Final Results

BATM Advanced Communications Ld 15 March 2006 For immediate release 15 Mar, 2006 BATM Advanced Communications Limited - 2005 preliminary results BATM Advanced Communications Limited ('BATM' or 'the Company'), (LSE: BVC), a leading designer and producer of broadband data and telecoms systems, announces final results for the year ended 31 December 2005. 2005 2004 2003 Revenues $56.5m $41.2m $37.1m Gross Profit $22.0m $17.5m $11.6m Pre-tax profit / (loss) before goodwill amortization and other non-recurring expenses* $ 1.4m $(2.6)m $(10.1)m Loss per share (0.75)c (3.29)c (5.21)c (*) Excluding amortization of goodwill, partial write-down of an investment and costs associated with the early termination of a US premises lease agreement ($4.1m in 2005 and $9.9m in 2004) Highlights • Revenue growth of 37% over 2004 (2004 growth of 11% over 2003) • Return to Operating Profitability. Pre-tax profit before goodwill amortization and other non-recurring expenses of $1.4m (loss of $2.6m in 2004) • Strong cash position of $48.0m, including short and long-term liquid investments, and no borrowings ($47.1m at 30 June 2005, $50.7m at 31 December 2004) • Gross profit margin of 39% compared with 42.5% in 2004 • Major strategic partnerships consolidated and extended • Long-term contracts secured strengthening the Group's growth prospects Dr Zvi Marom, Chief Executive of BATM, said: The hard work of the last few years and our focus on building a sustainable platform of growth for the Company has been borne out by these results. BATM has secured some notable contract wins in a highly competitive market and we have strengthened our relationships with major strategic partners. I am confident that we are at the beginning of a period of significant renewed growth. For further information please contact: 15 March Thereafter BATM Advanced Communications Limited Dr Zvi Marom, Chief Executive 020 7831 3113 00972 9 866 2525 Ofer Bar-Ner, Chief Financial Officer 020 7831 3113 00972 9 866 2525 Dresdner Kleinwort Wasserstein James Rudd 020 7623 8000 020 7623 8000 Shore Capital Graham Shore 020 7408 4090 020 7408 4090 Global Equity IR Amira Bardichev 079 5620 6270 079 5620 6270 Chairman's Statement Review of the Year I am delighted to report on a year that has more than justified my statement last year that '...2005 will prove to be the year in which the Company demonstrates that it has returned to a pattern of growth and profitability'. In the first half of the year we generated a substantial sales increase of 34%. We did even better in the second half, achieving an increase of 39%, making the increase 37% for the full year. Although this significant increase was gained at the cost of a small decrease in our gross margins, mainly in the US, our continued tight control of costs has resulted in the virtual elimination of annual operating losses. These results have been achieved with little or no benefit from the recent important long-term contracts that the Company has gained with major industry players and which we confidently expect will provide further impetus to our future growth. During the year we also reached the end of the heavy cost of goodwill amortization arising from our acquisition of Telco Systems in 2000 and this too has benefited our final results. Financial Performance Turnover for the period was $56,514,000 (2004: $41,218,000), an increase of 37.1% compared with 2004. Turnover for the second half of 2005 was $30,337,000 (2004: $21,757,000), an increase of 39.4%. This increase in the second half is mostly due to growth in our business with our strategic partners and VOIP based products including the new offerings from our Integral Access (now renamed Telco North (Boston)) operation which was acquired in July 2005. Gross profit was $21,984,000 (2004: $17,540,000), representing an increase of 25.3% and a gross profit margin of 39% of turnover (2004: 42.5%). As a result of new extended agreements with US carriers, we have experienced a decline in the profitability of our legacy business in the US. Since these agreements establish fixed pricing for the next few years, our focus will be to improve profitability in 2006 by reducing the costs of some of our legacy products and by generating further growth in revenues from new products and maintenance agreements during the course of 2006. R&D expenses in this period were $9,675,000 (2004: $9,909,000), representing a decrease of 2.4%. We have continued our strategy of increasing investment in IP based products and reducing investment in TDM based and legacy products. Sales and Marketing expenses totaled $9,505,000 (2004: $8,984,000), representing an increase of 5.8%. As a percentage of sales, Sales and marketing expenses were 16.8% (2004: 21.8%). General and administrative expenses were $2,908,000 (2004: $3,394,000). Overall Sales, marketing and administration expenses have decreased from 30.0% of sales in 2004 to 22.0% in 2005. Goodwill amortization was $2,713,000 (2004: $9,898,000). The majority of these expenses relate to the acquisition of Telco Systems which was finally fully amortized during H1 2005. It also includes the amortization of goodwill resulting from the acquisition of Integral Access. Finance income was $1,459,000 (2004: $1,702,000). This decrease is primarily as a result of reductions in the value of our marketable securities acquired as part of the sale of Eldor shares in 2004. Other expenses in 2005 of $1,378,000 include the partial write-down of one of the company's investments and the costs associated with the early termination of the lease agreement of one of our premises in the US. In 2004 other income of $423,000 included the gain on the sale of Eldor shares. Pro forma profit after taxes, excluding the effect of the amortization of goodwill and other non-recurring expenses, was $1,168,000 (2004: loss $2,883,000). Actual loss after taxes, including the effect of goodwill amortization and other non-recurring expenses, amounted to $2,929,000 (2004: Loss $12,781,000), resulting in a loss per share of 0.75 cents (2004: Loss 3.29 cents). Our balance sheet remains strong with cash (including short-term and long- term liquid investments) of $48.0m (2004: $50.7m) at the period end. Our cash position is slightly lower than in 2004 mainly due to an increase in inventory to support the significant growth in sales. We continue to exercise a conservative cash investment strategy, maintaining most balances in bank deposits. Sales and Marketing Our OEM business and VOIP offerings continued to be our major growth drivers in 2005. In the OEM segment we managed to both expand existing relationships, as announced in November 2005, as well as securing new relationships, as announced in February 2006. We expect this trend to continue during 2006. We also expect our investment in the Advanced TCA standard as well as our position as the world leader in Quality Of service of modern Triple IP networks to improve our chances of winning new customers as well as expanding our relationships with existing customers. Our VOIP business has continued to grow for both the residential and corporate markets. We experienced significant sequential growth in the residential market as our customers continued to roll out their services. The integration of Integral Access' product offerings has improved our solution for business needs and forged a new relationship with an important customer, Time Warner Telecom. We expect to see further progress upon the introduction of our SIP based Integrated Access Devices that will appear in the market in the second half of 2006. We will also focus this year on expanding our business in the Far-East. As part of this initiative, we opened a branch in Singapore with a reputable locally residing executive to launch our presence in this region. We believe that there is significant opportunity for our IP based products in this area. We are looking to establish relationships with local carriers as well as cooperation with other vendors in the region. Research and Development and New Products We have expanded our line of IP based product and launched the T-Marc. TELEPHONY (R) magazine (www.itmag.com) granted a 2005 Product of the Year Award to the company's T-Marc product line, a family of extremely cost effective and compact intelligent Ethernet demarcation and service delivery customer premises equipment (CPE) devices. Greg Galitzine, editorial director of INTERNET TELEPHONY magazine,.said: 'The challenge for carriers in delivering quality intelligent data and voice services over an Ethernet-based network is ensuring they meet a performance level that enterprises are used to and demand, Carriers can conquer this challenge by gaining control at the network edge, and T-Marc is one of the first intelligent demarcation devices to market.' This product complements our T-Metro which was released earlier in 2005. In addition to our stand-alone advanced devices, we continue to develop IP based blades and cards for the Advanced TCA standard. This development is partly funded by some of our business partners. It will allow us to present a comprehensive solution of communication blades for this standard in 2006-2008. This standard, Advanced Telecommunication Computing Architecture, is gaining considerable traction both with telecom vendors and telecom service providers. In VOIP we continue to improve the performance and costs of our CPE gateways. In January 2006, we launched the Access211N, a next-generation SIP-based VoIP gateway for broadband Internet telephone service. Through integrated routing capabilities, unique traffic shaping, and its implementation of advanced quality of service (QoS) standards, service providers and the end user enjoy superior voice quality and reduced cost since the need for an external router is eliminated. Investment In July 2005, we purchased certain assets and liabilities of Integral Access Inc., headquartered in Chelmsford, Massachusetts. We have completed the integration of this product line into Telco Systems' offerings. Prospects The recovery, which started in 2004 and accelerated during 2005, has continued further into the beginning of 2006. The agreements that have been signed with major partners and our substantial recent long-term project tender wins support our conviction that we have embarked on a period of substantial growth. I am confident that 2006 will be a year when BATM will demonstrate that it has become a significant player in our industry. Peter Sheldon Chairman 15 March 2006 BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year ended December 31, 2005 2004 US$ in thousands, (except per share data) Sales 56,514 41,218 Cost of sales 34,530 (*)23,678 Gross profit 21,984 17,540 Operating expenses Research and development expenses, net 9,675 9,909 Sales and marketing expenses 9,505 (*)8,984 General and administrative expenses 2,908 3,394 Amortization of goodwill 2,713 9,898 Total operating expenses 24,801 32,185 Operating loss (2,817) (14,645) Finance income, net 1,459 1,702 Other income (expenses), net (1,378) 423 Loss before tax (2,736) (12,520) Tax (193) (142) Loss after tax (2,929) (12,662) Company's share in results of associated company - (119) Loss for the year (2,929) (12,781) Loss per share (in cents) (0.75) (3.29) (*)Reclassified BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED BALANCE SHEETS December 31, 2 0 0 5 2 0 0 4 US$ in thousands Non-current assets Goodwill 1,678 2,475 Property, plant and equipment 10,477 10,587 Investment in companies 3,388 3,688 Long-term investments 8,635 3,098 Total fixed assets 24,178 19,848 Current assets Inventories 10,445 7,425 Short term investments 20,856 46,478 Trade and other receivables 10,794 9,779 Cash and cash equivalents 18,477 1,153 60,572 64,835 Total assets 84,750 84,683 Current liabilities Trade and other payables 15,331 13,223 Net current assets 45,241 51,612 Non-current liabilities Liability for employee termination benefits, net 372 376 Other long-term Liabilities 760 - 1,132 376 Total liabilities 16,463 13,599 Net assets 68,287 71,084 Equity Share capital 1,178 1,177 Share premium account 397,680 397,549 Foreign currency translation adjustment 16 16 Deficit (330,587) (327,658) Total equity 68,287 71,084 BATM ADVANCED COMMUNICATIONS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2 0 0 5 2 0 0 4 US$ in thousands Net cash used in operating activities (Appendix A) (2,092) (1,924) Investing activities Proceeds from (investment in) short term investments (12,110) 1,040 Investment in long term investments (8,423) - Proceeds from long term investments 40,959 - Repayment of loan from associated company - 477 Purchases of property, plant and equipment (692) (1,767) Acquisition of subsidiary (Appendix B) (200) - Net cash from (used in) investing activities 19,534 (250) Financing activities Repayment of bank loan (250) - Exercise of share based options by employees 132 9 Net cash from (used in) financing activities (118) 9 Increase (decrease) in cash and cash equivalents 17,324 (2,165) Cash and cash equivalents at the beginning of the year 1,153 3,318 Cash and cash equivalents at the end of the year 18,477 1,153 BATM ADVANCED COMMUNICATIONS LTD. APPENDICES TO CONSOLIDATED STATEMENTS OF CASH FLOWS A. RECONCILIATION OF NET LOSS FOR THE YEAR TO NET CASH USED IN OPERATING ACTIVITIES Consolidated Year ended December 31, 2 0 0 5 2 0 0 4 US$ in thousands Loss for the year (2,929) (12,781) Group's share in loss of associated company - 119 Write-down of an investment 300 - Amortization of goodwill 2,713 9,898 Depreciation of property, plant and equipment 1,245 1,408 Increase (decrease) in liability of employee termination benefits, net (4) 17 Gain from selling an Investment in associated company - (410) Loss(gain) from marketable securities 49 (27) Interest incurred on investments (390) (1,627) Operating cash flow before movements in working capital 984 (3,403) Decrease (increase) in inventories (2,283) 258 Increase in receivables (366) (1,456) Increase (decrease) in payables (427) 2,677 Net cash used in operating activities (2,092) (1,924) B. ACQUISITION OF SUBSIDIARY Consolidated Year ended December 31, 2 0 0 5 2 0 0 4 US$ in thousands Net assets acquired Property, plant and equipment 443 - Inventories 737 - Trade and other receivables 649 - Trade and other payables (2,535) - Bank loan (250) - Other long-term liabilities (760) - (1,716) - Goodwill 1,916 - Goodwill Total consideration 200 - BATM ADVANCED COMMUNICATIONS LTD. NOTES TO THE FINANCIAL STATEMENTS 1. Loss per share for the years ended 31 December 2005 and 31 December 2004 are calculated using an average 388,578,761 shares in issue in 2005 and an average 388,486,036 shares in issue in 2004. 2. Reconciliation of movements in shareholders' funds Foreign currency Share premium translation Share capital account adjustment Deficit Total US$'000 US$'000 US$'000 US$'000 US$'000 As at January 1, 2005 1,177 397,549 16 (327,658) 71,084 Exercise of share based options by Employees 1 131 132 Loss for the year - - - (2,929) (2,929) As at December 31, 2005 1,178 397,680 16 (330,587) 68,287 This information is provided by RNS The company news service from the London Stock Exchange

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