Interim Results

EPIC Reconstruction PLC 29 October 2004 EPIC Reconstruction plc Interim Report and Unaudited Accounts For the period 25 July 2003 to 31 July 2004 (unaudited) Chairman's statement Background and Results EPIC Reconstruction plc ('ER' or the 'Company') is a closed-end Isle of Man registered Company, investing in companies emerging from distressed and insolvent situations in the UK. The Company was listed on the Alternative Investment Market on 16th September 2003, having raised £28.1m net of issue expenses in a placing to institutional investors. ER is advised by EPIC Specialist Investments Limited ('ESI' or 'the Manager'). ER has clearly defined investment criteria which target businesses with strong asset backing, high cash generation and the potential for significant operational improvement, driven by an experienced management team. ER makes its investments through a combination of securities, which include shareholder loans, mezzanine, debt financing, secured stock financing, plant and machinery financing, invoice discounting and additional equity. ER invests through a third party, EPIC Structured Finance, which acts as the guarantor of ER's investments. The balance and structure varies from deal to deal, but ER seeks to ensure that they represent the optimal returns for the shareholders. Through this combination of securities ER provides a one-stop shop to companies in the short time frames determined by distressed situations. The results since the listing of the Company have shown a total income of £729,108 from commissions and interest, leading to a net investment income of £147,556 after expenses. In addition, the net realised and unrealised gain on the revaluation of investments of £353,782 has resulted in a cumulative increase in net assets of £501,338 for the period. The approach adopted by the Company for the purpose of determining the profit available for distribution by way of dividends is that all commissions received, preference share dividends received and capital gains realised within the twelve months following an investment are included in the calculation of the profit available for distribution .Similarly, commission received and preference share dividends received after twelve months following an investment are included in the calculation of the profit available for distribution, but capital gains realised after twelve months are not so included. Once fully invested, ER is targeted with returning a minimum of an 8% annual dividend to its investors. ER looks to provide third party finance through its close relationship with a major UK clearing bank. In addition, ER will take equity stakes in businesses to which financing is provided, so as to participate in any long term value uplift in those businesses. Dividends ER proposes paying an Interim Dividend of 1.67p per share. Recent Investments ER has completed seven deals of varying sizes since the Company listed ten months ago. The first completed investment was in a subsidiary of Carpets International, a US based carpet manufacturer that went into Chapter 11 in 2003. With ER's support, the management cut the overhead base by rationalising three UK manufacturing facilities into one plant in Wales thereby improving the operational efficiency of the business. ER supported the incumbent management team, providing total access to funds of up to £10m for the business. Other investments have ranged between £0.2m and £7.0m of total funding provided to companies in the Food, Beverage, Building Materials, Engineering and Support Services sectors. There have been more opportunities to invest in equity than was anticipated at the time of listing, and ER retains significant equity stakes in six of the seven investments. Currently, there are £9.7m of funds outstanding from ER and the UK clearing bank. In addition, ER has already sold one of the portfolio investments during the year. The Company invested £0.6m in a small Internet Retail business selling digital cameras. A trade buyer looking for expansion in this increasingly competitive market offered an attractive price, which ER accepted, yielding circa 1.5 times our original investment in six months. Investment Outlook and Strategy To date, the Company has made fewer individual investments but of a greater average size and with larger equity stakes than was expected at the time of the listing. The Manager expects this trend towards larger investment opportunities to continue as the fund becomes increasingly recognised within the marketplace. The Manager has reviewed over 100 potential transactions to date from a wide range of sources. In addition, the Manager decided not to pursue seven investments at the latter stages of Due Diligence, as it became apparent those investments did not fulfil our investment criteria. The pipeline of potential deals remains strong and is increasing as our sources become more aware both of the Company's existence and our strict investment criteria. Conclusion The opportunity to invest in distressed and insolvent situations within the UK remains strong, and has the potential to increase as the Bank of England tightens monetary policy. The pipeline of investment opportunities has so far validated our original objectives for the Company and I am confident this will continue going forward. I believe good opportunities for larger investments with greater lending potential are beginning to present themselves. The deals completed to date have proved resilient and there remains the potential for further value creation through ER's residual equity stakes. Additional repayments from the portfolio companies and a continued strong deal flow is required if we are to achieve our 8% dividend target at the year end. I look forward to reporting further on our progress early in the New Year. Donald Adamson EPIC Reconstruction plc Consolidated Statement of Operations For the period 25 July 2003 to 31 July 2004 (unaudited) 25 July 2003 to 31 July 2004 (unaudited) £ £ Income: Bank interest 537,657 Commission income 191,451 ---------- Total income 729,108 Expenses: Investment advisor's fees (325,745) Administration fees (43,734) Directors' fees (84,784) Directors and Officers Insurance (38,673) Professional fees paid (22,026) Crest Service Provision (2,252) Printing and advertising expenses (9,687) Travel expenses (5,402) Auditors' remuneration (7,726) Bank interest and other charges (382) Statutory Expenses-Share Capital Duty (4,875) Stock Exchange fees (5,362) Advisor and Broker Fees (30,904) ---------- Total Expenses (581,552) Net investment income 147,556 Gains/(losses) on investments Net realised gain 166,348 Movement in unrealised gain on revaluation of investments 187,434 ---------- 353,782 Net increase in net assets 501,338 Dividends - ---------- Total profit transferred to revenue reserve 501,338 ---------- Basic earnings per ordinary share (pence) 1.671p EPIC Reconstruction plc Consolidated Statement of Assets and Liabilities As at 31 July 2004 (unaudited) 31 July 2004 (unaudited) £ Non-current assets Available-for-sale investments 8,206,805 Current assets Debtors and prepayments 357,815 Cash at bank and in hand 20,230,901 ----------- 20,588,716 ----------- Current liabilities Accrued expenses (143,704) ----------- (143,704) ----------- Net current assets 20,445,012 ---------- Net assets 28,651,817 ---------- Represented by: Ordinary shares 300,000 Share premium 27,850,479 Revenue reserve 501,338 ---------- 28,651,817 ---------- Net asset value per ordinary share (pence) 95.506p EPIC Reconstruction plc Consolidated Statement of Changes in Net Assets For the period 25 July 2003 to 31 July 2004 25 July 2003 to 31 July 2004 £ Net assets at start of period - Capital share proceeds 28,150,479 Net profit for the period 501,338 Dividends payable - ----------- Net assets at end of period 28,651,817 ----------- EPIC Reconstruction plc Consolidated Statement of Cashflow For the period 25 July 2003 to 31 July 2004 (unaudited) 25 July 2003 to 31 July 2004 (unaudited) £ Operating activities Bank interest 280,758 Commission income 100,337 Expenses paid (447,650) ----------- Net cash outflow from operating activities (66,555) ----------- Investing activities Purchase of investments (22,099,023) Sale of investments 14,246,000 ----------- Net cash outflow from investing activities (7,853,023) ----------- Financing activities Proceeds on issue of equity shares 30,000,000 Issue cost expenses (1,849,521) ----------- Net cash inflow from financing activities 28,150,479 ----------- Increase in cash 20,230,901 Cash and cash equivalents at start of period - ----------- Cash and cash equivalents at end of period 20,230,901 ----------- Note to the Statement of Cash Flow Net Investment Income 147,556 Adjustment for non-cash items Increase in debtors and prepayments (357,815) Increase in accrued expenses 143,704 ----------- Net cash outflow from operating activities (66,555) ----------- P.P. Scales Company Secretary. 29 October 2004 This information is provided by RNS The company news service from the London Stock Exchange

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