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Final Results Embargoed Release: 07:00hrs Monday 10 January 2005 Matrix Communications Group Plc ("Matrix" or "the Company") RESULTS FOR THE YEAR ENDED 31 OCTOBER 2004 Matrix Communications Group Plc, the supplier of high performance IT network solutions to the public and private sectors in the UK, has announced its unaudited results for the year ended 31 October 2004. Key Points * Turnover up 766% to �11.1 million (2003 - �1.5 million) * Gross margin up 1,217% to �4.8 million (2003 - �0.4 million) * Operating profit up to �1.2 million (2003 - �0.4 million loss) * Basic earnings per share of 3.94p (2003 - 3.59p loss) * EBITDA up to �1.9 million (2003 - �0.3 million loss) * Tax charge of �0.15 million, effective tax rate of 13% * Retained profits after tax up to �1.14 million (2003 - �0.6 million loss) * Net assets up 733% to �9.7 million (2003 - �1.3 million) * Cash Balance of �0.3 million (2003 - �0.2 million) * Acquired and successfully integrated five profitable IT companies for a total consideration and deferred consideration of �4.2 million cash and � 5.1 million shares during 2004 in line with its core strategy of building a best of breed IT systems integrator. Financial Results I am pleased to present my report on the Group's performance for the year ended 31 October 2004 and on the outlook for the current year. Group turnover for the year was �11.1 million (2003: �1.5 million�), an increase of 766 per cent. �3.7 million� of the Group turnover was achieved in the first half of the year compared with �7.4 million� in the second six months. Group operating profit for the year on continuing operations was �1.2 million (2003: �0.0 million loss). The profit on ordinary activities before tax was �1.2 million (2003 - �0.6 million loss) producing basic earnings per share of 3.94p (2003 - 3.59p loss). The group incurred a one-off charge of �0.1 million to improve its internal IT infrastructure and create the new Matrix Communications Group plc brand and website. At the year end, under FRS 7, the full cost including deferred consideration of acquiring Decorum, Norwood Adam Systems and Bedrock has been accounted for including the charge for the amortisation of goodwill. Annual income recognised in the year from service and maintenance contracts rose to �1.7 million (2003 - 0.3 million), and excluded a further �1.9 million received during the year relating to subsequent periods and treated as deferred income. The payment of a dividend for the year will not be proposed. Chairman's Statement Strategy Since publication of the previous years audited results in March 2004 very considerable progress has been achieved by your Company now renamed Matrix Communications Group Plc. Following the disposal of the original satellite communications business of Offshore Telecom in February 2004, the Group activities are now entirely based on the consulting, design, implementation and on-going support of IT networks - often described as "Integration", and on the Partner Sales of related hardware necessary to support these activities. Whilst the activities of Integration and Partner Sales target different customers, it is clear that there are benefits to be gained from being involved in the entire supply chain from Original Manufacturer to End Customer. Our customers interest will be best served if we have direct relationships with these "best of breed" Manufacturers, and at the same time are able to provide world class integration and support services across different technologies. Our Customer's consist of those organisations employing large networks such as major enterprises in the private sector and Universities and County Councils in the public sector, but all have in common a desire to employ leading edge technology to provide them with a competitive advantage to become a leader in their own marketplace. Our business, therefore is now based on proposing and implementing bespoke network designs which employ the `best of breed' technologies to service their Voice and Data requirements, including LAN/WAN integration, Voice over IP (VOIP), Network security and Support Services including Maintenance on a 24/7 basis. Best of breed implies that we are not linked to a single hardware manufacturer but have supply arrangements with a number of leading edge companies allowing us to propose a bespoke solution to best satisfy our customer's needs. To have created from a start-up a full range of network services in eighteen months would not have been feasible. The Board has therefore sought to supplement the original systems integration business of Matrix Network Solutions Ltd by making a number of complimentary acquisitions of specialist companies, substantially enhancing the scope and expertise of the Group's proposition to customers. During the year five companies have been acquired at a maximum cost of �9.3 million and, as announced on 15 November 2004, following the year end, Network Partners Ltd was acquired for a maximum consideration of �12.0 million. The acquisition policy pursued by the Board has sought to identify young, growing entrepreneurial businesses which would enhance the Group's service offering and, following integration, add significantly to the Group's earnings. The consideration for all businesses acquired during the year has been based on a mixture of shares and cash and on an earn-out over 12 to 24 months. Substantial progress has been achieved in the integration of these businesses and the Board is greatly encouraged by the level of new business derived from the successful selling of services across the rapidly growing customer base. It should also be noted Intrinsic Networks completed its earnout on 31 October 2004 and the deferred consideration was paid in full. Also, Decorum reached its first milestone and, as reported previously, have over performed against their target. Following the acquisition programme to date the range of products and services offered by Matrix include:- * LAN integration * WAN integration * Security * Voice over IP * Specialist telephony services * Specialist technical support and maintenance services. There remain a number of products and service offerings which the Group would like to make available to its customers, these include data storage and infrastructure software solutions. The Board will therefore remain alert to suitable acquisition opportunities in the course of the current year. Major contract Matrix has also developed a unique content filter proposition for mobile operator's which enables them to filter illegal internet content as part of their ethical approach to content provision for their customers. This has been implemented in the UK and we have recently been awarded a new global contract for a similar service for at least the next five years across a number of countries for an eight figure sum. More specific details will follow separately. Group Development The following companies were acquired during the year:- Norwood Adam Technical Services Ltd ("NATS") NATS provides after sales specialist technical support across the Group's clients through a 24/7 Network Operations Centre (NOC), co-ordinating a nation-wide network of call-out engineers capable of giving short notice on-site customer support. The share capital of NATS was acquired in two tranches; 50 per cent on 10 November 2003 and 50 per cent on 11 August 2004 at a total cash cost of �100,000. Through NATS the Group is able to build a substantial level of recurring revenue streams through on-going service contracts agreed at the point of sale of network hardware and software solutions. These revenues are currently running at an annual rate of �4.8 million before taking into account the recent Network Partners acquisition. Tony Weaver (36), a founder of NATS in 2002, joined the Board of Matrix on the acquisition in November 2003. Intrinsic Networks Limited ("Intrinsic") Intrinsic provides integrated high performance network security and application secure solutions to large corporate enterprise customers, mobile service providers, financial service providers and various public sector organisations. It provides customers with a range of integrated network and application security solutions, planning, consultancy, project management and support services. Additionally, Intrinsic has formed strategic partnerships with a select group of US security manufacturers including Juniper (NetScreen), Sanctum, CipherTrust, BlueCoat and Cerberian. Intrinsic was acquired on 12 December 2003 for a total consideration of �2m of which �600,000 was in cash and the balance in ordinary shares. The total consideration only became payable on the achievement of earn-out targets which were completed on 31 October 2004 and which were over achieved by 60%. Peter Drinkwater (40) a founder of Intrinsic in 2002 joined the Board of Matrix on the acquisition. Chris Lee (35) became Group Finance Director in June 2004. Decorum Networks Ltd ("Decorum") Decorum is a specialist provider of Voice over IP solutions for the public and private sectors including organisations such as Swiss Life, Guardian Newspapers and the City of London Police. Decorum provides large organisations with a range of services including convergence, IP telephony, unified messaging, call centre technology, computer telephony integration and additional data and telephony services. On completion on 26 April 2004 Matrix paid �1.195m of which �695,000 was in cash and the balance in ordinary shares in Matrix and will pay a total consideration of up to �2.26m in three steps subject to Decorum achieving �3 million of turnover and �500,000 net profit for the period 1st May 2004 to 30th April 2005. Up to �995,000 is payable in cash and the balance of �1.265m in ordinary shares in the Company. To date Decorum has exceeded its performance target to 31 October 2004 and is ahead of budget to achieve its final performance target to 30 April 2005. Neil Sturgess (45) joined the Board of Matrix on the acquisition. Bedrock Networks Ltd ("Bedrock") Bedrock was founded in 2001 by the former UK Managing Director of Extreme NetworksTM, David Grant and Debbie Casey. A Premier partner of Extreme NetworksTM Bedrock, is a leading network integrator and just prior to acquisition won contracts with Exchange Point and the London Internet Exchange, both of which work extensively with Matrix. On completion on 2 August 2004 Matrix paid �1.1m of which �500,000 was in cash and the balance in ordinary shares in Matrix and will pay up to a total of � 2.42m in three stages subject to Bedrock achieving �3.6m of turnover and � 500,000 of net profit for the period 1 August 2004 to 31 July 2005. Up to � 1.03m is payable in cash and �1.385m in ordinary shares. To date Bedrock is trading well ahead of the levels required to achieve its earnout performance targets. On completion, David Grant (43) joined the Board of Matrix. Norwood Adam Systems Ltd ("NAD") Norwood Adam Systems Ltd, trading as Norwood Adam Distribution, is the foremost value-added distributor to the UK channel for convergence technologies, providing voice, data, LAN and WAN solutions. On completion 2 August 2004 Matrix paid an initial consideration of �750,000 cash. Subject to the achievement of agreed performance targets, a further payment of �750,000 cash may be made after 31st January 2005 and final payment of �1m in new ordinary shares in Matrix, after 31st July 2005. In order, for the vendors to receive the maximum earn-out consideration of �2.5m, NAD will need to achieve revenues of �5m and net profits of �500,000 for the period 1st August 2004 to 31st July 2005. It is anticipated that NAD will achieve its earnout performance targets. Sale of assets of Offshore Telecom As reported in February 2004 the remaining satellite communications assets of Offshore Telecom were sold for a consideration of �30,000. Matrix is now no longer involved in this business and the Board are confident that no further related costs will arise. Institutional Placing On 9 March 2004, 100,000,000 new ordinary shares (representing 9.3% per cent of the enhanced equity) were placed with investment institutions at a price of 2.25p (equivalent to 90p) and raised a total of �2,250,000 to provide working capital for the group and to assist in financing the cash element of the acquisition programme. These funds have been successfully employed, as anticipated, in the acquisitions already referred to. Share Consolidation At an EGM convened on Friday 29 October 2004, the decision was taken to consolidate the Ordinary Shares in the Group at a ratio of 40 to 1 to encourage further institutional investment in Matrix in 2005. Management and employees During the year and as a result of the completed acquisitions we welcomed five new executive directors to the Board, namely Tony Weaver, Peter Drinkwater, Chris Lee, Neil Sturgess and David Grant and one new non-executive director Matthew Darling, a partner in Beachcroft Wansbroughs, legal advisors to Matrix. Since the year end Ron Sandison has joined the Board as a result of the acquisition in November 2004 of Network Partners Ltd. I was appointed Chairman in March 2004, replacing Michael Frank who became Deputy Chairman. At the 31 October 2004, Matrix employed 88 people compared with 6 employees a year ago. I would like to welcome all new employees to our Group and thank them for their contribution to our success. Re-organisation With effect from 1 November 2004 a major re-organisation of our business was put into effect. The Group's business has now been divided into two divisions namely Integration and Partner Sales, linked to a re-branding exercise designed to lift the name of Matrix and to phase out the proliferation of trading names resulting from the acquisition programme. I am pleased to report that this has been well received by both our customers and staff and will undoubtedly simplify our message to the market and new customers. Despite the re-branding and re-organisation it is intended to maintain the specialist expertise and integrity of the original trading units, as being able to deliver these unique skills goes to the heart of what we offer our customers. Peter Drinkwater and Ron Sandison have been appointed Managing Director of the Integration Division and Partner Sales Division respectively. It is also proposed to re-organise the Group Board. With effect from 10 March 2005 a separate Management Board will be created with the remit to manage the business on a day to day basis, consisting of:- Integration Division Peter Drinkwater, - Managing Director Peter Baker - Data Division Andy Mills - Security Division Neil Sturgess - Voice Division David Grant - Bedrock Partner Sales Division Ron Sandison - Managing Director Manny Pinon - Norwood Adam Kevin Cheston - Network Partners Following the re-organisation, the Matrix Communications Group Board will comprise Alan Watkins - Non Executive Chairman Ian Smith - Group Chief Executive Tony Weaver - Group Chief Operating Officer Chris Lee - Group Finance Director Peter Drinkwater - Managing Director - Integration Ron Sandison - Managing Director - Partner Sales Michael Frank - Non Executive Deputy Chairman Keith Mills - Non Executive Matthew Darling - Non Executive These proposals will be effected on 10 March 2005 and will result in Neil Sturgess and David Grant stepping down from the Board to take up their respective positions on the new Management Board. Post Balance Sheet Events Following the year end there are three events which have occurred to which I should draw shareholders attention. Firstly, the acquisition of Network Partners Ltd took place on 12 November 2004, an acquisition which the Board considers to be the Group's most strategic to date. Established in 1999, Network Partners is an independent provider of value added telecommunications services. It manages significant relationships with all of the UK's major operators including BT, Cable & Wireless, Global Crossing, Thus and Energis. Following the completion of the acquisition the Group will be the single largest BT premier partner and moreover will be strategically placed for entry into the `Managed Services' sector of the IT industry. Network Partners has been acquired for a total consideration of �12m. It reported audited profits of �1m PBT on revenues of �7.5m in the year ended 30th September 2003 and has to date booked circa �10m of recurring contract revenues for the Group's year ended 31 October 2005. Matrix paid an initial cash consideration of �5m and up to a further �7m in equity over the next 24 months, subject to agreed targets being met, to be issued at mid-market price as at close of business on the last day of the related earn-out period. Earn-out performance will be evaluated at two stages during the 24-month period, being at 12 and 24 months. Following the acquisition the founder of Network Partners, Ron Sandison (42) joined the Matrix Board and has been appointed Managing Director of Partner Sales. Secondly, shareholders may have seen an announcement, dated 13 December 2004�, to effect that the Board of Matrix were in preliminary discussions with Harrier Group Plc that may or may not lead to an offer that would be subject to the satisfactory outcome of a due diligence review. Harrier Group is involved in IT security and electronic data storage both areas of interest to your Company. Thirdly, it was announced on the 20 December 2004 that Matrix has signed heads of agreement with Equip Technology Ltd which may lead to this being acquired and integrated with the existing IT distribution business, further enhancing the Group's growing Partner Sales business. Outlook The Group has now successfully completed the initial stage of its acquisition strategy, namely to establish a complete platform of IT services and products from which it could competently service its customer base. Through acquisition and strong organic growth the Group now has more than 600 end user customers and perhaps the greatest opportunity in 2005 and beyond will be our ability to cross sell within this customer base. There have already been some notable successes in this regard but the Board will be working hard to ensure that we see more of the same. As the Group enjoys more success through cross selling the natural progression will be to migrate these customers into managed services contracts that will extend their term of commitment to the Group and allow the Group to provide further economies of scale and higher levels of service. The natural by-product of this is additional clarity of revenue streams for the Group by way of long term recurring contracts and annuity revenues. Indeed, as we entered 2005 following the acquisition of Network Partners, the Group already has almost �17m of recurring revenues on an annual basis and will look to build upon this each and every year. The outlook for the future will be to continue to build upon this strong base with an absolute focus on best of breed technologies. The goal of the Group is to become the largest independent integrator in the UK. We can only achieve this by remaining vendor independent, and outside of a "telco" or Professional Services environment, to enable us to continue providing the very best technical and cost competitive solutions for our customers. The Group believes that the general outlook for IT service providers has improved in the last 12 months and will continue to benefit those companies that can distinguish themselves from the mass. The fixed line operators will continue to look for ways to differentiate themselves from each other while fighting on price, and the large scale "Cisco" integrators will continue to struggle to generate profitability from product that is largely commoditised at a retail level. All of this will inevitably lead to more consolidation within our industry, which has already started during 2004. Throughout this period your company will continue to focus on building a strong organic sales performance, coupled with strategic acquisitions and, as a result, continue to deliver market leading financial performance. It is the Board's intention to propose a dividend payment at the end of 31 October 2005. Finally, we have entered 2005 in a positive manner with the announcement of two further acquisitions, the announcement of a global contract with a wireless operator and a strong sales pipeline. For Further Information: Chris Lee Matrix Communications 08707375000 Group plc Group Finance Director Andrew Tan Hansard Communications 020 7245 1100 Account Director Matrix Communications Group plc Profit and Loss Account Year ended 31 October 2004 2004 2003 As restated � � Group turnover 11,134,827 1,452,048 Cost of sales 6,322,870 1,056,855 -------------------- --------------------- Gross profit 4,811,957 395,193 Administrative expenses 3,654,325 835,907 Other operating income (63,731) (51,169) ------------------------ ------------------------ Operating profit/(loss) 1,221,363 (389,545) Interest receivable 13,084 1,367 Amounts written off investments - (174,250) Interest payable (22,024) (1,022) ------------------------- ----------------------- Profit/(loss) on ordinary activities 1,212,423 (563,450) before taxation Tax on profit/(loss) on ordinary 153,414 21,293 activities ------------------------- ---------------------- Profit/(loss) on ordinary activities 1,059,009 (584,743) after taxation Minority interests (85,910) - ------------------------- ------------------------- Profit/(loss) attributable to members 1,144,919 (584,743) of the parent company ------------------------- ------------------------ Retained profit/(loss) for the �1,144,919 �(584,743) financial year ================= =============== Earnings per share (pence) 3.94 (3.59) ================= ============ The group has no recognised gains or losses other than the results for the year as set out above. The company has taken advantage of Section 230 of the Companies Act 1985 not to publish its own Profit and Loss Account. Matrix Communications Group plc Group Balance Sheet 31 October 2004 2004 2004 2003 � � As restated Fixed assets Intangible assets 10,857,547 1,155,627 Tangible assets 689,047 6,809 ------------- ---------------- 11,546,594 1,162,436 ------------- ------------- Current assets Stocks 464,785 33,987 Debtors 4,399,867 870,970 Cash at bank 312,680 161,065 ------------ ------------ 5,177,332 1,066,022 Creditors: Amounts flling due 6,994,884 901,749 within one year ------------ --------------- Net current (liabilities)/assets (1,817,552) 164,273 -------------- -------------- �9,729,042 �1,326,709 ======== ========== Capital and reserves Called-up equity share capital 6,205,254 2,303,917 Share premium account 4,751,888 1,395,811 Profit and loss account (1,228,100) (2,373,019) ----------------- --------------- Shareholders' funds �9,729,042 �1,326,709 ============ =========== Matrix Communications Group plc Group Cash Flow Cash Flow Statement Year ended 31 October 2004 2004 2004 2003 � � As restated Net cashflow from (696,564) (474,163) operating activities Returns on investments and servicing of finance Interest received 13,083 1,367 Interest paid (16,007) (1,022) Interest element of hire (8,543) - purchase and finance lease -------------- --------------- Net cash (outflow)/inflow (11,467) 345 from returns on investments and servicing of finance Taxation (33,538) - Capital expenditure and financial investment Receipts from sale of - 62,000 current asset investments Payments to acquire (182,527) (5,069) tangible fixed assets Receipts from sale of - 11,750 fixed assets ---------------- ----------------------- Net cash (outflow)/inflow (182,527) 68,681 for capital expenditure and financial investment Acquisition and disposals Purchase of subsidiary (2,703,433) - undertakings Net cash acquired with 887,300 - subsidiaries Sale of business 7,500 - ------------------- ------------------ Net cash outflow for (1,808,633) - acquisitions and disposals -------------------- ------------------ Cash outflow before (2,732,729) (405,137) financing Financing Issue of equity share 267,857 320,832 capital Share premium on issue of 1,939,471 180,418 equity share capital New loans advanced - 62,000 Capital element of hire (33,695) - purchase and finance lease ---------------------- ---------------------- Net cash inflow from 2,173,633 563,250 financing -------------------- ---------------------- (Decrease)/increase in �(559,096) �158,113 cash ============== ============= Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities 2004 2003 � As restated Operating profit/(loss) 1,221,363 (389,545) Amortisation 370,320 29,631 Depreciation 262,711 10,374 Profit on disposal of fixed (23,185) (1,042) assets Decrease/(increase) in stocks 188,320 (20,492) Increase in debtors (1,035,529) (786,399) (Decrease)/increase in creditors (1,680,564) 683,310 --------------------- ---------------------- Net cash outflow from operating �(696,564) �(474,163) activities ============== =============== Reconciliation of net cash flow to movement in net debt 2004 2004 2003 � � As restated (Decrease)/increase in cash (559,096) 158,113 in the period Cash outflow in respect of 33,695 - hire purchase and finance lease ----------------- -------------------- Change in net debt resulting (525,401) 158,113 from cash flows New finance leases (91,100) - --------------------- --------------------- Change in net debt (616,501) 158,113 ============== ================ Analysis of changes in net debt At 1 Nov 2003 Cash flows Other Changes At 31 Oct 2004 � � � � Net cash: Cash in hand and at bank 161,065 151,615 - 312,680 Overdrafts - (710,711) - (710,711) -------------------- (559,096) Debt: Hire purchase and finance - 33,695 (91,100) (57,405) lease agreements ------------------- -------------------- -------------------- --------------------- Net debt �161,065 �(525,401) �(91,100) �(455,436) ============== ================== =============== ================ Basis of derivation The financial information contained in these preliminary results is abridged and does not constitute the company's statutory financial statements for the year ended 31 October 2004 or the year ended 31 October 2003. Statutory financial statements for the period ended 31 October 2003 have been reported on by the company's auditor and delivered to the Registrar of Companies. The report of the auditor for the year ended 31 October 2003 was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1995. The statutory financial statements for the year ended 31 October 2004 will be posted to shareholders shortly and will be delivered to the Registrar of Companies after they have been laid before the company in General Meeting. END

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