For immediate release 26 September 2003
BATM Advanced Communications Limited - 2003 interim results
CONTINUED INVESTMENT AND STRATEGIC FOCUS UNDERPINNED BY
STRONG FINANCIAL DISCIPLINE
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 2003.
Six months (*) 2003(H1) 2002(H1) 2002 (H2)
Turnover $17.9m $27.5m $21.2m
Gross Profit $6.9m $11.2m $8.1m
Operating loss $(5.8)m $(3.6)m $(6.9)m
Pre-tax loss $(4.9)m $(2.9)m $(6.2)m
Loss per share (1.27)� (0.77) � (1.62)�
(*) Pro forma results exclude amortization of goodwill (2002 & 2003) and
write-down of investment (H2 of 2002).
Highlights
* Operational cash flow close to breakeven despite continued difficult
trading environment
* Strong cash position of $55.2m maintained
* Important new long-term agreements won since period end in Israel, New
Zealand and China
* Increasing cooperation with major telecom players
* Continued heavy investment in Research & Development
* Sustained strong pipeline of new products
Dr Zvi Marom, Chief Executive of BATM, said:
"Through tight spending control and asset management, our strong cash position
has been maintained through the first six months of 2003, despite the continued
disappointing level of sales achieved in the period. We have continued to
reduce our overheads and keep our operations lean, enabling us both to remain
flexible to meet current levels of demand and to respond quickly once there is
clear indication of an improvement in general trading conditions.
"We continue to remain focused on the future by maintaining our investment in
new product development and expanding our customer base despite the predicted
continuation of the difficult environment. In recent weeks we are encouraged by
signs of favorable interest in our new products from both new and existing
customers. In particular, we have been successful, against stiff opposition, in
achieving preferred supplier status on a number of strategically important
long-term agreements with major enterprises. Together with some of the
long-term contracts that we are currently fulfilling, these agreements promise
a very useful base of activity for future years. The management views those
agreements as the initial change in the business climate in the Telecom sector.
"We have demonstrated our commitment to key research and development programmes
by spending above the corresponding 2002 level. We know that our success is
dependent on continued technology investment in new and innovative products. We
presently enjoy a strong market position offering new solutions to our
customers. We are not simply sitting back and waiting for the recovery but we
are taking aggressive action to ensure that we will be a stronger player as the
market begins to recover".
For further information please contact: 26 Sept Thereafter
BATM Advanced Communications Limited
Dr Zvi Marom, Chief Executive 020 7831 3113 00972 3 9386 888
Ofer Bar-Ner, Chief Financial Officer 020 7831 3113 00972 3 9386 888
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 020 7831 3113 020 7831 3113
Chairman's Statement
Financial Performance
As anticipated in my 2002 statement, sales levels in the first half of the year
have continued to decline. Turnover for the period was $17,872,000 (H1 2002:
$27,499,000; H2 2002: $21,162,000), a decrease of 16% compared with the last
half of 2002 and a decrease of 35% compared with the first half of 2002. Lower
sales, particularly of older generation products, in both the US and
international markets reflect a continued reluctance to spend by telecom
carriers and other customers while they absorb excess capacity in their
networks. This has affected both sales of existing products and the speed of
adoption of new and improved technology.
Gross profit margin was 38.9% (H1 2002: 40.7%; H2 2002: 38.2%). Whilst this
shows a slight increase against the last half of 2002, reflecting the benefits
of more cost efficient product design, it is a decrease compared with the first
half of 2002, due to continuing heavy price competition.
Selling, general and administrative expenses were $7.0M (H1 2002: $9.7; H2
2002: $7.9). This reflects a reduction of over 27% compared with the same
period last year and 11% when compared to the second half of last year. This
trend of decreases resulted from a lower level of activity as well as from
streamlined operating expenses and the elimination of non-essential expenses.
Going forward, we will closely monitor our spending and will continue to
identify areas for possible additional cost saving.
Even though these challenging times have strained our financial resources,
research and development remains our absolute priority. Innovative products,
employing leading edge technology are providing the basis for our future
growth. To this end we have maintained appropriate investment in Research and
Development (R&D). Gross R&D in this period was $5,990,000 (H1 2002:
$5,595,000; H2 2002: $7,184,000). After contributions from the Israeli Chief
Scientist, US-IS Foundation and from the European Community, net research and
development expenditure was $5,757,000 (H1 2002: $5,057,000; H2 2002
$7,128,000).
Pro forma operating loss, before goodwill amortization, amounted to $5,821,000
(H2 2002: loss $6,943,000, (excluding write-down of investment); H1 2002: loss
$3,556,000). Operating loss after goodwill amortization was $10,770,000 (H2
2002: loss $13,892,000; H1 2002: loss $7,910,000).
Financial income was $937,000 (H1 2002: $570,000). This pleasing increase
reflects a longer term investment strategy designed to yield a higher average
interest returns on substantially unchanged cash and other investment balances.
The resulting pro forma loss before tax, excluding the effect of the
amortization of goodwill, was $4,899,000 (H1 2002: loss $2,928,000). Pro forma
loss after taxes and minorities, excluding the effect of the amortization of
goodwill, was $4,937,000 (H1 2002: loss $2,989,000), giving a loss per share of
1.27 cents (H1 2002: 0.77 cents). Actual loss after taxes, including the effect
of goodwill amortization, amounted to $9,886,000 (H1 2002: Loss $7,343,000),
giving a loss per share of 2.55 cents (H1 2002: Loss 1.90 cents).
Our balance sheet remains strong with cash of $55.2 million at the period's end
comprised as follows: Cash and deposits up to three months period $14.8
million, short-term deposits up to one year period $3.8 million and long-term
deposit for three years period $36.6 million. We continue to exercise a
conservative investment strategy maintaining most balances in bank time
deposits.
Sales and Marketing
Our marketing strategy continues to focus on building relationships with
customers who will provide us with long-term business opportunities. During the
first six months of 2003, we realigned our USA sales team to provide broader
coverage at our large carrier customers. These efforts have begun to show early
promising results in that our EdgeLink HUB and OC3 multiplexer are being tested
in various customer labs. Whilst focusing on our major customers we have also
initiated a programme to engage second tier customers as that segment of our
market begins its recovery. Still in its early stages, our sales team has seen
some favourable results from this programme.
We are especially pleased with our growing relationship with Nokia, providing
and developing cost-effective solutions for the changing telecommunication
environment. We have no doubt that this area of focus will produce significant
reward as more and more services are offered to customers.
Current pipeline
Whilst not reflected in the first half year results, our marketing activity
over the last two years has recently resulted in some important discussions
concerning a number of long-term agreements.
Principal among these is our agreement to be the sole supplier of IP routing
switches for the new IP based network of the Israel Defense Forces. This
multi-million dollar agreement will provide an important base of activity for
several years and deliveries should commence by early 2004.
In addition, together with Alcatel New Zealand, we will shortly be supplying
our T5 products to BCL New Zealand, the international wireless communications
engineering services firm, as part of their country-wide broadband roll-out.
This agreement, together with another in China, are early signs of the
potential for our products as the switch to broadband and IP usage gains
momentum world-wide.
Due to their long-term nature, these agreements will have little impact on this
year's results but together with other long-term contracts that we are
currently fulfilling, they provide a very useful base of activity for future
years.
Research and Development and New Products
During the first half of 2003, we introduced an enhanced version of our
EdgeLink HUB. This STS product, which includes an OC-3 uplink, has generated
positive reactions and feedback from our customers.
Also during the first half of 2003, the EdgeLink OTM 1000, our new OC3
multiplexer received Runner Up Award at SUPERComm in the prestigious SUPERQuest
Awards. We received recognition in the category of Network Transport
Infrastructure Systems and Services.
We will be rolling out our next generation IP platforms during the second half
of this year. These platforms offer a significant increase in performance over
existing competitors' platforms and are being offered at a lower price. These
new platforms, based on the new ITU accepted ATCA standard (Titan 6 pro),
raised great interest as well as several orders which will be supplied from mid
2004. This technology significantly enhances bandwidth, switching speeds and
the number of available ports, while enabling telecom reliability. When
compared to the existing enterprise systems, logistics costs are approximately
70% less and ROI is substantially greater. These platforms can be very
instrumental in building IP networks for Voice, Data and Video.
Prospects
Although the trading environment remains tough, stability in sales of our core
products and customer interest in our new products are positive indicators.
Recent agreements, together with the prospects of an improving climate,
combined with the strategic steps that we have taken in our business give us
quiet optimism that we will see an improvement in trading as the year
progresses.
Peter Sheldon
Chairman
26 September 2003
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months Six months Year ended
ended June ended June
30, 2003 30, 2002 December
31, 2002
$US'000 $US'000 $US'000
Unaudited Unaudited Audited
Turnover 17,872 27,499 48,661
Cost of sales 10,925 16,336 29,440
Gross profit 6,947 11,163 19,221
Operating expenses
Research and development costs 5,990 5,595 12,779
Less - participation 233 538 594
Research and development costs, net 5,757 5,057 12,185
Selling, general and administrative 7,011 9,662 17,535
expenses
Amortization of Goodwill 4,949 4,354 9,303
Write-down of investment - - 2,000
Total operating expenses 17,717 19,073 41,023
Operating loss (10,770) (7,910) (21,802)
Financial income, net 937 570 1,388
Other income (expenses), net (15) 58 (9)
Loss before taxes on income (9,848) (7,282) (20,423)
Taxes on income (-) (4) 4
Loss after taxes on income (9,848) (7,286) (20,419)
Company's share in loss of (38) (57) (151)
associated company
Loss for the period (9,886) (7,343) (20,570)
Loss per share (in cents) (2.55) (1.90) (5.31)
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED BALANCE SHEET
As at As at As at
30thJune 30th June 31st
December
2003 2002
2002
$US'000 $US'000
$US'000
Unaudited Unaudited
Audited
Fixed assets
Tangible assets 10,526 12,184 11,160
Goodwill 17,322 27,220 22,271
Total fixed assets 27,848 39,404 33,431
Current assets
Inventory 11,343 17,133 13,446
Debtors 5,810 10,479 8,725
Short-term investments 3,753 23,686 3,682
Cash and cash equivalents 14,808 17,938 15,519
35,714 69,236 41,372
Creditors: amounts falling due within one 10,831 14,118 11,638
year
Net current assets 24,883 55,118 29,734
Long-term investments
Investment in associated company 1,470 1,944 1,453
Investment in other companies 3,688 5,688 3,688
Long-term deposit 36,627 15,307 35,978
41,785 22,939 41,119
Total assets less current liabilities 94,516 117,461 104,284
Non-current liabilities
Severance pay fund, net of provision (324) (356) (330)
Net assets 94,192 117,105 103,954
Capital and reserves
Share capital 1,177 1,175 1,175
Additional paid-in capital 397,541 397,343 397,419
Foreign currency translation adjustment 16 16 16
Retained loss (304,542) (281,429) (294,656)
Shareholders' funds 94,192 117,105 103,954
BATM ADVANCED COMMUNICATIONS LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Six months ended
June 30, 2003 June 30, 2002
$US'000 $US'000
Unaudited Unaudited
Net cash outflow from operating activities (515) (265)
---------- ----------
Investing activities
Repayment of loan to associated company -- 648
Acquisition of fixed tangible assets (374) (512)
Proceeds from sale of fixed tangible assets 23 28
Proceeds from (investment in) short-term bank 29 (18,747)
deposits
Investment in long-term bank deposit -- (15,000)
Proceeds from (investment in) marketable 2 (5)
securities, net
Net cash outflow from investing activities (320) (33,588)
---------- ----------
Financing activities
Exercise of options by employees and advisors 124 101
Repayment of short-term credit, net -- (7)
Net cash inflow from financing activities 124 94
----------- -----------
Decrease in cash (711) (33,759)
and cash equivalents
Cash and cash equivalents at 15,519 51,697
the beginning of the period
Cash and cash equivalents at 14,808 17,938
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, 2003 30, 2002
$US'000 $US'000
Unaudited Unaudited
Loss for the period (9,886) (7,343)
Company's share in loss of associated company 38 57
Amortization of goodwill 4,949 4,949
Write-down of investment -- --
Depreciation and amortization 968 1,061
Increase (decrease) in severance pay fund, (6) 61
net of provision
Decrease in Inventory 2,103 3,894
Decrease in debtors 2,915 7,813
Decrease in creditors (807) (10,475)
Loss (gain) from marketable securities (72) 79
Interest incurred on investments (679) (397)
Interest incurred on loan for affiliate (55) 27
Loss on disposal of fixed assets 17 9
Net cash outflow from operating activities (515) (265)
BATM ADVANCED COMMUNICATIONS LTD
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - General
The unaudited results for the six months ended 30th June 2003 have been
prepared in accordance with generally accepted accounting principles set out in
the Annual Report and Accounts for the year ended 31st December 2002. The
unaudited results for the six months ended 30th June 2002 were prepared on the
same basis. The results for the year ended 31st December 2002 have been
extracted from the audited accounts for that period which received an
unqualified audit opinion.
Note 2 - Loss per share
Loss per share is based on the weighted average number of shares in issue for
the period of 387,879,206 (2002 H1: 387,000,576).
Note 3 - Reconciliation of movements in shareholders' funds
Sharecapital Additional Foreign currency Retainedloss Total
US$'000 paid-incapital translationadjustment US$'000
US$'000 US$'000
US$'000
As at January 1, 1,175 397,419 16 (294,656) 103,954
2003
Exercise of 2 122 124
options by
Employees and
advisors
Loss for the ----- (9,886) (9,886)
period
As at June 30, 1,177 397,541 16 (304,542) 94,192
2003
(unaudited)
END