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
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