Final Results

BATM Advanced Communications Ld 8 March 2001 BATM Advanced Communications Limited Final Results for the Year Ended 31 December 2000 BATM Advanced Communications Limited, the London Stock Exchange-listed developer of data communications equipment, announces its results for the year ended 31 December 2000. Highlights Twelve months ended 31 December 2000 1999 Turnover $91.9m $26.9m Operating profit* $8.4m $5.9m Pre-tax profit* $22.2m $8.5m Earnings per share* 5.8c 2.6c Figures include the results of Telco Systems acquired with effect from 7 April 2000 * Excluding amortization of goodwill Peter Sheldon, Chairman of BATM, said: '2000 has been a year of considerable achievement by the Company, despite the challenges facing the industry in which we operate. It has been a year in which we have generated record profits and significantly strengthened our operational and asset base.' Dr Zvi Marom, Chief Executive of BATM, said: 'Through our increased research and development programme we are continuing to build a company on a base of highly innovative products that can compete with the major players in our sector, whilst maintaining sound financial strength and prudence in the business relationships we pursue. With our considerably increased marketing and manufacturing capability and the exciting new products in our development pipeline, we are well prepared and see many opportunities for ourselves in the markets and technologies in the areas in which we operate. Despite the increasing evidence of slowdown in the world economy and the telecom industry in particular, we see another year of growth and expansion for BATM in 2001.' For further information please contact: www.batm.com BATM Advanced Communications Ltd Peter Sheldon, Chairman 020 7324 8888 Dr Zvi Marom, Chief Executive 020 7324 8888 DKW Mark Smith 020 7475 7379 Shore Capital Graham Shore 020 7408 4090 Golin/Harris Ludgate Edward Macquisten 020 7324 8888 Chairman's Statement Introduction 2000 has been a year of considerable achievement by the Company, despite the challenges facing the industry in which we operate. Although we were unable to fulfil our expectations of sales, following the well-publicised shortages of components and fall-off in demand as the year progressed, it has nevertheless been a year in which we have generated record profits and significantly strengthened our operational and asset base. The acquisition of Telco Systems in April has opened up the USA market for our leading edge telecom and datacom products and our new branch operations have opened up other areas of marketing opportunity. Our increasing R&D programme and development partnerships with some of the world's leading companies have created a platform for continuing growth. Together with the widening of our manufacturing base, which will reduce risk and offers the prospect of reductions in our manufacturing costs, we are continuing to build a company with significant potential. Financial Performance Turnover for the year was $91,876,000 (1999: $26,914,000). This substantial increase is a direct result of the acquisition of Telco Systems whose results have been consolidated with effect from 7 April 2000. The turnover of Telco Systems for the consolidated period was $69,220,000. Telco Systems' turnover included Telco's original product line and products from the BATM range introduced following the acquisition. The cost of the Telco and other smaller acquisitions has involved substantial goodwill payments. The effect of amortizing this goodwill, in accordance with accepted accounting standards, is to distort reported profitability levels substantially. Accordingly, for the purpose of this statement, operating and pre-tax figures are stated before amortization, unless otherwise stated. Pro forma operating profit, at $8,381,000 (1999: $5,890,000), was up 42 per cent, principally as a result of the turnover growth. The gross profit margin decrease from 49 per cent to 46 per cent reflects the lower levels of margin earned on our USA business. Selling, general and administrative expenses all increased in line with turnover. Net research and development expenditure was $13,175,000 (1999: $1,397,000). The increase in R&D spend, from 5 per cent to 14 per cent of sales, reflects our determination to continue building an exciting and innovative pipeline of telecom and datacom products. During the year we sold our investment in Shiron Satellite Communications, generating a $2 million profit. This together with almost $6 million produced as a result of a release from a real estate lease obligation in the USA, previously provided for, accounts for the bulk of $7,735,000 of other income earned in the year. Financial income increased to $6,132,000 (1999: $2,466,000). The increase represents interest earned on the additional deposits held following the share placing at the beginning of the year under review, which have been largely utilized for the Telco Systems acquisition. Pro forma profit before tax was $22,248,000 (1999: $8,453,000). Pro forma net profit for the year was $22,238,000 (1999: $8,387,000), giving pro forma earnings per share of 5.84 cents (1999: 2.56) an increase of 128 per cent. Actual loss after taxes, including the effect of amortization of goodwill, was $26,068,000, giving a loss per share of 6.85 cents. Our balance sheet remains very strong with net cash and short-term investments of $57,737,000 at the year-end. This strength is a direct result of our firm commitment to pursue business only where there is limited financial risk and clear profit potential. As a result of the high amortization charge, Company Law prohibits the payment of dividends. Accordingly no dividend is proposed for the year under review (1999: 0.5025 cents per share). Sales and Marketing Following the acquisition of Telco Systems, the majority of our sales efforts during 2000 were directed towards the USA, maintaining sales of existing product lines while creating a structure to prepare for the introduction of Telco products incorporating BATM technology into the US telecom market, particularly to existing customers. Unfortunately, the effects of the sudden slowdown in the telecom market combined with a shortage of critical components meant that we were unable to achieve the full level of anticipated sales. The disappointing level of sales however masks considerable additional underlying sales activity, which, by its very nature, has a slow gestation period. We already commenced deliveries of product to Nokia under our agreement and expect these sales to grow in the coming year. We are engaged in advanced field trials and negotiations with major telecom companies and confidently expect that, in 2001, we will generate significant growth in revenues in the US market, particularly from our IP switching line. The ability to demonstrate a very economic and smooth migration path from circuit to IP switch/routing, while protecting customer investment, is proving to be a very valuable feature to our customers. In addition we are promoting our VDSL product line into the market of multi-occupancy buildings. We expect that we will sign several more OEM's for this and other equipment during 2001. We also expect existing OEM's to continue their activity with us. We are also concentrating on increasing our sales and marketing efforts in Europe. Late in 2000 we opened branch operations in France, Poland and Austria as well as increasing substantially our presence in Germany. All of these branches have commenced to do business and have entered into promising supply agreements. We expect each of these to grow during the coming year. In 2001 we intend to open new branches in more countries in Europe. We also intend to start selling activity in the Far-East with branches to be opened in Hong Kong and Korea. Products Launched We have launched a number of new products and product variants in the last few months: * the Titan T5 Pro, a carrier class version of the T5 with redundant power supply and integrated WAN capabilities such as IP routing and packet over SONET support; * the Titan T5 Compact, delivering the high performance of the T5 in a super-compact, super efficient size (only 1U); * the Titan T4 Routing Switch, which we believe is the world's most compact modular stackable routing switch. It is tailor made for demanding networks as it supports multi-layer service (layer 2, 3 and 4 traffic at 10, 100 or 1000 Mbps speeds); * the EdgeLink VDSL switch. This delivers IP over VDSL and is currently the only such switch in the world to begin shipping. It enables the simplicity and efficiency of Ethernet to be provided on standard telephone cabling. Alongside this product, we have launched VDSL modems and splitters for installation at the customer's premises; * the Enhanced EdgeLink 100. We have considerably added to the original feature set of this product to allow, for example, installation in severe environments, remote provisioning, facilities for gateway applications and optional connection panels; * Voice over IP Gateway, developed in partnership with 3M, which is designed for the SOHOs/hotel rooms/multi-occupancy buildings market and provides an uplink together with switched LAN connections within the premises over standard telephone cabling for up to 4 analogue telephones and either 4 or 8 data devices including pcs with IP telephones attached. Research and Development T6 As anticipated, we have completed the development of the Titan T6, which is now in the final stages of testing. In advance of production we have already received several orders for the product and we anticipate first deliveries in April 2001. At CEBIT, at the end of March 2001, we will demonstrate, together with Brain Consult, one of Germany's leading consultancy firms, a high reliability mass IP traffic system, based on BATM Titan T6, Stratus mainframe and Microsoft windows 2000.. We are also continuing development work on more versions of the product, together with our customers. The Titan T6, like the T5 And T4, will represent a family of products offering several options. The T6 family will represent the high end of the Titan family. T8 family Work on the Titan T8 is proceeding well and we expect to introduce the first product in this family towards the end of this year. There is considerable interest in various applications from major telecom operators and testing by potential customers of first models are expected to start earlier than originally anticipated. EdgeLink 700 We have achieved several significant milestones in the development of the EdgeLink 700. The EdgeLink 700 will be the most compact platform on the market to offer a DS1/HDSL2 groomer with GR-303 connectivity directly to a local (Class V) telephone exchange. Grooming enables active and temporarily unused broadband lines to be combined into a smaller number of full active channels, reducing the number of lines and ports needed to connect to the wider network. In addition, the 700 will offer ATM Access Concentration, and DSLAM functionality to make it the most versatile multi-service access concentrator available. We are aiming to start shipping this product towards the end of 2001. Acquisitions and Investment Apart from the acquisition of Telco Systems we made three important, albeit smaller, acquisitions in 2000, to complement our business strategy. In April we completed the acquisition of 49.9% of Eldor Computers Ltd., an Israeli system integrator and support organization. This will strengthen our ability to develop our own home market. We anticipate taking more steps in 2001 to strengthen our position in our home market. In September we acquired the Network Access unit team of Ezenia Inc., to complement our R&D effort in Telco Systems. At the end of September we acquired 19.9% of Lantech, a manufacturer of Data communications products based in Taiwan, to enhance our manufacturing capabilities and open new opportunities for us in the Chinese market. Lynx Photonics, in which we hold 3.35% has completed a successful second round financing at a market valuation of approximately $300 million. We made one divestment during the year. In October we sold all of our equity investment in Shiron Satellite Communications for a profit of $2.0 million. We will continue to take advantage of suitable strategic investment opportunities as they arise. Outlook Despite the increasing evidence of slowdown in the world economy and the telecom industry in particular, we anticipate another year of growth and expansion for BATM in 2001. With our considerably increased marketing and manufacturing capability and the exciting new products in our development pipeline, we are well prepared and see many opportunities for us in the markets and technologies in the areas in which we operate. We are making an extensive R&D investment in mass IP switching / routing (the Titan family) and Symmetric VDSL in which we are delivering the first operational systems in the world. This R&D effort will begin to bear fruit in the first half of 2001 with the launch of further major products. We anticipate, in the course of the year that we will enter into new R&D and trading arrangements with other world leaders such as those entered into in 2000. We are engaged in establishing new relations with major ILEC's and RBOC's in the US, which offer exciting opportunities for our products. The combination of all of the above means that, despite the current adverse operating environment, we do expect 2001 to show continued organic growth. Coupled with our previous strategic initiatives we are confident of another year of progress and expansion for the company. Peter Sheldon March 2001 BATM ADVANCED COMMUNICATIONS LTD PROFORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT Excluding Amortization Of Goodwill Year ended December 31, 2000 1 9 9 9 US$'000s Turnover 91,876 26,914 Cost of sales 49,321 13,648 --------- -------- Gross profit 42,555 13,266 --------- --------- Operating expenses Research and development costs 14,707 3,038 Less - participation 1,532 1,641 ------- ------- Research and development costs, net 13,175 1,397 Selling, general and administrative expenses 20,999 5,979 -------- ------- Total operating expenses 34,174 7,376 ===== ===== Operating profit 8,381 5,890 Financial income, net 6,132 2,466 Other income, net 7,735 97 ------- ------- Profit before taxes on income 22,248 8,453 Taxes on income (73) (66) -------- -------- Profit after taxes on income 22,175 8,387 Company's share in profit of associated company 63 -- ------ ------ Net profit for the year 22,238 8,387 Dividends -- (183) -------- -------- Retained profit for the year 22,238 8,204 ===== ===== Earnings per share (in cents) 5.84 2.56 ===== ===== BATM ADVANCED COMMUNICATIONS LTD CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended December 31, 2000 1 9 9 9 US$'000s Turnover 91,876 26,914 Cost of sales 49,321 13,648 --------- --------- Gross profit 42,555 13,266 --------- --------- Operating expenses Research and development costs 14,707 3,038 Less - participation 1,532 1,641 -------- ------- Research and development costs, net 13,175 1,397 Selling, general and administrative expenses 20,999 5,979 Amortization of Goodwill 48,306 -- -------- -- Total operating expenses 82,480 7,376 ===== ===== Operating profit (loss) (39,925) 5,890 Financial income, net 6,132 2,466 Other income, net 7,735 97 ------- ------- Profit (loss) before taxes on income (26,058) 8,453 Taxes on income (73) (66) ---------- ------- Profit (loss) after taxes on income (26,131) 8,387 Company's share in profit of associated company 63 -- --- --- Net profit (loss) for the year (26,068) 8,387 Dividends -- (183) -- ------- Retained profit (loss) for the year (26,068) 8,204 ====== ==== Earnings (loss) per share (in cents) (6.85) 25.58 ====== ==== BATM ADVANCED COMMUNICATIONS LTD CONSOLIDATED BALANCE SHEET Year ended December 31, 2000 1 9 9 9 US$'000s Fixed assets Tangible assets 13,587 5,054 Goodwill 287,269 907 ---------- --------- Total fixed assets 300,856 5,961 ---------- --------- Current assets Stocks 28,262 2,614 Debtors 26,044 8,638 Short term investments 50,482 93,249 Cash and cash equivalents 7,255 134,847 --------- ---------- 112,043 239,348 Creditors: amounts falling due within one year 30,138 6,190 ---------- ---------- Net current assets 81,905 233,158 ---------- ---------- Long Term Investments Investments in associated company 3,439 -- Investments in other companies 5,687 2,087 ------- ------- 9,126 2,087 ==== ==== Total assets less current liabilities 391,887 241,206 Non-current liabilities Severance pay fund, net of provision (324) (212) ------ ------ Net assets 391,563 240,994 ====== ====== Capital and reserves Share capital 1,171 1,122 Additional paid-in capital 397,106 220,518 Foreign currency translation adjustment 16 16 Profit and loss account (6,730) 19,338 ---------- ---------- Shareholders' funds 391,563 240,994 ====== ====== BATM ADVANCED COMMUNICATIONS LTD CONSOLIDATED STATEMENT OF CASH FLOW Year ended December 31, Note 2000 1 9 9 9 US$'000s Net cash inflow from operating activities 1 8,756 5,917 -------- -------- Investing activities Acquisition of shares in other companies (600) (37) Acquisition of shares in associated company (1,334) -- Acquisition of shares in subsidiary (Telco) 2a (268,314) 154 Acquisition of shares in subsidiary (Ezenia) 2b (3,000) -- Proceeds from divestment of a company 3,997 -- Acquisition of shares in subsidiary (110) (184) (Connectronix) Loan to associated company (1,938) -- Acquisition of fixed tangible assets (6,264) (3,641) Proceeds from sale of tangible fixed assets 354 187 Sale of (investment in) short term bank deposits 45,408 (90,739) Sale of (investment in) marketable securities, 900 636 net ---------- ---------- Net cash outflow from investing activities (230,901) (93,624) ---------- ---------- Financing activities Issuance of share capital, net 94,345 208,380 Exercise of options by employees and advisors 492 1,243 Repayment of short-term credit, net (101) (222) Dividend paid (183) (155) ---------- --------- Net cash inflow from financing activities 94,553 209,246 ---------- --------- Increase (decrease) in cash and cash equivalents (127,592) 121,539 Cash and cash equivalents at the beginning of the year 134,847 13,308 ---------- ---------- Cash and cash equivalents at the end of the year 3 7,255 134,847 ====== ====== BATM ADVANCED COMMUNICATIONS LTD notes TO FINANCIAL statements NOTE 1 - RECONCILIATION OF NET PROFIT FOR THE YEAR TO NET CASH INFLOW FROM OPERATING ACTIVITIES Consolidated Year ended December 31, 2 0 0 0 1 9 9 9 US$'000s Net profit (loss) for the year (26,068) 8,387 Company's share in profit of associated company (63) -- Amortization of goodwill 48,306 -- Depreciation and amortization 2,024 524 Write off of investment 321 -- Increase (decrease) in severance pay fund, net of provision 112 (15) Decrease (increase) in stocks 3,731 (47) Increase in debtors (10,148) (2,911) Increase (decrease) in creditors (2,124) 976 Restructuring costs (3,543) -- Gain from divestment of a company (1,997) -- Loss (gain) from marketable securities (43) 31 Erosion of marketable securities -- (3) Interest incurred on investments (1,677) (1,044) Interest incurred on loan for affiliate (104) -- Loss on disposal of fixed assets 29 19 ------ ------- Net cash inflow from operating activities 8,756 5,917 ==== ==== NOTE 2 - ACQUISITION OF SUBSIDIARY Consolidated Year ended December 31, 2 0 0 0 1 9 9 9 US$'000s a. Assets and liabilities of the subsidiary at acquisition (Telco) Working capital (excluding cash and cash equivalents) 14,296 (77) Fixed tangible assets 4,566 203 Intangible assets 8,102 -- Long-term liabilities (3,543) (966) Excess cost 244,893 686 ---------- ------ 268,314 (154) ---------- ------ ------ b. Assets and liabilities of the subsidiary at acquisition (Ezenia) Working capital (excluding cash and cash equivalents) 880 -- Excess cost 2,120 -- ------- -- 3,000 -- ------- -- -- NOTE 3 - ANALYSIS OF CASH AND CASH EQUIVALENTS US$'000s Balance at December 31, 1999 134,847 Net cash outflow (127,592) ----------- Balance at December 31, 2000 7,255 ----------- 1. The financial information for the years ended 31 December 2000 and 31 December 1999 is extracted from the company's audited financial statements for those periods which carried an unqualified audit report. The 2000 annual report and audited financial statements will be sent to shareholders shortly. 2. Earnings per share for the years ended 31 December 2000 and 31 December 1999 are calculated using the weighted average numbers of shares 380,618,290 and 327,854,300 shares in issue throughout the period, respectively. 3. Further copies of this announcement are available from the offices of Golin /Harris Ludgate, 111 Charterhouse Street, London EC1M 6AW.

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