Interim Results

For immediate release 12 September 2002 BATM Advanced Communications Limited - 2002 interim results results in-line with revised expectations focus on technology leadership and cash conservation BATM Advanced Communications Limited ('BATM', or 'the Company'), (LSE: BVC), a leading designer and producer of broadband data and telecoms systems, announces interim results for the period ended 30 June 2002 in line with revised guidance issued to the market in its trading update of 1 July 2002. Six months ended 30 June 2002(1) 2001 (2) Turnover $27.5m $42.4m Gross Profit $11.2m $19.8m Operating loss $(3.6)m $(1.3)m Pre-tax profit (loss) $(2.9)m $0.3m Earnings (loss) per share (0.77)¢ (0.00)¢ 1. Pro forma results exclude amortization of goodwill. (2) Pro forma results exclude amortization of goodwill and write-down of inventory Highlights * Sales and operating losses in line with revised market expectations * Strong cash position of $56.9m, no borrowings and no bad debt * Operational cashflow approximately breakeven * Strong pipeline of new products * Awarded an exclusive contract with a leading regional Bell operating company (RBOC) after the period end, expected to generate $33M over 3 years * Won first major contract for VOIP platform in the US Dr ZviMarom, Chief Executive of BATM, said: 'Against a continuously difficult trading background, we believe that our results can be judged as being very satisfactory. Our strong cash position has not been damaged in any way by the deteriorating market. In particular, the steps that we have taken to cushion ourselves against the effects of the downturn have proved very effective. We continue to monitor market trends very closely and remain highly flexible, in readiness for any changes in trading conditions. BATM is increasing its presence in several markets which have substantial potential, including the Far East and, despite the recent decline in revenues, we are now serving more customers in more countries than ever before. Investment in technology has been maintained, albeit at slightly lower levels, and we continue to launch new and innovative products to maintain our strong market position. The Company is very well placed to be among those that will emerge greatly strengthened from this trough and we are well positioned for the inevitable recovery in market conditions.' For further information please contact: 12 Sept Thereafter BATM Advanced Communications Limited Dr Zvi Marom, Chief Executive 020 7831 3113 00972 3 9386 888 Ofer Bar-Ner, Chief Financial Officer 020 7831 3113 00972 3 9386 888 Dresdner Kleinwort Wasserstein Mark Smith 020 7475 7379 020 7475 7379 Shore Capital Graham Shore 020 7408 4090 020 7408 4090 Financial Dynamics James Melville-Ross / Alastair 020 7831 3113 020 7831 3113 Hetherington Chairman's Statement Financial Performance Turnover for the period was $27,499,000 (H1 2001: $42,391,000), a decrease of 35 per cent, reflecting the tough trading conditions mentioned in the trading update of 1 July 2002. This decrease is a direct result of lower sales in the US market due to the substantial cuts in capital and operational expenditure by telecom carriers. Pro forma gross profit margin was 40.7 per cent (H1 2001: 46.7%), a strong performance given the heavy price competition in the market place. Selling, general and administrative expenses were reduced by over 30 per cent as we have sought to address the effects of the downturn by reducing non-core expenditure. This reflects the tight cost controls and management actions that we have implemented over the past year. In spite of the challenging conditions, we have continued to focus on improving our product offering, which provides the basis for our future growth. To this end we have maintained appropriate investment in Research and Development (R& D). Gross R&D in this period was $5,595,000 (H1 2001: $7,864,000). However, after contributions from the Israeli Chief Scientist, US-IS Foundation and from the European Community, net research and development expenditure was $5,057,000 (H1 2001: $6,939,000). Pro forma operating loss, before goodwill amortization, amounted to $3,556,000 (H1 2001: loss $1,263,000*). Operating loss after goodwill amortization was $7,910,000 (H1 2001: loss $41,774,000). Financial income was $570,000 (H1 2001: $1,498,000), reflecting lower interest rates on largely unchanged cash and other investment balances. The resulting pro forma loss before tax, excluding the effect of the amortization of goodwill, was $2,928,000 (H1 2001: Profit $343,000). Pro forma loss after taxes and minorities, excluding the effect of the amortization of goodwill, was $2,989,000 (H1 2001: Profit $18,000), giving a loss per share of 0.77 cents (H1 2001: 0.00 cents). Actual loss after taxes, including the effect of goodwill, amounted to $7,343,000 (H1 2001: Loss $40,493,000), giving a loss per share of 1.90 cents (H1 2001: Loss 10.50 cents). The balance sheet remains strong with cash of $56.9 million at the period's end comprised as follows: Cash and deposits up to three months period $17.9 million, short-term deposits up to one year period $23.7 million and long-term deposit for three years period $15.3 million. *The loss in 2001 excludes write-off of goodwill arising from our acquisitions and a write-down of acquired Inventory. Sales and Marketing We have now accomplished several significant milestones to enhance our positioning in the US market. As we reported after the period end, we signed a new contract to provide a major US carrier with our transport solution. We believe this will enable us to successfully introduce several new platforms that we expect to launch before the end of this year. We also reported in March on our first tender success for our VOIP platform. Since then we have seen several additional US counties choosing our VOIP solution for their Fiber to the Home projects. In Europe we have established relationships with numerous new customers. In the Far East we have continued to expand our operations establishing more contacts with the leading carriers and suppliers to the carriers in that region. By the end of 2002 we expect to open a branch in the Far East and we are optimistic regarding our prospects in this region. Research and Development and new products We will introduce several new products in the second half of the year, which will extend our current transport and switching product offering. Some of them will incorporate technologies from both our IP and TDM groups. We feel that this capability gives us an advantage over our competitors: We have recently introduced the EdgeLink HUB, a compact solution to aggregate multiple DS1 to DS3s. This is the most compact, cost effective solution in the market today. We already have several orders for this product. Later this year we will introduce a new OC3 multiplexer that will allow customers to drop DS3 or Ethernet traffic at STS1 increments. In addition we will introduce in September a new line of fixed configuration integrated access devices. This will complement our existing modular higher end product line. We have introduced several new products for our EdgeGate VOIP, video and data solution. Our solution now offers several new different configurations of voice and data ports. We have already shipped more than 1,000 units of our hardened solution (protected products able to withstand adverse weather conditions without cover) and keep adding new features to it as requested by our customers. We continue our development work on the next generation IP platforms. These platforms will offer a significant increase in performance over existing competitor's platforms at a lower price. We are finalizing some of the specific requirement in cooperation with some potential customers. These new platforms will significantly enhance bandwidth, switching speeds and the number of ports available to its users Prospects At the time of our trading update in July we stated that we believed that the weakness in the telecom sector would continue throughout the year 2002 and we still feel that this will be the case. Visibility remains weak for 2003 and with this in mind our objective has been to position the company for the markets we are currently experiencing. In spite of this outlook, we confidently believe that in expanding our footprint and extending our product range we are taking the necessary steps to allow us to return to profitability and to grow the business again. Although we may not accomplish these targets fully in the second half of this year, we are confident that our shareholders will see some significant positive steps towards these goals in H2. Peter Sheldon Chairman 12 September 2002 BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED PROFIT AND LOSS ACCOUNT Six months Six months Year ended ended June ended June 30, 2002 30, 2001 December 31, 2001 $US'000 $US'000 $US'000 Unaudited Unaudited Audited Turnover 27,499 42,391 82,001 Cost of sales 16,336 25,270 53,991 Gross profit 11,163 17,121 28,010 Operating expenses Research and development costs 5,595 7,864 15,655 Less - participation 538 925 1,362 Research and development costs, net 5,057 6,939 14,293 Selling, general and administrative 9,662 14,118 27,750 expenses Amortization and write-down of Goodwill 4,354 37,838 255,100 Total operating expenses 19,073 58,895 297,143 Operating loss (7,910) (41,774) (269,133) Financial income, net 570 1,498 2,221 Other income, net 58 108 65 Loss before taxes on income (7,282) (40,168) (266,847) Taxes on income (4) (204) (267) Loss after taxes on income (7,286) (40,372) (267,114) Company's share in loss of (57) (121) (242) associated company Loss for the period (7,343) (40,493) (267,356) Loss per share (in cents) (1.90) (10.50) (69.13) BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED BALANCE SHEET As at As at As at 30th June 30th June 31st Dec 2002 2001 2001 $US'000 $US'000 $US'000 Unaudited Unaudited Audited Fixed assets Tangible assets 12,184 13,649 12,770 Goodwill 27,220 249,390 32,169 Total fixed assets 39,404 263,039 44,939 Current assets Inventory 17,133 27,411 21,027 Debtors 10,479 19,997 18,292 Short-term investments 23,686 18,898 4,923 Cash and cash equivalents 17,938 33,130 51,697 69,236 99,436 95,939 Creditors: amounts falling due within one 14,118 20,049 24,600 year Net current assets 55,118 79,387 71,339 Long-term investments Investment in associated company 1,944 3,315 2,676 Investment in other companies 5,688 5,687 5,688 Long-term deposit 15,307 - - 22,939 9,002 8,364 Total assets less current liabilities 117,461 351,428 124,642 Non-current liabilities Severance pay fund, net of provision (356) (319) (295) Net assets 117,105 351,109 124,347 Capital and reserves Share capital 1,175 1,172 1,173 Additional paid-in capital 397,343 397,144 397,244 Foreign currency translation adjustment 16 16 16 Retained loss (281,429) (47,223) (274,086) Shareholders' funds 117,105 351,109 124,347 BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED STATEMENT OF CASH FLOWS Six months Year ended ended June 30, 2002 December 31, 2001 $US'000 $US'000 Unaudited Audited Net cash inflow (outflow) from operating Appendix (265) 1,730 activities ---------- ---------- Investing activities Repayment of loan to associated company 648 473 Acquisition of fixed tangible assets (512) (2,817) Proceeds from sale of fixed tangible 28 20 assets Proceeds from (investment in) short-term (18,747) 45,207 bank deposits Investment in long-term bank deposit (15,000) -- Proceeds from (investment in) marketable (5) 325 securities, net Net cash inflow (outflow) from investing (33,588) 43,208 activities ---------- ---------- Financing activities Issuance of share capital, net 82 -- Exercise of options by employees and 19 140 advisors Repayment of short-term credit, net (7) (636) Net cash inflow (outflow) from financing 94 (496) activities ----------- ----------- Increase (decrease) in cash (33,759) 44,442 and cash equivalents Cash and cash equivalents at 51,697 7,255 the beginning of the period Cash and cash equivalents at 17,938 51,697 the end of the period BATM ADVANCED COMMUNICATIONS LTD. APPENDIX TO CONSOLIDATED STATEMENT OF CASH FLOWS RECONCILIATION OF LOSS FOR THE PERIOD TO NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES Six months Year ended ended June 30, 2002 December 31, 2001 $US'000 $US'000 Unaudited Audited Loss for the period (7,343) (267,356) Company's share in loss of associated company 57 242 Amortization and write-off of goodwill 4,949 255,100 Write-off of fixed assets -- 616 Depreciation and amortization 1,061 2,973 Increase (decrease) in severance pay fund, 61 (29) net of provision Decrease in Inventory 3,894 7,235 Decrease in debtors 7,813 7,752 Decrease in creditors (10,475) (4,902) Loss from marketable securities 79 115 Interest incurred on investments (397) (88) Interest incurred on loan for affiliate 27 47 Loss on disposal of fixed assets 9 25 Net cash inflow (outflow) from operating activities (265) 1,730 BATM ADVANCED COMMUNICATIONS LTD. NOTES TO THE FINANCIAL STATEMENTS Note 1 - General The unaudited results for the six months ended 30th June 2002 have been prepared in accordance with generally accepted accounting principles set out in the Annual Report and Accounts for the year ended 31st December 2001. The unaudited results for the six months ended 30th June 2001 were prepared on the same basis. The results for the year ended 31st December 2001 have been extracted from the audited accounts for that period which received an unqualified audit opinion. Note 2 - Loss per share Loss per share is based on the weighted average number of shares in issue for the period of 387,000,576 (2001 H1: 386,444,690). Note 3 - Reconciliation of movements in shareholders' funds Sharecapital Additional Foreign currency Retainedloss Total US$'000 paid-upcapital translationadjustment US$'000 US$'000 US$'000 US$'000 As at January 1, 1,173 397,244 16 (274,086) 124,347 2002 Exercise of 1 18 19 options by Employees and advisors Issuance of share 1 81 82 capital Loss for the (7,343) (7,343) period As at June 30, 1,175 397,343 16 (281,429) 117,105 2002 (unaudited) Note 4- Material difference between Israeli and UK GAAP The material difference between Israel and UK GAAP, as applicable to the Group's financial statements, is the accounting treatment with regard to employees share option schemes. Israeli GAAP does not require any reflection in the financial statements for the difference, if any, at the date of the award, between the fair value of the share and the exercise price of the option. Under UK GAAP (UITF 17) such a difference is charged to the profit and loss account, basically over the vesting period of the options. Had the company applied such UK GAAP, the loss per share, for the six months ended June 30, 2002 would have increased by $0.002 per share and for the year ended December 31, 2001 would have decreased by $0.02 per share.

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