Interim Results

BATM ADVANCED COMMUNICATIONS LIMITED 28 September 1999 BATM Advanced Communications Limited Interim Results for the Period Ended 30 June 1999 Highlights Six months ended 30 June 1999 1998 Turnover $10.936m $7.786m Up 40.4% Operating profit $1.871m $0.846m Up 121.1% Pre-tax profit $2.685m $1.238m Up 116.9% Earnings per share 8.50c 3.87c Up 119.6% * A new $18.5m order from 3M for the year 2000. * Titan T4 switch in full production with significant orders. * Prototypes of Titan T6 to be shown in October - massive capacity. * Revolutionary new VDSL products - high speed links to and from the home. * Plans for a comprehensive solution delivering voice, data and video over IP. Dr Zvi Marom, Chief Executive of BATM, said: 'We made further significant progress in the first half of 1999 in our quest to become a major player in the data and tele- communications markets. Our development programme is now delivering revolutionary new products which should transform the company. To fulfil our potential we intend to accelerate activity in all aspects of the company to maintain and even increase our competitive edge.' Enquiries: BATM Advanced Communications Limited 28 & 29 Sept Thereafter Dr Zvi Marom, Chief Executive 0171 253 2252 00972 3 9386 888 Shore Capital Graham Shore 0171 734 7293 0171 734 7293 Ludgate Communications Edward Macquisten 0171 253 2252 0171 253 2252 Chairman's Statement Financial Performance Turnover for the period was $10,936,000 (1998: $7,786,000), an increase of 40 per cent. We saw strong growth in our North American market (representing just under 36 per cent of turnover). Operating profit at $1,871,000 (1998: $846,000) was up 121 per cent, largely as a result of the benefits of turnover growth. Gross profit margin increased from 44 per cent to 50 per cent, whilst selling, general and administrative expenses decreased from 30 per cent to 26 per cent of sales. Gross research and development expenditure was $1,202,000 (1998: $698,000). However, after increased contributions from the Israeli Chief Scientist, from the BIRD Foundation and from the European Community, net research and development expenditure was $785,000 (1998: $198,000). Financial income was $456,000 (1998: $386,000), as a result of the increase in bank deposits. Profit before tax was $2,685,000 (1998 $1,238,000), up 117 per cent, reflecting the increase in operating profit and the increase in financial and other income. Profit after taxes and minorities was $2,685,000 (1998 $1,203,000), giving earnings per share of 8.50 cents (1998 3.87 cents), an increase of 120 per cent. The balance sheet remains strong with net cash and marketable securities of $29,927,000 at the period end. 3M Investment and Major Order On 2nd June 1999 BATM and 3M announced their agreement to form an even closer working relationship focusing on mass IP traffic, especially the Next Generation Internet, using fibre optic and photonic networking. As a step towards such cooperation, 3M invested $10 million in new ordinary shares in BATM, acquiring a holding of 4.34% of the Company. In addition, 3M was granted an option to subscribe for additional shares to increase its holding to up to 9.99% of the Company. This option is exercisable at any time during the 12 months following 1st June 1999 at the market price immediately prior to the exercise date. On 10th September 1999 we announced a further major order from 3M. BATM is to supply additional equipment supporting fibre optical connections to the value of $18.5m. The order is under the terms of the agreement between 3M and BATM announced on 18th February 1998 and follows earlier orders totalling $12m. The equipment to be supplied under this order is expected to largely consist of BATM's new Titan range of switches (see below). The Company expects shipments to begin early in 2000 and the order to be fulfilled during the course of the year. We are delighted that our relationship with 3M continues to develop so positively and with the response of 3M's customers to the current shipments of our equipment supporting 3M's Volition system. Titan T4 and T5 Our new switch, the Titan T4, is available in 16, 24 or 32 Fast Ethernet port models, with copper or state-of-the-art SFF (Small Form Factor) fibre interfaces. Titan T4 switches can be stacked to provide a combination of 96 Fast Ethernet and 12 Gigabit Ethernet ports. Shipping of the product began in the first quarter of 1999 and we expect to benefit from significant sales in the second half of 1999. Our next switch in the Titan family is the Titan T5. It will be available in up to 64 Fast Ethernet port models, with copper or fibre interfaces. Shipping of the product will begin in the first quarter of 2000. Lynx Photonics Networks The Company announced on 16th August 1999 that it had agreed terms with Lynx Photonic Networks Inc. ('Lynx'), in which it acquired a small stake in July 1998, to extend the co-operation between the two companies in photonic switching (see below). The parties have agreed that BATM will be granted further warrants to increase its stake to 6.5%. BATM will also provide further technical assistance to Lynx, including licensing of BATM's software and access to testing equipment. Research and Development BATM is currently developing very high performance switches for LAN to WAN (edge) applications. The switches are a generation of opto-electronic (Titan T6) switches and photonic (Titan T8) switches enabling unparalleled non-blocking bandwidth. We intend these new products to position us as leading suppliers for the Next Generation Internet (NGI) now planned by the US Government. Titan T6 The Titan T6 will be an opto-electronic switch based on NetWiz's design but using BATM's real-time and management software. It is being designed as a series of modules which can be assembled together to provide bandwidth on a scaleable basis. The basic module will offer 19.2 Gbps of bandwidth but the non-blocking design will enable bandwidth to be accumulated by adding up to a further 7 modules. The capacity offered will be one of the highest if not the highest in the world. We recently announced that the Company has successfully completed ahead of schedule all laboratory testing of the cross-bar chips developed for the Titan T6. The first batch of chips is now in production and the programme is on track for launch of the T6 in the second half of 2000. We will be demonstrating a working prototype of the T6 in Geneva in October in conjunction with the Telecoms Show discussed below. The Company is currently exploring possibilities of co-operation with leading companies in the network chip industry for such companies to use the T6 chipset in their future product offerings. Photonic Switching As discussed above, we have been collaborating with Lynx to develop chips and switching devices which handle light signals without the need to convert these signals into electronic form. These developments offer the potential to provide much greater bandwidth than existing opto-electronic or electronic solutions. We have previously announced that BATM has developed a working photonic crossbar switching device using the Lynx photonic chip. This has the potential to provide a Terabit routing switch. We are now working on taking this product from the laboratory to the market. We hope to have a shippable product by the end of the third quarter of 2001. BATM is involved in all layers of development of both switches from the ASIC level to the Quality of Service software. Agreements with several academic institutions have been signed to enhance the ability of BATM to deliver on time. Voice and video over the Internet Protocol ('IP') The company is also engaged in advanced R&D on the transmission and switching of voice, data and video traffic under the Internet Protocol. The newly acquired NetWiz offering is operationally proven for controlling IP traffic. We are combining this with our own newly developed software into a top-of-the-line IP multiplexing and switching product. Our plans reflect the growing recognition that conventional voice telephony will increasingly migrate into IP traffic, creating a large new market for data communications equipment suppliers. We plan to offer comprehensive solutions, including IP telephones as well as switching devices, beginning in the year 2000. VDSL BATM has developed a product line offering the potentially revolutionary Very-high-data-rate Digital Subscriber Line ('VDSL') technology. VDSL is a higher speed variant of the Asymmetric Digital Subscriber Line ('ADSL') technology which many major telephone companies such as British Telecom and US local exchange carriers have been experimenting with for some time. ADSL offers high speed communications to customer's premises from the local exchange using the existing copper pairs already installed by the telephone company for voice telephony provided that the customer is reasonably close to the exchange (up to 1km is typical). Data rates are from 2 Mbps upwards but with a typical return path to the exchange of 384 Kbps or in some cases 576 Kbps. The same line will simultaneously carry a conventional telephone call. ADSL therefore allows telephone companies to offer their customers services such as video on demand and high speed downloading from the internet without needing to incur the heavy cost of installing new cable in the street. BATM's VDSL product offering is an enhancement of this which would offer very high bandwidth in both directions. The new BATM line offers an end-to-end solution and has been developed as an enhancement of the Titan T4/ Titan T5 IP switches together with a modem developed for the subscriber's premises. Many telephone companies have fibre trunks in the street which are then broken out as copper cable to the customer. The modular Titan T4/T5 switches can be fitted with fibre optic uplinks (up to a rate of 1 Gigabit per second over single-mode fibre). The VDSL ports are an additional module while the subscriber modem is used at the receiving ends of the VDSL network - such as homes or SOHO. The offering provides data rates of 10 Mbps - standard LAN speed - to the customer and either 8 or 10 Mbps back to the exchange. The VDSL system offered by BATM is based on standard QAM software and therefore is fully compliant with the ETSI and ANSI VDSL standards. This solution is designed to provide conventional voice telephony, ISDN as well as high capacity xDSL over the same twisted pair. This would enable two way high quality video conferencing as well as video on demand, home shopping and high speed internet to be provided into residential and business premises without the need for new cabling. We intend to demonstrate the system at the 4 yearly Telecom Geneva Show in mid- October. Marketing The new products which our research and development programme is producing are of increasing power and sophistication and are therefore attractive to telecoms carriers for their core public networks as well as for data communications networks. This is particularly because of their ability to handle optical fibre connections and to deliver very high bandwidth supporting a wide range of protocols, particularly IP. This market offers great opportunities as public networks migrate from conventional circuit switching to packet switched IP solutions. Telecom carriers are therefore becoming a key market sector for us which will grow greatly in importance as the full Titan range (which is attracting strong interest from telcoms customers) becomes available. Our focus on this sector requires us to gain new channels to market and we are exploring a range of opportunities. As discussed above, an element of our marketing in this area is to exhibit at the Telecom Geneva Show in mid-October jointly with 3M. We have begun to enter into the Chinese market and have already installed systems including in the Chinese Parliament in Beijing. Official List The Company joined the Official List of the London Stock Exchange on 8th July, 1999. Prospects We are pleased with our progress this year and remain confident that we will fulfil our short term plans. Trading performance since the end of June has been strong and our performance is in line with our plans, while the products our research and development is delivering are nothing short of revolutionary. Our aim is to become a major player in the data and tele- communications markets. To fulfil our potential we intend to accelerate activity in all aspects of the company to maintain and even increase our competitive edge. Consolidated Profit And Loss Account Six months ended Year ended 30th June 31st Dec 1999 1998 1998 $US'000 $US'000 $US'000 Unaudited Unaudited Audited Turnover 10,936 7,786 18,072 Cost of sales 5,475 4,390 9,564 _____ _____ _____ Gross profit 5,461 3,396 8,508 Operating expenses Research and development costs 1,202 698 1,492 Less - participation 417 500 710 _____ _____ _____ Research and development costs, net 785 198 782 Selling, general and administrative expenses 2,805 2,352 4,607 _____ _____ _____ Total operating expenses 3,590 2,550 5,389 _____ _____ _____ Operating profit 1,871 846 3,119 Financial income, net 456 386 342 Other income, net 358 6 160 Profit before taxes on income 2,685 1,238 3,621 Taxes on income - (16) (32) _____ _____ _____ Profit after taxes on income 2,685 1,222 3,589 Company's share in (loss) of associated company - (19) (19) _____ _____ _____ Net profit for the year 2,685 1,203 3,570 Dividends - - (155) _____ _____ _____ Retained profit 2,685 1,203 3,415 ===== ===== ===== Earnings per share (in cents) 8.50 3.87 11.50 _____ _____ _____ Consolidated Balance Sheet As at As at As at 30th June 30th June 31st Dec 1999 1998 1998 $US'000 $US'000 $US'000 Unaudited Audited Audited Fixed assets Tangible assets 2,847 1,596 1,846 Goodwill 957 - 132 _____ _____ _____ Total fixed assets 3,804 1,596 1,978 Current assets Stocks 2,365 2,149 2,338 Debtors 5,818 4,670 5,434 Marketable securities 1,420 - 2,130 Cash and deposits 28,507 14,204 13,308 ______ ______ ______ 38,110 21,023 23,210 Creditors: amounts falling due within one year 7,055 3,308 3,953 ______ ______ ______ Net current assets 31,055 17,715 19,257 Investment in associated companies 2,050 2,006 2,050 ______ ______ ______ Total assets less current liabilities 36,909 21,317 23,285 Non-current liabilities Severance pay fund, net of provision (232) (53) (78) Creditors: amounts falling due after more than one year Long-term loan - (300) (40) ______ ______ ______ (232) (353) (118) Net assets 36,677 20,964 23,167 ====== ====== ====== Capital and reserves Share capital 1,035 989 989 Additional paid-in capital 21,807 10,988 10,988 Receipts on account of share capital - 40 40 Foreign currency translation adjustment 16 25 16 Retained profit 13,819 8,922 11,134 ______ ______ ______ Shareholders' funds 36,677 20,964 23,167 ====== ====== ====== Note 1 - General The unaudited results for the six months ended 30th June 1999 have been prepared in accordance with generally accepted accounting principles set out in the Annual Report and Accounts for the year ended 31st December 1998. The unaudited results for the six months ended 30th June 1998 were prepared on the same basis. The results for the year ended 31st December 1998 have been extracted from the audited accounts for that period which received an unqualified audit opinion. Note 2 - Earnings per share Earnings per share are based on the weighted average number of shares in issue for the period of 31,566,751 (1998 H1: 31,056,112). Note 3 - Reconciliation of movements in shareholders' funds Foreign Receipts currency Addit- on trans- ional account lation Re- Share paid-up of share adjust- tained Capital capital capital ment profit Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 As at January 1, 1998 989 10,988 40 16 7,719 19,752 Proposed dividend (155) (155) Profit for the year 3,570 3,570 ______ ______ ______ ______ ______ ______ As at December 31, 1998 989 10,988 40 16 11,134 23,167 Issue of share capital 46 10,819 (40) 10,825 Profit for the period 2,685 2,685 ______ ______ ______ ______ ______ ______ As at June 30, 1999 (unaudited) 1,035 21,807 -- 16 13,819 36,677 ====== ====== ====== ====== ====== ======

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