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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
TIDMTCM
RNS Number : 2545T
Telit Communications PLC
24 March 2021
THE INFORMATION COMMUNICATED IN THIS ANNOUNCEMENT IS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION 596/2014.
Telit Communications PLC
Preliminary announcement - Full year results
London, 24 March 2021 - Telit Communications PLC ("Telit", "the Group", AIM: TCM), a global enabler of the Internet of Things (IoT), has published its financial results for the full year ending 31 December 2020.
Paolo Dal Pino, Chief Executive Officer of Telit, commented:
"Telit has once again successfully improved operational results, profitability and cash generation thanks to its refocused strategy, as well as the targeted programme of efficiencies taken early in 2020 in response to COVID-19. The significant improvement in our overall gross margin, supported by growing IoT cloud and connectivity services revenues is particularly encouraging.
Following the successful business transformation carried out in recent years, Telit is now fully focused on the growing and dynamic market for industrial IoT. We are well positioned to maintain and grow our leading position in the market by increasing the differentiation of our products and services through targeted investment in key areas like 5G.
We are clearly mindful of short-term risks that might affect us as result of the ongoing impact of COVID-19, but we are confident that the acceleration and adaptation of IoT solutions triggered by the pandemic will create medium-term benefits for the IoT market and we expect a ramp up of customer demand in 2021. In view of this and seeing the fruits of our team's hard work, the Board is confident in the Group's prospects for the future and is committed to delivering value and growth."
Financial Highlights [1]
-- Group revenues, down by 10.2% to $343.6 million (2019: $382.8 million excluding automotive revenue)
o Total Group revenues were $343.6 million (2019: $392.5 million, including two months revenue from automotive business)
o IoT Cloud and connectivity revenues up by 7.3% to $44.0 million (2019: $41.0 million), driven by a strong performance of both the connectivity and the IoT platforms businesses
-- Adjusted EBITDA up 6.3% to $40.6 million (2019: $38.2 million), with $ 15.0 million of R&D capitalisation (2019: $15.3 million)
-- Operating profit (EBIT) of $13.2 million (2019: operating profit $63.6 million includes $54.5 million related to the capital gain from the sale of the automotive business [2] ). Adjusted EBIT of $17.8 million (2019: $16.9 million).
-- Profit before tax of $7.9 million (2019: profit $59.9 million). Adjusted profit before tax $12.5 million (2019: $13.2 million).
-- Basic earnings per share of 4.7 cents (2019: earnings per share 36.0 cents). Adjusted earnings per share of 7.4 cents (2019: earnings per share 12.5 cents).
-- Profit in cash [3] of $16.0 million (2019: profit $11.7 million), substantial improvement of $4.3 million in 2020 reflecting the focus on cash generation
-- Net cash at 31 December 2020 of $63.7 million (31 December 2019: Net cash of $48.2 million)
-- Cash flow generated from operating activities, before movement in working capital of $42.6 million (2019: $34.6 million)
Operational Highlights
-- Telit 5G data cards receive extensive global certifications -- Telit modules joined Microsoft Azure certified for IoT catalogue -- Telit w ins 2020 IoT Evolution 5G leadership award -- New partnership with Sequans to launch CBRS Modules -- Received certifications for:
o CAT-M Modules from Verizon
o LTE-M NB-IoT from Telstra
o LTE-M NB-IoT from Radio Equipment Directive
o LTE-M for SK Telecom
-- Telit 5G data card series for the world's first American football helmet with 360deg video cameras
Enquiries:
Hot Features
Premium
Telit Communications PLC Tel: +44 203 289 3831
Paolo Dal Pino, Chief Executive Officer
Eyal Shefer, Chief Financial Officer
FinnCap (Nomad and Broker) Tel: +44 20 7220 0500
Henrik Persson/Giles Rolls (corporate
finance) Tim Redfern / Richard Chambers
(ECM)
FinElk Tel: +44 7387 108 998
Robin Haddrill / Cornelia Schnepf Email: telit@finelk.eu
About Telit
Telit (AIM: TCM), is a global leader in Internet of Things (IoT) enablement, with an extensive portfolio of wireless connectivity modules, platforms and virtual cellular IoT operator services, empowering hundreds of millions of connected 'things' to date, and trusted by thousands of direct and indirect customers, globally. With nearly two decades of IoT innovation experience, Telit continues to redefine the boundaries of digital business, by delivering secure, integrated end-to-end IoT solutions for many of the world's largest brands, including enterprises, OEMs, system integrators and service providers across all industries, enabling their pursuit of enterprise digital transformation.
# # #
Copyright (c) 2020 Telit Communications PLC. All rights reserved. Telit, Telit OneEdge and all associated logos are trademarks of Telit Communications PLC in the United States and other countries. Other names used herein may be trademarks of their respective owners.
Chairman's statement
Although remarkable progress has been made in combatting the pandemic, at the time of writing considerable uncertainty remains regarding its implications for our health as well as for the global economy. In that context, Telit continues to follow guidelines and directives from relevant authorities to ensure our employees worldwide remain safe.
On behalf of Telit's Board of Directors, I am pleased to report that the swift actions taken by the company's management at the beginning of 2020 enabled us to minimise the impact of COVID-19 and offset many of its adverse impacts on our business. As a consequence, and despite the slowdown in customer demand, 2020 was a better year for the Group than might have been expected a year ago when the pandemic was just upon us and uncertainty was at its height. The actions taken by Telit's management demonstrated the Group's ability to adjust to dynamic changes and to protect profitability and cash by pursuing additional cost reductions.
Looking beyond the immediate crisis, the pandemic has accelerated the adoption of IoT solutions as a mission critical service, mainly due to the increased need to manage assets remotely, which will create medium and long-term benefits for Telit. We are confident that we can continue to create value by exploiting the numerous opportunities we face as a global leader in the IoT market.
As previously announced, in the last few months of 2020 Telit received several offers to acquire the Company all of which the Board evaluated with its advisers. Following extensive discussions with each potential acquirer, the Board concluded that the proposed terms did not adequately reflect the fundamental value of Telit's business. The Group is confident in its prospects, is well capitalised, and has a strong position in a growing market segment and the Board remains confident growth in shareholder value can be delivered.
On March 18, 2021, the Company agreed to release DBAY from the restrictions imposed by Rule 2.8 of the Code, to allow DBAY to undertake a period of limited confirmatory due diligence in order to submit an indicative proposal. Shareholders are reminded that there can be no certainty that any offer will be made, nor as to the terms on which any offer will be made.
Return of Capital
Following the sale of the automotive business in 2019 and the strong financial performance of the business in 2020, as of 31 December 2020 the Company had net cash of $63.7 million. The Board continues to consider returning cash to shareholders, but remains of the view that it would not be prudent to do so until an end to the pandemic is more clearly in sight. However, the Board does intend to ask shareholders to renew its mandate at the forthcoming Annual General Meeting to make purchases of up to 10 per cent of the Company's outstanding shares.
Board
Following the resignation of Yariv Dafna in September 2020, Eyal Shefer was appointed as Chief Financial Officer and an executive director. In June 2020, Yang Yuxiang was appointed as a non-executive director. In addition to the chairman, the Board now comprises five non-executive directors, four of whom are independent, and two executive directors.
I am confident the Board as currently constituted has the skills and experience to oversee Telit's corporate governance and to guide the Company as it reinforces its leading position in the global industrial IoT market.
FCA Investigation
In December 2018, we informed shareholders that the Financial Conduct Authority (FCA) had expanded the scope of the investigation originally announced on 27 March 2018, focusing on the accuracy of both Telit's trading update of 25 April 2017 and the reasons given for the placing announced on 4 May 2017.
In June 2020, we announced that the FCA had formally completed its investigation into Telit and had decided not to take any enforcement actions.
The Board of Directors of Telit has changed entirely since these events.
People
The Board acknowledges the need to increase gender diversity across all levels of the Group. This year the Board nominated a female Group CIO increasing the gender diversity of management.
Finally, and most importantly, on behalf of both the Board and shareholders I would like to thank all our colleagues across the globe for the commitment they have demonstrated throughout an exceptionally challenging year. Their dedication and hard work, particularly in the midst of a global pandemic, are reflected in Telit's strong performance in 2020 and underpin our confidence in the Group's future.
Simon Duffy
Chairman
Chief Executive Officer's statement
Overview
In the past few years Telit underwent a successful and significant transformation, and is now a business built on strong financial, operational and governance foundations. I am pleased to report Telit once again successfully improved operational results, profitability and cash generation in the face of the ongoing COVID-19 pandemic thanks to our refocused strategy and operational transformation in recent years, as well as the swift actions taken by the Group early in 2020.
Key achievements included:
-- Continued to focus on industrial IoT products and solutions; -- Became a licensed MVNO, after a successful user trial;
-- Continued investment in OneEdge, our award-wining integrated hardware and services offering; as well as our 5G products, which are a game changer in the connected device industry;
-- Optimised our structure to be more focused on growth, improved profitability and cash generation; and
-- Delivered continued growth for IoT cloud and connectivity services despite the challenging pandemic period.
For the full year, we reported significant progress in the Group's financial performance. While the COVID-19 pandemic had an impact on our customer demand and as such on revenues. our effective response to the pandemic and a targeted programme of efficiencies allowed us to protect our supply chain and maintain our strategic and financial targets. It has also been very encouraging that IoT cloud and connectivity revenues have continued to grow.
In 2020, we recorded a significant improvement in our overall gross margin, which was an important objective, increasing to 35.3% in 2020 compared to 32.9% in 2019. This improvement has been supported by the change of revenues mix towards our services with the continued growth of our IoT cloud and connectivity segment. Thanks to the strong leadership of Telit's management team, we ended the year with Adjusted EBITDA of $40.6 million in 2020 compared to $38.2 million in 2019 despite the challenging period.
Since taking on the role of CEO, one of my priorities has been to further align the management team to the fundamentals of our core business. This included the optimisation of our operational structure, better integration of our products and services, reshaping our go-to-market strategy and a focus on improved profitability and cash generation.
Strategy
Telit continues to be a significant player in the industrial IoT market and has established itself as a leading end-to-end IoT provider enabling enterprises to successfully execute their digital transformation.
We are focused on products and connected devices that help us develop and maintain our leading position in the IoT market and are increasingly expanding into integrated and value-added software and services.
We believe in end-to-end solutions: connected devices must become more efficient in processing, more scalable and user friendly, with software playing a key role in simplifying an enterprise's approach to IoT. Our integrated business approach enables us to focus on synergies, leveraging our combined offering of modules (cellular and short range), the IoT connectivity and the IoT platform and portal.
We have identified the industrial IoT market as the main driver of the digital transformation for enterprises. We are committed to maintaining and growing our leading position in the IoT products market and increasing the value and differentiation of our products.
The digital transformation of public and private enterprises globally, in which everything becomes connected, presents a significant opportunity to us. Enterprises are increasingly realising the benefits of collecting the right information and processing it into actionable data that can be transmitted and acted upon. Efficient and intelligent data processing allows companies to solve both legacy issues and ones they may not have thought of before.
Telit is at the forefront of this digital transformation, providing the critical ingredients to fulfil the need for real time data from the physical world. These include the following components:
- IoT Products . A diversified portfolio of modules that allow "things" to be connected using the best available and most suitable technology (Cellular, GNSS, Wi-Fi and BT/BLE) for the applications being developed. Our products provide a significant reduction in time-to-market and total cost of ownership for customers. The Group markets its IoT products to a broad range of market segments including asset tracking, health care, security, telematics, point of sale, wearables, telemetry, industry, energy and smart metering. In order to cater to such diverse industries, Telit continues to develop a wide range of cellular products from low bandwidth 2G and NB-IoT to high category LTE and 5G modules.
- IoT Cloud and Connectivity services . These allow scaling and global deployments of customers' IoT solutions with a single point of contact. We are now a licensed MVNO delivering coverage and reliable networks, including LPWA in 190 countries, high availability services aligned with mission critical IoT deployments including global IP network, based on premise with AWS cloud hybrid backup. Our network security including all Telit's SIM solutions, has Multi- IMSI support combined with Telit's IoT connectivity management platform. We also continue to deliver the ease of a single management platform, global flat price, single bill and dedicated 24/7 IoT support services, without the need for in-house experts, mapping and contracting separately with multiple global MNOs. The Group continues to invest in and develop its IoT connectivity business, which covers all customer connectivity needs and provides a recurring revenue stream for Telit.
- IoT Platform services. Telit's IoT platform is an industrial grade suite of software that provides device management, connectivity management, and application enablement, which allows for the creation and management of IoT applications, from standalone applications such as metering and asset tracking to more robust Industry 4.0 / Industrial IoT (IIoT) and factory automation solutions. The platform is designed to enable customers to manage their IoT deployments through a single IoT portal which facilitates interaction with MNOs, dash boarding tools, security and administration as well as tying in with our modules in the field. The portal is a significant tool to manage any IoT deployment efficiently, save costs, be flexible and solve issues remotely. We expect to increase the attach rate of services to our product's utilising our OneEdge solutions.
These three components allow Telit to quickly deploy IoT solutions with complete life cycle management (long and short-range connectivity devices, global data plans and IoT platform), in traditional IoT verticals such as asset tracking, logistics, remote industrial monitoring, automated utility meter reading, telematics, mobile health devices, and the fast-growing enterprise market.
Operational Overview
In 2020, we took swift action and responded effectively to the outbreak of COVID-19 by executing a targeted programme of efficiencies to protect our supply chain and maintain our strategic and financial targets and continuing our optimisation programme in order to stabilise our gross margin and improve overall profitability and cash generation. Beyond the financial health of the Group, we also remained on track for our operational targets. Our achievements in this regard include:
-- We received global certification for our first 5G data card, which addresses the demand for high bandwidth products including applications like gateways and routers. This certification provides additional verification that devices will perform on major network operators worldwide. The data card incorporates support for all scenarios prescribed by the 3GPP for short, mid, and long-term deployments of 5G.
-- Our IoT connectivity business continued to grow and improved profitability highlighting the growing demand for dedicated IoT connectivity services, and the scalability achieved in this business. The Group continues to develop more flexible and cost-effective solutions including our core network as well as further investment in IoT modules with iSIM. These investments will allow us to bring to the market, new connectivity solutions which will enable us to better compete on global projects with large scale.
-- The Group's new contract manufacturer in Vietnam is fully operational with increased volumes which reduces supply chain risks and ensures our products are competitively priced.
-- The integration of the hardware and services businesses continues to progress well: the launch of OneEdge has been a great success, winning six awards to date.
We are pleased to see that following our cost saving initiatives, we are today well-positioned to support our business strategy and growth in future years.
R&D and investment
We continue to invest across our range of products and services, including the development of our software suite "OneEdge" which enables solutions for a new generation of Telit cellular LPWA IoT modules. With integrated, secure, easy-to-use tools, it dramatically simplifies design, deployment and management of IoT products and solutions, enabling a leap ahead into the new 5G super-connected world. Combined with Telit's iSIM solution SimWISE, these technologies solve long-standing challenges related to integration, scalability, security and management.
We have developed best in class products for our customers and will continue to be an innovative global leader for IoT solutions.
Telit's investments in the last few years include not only the development of each of the solutions mentioned above but also, increasingly, the integration of the different components in order to transform our products and services into a cohesive solution which is ready to connect and send data. Telit's integration is designed to simplify all aspects of IoT implementation for customers and save them time and money, reducing risks and speeding up time to market by simplifying deployment.
Impact of COVID-19 coronavirus
Telit's supply chain includes several contract manufacturers that support its production requirements. A slowdown in customer demand affecting revenues was the primary impact of the pandemic on Telit, but the Group completed 2020 in line with expectations apart from this. With the pandemic and lockdown measures in many markets still ongoing, we cannot currently estimate how long this situation will last or what the long-term impact on the market will be. We are confident that the acceleration and adaptation of IoT solutions services will create medium and long-term benefits for the IoT market and expect stabilisation and ramp up of customer demand in 2021.
In response to the COVID-19 outbreak in 2020, Telit transferred some of its employees to a hybrid work plan from both home and office as a safety precaution. In the last two years, Telit certified core business operations under the international standards of ISO 22301 and ISO 27001. As part of the implementation of these IT standards, we created and adjusted technological solutions to support seamless business operations and allow business as usual. Telit continuously invests in its business processes and guidelines to minimise risks and preserve service levels for our customers. To that end, Telit maintains a robust remote access network architecture to support our staff for remote working. Telit confirms that these processes worked as intended verifying our infrastructure and business continuity standards.
Outlook
The IoT market remains fast growing and dynamic and Telit remains well positioned to capitalise on growth opportunities in this market. The Board is fully committed to delivering value and growth for the business as a leading enabler in the industrial IoT space.
Following the successful business transformation over the past few years, Telit is now focused solely on the growing and dynamic market for industrial IoT products and services. With our continuous investment in 5G which we know will be a game changer in the connected devices industry and our strong position in 4G and fast connectivity devices, we are the natural partner for customers investing in 5G-enabled devices.
We are clearly mindful of risks to our business, including those related to COVID-19 that might affect us in the short term, but our business will benefit both from the addition of 5G, OneEdge and our core network, from new offerings within the cloud & connectivity business. In view of this and seeing the benefits of the hard work of recent years, the Board is confident in the Group's prospects for the future.
Paolo Dal Pino
Chief Executive Officer
CHIEF FINANCIAL OFFICER'S STATEMENT
I am pleased to report that in 2020, while facing the COVID-19 pandemic, Telit implemented a significant efficiency improvement plan in early stages as a response to COVID-19, and to mitigate the impact on our revenues. In 2020 we improved the Group's overall profitability and efficiency while maintaining our future potential development and growth plans.
Financial results
2020 2019 Change Change
%
$M $M $M
Revenues 343.6 392.5 (48.9) (12.5%)
------- ------- ------- ---------
Gross profit 121.5 129.3 (7.8) (6.0%)
------- ------- ------- ---------
Gross margin 35.4% 32.9%
------- ------- ------- ---------
Other operating incomes 1.6 3.4 (1.8) (52.9%)
------- ------- ------- ---------
Research and development expenses (4 9 . ( 10 .
(1) (43.9) 2 ) 5.3 8 %)
------- ------- ------- ---------
Selling and marketing expenses (4 9 .
(1) (45.3) 8 ) 4.5 ( 9 .0%)
------- ------- ------- ---------
General and administrative expenses (2 1 .
(1) (19.6) 7 ) 2.1 ( 9.7 %)
------- ------- ------- ---------
Exceptional expenses related
to restructuring - (1.0) 1.0
------- ------- ------- ---------
Other exceptional items (1.1) 52.7 (53.8)
------- ------- ------- ---------
Adjusted EBITDA 40.6 38.2 2.4 6.3%
------- ------- ------- ---------
Profit in cash 16.0 11.7 4.3 36.8%
------- ------- ------- ---------
Operating income (EBIT) 13.2 63.6 (50.4) (79.2%)
------- ------- ------- ---------
Adjusted EBIT 17.8 16.9 0.9 5.3%
------- ------- ------- ---------
Profit before tax 7.9 59.9 (52.0) (86.8%)
------- ------- ------- ---------
Adjusted profit before tax 12.5 13.2 (0.7) (5.3%)
------- ------- ------- ---------
Basic earnings per share (cents) 4.7 36.0
------- ------- ------- ---------
Diluted earnings per share 4.6 35.7
------- ------- ------- ---------
Adjusted basic earnings per share
(cents) 7.4 12.5
------- ------- ------- ---------
Adjusted diluted earnings per
share (cents) 7.3 12.4
------- ------- ------- ---------
(1) Reclassification of comparative information related to Information Technology cost allocation. The results for prior periods were reclassified to conform with current year's presentation.
Adjusted EBIT is defined as Earnings Before Interest, Tax, share based payment expenses, amortisation of acquired intangibles, impairment of internally generated development assets, other exceptional items, exceptional expenses related to restructuring and the profit on disposal of the automotive business. Adjusted EBITDA is defined as Adjusted EBIT plus depreciation and other amortisation. Profit/loss in cash is defined as Adjusted EBITDA less capitalisation of internally generated development assets less acquisition of tangible and intangible assets net of proceeds from disposal of assets, less lease payments. Adjusted Profit / (Loss) before tax is defined as profit / (loss) before tax plus share based payment expenses, amortisation of acquired intangibles, other exceptional items, exceptional expenses related to restructuring, impairment of internally generated assets, and the profit on disposal of the automotive business.
Reconciliation between operational and adjusted operational results:
2020 Exceptional Impairment Share Amortisation 2020 adjusted
reported items of internally based of intangibles $M
$M $M developed payment acquired
assets $M expenses $M
$M
Revenues 343.6 - - - - 343.6
---------- ------------ --------------- ---------- ---------------- --------------
Gross profit 12 1 .5 - - - - 121.5
---------- ------------ --------------- ---------- ---------------- --------------
Gross margin 35.4% 3 5.4%
---------- ------------ --------------- ---------- ---------------- --------------
Other operating
income 1.6 - - - - 1.6
---------- ------------ --------------- ---------- ---------------- --------------
Research and
development ( 41.9
expenses (43.9) - 0.8 0.3 0.9 )
---------- ------------ --------------- ---------- ---------------- --------------
Selling and ( 44.3
marketing expenses (45.3) - - 0.3 0.7 )
---------- ------------ --------------- ---------- ---------------- --------------
General and
administrative (19. 6
expenses ) - - 0.5 - (19.1)
---------- ------------ --------------- ---------- ---------------- --------------
Exceptional
items (1.1) 1.1 - - - -
---------- ------------ --------------- ---------- ---------------- --------------
Operating income
(EBIT) 13.2 1.1 0.8 1.1 1.6 17.8
---------- ------------ --------------- ---------- ---------------- --------------
Profit before
tax 7.9 1.1 0.8 1.1 1.6 12.5
---------- ------------ --------------- ---------- ---------------- --------------
2019 reported Exceptional Impairment Share Amortisation 2019 adjusted
$M items of internally based of intangibles $M
$M generated payment acquired
assets expenses $M
$M $M
Revenues 392.5 - - - - 392.5
-------------- ------------ --------------- ---------- ---------------- --------------
Gross profit 129.3 - - - - 129.3
-------------- ------------ --------------- ---------- ---------------- --------------
Gross margin 32.9% 32.9%
-------------- ------------ --------------- ---------- ---------------- --------------
Other operating
income 3.4 - - - - 3.4
-------------- ------------ --------------- ---------- ---------------- --------------
Research and
development ( 4 6
expenses (**) (49.2) - 1.3 0.6 1.1 . 2 )
-------------- ------------ --------------- ---------- ---------------- --------------
Selling and ( 4 8
marketing expenses(**) (49.8) - - 0.6 0.9 . 3 )
-------------- ------------ --------------- ---------- ---------------- --------------
General and
administrative (21. 0
expenses(**) (21. 8 ) - - 0.8 - )
-------------- ------------ --------------- ---------- ---------------- --------------
Exceptional
items 51. 7 (51. 7 ) - (0.3) - (0.3)
-------------- ------------ --------------- ---------- ---------------- --------------
Operating income
(EBIT) 63.6 (51.7) 1.3 1.7 2.0 16.9
-------------- ------------ --------------- ---------- ---------------- --------------
Profit before
tax 59.9 (51.7) 1.3 1.7 2.0 13.2
-------------- ------------ --------------- ---------- ---------------- --------------
(**) Reclassification of comparative information related to Information Technology cost allocation. The results for prior periods were reclassified to conform with current year's presentation.
Revenues
Group revenues, decreased by 10.2% to $343.6 million (2019: excluding the automotive business sold in February 2019, $382.8 million), of which cloud and connectivity revenues were $44.0 million (2019: $41.0 million), an increase of 7. 3 %.
IoT products - revenues were affected by the impact of COVID-19 on customer demand slowing revenue growth. Whilst revenues are below previous years, they have remained resilient in light of the operating environment.
Cloud and connectivity Services - The 7. 3 % increase in cloud and connectivity revenues is encouraging, highlighting both the growing demand for dedicated cloud and connectivity services, and the scalability of the business, the Company is confident this trend will continue in the coming years. We also saw faster than expected revenue growth from IoT Platforms, supported by the ramp up of certain projects and growth of several others.
Telit's activities in the Cloud and connectivity services business unit have seen encouraging growth in recent years and, while revenues from this business unit currently comprise about 12.8% of the Group's revenue, they contributed 25.7% of the gross profit and represent an important and promising growth engine for the future.
2020 2019
$m $m Change %
Americas (1) 194.0 194.1 (0.1%)
------ ------ ----------
EMEA (2) 99.4 114.2 (13.0%)
------ ------ ----------
APAC (3) 50.2 74. 5 (32.6%)
------ ------ ----------
Total 343.6 382.8 (10.2%)
------ ------ ----------
Automotive
(4) - 9.7
------ ------ ----------
(1) Americas - remains Telit's biggest region with revenues constant despite the impact of COVID-19 thanks to resilient overall demand for LTE, driven by additional certifications of our CAT-1 and CAT-M1 products and the major US carriers plans to focus exclusively on LTE. Based on the solid fundamentals of the market, we are confident that Telit is in a good position to return to revenue growth in this market in 2021.
(2) EMEA- revenues in this region were significantly impacted by the slowdown in customer demand due to the COVID-19 pandemic. EMEA continues to be impacted by cellular technology stagnation but we are seeing encouraging early signs of low category LTE deployment ramping up and we expect this to improve growth in this region.
(3) APAC- the significant decrease in revenues is mainly attributed to the impact of the COVID-19 pandemic, and the slowdown in the deployment of a large project, relating to a water and electricity metering project, which we expect to ramp up in 2021.
(4) Automotive - In 2019 this reflected revenue from 1 January to 27 February 2019.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker in the Group, responsible for allocating resources and assessing performance of the operating segments- the CEO.
Segment performance is evaluated based on operating profit and loss, presented below:
2020 Cloud & Connectivity
IoT Products services Consolidated
------------- --------------------- -------------
$M $M $M
------------- --------------------- -------------
Revenue
External sales: 299.6 44.0 343.6
============= ===================== =============
Result
Gross profit 90.3 31.2 121.5
Gross margin 30.1% 70.9% 35.4%
Segment EBIT 13.3 7.9 21.2
4.4% 18.1%
============= =====================
Unallocated expenses
(1) (8.0)
-------------
Operating profit 13.2
Cloud & Connectivity
2019 IoT Products services Consolidated
------------- --------------------- -------------
$M $M $M
------------- --------------------- -------------
Revenue
External sales 351.5 41.0 392.5
============= ===================== =============
Result
Gross profit(2) 99.6 29.7 129.3
Gross margin(2) 28.3% 72.4% 32.9%
Segment EBIT(2) 15.7 5.1 20.8
4 . 5 % 12.5%
============= =====================
Unallocated expenses
(1)(2) (11.7)
-------------
Gain on disposal of automotive
business 54.5
Operating profit 63.6
(1) Unallocated expenses principally include general and administrative expenses such as directors' compensation, salaries of certain senior executives, professional fees and other expenses which cannot be directly allocated to one of the segments.
(2) Reclassification of the comparative figures relating to a change in the measurement of its operating segment due to change in the allocation of costs between the segments. The results of the segments for the prior period was reclassified to conform with current year's presentation.
Gross profit and gross margin
Gross profit was $121. 5 million (2019: $129.3 million), a decline of 6.0%, due to the decline in revenues resulting from the COVID-19 pandemic and related to the revenues from the automotive business in 2019.
The Group's gross margin improved to 35.4% (2019: 32.9%). The improvement from 2019 surpassed Telit's expectations thanks to an improved mix in revenues in 2020 towards a higher share of IoT services revenues, mitigating a decrease in IoT product revenues, as well as a write off of inventory in 2019, following the discontinuation of a product line. Whilst we are expecting LTE product margins to further improve and cloud and connectivity to grow faster and thereby improve the overall margin, we expect the future gross margins to remain stable.
Operating expenses
-- Gross R&D expenses were as follows:
2020 2019
$m $m
Gross research & development
expenses (1) 46.3 53.1
------- -------
Less - capitalisation (15.0) (15.3)
------- -------
Add - amortisation 11.8 10.2
------- -------
Add - impairment 0.8 1.3
------- -------
Research and development, net
(1) 43.9 49.2
------- -------
(1) Reclassification of comparative information related to Information Technology cost allocation. The results for prior periods were reclassified to conform with current year's presentation.
-- Selling and marketing expenses decreased by 9.0% to $45.3 million (2019: $49.8 million) driven by the implemented one-time savings plan as well as social distancing and restrictions preventing travel and trade shows.
-- General and administrative expenses decreased slightly to $19.6 million (2019: $21.7 million). The decrease was mainly thanks to the 2020 saving plan implemented to mitigate the impact of COVID-19 in 2020.
-- Other exceptional items:
2020 2019
$m $m
Integration and transaction costs (1) 0.3 1.0
----- -------
Legal and other expenses related to FCA investigation,
BAMES and Philips proceedings (2) 0.3 0.8
----- -------
Other 0.5 (0.1)
----- -------
Sub- total 1.1 1.7
----- -------
Profit on disposal automotive business (3) - (54.5)
----- -------
Total 1.1 (52.8)
----- -------
(1) Mainly legal and other costs related to the automotive reorganisation and sale which was completed in February 2019.
(2) Costs related mainly to the FCA investigation completed in June 2020 and related matters which beg a n in 2017, including the Group's defending position in the BAMES case and Philips proceedings in both US international Trade commissions and Delaware courts.
(3) Profit on disposal of the automotive business.
Finance costs, net
2020 2019
$m $m
Non-cash expenses related to effective rate interest
on preferred loan 1.3 1.1
------ ------
Interest expense on bank loans and overdrafts
(1) 0.5 0.8
------ ------
Bank fees and other bank expenses 0.3 1.1
------ ------
Exchange rate differences, net 3.4 0.8
------ ------
Loss from forward currency contracts (2) - 0.4
------ ------
Interest related to IFRS16 liabilities 0.4 0.8
------ ------
Interest income (0.6) (1.2)
------ ------
Total 5.3 3.8
------ ------
(1) Interest expenses related to loans and overdrafts decreased by $0.3 million, due to repayment of HSBC and BHI loans in February 2019.
(2) Due to the uncertainty around the Euro currency, the company entered into a hedging arrangement to protect the operating costs denominated in Euro - as the Euro currency against the USD was lower than expected, the hedging arrangement resulted in a loss.
Profitability
We measure our profitability based on adjusted figures to eliminate exceptional items and share based payment charges, which are non-cash transaction. The adjusted EBIT and PBT exclude:
-- a share-based payment charge of $1.1 million (2019: $1.7 million); -- profits of $54.5 million related to the disposal of the automotive business in 2019; -- other exceptional expenses of $ 1.1 million (2019: $1.7 million); -- impairment of capitalised development assets of $0.8 million (2019: $1.3 million); and -- amortisation of acquired intangible assets of $1.6 million (2019: $2.0 million).
The profit in cash is defined as Adjusted EBITDA less R&D capitalisation less lease costs under IFRS 16 net of proceeds on disposal. In 2020 profit in cash was $16.0 million, a significant improvement over the $11.7 million profit in cash of 2019 thanks to reduced expenses and improved adjusted EBITDA. For further information refer to note 4.
Adjusted EBIT was $17.8 million (2019: $16.9 million). The operating profit was $13.2 million (2019: $63.6 million, excluding $54.5 million related to the capital gain from the sale of the automotive business, the improvement in operating profit was $4.1 million).
Adjusted EBITDA increased to $40.6 million (2019: $38.2 million).
Adjusted profit before tax increased to $12.6 million (2019: $13.2 million). Net profit for the year was $6.2 million (2019: $47.4 million). Adjusted net profit for the year was $9.8 million (2019: $16.4 million).
Adjusted basic earnings per share were 7.4 cents and diluted earnings per share were 7.3 cents (2019: earnings per share 12.5 cents and diluted earnings per share 12.4 cents). Basic earnings per share were 4.7 cents and diluted earnings per share were 4.6 cents (2019: basic earnings per share 36.0 cents and diluted earnings per share 35.7 cents.).
Net cash and cash flow
The net cash was comprised as the following:
2020 2019
$m $m
Cash and cash equivalent and deposits 101.9 81.9
------- -------
Less - working capital borrowing (5.6) (3.9)
------- -------
Less - preferred and governmental
loans (32.6) (28.0)
------- -------
Less - Mortgage loan - (1.8)
------- -------
Net Cash 63.7 48.2
------- -------
Following the improvement in the overall financial performance, cash flow provided from operating activities before movements in working capital was $42.6 million (2019: $34.6 million). The total cash provided from operating activities was $41.6 million (2019: $14.0 million), reflecting both improvement in profit for the year, excluding profit on disposal of the automotive business in 2019, and improvement in the working capital movement mainly related to better receivables collection, including improved collection of the receivables from Titan.
Cash flow used in investing activities was $20.3 million (2019: cash provided $73.4 million). The positive cash flow from investing activities in 2019 is due to the consideration from the sale of the automotive business. In 2020, the cash used in investing activities related mainly to investment in equipment and capitalisation of development costs.
Cash flow used in financing activities was $2.9 million (2019: cash used $39.6 million related mainly to the repayment of all bank loans following the sale of the automotive business). In 2020, this related mainly to long term borrowings and lease liabilities, whilst receiving proceeds from short term and long-term borrowings.
Internally generated development assets, net
As at 31 December 2020, the net amount of internally generated development assets in creased by $ 5.8 million to $ 42 .8 million (2019: $37.0 million). The split of the net assets by technology is as follows:
Technology Internally generated Internally generated Change (*)
development development assets, year over year
assets, net net as at 31 December
as at 31 December 2019
2020
$'m % $'m % $'m %
----------- ---------- ------------ ----------- -------- --------
LTE (4G & 5G) 34.4 80% 25.1 68% 9.3 37%
----------- ---------- ------------ ----------- -------- --------
3 G 0.2 1% 0.4 1% (0.2) (50%)
----------- ---------- ------------ ----------- -------- --------
Other IoT Modules 5.7 13% 8.5 23% (2.8) (33%)
----------- ---------- ------------ ----------- -------- --------
IoT Services 2.5 6% 3.0 8% (0.5) (14%)
----------- ---------- ------------ ----------- -------- --------
31 December 42.8 100% 37.0 100% 5.8
----------- ---------- ------------ ----------- -------- --------
2020 % 2019 %
$'m $'m
Net assets in development
process (not amortised yet) 13.1 31% 12.9 35%
----- ---- ----- ----
Net assets in amortisation
phase 29.7 69% 24.1 65%
----- ---- ----- ----
Total 42.8 37.0
----- ---- ----- ----
The net assets that are in the development phase, before being amortised, are 31% of the total R&D assets (2019 35%) and consist of the following products:
Technology Net assets Weighted Net assets Internally generated
started to average in development development
be amortised of remaining process (not assets, net
years to amortised yet) as at 31 December
be amortised 2020
$'m % $'m % $'m %
------- ------- -------------- -------- -------- ----------- ----------
LTE (4G &
5G) 21.4 72% 3.5 13.0 99% 34.4 80%
------- ------- -------------- -------- -------- ----------- ----------
3 G 0.2 1% 0.8 0.0 0% 0.2 1%
------- ------- -------------- -------- -------- ----------- ----------
Other IoT
Modules 5.7 19% 3.6 0.0 0% 5.7 13%
------- ------- -------------- -------- -------- ----------- ----------
IoT Services 2.4 8% 1.1 0.1 1% 2.5 6%
------- ------- -------------- -------- -------- ----------- ----------
31 December
2020 29.7 100% 2.3 13.1 100% 42.8 100%
------- ------- -------------- -------- -------- ----------- ----------
Total equity
The increase in net shareholders' equity from $134.3 million as at 31 December 2019 to $147.7 million as at 31 December 2020 is mainly attributed to the net profit and foreign currency translation differences in 2020.
Key Performance Indicators
The Board and management have several indicators to measure Telit's financial and operational performance . Among all indicators which management defines, the following are the key indicators used to measure growth and profitability.
Revenues
2020 $343.6 million
2019 $392.5 million ($382.8 excluding automotive)
Products Revenues
2020 $299.6 million
2019 $351.5 million ($341.8 excluding automotive)
Cloud & Connectivity Revenues
2020 $44.0 million 2019 $41.0 million
Gross Profit
2020 $121.5 million 2019 $129.3 million
Adjusted EBITDA
2020 $40.6 million 2019 $38.2 million
Profit in cash [4]
2020 $16.0 million 2019 $11.7 million
Eyal Shefer
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended
December 31,
-------------------------
2020 2019
$'000 $'000
----------- -----------
Revenue 343,621 392,537
Cost of sales ( 222 ,146) ( 263 ,277)
----------- -----------
Gross profit 121,475 129,260
Other operating income 1,621 3,399
Research and development expenses (**) (4 3 ,937) (49,209)
Selling and marketing expenses (**) (4 5 ,254) (49,776)
General and administrative expenses (**) ( 19 ,553) (21,745)
Exceptional expenses related to restructuring - (1,051)
Profit on disposal of the automotive
business - 54,472
Other exceptional items (1,141) (1,728)
----------- -----------
Operating profit 13,211 63,622
----------- -----------
Operating profit 13,211 63,622
Profit on disposal of the automotive
business - (54,472)
Exceptional expenses related to restructuring - 1,051
Other exceptional items 1,141 1,728
Share based payment charges 1,040 1,688
Impairment of internally generated development
assets 850 1,316
Amortisation of intangible assets acquired 1,593 1,996
----------- -----------
Adjusted EBIT (*) 17,835 16,929
-------------------------------------------------------- ----------- -----------
Finance income 622 1,212
Finance costs (5,890) (4,965)
----------- -----------
Profit before income taxes 7,943 59,869
----------- -----------
Tax expense ( 1 ,723) ( 12 ,469)
----------- -----------
Net profit 6,220 47, 400
----------- -----------
* Adjusted EBIT is a Company specific non-GAAP measure which excludes share based payment charges, exceptional expenses related to restructuring, impairment of internally generated development assets, other exceptional items amortisation of intangible assets acquired and the profit on disposal of the automotive business. The Group's management believes that 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 and other exceptional items.
** Reclassification of comparative information related to Information Technology cost allocation. The results for prior periods were reclassified to conform with current year's presentation.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued)
Year ended
December 31,
-----------------------------
2020 2019
$'000 $'000
--------------- -----------
Net Profit 6,220 47,400
Other comprehensive Income (loss)
Items to be reclassified in subsequent
periods to profit and loss:
Foreign currency translation differences
of foreign operations 5,592 (1,021)
Items not to be reclassified in subsequent
periods to profit and loss:
Remeasurement loss on defined benefit plan,
net of tax (12) (49)
--------------- -----------
Total other comprehensive Income (loss) 5,580 (1,070)
--------------- -----------
Total comprehensive income for the year 11,800 46,330
=============== ===========
Basic earnings per share (in USD cents) 4.7 36.0
=============== ===========
Diluted earnings per share (in USD cents) 4.6 35.7
=============== ===========
Basic weighted average number of equity
shares 132,477,251 131,507,097
=============== ===========
Diluted weighted average number of equity
shares 135,198,032 132,674,790
=============== ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31,
------------------------
2020 2019
$'000 $'000
---------- -----------
Non-current assets
Intangible assets 68,594 64,052
Property, plant and equipment, net 22,961 27,153
Other long-term assets 899 1,179
Deferred tax asset 3,654 2,507
---------- -----------
96,108 94,891
---------- -----------
Current assets
Inventories 11,8 94 14,966
Trade receivables 81 , 095 83,351
Other trade receivables 7,593 23,309
Income tax receivables 1,598 1,494
Other current assets 1 3 , 179 15,332
Deposits - restricted cash 675 646
Cash and cash equivalents 101,178 81,304
---------- -----------
217,212 220,402
---------- -----------
Total assets 313,320 315,293
========== ===========
Shareholders' funds
Share capital 2,184 2,176
Share premium account 50,417 49,935
Other reserve (2,746) (2,746)
Translation reserve (13,478) (19, 070 )
Retained earnings 111,302 104 , 054
---------- -----------
Total equity 147,679 134, 349
---------- -----------
Non-current liabilities
Long term borrowings 25,308 23,999
Post-employment benefits 2,259 2,230
Deferred tax liabilities 751 626
Long term lease liabilities 3,571 6,326
Provisions 4,039 1,952
---------- -----------
35,928 35,133
---------- -----------
Current liabilities
Short-term borrowings 12,832 9,782
Trade payables 83, 078 95 , 887
Provisions 2 ,646 1,239
Income tax payables 2,911 2,893
Short term lease liabilities 3,321 3,848
Accruals and other current liabilities 24, 9 25 32,162
---------- -----------
129,713 145,811
---------- -----------
Total equity and liabilities 313,320 315,293
========== ===========
CONSOLIDATED STATEMENT OF CASH FLOW
Year ended
December 31,
-------------------------
2020 2019
$'000 $'000
----------- -----------
CASH FLOWS - OPERATING ACTIVITIES
Profit for the year 6,220 47,400
----------- -----------
Adjustments for:
Depreciation of property, plant and
equipment 9,912 9,546
Amortisation of intangible assets 14,453 13,720
Impairment of intangible assets 850 1,316
Profit on disposal of the automotive
business - (54,472)
(Gain) / Loss on sale of property, plant
and equipment 61 (238)
Increase / (Decrease) in provision for
post-employment benefits (144) 231
Change in long term provisions, net 3,221 (362)
Finance costs, net 5,268 3,523
Tax expense 1,723 12, 469
Share-based payment charge, net 1,040 1,467
----------- -----------
Operating cash flows before movements
in working capital: 42,604 34,600
Decrease / (Increase) in trade and other
receivables 19,544 (13,702)
Decrease / (Increase) in other current
assets 4,095 (453)
Decrease /(Increase) in inventories 3,364 11,426
( 17 , 211
(Decrease) / Increase in trade payables (13,269) )
(Decrease) / Increase in other current
liabilities (12,158) 2,416
----------- -----------
Cash from operations 44,180 17,076
Income tax paid ( 2 , 862 ) (2,068)
Interest received 622 1,212
Interest paid (291) ( 2 , 247 )
----------- -----------
Net cash from / (used in) operating
activities 41,649 13,973
----------- -----------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of property, plant and equipment (4,354) (4,642)
Acquisition of intangible assets (1,285) (2,824)
Proceeds from sale of property, plant
and equipment 343 199
Capitalised development expenditure (15,013) (15,289)
Proceeds from sale of subsidiary, net
of cash deal costs - 96,292
Increase in restricted cash deposits (28) (311)
----------- -----------
Net cash (used in) / from investing
activities (20,337) 73,425
----------- -----------
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from exercise of share options 490 168
Short-term borrowings, net 1,139 (20,682)
Repayment of lease liabilities (3,468) (3,924)
Proceeds from long term borrowings 7,769 7,047
Repayment of long term borrowings (8,839) (22,218)
------- ---------
Net cash (used in) / from financing
activities (2,909) (39,609)
------- ---------
Increase in cash and cash equivalents 18,403 47 ,789
Cash and cash equivalents - balance
at beginning of year 81,304 35,006
Effect of exchange rate differences 1,471 ( 1,49 1)
------- ---------
Cash and cash equivalents - balance
at end of year 101,178 81,304
======= =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
Share premium Other Translation Retained
capital Account reserve reserve earnings Total
$'000 $'000 $'000 $'000 $'000 $'000
-------- -------- -------- ----------- --------- --------
Balance at 1 January
2020 2,176 49,935 (2,746) (19,070) 104,054 134,349
Issue of shares 8 482 - - - 490
Total comprehensive
income for the year
Net profit for the year - - - - 6,220 6,220
Total other comprehensive
income - - - 5,592 (12) 5,580
-------- -------- -------- ----------- --------- --------
Total comprehensive
income for the year - - - 5,592 6,208 11,800
-------- -------- -------- ----------- --------- --------
Transactions with owners
:
Share-based payment
charge - - - - 1,040 1,040
-------- -------- -------- ----------- --------- --------
Balance at 31 December
2020 2,184 50,417 (2,746) (13,478) 111,302 147,679
======== ======== ======== =========== ========= ========
Share
Share premium Other Translation Retained
capital Account reserve reserve earnings Total
$'000 $'000 $'000 $'000 $'000 $'000
-------- -------- -------- ----------- --------- --------
Balance at 1 January
2019 2,165 49,778 (2,727) (18,049) 55,319 86,486
Issue of shares 11 157 - - - 168
Total comprehensive
income/(loss) for the
year
Net profit for the year - - - - 47,400 47,400
Total other comprehensive
income - - - (1,021) (49) (1,070)
-------- -------- -------- ----------- --------- --------
Total comprehensive
income/(loss) for the
year - - - (1,021) 47,351 46,330
-------- -------- -------- ----------- --------- --------
Outgoing units - - (19) - (83) (102)
Transactions with owners
:
Share-based payment
charge - - - - 1,467 1,467
-------- -------- -------- ----------- --------- --------
Balance at 31 December
2019 2,176 49,935 (2,746) (19,070) 104,054 134,349
======== ======== ======== =========== ========= ========
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1. This financial information is consistent with the consolidated financial statements of the group, for the year ended 31 December 2020. The Group's consolidated financial statements have been prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006.
2. The financial information set out above does not constitute Telit's statutory accounts for the years ended 31 December 2020 or 2019. Statutory accounts for 2020 will be delivered to the Registrar of Companies. The auditors report on the 2020 statutory accounts will be (i) unqualified, (ii) will not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) will not contain statements under section 498 (2) or 498 (3) of the Companies Act 2006.
3. Going concern
In assessing going concern, the Board has considered the risks related to (a) the level of demand for the Group's products which may also affect the possibility of utilising some of these facilities since they depend upon the level of sales in specific markets and in some instances to specific customers; (b) the fluctuations in the exchange rate and thus the consequence for the cost of the Group's raw materials; (c) the continuity of supply from key suppliers; and (d) the company's budgets and forecasts in current market environments.
The Board has also carefully reviewed the Group's budget for 2021 and its medium-term plans, including the risk related to COVID-19 and impact of reverse stress testing. The Directors are mindful that the Group operates in the IoT sector which remains a rapidly growing industry subject to ongoing change in technology and competitive landscape.
Management considered severe but plausible scenarios when assessing the going concern assumption. It was concluded that even in the worst-case scenario of revenue falling by 50%, the Group would still have sufficient cash balances to be able to cover its current liabilities as they fall due.
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 and accordingly, 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, adjusted profit before tax and profit in cash are provided as additional information only and should not be considered as a substitute for operating profit/loss (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, impairment of internally generated development assets, other exceptional items, exceptional expenses related to restructuring and the profit on disposal of the automotive business;
-- Adjusted EBITDA is defined as Adjusted EBIT plus depreciation and other amortisation;
-- Profit/loss in cash is defined as Adjusted EBITDA less capitalisation of internally generated development assets less acquisition of tangible and intangible assets net of proceeds from disposal of assets, less lease payments;
-- Adjusted profit / (loss) before tax is defined as Profit / (loss) before tax plus share based payment expenses, amortisation of acquired intangibles, other exceptional items, exceptional expenses relating to restructuring, impairment of internally generated development assets and the profit on disposal of the automotive business;
-- Adjusted net profit / (loss) for the year is defined as net profit / (loss) for the year plus share based payment expenses, amortisation of acquired intangibles, other exceptional items, exceptional expenses related to restructuring, impairment of internally generated development assets and the profit on disposal of the automotive business less deferred tax (credit) / expense.
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 other exceptional items, which are not inherent to the business. Consequently, Adjusted EBIT, Adjusted EBITDA, profit / (loss) in cash, Adjusted profit / (loss) before tax and Adjusted net profit / (loss) for the year are presented in addition to the reported results.
December 31,
---------------------
2020 2019
$'000 $'000
-------- ----------
Operating profit EBIT 13,211 63,622
Share-based payments 1,040 1,688
Exceptional expenses related to
restructuring - 1,051
Impairment of internally developed
assets 850 1,316
Other exceptional items 1,141 (52,744)
Amortisation of intangibles assets
acquired 1,593 1,996
-------- ----------
Adjusted EBIT 17,835 16,929
Depreciation and other amortisation
11 (1) 22,773 21,270
-------- ----------
Adjusted EBITDA 40,608 38,199
Capitalisation of internally generated
development assets (15,013) (15,289)
Lease payment (3,917) (3,897)
Acquisition of tangible and intangible
assets, net of Proceeds from disposal
of assets (5,640) (7,266)
-------- ----------
Profit in cash 16,038 11,747
======== ==========
Profit before tax 7,943 59,869
Share-based payments 1,040 1,688
Exceptional expenses related to
restructuring - 1,051
Impairment of internally developed
assets 850 1,316
Other exceptional items 1,141 (52,744)
Amortisation of intangibles acquired 1,593 1,996
-------- ----------
Adjusted profit before tax 12,567 13,176
======== ==========
Net profit for the year 6,220 47,400
Share-based payments 1,040 1,688
Exceptional expenses related to
restructuring - 1,051
Impairment of internally developed
assets 850 1,316
Other exceptional items 1,141 (52,744)
Amortisation of intangibles acquired 1,593 1,996
Deferred tax change (1,022) 15 ,713
Adjusted net profit for the year 9,822 16,420
======== ==========
(1) Excluding amortisation on acquired intangibles
5. Net cash position
2020 2019
--------------- -------------
$ '000 $ '000
--------------- -------------
Cash and cash equivalents 101,178 81,304
Restricted cash deposits 675 646
Working capital borrowing (1) (5,600) (3,934)
Long term loans (2) (9,907) (3,352)
Governmental loans (3) (22,633) (24,676)
Mortgage loan (4) - (1,819)
--------------- -------------
Net cash 63,713 48,169
=============== =============
(1) Credit facilities used for working capital of up to EUR10,5 million bear average interest at a rate of
0.85%.
(2) This includes long term loans from banks in Italy of $3.1 million (2019: $3.4 million) with an interest rate of Euribor 6 months plus 5.50%, repayable in 6 semi-annual instalments that will commence in December 2020. During 2020, during the COVID-19 an additional loan was received from banks in Italy due to COVID-19 totalling $6.8 million with an interest rate of 1.65%, repayable in monthly instalments that will commence in October 2022.
(3) Representing preferential long term loans (i) of $14.5 million with fixed-rate of 0.5% and repayable in 14 semi-annual instalments that commence in December 2016, supported by the Italian Ministry of Economic Development (MISE) to develop an innovative platform for the application of M2M technologies and, (ii) $10.1 million with a fixed-rate of 0.80% and repayable in 16 semi-annual instalments that commenced in December 2019, supported by the Ministry of Trade and Commerce in Italy, provided in connection with the Group's business development program in Italy. These loans are initially recognised at fair value and subsequently measured at amortised cost.
(4) Representing a preferential rate loan of EUR3.5 million (approximately USD 2.85 million) received in 2011 from a regional fund in Italy provided in connection with the Group's acquisition of the campus used for the subsidiary'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 over 30 semi-annual instalments that commenced in July 2012. The loan is initially recognised at fair value and subsequently measured at amortised cost. On 8 July 2020, the Mortgage loan related to the facility in Trieste Italy was fully repaid without any penalty for the early payment. The total paid amount was approximately EUR1.6 million. (approximately USD 1.31 million).
The directors believe that the credit facilities and loans as at year end will remain available to the Group for the foreseeable future and that therefore the Group will be able to continue to fund its operations from these credit facilities.
6. Sale of automotive business
-- On 13 July 2018, Telit Communications PLC agreed to sell its automotive business (Automotive transaction) to TUS International Limited ("TUS") for a total consideration of $105.0 million subject to working capital adjustments. On 27 February 2019 the sale was completed with a cash payment of $67.5 million and a short-term vendor loan of $38.5 million which was later repaid in full on 15 April 2019. The net amount received after the working capital adjustment was $106.6 million.
-- As of 27 February 2019, the net book value of the net assets, including working capital items, of the disposed business units was $44.1 million including intangible assets of $34.7 million.
-- On 30 October 2019 Telit and TUS agreed on the final adjustment to the net consideration which resulted in a total adjustment of $1.6 million that was added to the purchase price of $105 million and resulted in a final profit on disposal before tax of $54.5 million.
31 December
2019
Consideration receivable 106,576
Carrying amount of net assets sold (1) (43,985)
Transaction cost (8,119)
-----------
Profit on disposal before tax 54,472
===========
-- Telit agreed to provide certain transitional services, mainly for IT and production management services mainly for IT and production management services to Titan , pursuant to a transition service agreement (TSA). After the balance date TUS injected $5 million to reduce the debt. In order to secure the collection of the outstanding amounts, the group obtained a guarantee from TUS and its parent. The TSA ended on 31 December 2020.
7. Tax
-- In May 2019, Telit Brazil received an infraction notice from the Sao Paulo state tax authority regarding alleged failure to collect and remit indirect taxes ICMS for the financial years 2016-2017 under the ICMS-ST substitution rule and Own-ICMS. Telit timely filed its defence arguments in the first level administrative process. In October 2019, the first-level Administrative Court ruled in favour of the state, as expected, and upheld the assessments made by the tax authority. Later that month, Telit Brazil filed an appeal to a second-level Administrative Court. In October 2020, The Appellate Board of the Tax Administrative Court vacated the first administrative decision and remanded the case for a new judgement by the singular administrative judge, in response to Telit's arguments that the first-level judgment had been vague in addressing the facts as presented and had failed to counter them sufficiently. The claim is set to be remanded for a new trial by the single-judge administrative court (first-level judgement).
The total potential liability for this claim is approximately $3.6m consisting of the underlying ICMS claim (approximately $1.7m), interest (approximately $450k) and penalties (approximately $1.4m). Based on professional advice and the relevant facts, the Group believes that it has strong arguments in favour of the tax treatment applied. Accordingly, no provision has been made for this claim
-- In December 2019, culminating the second stage of a tax audit, the Group affiliates Telit Wireless Solutions Ltd. and Telit Wireless Services Ltd. received tax assessments from the Israeli Tax Authorities for the 2013 financial year and the 2013-2016 financial years respectively. These assessments relate to the rate of amortisation of certain intangible assets and the treatment of the utilisation of losses to offset taxable income. The Group timely filed an appeal with the Tel Aviv Circuit Court, and a preliminary hearing has been scheduled for April 2021. With respect to the amortisation of intangibles, the Group recognises that this is an uncertain tax position (UTP), and, as such, has provided for an adjustment of the rate of amortisation for the relevant tax years. The net effect to the group is not material as this is a timing difference. With respect to the utilisation of losses, the potential additional tax charge to the Group is approximately $3.3 million. Based on professional advice and the particular facts, the Group believes that it has strong arguments against the disallowance of the losses. Notwithstanding this strong position, a partial provision, has been made to reflect a potential settlement outcome. To avoid prejudicing these proceedings, the amount of the provision is not disclosed.
-- In March 2019, the Regional Tax Office of Trieste initiated a tax audit of Telit EMEA for FY 2015. The audit was concluded on July 24, 2019, with the issuance of a preliminary tax report mainly focused on transfer pricing issues. In September 2019, the Company timely filed its observations to the tax report, followed by additional documentation in October and November 2020. This documentation is currently under review by the Tax Office. At this stage, Telit has not been served with a formal assessment and it is therefore not possible to determine the amounts that the Tax Office might assess in the future related to the preliminary challenges regarding transfer pricing issues. a partial provision has been made to reflect a potential settlement outcome. To avoid prejudicing these proceedings, the amount of the provision is not disclosed. Discussions with the Tax Office are expected to continue in the first half of 2021.
8. Post balance sheet events
-- On February 9, 2021, the company granted a total of 120,000 performance shares ("Performance Shares") to the Chief Financial Officer, and a further 1,095,000 Restricted Stock Units ("RSU") to senior management and employees of the Group. The Performance Shares will vest three years after the grant date subject to attainment of share growth targets and have no exercise price. The terms of the RSUs are in accordance with the Telit 2015 Employee Share Plan as previously described and amended from time to time.
-- During the last few months of 2020 the Group received several offers to acquire the Company all of which the Board evaluated with its advisers. Following extensive discussions with each potential acquirer, the Board concluded that the proposed terms did not adequately reflect the fundamental value of the Group business. The Group is confident in its prospects, is well capitalized, and has a strong position in a growing market segment and the Board remains confident growth in shareholder value can be delivered.
On March 18, 2021, the Company agreed to release DBAY from the restrictions imposed by Rule 2.8 of the Code, to allow DBAY to undertake a period of limited confirmatory due diligence in order to submit an indicative proposal. Shareholders are reminded that there can be no certainty that any offer will be made, nor as to the terms on which any offer will be made.
[1] For the definition of 'Adjusted' figures and reconciliation from IFRS financial results to adjusted financial results please refer to Note 4.
[2] Please refer to Note 6. [3] For the definition of Profit (loss) in cash, refer to Note 4.
[4] Profit (loss) in cash defined as Adj. EBITDA less capitalization of internally generated assets and less acquisition of tangible and intangible assets net of proceeds from disposal of assets - See also note 4.
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March 24, 2021 03:00 ET (07:00 GMT)
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