Final Results

RNS Number:0906Z
Inflexion PLC
25 July 2002


25 July 2002


                                 Inflexion plc


              Preliminary Results for the year ended 31 March 2002


Inflexion is a mid-market private equity investment company.  Quoted on AIM,
Inflexion invests its funds in unquoted companies that offer the potential for
capital gains.



Main Points



•      Inflexion Managers Limited, the FSA registered subsidiary of Inflexion
plc released its Preliminary Placement Memorandum ("PPM") for 'Inflexion Fund
2', drawing upon the good aggregate performance of Inflexion's investing team
over the last four years;


•      ANT and Celoxica secured follow-on funding of £2.5 million and $30
million respectively;


•      Completion of ARC International realisation;


•      Charles Thompson, with 15 years private equity experience, joined
Inflexion Managers as Investment Director from Granville Baird;


•      New additions to Inflexion Advisory Panel;


•      Loss for the year to 31 March 2002 of £12.2 million, and loss per share
of 20p.  This is inclusive of an increase in provisions against direct
investments and investments in third-party managed funds of £10.7 million;


•      Cash reserves of £13.8 million;


•      Net asset value currently 30.4p per share, of which cash represents 21p
per share.


Inflexion chairman, Michael Freeman commented:

"The year to 31 March 2002 has been a turbulent one for both the public markets
and the private equity industry.  We have taken a rigorous look at the valuation
of our investee companies.  The Board continues to focus on its strategy,
outlined in the interim statement, of seeking to establish and invest in
mid-market private equity vehicles managed by Inflexion."


Inflexion plc                                                 - 020 7487 9888
Simon Turner/John Hartz

Citigate Dewe Rogerson                                        - 020 7638 9571
Simon Rigby/Freida Davidson/Rupert Steveney



Further information can be obtained from the Company's website,
www.inflexion.com





Joint Chief Executive Officers' Statement



Strategy



As reported in the interim statement, Inflexion Managers Limited finalised the
PPM for Inflexion Fund 2.  This fund, targeted to institutional investors in
private equity, aims to create a diversified portfolio of established mid-market
businesses, primarily in the UK.



The PPM demonstrates the good aggregate performance of Inflexion's investing
team over the last four years.  Due to the difficult market conditions facing
the private equity industry the time taken to raise funds is lengthening.
However, against this background, we remain optimistic that a fund closing can
be achieved during the current financial year.



Investment review



The markets in which our investee companies operate have been very difficult
over the last twelve months.  As a consequence of this general uncertainty, we
have made further substantial provisions against the value of our direct
investments and investments in third party managed funds.



ANT Limited secured a new £2.5 million round of funding in July 2001 at a higher
valuation than our original investment.  As part of this funding round,
Inflexion invested a further £0.3 million.  This higher attributable valuation
has not been recognised in the financial statements.



In May 2002, Inflexion acquired a controlling interest in Micronics Telesystems
in order to effect a change in Micronics' strategy.  Overheads have now been
reduced significantly, and there are some indications of an upturn in revenues
in the short term.



We have made substantial provisions against our remaining direct investments and
our investments in third-party managed funds.  Each of these has made reasonable
progress in achieving operational milestones.



During the year Inflexion sold its remaining stake in ARC International plc at
an IRR of 8%.  The decision to exit at a modest profit at the end of the six
month lock-up period post IPO has been justified by the continuing fall in the
share price after we realised our investment.



Operational review

As previously reported, in May of last year, Charles Thompson joined Inflexion
as an Investment Director.  Charles worked in industry for seven years prior to
joining Granville Private Equity Managers in 1986 where he made investments
across the full range of private equity transactions, including the purchase of
11% of Matalan plc for £2 million, a business now capitalised at over £1.5
billion.  Charles brings to the investment team a wealth of experience and
extensive contacts within the private equity industry and financial intermediary
profession.


The Advisory Panel which provides a valuable perspective on trends and issues in
Inflexion's targeted sectors as well as privileged access to deal opportunities
has been augmented with several new appointments.  Roger Laughton, ex-Chief
Executive of Meridian Broadcasting and ex-Chief Executive of Broadcasting and
Entertainment at United News and Media, provides valuable insight into the media
industry.  Andrew Burns, Finance Director of Luminar Leisure plc, the largest
operator of late night venues in the UK has been identified for his broad
leisure expertise.  Finally, Geoff Westmore, previously a partner at
PricewaterhouseCoopers, latterly as Global Leader of Transaction Services and
Strategic M&A, augments the private equity and transactional expertise of the
team.



Financial summary



Inflexion's cash position remains solid with £13.8 million available for further
investments and to cover our ongoing operational costs. It remains the intention
of the directors to commit a considerable proportion of these funds to future
investment vehicles managed by Inflexion Managers Limited.



The Group net asset value at 31 March 2002 was £19.87 million after an operating
loss of £2.1 million, and portfolio write-downs of £10.7 million.



An EGM held in January 2002 passed the resolutions necessary (subject to
obtaining Court consent) for the cancellation of the Company's share premium
account and the purchase of its own shares.  We reported in our interim
statement that we had embarked on the process of obtaining Court consent for the
cancellation of the share premium account.  The decision has now been taken to
defer this process until such time as the fund, currently being raised, has
closed and the Group's ongoing cash requirements can be assessed with greater
certainty.  We anticipate being able to report on this matter in the second half
of this year.



Outlook



Whilst 2001 was a challenging year for the private equity industry, we believe
that the medium term opportunities within the UK private equity industry are
promising, as corporate restructuring and distressed sales are increasingly
evident.  Upon completion of our institutional fund raising, Inflexion will
deploy its capital to invest in a range of mid-market companies.







Unaudited consolidated profit and loss account
for the year ended 31 March 2002



                                                                                 Year        14 months 
                                                                                ended            ended  
                                                                             31 March         31 March 
                                                                                 2002             2001
                                                                                £'000            £'000

Turnover                                                                             -               -
Cost of sales                                                                        -               -
Gross profit                                                                         -               -
Administrative expenses                                                        (2,155)         (1,803)
Other operating income                                                              18              72
Operating loss                                                                 (2,137)         (1,731)
Profit on disposal of fixed asset investments                                       25             289
Interest receivable and similar income                                             640             963
Amounts written off investments                                               (10,711)         (2,499)
Interest payable and similar charges                                               (1)             (4)
Loss on ordinary activities before taxation                                   (12,184)         (2,982)
Tax on loss on ordinary activities                                                   -               -
Loss for the financial period                                                 (12,184)         (2,982)
Dividends                                                                            -               -
Loss for the financial period                                                 (12,184)         (2,982)

Loss per ordinary share
- basic and fully diluted                                                     (20.00)p         (5.87)p



All of the Group's activities relate to continuing activites.

The Group has no recognised gains and losses other than the losses above and
therefore no separate statement of total recognised gains and losses has been
presented.

There is no difference between the loss on ordinary activities before taxation
and the loss for the period and their historical cost equivalents.



Unaudited consolidated balance sheets as at 31 March 2002

                                                                                   2002            2001
                                                                                  £'000           £'000
Fixed assets
Tangible assets                                                                     228            264
Investments - interests in own shares                                                 3              3
Investments                                                                       5,896         16,707
                                                                                  6,127         16,974
Current assets
Debtors                                                                             192            255
Cash at bank and in hand                                                         13,800         15,185
                                                                                 13,992         15,440
Creditors: amounts falling due within one year                                    (245)          (356)
Net current assets                                                               13,747         15,084
Total assets less current liabilities                                            19,874         32,058
Net assets                                                                       19,874         32,058

Capital and reserves
Called up share capital                                                             654            654
Share premium account                                                            34,386         34,386
Profit and loss account - deficit                                              (15,166)        (2,982)
Total equity shareholders' funds                                                 19,874         32,058



Unaudited consolidated cash flow statement
for the year ended 31 March 2002

                                                                                   Year      14 months
                                                                                  ended          ended
                                                                               31 March       31 March
                                                                                   2002           2001
                                                                                  £'000          £'000

Net cash outflow from operating activities                                       (2,111)        (1,597)
Returns on investment and servicing of finance
Interest received                                                                    640            963
Interest paid                                                                        (1)            (4)
Net cash inflow from returns on investment and servicing of finance                  639            959
Taxation                                                                               -              -
Capital expenditure and financial investment
Purchase of tangible fixed assets                                                   (38)          (333)
Sale of tangible fixed assets                                                          -             36
Purchase of fixed asset investments                                                (505)       (18,625)
Sale of fixed asset investments                                                      630            455
Net cash inflow/(outflow) for capital expenditure and financial                       87       (18,467)
investment
Equity dividends paid                                                                  -              -
Net cash flow before financing and management of liquid resources                (1,385)       (19,105)
Management of liquid resources
Increase in short term deposits with banks                                           (6)          (444)
Financing
Issue of ordinary share capital                                                        -         36,020
Expenses of share issue                                                                -        (1,730)
Net cash inflow from financing                                                         -         34,290
(Decrease)/Increase in net cash                                                  (1,391)         14,741

Reconciliation of operating loss to net cash outflow from operating activities



                                                                                        Year     14 months
                                                                                       ended         ended
                                                                                    31 March      31 March 
                                                                                        2002          2001
Continuing operations                                                                  £'000         £'000

Operating loss                                                                        (2,137)       (1,731)
Depreciation                                                                               70            33
Loss on sale of fixed assets                                                                4             -
Decrease/(Increase) in debtors                                                             63         (255)
(Decrease)/Increase in creditors                                                        (111)           356


Net cash outflow from continuing operations                                           (2,111)       (1,597)



Reconciliation of net cash flow to movement in net funds

                                                                                         Year     14 months
                                                                                        ended         ended
                                                                                     31 March      31 March
                                                                                         2002          2001
                                                                                        £'000         £'000

(Decrease)/Increase in net cash                                                       (1,391)        14,741
Movement in deposits                                                                        6           444

Net funds at 1 April 2001                                                              15,185             -
Net funds at 31 March 2002                                                             13,800        15,185

Accounting policies

Accounting convention

These financial statements have been prepared under the historical cost
convention (as modified by the revaluation of certain fixed asset investments)
in accordance with applicable accounting standards.  A summary of the more
important group accounting policies is set out below.



The Group owns certain investments that the Companies Act 1985 requires to be
treated as associated undertakings and therefore accounted for using the equity
method of accounting.  The directors believe that equity accounting for such
investments that fall within the definition of associated undertakings would not
give a true and fair view of the value generated from the investment activities
of the company, since this is better measured by the inclusion of profits or
losses on disposal of such investments in the profit and loss account.
Accordingly all investments have been recorded at cost (less any provision for
impairment in value) irrespective of whether they fall within the definition of
an associated undertaking.  This treatment which requires a true and fair view
override of the Companies Act 1985 is permitted by paragraph 49 of FRS 9 -
Associates and Joint Ventures.



Adoption of new accounting standards

FRS 18 "Accounting policies", effective for accounting periods ending on or
after 22 June 2001 has been adopted.  The directors have reviewed the company's
accounting policies and consider that the accounts are prepared in accordance
with FRS 18.


FRS 19 "Deferred taxation", effective for accounting periods ending on or after
20 January 2002, has been adopted.  FRS 19 requires a full provision to be made
for deferred taxation and therefore the company's previous policy of making a
partial provision for deferred tax in accordance with SSAP 15 has been revised.


This change in accounting policy had no effect on the current period or prior
year figures.



Basis of consolidation

The group accounts consolidate the accounts of the Company and all of its
subsidiary undertakings.



Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated
into sterling at the period end exchange rate.  Transactions in foreign
currencies are translated into sterling at the exchange rate ruling at the day
of the transaction, or a contracted rate where a forward exchange contract has
been entered into by the Company.  The resulting exchange differences are
included in the profit and loss account.



Leases

Operating lease rentals are charged against profit on a straight line basis over
the period of the lease.

Tangible fixed assets and depreciation

Depreciation is calculated on a straight line basis so as to write down the
assets to their residual value over their expected useful lives:

Leasehold improvements: Over the term of the lease or ten years, whichever is
the shorter.
Office equipment and motor vehicles: three years.
Fixtures and fittings: five years.



Fixed asset investments

The cost of fixed asset investments represent the original purchase cost of the
investments together with the associated costs of acquisition.



In accordance with the guidelines issued by the British Venture Capital
Association ("BVCA"), the Group's unquoted investments, limited partnership
interests and listed investments that are subject to a lock-up period (or are
otherwise not readily realisable), are valued by the directors at the cost of
the investment subject to any impairment in value. Future revaluations will be
considered by the directors where a significant arm's length transaction
involving an independent third party has taken place, and when in the opinion of
the directors, this revaluation is readily realisable.



Pensions

The Company contributes to the personal pension plans of certain of its
employees.  Pension costs are charged to the profit and loss account in the
period incurred and any outstanding contributions at the period end are included
within creditors.



Deferred tax

Deferred taxation is recognised as a liability or asset if transactions have
occurred at the balance sheet date that give rise to an obligation to pay more
(or less) taxation in the future. An asset is not recognised to the extent that
the transfer of economic benefits in the future is uncertain. Deferred tax
balances have not been subject to discounting.



Notes



Loss per share

The calculation of basic and fully diluted loss per ordinary share is based on
the loss after taxation for the period and the weighted average number of
ordinary shares in issue during the year.  The weighted average number of
ordinary shares excludes any shares held by the employee benefit trust, which do
not vest unconditionally with the employees.  None of the contingently issuable
share options or warrants give rise to a dilution in the loss per share due to
the losses made in the year.



The loss and weighted average number of shares used in the calculations are set
out below:


                                                                                    
Basic and fully diluted loss         Loss on ordinary          Weighted average        Per-share 
per share                        activities after tax             no. of shares     amount pence
                                                £'000

Year ended 31 March 2002                     (12,184)                60,933,360          (20.00)

Period ended 31 March 2001                    (2,982)                50,825,322           (5.87)




Preliminary results

The preliminary results for the year to 31 March 2002 are unaudited.  The
financial information set out in the announcement does not constitute the
Group's statutory accounts for the year ended 31 March 2002.



The financial information for the period ended 31 March 2001 is derived from the
statutory accounts for that period which have been delivered to the Registrar of
Companies.  The auditors reported on those accounts; their report was
unqualified and did not contain a statement under either Section 237(2) or
Section 237(3) of the Companies Act 1985.



The statutory accounts for the year to 31 March 2002 will be finalised on the
basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.



Further copies of this announcement are available from the Company Secretary,
Inflexion plc, 40 George Street, London W1U 7DW.




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