Final Results

Interregnum PLC 17 September 2002 Tuesday, 17 September 2002 PRESS RELEASE INTERREGNUM PLC Financial results for the year ended 30th June 2002 Increase in non-investment advisory revenues One off charges relating to portfolio Financial review • Overall turnover of £1.33 million (2001: £1.52 million) reflecting reduced arrangement fees for investment activity • Turnover for non-investment advisory business increased by 7.5% to £585,000 (2001: £544,000) • Operating loss of £2.51 million (2001: £1.27 million) principally relating to one time charges • Pre-tax loss on ordinary activities £18.40 million (2001: £0.13 million) principally composed of provisions reflecting the unprecedented market conditions and one time write-offs • Overall value of portfolio £2.53 million (2001: £14.55 million) • Basic and diluted loss per share 28.12p (2001: 0.19p) Corporate progress • Progress made in rebalancing the business between fee generation and portfolio preservation • Revenue increase in second half as advisory services were 'productised' into defined and priced offerings • Reduction in cost base and redeployment of staff leading to greater number focused on fee-earning activity • Difficult trading environment resulted in a further provision of £6.4 million against the overall portfolio value. Prudent provision to reflect future risks associated with the portfolio • Progress made in focusing on larger revenue earning opportunities • Fundraising continues Commenting on the results, Ken Olisa, Chairman of Interregnum, said: 'Despite the continuing poor market environment, the company continues to make measured progress against its four key priorities as it rebalances the business between portfolio preservation and profitability through fee generation. More... 'There can be no doubt that the IT industry will return to growth as businesses seek competitive advantage through the application of technology. However, there is considerable doubt about the timing of any such recovery. Our strategy is to ensure that Interregnum is best positioned to take advantage of the recovery, whether it comes early in 2003 or much later. Our challenge is to make short term profits from our advisory work while positioning us to deploy our advisory skills in relation to our own investment activity over the medium to long term. The present transition to the internet age of computing is unprecedented in its scale because of the global ubiquity of computing power. There will clearly be losers from this change but there will be many more winners. We are determined to ensure that Interregnum deploys our many strengths to ensure a place amongst the winners.' - Ends - For more information, please contact: Interregnum plc 020 7494 3080 Ken Olisa, Chairman Martin Cooper, Finance Director Merlin Financial 020 7606 1244 Vanessa Maydon 07802 961 902 (mobile) Clare Maciocia 07876 561 305 (mobile) Attached: Chairman's Statement Profit & Loss Account Balance Sheet Cashflow Statement CHAIRMAN'S STATEMENT Introduction Despite the continuing poor market environment, the company continues to make measured progress against its four key priorities as it rebalances the business between portfolio preservation and profitability through fee generation. Total revenues for the year declined by 12.5% to £1.33m, reflecting reduced arrangement and other fees associated with our investment activities. Revenue from our non-investment advisory services, encompassing research and due diligence, work grew by 7.5% to £585k as the change in emphasis, away from fund investing into fee generation, which we described in the interim announcement, began to take effect in the second half of the year. A number of one-off charges, including fully expensing all fund raising costs which had previously been held on the balance sheet, restructuring costs, and writing off debts associated with clients who had entered receivership or administration, contributed to the large operating loss of £2.51m. Increased focus on fee-generating work and actions to cut the cost base, including a reduction in the number of employees and cuts in the compensation of all senior people in the business, started to show during the second half, and the monthly operating loss has now narrowed significantly. The unprecedented travails of the IT market have increased the pressures on our portfolio companies irrespective of their quality and potential. Unfortunately the difficulties of generating growth or attracting further capital have led to the forced sale or liquidation of some of our holdings. This has in turn led to a write-off of £9.7m. The difficulty of predicting an end to the serious uncertainties affecting the IT market, coupled with the relative drought of funds in the UK for seed and early stage IT companies, have caused the Board prudently to review portfolio valuations. Although the company will continue to assess and report each holding's value according to the generally accepted BVCA guidelines, these, by dint of their historical basis, do not fully reflect the dynamic risks contained within the portfolio. Accordingly, the Board has decided to make a provision of £6.4m against the overall portfolio value reflecting a prudent view of the difficulties which several of the companies face in either generating revenue growth or raising new rounds of risk capital in the current climate. The revaluation of the portfolio (including this provision) has resulted in a £16.1m loss on investments in the year. I have been in the IT industry for over 30 years on both sides of the Atlantic. In that time have experienced two fundamental industry restructurings that occurred first as mini computers took over from mainframes and then as minis were, in turn, supplanted by PCs. In each revolution there were clear losers and many more winners. The present transition to the internet age of computing is unprecedented in its scale because of the global ubiquity of computing power. There will clearly be losers from this change but there will be many more winners. We are determined to ensure that Interregnum deploys our many strengths to ensure a place amongst the winners. Market Conditions The downward pressure and general uncertainty affecting the global economy are well documented and have exerted an amplified effect on the two markets in which Interregnum operates: information technology and private equity. The unprecedented collapse in the worldwide technology sector is caused by a reduction in computing and telecomms budgets as major corporations - the principal drivers of technology spend - reduce their budgets in the face of the wider economic uncertainty. At the same time, investors remain wary of the sector and are reluctant to invest. This reluctance stems from a continuing over-reaction to the excesses of the dot.com boom (in which we did not participate but which affects the total investment climate) and partly because of doubts about when the sector can be expected to recover Unfortunately the current slump is likely to persist for some time as the fundamental causative forces show no signs of reversing in the near term, with most IT industry pundits predicting flat or little growth in spending, at least until 2003, and no prospect of an imminent solution to the seed/early stage funding drought. Interregnum Priorities At IPO it was our intention to invest the bulk of the proceeds raised, while simultaneously raising a second fund targeted at £75m. We have succeeded in the first endeavour, but unfortunately the prevailing market conditions over the last 20 months have so far frustrated our efforts to raise Fund II, as potential investors have shied away from the venture capital asset class. We are continuing with our fund raising activity, but we are rebalancing our business model to ensure that we are profitable from our core advisory activities with super-profits coming from disposals of portfolio companies and any management fees earned once Fund II is raised. Towards this end, four key priorities guide our operations: 1. Protect and build value in the existing portfolio. The Interregnum portfolio is characterised by good quality companies in sectors principally of relevance to the corporate IT buyer. Of those in which we have invested all but one are earning revenues. The last year has seen us taking an aggressive approach to creating and preserving the underlying value in our portfolio. The results, chronicled in the detailed portfolio section of the annual report, have been achieved by a programme of disposal, merger, and the enhanced securing of our investments. 2. Increase fee income from the advisory business. Revenues in this area derive from research, due diligence and strategic consulting and grew by 7.5% year-on-year. Over the period we moved to make it easier to sell and buy our advisory services by 'productising' them into tightly defined and priced offerings which can be easily understood by potential clients. The addition of Ian Taylor, former minister for Science and Technology, to the executive team has augmented the company's relationships with larger, established IT companies and is helping us to bid for and win higher value advisory assignments. 3. Reduce costs and overheads. Total headcount at the beginning of the new financial year is 21, down from 29 a year ago, and the redeployment of staff previously engaged in investment activity means that we now have more resources directed at fee-earning activity. We have further reduced the compensation levels of all senior members of staff, and made significant cuts to other establishment costs where possible without impairing our brand. 4. Increase investment firepower: The depressed levels of IT spend make it especially difficult for fledgling companies to generate revenue growth, and this has led to an increased requirement for investment capital within many of our portfolio companies. Given the need to preserve the maximum amount of the cash on our own balance sheet, we have sought further rounds from investment partners. With the retreat or demise of most of the investors from the dot.com period, a seed and early stage capital drought has emerged, with even existing co-investors often refusing to follow their own money in businesses in which they and we hold a position. Interregnum has concentrated on maintaining relationships with the few investors prepared to contemplate the IT sector in order to ensure the survival of the better holdings. In parallel, we are continuing our efforts to raise Fund II. Although the challenges cannot be overstated, we remain in active dialogue with a number of organisations who recognise the counter cyclical opportunity presented by the European IT sector. Key performance indicators In keeping with our commitment to best practice and transparency we are again including a breakdown of our key performance indicators. 12 12 months to 30 June months to 30 June 2002 2001 Portfolio Portfolio value (£m) 2.5 14.6 Portfolio base cost (£m) 14.7 10.9 Investment (£m) 3.8 6.9 Investments made 10 16 Portfolio holdings 25 25 Investments written off 3 0 Balance Sheet Cash balance (£m) 1.8 8.0 Net assets/share (issued) (£) 0.075 0.350 DSO (Days sales outstanding) 55 64 Profit & Loss Account Revenue (£m) 1.33 1.50 Advisory (£m) 0.59 0.54 Investment (£m) 0.74 0.96 Costs - Salary (£m) 1.93 1.52 Costs - admin (£m) 2.00 1.37 Interest and other income (£m) 0.21 0.96 Exits (£m) 0.000 0.185 Profit /(Loss) (£m) (18.40) (0.126) Headcount 21.0 29.0 Portfolio Pre-provision Cost Write off Write up value % holding Debt Equity Total Client 30th June 30th June 30th June 30th June 2002 2002 2002 2002 Adaptive 68.5 650,000 503,165 1,153,165 (503,165) 650,000 Altis 4.0 23,150 23,150 (23,150) 0 Best International - 38,902 38,902 38,902 Blue Arc 0.1 67,020 67,020 67,020 Chyron - 0 0 Computerwire n/a 823,717 500,000 1,323,717 (1,323,717) 0 Services Computerwire Group * 100.0 130,346 130,346 1,024,000 1,154,346 Datapoint Newco 9.0 2,550,000 90,008 2,640,008 (2,640,008) 0 FER 3.0 10,078 10,078 (10,078) 0 Geodesia 6.5 3,000 3,000 (3,000) 0 ItsWine 3.4 11,043 11,043 11,043 Knowledge=Power 0.9 0 0 64 64 Link 60.4 565,839 1,022,303 1,588,142 (1,022,303) 565,839 Mediasurface 0.8 321,058 321,058 (309,161) 11,897 Metapraxis 10.3 180,000 180,000 180,000 Nanomagnetics 3.0 500,000 500,000 500,000 NetInfo 7.5 0 120,000 120,000 On board info 69.0 1,562,952 1,562,952 (1,562,952) 0 Opentext - 76,526 76,526 114,189 190,715 Proactive / - 0 0 533 533 Transacsys Raidtec Equity 0.2 0 371 371 (65) 306 Respond 23.8 1,752,872 503,492 2,256,364 2,256,364 Sapphire 3.8 50,000 50,000 50,000 Speedtrap - 15,000 15,000 15,000 Trilogy 1.0 0 0 28,390 28,390 uDate 0.5 0 133,209 133,209 Vocalex.com 72.9 670,053 1,028,941 1,698,994 1,698,994 Xpert Client Systems 2.6 0 0 0 Yospace TBC 1,250,000 0 1,250,000 1,250,000 8,392,827 6,545,911 14,938,738 (6,373,599) 396,385 8,961,524 * Computerwire is held as a current asset investment TOTALS (£m) Total Cost 14.9 Total Write off 6.4 Total Write up 0.4 Total Pre-provision value 9.0 Total Provision 6.4 Total Value 2.5 Outlook There can be no doubt that the IT industry will return to growth as businesses seek competitive advantage through the application of technology. However, there is considerable doubt about the timing of any such recovery. Our strategy is to ensure that Interregnum is best positioned to take advantage of the recovery, whether it comes early in 2003 or much later. While the climate for corporate spending on external services remains exceptionally tough, and there is an apparent over-supply of consulting resources, our success in winning and successfully executing projects in such an environment shows the unique value of Interregnum's special combination of technology, marketing and corporate finance skills and experience. The opportunity to profit from this asset is enormous - an opportunity made even greater by the current difficulties in the sector, which we believe will increase the consolidation pressures and therefore the requirement for expert advice. Our objective is to make profits from our advisory work while positioning us for its use in our own investment activity over the medium to long term. The last year has been a disappointing one for the company, many of our portfolio holdings and our shareholders as the sector has experienced unprecedented change. I have been in the IT industry for over 30 years on both sides of the Atlantic, in that time I have experienced the two previous but fundamental industry restructurings. The first occurred as generally deployable mini computers took over from the specialists' mainframes. The second took place when the mini computers' dominance was in turn, supplanted by lower-cost PCs which could be deployed by many more semi-expert users. In each revolution there were clear losers and many more winners. The present transition to the internet age of computing is unprecedented in its scale because of the global ubiquity of computing power with the average mobile phone possessing more processing power than the original mainframe computers. There will clearly be losers from this revolution, but there will be many more winners. We are determined to ensure that Interregnum deploys our people, offerings, client base and brand to survive the downturn and to ensure a place amongst the winners as the markets recover. Ken Olisa Chairman and CEO GROUP PROFIT AND LOSS ACCOUNT for the year ended 30 June 2002 2002 2001 Unaudited Restated Notes £ £ Turnover 2 1,326,652 1,521,724 Administrative expenses (3,922,786) (2,886,123) Other operating income 81,396 91,109 ----------- ---------- Operating loss 3 (2,514,738) (1,273,290) Interest receivable 222,368 1,018,840 Profit on sale of investments 6 - 184,888 Amounts written off investments 7 (16,092,069) - Interest payable 8 (13,037) (54,556) ----------- ---------- Loss on ordinary activities before taxation (18,397,476) (124,118) Taxation 9 - (796) ----------- ---------- Loss retained for the financial year 19 (18,397,476) (124,914) ----------- ---------- Loss per share - basic and diluted 11 (28.12p) (0.19p) Turnover and operating loss for the year arise from the group's continuing operations. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 30 June 2002 2002 2001 Restated £ £ Loss for the financial year (18,397,476) (124,914) Unrealised surplus/(deficit) on revaluation of fixed asset 206,018 (2,235,426) investments ----------- ----------- Total recognised gains and losses relating to the year (18,191,458) (2,360,340) ----------- ----------- GROUP BALANCE SHEET at 30 June 2002 2002 2001 Unaudited £ £ Fixed assets Tangible assets 314,516 355,791 Investments 2,243,190 14,551,452 ---------- --------- 2,557,706 14,907,243 ---------- --------- Current assets Debtors 855,124 1,316,048 Investments held for resale 288,586 - Cash at bank and in hand 1,754,143 7,994,754 ---------- --------- 2,897,853 9,310,802 Creditors: amounts falling due within one year (538,719) (1,109,747) ---------- --------- Net current assets 2,359,134 8,201,055 ---------- --------- Net assets 4,916,840 23,108,298 ---------- --------- Capital and reserves Called up share capital 3,271,655 3,271,655 Share premium account 18,876,852 18,876,852 Revaluation reserve 279,511 3,637,871 Merger reserve (2,406,655) (2,406,655) Profit and loss account (15,104,523) (271,425) ---------- --------- Equity shareholders' funds 4,916,840 23,108,298 ---------- --------- GROUP CASH FLOW STATEMENT at 30 June 2002 2002 2001 Unaudited £ £ Net cash flow from operating activities (2,084,293) (1,488,442) Returns on investments and servicing of finance 209,331 964,284 Taxation (796) (24,600) Capital expenditure and financial investment (3,942,454) (5,374,953) --------- --------- Cash outflow before use of liquid resources and financing (5,682,102) (5,923,711) Financing (422,399) 14,950 --------- --------- Decrease in cash (6,240,611) (5,908,761) --------- --------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2002 2001 £ £ Decrease in cash in the year (6,240,611) (5,908,761) Decrease in debt and lease financing 1,747 7,375 Decrease in loan 420,652 - Exchange movements 3,437 (27,814) -------------- -------------- Movement in net debt (5,814,775) (5,929,200) Net funds at 1 july 7,568,918 13,498,118 -------------- -------------- Net funds at 30 June 1,754,143 7,568,918 -------------- -------------- Notes to the full year financial statements at 30 June 2002 1. Basis of consolidation The prelim 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 2001, and are unaudited. The prelim 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 2001 are an abridged version of the Group's full accounts which carry an unqualified audit report. The 2001 comparative figures have been restated to show a profit on sale of investments of £184,888 over the carrying amount for the investment disposed of. The company had previously reported a profit of £324,964 compared to historical cost and an associated adjustment to the revaluation reserve of £140,076. The effect is to restate retained profit from a profit of £15,162 to a loss of £124,914, and to remove the loss previously shown as an adjustment in the statement of total recognised gains and losses. Consequently, there is no change to the total recognised gains and losses for the 2001 year or to net assets as at 30 June 2001. This information is provided by RNS The company news service from the London Stock Exchange

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