Final Results
Embargoed for release at 7 am, 17 March 2005
BATM Advanced Communications Limited
Preliminary announcement of
Final Results for the Year Ended 31 December 2004
BATM Advanced Communications Limited (LSE: BVC), a leading designer and
producer of broadband data and telecoms systems, announces final results for
the year ended 31 December 2004.
Key features
Year Ended Year Ended 31
31 Dec 2004 Dec 2003
Turnover $ 41.2m $ 37.1m
Gross margin 44.1% **40.2%
Pre-tax loss before goodwill $(2.6)m $(10.1)m
amortization *
Loss per share (cents) (3.29) (5.21)
Net cash $50.7m $51.1m
* Goodwill amortization was $9.9m in 2004 and in 2003.
** (In 2003 excluding write down of Inventory).
* Increase in revenues of 11% compared to 2003.
* Increase in revenues of 13% in H2, 2004 compared with H2, 2003.
* Gross profit margins improved from 40.2 % in 2003 to 44.1 % in 2004.
* Strong cash position: $50.7m, including short and long-term deposits and
bonds and no borrowings (2003: $51.1m)
* Company gains 'best performing supplier' award by Nokia Networks
* Continued significant growth in our residential VOIP solution with 3 major
deployments during the year
* Major new VOIP order with US service provider (see separate announcement)
Dr Zvi Marom, Chief Executive of BATM, said:
In 2004 we have started to feel the recovery in the telecom markets in which we
operate, after a lengthy period of recession.
We have signed important strategic agreements with major telecom companies that
we believe will have a growing positive impact over the coming years, and our
relationships with our main customers are better than ever.
We believe that this upward trend will continue this year and increasingly in
subsequent years.
Enquiries:
BATM Advanced Communications 020 7831 3113 (on 17.03.05)
Dr Zvi Marom, Chief Executive
Ofer Bar Ner, Chief Financial Officer
Dresdner Kleinwort Wasserstein 020 7623 8000
Mark Smith
Shore Capital 020 7408 4090
Graham Shore
Financial Dynamics
James Melville-Ross / Cass Helstrip 020 7831 3113
Chairman's Statement
Review of the Period
In my statement last year and interim statement for 2004, I indicated that we
could look forward to an improved trading performance. Our results for 2004
fully justify those predictions and confirm the upward trend in activity for
which we have been positioning ourselves during the severe conditions of the
last few years. Our strategy of developing innovative products to the market
and strategic partnerships with major customers, combined with a rigorous
control of expenditure and focus on margin improvement, have all combined to
produce a significant improvement in our results.
We were particularly proud to have been awarded 'Best Performing Supplier'
status by Nokia, confirming our rigorous approach to the standards of our
products.
Our cash position remains extremely strong.
Financial Performance
Turnover for the period was $41,218,000 (2003: $37,054,000), reflecting an
increase of 11% compared with the prior year. This increase is primarily
related to increased demand for new VOIP products and our successful OEM
relationships, particularly with Nokia.
Gross profit was $18,206,000 (2003: $11,638,000) reflecting an increase of
$6,568,000 or 56%. This increase was the result of the higher turnover for the
year and improved gross profit margin. As a percentage of turnover, gross
profit margin was 44.1% (2003: 31.4% and excluding a provision for write down
inventory of $3,283,000: 40.2%). This increase was primarily related to a
favorable shift in product mix in the Edgelink product family. Inventory
write-down in 2003 related to legacy products in the US and did not recur in
2004.
Selling, general and administrative expenses were $13,044,000 during 2004
compared with $13,431,000 in 2003 reflecting a 3% decrease. We continue with
the tight cost control programme that was instigated in 2003 whilst taking care
to maintain both high quality customer service and an efficient operating
environment.
Gross research and development expenditure in this period was $10,823,000
(2003: $11,247,000). However, after contributions from the Israeli Chief
Scientist and from the European Community, net research and development
expenditure was $9,909,000 (2003: $10,119,000). Although there was a small
decrease (2%) in net spending on research and development, our focused effort
on key IP development projects was not compromised. The decrease was primarily
because we needed less spending to keep certain maturing product lines fresh.
Operating loss, before goodwill amortization amounted to $4,747,000 (2003: loss
$11,912,000) a reduction of $7,165,000 or 60% compared with last year. This
improvement in operating results is a result of the increase in gross profit
and turnover. Additionally, improved inventory management in 2004 avoided the
need for significant inventory write-off in contrast with 2003.
Financial income was $1,702,000 (2003: $1,775,000) and reflected a decrease of
4%.This decrease resulted from a slightly reduced level of average cash,
short-term cash investments and long-term cash investments compared with 2003.
The loss after taxes amounted to $12,781,000 (2003: loss $20,221,000), giving a
loss per share of 3.29 cents (2003: loss 5.21 cents).
The balance sheet remains strong with cash and near-cash investments of $50.7
million at the year-end (June 2004: $49.5m; December 2003: $51.1m) comprised as
follows: Cash and deposits, up to three months duration, of $1.1 million;
short-term deposits and bonds, up to one year, of $46.5 million; and long-term
bond for more than one year of $3.1 million.
Investment
As indicated in our Interim statement the company has benefited from additional
income
of $ 410,000 from the sale of our 49.9% holding in Eldor Computers Limited.
Research & Development
Our Research and Development efforts are targeted at the technology revolution
presently occurring in the communications industry. Some of our exciting new
products designed to meet these emerging requirements are as follows:
VoIP - (Voice over Internet Protocol)
Plans are underway to introduce a new product for small to medium size
businesses in June of this year. This product will allow carriers to provide
voice and data services over one IP link. Additional interfaces to support
multiple links as well as European standards are scheduled for release in the
second half of this year.
We continue to enhance our residential solutions to address the needs of this
rapidly expanding market. Additional LAN ports as well as support for wireless
deployment are also planned for this year.
FTTH - (Fiber to the Home)
We are working to release a new customer premise gateway product to allow cost
effective deployment of outdoor solutions. We already have a competing local
exchange carrier committed to deploy this product. We continue to add features
to integrate the customer premise gateways into our Ethernet switches.
Carrier Class Ethernet
There are many initiatives in progress to address the transitional issues that
carriers are faced with as they begin to migrate to IP networks while
continuing to maintain their TDM networks. We are expanding our portfolio of
products to provide Carrier Class Ethernet solutions. We are certifying
multiple platforms for deployment at carriers' central office locations and we
are adding capabilities to carry both IP and TDM traffic over Ethernet links.
Our support for Ethernet ring deployment is expanding with redundancy
functionality that is comparable to traditional transport protocols.
Sales and Marketing
VoIP
We have launched a product aimed at meeting the needs of residential customers
of the new VoIP service providers. These providers offer customers with
broadband connections a full residential telephone service delivered through
their broadband connection over IP. Our product converts the signal from their
existing telephones into IP and the IP voice traffic back into speech. It is
provided by the service operator to the customer as part of the service. Our
residential VoIP product continues to expand its customer base. With the
success of 3 major deployments in North America during 2004 (Sun Rocket, US
Datanet and one other) we expect the number of major deployments to grow
further in 2005. We are also exploring similar opportunities for Voice over
Broadband in the International markets.
OEM
Earlier this year we announced a new OEM relationship with Alcatel. This is in
line with our previously announced strategy to build relationships with major
telecom suppliers. We continue both to expand these relationships as well as
work to find new integrators for our carrier class Ethernet based platforms. In
2004, our overall OEM business grew 150% compared with 2003.
Carrier class Ethernet
During 2004, we experienced increased interest in our Carrier Class Ethernet
based platforms. The global demand to provide multiple services, especially
video services by telecom companies is accelerating the migration from
traditional TDM and ATM networks to new all IP networks. Recently, we were
selected to provide platforms for this service by 3 providers (one in the US,
one in Europe and one in the Far East). We will continue our focus on this
growing market in 2005 both in the US and internationally.
Appreciation
At a time when we have reversed a declining trend and enter a period of what we
believe will be renewed growth in the Company's activities, I would like to pay
tribute to the commitment and efforts of all of our employees over the last few
difficult years.
I would particularly like to extend my gratitude to my executive board
colleagues, led by Dr. Zvi Marom. They have shown considerable skill in
identifying the correct areas of focus for the Company and demonstrated
enormous energy in carrying the Company through a most difficult period. I
would also like to thank my non-executive board colleagues for their counsel
and strategic support, which has been invaluable.
Daniel Goldman, who has been a non-executive director of the company since
1999, has indicated that, in order to be able to concentrate on his growing
commercial interests, he will not be offering himself for re-election at the
Annual General Meeting. I would like to place on record our deepest thanks for
his contribution to the Board during his period of office.
Outlook
We have entered the new financial year in a spirit of quiet optimism. Our
improved trading performance is continuing and our relationships with our
customers have never been stronger. Our products have proven their quality and
reliability in a highly challenging environment. We are firmly based, in every
area of our operations, to take advantage of the opportunities that are
presenting themselves in our industry, particularly the growth of Voice over IP
and the use of Broadband.
I have every expectation that 2005 will prove to be the year in which the
Company demonstrates that it has returned to a pattern of growth and
profitability.
Peter Sheldon
17 March 2005
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Year ended December 31,
2004 2003
US$ in thousands,
except per share data
Turnover 41,218 37,054
Cost of sales 23,012 *25,416
Gross profit 18,206 11,638
--------- ---------
Operating expenses
Research and development costs 10,823 11,247
Less - participation 914 1,128
Research and development costs, net 9,909 10,119
Selling, general and administrative expenses 13,044 *13,431
Amortization of Goodwill 9,898 9,898
Total operating expenses 32,851 33,448
--------- ---------
Operating loss (14,645) (21,810)
Financial income, net 1,702 1,775
Other income, net 423 15
Loss before taxes on income (12,520) (20,020)
Taxes on income (142) (60)
Loss after taxes on income (12,662) (20,080)
Group's share in loss of
associated company (119) (141)
Loss for the year (12,7 81) (20,221)
Loss per share (in cents) (3.29) (5.21)
*Reclassified.
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED BALANCE SHEETS
December 31,
2 0 0 4 2 0 0 3
US$ in thousands
Fixed assets
Tangible assets, net 10,587 10,228
Goodwill, net 2,475 12,373
Total fixed assets 13,062 22,601
Current assets
Stocks 7,425 7,683
Debtors 9,779 8,323
Short term investments 46,478 8,406
Cash and cash equivalents 1,153 3,318
64,835 27,730
Creditors: amounts falling due within one year 13,223 10,546
Net current assets 51,612 17,184
Long Term Investments
Long term investment 3,098 39,403
Investments in associated companies 3,688 5,027
6,786 44,430
Total assets less current liabilities 71,460 84,215
Non-current liabilities
Severance pay fund, net of provision (376) (359)
Net assets 71,084 83,856
Capital and reserves
Share capital 1,177 1,177
Additional paid-in capital 397,549 397,540
Foreign currency translation adjustment 16 16
Profit and loss account (327, 658) (314,877)
Shareholders' funds 71,084 83,856
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
2 0 0 4 2 0 0 3
US$ in thousands
Net cash outflow from operating activities (1,924) (4,884)
Investing activities
Proceed from repayment of loan from associated 477 -
company
Acquisition of fixed tangible assets (1,767) (869)
Proceeds from sale of fixed tangible assets - 23
Proceeds from (investment in) short term bank 1,040 (4,594)
investments
Investment in long term bank deposits - (2,000)
Net cash outflow from investing activities (250) (7,440)
Financing activities
Exercise of options and shares by employees 9 123
Net cash inflow from financing activities 9 123
Decrease in cash and cash equivalents (2,165) (12,201)
Cash and cash equivalents at the beginning of 3,318 15,519
the year
Cash and cash equivalents at the end of the 1,153 3,318
year
RECONCILIATION OF NET LOSS FOR THE YEAR TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
Year ended December 31,
2 0 0 4 2 0 0 3
US$ in thousands
Loss for the year (12,781) (20,221)
Group's share in loss of associated company 119 141
Amortization of goodwill 9,898 9,898
Depreciation and amortization 1,408 1,711
Increase in severance pay fund, net of 17 29
provision
Decrease in stocks 258 5,763
Decrease (increase) in debtors (1,456) 402
Increase (decrease) in creditors 2,677 (1,092)
Gain from selling an Investment in associated (410) -
company
Gain from marketable securities (27) (102)
Interest incurred on investments (1,627) (1,453)
Interest incurred on loan for affiliate - (27)
Loss on disposal of fixed assets - 67
Net cash outflow from operating activities (1,924) (4,884)
Non Cash Activities:
On July 2004 the company sold its Investment in Eldor Computers Limited (cost
$743,000) in exchange for 430,000 shares in Taldor Computer Systems Ltd valued
at the date of sale at
$1,153,000, giving a profit of $410,000, included in other income.
Notes:
1. Loss per share for the years ended 31 December 2004 and 31 December 2003
are calculated using an average 388,486,036 shares in issue in 2004 and an
average 388,167,140 shares in issue in 2003.
2. Reconciliation of movements in shareholders' funds
Sharecapital Additional Foreign currency Retained loss Total
paid-incapital translation adjustment
US$'000 US$'000 US$'000 US$'000 US$'000
As at January 1, 1,177 397,540 16 (314,877) 83,856
2004
Exercise of 9 9
options by
Employees
Loss for the - - - (12,781) (12,781)
year
As at December 1,177 397,549 16 (327,658) 71,084
31, 2004
3. Further copies of this announcement are available from the offices of
Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A
1PB.
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