments in expanding its automotive portfolio, In particular its ATOP product line of automotive connectivity modules that offer embedded security features and processing power, as well as LTE Cat-4 and Cat-6 modules. These were delivered in 2016 to several Tier1 customers.
Telit modules embed a connection to Telit’s IoT platform, and together with the connectivity portfolio enable its customers with complete end-to-end sensor-to-cloud IoT solutions.
IoT Services
Telit continues to focus on enhancing and expanding its IoT services offering and premium managed connectivity as well as a range of complementary value added services and AEPs (the Telit IoT platform).
The Group’s IoT Portal is designed to enable customers to manage their IoT deployments through a single portal that makes IoT deployments easier and efficient and cuts the time to market.
The IoT Portal provides customers with access to data management, including collection, storage and big data export, connectivity management, device management including remote module management. This facilitates interaction with mobile network operators, dash boarding tools, security and administration.
The Group continued to invest and develop the IoT connectivity business, which provides it with a recurring revenue stream. The IoT connectivity offering covers all customer connectivity needs, including subscription management, integration of several MNOs through the IoT portal CDP pro, remote module management, security, reporting and monitoring, supply of SIM cards, rate plans and customer support.
Telit IoT platform connects ‘things’ to ‘apps’. It seamlessly integrates any devices, production assets and remote sensors with web-based and mobile apps and enterprise systems. deviceWISE reduces risk, time-to-market, complexity and cost of deploying solutions for monitoring and control, industrial automation, asset tracking and field service operations across all industries and market segments around the world.
The IoT factory solutions business unit, through deviceWISE enterprise software for factory and the Industrial Internet of Things (IIoT) is designed to easily connect production machines and processes with enterprise resource planning (ERP) and manufacturing resource planning (MRP) systems and SCADA applications.
deviceWISE supports all popular PLCs from Siemens, Mitsubishi, Rockwell, Omron and most widely used production equipment, and is compatible with virtually any database, message queuing and application server system available, including IBM, SAP, ORACLE and Microsoft.
Acquisitions
Market position and competitive advantage
With extensive R&D experience, gained through hundreds of engineering staff-years, Telit has developed several differentiators. Telit’s market position and competitive advantage are based on several factors, including:
Financial review
2016 was the seventh consecutive year of double-digit revenue growth for Telit and improvements in all profitability parameters.
Financial results**
2016 2015 $‘000 $‘000 Revenue 370,264 333,493 Gross profit 150,560 133,060 Gross margin 40.66% 39.90% Other operating income 2,842 1,979 Research and development expenses (38,256) (32,768) Selling and marketing expenses (63,848) (55,508) General and administrative expenses (29,996) (26,582) Other operating expenses (780) (1,386) Adjusted EBITDA 54,363 45,333 Operating profit ("EBIT") 20,522 18,795 Adjusted EBIT 34,215 30,617 Profit before tax 19,089 15,873 Adjusted profit before tax 32,782 27,695 Basic profit per share (cents) 14.4 12.3 Adjusted basic profit per share (cents) 26.4 21.7** For the definition of ‘Adjusted’ figures and reconciliation from IFRS financial results to adjusted financial results refer to note 4.
Revenue
Group revenue increased by 11.0% to $370.3 million (2015: $333.5 million), mainly driven by organic growth. Revenues in the second half of the year were up 15.2% to $204.1 million (H2-2015: $177.2 million), supported by the return of the Americas region to strong growth.
The IoT Services business unit generated revenues of $35.1 million (2015: $25.7 million), up 36.5%, while the IoT Products business unit generated revenues of $335.1 million (2015: $307.8 million), up 9%.
Segmental analysis
Segment performance is evaluated based on operating profit or loss.
The Group is active in three geographical regions: EMEA, APAC and the Americas. In recent years, up to and including 2015, this was the sole segmental presentation with no distinction between products and services.
The Group’s activities in the IoT services business unit have significantly grown in recent years. Although operational results from this business unit still comprise less than 10% from Telit’s results, the Group focuses more and more on IoT services and end-to-end IoT solutions, as the future engine of growth for the Group.
Therefore, the Group now presents its operational results in two business segments: IoT Services and IoT Products. These two business lines are active across all geographic regions.
Segmental information for each business line is presented below:
2016 IoT Products IoT services Consolidated$‘000
$‘000
$‘000
Revenue External sales 335,132 35,132 370,264 Inter-segment sales (1) - - - Total revenue 335,132 35,132 370,264 Result Gross Profit 128,420 22,140 150,560 Gross Margin 38.3 % 63.0 % 40.66 % Segment EBIT 55,408 (10,230 ) 45,178 16.5 % (29.1 %) Unallocated expenses (2) (24,656 ) Operating profit 20,522 Finance income 2,109 Finance costs (3,542 ) Profit before income taxes 19,089 Income taxes (2,474 ) Profit for the period 16,6152015 (4)
IoT Products IoT services Consolidated$‘000
$‘000
$‘000
Revenue External sales 307,751 25,742 333,493 Inter-segment sales (1) - - - Total revenue 307,751 25,742 333,493 Result Gross Profit 114,753 18,307 133,060 Gross Margin 37.3 % 71.1 % 39.9 % Segment EBIT 49,353 (8,196 ) 41,157 16.0 % (31.8 %)Unallocated expenses (2)
(22,362 ) Operating profit 18,795 Finance income 12 Finance costs (2,934 ) Profit before income taxes 15,873 Income taxes (1,757 ) Profit for the period 14,116 (1) There are no transactions between business unit segments. (2) Unallocated expenses principally including general and administrative expenses such as director’s compensation, salaries of certain senior executives, professional fees and other expenses which cannot be directly allocated to one of the segments. (3) Total assets and liabilities are not disclosed as from 2015 this information is not provided by segment to the Chief Operating decision maker on a regular basis. (4) 2015 numbers have been changed to present the new segmental information.Geographical revenue
The split of revenue on a geographical basis is as follows:
2016$m
% of total revenue2015$m
% of total revenue Americas 149.0 40.2% 129.4 38.8% EMEA 137.3 37.1% 133.2 40.0% APAC 84.0 22.7% 70.9 21.2% Total 370.3 333.5Americas
Revenue returned to strong growth with a 15.1% increase, to $149 million (2015: $129.4 million). The pace picked up in the second half as anticipated, with an increase of 26.5%, to $81.7 million (H2-2015: $64.6 million).
The overall market for LTE products continued to grow, with additional certifications of the Group’s CAT-1 products. In addition, the US carriers have announced their plans to gradually shut down 3G and CDMA networks and to focus exclusively on LTE. This will boost migration towards new technologies, including not only new deployments but also re-farming of exiting devices.
During Q4 Telit announced its participation in the field trials with both AT&T and Verizon for their Cat M1 networks. Arrival of Cat M1 will reduce overall ASPs while expanding the market into new verticals not previously served by cellular products.
Telit is well positioned with its family concept to enable customers to migrate from 3G and CDMA designs towards LTE, either Cat 1 or Cat M1, by its pin to pin compatible products.
EMEA
EMEA revenues continue to be impacted by cellular technology stagnation, with the majority of the deployments remaining in 2G. Revenues grew marginally by 3.1% to $137.3 million (2015: $133.2 million).
The uncertainty with the MNOs moving to the new technologies in LTE, Cat 1, Cat M1 and NB-IoT, and at the same time not knowing how long they will support 2G or 3G networks, is creating a complex technology map that makes it difficult for customers to make decisions regarding investments for new deployments.
Telit has developed a full set of products supporting the new LTE technologies with fall-back to the legacy 2G and 3G networks, to allow customers to go through this uncertain period without any issue in the serviceability of their devices in the field.
The EMEA team was able to achieve significant design wins in telematics, metering and security, while maintaining its large and diversified customer base within the full EMEA region.
Telit foresees that the move to NB-IoT will make a significant impact in the adoption of IoT for new verticals and will contribute to the growth of total number of units sold in Europe towards the end of 2017 and continuing the trend in 2018.
Telit is developing new modules following its family concept and supporting this technology in all its form factors.
APAC
The trend of strong, double digit revenue growth rate, continued, with an 18.5% increase to $84.0 million (2015: $70.9 million).
The growth in the region is driven by the continuous flow of new projects going into mass production across different countries in the region, but especially in Japan where Telit has been very successful promoting its new LTE products.
Telit plans to release new LTE products for Japan and Korea during 2017, both in XE910 and XE866 form factors and it is confident that the trend will continue in adoption of its modules for new designs and deployments.
During 2016 Telit also released new LTE products for other countries in the region where it expects carriers to push and deploy new 4G technology along 2017 and 2018.
Gross margin and gross profit
Gross margin continued to improve, up from 39.55% in 2014 to 39.9% in 2015 to 40.66% in 2016, due to the Group’s strong positioning in the IoT industry, further improvements in the hardware business and the increasing share of IoT services business revenues with its higher margin.
Gross profit increased by 13.2% to $150.6 million (2015: $133.1 million).
Gross profit generated by the IoT Products business unit was $128.4 million, reflecting a gross margin of 38.3% (2015: $114.8 million; 37.3%), while gross profit generated by the IoT Services business unit was $22.1 million, reflecting a gross margin of 63.0% (2015: $18.3 million; 71.1%) (see segmental analysis above).
Operating expenses
Gross research and development operating expenses (expenses before capitalisation and amortisation of internally generated development costs – see note 5) increased to $57.4 million (2015: $51.2 million). The growth in expenditure is mainly due to the acquisition of Stollmann and the acceleration in the 4G developments and new automotive projects.
As a percentage of revenues, expenses remained flat at 15.5% (2015: 15.4%).
The amount capitalised in respect to internally generated development assets was $30.8 million (2015: $26.1 million), an 8.3% of revenues (2015: 7.8%). This figure is mainly related to the development of the 4G product lines for high and low categories including the Cat-M1 and NB-IoT; the automotive products; and the IoT Services.
The amortisation of internally generated development assets increased by 51.4% to $11.6 million (2015: $7.7 million). This increase relates mainly to the release of 3G and 4G products to the market during the course of 2015 and 2016. 60% of the Capitalised assets are now being amortised (2015: 45%).
Selling and marketing expenses increased to $63.8 million (2015: $55.5 million) and represented 17.2% of revenues (2015: 16.6%). The increase is mainly due to the substantial recruitment starting at the end of 2015 for an end-to-end solutions sales force and the acquisition of Stollmann.
General and administrative expenses increased to $30.0 million (2015: $26.6 million) and remained flat as a percentage of revenues at 8.1% (2015: 8%). This increase reflect the continued expansion of the Group activities.
As stated before Telit expects that gross research and development, sales and marketing and general and administrative expenses will decline as a percentage of revenues during the next few years.
Finance costs , net
2016$m
2015$m
Difference
Non-cash expenses related to effective rate interest on preferred loan 1.1 1.1 - Interest on loans and overdrafts 1.6 0.9 0.7 Bank fees 0.8 0.5 0.3 Exchange rate differences (1.9) 0.4 (2.3) Interest income (0.2) - (0.2) Total 1.4 2.9 (1.5)Finance cost, net was $1.4 million (2015: $2.9 million). The change was mainly due to exchange rate differences which changed from $0.4 million loss in 2015 to $1.9 million gain in 2016.
Interest expenses related to loans and overdrafts increased to $1.6 million (2015: $0.9 million) and bank fees increased to $0.8 million (2015: $0.5 million). This is due to an increased utilisation of the Group’s bank facilities, mainly for acquisitions.
Profitability
Adjusted EBITDA increased by 19.9% to $54.4 million (2015: $45.3 million); as a percentage of revenues it increased to 14.7% (2015: 13.6%). These improvements reflect the operational leverage that the Group has now obtained.
Adjusted EBIT increased by 11.8% to $34.2 million (2015: $30.6 million); as a percentage of revenues it remain flat at 9.2%.
Adjusted profit before tax increased by 18.4% to $32.8 million (2015: $27.7 million) and reported profit before tax increased by 20.3% to $19.1 million (2015: $15.9 million).
The adjusted figures exclude a share based payment charge of $8.1 million (2015; $6.3 million), a non-recurring expense of $0.7 million (2015: $1.3 million) and amortisation of intangible acquired assets of $4.9 million (2015: $4.1 million).
Profit for the year increased by 17.7% to $16.6 million (2015: $14.1 million).
Adjusted basic earnings per share increased by 21.7% to 26.4 cents (2015: 21.7 cents). Basic earnings per share increased 17.1% to 14.4 cents (2015: 12.3 cents) and reported diluted earnings per share increased 18.6% to 14.0 cents (2015: 11.8 cents).
Dividend
On May 27, 2016, the Group paid its first ever dividend, for the financial year ended 31 December 2015, of 6 cents per share. This dividend represented 28% of the 2015 Adjusted earnings per share.
On September 23, 2016, the Group paid an interim dividend of 2.5 cents per share. This represented approximately 1/3 of the expected dividend for the year, based on the directors’ expectations (as reflected in the full year guidance) for adjusted earnings per share of 24-30 cents.
The Board recommends a final dividend of 4.9 cents per share, giving a total dividend for 2016 of 7.4 cents per share, up 23.3% (2015: 6 cents per share).
Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 5 May 2017 to shareholders on the register as at 7 April 2017, with a corresponding ex-Dividend date of 6 April 2017.
The default payment for dividends is in US dollars. However, shareholders can elect to have dividends paid in sterling (GBP) and the option to elect a sterling dividend payment will be available to shareholders until 7 April 2017 (the “Election Date”). The pounds sterling equivalent dividend payment will be announced as soon as practicable following the Election Date.
Further details together with a copy of the Dividend Currency Election Form, which should be sent to Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU when completed, will be available on the Group’s website shortly at www.telit.com/investor-relations/financial-statements. CREST shareholders must elect via CREST.
Cash/debt
As at 31 December 2016, net debt was $17.7 million (June 30, 2016: $29.1 million; 2015: net cash of $1.1 million). The change from 31 December 2015 is due, mainly, to $15.4 million used by the Group for acquisitions and the payment of dividends in the amount of $9.8 million.
Operating cash flow increased by 15.6% to $47.6 million (2015: $41.2 million).
Committed Credit Facilities - In October 2016 the Group entered into committed credit facilities with HSBC Bank plc and certain of its affiliates (“HSBC") and Bank Hapoalim B.M. (“BHI USA") for an aggregate amount of $110 million (the “Facilities"). The Facilities replace the Group’s existing non-committed credit lines, which amounted to about $70 million.
The Facilities consist of a committed five-year term credit facility for $40 million and a committed three-year term revolving credit facility for $35 million, in total $75 million with HSBC, and a committed three-year term revolving credit facility with BHI USA for $35 million.
The Facilities provide the Group with additional financial resources as it continues to strengthen its position in the rapidly developing and growing IoT market.
Balance sheet
Internally generated development assets, net
As at 31 December 2016 increased by $15.6 million to $69.8 million (2015: $54.2 million). The split of the net assets by technology is as follows:
TechnologyInternally generateddevelopment assets, netas at 31 December 2016
Internally generateddevelopment assets, netas at 31 December 2015
Change year over year $m % $m % $m IoT Services 11.1 16% 7.1 13% 4.0 4G 36.4 52% 22.1 41% 14.3 3.5G 6.9 10% 6.7 12% 0.2 3G 6.5 9% 9.4 17% (2.9) GNSS & SR 6.0 9% 4.8 9% 1.2 Other IoT Products (2G & CDMA) 2.9 4% 4.1 8% (1.2) IoT Products 58.7 84% 47.1 87% 11.6 31 December 69.8 54.2 15.6Internally generated development assets that completed the development phase, moved to mass production phase and which have started to be amortised, increased to 60% of the total internally generated development assets (2015: 45%). The period of amortisation is 3 to 5 years.
The net assets that are in development phase, before starting to be amortised, are mainly 4G products and IoT services software.
TechnologyAssets started to beamortised, net
Assets in developmentprocess (not amortisedyet)
Internally generateddevelopment assets, net asat 31 December 2016
$m % $m % $m % IoT Services 6.3 15% 4.8 17% 11.1 16% 4G 18.2 43% 18.2 65% 36.4 52% 3.5G 5.6 13% 1.3 5% 6.9 10% 3G 5.4 13% 1.1 4% 6.5 9% GNSS & SR 3.4 9% 2.6 9% 6.0 9% Other IoT Products (2G & CDMA) 2.9 7% - - 2.9 4% IoT Products 35.5 85% 23.2 83% 58.7 84% 31 December 2016 41.8 28.0 69.8 31 December 2015 24.3 29.9 54.22016$m
%2015$m
% Assets in development process (not amortised yet) 28.0 40% 29.9 55% Assets started to be amortised, net 41.8 60% 24.3 45% Total 69.8 54.2Total equity
Grew from $110.2 million as at 31 December 2015 to $120.4 million as at 31 December 2016. This increase is mainly due to the growth in profits, off-set in part by the distribution of cash dividends.
The Group repurchased 207,722 ordinary shares for a consideration of $0.6 million during the year (2015: purchase of 409,400 ordinary shares, for a consideration of $1.3 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2016 2015$‘000
$‘000
Revenue 370,264 333,493 Cost of sales (219,704 ) (200,433 ) Gross profit 150,560 133,060 Other operating income 2,842 1,979 Research and development expenses (38,256 ) (32,768 ) Selling and marketing expenses (63,848 ) (55,508 ) General and administrative expenses (29,996 ) (26,582 ) Other operating expenses (780 ) (1,386 ) Operating profit 20,522 18,795 Finance income 2,109 12 Finance costs (3,542 ) (2,934 ) Profit before income taxes 19,089 15,873 Tax expense (2,474 ) (1,757 ) Net profit 16,615 14,116Other comprehensive income
Items which will be reclassified in subsequent periods to profit and loss:
Foreign currency translation differences (4,242 ) (7,002 ) Total comprehensive income for the year 12,373 7,114 Basic earnings per share (in USD cents) 14.4 12.3 Diluted earnings per share (in USD cents) 14.0 11.8 Adjusted basic profit per share1 (in USD cents) 26.4 21.7 Adjusted diluted profit per share2 (in USD cents) 25.6 20.9 Basic weighted average number of equity shares 115,157,534 114,809,803 Diluted weighted average number of equity shares 118,891,032 119,192,6101- Adjusted basic profit per share is defined as adjusted profit for the year divided by basis weighted average number of equity shares.2- Adjusted diluted profit per share is defined as adjusted profit for the year divided by diluted weighted average number of equity shares.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2016Audited
2015Audited
$‘000
$‘000
ASSETS Non-current assets Intangible assets 104,697 81,877 Property, plant and equipment 23,169 21,792 Other long term assets 1,846 2,198 Deferred tax asset 6,025 5,907 135,737 111,774 Current assets Inventories 28,486 20,080 Trade receivables 105,220 72,157 Income tax receivables 801 776 Other current assets 13,751 12,264 Deposits - restricted cash 84 75 Cash and cash equivalents 26,547 29,844 174,889 135,196 Total assets 310,626 246,970LIABILITIES AND SHAREHOLDERS’ EQUITY
Shareholders’ equity
Share capital 1,984 1,969 Share premium account 103 24 Other reserve (2,727 ) (2,727 ) Treasury stock fund (1,929 ) (1,323 ) Translation reserve (24,498 ) (20,256 ) Retained earnings 147,447 132,494 Total equity 120,380 110,181 Non-current liabilities long term borrowings from banks 25,328 23,812 Post-employment benefits 2,965 4,737 Deferred tax liabilities 490 262 Provisions 4,121 3,894 Other long-term liabilities 27 39 32,931 32,744 Current liabilities Short-term borrowings from banks and other lenders 18,988 4,968 Trade payables 113,681 77,627 Provisions 555 585 Income tax payables 2,294 1,555 Accruals and other current liabilities 21,797 19,310 157,315 104,045 Total equity and liabilities 310,626 246,970CONSOLIDATED STATEMENT OF CASH FLOW
2016Audited
2015Audited
$‘000
$‘000
CASH FLOWS - OPERATING ACTIVITIES Profit for the period from continued operations 16,615 14,116 Adjustments for: Depreciation of property, plant and equipment 6,820 5,306 Amortization of intangible assets 18,201 13,532 Gain on sale of property, plant and equipment (3 ) (227 ) Change in fair value of earn-out (532 ) - Increase in provisions for post-employment benefits (1,628 ) 567 Finance costs, net 1,433 2,922 Tax expenses 2,474 1,757 Share-based payment charge 8,121 6,349 Operating cash flows before movements in working capital: 51,501 44,322 Increase in trade receivables (33,236 ) (12,486 ) Decrease / (increase) in other current assets 61 (1,556 ) (Increase) / decrease in inventory (5,370 ) 11 Increase in trade payables 36,439 13,231 Increase in other current liabilities 1,996 1,231 Increase in provisions and other long term liabilities 309 1,472 Cash from operations 51,700 46,225 Income tax paid (1,823 ) (3,047 ) Interest received 201 12 Interest paid (2,427 ) (1,978 ) Net cash from operating activities 47,651 41,212CASH FLOWS - INVESTING ACTIVITIES
Acquisition of property, plant and equipment (9,321 ) (8,823 ) Acquisition of intangible assets (1,864 ) (1,397 ) Proceeds from disposal of property, plant and equipment 508 677 Capitalized development expenditures (30,771 ) (26,106 ) Acquisition of business, net of cash acquired (15,391 ) (352 ) (Increase) / decrease in restricted cash deposits (94 ) 657 Net cash used in investing activities (56,933 ) (35,344 ) CASH FLOWS - FINANCING ACTIVITIES Proceeds from exercise of share options 94 264 Dividend paid (9,783 ) - Purchase of own shares (606 ) (1,323 ) Short-term credit from banks 13,437 (4,949 ) Proceeds from long term borrowings from banks 8,813 11,562 Repayment of long term borrowings from banks (3,708 ) (2,337 ) Net cash from financing activities 8,247 3,217 (Decrease) / increase in cash and cash equivalents (1,035 ) 9,085 Cash and cash equivalents at beginning of year 29,844 25,399 Effect of exchange rate differences (2,262 ) (4,640 ) Cash and cash equivalents at end of year 26,547 29,844CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2016 (audited)
Sharecapital
Sharepremium
Otherreserve
Treasurystock fund
Translationreserve
Retainedearnings
Total$‘000
$‘000
$‘000
$‘000
$‘000
$‘000
$‘000
Balance at 1 January 2016 1,969 24 (2,727 )(1,323
)
(20,256 ) 132,494 110,181 Total comprehensive income for the period Profit for the period - - --
- 16,615 16,615 Foreign currency translation differences - - --
(4,242 ) - (4,242 ) Total comprehensive income for the period - - --
(4,242 ) 16,615 12,373 Transaction with owners: Exercise of options 15 79 - - - - 94 Dividend paid - - --
- (9,783 ) (9,783 ) Repurchase of shares - - - (606 ) - - (606 ) Share based payment charge - - --
- 8,121 8,121 Total transactions with owners 15 79 -(606
)
- (1,662 ) (2,174 ) Balance at 31 December 2016 1,984 103 (2,727 )(1,929
)
(24,498 ) 147,447 120,380Year ended 31 December 2015 (audited)
Sharecapital
Sharepremium
Mergerreserve
Otherreserve
Treasurystock fund
Translationreserve
Retainedearnings
Total$‘000
$‘000
$‘000
$‘000
$‘000
$‘000
$‘000
$‘000
Balance at 1 January 2015 1,942 90,533 1,235 (2,727)-
(13,254) 20,048 97,777 Total comprehensive income for the period Profit for the period - - - - - - 14,116 14,116 Foreign currency translation differences - - - --
(7,002) - (7,002) Total comprehensive income for the period - - - --
(7,002) 14,116 7,114 Transaction with owners: Exercise of options 27 237 - - - - - 264 Reduction of share premium and merger reserve - (90,746) (1,235) --
- 91,981 - Repurchase of shares - - - - (1,323) - - (1,323) Share based payment charge - - - --
- 6,349 6,349 Total transactions with owners 27 (90,509) (1,235) -(1,323)
- 98,330 5,290 Balance at 31 December 2015 1,969 24 - (2,727)(1,323)
(20,256) 132,494 110,181NOTES TO THE PRELIMINARY ANNOUNCEMENT
1. This financial information is consistent with the consolidated financial statements of the group, for the year ended 31 December, 2016. The Group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU. 2. The financial information set out above does not constitute Telit’s statutory accounts for the years ended 31 December 2016 or 2015. Statutory accounts for 2016 will be delivered to the Registrar of Companies. The auditors have reported on the 2016 and 2015 statutory accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498 (2) or 498 (3) of the Companies Act 2006. 3. The Group finances its day to day working capital requirements mainly from committed credit facilities from HSBC Bank plc and certain of its affiliates and Bank Hapoalim B.M. (“Credit Facilities"). The availability of the Credit Facilities is conditioned upon the Group complying with the terms of the Credit Facilities, including meeting certain financial covenants. In addition, the Group has received a long-term preferential rate loan supported by the Ministry of Trade and Commerce in Italy. Further information is provided within note 5. The directors consider 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) compliance with the Financial Covenants, as a condition to the continued availability of the Credit Facilities 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; the group’s expected continued compliance with the Financial Covenants 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. After making enquiries, the directors are confident that the Group has 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.4.
Reconciliation of operating profit, profit before tax and net profit to the adjusted figures:
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. Adjusted EBIT is defined as Earnings Before Interest, Tax, share based payment expenses, amortisation of acquired intangibles and non-recurring expenses; Adjusted EBITDA as Adjusted EBIT plus depreciation and other amortisation; Adjusted Profit before tax as Profit before tax plus share based payment expenses, amortisation of acquired intangibles and non-recurring expenses; and Adjusted net profit for the year as net Profit for the year plus share based payment expenses, amortisation of acquired intangibles and non-recurring expenses less change in deferred tax assets, net. The Group’s management believes that these non-GAAP measures provide useful information to investors to evaluate operating results and profitability for financial and operational decision-making purposes and to provide comparability between the companies in this sector, as they eliminate non-cash items and non-recurring expense, which are not inherent to the business. Consequently, Adjusted EBIT, Adjusted EBITDA, Adjusted profit before tax and Adjusted net profit for the year are presented in addition to the reported results.2016 2015
$‘000
$‘000
EBIT 20,522 18,795 Share-based payments 8,121 6,349 Non-recurring expenses3 699 1,351 Amortisation - intangibles acquired 4,873 4,122 Adjusted EBIT 34,215 30,617 Depreciation and amortisation3a 20,148 14,716 Adjusted EBITDA 54,363 45,333 Profit before tax 19,089 15,873 Share-based payments 8,121 6,349 Non-recurring expenses3 699 1,351 Amortisation - intangibles acquired 4,873 4,122 Adjusted profit before tax 32,782 27,695Net profit for the year
16,61514,116
Share-based payments 8,121 6,349 Non-recurring expenses3 699 1,351 Amortisation of intangibles acquired 4,873 4,122 Change in deferred tax asset, net 110 (997 ) Adjusted net profit for the year 30,418 24,9413 - Non-recurring expenses relate to integration and transaction costs.3a - Excluding amortisation on acquired intangibles
5. Research and development expenses, net, were:
2016
2015$‘000
$‘000
Research and development operating expenses 57,434 51,217 Capitalized development expenses (30,771 ) (26,106 ) Amortization of internally generated development costs 11,593 7,657 Research and development expenses, net 38,256 32,7686. Net (debt) /cash position
The table below presents the net (debt) / cash position at the year-end:
2016 2015$ ‘000
$ ‘000
Cash and cash equivalents 26,547 29,844 Restricted cash deposits 84 75 Working capital borrowing (1) (13,516 ) (2,663 ) Long term loans (2) (8,582 ) (4,899 ) Governmental loans (3) (19,582 ) (18,234 ) Mortgage loan (4) (2,636 ) (2,984 ) Net (debt) / Cash (17,685 ) 1,139 (1) Short term borrowings, less than one year, used for working capital. (2) Representing long term loans from HSBC in the amount of $4.5 million with interest at a rate of Liber plus 2.7% and is being repaid in 7 half year instalments that commenced in March 2018 and long term loans from banks in Italy- (i) for $5.3 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) $2.5 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 $22.7 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 $7.9 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. The loans presented in fair value. (4) Representing a preferential rate loan of $3.8 million from a regional fund in Italy provided in connection with the Group’s acquisition of the campus used for Telit’s main R&D facility in Trieste, Italy. The mortgage loan is denominated in Euro, attracts interest at a rate of 80% of Euribor 6 months, with a minimum interest rate of 0.85%, and is repayable in 15 semi-annual instalments that commenced in June 2012. The loans presented in fair value.The directors believe 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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170313006000/en/
Telit Communications PLCOozi Cats, CEOYosi Fait, Finance Director & President+44 203 289 3831orCanaccord Genuity Limited (Nominated Adviser and Joint Broker)Simon Bridges/Martin Davison+44 20 7523 8000orBerenberg (Joint Broker)Chris Bowman/Ben Wright+44 20 3465 2722orInstinctif PartnersAdrian Duffield/Chantal Woolcock+44 20 7457 2020
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