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RNS Number : 8156Q
Ethernity Networks Ltd
15 September 2017
15 September 2017
ETHERNITY NETWORKS LTD
("Ethernity " or the "Company" or the "Group")
Interim results for the six months ended 30 June 2017
Ethernity Networks Ltd (AIM: ENET.L), a technology solutions
provider developing network data processing technology used in
high-end carrier Ethernet applications across the telecom, mobile,
security and data centre markets, announces its interim results for
the six months ended 30 June 2017.
Financial summary:
-- Revenues of $988,995 (H1 2016: $1,309,138)
-- Gross profit of $857,884 (H1 2016: $662,674)
-- EBITDA of $441,292 (EBITDA H1 2016: $278,504)
-- Operating Profit of $379,884 (H1 2016 $263,578)
-- Strong cash balance at 30 June 2017 of $18.2m
EBITDA Unaudited Audited
30 June 31 December
2017 2016 Difference 2016
US$ US$ US$ US$
Operating
Profit 379,884 263,578 116,306 338,501
Add: Depreciation 7,051 8,263 (1,212) 16,794
Add: Amortisation 54,357 6,663 47,694 34,438
EBITDA 441,292 278,504 162,788 389,733
-------- -------- ----------- -------------
Operational highlights:
-- Successful IPO and admission to AIM on 29 June 2017, raising GBP15 million in the process
-- Signed three new design contracts in three lucrative markets;
SD-WAN, g.fast and 5G NLOS wireless
-- Expansion of sales team, broadening reach into international markets
-- Continued investment in R&D to secure future design wins
and develop the solutions demanded by the marketplace
David Levi, Chief Executive Officer of Ethernity Networks,
commented:
"The first half saw a series of achievements and culminated in
the Company's successful AIM IPO and GBP15 million of new
investment subscribed by UK-based investment funds. During the
period, we introduced our all-programmable Smart NIC and gained
initial market traction from tier one network operators, requesting
proof of concepts to accelerate certainty of their networking
functions by utilising our Smart NIC. Our improved sales mix and
three new design contract wins also helped to increase our
profitability.
"With the significant push towards the use of Field-Programmable
Gate Array (FPGA) for network function acceleration, we are very
excited about the future. The new funding within the Company,
resulting from the IPO is allowing Ethernity to make the necessary
investment to build our Sales and Marketing function, as well as to
increase our R&D capabilities. We look forward to updating the
market in due course on our further progress.
"We remain confident that Ethernity will meet its long term
objectives and will be positioned as one of the key solutions
providers in its marketplace."
For further information, please contact:
Ethernity Networks Tel: +972 8915 0392
David Levi, Chief Executive
Officer
Mark Reichenberg, Chief
Financial Officer
Arden Partners plc (NOMAD Tel: +44 207 614 5900
and Broker)
Steve Douglas / Benjamin
Cryer
Yellow Jersey Tel: +44 7747 788 221
Charles Goodwin / Joseph
Burgess / Katie Bairsto
OPERATIONAL REVIEW
During the period under review, Ethernity introduced its
all-programmable Smart NIC, (network interface controller) and
gained initial market traction from tier one network operators,
requesting proof of concepts to accelerate certainty of their
networking functions by utilising our Smart NIC.
The Company sees a significant push towards the use of FPGA for
network function acceleration. FPGA will become the major platform
within next generation servers, as Intel for example, plans to
embed high-performance FPGA within its next generation Xeon server
processors. This will create the ability to write hardware code on
servers in the same way that software has been designed previously
on processors. Furthermore, with the market adoption of open source
software, Ethernity is well positioned to deliver enhanced
open-source solutions for carrier grade appliances by utilising
Ethernity's unique, patented, data processing technology.
During the period, the Company signed three design contracts for
its standard ENET Carrier Ethernet SoC firmware on FPGA, in three
lucrative markets; SD-WAN, g.fast and 5G NLOS wireless. Each of
these contracts proved the broad market opportunity for Ethernity's
unique and innovative networking technology. In all three wins,
Ethernity's proposed solution on FPGA outperformed off-the-shelf
application specific integrated circuits (ASICs) in several
aspects, including power consumption and advanced features that
were not available on ASICs, in addition to competitive pricing.
The three design wins utilise the same FPGA component and
technology, thus the Company will benefit from enhanced FPGA
pricing that will better position this solution against
off-the-shelf ASICs. Furthermore, the contracts should deliver
increased gross margins, due to economies of scale.
On 29(th) June, the Company completed an oversubscribed IPO on
the London Stock Exchange's AIM market, raising GBP15 million. The
Company intends to utilise the funds to strengthen its balance
sheet as well as investing significantly in marketing, branding,
and ongoing R&D in new solutions. This is to meet market demand
and to help secure the Company's future anticipated growth.
Since the period end, Ethernity has successfully completed
proof-of-concept (POC) of integration in several customer
environments for its All-Programmable Intelligent NIC. The Company
performed offloading for both Virtual Network Functions (VNFs) and
overlay infrastructure, all on a single low-cost FPGA device with
Ethernity's patented flow processing engine. The customers
successfully tested Ethernity's solutions for applications such as
a virtual switch, tunnel offloading, monitoring and billing, and
special telecom features, demonstrating the range of the Company's
product offerings to its customers.
Outlook
The Board remains confident that Ethernity will meet its
long-term objectives and will be well positioned as one of the key
solutions providers in its marketplace. Network service providers
are requiring more flexible solutions to their technology and
network needs for offloading support of new data appliances
introduced by the market. Ethernity believes it has the
best-in-class system solutions to address these needs. The Company
is trading in-line with its forecast and expects to meet its future
targets.
FINANCIAL REVIEW
During the period under review, the Company delivered revenues
of $988,995 and a gross profit of $857,884. The gross profit
percentage of 86.7% (H1 2016: 50.6%) is significantly higher
compared to H1 2016 due to the different product mix within the
revenues, where design wins and royalty revenues attracts a near
100% margin. EBITDA in the first six months of the year was
$441,292 (EBITDA H1 2016: $278,504).
Operating expenses (including share-based compensation costs),
as a percentage of revenues, were 49.2% in H1 2017 (H1 2016:
30.5%). The increases are mainly attributable to increased spending
on Marketing & Selling costs in-line with the Company's
objectives and an increase in General & Administration
expenses, specifically in preparation for the Company's IPO. The
Company anticipates an increase in its net R&D expenses,
in-line with expectation and plans, as well as Marketing and Sales
expenses as it builds its teams to make the most of the
opportunities in the market and to accelerate market
penetration.
The loss on foreign exchange in H1 is attributable mainly to the
strengthening of the Israeli Shekel by 9.1% during the period under
review. Subsequent to the 30 June 2017 period, the Company realised
a foreign exchange gain on the conversion of IPO funds raised from
GBP to US Dollars; this is expected to significantly counteract the
H1 foreign exchange loss.
Cash and cash equivalents increased to $18.2 million as at 30
June 2017, following the receipt of the net proceeds of the IPO and
currently the Company is trading in line with its budgeted
expectations for the current year.
The table below represents the revenues by geographical
locations. It confirms Ethernity's objective of increasing revenues
outside of Israel as well as the effect of design wins in the
Company's international markets.
Sector Analysis
2017 2017 2016
------------------- -------- --------
Region Revenue % %
--------- -------- -------- --------
Asia 20,000 2.02% 0.00%
Europe 409,836 41.44% 24.53%
Israel 183,509 18.56% 50.47%
United
States 375,650 37.98% 25.00%
Total 988,995 100.00% 100.00%
--------- -------- -------- --------
Whilst revenue declined in the period within the sales mix in
comparison to the previous year, the comparable gross margin and
net profitability on revenue for the period increased
substantially. A further encouraging development in the period was
the increase in revenue generated from design wins. These design
wins specifically relate to the Company's new market offering and
underpin the long-term revenue forecasts and outlook for the
Company. This revenue has increased over the previous comparable
period by almost 200%.
Gross margin strengthened due to the effects of the increased
contribution from design wins, which has translated to the growth
in EBITDA over the previous period. Increases in R&D, Marketing
& Selling and General & Admission expenses are as budgeted
and overall the Company is trading in line with expectations, with
operating profit having increased by 44.1% compared to H1 2016.
BOARD OF DIRECTORS
An EGM of the Shareholders of Ethernity is anticipated to be
held in the near future to approve the appointment of two
additional external Directors, so as to ensure compliance with
Israel Companies Law 5759-1999 ("Companies Law") as noted in the
Admission Document of the Company published on 29 June 2017. The
Company and the Board of Directors remain committed to adhering to
a high-level of corporate governance.
FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Actual results may, and
often do, differ materially from any forward-looking statements.
Any forward-looking statements in this announcement reflect
Ethernity Networks' view with respect to future events as at the
date of this announcement. Save as required by law or by the AIM
Rules for Companies, Ethernity Networks undertakes no obligation to
publicly revise any forward-looking statements in this
announcement, following any change in its expectations or to
reflect events or circumstances after the date of this
announcement.
Interim Unaudited Financial Statements
as at 30 June 2017
STATEMENTS OF FINANCIAL POSITION
US dollars
------------------------------
30 June 31 December
---------------- ------------
2017 2016
---------------- ------------
(Unaudited) (Audited)
---------------- ------------
ASSETS
Current
Cash and cash equivalents 18,237,580 335,723
Other short-term financial
assets 64,359 58,518
Trade receivables 390,814 268,309
Other current assets 38,119 28,725
Current assets 18,730,872 691,275
Non-Current
Property and equipment 48,108 69,939
Deferred tax assets 800,000 800,000
Intangible assets 1,836,306 1,305,898
Non-current assets 2,684,414 2,175,837
Total assets 21,415,286 2,867,112
================ ============
LIABILITIES AND EQUITY
Current
Borrowings 319,440 160,256
Trade payables 129,110 121,960
Other liabilities 1,594,311 1,191,291
Shareholders loans 502,217 527,568
Warrants liability, at fair
value 49,403 43,309
---------------- ------------
Current liabilities 2,594,481 2,044,384
Non-Current
OCS royalty liability 42,199 47,391
Borrowings 93,978 98,848
---------------- ------------
Non-current liabilities 136,177 146,239
Total liabilities 2,730,658 2,190,623
Equity
Share capital 8,028 4,958
Share premium 23,308,422 5,629,272
Other components of equity 478,192 332,107
Accumulated deficit (5,110,014) (5,289,848)
---------------- ------------
Total equity 18,684,628 676,489
Total liabilities and equity 21,415,286 2,867,112
================ ============
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF COMPREHENSIVE INCOME
US dollars
-------------------------------------
Year
Six months ended
ended 30 June 31 December
2017 2016 2016
---------- ----------- ------------
(Unaudited) (Audited)
----------------------- ------------
Revenue 988,995 1,309,138 2,161,366
Cost of sales 131,111 646,464 1,007,097
---------- ----------- ------------
Gross profit 857,884 662,674 1,154,269
Research and development
expenses 151,047 119,058 221,873
General and administrative
expenses 162,798 128,668 317,214
Marketing expenses 172,655 151,370 276,681
Other income 8,500 - -
---------- ----------- ------------
Operating profit 379,884 263,578 338,501
Financing costs 200,050 40,504 87,680
---------- ----------- ------------
Profit before tax 179,834 223,074 250,821
Tax benefit - - 550,000
---------- ----------- ------------
Net comprehensive income
for the year 179,834 223,074 800,821
========== =========== ============
Basic earnings per ordinary
share 0.01 0.01 0.04
========== =========== ============
Diluted earnings per
ordinary share 0.01 0.01 0.03
========== =========== ============
Weighted average number
of ordinary shares for
basic earnings per share 18,237,178 18,078,500 18,078,500
========== =========== ============
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF CHANGES IN EQUITY
Amounts in US dollars
------------------------------------------------------------------ ------
Number of shares Share Capital
--------------------- -----------------------
Other
Ordinary Preferred Ordinary Preferred Share components Accumulated Total
shares shares shares shares premium of equity deficit equity
-------- --------- ---------- --------- ------- ----------- ----------- --------
Balance at 1
January
2016
(Audited) 18,078,500 3,725,400 4,111 847 5,629,272 290,874 (6,090,669) (165,565)
Employee
share-based
compensation - - - - - 41,233 41,233
Net
comprehensive
income for
the year - - - - - - 800,821 800,821
Balance at 31
December
2016(Audited) 18,078,500 3,725,400 4,111 847 5,629,272 332,107 (5,289,848) 676,489
Conversion of
preferred
shares into
ordinary
shares 3,725,400 (3,725,400) 847 (847) - - - -
Employee
share-based
compensation - - - - - 24,971 - 24,971
Net proceeds
from
issuing
ordinary
shares 10,714,286 - 3,070 - 17,800,264 - - 17,803,334
Share based
compensation
related to
issuance
of ordinary
shares - - - - (121,114) 121,114 - -
Net
comprehensive
incomefor the
period - - - - - - 179,834 179,834
Balance at 30
June
2017
(Unaudited) 32,518,186 - 8,028 - 23,308,422 478,192 (5,110,014) 18,684,628
===================== =================== ================= =============== ===================== ================ ======================= =====================
Balance at 1
January
2016
(Audited) 18,078,500 3,725,400 4,111 847 5,629,272 290,874 (6,090,669) (165,565)
Employee
share-based
compensation - - - - - 35,079 - 35,079
Net
comprehensive
income for
the period - - - - - - 223,074 223,074
--------------------- ----------------- --------------- --------------------- ---------------- ----------------------- ----------
Balance at 30
June
2016
(Unaudited) 18,078,500 3,725,400 4,111 847 5,629,272 325,953 (5,867,595) 92,588
===================== =================== ================= =============== ===================== ================ ======================= ==========
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF CASH FLOWS
US dollars
-------------------------------------------
Year
Six months ended
ended 30 June 31 December
2017 2016 2016
---------- ----------------- ------------
(Unaudited) (Audited)
----------------------------- ------------
Operating activities
Net comprehensive income 179,834 223,074 800,821
Non-cash adjustments
Depreciation of property
and equipment 7,051 8,263 16,796
Capital gain from sale of
vehicle (8,500) - -
Share-based compensation 24,971 35,079 41,233
Amortisation of intangible
assets 54,357 6,663 34,438
Amortisation of liabilities 67,989 - 11,706
Foreign exchange losses
on cash balances (73,181) (12,777) 2,397
Deferred tax - - (550,000)
Net changes in working capital
Increase in trade receivables (122,505) (172,851) (106,033)
Decrease in inventories - 64,147 64,147
Decrease (increase) in other
current assets (9,394) (63,390) 86,663
Increase (decrease) in trade
payables 7,150 (245,628) (284,193)
Increase in other liabilities 61,380 73,176 196,585
Net cash provided (utilised)
by operating activities 189,152 (84,244) 314,560
Investing activities
Increase of other short-term
financial assets (5,841) (58,502) (58,518)
Purchase of property and
equipment (5,550) (4,267) (20,354)
Sale of vehicle 28,830 - -
Amounts carried to intangible
assets (584,765) (519,543) (1,033,389)
Participating grants in
intangible assets - 156,384 313,175
Net cash used in investing
activities (567,326) (425,928) (799,086)
Financing activities
Repayment of OCS liability - - (35,670)
Proceeds from short term
borrowings 156,061 107,930 26,379
Proceeds from (repayment
of) long term borrowings (1,747) 125,321 101,868
Receipt (repayment) of shareholder
loans (87,246) 104,018 526,634
Proceeds allocated to warrants
liability - - 43,309
Net proceeds from issuing
ordinary shares 18,139,782 - -
Net cash provided by financing
activities 18,206,850 337,269 662,520
Net change in cash and cash
equivalents 17,828,676 (172,903) 177,994
---------- ----------------- ------------
Cash and cash equivalents,
beginning of year 335,723 160,126 160,126
---------- ----------------- ------------
Exchange differences on
cash and cash equivalents 73,181 12,777 (2,397)
Cash and cash equivalents,
end of period 18,237,580 - 335,723
========== ================= ============
Supplementary information:
Interest paid during the
year 10,600 5,185 13,543
========== ================= ============
Issuance costs not paid
in cash 336,448 - -
========== ================= ============
The accompanying notes are an integral part of the interim
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - GENERAL
ETHERNITY NETWORKS LTD. (hereinafter: the "Company") was
incorporated in Israel on the 15th of December 2003.
The Company develops and delivers high-end network data
processing technology for carrier Ethernet switching, including
broadband access, mobile backhaul, carrier Ethernet demarcation and
data centres. The Company's customers are situated throughout the
world.
In June 2017, the Company completed an Initial Public Offering
("IPO") together with being admitted to trading on the AIM Stock
Exchange and issued 10,714,286 ordinary shares at a price of GBP
1.40 per share, for a total consideration of approximately
$19,444,000 (GBP 15,000,000) before underwriting and issuance
expenses. Total net proceeds from the issuance amounted to
approximately $17,800,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been consistently applied
in the preparation and presentation of the interim and annual
financial statements for all of the periods presented.
Basis of preparation of the interim financial statements:
The interim condensed financial statements for the six months
ended 30 June 2017 have been prepared in accordance with IAS 34,
Interim Financial Reporting, as adopted by the European Union. The
interim condensed financial statements do not include all the
information and disclosures required in the annual financial
statements in accordance with IFRS, and should be read in
conjunction with the Company's annual financial statements as at 31
December 2016. The accounting policies applied in the preparation
of the interim condensed financial statements are consistent with
those followed in the preparation of the Company's annual financial
statements for the year ended 31 December 2016.
The interim financial statements for the half-year ended 30 June
2017 (including comparative amounts) were approved and authorised
for issue by the board of directors on 14 September 2017.
NOTE 3 - EQUITY
On 23 June 2017,
-- all of the Company's preferred shares were converted into
ordinary shares on a one-to-one basis;
-- the pre-emption rights in favor of existing shareholders, as
determined by the articles of association, were cancelled and a new
articles of association was adopted;
-- each of the issued and un-issued shares of par value NIS 0.01
of the share capital of the Company were sub-divided into 10
ordinary shares of NIS 0.001;
-- the authorised share capital of the Company was increased to
NIS 50,000.00 divided into 50,000,000 ordinary shares of NIS 0.001
each.
On 29 June 2017 the Company completed an IPO together with being
admitted to trading on the AIM Stock Exchange in London and issued
10,714,286 ordinary shares at a price of GBP 1.40 per share, for a
total consideration of approximately $ 19,445,000 (GBP 15,000,000)
before advisory and other share issue costs. Total net proceeds
from the share issue amounted to $ 17,803,334.
NOTE 4 - SHARE BASED COMPENSATION
A. In connection with the IPO, 162,591 warrants, exercisable
into a same number of ordinary shares at the IPO price of GBP 1.40,
was issued to the Nominated Adviser and Broker as a share-based
compensation. The warrants have a five-year term but may not be
exercised within the first 12 months. The fair value of these
warrants of $121,114 was reduced from share premium and added to
other components of equity.
B. In March 2017, the Company appointed Mark Reichenberg as CFO
of the Company and granted him 109,000 ESOP options, vesting over
four years, exercisable at $0.20 per option and with an expiration
date in March 2027.
NOTE 5 - FINANCING COSTS
US dollars
------------------------------------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
---------- ---------- ------------
Unaudited Unaudited Audited
---------- ---------- ------------
Bank fees and interest 20,666 33,102 56,159
Interest and amortization
of loan discount 67,989 - 16,428
Exchange rate differences
(*) 111,395 7,402 15,093
---------- ---------- ------------
Total financing costs 200,050 40,504 87,680
========== ========== ============
(*) The exchange rate differences in the six month period ended
30 June 2017, are primarily attributable to the 9.1% depreciation
in the US Dollar against
By order of the Board
Mark Reichenberg
Company Secretary
15 September 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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