Newport Networks Group PLC
Maiden Preliminary Results for the year ending 31 December 2004

Newport Networks Group PLC today announces its maiden preliminary results.

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Financial Highlights

• Very successful flotation on AIM in May 2004 raising £27m before costs
  
• Revenues of £336,000 achieved
  
• Loss before tax of £7,381,000 for the year, in line with market expectations
  

Operational Highlights

• Launch of 1460 session controller in July
  
• Established US subsidiary in August
  
• Establishment of a global sales organisation
  
• Establishment of Service and Support Centres in South Wales and Dallas, Texas
  
• Reseller agreement signed with Marconi in September
  

Since period end

• Interoperability successfully completed with Broadsoft a leading provider of VoIP software
  

For further information, please contact:

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

Chairman's Report

I am pleased to report to you on the performance and progress of the Newport Networks Group PLC ("Newport" or "the Company") for Fiscal Year 2004. Following an IPO share flotation in London on the AIM market in May the Company has successfully completed a number of key milestones. These include the launch of the 1460 Session Controller system in July, the signing of a reseller agreement with Marconi Corporation plc ("Marconi") in September and attainment of our revenue goals for the Fiscal Year. Revenues of £336,000 for 2004 were broadly in line with market expectations.

I am pleased to see that the market for the Company's Session Border Controller systems is being rapidly established worldwide and that major research houses are estimating revenues to attain more than $600M US per annum by 2007 (see below).

Financial Results

Newport was incorporated on 23 March 2004 and did not trade prior to the acquisition of Newport Networks Limited on 21 April 2004. The acquisition was an exchange of shares with no change in ownership and we are advised that the acquisition should be accounted for under the merger accounting rules. This is a change from the interim accounts which were prepared under the acquisition accounting rules. As a result of the change there is no goodwill included in the consolidated financial statements.

The loss before tax for the year to 31 December 2004 was £7,381,000, which is in line with market expectations and compares to a loss before tax of £4,510,000 in 2003.

The loss after taxation for the year to 31 December 2004 was £5,697,000 after taking account of credit for Research and Development Tax Credits of £1,671,000. £664,000 of the R&D Tax Credit relates to 2003 and this was received in August 2004. The remaining £1,008,000 relating to 2004 is expected to be received in 2005. In 2004 Newport invested over £4.7m in Research and Development. All expenditure on Research and Development is written off in the period in which it is incurred.

Cash Position

At year end, 31 December 2004, Newport had cash balances of £18.9m with no borrowings.

Session Controller Market

The Voice over IP (VoIP) market is demonstrating considerable growth as capital expenditures from service providers are being focused on deployment of Next Generation Networks (NGN). Investments in NGN equipment supporting VoIP technologies were estimated to be $1.2 billion in 2003. This is forecast to grow to $4.8 billion in 2007, with expenditure in NGN equipment forecast to surpass that for legacy equipment in 2005 (Infonetics Research, 2004). This strong growth in NGN equipment underpins the Yankee Group (2004) forecasts for the session controller market to be an estimated $624 million in 2007, growing to $1.2 billion in 2008.

There are also significant market opportunities for the Newport Networks 1460 Session Controller related to network operating costs as well as delivering new NGN VoIP services and applications. The most important of these opportunities is the 'PSTN Replacement' opportunity where the major incumbent operators are looking for VoIP to be a replacement technology for the legacy network and, in the process, offer considerable cost reductions in network operations. Publicly announced examples include:

• BT's 21CN initiative, to replace the PSTN in the UK, is looking to address 50% of the UK market over the next 3 years.
  
• Telecom Italia's announcement, in January 2005, discusses the trialling of VoIP & video sharing services in early 2005, with full commercial deployment starting in late 2005.
  
• SBC's (Southwestern Bell) recent announcement to roll-out full scale VoIP services over DSL across the United States to business and residential customers during 2005, in parallel to their traditional PSTN services.
  

These are supplemented by opportunities in the 'IP Carrier Interconnect' market, where voice operators are seeking to interconnect to each other using IP technologies rather than traditional switched network solutions. There is also growing interest in session controllers from mobile operators who are seeking to migrate to Third Generation (3G) mobile networks. An example of this is France Telecom's announcement to offer a consolidated set of advanced IP-based services over both fixed line and wireless (Orange). BT has also announced a similar concept in collaboration with Vodafone.

Sales and Support

Following the launch of the 1460 Session Controller in July the Company has put in place a Sales and Support infrastructure to drive business growth worldwide. The sales structure is based on two main regions, each headed by a Vice President and General Manager. One region covers the Americas, having Sales and Support headquarters in Dallas, Texas. Sales offices are located in Denver, Boston, Miami, Vancouver and Ottawa. The second region covers Europe & Asia Pacific with Sales and Support headquarters in the UK. Sales agency offices are located in Germany, Italy, Hong Kong and China. Our core sales and support organization is now in place to deliver revenue objectives for 2005. The sales strategy for the Company is to use established Network Equipment Vendors such as Marconi as channels to market to address the needs of both fixed line and mobile Service Providers worldwide.

Marconi

Our relationship with Marconi continues to strengthen following the signing of a reseller agreement last year. One of the key benefits of this relationship is that it drives the development of integrated solutions and extends our reach geographically well beyond opportunities in the UK.

Marconi has signed several strategic agreements with key partner companies, including Newport, Sonus, Huawei, and Mitel enabling them to deliver an end-to-end solution to their NGN customers.

Partnerships

Newport is very active developing network equipment vendor partnerships with other major channels throughout the world to address the growing requirement for IP session controllers by service providers. We anticipate making announcements regarding these relationships throughout 2005. Establishing major channel partnerships, as with Marconi, offers the Company opportunities to develop combined product solutions to meet the particular needs of service providers and end customers globally.

Interoperability

During 2004, Newport entered into interoperability testing using a variety of 'user agents', such as SIP phones connected through the 1460 Session Controller to a variety of 'call agents', such as softswitches. These tests cover both 'access' applications, where customers are connecting to a service and 'peering' applications where connections are made between Service Providers. Such testing, along with appropriate software modifications where necessary, represents a crucial step in the creation of complete solutions with our channel partners to address the needs of different types of service providers. A good example of this is the recently certified interoperability for both access and peering between the 1460 Session Controller and the widely deployed Broadsoft application server.

Research and Development

During 2004, the Company has continued to invest in R&D. We believe that additional investments in R&D are important to keep pace with the growing demand for additional functionality in the product line as identified through discussions with end customers and channel partners. Interoperability trials also bring out the nuances of inter-working with a range of equipment as the market for carrier class session controllers develops. The understanding of real world implementations and the ability to address them in a timely fashion adds enormously to both the value of the product and the organization.

Operations

The ongoing strategy of the Company is to out-source all manufacturing activities to approved Contract Equipment Manufacturers. The manufacture of major assemblies for the Session Controller product line has been contracted to Flextronics. Volume manufacturing is in keeping with our overall production plan. Working with such world class suppliers is key to addressing the quality requirements associated with the supply of carrier class equipment to Service Providers around the world.

Marketing

Newport has been actively promoting the 1460 Session Controller product line by participating in major NGN events and exhibitions around the world. Recent event participation has included the 3GSM World Congress in France, Spring VON in San Jose, California and Telexpo in Brazil. Up-coming events for early 2005 will include VON Europe in Stockholm, China VoIP in Beijing and Supercomm in Chicago. These events provide the opportunity for clients and investors to see our products and gain a broader understanding of the overall NGN market space.

Business Outlook

We are pleased with our progress to date and encouraged by the increasing level of interest the Company has received from potential clients. Manufacturing is running according to plan and the Company has many systems in use for testing and validation by clients. We have observed a significant strengthening in the market for carrier class session controllers over the last 12 months as service providers around the world experience rapid expansion of new IP services, and in particular VoIP. Consequently, we have built a significant pipeline of sales opportunities which will accelerate revenues throughout the year in support of our overall revenue objectives for 2005.

I am delighted to welcome new shareholders and look forward to meeting many of you at our Annual General Meeting.

Sir Terry Matthews OBE
Chairman
15 March 2005

Group Profit and Loss Account
	Year to 31 December 2004 £000		Year to 31 December 2003 £000
Turnover	336		433
Cost of sales	(152)		(87)
Gross Profit	184		346
Administrative expenses	(8,139)		(4,823)
Operating loss	(7,955)		(4,477)
Interest receivable	642		9
Interest payable	(68)		(42)
Loss on ordinary activities before tax	(7,381)		(4,510)
Tax on loss on ordinary activities	1,684		-
Loss for the financial year	(5,697)		(4,510)
Earnings per share - Basic and diluted	(12.8p)		(24.3p)

Group balance sheet
	31 December 2004 £000		31 December 2003 £000
Fixed assets Tangible assets	361		105
	361		105
Current assets Stock Debtors Cash at hand in bank	798 1,757 18,939		- 160 90
	21,494		258
Creditors: amounts falling due within one year	(1,219)		(3,114)
Net current assets /(liabilities)	20,275		(2,856)
Total assets less current liabilities	20,636		(2,751)
Creditors: amounts falling due after more than one year	-		(57)
	20,636		(2,808)
Capital and reserves Called up share capital Share premium account Merger reserve Other reserve Profit and loss account	3,154 28,816 8,088 76 (17,498)		9 9,012 - - (11,820)
Total shareholders' funds - equity interests	20,636		(2,808)

Group Cashflow
	31 December 2004 £000		31 December 2003 £000
Net cash outflow from operations	(8,443)		(3,826)
Returns on investments and servicing of finance
Interest received Interest paid	642 (68)		9 (2)
Taxation UK corporation tax repaid/(paid)	412		-
Capital expenditure Purchase of tangible fixed assets	(365)		(65)
Net cash outflow before financing	(7,822)		(3,884)
Financing Issue of ordinary share capital Directors loans received Costs of admission to AIM Other loans received Other loans repaid	27,059 1,400 (1,696) - (100)		1,549 2,275 - 100 -
	26,663		3,924
Increase in cash	18,841		40
Notes to Group cashflow
Reconciliation of operating loss to net cash outflow from operating activities
	31 December 2004 £000		31 December 2003 £000
Operating loss	(7,955)		(4,477)
Depreciation of tangible fixed assets Loss on disposal of fixed asset Increase in stock (Increase)/decrease in debtors Increase in creditors Share based payment	109 1 (798) (590) 686 104		429 - - 17 205 -
Net cash outflow from operating activities	(8,443)		(3,826)

Reconciliation of net cash flow to movement in net debt
	31 December 2004 £000		31 December 2003 £000
Increase in cash Net cash inflow from movements in loan	18,841 (1,300)		40 (2,375)
Changes in net funds resulting from cash flows Loans converted in net funds	17,541 3,675		(2,335) -
Movement in net funds	21,216		(2,335)
At 1 January	(2,277)		58
At 31 December	18,939		(2,277)

Statement of total recognised gains and losses

There have been no recognised gains and losses for the current financial year other than as stated above (2003 - £Nil).

Notes to the financial statements

1. The financial information contained in this preliminary announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. Copies of the directors’ report and the audited financial statements for the year ending 31 December 2004 will be posted to shareholders in due course and may be obtained thereafter from the Company’s registered office at 6 St Andrew Street, London, EC3A 3LX.

2. Interest
	2004 £000		2003 £000
Bank interest receivable	642		9
Interest payable and similar charges	2004 £000		2003 £000
Bank loans and overdrafts Other loans	5 63		2 40
	68		42

3. Taxation
(a) Tax on loss on ordinary activities
The tax (credit)/charge is made up as follows:
	2004 £000		2003 £000
UK Corporation tax	(1,008)		-
Adjustments in respect of previous periods	(676)		-
Total current tax	(1,684)		-
(b) Factors affecting the current tax (credit)/charge
The tax assessed on the loss on ordinary activities for the year is higher than the standard rate of corporation tax in the UK. The differences are explained below:
	2004 £000		2003 £000
Loss on ordinary activities before tax	(7,381)		(4,510)
Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2003 - 30%)	(2,214)		(1,353)
Effect of:
Disallowed expenses and non taxable income Depreciation in excess of capital allowances Other timing differences Adjustments in respect of previous periods Tax losses carried forward Research and development tax credit Losses surrendered for research and development tax credit	3 (49) (32) (677) 1,033 (1,008) 1,260		(2) 81 12 - 1,262 - -
Total current tax	(1,684)		-
(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 asset can be recognised for tax losses. Tax losses with a value of £3,750,000 (2003 - £3,600,000) have not been recognised as the criteria for recognition set out in FRS19 have not been met. These losses would be eligible for relief against future taxable profits of the same trade.

4. Earnings per share
The basic earnings per share (EPS) of (12.8p) is based on the loss for the year of £5,697,000 and the weighted average number of ordinary shares in issue of 44,368,656. Diluted EPS has not been disclosed, due to employee share options being anti-dilutive. In these circumstances diluted EPS is the same as the basic EPS. The comparative earnings per share (EPS) of (24.3p) is based on the loss for the year of £4,510,000 and the weighted average number of ordinary shares of in issue of 18,538,315.
5. Debtors
	31 December 2004 £000		31 December 2003 £000
Trade debtors VAT recoverable Other debtors R&D tax credit receivable Prepayments and accrued income	392 13 108 1,007 237		- 34 - - 126
	1,757		160
6. Creditors: amounts falling due within one year
	31 December 2004 £000		31 December 2003 £000
Loan from director Bank loan Trade creditors Corporation tax Other taxes and social security costs Other creditors Accruals and deferred income	- - 618 - 147 - 454		2,275 43 270 266 78 16 166
	1,219		3,114
7. Creditors: amounts falling due after more than one year
	31 December 2004 £000		31 December 2003 £000
Bank loan	-		57

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Preliminary Results in PDF document