RNS Number : 0539X
Newport Networks Group PLC
19 June 2008
Embargoed, for release at 7.00am on 19th June 2008
Newport Networks Group PLC
("The Company")
Preliminary Results for the year ended 31 December 2007
Key features
*Losses reduced to �8.6m from �13.7m
*OEM Agreement for Border Gateway products provides a foundation for the longer term future of the Company.
*The completion of Release 5.0 software increases competitiveness in the Session Border Controller market.
*Ongoing programme to use Release 5.0 Session Border Controller/Border Gateway software on industry standard platforms.
*Company implementing a programme to reduce costs by approximately 50%.
*Chairman provides ongoing financial support.
Chairman, Sir Terence Matthews said "Whilst I am disappointed by the lack of sales, significant technical and commercial progress has
been made and the completion of the OEM Agreement should provide a good foundation for the longer term future of the Company. With this in
mind I have agreed to support the Company financially by guaranteeing the overdraft facilities that the Company has with its bankers and
arrange for a loan via my investment company, Wesley Clover Corporation."
For further information, please visit www.newport-networks.com or contact:
John Everard, Chief Executive
John Ackroyd, Finance Director
Newport Networks Group PLC
Tel : 01291 435700
Evolution Securities Tel: 020 7071 4300
Robert Collins
Tim Redfern
Neil Elliot
Newport Networks Group PLC ("Newport" or the "Company")
Preliminary Results for the year ended 31 December 2007
Chairman's Report
My report to shareholders will take a different format on this occasion. After a brief summary of the 2007 financial statements, I will
provide shareholders with details of the Board considerations regarding the Company's overall position in the market and the determination
of the best way forward.
The 2007 financial statements have been prepared, for the first time, in accordance with International Financial Reporting Standards. No
adjustments have been required to previously reported results. Revenues for the financial year were �131,000 with a loss of �8.6M, (loss
�13.7M in 2006). Investment in Research and Development reduced to �4.7M (�6.5M in 2006) and the Company has continued eligibility for R&D
Tax Credits. The Company expects to receive a tax repayment of approximately �1.0M during the current year. A deferred tax asset, amounting
to more than �10m, has not been recognised in these financial statements.
I am very disappointed by the lack of sales for last year and the first half of this year; my disappointment is only slightly tempered
by the significant technical and commercial progress made by the Company towards building a stable business.
We live in difficult times in the networking and service provider industry. The large next generation network deployments around the
Globe, which the Newport equipment has been designed to empower, have continued to be delayed. Newport has developed first class core
network technology but at a point in time which, in view of market delays, has turned out to be too early for mass deployment. While the
Company has developed a broader range of platform sizes to address the current market for smaller products, this segment has now become
highly competitive. To respond to the market pressures the Company is engaged in a rapid development program to provide the functionality of
our existing products on industry standard open platforms. This development has been requested by a number of telecommunications suppliers
and operators.
The development of the Border Gateway (BG) products and the completion of an OEM Agreement with a world-leading vendor of NGN/IMS
solutions should provide a good foundation for the longer-term future of the Company. The completion of Release 5.0 of the Session Border
Controller (SBC) software that can operate across our wide range of platform sizes, along with the recently announced Call Routing Engine,
should allow the Company to compete more effectively in the SBC market on the one hand, while allowing for substantially reduced spending on
the other.
On a different subject, an announcement was made early this year regarding a large pending contract with a telephone service provider.
We were hopeful of completing the sale early in 2008 where the contract would have had a material and positive effect on the Company's
financial situation. However, while negotiations continue, the size of the opportunity has since reduced and the time to contract completion
is unknown.
In light of the prevailing circumstances, Newport is implementing a cost reduction program; the Company is being reduced to concentrate
on core SBC and Border Gateway market segments. This will allow a reduction in the expense run rate of approximately 50% while retaining the
core value of our technology and allow the Company to address selected business prospects, including business with the Company's major OEM
partners. The program to make the SBC and BG software applications portable to industry standard open platforms should also increase the
attractiveness of the Company's range of products.
Furthermore, I can announce that the Board has commenced a search for a new CEO to complement the continuing efforts of John Everard who
will become Vice Chairman and remain on the Board of Directors. I will announce the appointment in the near future.
To support the Company financially, I have agreed to guarantee the overdraft facilities that the Company has with its bankers and
arrange for a loan via my investment company, Wesley Clover Corporation.
In the longer term, the Board will consider the available options relating to the raising of further working capital for the Company.
Sir Terence H Matthews
Chairman.
Group Profit and Loss Account
for the year ended 31 December 2007
2007 2006
�000 �000
Revenue 131 1,061
Cost of sales (55) (439)
----------- -----------
Gross profit 76 622
Administrative expenses (9,833) (16,062)
----------- -----------
Operating loss from continuing operations (9,757) (15,440)
Finance revenue 147 399
----------- -----------
Loss from continuing operations before taxation (9,610) (15,041)
Income tax credit 1,027 1,344
----------- -----------
Loss for the year from continuing operations
Attributable to the equity holders of the parent (8,583) (13,697)
company
----------- -----------
Loss per share
- Basic and diluted from continuing operations (3.6p) (8.6p)
Group statement of total recognised income and expense
for the year ended 31 December 2007
2007 2006
�000 �000
Loss for the year (8,583) (13,697)
Exchange differences on foreign net investments (17) (56)
----------- -----------
Total recognised income and expense for the year
attributable
to the equity holders of the parent company (8,600) (13,753)
----------- -----------
Group Balance Sheet
as at 31 December 2007
2007 2006
�000 �000
Non-current assets
Property plant and equipment 1,796 2,516
Current assets
Inventories 2,132 1,880
Trade and other receivables 504 1,646
Tax credit receivable 990 1,340
Cash and short term deposits 2,328 3,697
----------- -----------
Total assets 7,750 11,079
Current liabilities
Trade payables (399) (497)
Other taxes (166) (144)
Other payables (451) (774)
----------- -----------
Total liabilities (1,016) (1,415)
----------- -----------
Net assets 6,734 9,664
----------- -----------
Capital and reserves
Equity share capital 8,529 8,329
Share premium 41,850 36,390
Merger reserve 8,088 8,088
Other reserve 879 869
Accumulated losses (52,612) (44,012)
----------- -----------
Total equity attributable to members of the parent 6,734 9,664
company
----------- -----------
Group Cash Flow Statement
for the year ended 31 December 2007
2007 2006
�000 �000
Operating activities
Loss for the year (8,583) (13,697)
Adjustments to reconcile loss for the year to net
cash flow
from operating activities
Depreciation 977 1,050
(Increase)/decrease in inventories (252) 1,330
Decrease in trade and other receivables 1,142 159
Decrease in trade and other payables (399) (877)
Finance revenue (147) (399)
Tax credit (1,027) (1,344)
Share based payment charge 10 116
Other non cash items (17) (56)
----------- -----------
Net cash flow from operating activities (8,296) (13,718)
----------- -----------
Investing activities
Payments to acquire equipment (257) (1,403)
Sale of equipment - 30
Finance revenue 147 399
----------- -----------
Net cash flow from investing activities (110) (974)
----------- -----------
Financing activities
Net proceeds from share issues 5,660 14,671
UK corporation tax received 1,377 1,119
----------- -----------
Net cash flow from financing activities 7,037 15,790
----------- -----------
(Decrease)/increase in cash and cash equivalents (1,369) 1,098
Cash and cash equivalents at the beginning of the 3,697 2,599
year
----------- -----------
Cash and cash equivalents at the end of the year 2,328 3,697
----------- -----------
Notes to the financial statements
1. The financial information contained in this preliminary announcement does not constitute statutory accounts. Copies of the
directors' report and the audited financial statements for the year ended 31 December 2007 will be posted to the shareholders in due course
and may be obtained thereafter from the Company's registered office at Castlegate Business Park, Portskewett, Caldicot Monmouthshire NP26
5AA.
2. Basis of preparation
The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting
Standards ("IFRSs") as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December
2007 and applied in accordance with the Companies Act 1985. This is the first time the financial statements have been prepared in accordance
with IFRS and the transition to IFRS did not give rise to any adjustments to previously reported financial statements, other than changes in
presentation and disclosures required under IFRS.
The Directors have prepared the financial statements on a going concern basis as a result of the irrevocable letter of support for the
period ending 30 September 2009 provided by Wesley Clover Corporation, the personal investment company of Sir Terry Matthews, in June 2008.
The Directors have prepared and approved cash flow projections for the period ending 31 December 2011, taking into account existing cash
resources, the expectation of future sales from fully paid stock and the collection of funds from receivables including R&D Tax Credits. The
Directors believe that the trading performance in 2008 should benefit from the sale of products through Network Equipment Vendors such as
the agreement announced in March 2008 with a leading European Fixed/Mobile Network Equipment Vendor. The Directors believe further that the
market for the Company's products is starting to grow and that the Company will secure a higher share of this growing market and
significantly increased sales in the future.
The nature of the Company's business is such that there can be considerable unpredictable variation in the timing of cash inflows. On
the basis of this projected cash flow information the Directors consider that the Company can continue to operate However the margin of cash
availability, before new bank debt or further equity funding is required to be put in place, is not large and inherently there can be no
certainty in relation to these matters. Therefore, the Directors intend to raise additional resources from new bank debt, supported by
guarantees from Wesley Clover Corporation, loans from Wesley Clover Corporation or further equity funding during the next year to ensure the
Company can continue to fund its growth.
After considering all of the above factors, the Directors believe that the Company and the Group will have adequate resources to
continue in operational existence for the foreseeable future and that as a result of the irrevocable letter of support provided by Wesley
Clover Corporation it is appropriate to adopt the going concern basis in preparing the financial statements.
3. Finance revenue
2007 2006
�000 �000
Bank interest receivable 147 399
----------- -----------
4. Taxation
a) Income tax credit
The income tax credit is made up as follows:
2007 2006
�000 �000
UK corporation tax (990) (1,340)
Adjustments in respect of previous periods (37) (4)
----------- -----------
Total current tax credit (1,027) (1,344)
----------- -----------
b) Factors affecting the income tax credit
The tax credit in the income statement for the year is lower than the standard rate of corporation tax in the UK. The differences are
explained below:
2007 2006
�000 �000
Loss on ordinary activities before tax (9,610) (15,041)
----------- -----------
Loss on ordinary activities multiplied by standard
rate of corporation
tax in the UK of 30% (2006 - 30%) (2,883) (4,512)
Effect of:
Expenses not deductible for tax purposes 63 10
Adjustments in respect of previous periods (37) (4)
Transfers to unrecognised tax assets 1,582 2,899
Research and development tax credit (990) (1,340)
Losses surrendered for research and development tax 1,238 1,603
credit
----------- -----------
Total income tax credit (1,027) (1,344)
----------- -----------
c) Factors that may affect future tax charges
The future tax charge will depend on the continued availability of research and development tax credits and whether any deferred tax can
be recognised for tax losses which are available to carry forward and utilise against taxable profits. There is a deferred tax asset of
�10,270,000 (2006: �9,297,000) which has not been recognised as there is uncertainty over when it will be recoverable. This is made up as
follows:
2007 2006
�000 �000
Accelerated capital allowances (379) (399)
Other short term temporary differences 314 325
Tax losses carried forward 10,335 9,371
----------- -----------
10,270 9,297
----------- -----------
5. Loss per ordinary share
The basic loss per share (LPS) of (3.6p) is based on the loss for the year of �8,583,000 and the weighted average number of ordinary
shares in issue of 238,911,600.
The comparative loss per share (LPS) of (8.6p) is based on the loss for the year of �13,697,000 and the weighted average number of
ordinary shares in issue of 159,505,207.
Diluted LPS has not been disclosed, due to employee share options being anti dilutive. In these circumstances diluted LPS is the same as
the basic LPS.
6. Share capital
2007 2006
�000 �000
Authorised:
Ordinary shares of 5 pence each - 10,000
Ordinary shares of 0.1 pence each 1,837 -
Deferred ordinary shares of 4.9 8,163 -
pence each
----------- -----------
10,000 10,000
---------------- ---------------
2007 2006
No. No.
Authorised:
Ordinary shares of 5 pence each - 200,000,000
Ordinary shares of 0.1 pence each 1,837,441,183 -
Deferred ordinary shares of 4.9 166,582,834 -
pence each
----------- -----------
2,004,024,017 200,000,000
---------------- -----------------
2007 2006
No. No
Issued and fully paid:
Ordinary shares of 5 pence each - 166,582,833
Ordinary shares of 0.1 pence each 366,582,833 -
Deferred ordinary shares of 4.9 166,582,833 -
pence each
-------------------- -----------------
At an extraordinary general meeting held on 22 August 2007 the shareholders approved the sub-division and conversion of the 166,582,833
issued ordinary shares of 5 pence each into 166,582,833 ordinary shares of 0.1 pence each and 166,582,833 deferred ordinary shares of 4.9
pence each. The un-issued 33,417,167 ordinary shares of 5 pence each were subdivided into 1,670,858,350 ordinary shares of 0.1 pence each.
The meeting on 22 August 2007also approved the allotment of 200,000,000 new ordinary shares at 3p per share. Dealings in the new shares
commenced on AIM on 23 August 2007.
The deferred ordinary shares have the following rights:
- they carry no rights to dividends or other distributions out of revenue or any other profits of the Company
- on a winding up or other return of assets of the Company they are entitled to share pari passu
- the assets available for distribution only after the debts and liabilities of the Company and the costs of the winding up have been
paid or allowed for and after there has been paid on each ordinary share of 0.1pence each in the capital of the Company the sum of
�10,000,000 or its equivalent in any other currency in which payment is determined to be made
- the holders of deferred shares shall have no right to receive notice of or attend or vote in any general meeting of the Company
in their capacity as holders of such shares
- the issue of shares of any class shall not constitute a variation of the rights of the holders of the deferred shares
- except as approved by the Company in general meeting, the deferred shares shall not be transferable
The movements in the share capital for the year are as follows:
2007 2007 2006 2006
Nominal Nominal
Value Value
No. �000 No. �000
Ordinary shares
Share capital b/f 166,582,833 8,329 63,249,500 3,162
Shares issued in the year 200,000,000 200 103,333,333 5,167
Share division in the year - (8,162) - -
--------- -------- --------- --------
366,582,833 367 166,582,833 8,329
Deferred shares
Share division in the year 166,582,833 8,162 - -
Total 533,165,666 8,529 166,582,833 8,329
--------------- --------------- --------------- ---------------
7. Reconciliation of equity
Profit
Share Share Merger Other and loss
capital premium reserve reserve account Total
�000 �000 �000 �000 �000 �000
At 31 December 2005 3,162 26,886 8,088 753 (30,259) 8,630
Shares issued in the year 5,167 10,333 - - - 15,500
Costs of share issue - (829) - - - (829)
Share based payment charge - - - 116 - 116
Exchange differences on
foreign net investments - - - - (56) (56)
Loss for the year - - - - (13,697) (13,697)
------- -------- -------- -------- -------- --------
At 31 December 2006 8,329 36,390 8,088 869 (44,012) 9,664
Share-based payment charge - - - 10 - 10
Shares issued in the year 200 5,800 - - - 6,000
Costs of share issue - (340) - - - (340)
Exchange differences on
foreign net investments - - - - (17) (17)
Loss for the year - - - - (8,583) (8,583)
------- -------- -------- -------- -------- --------
At 31 December 2007 8,529 41,850 8,088 879 (52,612) 6,734
----------- -------------- -------------- -------------- -------------- --------------
The merger reserve represents the difference between the nominal value of shares issued and the nominal value of shares received in
exchange during Group reorganisation in 2004.
The other reserve represents the share option reserve.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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