Interim Results

For immediate release 10 Sep 2004 BATM Advanced Communications Limited - 2004 interim results 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 2004. Six months (*) 2004(H1) 2003(H1) Turnover $19.5m $17.9m Gross Profit $8.8m $6.9m Operating loss $(2.8)m $(5.8)m Pre-tax loss $(1.9)m $(4.9)m Loss per share (0.51)¢ (1.27)¢ (*) Pro forma results exclude amortization of goodwill (2004 & 2003). Highlights * Revenue growth of 9% over the same period last year * Gross Profit margin of 45.2% compared with 38.9% in the same period of 2003 * Global distribution agreement with a leading European telecoms infrastructure supplier * Strong cash position of $49.5m at 30 June 2004 Dr Zvi Marom, Chief Executive of BATM, said: 'The half year results show a continuation of the improvement in our business which commenced in the second half of last year. I am encouraged by both the improvement in sales as well as in our gross margins and continued discipline in our costs. The important alliances that we have entered into with world leading companies in our markets, such as Nokia, are an important factor in this improved position.' For further information please contact: 10 Sept Thereafter BATM Advanced Communications Limited Dr Zvi Marom, Chief Executive 020 7831 3113 00972 9 866 2525 Ofer Bar-Ner, Chief Financial Officer 020 7831 3113 00972 9 866 2525 Dresdner Kleinwort Wasserstein Mark Smith 020 7623 8000 020 7623 8000 Shore Capital Graham Shore 020 7408 4090 020 7408 4090 Financial Dynamics James Melville-Ross / Cass Helstrip 020 7831 3113 020 7831 3113 Chairman's Statement Financial Performance Turnover for the period was $19,461,000 (H1 2003: $17,872,000), an increase of 9% compared with last year. This increase can attributed to growth in both our IP switching business as well our Edglink product line. Gross profit margin improved to 45.2% of turnover (H1 2003: 38.9%). This increase was primarily a result of change in product mix combined with improved gross profit from our EdgeLink and Access products as well as lower write down of inventory $ 40,000 (H1:2003 $344,000). Selling, general and administrative expenses were again well controlled and totaled $6,581,000 (H1 2003: $7,011,000), reflecting a reduction of 6%. Ongoing spending controls have contributed to this reduction. We have maintained a significant investment in Research and Development (R&D). Gross R&D in this period was $5,300,000 (H1 2003: $5,990,000) a decrease of 12%. After contributions from the Israeli Chief Scientist and from the European Community, net research and development expenditure was $4,960,000 (H1 2003: $5,757,000). Pro forma operating loss, before goodwill amortization, amounted to $2,753,000 (H1 2003: loss $5,821,000), a 52.7% improvement. Operating loss after goodwill amortization was $7,702,000 (H1 2003: loss $10,770,000). Financial income was $890,000 (H1 2003: $937,000). This decrease reflected a slightly lower level of cash and cash equivalents. The resulting pro forma loss before tax, excluding the effect of the amortization of goodwill, was $1,850,000 (H1 2003: loss $4,899,000). Pro forma loss after taxes and minorities, excluding the effect of the amortization of goodwill, was $1, 969,000 (H1 2003: loss $4,937,000), resulting in a loss per share of 0.51 cents (H1 2003: 1.27 cents). Actual loss after taxes, including the effect of goodwill amortization, amounted to $6,918,000 (H1 2003: Loss $9,886,000), resulting in a loss per share of 1.78 cents (H1 2003: Loss 2.55 cents). Our balance sheet remains strong with cash of $49.5m ($51.1m : 31.12.2003) at the period's end comprised as follows: Cash and deposits up to three months period $3.2 million, short-term deposits up to one year period $22.8 million and long-term deposit for three years period $23.5 million. The principal reason for the small reduction in our cash position is due to an investment of over $1m in new offices in Netanya, Israel. We continue to exercise a conservative investment strategy maintaining most balances in bank deposits. Sales and Marketing We have continued to focus on building relationships with several large customers who provide us with significant and stable business opportunities. In addition to our successful relationships with other OEMs, such as Nokia, in March of 2004, we announced a new relationship with a leading European telecom infrastructure supplier. We will continue to pursue this avenue of business by leveraging our investment in the development of new Ethernet platforms in the access market to forge similar relationships with other suppliers. These agreements enable BATM to gain customer access in partnership with some of the world's leading system integrators and infrastructure players. We also continue to develop relationships with US Service providers. We believe that the migration to Voice Over IP and the adoption of fiber based transport to the home/ business provides a significant opportunity for us. Our portfolio of IP based products is uniquely positioned in these emerging markets and provides an excellent base to expand our relationship with existing customers and penetrate new accounts. In June of this year, we announced the appointment of Larry Asten as the President of Telco Systems, our wholly owned US subsidiary. Larry rejoined Telco Systems in May of 2003 as Vice President of Sales and Services after an absence of just over 10 years. Larry's experience includes senior executive positions in sales, service, marketing and engineering at ADC Telecom, Nortel, GTE as well as Telco's Vice President of Sales in the early nineties. Under Larry's leadership, Telco Systems was awarded the Verizon Supplier Excellence Award for 'outstanding effort and achievement in demonstrating performance excellence.' in April of this year. Research and Development and New Products We continue to expand our line of IP switches to address the market for Fiber To The Home / Business. Our existing products support delivery of `triple-play' services (Voice, Video and Data) over active or passive Ethernet. Our new products will improve the quality and allow more services to be delivered over fiber. In addressing this market, we adopted the ATCA standard and already have seen promising feedback from several potential customers at the Supercomm 2004 trade show which was recently held in Chicago. We continue to expand our transport solution with the introduction of SONET interfaces to our Edgelink HUB platform. This product, required by many major US telecom providers, will expand the deployment opportunities within the US. We officially released our Access 211 to address the market for VOIP adapters in June of this year. This product has already been tested successfully by several service providers. We are currently trialling the Access 211 with 34 customers and hope to convert some of them to actual deployments as early as the second half of this year. We continue to invest in new platforms to address the need for VOIP support both in residential and small to medium size businesses. Investment At the end of July, we completed the sale of our 49.9% holding in Eldor Computers Limited to Taldor Group. In exchange for our holdings in Eldor we received 430,000 shares in Taldor, a publicly traded company on the Tel-Aviv Stock exchange. These shares represent 4.1% of the outstanding shares of Taldor. We expect to record approximately $400,000 of capital gain in the second half of this year. Prospects Current signs suggest that our improved trading performance will continue into the second half of 2004. Peter Sheldon Chairman 10 September 2004 BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED PROFIT AND LOSS ACCOUNT Six months Six months ended June 30, ended June 2004 30, 2003 $US'000 $US'000 Unaudited Unaudited Turnover 19,461 17,872 Cost of sales 10,673 10,925 Gross profit 8,788 6,947 Operating expenses Research and development costs 5,300 5,990 Less - participation 340 233 Research and development costs, net 4,960 5,757 Selling, general and administrative expenses 6,581 7,011 Amortization of Goodwill 4,949 4,949 Total operating expenses 16,490 17,717 Operating loss (7,702) (10,770) Financial income, net 890 937 Other income (expenses), net 13 (15) Loss before Group's share in loss of (6,799) (9,848) associated company Group's share in loss of (119) (38) associated company Loss for the period (6,918) (9,886) Loss per share (in cents) (1.78) (2.55) BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED BALANCE SHEET As at As at 30th June 30th June 2004 2003 $US'000 $US'000 Unaudited Unaudited Fixed assets Tangible assets 10,790 10,526 Goodwill, net 7,424 17,322 Total fixed assets 18,214 27,848 Current assets Inventory 5,832 11,343 Debtors 7,853 5,810 Short-term investments 22,764 3,753 Cash and cash equivalents 3,185 14,808 39,634 35,714 Creditors: amounts falling due within one 8,923 10,831 year Net current assets 30,711 24,883 Long-term investments Investment in associated company 1,145 1,470 Investment in other companies 3,688 3,688 Long-term deposit 23,563 36,627 28,396 41,785 Total assets less current liabilities 77,321 94,516 Non-current liabilities Severance pay fund, net of provision (373) (324) Net assets 76,948 94,192 Capital and reserves Share capital 1,177 1,177 Additional paid-in capital 397,550 397,541 Foreign currency translation adjustment 16 16 Retained loss (321,795) (304,542) Shareholders' funds 76,948 94,192 BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED STATEMENT OF CASH FLOWS Six months ended Six months ended June 30, 2004 June 30, 2003 $US'000 $US'000 Unaudited Unaudited Net cash outflow from operating activities (1,121) (515) ---------- ---------- Investing activities Repayment of loan to associated company 77 -- Acquisition of fixed tangible assets (1,285) (374) Proceeds from sale of fixed tangible assets - 23 Proceeds from short-term bank deposits 2,240 29 Proceeds from (investment in) marketable (54) 2 securities, net Net cash inflow (outflow) from investing 978 (320) activities ---------- ---------- Financing activities Exercise of options by employees 10 124 Net cash inflow from financing activities 10 124 ----------- ----------- Decrease in cash (133) (711) and cash equivalents Cash and cash equivalents at 3,318 15,519 the beginning of the period Cash and cash equivalents at 3,185 14,808 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 OUTFLOW FROM OPERATING ACTIVITIES Six months Six months ended June ended June 30, 2004 30, 2003 $US'000 $US'000 Unaudited Unaudited Loss for the period (6,918) (9,886) Company's share in loss of associated company 119 38 Amortization of goodwill 4,949 4,949 Depreciation and amortization 723 968 Increase (decrease) in severance pay fund, 14 (6) net of provision Decrease in Inventory 1,851 2,103 Decrease in debtors 470 2,915 Decrease in creditors (1,623) (807) Loss (gain) from marketable securities 51 (72) Interest incurred on investments (755) (679) Interest incurred on loan for affiliate (2) (55) Loss on disposal of fixed assets - 17 Net cash outflow from operating activities (1,121) (515) BATM ADVANCED COMMUNICATIONS LTD NOTES TO THE FINANCIAL STATEMENTS Note 1 - General The unaudited results for the six months ended 30th June 2004 have been prepared in accordance with generally accepted accounting principles set out in the Annual Report and Accounts for the year ended 31st December 2003. The unaudited results for the six months ended 30th June 2003 were prepared on the same basis. Note 2 - Loss per share Loss per share is based on the weighted average number of shares in issue for the period of 388,471,534 (2003 H1: 387,879,206). Note 3 - Reconciliation of movements in shareholders' funds Sharecapital Additional Foreign currency Retainedloss Total US$'000 paid-incapital translationadjustment US$'000 US$'000 US$'000 US$'000 As at January 1, 1,177 397,540 16 (314,877) 83,856 2004 Exercise of - 10 10 options by Employees Loss for the ---- ---- ----- (6,918) (6,918) period As at June 30, 1,177 397,550 16 (321,795) 76,948 2004 (unaudited) Note 3 - 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 and the loss per share, for the six months ended June 30, 2004 would have increased by $352 thousands and $0.09 per share, respectively and for the six months ended June 30, 2003 the loss and the loss per share would have increased by $674 thousands and $0.17 per share, respectively. BATM Advanced Communications Limited - Interim results 2004

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