viewTelit Communications PLC

Telit targeting double-digit revenue growth in 2018

The group has received some key US certifications recently which should boost sales, while work on trimming its cost base to improve profitability and free cash flow generation is also well underway

internet of things
Telit expects to take a US$25mln one-off hit in 2017, relating to the recent restructuring and discontinued product lines

Internet of Things enabler Telit Communications Plc (LON:TCM) is targeting double-digit revenue growth next year after the recent award of various US certifications.

There had been a delay in receiving those approvals for its LTE CAT-1 VoLTE modules, hampering first-half performance.

READ: Telit finally gets certifications for its LTE CAT-1 VoLTE modules

With those issues now out of the way, Telit expects to be able to grow sales substantially in the New Year.

Relieve pressure on margins

Profitability should also be boosted as the group works on trimming its cost base.

Telit said on Friday it intends to reduce the number of R&D centres over time, while it will also plans to lower its sales and general administrative costs. Both of these actions are “well underway”.

As a result, operating expenses are expected to be around 10% less in 2018 compared to this year.

Those measures will help Telit to mitigate against pressure on its gross profit margins.

Improved free cash flow in 2018

“In 2018, we expect double digit revenue growth, fuelled by the important 2017 US certifications, which together with our reduced cost base will lead to a significant improvement in free cash flow generation,” said chief executive Yosi Fait.

“We are determined to sharpen the focus of the business and allocate resources appropriately, reducing our cost base in line with market dynamics, in order to achieve our goal of being the leader in end-to-end IoT solutions."

Fait added: “Our new organisational structure is designed to support our future development by combining the two main activities, hardware and services, under one product management team and a unified sales capability.”

Full year numbers on track

As for 2017, Telit expects to report year-on-year revenue growth in-line with previous guidance. For the nine months to September 30, revenues grew to US$255mln (30 Sept 2016: US$238mln).

The group will likely have to take a one-off charge of around US$25mln, made up of US$16mln of write downs of development costs and inventories of discontinued products and a further US$9mln incurred as part of the restructuring actions.

Telit added that it is in “advanced discussions” with its bank about waiving a possible breach of one of its covenants, freeing cash flow generation against debt service obligations at the end of the year.

Quick facts: Telit Communications PLC

Price: 137.2 GBX

Market: AIM
Market Cap: £182.52 m

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