Interim Results
BATM Advanced Communications Ld
12 September 2000
BATM Advanced Communications Limited
Interim Results for the Period Ended 30 June 2000
Highlights
Six months ended 30 June 2000 1999
Turnover $36.8m $10.9m Up 237%
Operating profit * $5.1m $1.9m Up 172%
Pre-tax profit * $9.4m $2.7m Up 252%
Earnings per share * 2.40cents 0.85cents Up 182%
* Excluding amortization of goodwill
Figures include the results of Telco Systems with effect from
07/04/2000.
- Completed acquisition of Telco Systems
- Commenced marketing targeted at US Telecom companies
- Received order from Sprint North Supplies
- Entered into R&D initiatives with Nokia, Sun Microsystems and
Samsung
- Investment by Sun Microsystems in BATM equity
- Increase in all operating activities - particularly R&D and
Sales and Marketing
- Increased holding in Lynx Photonics
Dr Zvi Marom, Chief Executive of BATM, said:
'The first half of the year has seen further progress in the achievement of
our strategic objective to become a major player in our market. We have
made significant progress in the development of the group through acquisitions
and collaborations which we expect to continue. The amalgamation of Telco
Systems with BATM is proceeding even better than we had anticipated and the
relationships that we have entered into with our new business partners have
been particularly gratifying. This gives us confidence that we can look
forward to accelerated growth in 2001 and beyond.'
There will be an analyst presentation on the interim results at 9.00 a.m. at
the offices of Dresdner Kleinwort Benson, 20 Fenchurch Street, London EC3P
3DB.
Enquiries:
BATM Advanced Communications Limited 12&13 Sept Thereafter
Dr Zvi Marom, Chief Executive 0207 253 2252 00972 3 9386 888
Dresdner Kleinwort Benson
Mark Smith 0207 4757379 0207 4757379
Shore Capital
Graham Shore 0207 4084090 0207 4084090
Golin/Harris Ludgate
Edward Macquisten 0207 2532252 0207 2164448
Chairman's Statement
Financial Performance
As planned and following the acquisition of Telco Systems in April,
the principal focus of the Company is now on the US telecoms market.
Total group turnover for the period was $36,828,000
(1999: $10,736,000).
Pro forma operating profit, which excludes the effect of the
amortization of goodwill arising from our acquisitions, at
$5,088,000 (1999: $1,871,000) was up 172 per cent, largely as a
result of the turnover growth. As anticipated, gross profit margin
decreased from 50 per cent to 45 per cent reflecting the lower
gross margins earned on Telco Systems products, whilst selling,
general and administrative expenses decreased from 26 per cent to
20 per cent of sales.
Gross research and development expenditure was $5,253,000 (1999:
$1,202,000). However, after increased contributions from the
Israeli Chief Scientist, US-IS Foundation, 3M and from the
European Community, net research and development expenditure was
$4,133,000 (1999: $785,000).
Financial income was $4,319,000 (1999: $456,000), reflecting the
increase in bank deposits following the placing of additional
equity at the time of completion of the Telco Systems acquisition.
Pro forma profit before tax, excluding the effect of the
amortization of goodwill, was $9,453,000 (1999: $2,685,000), up
252 per cent.
Pro forma profit after taxes and minorities, excluding the effect
of the amortization of goodwill, was $9,012,000 (1999:
$2,685,000), giving earnings per share of 2.4 cents (1999: 0.85
cents), an increase of 182 per cent. Actual loss after taxes,
including the effect of goodwill, was $6,967,000, giving a loss per
share of 1.86 cents.
The balance sheet remains strong with cash, deposits and short-
term investments of $61,595,000 at the period's end.
Research and Development for future growth
Our research and development activity has increased substantially
during the period. We have considerably enlarged the human
capital employed in this area and are focusing on a number of R&D
programmes, with both short and long-term promise.
New initiatives in Quality of Service ('QoS') and Load Balancing,
which commenced during 1999, are being accelerated. We are
engaged in active co-operation with leading university researchers
to bring state of the art algorithms to enable the optimization of
IP network traffic of different natures (Video, Voice and Data).
Work is being carried out on Linux and full compatibility with
Cisco CLI has been achieved.
We have engaged the technical staff of Ezenia Networks from Rhode
Island who will join our team in Boston in September 2000. Several
other complementary steps are expected to take place during the balance
of this year. These steps will give BATM a leading position in the
all layer-switching arena with emphasis on telcoms applications.
We continue also to place strong emphasis on the photonic
environment. During this period we exercised our option to
acquire more shares in Lynx Photonics, which, after its recent
funding round, has left BATM with a 3.4% stake in the company. We
believe that the interest that is being shown in Lynx by potential
investors indicates the extremely valuable potential of this
investment to BATM. We benefit also from the prime reason for our
investment, which is to consolidate the close working relationship
that has been established between the companies, particularly in
the development of our Titan T8 product, which we expect to launch
in the third quarter of 2001.
BATM is leading the OPNET consortium in Israel in which Lynx
participates as well. The consortium is dealing in the short term
(2001-2002) with dynamic allocation of bandwidth over optical
networks and in the longer term in optical packet switching and
routing.
In addition to the above we have also commenced joint R&D projects
with Sun Microsystems and Samsung, consequent upon the agreements
entered into with them earlier in the year. These are at an early
stage and are moving forward as planned.
New products
We expect to introduce several new products in the second half of
2000. The Titan T5 Compact and the Titan T5 Pro will be available
for sale by the end of the year as well as the EdgeLink T4 and T5
with VDSL modules especially designed for the requirements of the
US telecoms market. The T5 Pro and a new version of the T4(T4L3), will
support full layer 3 and 4 capabilities and will range from 8 to
24 Gbit of backplane capacity. Progress on the T6 Switch has been
on track. In terms of commercial launch, we have
been in close discussions with potential customers and have
identified that the market will demand 10Gb Ethernet sooner
then the industry previously expected, particularly with the
likely adoption of a 10Gb standard in August 2001. Accordingly we
have re- designed the architecture of the crossbar to cope not only
with this enhanced capacity, but also upgraded it from an original
8x8 crossbar to a 16x16 crossbar. The first version of the Titan
T6, with enhanced specifications, will also therefore be available
for sale before the end of the first quarter of next year. This
version of the product will be ready to support 10Gbit Ethernet
modules.
Sales and Marketing
The acquisition of Telco Systems has proceeded very well and we
are delighted with the smooth way in which we have integrated the
business. Telco has enabled us, for the first time, to seriously
address the US telecoms market with the ability to have direct
sales and support teams. We have already introduced our Titan
family into the US under Telco's brand EdgeLink and are starting
shipments of Telco's EdgeLink 300. We have commenced field trials
of our products with a major US telecoms company, which are
also proceeding very well and offer the prospect of sales on
a substantial scale. We were delighted to win a $5m order from
Sprint which endorses our product capabilities. Telco employees
have reacted to the acquisition and BATM management excellently
and further steps to increase our U.S. presence are planned for
2000 and beyond.
We have made the initial shipments under our agreement with Nokia
and are quietly confident that we will enjoy significant future
business from this source.
We also continued our expansion in Europe with new branches in
France, Poland and Austria. New OEM contracts have been signed and
some new opportunities are being examined.
Post period end
Since 30 June there have been a number of encouraging events.
Aside from the order from Sprint, we have made two important
strategic acquisitions. The acquisition of the network access
business from Ezenia not only broadened our product range but also
brought into the group valuable engineering skills. We also
acquired a 19.9% stake in Lantech, a Taiwanese manufacturer of data
communications products. This acquisition helps to secure vital
manufacturing capacity and component supplies for the future for
BATM, as well as a distribution arm for BATM products in Taiwan. Our
relationship with Lantech will also help to cushion some of the short-term
component supply problems in our industry, reference to which has received
much publicity of late.
Prospects
We are pleased with our progress this year and believe that we are
well on the way to achieving both our short term plans
and our longer term objectives. We believe that the successful
integration of Telco Systems as well as the smaller complementary
acquisitions combined with our leading edge technology will allow
us to achieve our goal to become a major player in our industry.
The integration of Telco Systems has moved swiftly and ahead of
our original expectations. We have already embarked on joint
programmes relating to R&D and product development and expect to
report further progress in these areas as well as in sales and
marketing initiatives.
We also intend to pursue our acquisition strategy with the
aim of accelerating profitable growth.
Trading since the period end has been in line with our expectations
and our prospects for the remainder of the year are encouraging.
Pro Forma Consolidated Profit And Loss Account
Excluding Amortization of Goodwill
Six months ended Year ended
30th June 31st Dec
2000 1999 1999
$US'000 $US'000 $US'000
Unaudited Unaudited Audited
Turnover 36,828 10,936 26,914
Cost of sales 20,392 5,475 13,648
------ ----- ------
Gross profit 16,436 5,461 13,266
Operating expenses
Research and development costs 5,253 1,202 3,038
Less - participation 1,120 417 1,641
----- ----- ------
Research and development costs, net 4,133 785 1,397
Selling, general and administrative 7,215 2,805 5,979
expenses ----- ----- -----
Total operating expenses 11,348 3,590 7,376
------ ----- -----
Operating profit 5,088 1,871 5,890
Financial income, net 4,319 456 2,466
Other income, net 46 358 97
----- ----- -----
Profit before taxes on income 9,453 2,685 8,453
Taxes on income (377) - (66)
------ ----- ------
Profit after taxes on income 9,076 2,685 8,387
Company's share in loss of
associated company (64) - -
------ ----- ------
Net profit for the period 9,012 2,685 8,387
Dividends - - (183)
Retained profit 9,012 2,685 8,204
====== ====== =====
Earnings per share (in cents) 2.40 0.85 2.56
------ ------ -----
Consolidated Profit And Loss Account
Six months ended Year ended
30th June 31st Dec
2000 1999 1999
$US'000 $US'000 $US'000
Unaudited Unaudited Audited
Turnover 36,828 10,936 26,914
Cost of sales 20,392 5,475 13,648
------ ------ ------
Gross profit 16,436 5,461 13,266
Operating expenses
Research and development costs 5,253 1,202 3,038
Less - participation 1,120 417 1,641
------ ----- ------
Research and development costs, net 4,133 785 1,397
Selling, general and administrative 7,215 2,805 5,979
expenses
Amortization of goodwill - mainly 15,979 - -
Telco acquisition ------ ----- -----
Total operating expenses 27,327 3,590 7,376
------ ----- -----
Operating profit (loss) (10,891) 1,871 5,890
Financial income, net 4,319 456 2,466
Other income, net 46 358 97
------ ----- ------
Profit (loss) before taxes on (6,526) 2,685 8,453
income
Taxes on income (377) - (66)
------ ----- ------
Profit (loss) after taxes on income (6,903) 2,685 8,387
Company's share in loss of
associated company (64) - -
------- ------ ------
Net profit (loss) for the period (6,967) 2,685 8,387
Dividends - - (183)
------- ------ ------
Retained profit (loss) (6,967) 2,685 8,204
======= ====== ======
Earnings (loss) per share (in (1.86) 0.85 2.56
cents) ------- ------ ------
Consolidated Balance Sheet
As at As at As at
30th June 30th June 31st Dec
2000 1999 1999
$US'000 $US'000 $US'000
Unaudited Unaudited Audited
Fixed assets
Tangible assets 12,521 2,847 5,054
Goodwill 304,581 957 907
------- ----- -----
Total fixed assets 317,102 3,804 5,961
Current assets
Stocks 27,396 2,365 2,614
Debtors 23,164 5,818 8,638
Short Term Investments 30,548 1,420 93,249
Cash and deposits 31,047 28,507 134,847
------- ------ -------
112,155 38,110 239,348
Creditors: amounts falling due 38,698 7,055 6,190
within one year ------- ------ -------
Net current assets 73,457 31,055 233,158
Long Term Investments
Investment in associated companies 6,427 2,050 2,087
Deposit 500 - -
------ ------ ------
6,927 2,050 2,087
Total assets less current 397,486 36,909 241,206
liabilities
Non-current liabilities
Restructuring costs (3,233) - -
Severance pay fund, net of provision (266) (212) (232)
------- ------ --------
(3,499) (212) (232)
------- ------ --------
Net assets 393,987 36,677 240,994
======= ====== ========
Capital and reserves
Share capital 1,169 1,035 1,122
Additional paid-in capital 380,431 21,807 220,518
Receipts on account of share capital - - -
Foreign currency translation 16 16 16
adjustment
Retained profit 12,371 13,819 19,338
------- ------ -------
Shareholders' funds 393,987 36,677 240,994
======= ====== =======
Note 1 - General
The unaudited results for the six months ended 30th June 2000 have
been prepared in accordance with generally accepted accounting
principles set out in the Annual Report and Accounts for the year
ended 31st December 1999. The unaudited results for the six
months ended 30th June 1999 were prepared on the same basis. The
results for the year ended 31st December 1999 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 375,383,910 (1999 H1:
315,667,510).
Note 3 - Reconciliation of movements in shareholders' funds
Receipts Foreign
Additional on account currency
Share paid-up of share translation Retained
Capital capital capital adjustment profit Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at January 1,
2000 1,122 220,518 - 16 19,338 240,994
Issue of share
capital 47 159,657 159,704
Exercise of options
by Employees and
advisors - 256 256
Loss for the period (6,967) (6,967)
----- ------- ------ ----- ------ -------
As at June 30, 2000
(unaudited) 1,169 380,431 - 16 12,371 393,987
====== ======= ====== ===== ====== =======
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period of six month
ended June 30,
Year ended December
31,
Note 2000 1 9 9 9
US$'000 US$'000
Net cash inflow from operating 1 6,772 5,917
activities
--------- ----------
Investing activities
Acquisition of shares in a (514) (37)
company(Lynx)
Acquisition of shares in (3,890) --
associated company(Eldor)
Acquisition of shares in 2 (261,043) 154
subsidiary
Acquisition of shares in (110) (184)
subsidiary(Connectronix)
Acquisition of fixed tangible (3,427) (3,641)
assets
Proceeds from sale of tangible -- 187
fixed assets
Sale of (investment in) short 64,251 (90,739)
term bank deposits
Sale of (investment in) -- 636
marketable securities, net --------- -------
Net cash outflow from investing (204,733) (93,624)
activities
--------- -------
Financing activities
Issuance of share capital 93,904 208,380
Exercise of options by 256 1,243
employees and advisors
Repayment of short-term credit, -- (222)
net
Dividend paid, net -- (155)
Net cash inflow
from financing activities 94,160 209,246
Increase (decrease) in cash
and cash equivalents (103,801) 121,539
Cash and cash equivalents at
the beginning of the period 134,847 13,30
Cash and cash equivalents at
the end of the period 31,046 134,847
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTE 1-RECONCILIATION OF NET PROFIT FOR THE YEAR TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
Period of six month
ended June 30,
Year ended December 31,
2000 1999
US$'000 US$'000
Net profit (loss) for the (6,967) 8,387
period
Company's share in loss of 64 --
associated company
Depreciation and 16,681 524
amortization
Increase (decrease)in
severance pay fund, net of
provision 54 (15)
Decrease (Increase) in
stocks 4,764 (47)
Increase in debtors (9,320) (2,911)
Increase in creditors 2,034 976
Restructuring costs (310) --
Loss (gain) from marketable securities (82) 31
Erosion of marketable -- (3)
securities
Interest incurred on (146) (1,044)
investments
Loss on disposal of fixed -- 19
assets
Net cash inflow from 6,772 5,917
operating activities
NOTE 2-ACQUISITION OF SUBSIDIARY
Period of six month
ended June 30,
Year ended December 31,
2000 1 9 99
US$'000 US$'000
Assets and liabilities of the subsidiary at acquisition:
Working capital (excluding cash and cash 12,918 (77)
equivalents)
Fixed tangible assets 4,696 203
Deposit 500 --
Intangible assets 8,102 --
Long-term liabilities (3,543) (966)
Excess of cost over net assets at
acquisition from controlling shareholders 238,370 686
261,043 (154)
NOTE 3 - NON-CASH ACTIVITIES:
a. Investment in a subsidiary, Telco Systems, at the amount
of $65,800,000 was satisfied by
the issuance of 9,600,000 shares to World Access and
$7,318,000 is represented as liability for the
acquisition.
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