1st Quarter Results
365 Corporation PLC
30 August 2001
30th August 2001
365 Corporation plc
First Quarter Results
'Losses and Costs Reduced'
Quarter ended Quarter ended 31 Quarter ended
30 June 2001 March 2001 30 June 2000
£'000 £'000 £'000
Turnover 14,212 14,527 10,002
Cost of sales 9,020 9,703 5,999
Gross profit 5,192 4,824 4,003
Administrative expenses, 8,933 11,278 6,850
excluding goodwill charges
Operating loss before goodwill (3,741) (6,454) (2,847)
charges
Goodwill amortisation and 3,605 12,320 5,832
impairment
Operating loss (7,346) (18,774) (8,679)
* Q1 operating losses before goodwill charges reduced by 42% compared
to previous quarter
* Gross profits of £5.2m - up 8% from previous quarter and 30% from Q1
2000
* Quarterly administrative expenses (excluding goodwill charges)
significantly reduced compared to previous quarter as cost reduction measures
start to take effect. (The increase compared to the same quarter last year
arises primarily as a result of acquisitions made over the past 12 months)
* Core businesses continuing to move towards profitability
* Launch of 365's new comprehensive voice portal ('Eckoh') in June
* Reducing cash burn rate with sufficient cash (£21m) to fund
operations to profitability
* Appointment of Martin Turner as CEO and Nik Philpot as COO
Martin Turner, Chief Executive Officer, commented today:
'365's management team remains highly focused on profitable growth and strict
cost control. We are satisfied with our Q1 financial performance as we see
the financial benefit of recent initiatives designed to drive 365 towards
profit. We are fully committed to reaching breakeven as quickly as possible,
and are looking for further material improvements in bottom line and cash flow
performance during this financial year.
The successful launch of Eckoh in June demonstrates that, in parallel with our
drive towards profit, we will continue to pursue new and exciting areas of
opportunity where we see potential to create significant value for 365 and its
shareholders.'
For further enquiries, please contact
365 Corporation plc Tel: 01442 458 355
Martin Turner, Chief Executive Officer
Nik Philpot, Chief Operating Officer
www.365corp.com
Financial Dynamics Tel: 020 7831 3113
Fiona Meiklejohn
Interim Report for the Quarter ended 30 June 2001
Financial data (£'000)
3 months 3 months 3 months 3 months 3 months
ended 30 Jun ended 30 Sep ended 31 Dec ended 31 Mar ended 30 Jun
Quarterly 2000 2000 2000 2001 2001
Revenue
Consumer 6,406 7,497 7,525 7,753 7,650
Division
Business 3,596 4,529 6,062 6,774 6,562
Division
Total revenue 10,002 12,026 13,587 14,527 14,212
Cost of sales (5,999) (7,186) (8,085) (9,703) (9,020)
Total gross 4,003 4,840 5,502 4,824 5,192
profit
Administrative (6,850) (7,807) (9,408) (11,278) (8,933)
expenses*
Operating loss* (2,847) (2,967) (3,906) (6,454) (3,741)
* before goodwill charges
Consumer Division
The Consumer Division achieved a significant improvement in gross profit
margin to 45% (Q4 2001 33%) on revenues of £7.7m (Q4 2001 - £7.8m). Compared
to the same period last year, revenues were up 19.4%. Voice services
performed very strongly during the quarter, which was in part helped by the
soft advertising market and a reduction in bought advertising rates.
We have started to see the benefits of the ongoing reorganisation of our
internet operations which led to the closure and consolidation of a number of
web sites. The focus remains on supporting and developing our core internet
sites that are both market leaders and able to deliver profitability in the
near future. Despite a reduction in internet advertising revenues, we
achieved offsetting revenue growth in other areas such as e-commerce, content
sales and complementary mobile services (e.g. SMS messaging). Total internet
revenues for the quarter were stable at £1.4m (Q4 2001 £1.4m).
In late June we successfully launched our new voice portal, Eckoh, to our
consumer audience. This marked the culmination of 12 months of design and
technical development in partnership with Philips, Cable & Wireless, eCal and
Sonexis. We have since added to our growing list of key commercial partners,
such as our exclusive deal with Virgin Wines. In August we followed up with a
selective marketing campaign designed to promote wider product awareness, and
there are plans for broader marketing campaigns later in the year.
Exploiting the convergent technology and infrastructure that we have developed
for Eckoh is a key component of the Consumer Division's strategy moving
forward, and our new client services department Eckohtec has been formed to
specialise in delivering services using both these new voice technologies and
365's existing voice assets. In providing these services, we can leverage our
technical expertise and infrastructure (including our 4,000-port call handling
platform) to generate increased revenues and profits with marginal increases
in costs. This is a very exciting area of opportunity for 365 where we have
clear first-mover advantages.
Sales and marketing costs reduced to £1.4m during the quarter (Q4 2001 £1.8m),
which included £0.2m in relation to the launch of Eckoh. In addition, we
reduced operating expenses (before sales, marketing and goodwill charges) to £
3.6m for the quarter (Q4 2001 - £4.6m) despite incurring further bad debt
provisions totalling £0.3m in relation to internet sales made during the last
financial year and £0.5m of current development and operating costs relating
to Eckoh and Eckohtec.
Consumer users fell to 2.4m from 3.0m at the end of March 2001 due to the
closure or consolidation of various web sites, including our foreign language
operations in Paris, France and Santiago, Chile.
Business Division
Business Division revenues declined by 3% to £6.6m and generated a gross
margin of 27% (Q4 2001 33%). Underlying customer growth continued, with the
base increasing by 7% to 5,532 during the quarter. Resale and mobile services
continued to grow strongly, but sales of hardware was slower that anticipated,
with a number of customers delaying purchasing decisions until later in the
year.
Gross margin performance was adversely affected by costs relating to the
ongoing consolidation of hardware operations (which has seen a reduction in
branch operations in the London area from five to two), and the completion of
several large hardware installations at lower gross margins during the
quarter. We also commenced the reprogramming of several hundred customer
sites as part of a rationalisation of carrier suppliers aimed at improving
gross margins in future periods.
Sales and marketing costs reduced to £1.7m during the quarter (Q4 2001 £2.5m),
which reflects the financial benefits of the ongoing rationalisation of our
operations. Quarterly operating expenses (before sales, marketing and
goodwill charges) were stable at £1.5m (Q4 2001 £1.5m). As part of our drive
towards profitability, the Business Division has planned further cost savings
and efficiency improvements over the next six months in order to bring our
cost structure more in line with current trading volumes.
The Business Division's remaining joint ventures achieved profitability for
the first time during the quarter, as did our operation in Ireland, which has
performed particularly well since the partnership with Samsung was concluded
earlier this year.
Corporate, liquidity and cash resources
Corporate expenses reduced to £0.8m during the quarter (Q4 2001 £1.1m).
During the quarter, we paid out £0.7m in contingent and deferred cash
consideration relating to acquisitions made previously, incurred £0.3m of
capital expenditure (primarily in relation to Eckoh) and consumed £3.8m (Q4
2001 £5.8m) in our operating activities. The Company received £0.3m in
interest from its investment of surplus cash during the quarter. As at 30
June, 365's cash and investments balance was £21.4m.
Management Changes
Following the departure of Dan Thompson in June 2001, Martin Turner, currently
Finance Director, is appointed Chief Executive Officer of 365 with immediate
effect. In addition Nik Philpot, currently Group Managing Director of 365's
Consumer Division, is appointed Chief Operating Officer and Deputy Chief
Executive. Both Martin and Nik were founders of Symphony Telecom which was
acquired by 365 in February 1999. Arrangements to appoint a new Finance
Director are underway, and in the meantime an interim Chief Financial Officer
is in place.
Current Trading And Outlook
We are continuing to see improvements in financial performance as our ongoing
cost reduction and efficiency measures take effect, and more improvement is
expected during this financial year. Consumer Division voice services
continue to trade strongly, helped in part by the recent launch of Eckoh and
evidenced by important new Eckohtec agreements concluded with Granada and
EMAP. While we have seen some recent softening of demand for new hardware
installations within our Business Division, sales of other complementary
network services remain strong. The Directors remain focused on moving 365
towards profitability and positive cash flow.
Consolidated profit and loss account
for the quarter ended 30 June 2001
Quarter ended Quarter ended Year
30 June 2001 30 June 2000 ended
31 March
2001
unaudited unaudited audited
Note £'000 £'000 £'000
Turnover 3 14,212 10,002 50,142
Cost of sales (9,020) (5,999) (30,973)
Gross profit 5,192 4,003 19,169
Administrative expenses before (8,933) (6,850) (35,343)
goodwill charges
Amortisation and impairment of (3,605) (5,832) (31,293)
goodwill
Total administrative expenses (12,538) (12,682) (66,636)
Operating loss before goodwill 3 (3,741) (2,847) (16,174)
charges
Operating loss (7,346) (8,679) (47,467)
Net interest receivable 278 742 2,365
Loss on ordinary activities (7,068) (7,937) (45,102)
before taxation
Taxation 9 (23) (16)
Loss on ordinary activities (7,059) (7,960) (45,118)
after taxation
Minority interests (48) 51 78
Loss for the period (7,107) (7,909) (45,040)
Loss per ordinary share 4
Basic and diluted loss per share (3.5p) (4.0p) (22.5p)
Basic and diluted loss per share (1.7p) (1.1p) (6.9p)
before goodwill charges
All operations were from continuing activities.
Statement of total recognised gains and losses
for the quarter ended 30 June 2001
Quarter ended Quarter ended Year
30 June 2001 30 June 2000 ended
31 March
2001
unaudited unaudited audited
£'000 £'000 £'000
Loss for the period (7,107) (7,909) (45,040)
Exchange adjustments 73 (47) (120)
Total recognised losses (7,034) (7,956) (45,160)
for the period
Prior period adjustment - 1,992 1,992
Total recognised losses (7,034) (5,964) (43,168)
since last period
Consolidated balance sheet
as at 30 June 2001
30 June 30 June 31 March
2001 2000 2001
unaudited unaudited audited
£'000 £'000 £'000
Fixed assets
Intangible fixed assets 21,877 41,705 24,985
Tangible fixed assets 3,144 2,127 3,179
25,021 43,832 28,164
Current assets
Stock - finished goods 1,156 596 1,401
Debtors 14,368 10,296 14,566
Investments - short term deposits 16,500 43,260 24,250
Cash at bank and in hand 4,904 2,443 1,702
36,928 56,595 41,919
Creditors: amounts falling due within one (12,629) (9,403) (12,205)
year
Net current assets 24,299 47,192 29,714
Total assets less current liabilities 49,320 91,024 57,878
Creditors: amounts falling due after more (255) (1,217) (279)
than one year
Provisions for liabilities and charges (2,057) (163) (3,371)
Net assets 47,008 89,644 54,228
Capital and reserves
Called up share capital 505 498 505
Shares to be issued 508 470 752
Share premium account 72,425 72,320 72,425
Merger reserve 38,546 37,212 38,536
Profit and loss account (64,890) (20,652) (57,856)
Total equity shareholders' funds 47,094 89,848 54,362
Minority interests (86) (204) (134)
Capital employed 47,008 89,644 54,228
Consolidated cash flow statement
for the quarter ended 30 June 2001
Quarter ended 30 Quarter ended 30 Year
June 2001 June 2000 ended
31 March
2001
unaudited unaudited audited
£'000 £'000 £'000
Net cash outflow from operating (3,835) (4,077) (20,052)
activities
Return on investments and servicing
of finance
Net interest 321 778 2,679
Taxation - 2 (5)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (288) (650) (2,205)
Purchase of intangible fixed assets - - (213)
Receipt from sale of tangible fixed - - 47
assets
Receipt from sale of intangible - - 312
asset
(288) (650) (2,059)
Acquisitions
Net cash acquired with subsidiary - 311 392
undertakings
Purchase of subsidiaries - (3,272) (6,661)
Purchase of business - - (914)
Consideration paid in respect of (722) - -
prior period acquisitions
(722) (2,961) (7,183)
Cash outflow before use of liquid (4,524) (6,908) (26,620)
resources and financing
Management of liquid resources
Decrease in short-term deposits 7,750 6,240 25,250
Financing
Issue of shares - 13 46
Capital element of finance lease (24) (35) (107)
payments
(24) (22) (61)
Increase/(decrease) in cash in the 3,202 (690) (1,431)
period
Notes to the first quarter
1. Basis of preparation
The financial statements for the quarter ended 30 June 2001 have been prepared
using accounting policies consistent with those set out in the Company's
consolidated 2001 statutory accounts. These statements do not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985
and are unaudited.
Financial information for the quarter ended 30 June 2000 has been extracted
from the accounting records of the group and is unaudited.
The balances and results as at 31 March 2001 have been extracted from the
statutory accounts which have been filed with the Registrar of Companies. The
auditors' report on those accounts was unqualified and did not contain any
statement under section 237 of the Companies Act 1985.
In previous periods operating loss and loss per share figures were stated
before National Insurance and other similar charges on share options. The
charge in relation to this is now considered to be immaterial and as a result
this charge is not shown separately from administrative expenses. Prior
period numbers have been restated to reflect this change.
The results for the quarter ended 30 June 2001 were approved by the Board on
29 August 2001 and will be posted on the Company's web site, www.365corp.com,
on 30 August 2001.
2. Operating data June 2000 to June 2001
(in millions unless otherwise stated)
Jun Sep Dec Mar Jun
2000 2000 2000 2001 2001
Consumer Division
Unique users(1) 2.1 2.4 2.9 3.0 2.4
User sessions(2) 13.4 14.0 13.7 16.0 15.3
Voice services minutes(3) 7.8 7.0 5.9 5.9 6.0
Business Division
Business customers - actual number(4) 3,473 3,945 4,518 5,159 5,532
Business minutes(5) 16.4 17.5 14.2 20.4 23.4
Notes:
1. 365 defines the number of unique users in a month as the number of
people who visit one of 365's web sites (including those web sites created and
hosted by 365 for third parties) during a month, telephone one of 365's voice
services during a month or are registered to receive an e-mail product at a
selected mid-month date. If a person uses the same 365 service more than once
in a month they are counted only once as a unique user. If, however, that
person uses more than one 365 service during that month, they are counted as a
unique user once for each service used.
2. 365 defines the number of user sessions in a month as the number of
times that each 365 service is used. If a user leaves a web site and returns
more than 30 minutes later the return visit is counted as a separate user
session. E-mail user sessions represent the number of registered subscribers
at the date selected to determine the number of unique e-mail users multiplied
by the number of issues in that month of the e-mail service they are
registered to receive. Each incoming call to 365's voice services represents
a user session.
3. 365 defines the number of voice services minutes in a month as the
number of minutes recorded by 365 and its carriers in respect of calls to
365's voice services in that month.
4. 365 defines the number of business customers at each month end as
the total number of customers at that month end who have been billed for that
month.
5. 365 defines the number of business minutes in a month as the number
of minutes tracked by the carriers' systems which are billed to the Business
Division's customers in that month.
3. Segmental analysis - for the quarter ended 30 June 2001
Turnover and loss before taxation are classified below by class of business
and by geographical area by origin, which is not materially different from
geographical area by destination.
Consumer Division Business Division
Business Analysis (£'000) Quarter Quarter Quarter Quarter
ended 30 ended 30 ended 30 ended 30
Jun 2001 Jun 2000 Jun 2001 Jun 2000
Turnover 7,650 6,406 6,562 3,596
Cost of sales 4,245 3,583 4,775 2,416
Gross profit 3,405 2,823 1,787 1,180
Administrative expenses (excluding 3,618 2,943 1,477 1,083
sales & marketing costs) before
goodwill charges
Operating (loss)/profit (excluding (213) (120) 310 97
sales & marketing costs) before
goodwill charges
Sales and marketing costs 1,367 1,028 1,677 1,003
Operating loss before goodwill (1,580) (1,148) (1,367) (906)
charges
Goodwill amortisation and 2,071 5,443 1,534 389
impairment
Operating loss (3,651) (6,591) (2,901) (1,295)
Net interest receivable/(payable) - (7) 4 24
(Loss)/profit on ordinary (3,651) (6,598) (2,897) (1,271)
activities before taxation
Group Overhead Total Group
Business Analysis (£'000) Quarter Quarter Quarter Quarter
ended 30 ended 30 ended 30 ended 30
Jun 2001 Jun 2000 Jun 2001 Jun 2000
Turnover - - 14,212 10,002
Cost of sales - - 9,020 5,999
Gross profit - - 5,192 4,003
Administrative expenses (excluding 794 793 5,889 4,819
sales & marketing costs) before
goodwill charges
Operating (loss)/profit (excluding (794) (793) (697) (816)
sales & marketing costs) before
goodwill charges
Sales and marketing costs - - 3,044 2,031
Operating loss before goodwill (794) (793) (3,741) (2,847)
charges
Goodwill amortisation and - - 3,605 5,832
impairment
Operating loss (794) (793) (7,346) (8,679)
Net interest receivable/(payable) 274 725 278 742
(Loss)/profit on ordinary (520) (68) (7,068) (7,937)
activities before taxation
All operations during the quarter were continuing.
Turnover Operating (loss)/profit
before goodwill charges
Geographical
analysis (£'000)
Quarter ended Quarter ended Quarter ended Quarter ended
30 June 2001 30 June 2000 30 June 2001 30 June 2000
United Kingdom 13,998 9,873 (3,609) (1,974)
and Ireland
France 34 71 (27) (559)
Germany - - - (2)
Chile 46 39 46 (20)
South Africa 37 3 (73) (162)
USA 97 16 (78) (130)
14,212 10,002 (3,741) (2,847)
4. Loss per ordinary share of 0.25p each
Quarter ended 30 Quarter ended 30 Year
June 2001 June 2000 ended
31 March
2001
£'000 £'000 £'000
Loss for the period before goodwill (3,502) (2,077) (13,747)
charges
Goodwill amortisation and (3,605) (5,832) (31,293)
impairment
Loss for the period (7,107) (7,909) (45,040)
Weighted average number of shares
in the period:
Basic and diluted 201,838,037 198,430,475 200,196,253
Basic and diluted loss per share (1.7p) (1.1p) (6.9p)
before goodwill charges
Goodwill amortisation and (1.8p) (2.9p) (15.6p)
impairment
Basic and diluted loss per share (3.5p) (4.0p) (22.5p)
None of the contingently issuable shares or share options gives rise to a
dilution in the loss per share due to the losses made in the period.
The prior period loss per share figures have been restated due to the
reanalysis of National Insurance and other similar charges on share options,
as explained in Note 1.
5. Share capital and reserves
Ordinary Shares to Share Merger Profit and
share be issued premium reserve loss
capital account account
£'000 £'000 £'000 £'000 £'000
At 1 April 2001 505 752 72,425 38,536 (57,856)
Loss for the period - - - - (7,107)
Exchange adjustments - - - - 73
Contingent share - (10) - 10 -
consideration for
acquisitions
Movement in fair value of - (234) - - -
contingent share
consideration
At 30 June 2001 505 508 72,425 38,546 (64,890)
6. Reconciliation of movement in shareholders' funds
Quarter ended Quarter ended Year
30 June 2001 30 June 2000 ended
31 March
2001
£'000 £'000 £'000
Opening shareholders' funds 54,362 94,941 94,941
Loss for the period (7,107) (7,909) (45,040)
Shares issued for acquisitions - 2,373 3,701
Shares issued in part settlement of - - 75
purchase of intangible asset
Premium on shares issued to employees - 87 87
Net movement in contingent share (234) 390 672
consideration
Employee share options exercised - 13 46
Exchange adjustments 73 (47) (120)
Closing shareholders' funds 47,094 89,848 54,362
7. Net cash outflow from operating activities
Quarter ended 30 Quarter ended 30 Year
June 2001 June 2000 ended
31 March
2001
£'000 £'000 £'000
Operating loss (7,346) (8,679) (47,467)
Depreciation 323 315 1,213
Amortisation and impairment of 3,674 5,872 31,456
intangible assets
Decrease/(increase) in stock 245 (9) (356)
(Increase) in debtors (645) (1,638) (5,483)
(Decrease)/increase in creditors (86) 62 821
/provisions
(Profit) on disposal of - - (312)
intangible fixed asset
Loss on disposal of tangible - - 76
fixed assets
(3,835) (4,077) (20,052)
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