BATM loses $41 million on goodwill amortization

Buying Telco Systems added $30 million to that amount
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As European exchanges reeled this week, the results of BATM Advanced Communications (LSE:BVC.L) seem to have been overlooked. But they are not devoid of interest, considering the nasty surprise the company sprung on investors.

At least for the second half of 2000, investors had been warned. Not this time around.

London-listed BATM develops layer routing IP switches and muxes for advanced communication networks. It began to feel the foundering of CLECs already in the second half of 2000, an effect that just grew worse this year.

BATM ended the first half of 2001 with a 13% revenue drop to $42.4 million, compared with the previous six months. Though the company's revenues in the first half of 2001 grew by 15% from the parallel period fn 2000, it appears the only reason for the rise was the company had combined its results with those of its acquisition made in 2000, the American Telco Systems.

BATM hoped Telco would facilitate its entry into the American market, yet Telco itself was affected by the general slump in the economy in the U.S. In conjunction with the release of its results, BATM announced its planned layoffs of marketing and service personnel in its American branches, due to the sharp decrease in demand for its products.

"Because of the rough market conditions, which led to decreased demand and increased competition, one could view our results as satisfactory," wrote BATM chairman Peter Sheldon, in a published report. "We have taken steps to eliminate the impact of the regressing market, and that would prepare us to the inevitable recovery of the communications market," he added.

For the time being BATM decided to clean up its stables, and it therefore announced major write offs in the first half of 2001, the major one being that of the network division of another American acquisition, namely Ezenia, made a year ago for $6 million. Inventory of $1.3 million was thus amortized, as was $4.7 million in goodwill.

Amortizations attributed to Ezenia, added to the $30 million goodwill amortization due to the cash Telco acquisition, led to an operating loss of $41.7 million including, and $1.3 million excluding the amortizations.

In the previous six months BATM posted a $3.2 million operating profit.

BATM¿s net loss was lower than its operating loss because of financing revenues to the cash till. These revenues also fell compared with the same six months in 2000 because of an interest rate cut in both Europe and the U.S. Financing revenues came to $1.5 million, making the net loss $40.5 million. Deducting its inventory and goodwill amortizations, BATM balanced out at the end of the first half.

In spite of the grim picture of the present reports, BATM remains hopeful. Chairman Sheldon believes the company will regain operating profitability by the end of the year. The company is expected, though, to make a big provision to layoffs of its U.S. employees in the second half of the year.

Because of the market slump in the U.S., the company will continue to focus on its marketing efforts in the Far East and Europe.

Small comforts: $33 million in the cash till
What keeps BATM afloat these days is its $33 million cash till, as well as the fact it is debt free. The company¿s balance sheet does include however $249.4 million worth of goodwill, derived from its series of acquisitions last year.

The company¿s share responded to the results with a sharp decline and landed on a sorely low 24 pence price. The company lost 52% in the last month, and its current price reflects it a mere value of $133 million.