NEWPORT NETWORKS GROUP PLC - INTERIM RESULTS
8 September 2004

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Chairman's Report

I am pleased to report to you on the performance of Newport Networks Group PLC ("Newport" or "the Company"). The Company has made substantial progress in all areas since being admitted to the London Alternative Investment Market (AIM) on 12th May, 2004.

Admission to AIM

Newport was successfully admitted to AIM with trading of the shares commencing on 12th May 2004. While the original plan was to raise £15m net of costs, the level of interest and demand was such that the Company raised £25.3m net of costs. The additional £10m of new equity will allow for the development of additional product features earlier than originally planned and to ramp up the growth of the global Marketing, Sales and Support team.

I am delighted to welcome all the new shareholders to Newport Networks Group PLC and look forward to meeting you in the near future.

Financial Results

As Newport was incorporated on 23rd March 2004 and did not trade prior to its acquisition of Newport Networks Limited on 21st April 2004, the results relate to a ten-week period from 21st April 2004 to 30th June 2004. The Profit and Loss Account, Balance Sheet, and Cash Flow Statements show separate pro-forma comparative figures for Newport Networks Limited and its subsidiary Newport Networks Systems Corporation to enable a more meaningful comparison to be made.

The loss before tax in the ten-week period was £1,639,000 after charging amortisation of goodwill of £124,000 and the inclusion of a provision of £26,000 for share options granted prior to flotation at under market value.

The loss after taxation was reduced to £1,510,000 after taking credit for an R&D Tax Credit for the ten-week period of £129,000. On 6th August 2004 Newport Networks Limited received an R&D Tax Credit of £664,000 in respect of the year to 31st December 2003. This amount was not included in the 2003 accounts of Newport Networks Limited pending agreement with the Inland Revenue. The net liabilities of Newport Networks Limited at the time of its acquisition by Newport Networks Group PLC have now been retrospectively reduced by the related R&D Tax Credit. In the six months to 30th June 2004 Newport Networks Limited invested over £2m in research and development. This has been fully written off for the period.

Cash

As at 30th June 2004, the Company had cash balances amounting to £23.3m. This stood at £22.3m on 3rd September 2004 following payment of normal trading expenditure and receipt of the R&D Tax Credit described above.

The Marketplace

The Newport Networks 1460 session controller is a large scale, carrier class device targeted at both access and peering applications associated with the provision of Voice over IP and Multi-media over IP services. Service Providers around the world continue to announce their plans for such services. As an example, BT recently announced plans for their 21st Century Network which will involve the migration of voice traffic onto an IP-based network by 2008. Major research analysts provide forecasts on the market for Next Generation Networks and corresponding network products and services. A recent Yankee Group report forecast the market for session controllers to be worth approximately $1.2 Billion in 2008.

We were pleased to exhibit the 1460 session controller at the US SuperComm conference in Chicago in July 2004. Over the coming months the Company will be participating in other events including the Voice over Networks (VON) show in Boston in October and the SIP-Paris show in January 2005. While these events are primarily targeted at networking industry professionals, they also provide an opportunity for investors to better understand the market and see our products first hand.

Newport continues to develop relationships with a growing number of Service Providers around the world as well as with technology and channel partners. I am pleased with the progress of the Company in this regard.

Product Launch

On 29th July 2004, Newport announced the launch of the 1460 session controller for evaluations and trials. While non-disclosure agreements inhibit providing too much detail at this time, such evaluations are conducted as part of a well-controlled process according to a pre-agreed plan. There are 5 systems undergoing evaluation at this time using a mixture of Internet based remote testing, pre-evaluations in Newport laboratories and on-site evaluation in customer laboratories. A further 15 systems are being manufactured for similar evaluations in the coming months. We are confident that the evaluations will lead to a number of in-service trials and subsequent sales.

Sales and Support

I am pleased to report that the Company is building a solid Sales and Support organisation in line with the business objectives outlined at the time of admission to AIM. We have successfully recruited key Marketing and Sales executives for Europe and the Americas. Brent Hayes joined Newport in June 2004 as Vice President of Sales for the Americas. Brent has previously held management and executive roles at Ungermann-Bass, Nortel Networks, Unisphere Networks, Vpacket and VocalData. Craig Decker joined the Company in August 2004 as Vice President of Sales for Europe & Asia. Craig has previously held management and executive roles at Cosine Communications, Syndesis, Ascend Communications and Comtech Communications.

As part of the Sales and Support growth, the Company has established a subsidiary in the USA, with offices located in Herndon-Virginia, Dallas-Texas and Denver-Colorado. Taken together with offices in Canada at Vancouver and Ottawa, Newport now has a platform and growing presence to address the North American market. The Company has also concluded agreements with a number of Sales Agencies to address the market opportunities for session controllers in Europe, Asia-Pacific and South America.

Current Trading and Outlook

Newport is in a pre-commercial revenue phase. However the launch of the 1460 session controller into evaluations and trials together with the growth of our Sales and Support organisation lays the foundation for the Company to pursue its objective of generating revenues before the end of 2004.

I am very pleased with the progress to date and would like to take this opportunity to thank all our employees for their hard work and commitment and our investors for their continued support.

Terry Matthews
Chairman
8th September 2004

For further information, please contact:

John Everard, Chief Executive	Justin Griffiths / Simon Hudson
Newport Networks Group PLC	Tavistock Communications
Tel: 020 7920 3150	Tel: 020 7920 3150

Consolidated profit and loss account
	Proforma figures for Newport Networks Limited and its subsidiary
	10 weeks to 30th June 2004	6 months to 30th June 2004	6 months to 30th June 2004	Year to 31st December 2004
	unaudited	unaudited	unaudited	unaudited
	£'000	£'000	£'000	£'000
Turnover	-	-	433	433
Cost of sales	-	-	87	87
Gross Profit	-	-	346	346
Administrative expenses	-1642	-3206	-2358	-4823
Amortisation of goodwill	-124	-	-	-
Operating loss	-1766	-3206	-2012	-4477
Interest receivable	139	2	6	9
Interest payable	-12	-67	-1	-42
Loss on ordinary activities before tax	-1639	-3271	-2007	-4510
Tax credit	129	1000	-	-
Loss for the period	-1510	-2271	-2007	-4510
Basic loss per share	-15.4p
Diluted loss per share	-14.5p
Basic loss per share adjusted for amortisation of goodwill	-14.1p

Statement of Total Recognised Gains and Losses

For the 10 weeks to 30th June 2004 there have been no recognised gains and losses other than as stated above.

Consolidated balance sheet
	Proforma figures for Newport Networks Limited and its subsidiary
		30th June 2004 unaudited £'000	30th June 2003 unaudited £'000	31st December 2003 unaudited £'000
Fixed assets Tangible assets		166	275	105
Goodwill		4398	-	-
Current assets Debtors		1316	156	166
Cash at bank and in hand		23329	85	100
Creditors: amounts falling due within one year		-781	-706	-3122
Net current assets /(liabilities)		23864	-465	-2856
Total assets less current liabilities		28428	-190	-2751
Creditors: amounts falling due after more than one year		-	-100	-57
		28428	-290	-2808
Capital and reserves Called up share capital		3147	9	9
Share premium account		26765	9012	9012
Share option reserve		26	-	-
Profit and loss account		-1510	-9311	-11829
Total shareholders' funds		28428	-290	-2808

Consolidated cash flow statement
	Pro-forma figures for Newport Networks Limited and its subsidiary
		10 weeks to 30th June 2004 Unaudited	6 months to 30th June 2004 Unaudited	Year ended 31st December 2003 Unaudited
		£'000	£'000	£'000
Net cash outflow from operations		-1697	-3120	-3826
Servicing of finance Interest received		139	2	9
Interest paid		-12	-67	-2
Taxation UK corporation tax paid/repaid		-254	-254	-
Capital expenditure Purchase of tangible fixed assets		-51	-92	-65
Net cash outflow before financing		-1875	-3531	-3884
Financing Issue of ordinary share capital		27000	-	1549
Loans received		-	1400	2375
Costs of admission to AIM		-1696	-	-
Inter company indebtedness		-	2421	-
Loans repaid		-100	-100	-
		25204	3721	3924
Increase in cash		23329	190	40
Reconciliation of operating loss to net cash outflow from operating activities
Operating loss		-1642	-3206	-4477
Depreciation of tangible fixed assets		13	35	429
Decrease/(increase) in debtors		-124	-159	17
Increase in creditors		30	184	205
Options reserve		26	26	-
Net cash outflow from operating activities		-1697	-3120	-3826

Notes to the interim statement

1. Basis of preparation

Newport Networks Group PLC was incorporated on 23rd March 2004 and acquired the entire issued share capital of Newport Networks Limited on 21st April 2004. These interim financial statements include the consolidated results for the ten weeks from 21st April 2004 to 30th June 2004. As there are no comparative figures for Newport Networks Group PLC comparative figures for Newport Networks Limited are included for information purposes. The results for the year to 31st December 2003 have been abridged from the full statutory financial statements for that year which received an unqualified auditors' report and have been delivered to the Registrar of Companies.

The interim financial statements have been prepared on the basis of the accounting policies set out in the 2003 statutory financial statements of Newport Networks Limited. Goodwill on acquisitions is capitalised and amortised over its useful economic life, which in the case of Newport Networks Limited, the Board estimates to be seven years.

The financial information contained in this interim statement does not amount to statutory financial statements within the meaning of section 240 Companies Act 1985 and has not been reported on by the auditors or delivered to the Registrar of Companies.

The interim report was approved by the Board of directors on 6th September 2004.

2. Taxation

In August 2004 following agreement with the Inland Revenue Newport Networks Limited received £664,000 in respect of R&D Tax Credits for the year to 31st December 2003. This amount had not previously been included in the accounts of Newport Networks Limited and is therefore credited in these accounts. In addition further R&D Tax Credits of £336,000 have been included in respect of the six months to 30th June 2004.

The net liabilities of Newport Networks Limited at the time of its acquisition by Newport Networks Group PLC have been retrospectively reduced by the related R&D Tax Credit.

3. Loss per share

The calculation of loss per ordinary share is based on the following:

	£'000
Loss for the period used in basic loss per share	1510
Amortisation of goodwill	124
Loss used in adjusted loss per share	1386
	Number of shares
Weighted average number of shares	9,815,379
Dilutive effect of share options	585,756
Diluted weighted average shares in issue	10,401,135

4. Share option reserve

In accordance with UITF 17 the difference between the market value of share options at the date of grant and the exercise price is charged to the profit and loss account over the period the shares may be exercised with a corresponding credit to reserves. The total difference amounts to approximately £800,000 and the Board has decided to charge this over a five year period rather than over the full exercise period of ten years. The share options to which this relates were granted prior to flotation and no new grants of options at undervalue are planned.

Introduction

We have been instructed by the Group to review the financial information for the 10 week period ended 30th June 2004 which comprises the Group Profit and Loss Account, Group Balance Sheet, Group Cash Flow Statement and the related notes and pro-forma comparative figures for Newport Networks Limited and its subsidiary Newport Networks Systems Corporation for 6 month periods to 30th June 2003 and 2004. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

This report is made solely to the Company in accordance with the guidance contained in the Bulletin 1999/4 ‘Review of interim financial information’ issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors Responsibilities.

The Interim Report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where any changes, and the reasons for them, are disclosed.

Review Work Performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4 ‘Review of interim financial information’ issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied, unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information.

Review Conclusion

On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the period ended 30th June 2004.

Ernst & Young LLP

Bristol