Final Results
BATM Advanced Communications Ld
13 March 2002
Embargoed for release, Wednesday 13 March 2002 - 07.00am (GMT)
BATM Advanced Communications Limited
Final Results for the Year Ended 31 December 2001
Emerging in a strong position from a year of difficult markets
BATM Advanced Communications Limited (LSE: BVC), a leading designer and producer
of broadband data and telecoms systems, today announces preliminary results for
the year ended 31 December 2001.
Highlights
Twelve months ended 31 December (pro-forma**) 2001 2000*
Turnover $82.0m $91.9m
Operating profit (loss) $(3.0)m $8.4m
Pre-tax profit (loss) $(0.7)m $22.2m
Earnings (loss) per share (0.3)c 5.8c
* Figures for 2000 include the results of Telco Systems acquired with effect
from 7 April 2000
** Excluding $255.0m amortization and goodwill write off, exceptional inventory
write down of $8.15m and severance and moving expenses of $2.89m.
• Sales of $82m in line with revised market expectations
• Strong cash position of $56.6m and no debt
• Gross margin remains high at 44% (2000: 46%)
• R&D investment maintained
• Successful rollout of new products
• Overheads reduced in line with strategy
• New customers in Far East
Peter Sheldon, Chairman of BATM, said:
'Our prudent trading philosophy has meant that we have not sustained bad debts
or had to write off irrecoverable loans, issues which have adversely affected so
many others in our industry. This strong position offsets the disappointment of
producing an operating loss, albeit the first in the Company's history.
Whilst the events of the last year and the consequences of the September 11th
terror attacks have created considerable uncertainty, we see a number of
encouraging signs that the worst may be over. We are prepared for a
continuation of the difficult trading conditions that affected the year under
review but are ready for the inevitable return to more stable trading
conditions.'
Dr Zvi Marom, Chief Executive of BATM, said:
'Having begun 2001 with market leading products, we maintained our investment in
R&D throughout this difficult time and we remain in a very strong technical
position.
The strong relationships that we have with our blue-chip customers coupled with
our strong net cash position, place us in an excellent position to benefit from
the upturn in the telecom market as it occurs.'
Enquiries:
BATM Advanced Communications
Peter Sheldon, Chairman 020 7831 3113
Dr Zvi Marom, Chief Executive
Ofer Bar-Ner, Chief Financial Officer
Dresdner Kleinwort Wasserstein
Mark Smith 0207 623 8000
Shore Capital
Graham Shore 0207 408 4090
Financial Dynamics
James Melville-Ross/Alastair Hetherington 0207 831 3113
Chairman's Statement
Review of the Period
2001 has been the most challenging that the Company has faced in its ten-year
history and our results reflect the turmoil in the markets in which we operate.
However, the Company has shown its ability to adapt rapidly to changing
circumstances and it has emerged from this period in a strong relative position,
able to benefit from the inevitable return of confidence in due course.
Our expectations of continued organic growth were frustrated by increasing
evidence of economic downturn, leading to the undermining of confidence in our
markets. The events of September 11th only served to intensify this situation
and significantly affected sales, particularly in our most important market, the
USA.
Despite this gloomy background, the Company has maintained an impressive
research and development programme, has opened a number of strategically
important new accounts and has strengthened its management, whilst re-aligning
staff overhead. The disappointment of producing an operating loss, the first in
the Company's history, is countered by satisfaction that our prudent trading
philosophy has meant that we have neither sustained bad debts nor had to write
off irrecoverable loans, which have adversely affected so many others in our
industry.
Our balance sheet remains very strong and our cash and short-term investments,
which have declined only fractionally during the course of the year, actually
increasing by more than $4 million in the second half of the year, to stand at
over $56 million. This provides a substantial cushion against further adverse
trading conditions. In the light of prevailing market conditions, the Board has
decided that it would be appropriate to write down a significant element of the
goodwill on its balance sheet. The bulk of the $255 million write down
represents amortisation and write-off of goodwill in connection with the
acquisition of Telco Systems in 2000. Following this write down the amount of
goodwill remaining on our balance sheet has reduced to $32 million.
Financial Performance
Turnover for the year was $82,001,000 (2000: $91,876,000). 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 and the events of
September 11th.
Reassuringly, gross profit margins decreased just two per cent from 46 per cent
to 44 per cent, reflecting the anticipated lower margins in our US business.
Net research and development expenditure was $13,564,000 (2000: $13,175,000). We
continue to invest heavily in our R&D programme to support our road map of new
products, to which we remain committed notwithstanding the current market
climate.
Selling, general and administrative expenditure was $25,796,000 (2000:
$20,999,000), heavily biased to the first half. We managed to reduce our
selling, general and administrative expenses by 17% in the second half.
Financial income decreased to $2,221,000 (2000: $6,132,000). This decrease was
due to the reduction in interest receivable, commensurate with the reduction in
cash reserves after the Telco Systems acquisition, and overall lower interest
rates.
The losses recorded by the Group in the year ended 31st December 2001 were
substantially impacted by the goodwill write off relating to the Telco
acquisition and exceptional items incurred while realigning the business to
address the market uncertainties. In April 2000 BATM acquired Telco Systems at
a price, satisfied through a major placing of equity, which reflected the value
of similar companies at the time. The price included goodwill over and above the
'fair value' of the company, of $330 million. In the light of the deterioration
in market conditions, it now appears very unlikely that Telco Systems will meet
the sales targets set out in its business plan at the time of acquisition. As a
result, the board has decided to revalue its investment in Telco Systems and, in
addition to the annual $66 million amortisation charge, has written off a
further $189 million of goodwill relating to this acquisition.
Also, in light of the current market conditions, especially in the US, we have
taken the steps necessary to re-align our cost structure. These actions have
resulted in the generation of a positive cash-flow of more than $4 million in
the second half of the year, leaving us within $1 million of our cash balances
and short-term investments at the beginning of the year. We have recorded
severance costs of $1.7 million and written down inventory by $8.15 million.
The inventory write down is related to the inventory and purchase obligation of
Ezenia, reported in the first half of the year and excess inventory on other
Telco Systems products. We also recorded $1.2 million in expenses incurred in
moving offices.
In order to provide more realistic trading comparisons the profit and loss
figures referred to below are based on the attached pro-forma profit & loss
account, which exclude the effect of revaluation of the investment in Telco
Systems as well as the exceptional items.
Pro-forma operating loss, at $2,988,000 (2000 profit: $8,381,000), arose
principally as a result of the lower turnover. Pro-forma loss before tax was
$702,000 (2000 profit: $22,248,000). Pro-forma net loss for the year was
$1,211,000 (2000 profit: $22,238,000), giving pro forma loss per share of 0.31
cents (2000 profit: 5.84 cents).
Our balance sheet remains very strong with net cash and short-term investments
of $56,620,000 at the year-end.
Consistent with the previous year, no dividend is proposed for the year under
review.
Sales and Marketing
Despite the adverse market conditions throughout the year, we have good reasons
to be satisfied with our overall sales and marketing performance. At a time
when a number of our competitors have seen severe decreases in sales levels we
have managed to outperform in a highly competitive market.
In the USA we faced particularly difficult trading conditions and our management
structures and staffing levels were reorganized to meet the challenge.
The identification of the Far East as a significant potential market for our
products has borne fruit and this area of opportunity for us has begun to
develop. Substantial contracts for our products have been entered into and
deliveries under these contracts have commenced during the year. We anticipate
a significant contribution from this area in the current and future years.
Long-term relationships established with Nokia, Ericsson and Siemens continue to
bear fruit. Sales to these customers in 2001 were also affected by the global
situation but we confidently expect continuing and growing business from these
associations.
We are serving an increasing number of major customers in the government,
transportation, academic, banking and telecom sectors, some of which are under
multi-year purchasing plans which provide an element of visibility.
Products Launched
During 2001 we launched several new products and variants:
- The Titan T6 platform was launched and ordered by several customers.
In December 2001 the Titan T6 won the EU Research and Development (IST) Prize
for Information Technology.
- Several new capabilities have been added to our highly successful
Titan T5 Pro which was released at the end of 2000. These include Packet over
Sonet (POS), Redundant CPU, advanced traffic shaping and load balancing as well
as other features. The product has been supplied to several customers and won
the U.S. magazine 'Internet Technology' Product of the Year Award.
- Several enhancements especially for the US market have been introduced
to our VDSL offering, a 24 Ports VDSL Switch with IP interfaces among them.
- We have continually enhanced the capabilities of our product line with
the introduction of the new BINOS software platform (BATM Networking operating
systems).
Research & Development
Our confidence in the future of the Company and the industries it serves is
reflected in our continuing commitment to our R&D programme. Accordingly, the
company has continued to invest heavily in R&D despite the current market
climate. BATM is a market driven company and much of its product development is
done in cooperation with potential and existing customers.
- 10 GigaBit Ethernet
The company is engaged in developments on 10 Gigabit Ethernet technologies that
will continue during 2002-2003. The first products to be brought to the market
in 2002 will be 10 Giga blades for the Titan T6.
- T8
The development around the T8 family continues. In the light of current trading
conditions our present emphasis is to take elements that are fully developed and
tested and integrate them into existing and new machines such as T6 and T5 Pro.
- T7
Development of a machine which is a high density 1 Giga and 10 Giga machine
continues . This machine is expected to be released during the latter part of
2002.
- Edgelink
Advanced versions of the Edgelink family that will include several new features
such as IP Links will be released starting Q2, 2002.
Management Changes
On June 1, we were delighted to welcome to our Board Mr. Adi Alon. Mr. Alon is
a partner at Monitor Group, an international strategy and professional services
firm, where he heads the firm's Israeli operations. Mr. Alon has 10 years of
consulting experience, advising clients in the telecommunications and technology
sectors. Prior to his consulting career, he worked at the Research Department
of the Bank of Israel, performing macro economic research. Mr. Alon holds an
MBA from MIT's Sloan School of Management, and a BA in Economics and Accounting
from the Hebrew University in Jerusalem. He brings to the Board extremely useful
experience of the markets in which we operate.
Outlook
The events of the last year and the consequences of the September 11th terrorist
attacks have created considerable uncertainty in the world economy and our
industry. Whilst we see a number of encouraging signs that the worst may be
over, we are prepared for a continuation of the difficult trading conditions
that affected the year under review.
The steps that we have taken on all fronts - manpower, products, markets and
production - have left us in the best possible shape to take advantage of the
more positive trading environment when it arises. Whatever the conditions, we
are cautiously optimistic and believe that the company is in the strongest
position that it could be in the current market.
BATM ADVANCED COMMUNICATIONS LTD.
PROFORMA CONSOLIDATED PROFIT AND LOSS ACCOUNTS*
Year ended December 31
2001 2000
US$ in thousands
Turnover 82,001 91,876
Cost of sales 45,629 49,321
Gross profit 36,372 42,555
--------- ---------
Operating expenses
Research and development costs 14,926 14,707
Less - participation 1,362 1,532
Research and development costs, net 13,564 13,175
Selling, general and administrative expenses 25,796 20,999
Total operating expenses 39,360 34,174
--------- ---------
Operating profit (loss) (2,988) 8,381
Financial income, net 2,221 6,132
Other income, net 65 7,735
Income (loss) before taxes on income (702) 22,248
Taxes on income (267) (73)
Income (loss) after taxes on income (969) 22,175
Company's share in Income (loss) of
associated company (242) 63
Net Income (loss) for the year (1,211) 22,238
Income (loss) per share (in cents) (0.31) 5.84
* See Note 4
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Year ended December 31
2001 2000
US$ in thousands
Turnover 82,001 91,876
Cost of sales 53,991 49,321
Gross profit 28,010 42,555
--------- ---------
Operating expenses
Research and development costs 15,655 14,707
Less - participation 1,362 1,532
Research and development costs, net 14,293 13,175
Selling, general and administrative expenses 27,750 20,999
Amortization and write off of goodwill 255,100 48,306
Total operating expenses 297,143 82,480
--------- ---------
Operating loss (269,133) (39,925)
Financial income, net 2,221 6,132
Other income, net 65 7,735
Loss before taxes on income (266,847) (26,058)
Taxes on income (267) (73)
Loss after taxes on income (267,114) (26,131)
Company's share in Income (loss) of
associated company (242) 63
Net loss for the year (267,356) (26,068)
Loss per share (in cents) (69.13) (6.85)
BATM ADVANCED COMMUNICATIONS LTD
CONSOLIDATED BALANCE SHEETS
December 31 December 31
2001 2000
US$ in thousands
Fixed assets
Tangible assets 12,770 13,587
Goodwill 32,169 287,269
Total fixed assets 44,939 300,856
--------- ---------
Current assets
Stocks 21,027 28,262
Debtors 18,292 26,044
Short term investments 4,923 50,482
Cash and cash equivalents 51,697 7,255
95,939 112,043
Creditors: amounts falling
due within one year 24,600 30,138
Net current assets 71,339 81,905
---------- ----------
Long Term Investments
Investments in associated companies 8,364 9,126
---------- ----------
Total assets less current liabilities 124,642 391,887
---------- ----------
Non-current liabilities
Severance pay fund, net of provision (295) (324)
---------- ----------
Net assets 124,347 391,563
Capital and reserves
Share capital 1,173 1,171
Additional paid-in capital 397,244 397,106
Foreign currency translation adjustment 16 16
Profit and loss account (274,086) (6,730)
Shareholders' funds 124,347 391,563
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
Note 2 0 0 1 2 0 0 0
US$ in thousands
Net cash inflow from operating activities 1 1,730 8,756
---------- ----------
Investing activities
Acquisition of shares in other companies -- (600)
Acquisition of shares in associated company -- (1,334)
Acquisition of shares in subsidiary (Telco) 2a -- (268,314)
Acquisition of shares in subsidiary (Ezenia) 2b -- (3,000)
Proceeds from divestment of a company -- 3,997
Acquisition of shares in subsidiary (Connectronix) -- (110)
Repayment of (Investment in) loan to associated company 473 (1,938)
Acquisition of fixed tangible assets (2,817) (6,264)
Proceeds from sale of tangible fixed assets 20 354
Sale of short term bank deposits 45,207 45,408
Sale of marketable securities, net 325 900
Net cash inflow (outflow) from investing activities 43,208 (230,901)
---------- ----------
Financing activities
Issuance of share capital, net -- 94,345
Exercise of options by employees and advisors 140 492
Repayment of short-term credit, net (636) (101)
Dividend paid -- (183)
Net cash inflow (outflow) from financing activities (496) 94,553
----------- -----------
Increase (decrease) in cash
and cash equivalents 44,442 (127,592)
Cash and cash equivalents at
the beginning of the year 7,255 134,847
Cash and cash equivalents at
the end of the year 3 51,697 7,255
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 1 2 0 0 0
US$ in thousands
Net loss for the year (267,356) (26,068)
Company's share in loss (profit) of associated company 242 (63)
Amortization and write off of goodwill 255,100 48,306
Write off of fixed assets 616 --
Depreciation and amortization 2,973 2,024
Write off of investment -- 321
Increase (decrease) in severance pay fund, net of provision (29) 112
Decrease in stocks 7,235 3,731
Decrease (increase) in debtors 7,752 (10,148)
Decrease in creditors (4,902) (2,124)
Restructuring costs -- (3,543)
Gain from divestment of a company -- (1,997)
Loss (gain) from marketable securities 115 (43)
Interest incurred on investments (88) (1,677)
Interest incurred on loan for affiliate 47 (104)
Loss on disposal of fixed assets 25 29
Net cash inflow from operating activities 1,730 8,756
NOTE 2 - ACQUISITION OF SUBSIDIARY
Consolidated
Year ended December 31
2 0 0 0
US$ in thousands
a. Assets and liabilities of the subsidiary at acquisition (Telco)
Working capital (excluding cash and cash equivalents) 14,296
Fixed tangible assets 4,566
Intangible assets 8,102
Long-term liabilities (3,543)
Excess cost 244,893
268,314
b. Assets and liabilities of the subsidiary at acquisition (Ezenia)
Working capital (excluding cash and cash equivalents) 880
Excess cost 2,120
3,000
BATM ADVANCED COMMUNICATIONS LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - ANALYSIS OF CASH AND CASH EQUIVALENTS
US$ in thousands
Balance at December 31, 2000 7,255
Net cash inflow 44,442
Balance at December 31, 2001 51,697
NOTE 4 - PROFORMA VS ACTUAL FOR THE YEAR ENDED DECEMBER 31,2001
PROFORMA ACTUAL
US$ in thousands
Cost of sales (1) 45,629 53,991
Research and development costs, net (2) 13,564 14,293
Selling, general and administrative expenses (3) 25,796 27,750
(1) Represents $8.15 million write down of inventory and $0.21 million
Severance Costs.
(2) Represents $0.52 million Severance Costs and $0.21 million Moving
Expenses.
(3) Represents $0.97 million Severance Costs, $0.40 million Moving
Expenses and $0.58 million to close office in E.providence.
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