Interim Results

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)

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