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Telit off to strong start in 2018; revises banking covenants

The group has responded to criticism of previous accounting practices by adopting a more conservative approach
Telit has resolved to adopt a conservative approach in the preparation of its results

Telit Communications Plc (LON:TCM) said trading in the first two months of 2018 were comfortably ahead of the same period of 2017.

The Industrial Internet of Things specialist also revealed it has agreed a new and revised set of financial covenants with its main lender.

READ: Telit confirms “numerous parties” interested in snapping up its automotive division

The new covenants are more appropriate for the group following its rationalisation of product lines and costs, Telit said. In particular, the covenant, which in broad terms measured the ratio of free cash flow against debt service obligations, is replaced for 2018.

Turning over a new leaf after a turbulent 2017, the company has resolved to adopt a conservative approach in the preparation of its 2017 results, which it expects to publish next month.

One of the main changes in approach relates to the capitalisation of research & development (R&D) expenditure, which will have the effect of significantly increasing the R&D spend charged to the income statement to a level higher than previously forecast.

This, combined with establishing a prudent level of provisions and other adjustments with its auditors and some component shortage issues that affected sales in the closing weeks of 2017, leads the board to now expect to report revenue of around US$374-376mln and adjusted underlying earnings (Ebitda) in the region of US$20-23mln (excluding exceptional costs in relation to the restructuring of the business).

The group's net debt position as at 31 December 2017 was US$30.2mln (2016: $17.7mln).

READ: Telit Communications says it will "vigorously defend its position" as Italian tax case rumbles on

"The group clearly faced a number of unique challenges during the course of 2017 which have unquestionably affected our financial performance in the short term. We are resolved to ensure that the business is placed on a sustainable footing for the longer term and the group's financials are recalibrated on a prudent and conservative basis,” said Telit’s chairman, Richard Kilsby.

"We are pleased with the outcome so far. We have secured new covenants with our leading bank and trading in 2018 has started well. This underpins our confidence that we will deliver significant revenue growth as well as stabilising gross margins and improving cash generation in the current financial year," Kilsby added.


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