Interim Results

Interregnum PLC 24 February 2005 Thursday 24 February 2005 PRESS RELEASE INTERREGNUM PLC Financial results for the 6 months ended 31 December 2004 Financial highlights • Group turnover up 385% at £3.35m (2003: £0.7m) reflecting increased revenues from Interregnum's advisory business and the consolidation of revenues from its subsidiaries Cellular Design Services Ltd ('CDS') and Yospace Technologies Ltd ('Yospace'). • Like for like Group revenues (excluding CDS acquisition) up 43% at £1.0m (2003: £0.7m) • Interregnum advisory revenues grew by 56% to £453,000 (2003: £290,000) • Group operating loss further reduced by 10% to £719,000 (2003: £799,000) despite an increase in overheads resulting from the addition of seven new corporate finance hires • There were no significant realisations from the portfolio (1H 2003: £181,000), which contributed to a retained loss for the period of £468,000 or £0.51 per share (2003: £191,000, £0.29p per share) • Adjusted portfolio value(1) increased by 15% to £5.3m on 31 December 2004 (June 2004: £4.62m) • Cash at bank on 31 December 2004 £1.92m (2003: £1.10m) • Cash receipts from investee companies post period end include £400,000 dividend and £400,000 interest payments. Corporate Progress • Yospace, which is 47% owned by Interregnum, grew revenues by 60% to £659,000 (2003: £412,000), and secured a global contract with a leading mobile operator • CDS, which is 100% owned by Interregnum, achieved profits of £87,000 (2003: loss £23,000) • Following the recruitment of four new MDs, the advisory fee pipeline is greater than at any time in Interregnum's history • Audio Visual Machines Ltd. ('AVM'), an audio visual solutions provider, was acquired post period end, supporting Interregnum's strategy of taking principal investment positions; AVM is expected to be earnings enhancing in second half of 2004-5. (1) Adjusted to include the carrying value of Cellular Design Services, Yospace Technologies and Interregnum Investment Partners Commenting on the results, Ken Olisa, Chairman and Chief Executive of Interregnum, said: 'The technology market's continuing improvement helped us to achieve record group revenues. The combination of shrewd acquisitions, an advisory team with significant experience and increased firepower, position us well to take advantage of our growing pipeline. Our operating subsidiaries, CDS and Yospace, performed well during the period and, along with the recent acquisition of AVM following the period-end, enhanced our capability in two of our four focus sectors - Wireless and News & Entertainment. Our role as lead investor and fundraiser in the recently completed £2.3m investment round in Future Route adds further evidence of our work in the third of our chosen sectors - Security. From an assets perspective, our portfolio grew in value again and post period end yielded dividends and interest totalling £800,000. 'We are confident that the world's technology markets are set for a period of continuing improvement. This positive environment plays to Interregnum's merchant banking strengths. Creative people, a powerful global network of contacts and access to capital are in ever greater demand as technology entrepreneurs seek to exploit the improved environment. 'The hard work and careful execution of strategy which have sustained us through the last two difficult years are beginning to pay off, and we expect the current pattern of growth to continue. As an expert technology merchant bank which buys, sells, advises invests in and operates winning businesses, we believe Interregnum offers investors unique access to today's technology market. - Ends - For further information, please contact: Interregnum 020 7494 3080 Ken Olisa, Chairman & CEO Martin Cooper, Finance Director Merlin 020 7653 6620 Vanessa Maydon 07802 961 902 Rebecca Penney 07795 108 178 Attached: Chairman's Statement Profit & Loss Account Balance Sheet Cashflow Statement Notes to the Interim financial statement CHAIRMAN'S STATEMENT Q1: In your last results statement you predicted that the technology market would continue to recover. Were you correct? The early signs of life continued throughout 2004 and I am delighted to see that the trend has continued into 2005. Although in no way comparable to the excess exuberance of the late 1990s, the markets in the USA and Europe continue to improve both in the older consolidating technology sectors and in the growing wireless/mobile world. You can see the evidence of increasing strength in the consolidating sector from the major players' increased revenues and the heightened levels of M&A transactions. Meanwhile the energy and enthusiasm which surround the Apple iPod and the RIM Blackberry devices serve as pointers to the emerging Age of Ubiquity - a period in which some of the previously over-hyped areas such as 3G, home broadband, and on-line commerce achieve maturity. Q2: Can you quantify this apparent up-tick in the technology market? Yes; on the demand side, research carried out by IDC pegs worldwide IT spending in 2004 at US$965 billion and forecasts that it will continue to grow by 6% per annum up to 2008. It is a little harder to measure supply side activity, but two statistics serve to provide an indicator of the willingness of technology companies to engage in transactions which enhance their value. The volume of Initial Public Offerings (IPOs) provides a good indicator of stock market sentiment and in 2004, Regent Associates reported that technology IPOs in Europe numbered 88 up from 20 the year before and back to the pre-boom levels of 1996 and 1997. Regent also reported that the Mergers & Acquisitions (M&A) environment is equally vibrant with over 2400 transactions involving European technology companies last year - a number as high as that achieved at the market's peak year of 2000. Q3: What does this mean for Interregnum? Two things. Firstly, as the results show, we can translate an up-tick in spending from the demand side of the market - i.e. customers - into growth in our operating subsidiaries. Secondly, as things pick up, our traditional clients on the supply side find themselves in greater need of advice, which in turn, flows through to the growth in our advisory revenues. Q4: And how are you positioned to profit from this renewed energy? Increasingly well. There is no doubt that the last few years have been tough for Interregnum as they have for anyone involved in the technology world. Our decision to embrace the role of merchant bank has enabled us to adopt a more flexible approach to the many opportunities that exist than would have been possible had we remained a traditional venture capitalist. Over recent months our work has been applied throughout the business lifecycle. We have helped build plans for a variety of start-ups; we have raised seed capital for growing businesses and debt for established ones. We have brokered the sale of established companies and undertaken acquisition target projects for our clients. More directly we have invested in some of our clients, and we have bought and operated going concerns. All of these activities become more important as the market pace increases and we feel that we have the people, services, track record and reputation to win more than our fair share of the opportunities that will emerge. Q5: I still don't really understand what you mean by 'merchant bank' can you explain? It is a slightly confusing term I admit, but it is the best description of what we do. In essence, the merchant banks of old carried out the kind of work described in the last answer. But I have noticed that when I describe the detail of our work, the audience begins to lose the thread of my message - they get the feeling that we are doing too many things. We're not. In many ways Interregnum is like a property developer. We find high potential assets and, using our expertise, we try either to derive a continuing income from them or we buy them, improve them and then sell them on at a profit. The shorthand way of describing us is as a creative group of expert professionals combined with a powerful network and access to capital - all targeted at buying, selling, advising, investing in and operating technology businesses, i.e. we are an intellectual property developer or, rather, a technology merchant bank! Q6: Back to your results - can you dig below the surface and give me a better picture of what is really happening? It's perhaps best to view Interregnum as consisting of three elements - advisory, investment and operating. Our advisory business, which grew by 56% in the first half, works with clients at every stage from start-up to established. In that role we help them to develop and execute their corporate strategy. This might mean helping them to define the need for acquisitions, then finding the target companies and finally, negotiating the purchase; or it might mean helping to define their investment needs and then securing the necessary funds. Equally, it might mean, as we are at present, helping a large US real estate developer work out how to exploit the computer systems that are being specially designed to support their latest property development. Our investment activities are reflected in our portfolio which contains all of the equity which we have acquired. Here, we work with the investee companies' managers and our co-investors to develop and execute winning strategies. This can involve a wide range of tasks from forging an alliance with a much bigger corporate partner, or introducing a company to a large potential customer, to seeking further funds for growth. Operating our subsidiaries is the third leg of the Interregnum stool. Currently we have three subsidiaries in sub sectors of the technology market which draw on our knowledge and contact network. Q7: These sound like three very different lines of business. Not really, they have a great deal in common. Success in each requires a deep knowledge of the technology market and of the financial ecosystem which supports it. But equally, the knowledge, skills and abilities needed to support an advisory client's sales strategy are identical to those which we would deploy to build revenues for one of our own subsidiaries. Working out the competitive forces in a sector requires the same skill set whether we own all of the company, a minority of the company or merely advise it. Q8: Clearly one of your biggest assets is your portfolio - how is it valued? In keeping with most technology investors we value our portfolio in the accounts according to the guidelines issued by the British Venture Capital Association (BVCA). This means that we value our share of any company either at the last financial event involving the company (investment, acquisition, etc) or, if there has been a significant change to the company's fortunes, a judgement has to be made (and agreed with our auditors) which will result in marking the holding up or down. Q9: This sounds very conservative - if your intention is to sell your assets, you are unlikely to do so at the book value - what is the best way of quantifying this potential value? We use the BVCA guidelines so that our portfolio can be compared to those of other institutional investors using something approaching an equal footing. However, application of these guidelines does not always give a full picture of the value - or potential value - of these holdings. For example, the table below compares the current BVCA valuation with that obtained by applying to our largest holdings the range of revenue multiples used widely to value public companies. Principal elements of the portfolio: Company Current 1x multiple 2x multiple 3x multiple valuation £000s CDS 1,558 5,100 10,200 15,300 Respond 1,177 823 1,646 2,469 Yospace 635 1,034 2,068 3,102 Metapraxis 600 495 990 1,485 Adaptive Inc 522 357 714 1,071 AVM 530 2,270 4,540 6,810 Total 5,022 10,079 20,158 30,238 NB: AVM was acquired post period end Q10: Looking at your balance sheet, you don't have a particularly large cash balance - how will you fund operations and future investment? From three sources: cash generated from our own operations, realisation of investment assets, and capital from our contact network. The power of that network was demonstrated by our success in raising £2m capital for Screen plc (now Petards Group: PEG) and Future Route. Q11: So the market is moving and you have a revitalised team to attack it - what are your projections for the next twelve months? The technology sector will continue to recover as predicted by the spending figures I quoted at the beginning. Secondly, the consolidation of existing companies will continue as the larger players seek to create scale as a defence from the even bigger companies in our market - the mergers of PeopleSoft and Oracle; and Symantec and Veritas are the beginning of a trend which will play out well beyond 2005. Meanwhile, as customers increasingly come to see technology as a way to achieve competitive advantage, they will demand access to innovative solutions which naturally tend to come from smaller, nimbler entities. There is a large role for Interregnum to play as companies across the size spectrum seek to makes sense of and then profit from the increasing market momentum. It has been a long time since we have seen such a positive environment in which to buy, sell, advise, invest in and operate technology businesses. Thank you Ken Olisa Chairman and CEO Portfolio Client % holding Carrying value before provisions Adaptive, Inc 15% £522,000 Blue Arc -* £18,000 CDS 100% £1,558,000** Elite Strategies - £20,000 Interregnum Investment Partners 100% £150,000 Future Route 3% £250,000 Kecrypt 8% £40,000 Knowledge=Power - £0 Metapraxis 15% £600,000 Monactive - £0 NanoMagnetics 7% £50,000 Oilcats 2% £150,000 Open Text - £36,000 Plasmon - £0 Respond 26% £1,177,000 Speed-trap - £38,000 Webscreen 6% £58,000 Yospace 47% £635,000 £5,302,000 * - indicates a holding of less than 1% ** Since CDS has been owned for less than 12 months, it has been valued at cost in accordance with BVCA guidelines Consolidated profit and loss account Six months ended 31 December 2004 ______________________________ Note Six months to Six months to Year to 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Turnover 2 3,349 702 3,773 _____________________________ Cost of sales (756) - (746) ________________________________________________________________________________ Gross profit 2,593 702 3,027 _____________________________ Administrative (3,365) (1,539) (4,675) expenses Other operating 53 38 108 income ________________________________________________________________________________ Operating loss (719) (799) (1,540) _____________________________ Profit on sale of 3 181 575 investment Provisions released/(made) 194 266 345 against investments in period Amounts written off - - (95) investments Net Interest 7 73 63 receivable _____________________________________ Loss on ordinary activities (515) (279) (653) before taxation _____________________________ Taxation - - 102 Loss on ordinary activities after (515) (279) (550) taxation _____________________________ Minority interest 47 88 127 Retained loss for the (468) (191) (423) period _____________________________ Loss per share - basic 3 (0.51p) (0.29p) (0.56p) and diluted Consolidated statement of total recognised gains and losses __________________________________________________ Six months to Six months to Year to 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Profit/(loss) for (468) (191) (423) financial period Unrealised surplus on 27 548 452 revaluation of fixed asset investments ___________________________________________ Total recognised gains/(losses) (441) 357 29 for the financial period ============================================ Consolidated balance sheet 31 December 2004 __________________________________________________ As at As at As at 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Fixed assets ___________________________ Intangible assets 1,628 510 1,651 Tangible assets 334 216 386 Investments 4 2,957 2,499 2,281 ________________________________________________________________________________ 4,919 3,225 4,318 Current assets __________________________ Debtors 5 2,198 1,011 2,144 Cash at bank and in hand 1,915 1,100 2,859 ________________________________________________________________________________ 4,113 2,111 5,003 Creditors: Amounts 6 (1,849) (573) (1,916) falling due in one year ________________________________________________________________________________ Net current assets 2,264 1,538 3,087 Total assets less 7,183 4,763 7,405 current liabilities __________________________ Creditors: Amounts falling due (1,549) (212) (1,281) after more than one year __________________________ ________________________________________________________________________________ Net assets 5,634 4,551 6,124 ================================================================================ Capital and reserves _________________________ Called up share 4,620 3,272 4,621 capital Share premium 19,430 18,877 19,431 Revaluation reserve 428 544 401 Merger reserve (2,407) (2,407) (2,407) Profit and loss account (16,220) (15,565) (15,752) ________________________________________________________________________________ Equity shareholders' funds 5,851 4,721 6,294 Minority shareholders'funds (217) (170) (170) 5,634 4,551 6,124 ================================================================================ Consolidated cash flow statement Six months ended 31 December 2004 _____________________________ Note Six months to Six months to Year to 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Net cash flows from 7 (534) (928) (1,493) operating activities Returns on investments and 12 67 103 servicing of finance Taxation 0 24 Capital expenditure and (584) 571 890 financial investment Acquisition - - (685) ________________________________________________________________________________ Cash outflow before use of (1,106) (290) (1,161) liquid resources and financing ____________________________ Financing 139 106 2,726 _________________________________________________ Decrease in cash (967) (184) 1,566 ================================================================================ Reconciliation of net cash flow Six months to Six months to Year to to movement in net debt 31 December 31 December 30 June __________________________________ 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 £000 (Decrease)/increase in (967) (184) 1,566 cash in the period Increase in debt financing and (127) (106) (1,371) lease financing Loans and finance leases 0 (19) acquired with subsidiary Loan stock issued on 0 (400) acquisition of subsidiary __________________________________________ Change in net debt (1,094) (290) (225) Net funds at 1 July 2004 953 1,178 1,177 ________________________________________________________________________________ Net funds at 31 (141) 888 953 December 2004 Notes to the Interim financial statements For the six months to 31 December 2004 ________________________________________________________________________________ 1 Basis of preparation _________________________________ The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 30 June 2004, and are unaudited. The interim financial statements do not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985. Comparative figures for the year ended 30 June 2004 are an abridged version of the Group's full accounts which carry an unqualified audit report. 2 Turnover _______________________________ By geographical market Six months to Six months to Year to 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 £000 United Kingdom 3,063 321 3,289 Other European 53 308 440 countries USA and Canada 135 65 28 Other 98 8 16 ___________________________________________________________________________ 3,349 702 3,773 =========================================================================== 3 Loss per share ______________________________ The calculation of basic earnings per share is calculated on a Group loss of £468,000 (6 months to 31 December 2003 loss of £191,000 and year to 30 June 2004 loss of £423,000) and a weighted average ordinary 5p shares in issue during the period of 92,425,254 (6 months to 31 December 2003 65,433,107 and year to 30 June 2004 75,461,656). Due to the loss of £468,000 (6 months to 31 December 2003 loss of £191,000 and 30 year to June 2004 loss of £423,000) there is no further dilution of the earnings or the number of shares 92,425,254 (6 months to 31 December 2002 65,433,107 and year to 30 June 2003 75,461,656) 4 Investments _____________________________ Cost 1st July 2004 2,281 Additions 458 Disposals (3) Release of provisions 194 Revaluation 27 ___________________________________________________________________________ 2,957 =========================================================================== 5 Debtors ______________________________ Six months to Six months to Year to 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Trade debtors 1,353 454 1,073 Others debtors 595 321 715 Prepayments & accrued 250 136 304 income ___________________________________________________________________________ 2,198 911 2,092 Due in more than one 0 100 52 year ___________________________________________________________________________ 2,198 1,011 2,144 =========================================================================== 6 Creditors: Amounts falling due within one year _______________________________ Six months to Six months to Year to 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) audited) £000 £000 £000 Short-term loans 400 0 614 Obligations under finance 0 0 11 leases and hire purchase contracts Trade creditors 648 267 522 Amounts fall due to 0 132 0 Group undertakings Corporation tax 0 0 12 Other taxes and social 305 62 262 security cost Other creditors 305 27 146 Accruals and deferred 191 85 349 income ___________________________________________________________________________ 1,849 573 1,916 =========================================================================== 7 Cash flows _____________________________ Six months to Six months to Year to 31 December 31 December 30 June 2004 2003 2004 (unaudited) (unaudited) (audited) £000 £000 Reconciliation of operating loss to net cash flow from operating activities Operating loss (719) (799) (1,540) Depreciation 129 52 176 Amortisation of 23 27 112 intangible fixed assets Movement in debtors 68 (2) (317) Movement in creditors (35) (206) 72 Loss on sale of 0 0 4 tangible fixed assets ____________________________________________________________________________ Net cash flow from (534) (928) (1,493) operating activities =========================================================================== Interim Statement _____________________________ Copies of the Interim statement will be available to the public free of charge from the Company's registered office: 22/23 Old Burlington St, London W1S 2JJ This information is provided by RNS The company news service from the London Stock Exchange

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