4th Qrtr & Final Results-Pt.1

365 Corporation PLC 31 May 2000 PART 1 365 Corporation plc Fourth Quarter and Full Year Results Preliminary announcement '365 reports outstanding growth for the year' (£000's) Fourth Full year 8 months to 31 quarter March 1999* Group turnover 7,319 22,420 2,588 Total gross profit 2,919 9,810 1,008 Group operating loss** (2,861) (5,909) (863) Loss on ordinary activities (4,964) (14,755) (1,154) before taxation Cash balance and liquid 52,633 52,633 5,316 resources 365 Corporation plc ('365' or the 'Company'), the digital media and communications company, today announces results for the fourth quarter and twelve months ended 31 March 2000. Highlights of the results include: Twelve months ended 31 March 2000 + group turnover of £22.4m, compared to £2.6m for the 8 months to 31 March 1999*; + gross profits of £9.8m; + total unique users(1) to 1.75m for March 2000, a five-fold increase on March 1999; + full year operating profits** for both Consumer and Business Divisions, before marketing expenses***; + group operating losses** of £5.9m; + loss before taxation of £14.8m (including goodwill amortisation of £5.1m, provision for NIC and similar taxes on share options of £2.7m and shares issued at below market value of £2.3m); + successful flotation on London Stock Exchange. Fourth quarter ended 31 March 2000 + group turnover of £7.3m, a 30% increase over the previous quarter (£5.6m); + Business Division turnover of £2.9m, a 48% increase over the previous quarter; + Consumer Division turnover of £4.4m, a 22% increase over the previous quarter; + acquisitions of Datanet and Fenfones in February. Current trading + 1.81m unique users in April 2000; + acquisition of Teletalk in April 2000; + continued growth in users, customers and revenues. Notes: * Includes two months in respect of the acquisition of Symphony Telecom in February 1999. **Before amortisation of goodwill, NIC and similar taxes on shares options and shares issued at below market value. *** Includes direct selling expenses and sales office overheads for the business division. (1) See note 2 to preliminary announcement. Dan Thompson, Chief Executive Officer, commented today: 'I am delighted to present a very strong set of results for the financial year and quarter ended 31 March 2000. The results demonstrate the success of our business model, not only in terms of growth of users and customers, but also in terms of real growth of turnover and underlying profitability. Both our operating divisions - Consumer and Business - have performed strongly during the year. Group turnover increased to £22.4m, compared to £2.6m for the eight months ended 31 March 1999 which included only two months in respect of the acquired Symphony business. Consumer Division turnover increased to £14.7m for the year and Business Division turnover to £7.7m. We also saw strong fourth quarter growth, with turnover increasing by 30% to £7.3m compared to the previous quarter (£5.6m). We continue to generate strong gross margins with a focus on developing profitable revenue streams in all areas of our business and this is reflected in £9.8m of gross profits for the year. Of particular significance is that both our Consumer and Business Divisions generated full year headline operating profits*, before marketing expenses. Growing our Consumer Division users to 1.75m as at March 2000 makes 365 one of the largest European providers of digital content. Equally, the increase in business customers to 2,989 demonstrates the success of our SME offering. As at 31 March 2000 with our cash and investments totalling £52.6m, we are very well placed to meet our operating and acquisition requirements for the foreseeable future as we continue to invest in our growth strategy.' For further enquiries, please contact 365 Corporation plc Tel: 020 7505 7800 Dan Thompson, Chief Executive Officer Martin Turner, Finance Director www.365corp.com Financial Dynamics Tel: 020 7831 3113 Giles Sanderson Ben Atwell *before amortisation of goodwill, NIC and similar taxes on share options, shares issued at below market value and before allocation of group overheads, as presented in the segmental analysis in note 3 to the preliminary announcement. Financial and Operating Data Summary Financial data for 1999/2000 (£'000s) 3 months ended 3 months ended 3 months ended 31 30 June 1999 30 September December 1999 (Q1) 1999 (Q3) (Q2) Turnover Consumer Division 3,410 3,333 3,585 Business Division 1,199 1,593 1,981 Total turnover 4,609 4,926 5,566 Cost of sales (2,572) (2,591) (3,047) Total gross profit 2,037 2,335 2,519 Operating costs (1,248) (2,351) (3,483) Operating 789 (16) (964) profit/(loss) before marketing costs** Marketing costs*** (512) (494) (1,851) Operating 277 (510) (2,815) profit/(loss)** Cash Balance 6,710 6,729 62,947 3 months ended Year ended 31 8 months ended 31 31 March 2000 March 2000 March 1999* (Q4) Turnover Consumer Division 4,391 14,719 1,939 Business Division 2,928 7,701 649 Total turnover 7,319 22,420 2,588 Cost of sales (4,400) (12,610) (1,580) Total gross profit 2,919 9,810 1,008 Operating costs (3,678) (10,760) (1,450) Operating (759) (950) (442) profit/(loss) before marketing costs** Marketing costs*** (2,102) (4,959) (421) Operating (2,861) (5,909) (863) profit/(loss)** Cash Balance 52,633 52,633 5,316 * includes 2 months in respect of acquisition of Symphony Telecom in February 1999. ** before amortisation of goodwill, provision for NIC and similar taxes on share options and shares issued at below market value. *** includes direct selling expenses and sales office overheads for the business division. Operating data for 1999/2000 June Sept Dec Consumer Division - unique 401,146 779,591 1,031,282 users(1) Business Division - 1,613 2,170 2,484 customers(4) Jan Feb Mar Apr Consumer Division - 1,093,955 1,218,991 1,751,772 1,808,140 unique users(1) Business Division - 2,592 2,808 2,995 3,114 customers(4) Notes: See notes 2 to preliminary announcement. Chief Executive's Review Both our Consumer and Business Divisions have performed strongly during the year, generating group turnover of £22.4m for the year ended 31 March 2000, compared to £2.6m for the 8 months ended 31 March 1999, which included only two months in respect of the acquisition of Symphony Telecom. In addition, we have grown our users to 1.75 million as at March 2000 (including approximately 300,000 acquired with Datanet) making 365 one of the largest European providers of digital content. The fourth quarter performance has been particularly strong, with group turnover growing to £7.3m, a 30% increase compared to the previous quarter. Our successful flotation on the London Stock Exchange last December was a highpoint of the year and provided us with both cash and an acquisition currency to pursue our expansion plans and maintain our first-mover advantages. We were fortunate to complete our IPO before Christmas, before market sentiment in the United States precipitated a broad sell-off in technology, media and telecoms ('TMT') stocks worldwide in April, which has been followed by continuing volatility. While 365 has not been immune to this volatility, it has presented us with some excellent opportunities to expand our business by acquiring TMT assets at significantly lower values. We anticipate that this environment will be highly advantageous to those companies that were early to market and result in fewer, stronger companies in the TMT sector. Consumer Division Our Consumer Division has grown strongly during the year ended 31 March 2000 through a combination of organic growth and acquisitions. A significant amount of new digital content has been developed (including multi-language products) and its means of distribution extended to include the internet, fixed line telephone, mobile and television. In January, we announced the formation of 365Television, which will make programmes and interactive content for digital television and look to exploit 365's existing brands and content over broadband and television platforms. On 24 February, we acquired Datanet Marketing Services Ltd ('Datanet') and their market leading content in the categories of rugby (www.planet- rugby.com), cricket (www.cricketline.com), motor racing (www.planet-f1.com) and horse racing (www.racetips.com) and online competitions (www.planet- trivia.com). Datanet also brought with it content distribution deals with a number of the leading portals and ISPs and produces the software and technology to deliver its content across multiple platforms, such as Wireless Application Protocol ('WAP'). Total consideration for Datanet was £27.9m, satisfied by the issue of 12.42 million 365 ordinary shares, £2.1m in cash and £0.2m of acquisition costs. On 14 March 2000, we acquired the entire issued share capital of Oxalis Limited ('Oxalis') and its gardening web site, www.oxalis.co.uk. The total consideration for Oxalis was £225,000, satisfied by the issue of 69,204 shares of 365 and £45,000 cash together with a further payment of £225,000 in cash dependent on future performance. Since its acquisition, the Oxalis web site has been rebranded Gardening365 (www.gardening365.com). We were selected to develop and host ITV's Six Nations rugby web site, which ran from 5 February to 2 April 2000 and successfully created and launched the music web site for the 2000 BRIT Awards. We are also supplying Yahoo! with multi-sports (including football, rugby, motorsport, cricket and horse racing), multi-lingual (English, French and Spanish) content to its large European audience. On 9 March 2000, we announced that we had partnered with British Telecommunications plc ('BT') to become the provider of WAP sports content for BT Mobility in Europe. This partnership will give users of WAP-enabled devices on the BT affiliate network the opportunity to receive 365 sports content across Europe. Business Division Our Business Division also grew strongly during the year ended 31 March 2000, both in terms of the number of customers added and product development. The recent introduction of mobile and internet services has strengthened the 'one- stop-shop' telecommunications strategy. The growth experienced by the Business Division during the fourth quarter is evidence of demand for our services. On 29 February 2000, we completed the acquisition of the entire issued share capital of Fenfones Communications Limited ('Fenfones'). Established in 1976, Fenfones is one of the UK's leading suppliers of telephone systems and related solutions to SMEs. At the same time, we acquired the balance of the whole of the issued share capital of Datacom Networks Limited ('Datacom'), the joint venture company in which 365 and Fenfones previously each held 50% of the issued shares. The total consideration for Fenfones was £4.5m, satisfied by the issue of 1,193,317 shares and £2.0m in cash. The consideration for Datacom was £0.5m in cash. Recent and Forthcoming Developments On 4 April 2000, our Business Division reached an agreement with MTV Telecom plc to form a new joint venture company, Island6 Limited. The creation of Island6 has provided 365 with a national distribution capability for the first time, through exclusive access to MTV Telecom's channel of over 2000 active dealers across the UK. On 28 April 2000, our Consumer Division acquired the entire issued share capital of Teletalk Limited ('Teletalk') for an initial consideration of £5m, satisfied by the issue of 1,308,000 shares and £3m in cash. A further consideration of up to £1m is to be paid in cash over two years, subject to performance targets being met. Teletalk was formerly owned by the Financial Times and has since established itself as one of the leading providers to newspapers of audiotext and companionship services in the UK. Current Trading The directors are excited and confident about the Company's future prospects. Growth accelerated during the 2000 financial year and the 2001 financial year has started very promisingly. The pace of technological change continues to create highly profitable opportunities for those with the right expertise and assets. An ever-increasing number of consumers, through an expanding number of channels, have access to the Digital Network creating ever-greater opportunities for the company to generate revenues from access to, and consumption, of its content and related services. Equally, the SME customer is increasingly communicating and conducting their operations digitally and this again provides the company with outstanding opportunities in high margin areas. Financial Review Consumer Division Users. During the year ended 31 March 2000, Consumer Division unique users increased five-fold from 326,956 in March 1999 to 1,751,772 in March 2000. This growth is the result of the marketing and promotion of existing content, the creation and introduction of new content and the acquisition of complementary businesses during the year. During the fourth quarter, users grew by 70% from 1,031,282, which included approximately 300,000 users acquired through Datanet. Turnover. Consumer Division turnover for the year ended 31 March 2000 was £14.72m, compared to £1.94m for the eight months ended 31 March 1999, which included only two months in respect of the acquired Symphony business. Internet turnover grew strongly throughout the year to £1.54m, compared to £0.23m for the eight months to 31 March 1999. Fourth quarter turnover increased 22% from £3.59m to £4.39m. Cost of Sales. Cost of sales relates primarily to the direct costs of advertising 365's audiotext services in a variety of media, freephone (0800) access charges and commissions or royalties payable to third parties. Overall consumer cost of sales during the year ended 31 March 2000 was £7.24m compared to £1.12m for the eight months ended 31 March 1999. Gross profit margins increased to 50.8% for the year ended 31 March 2000 from 42.4% for the eight months ended 31 March 1999, as a result of lower start-up costs during the year in relation to new service launches and improved supplier discounts. Administrative Expenses. Consumer Division administrative expenses (excluding amortisation of goodwill and provision for NIC and similar taxes on share options) increased to £9.38m during the year ended 31 March 2000 as 365 increased its investment in new content and services, its internet publishing systems, infrastructure and technology, professional services and personnel. This compares to £1.35m for the eight months ended 31 March 1999. Also included in administrative expenses are content and brand marketing costs of £2.81m for the year ended 31 March 2000 compared with £0.19m for the eight months ended 31 March 1999. Consumer Operating Loss. Operating losses (before amortisation of goodwill and provision for NIC and similar taxes on share options) increased to £1.90m during the year ended 31 March 2000 from £0.53m for the eight months ended 31 March 1999. The Company's historical consumer operating losses are indicative of its significant investment in content and related infrastructure and it expects to incur additional operating losses in the future as it continues to invest in growth. Business Division Customers. 365 increased its number of business customers by 134% during the year to 31 March 2000, from 1,280 in March 1999 to 2,989 at year end. Turnover. During the year ended 31 March 2000, Business Division turnover increased to £7.70m compared to £0.65m for the two months ended 31 March 1999. This growth reflects both the increase in the number of customers and the increase in average monthly revenue per customer as 365 introduced new products and services during the year. Growth in the fourth quarter was particularly strong, increasing 48% from £1.98m to £2.93m. Cost of Sales. Business Division cost of sales includes costs relating to the provision of telephone system equipment; network access charges; mobile handsets and airtime charges; and internet service costs. Cost of sales for the year ended 31 March 2000 was £5.38m, compared to £0.46m for the two months ended 31 March 1999 and gross profit as a percentage of turnover improved from 28.5% to 30.2%, primarily as a result of reduced wholesale prices from 365's carrier suppliers. Administrative Expenses. Business Division administrative expenses include costs related to the development and management of 365's infrastructure, customer services, sales and marketing expenses, general operating expenses and personnel. Sales and marketing expenses consist primarily of advertising, compensation and employee-related expenses and travel costs, including all local costs relating to the operation of the joint ventures. Excluding amortisation of goodwill and provision for NIC and similar taxes on share options, these costs increased to £3.88m for the year ended 31 March 2000 compared to £0.28m for the two months ended 31 March 1999. Sales and marketing costs for the year were £2.15m (compared to £0.24m for the prior period), with most of the balance of the increase relating to the expansion of the Company's billing and customer care systems, including costs relating to the introduction of mobile and internet services, the benefits of which will be realised in future years. Business Operating Loss. Operating losses (before amortisation of goodwill and provision for NIC and similar taxes on share options) for the year ended 31 March 2000 were £1.56m compared to £0.10m for the two months ended 31 March 1999 and were primarily due to the significant increase in administrative expenses. Corporate Administration. During the year ended 31 March 2000, 365's corporate administration costs increased to £2.45m, compared to £0.24m for the eight months ended 31 March 1999. Most of this significant increase has arisen in the last four months of the financial year as a result of the Company's flotation on the London Stock Exchange in December 1999. It includes ongoing expenditure in relation to the expansion of the Board of Directors and other corporate personnel, compliance costs and corporate marketing. Amortisation of Goodwill. Goodwill arising on consolidation represents the excess of the fair value of the consideration paid over the fair value of the identifiable net assets acquired. Goodwill is capitalised and amortised over its estimated useful economic life in accordance with the provisions of FRS 10 'Goodwill and Intangible Assets' which require that goodwill amortisation be charged to the profit and loss account as an operating expense. 365 has recorded a goodwill amortisation charge of £5.10m for the year, compared to £0.34m for the eight months ended 31 March 1999 which related only to the acquisition of Symphony Telecom. Provision for NIC and similar taxes on share options. On exercise of share options (which are exercisable over a period of up to seven years from the date of the grant) issued after 6 April 1999, the Company will be required to pay NIC and overseas equivalent taxes on the difference between the exercise price and market value of the shares issued. 365 has made a provision of £2.67m as at 31 March 2000, calculated using the current relevant tax rates applied to the difference between the market value of the underlying shares as at 31 March 2000, which was 212.5p and the option exercise prices. There was no corresponding charge for the 12 months ended 31 March 1999. The accounts for the quarter ended 30 June 2000 will include any adjustment required arising from any movement in the Company's share price between 31 March 2000 and 30 June 2000. Based on the mid-market closing share price of 79.5p on 27 May 1999, this would result in a credit of £2.20m. Shares issued at below market value. On 10 November 1999, 365 incurred a one- off UITF17 charge of £2.08m and paid NIC of £0.18m relating to the allotment of 400,000 ordinary shares of 1p each to two Directors at nominal value and prior to the 4-for-1 share split. Net Interest Income. Investment income for the year to 31 March 2000 was £1.21m compared to £0.05m for the eight months to 31 March 1999. The increase was primarily due to the investment of the net funds from the Company's flotation for the last four months of the financial year in a variety of interest-bearing deposit accounts. Taxation. 365 has incurred a cumulative net loss since inception and the Company expects to incur additional net losses for the foreseeable future. Retained Loss. The Company recorded a net loss of £14.76m, or 9.5 pence per share for the year ended 31 March 2000, compared to a net loss of £1.16m, or 1.7 pence per share, for the eight months ended 31 March 1999. The net loss for the fourth quarter was £4.97m. The Company intends to reinvest its earnings, if any, to finance the growth of its business and does not anticipate paying any dividends in the foreseeable future. Liquidity and Capital Resources During the year ended 31 March 2000, the Company's operating activities used cash totalling £7.47m, primarily due to operating losses, compared to £0.70m during the eight months to 31 March 1999. Operating activities during the fourth quarter used cash totalling £4.69m. The cash outflow from capital expenditure and financial investment during the year totalled £1.23m, and related to the purchase of telecommunications and computer equipment and intangibles as 365 expanded its operations. Fourth quarter cash outflow was £0.55m. During the year to 31 March 2000 the Company made a number of acquisitions resulting in a net cash outflow totalling £5.41m. This relates to the cash component of these acquisitions, together with related transaction costs. The corresponding amount for the eight months to 31 March 1999 was £4.42m, all of which related to the acquisition of Symphony Telecom in February 1999. During the year, cash inflows from financing totalled £60.80m. Prior to flotation on 2 December 1999, 365 financed its operations primarily through the private placements of ordinary shares and during the year raised £2.45m (net of expenses) by these means. 365's initial public offering raised net proceeds of £58.22m through the issue of 39,746,875 ordinary shares of 0.25p each at a price of 160 pence per share, after deduction of flotation expenses totalling £5.38m which have been charged against the Company's share premium account. This includes funds raised from the exercise of the over-allotment option by the Company's Sponsor, Cazenove & Co, under which it purchased an additional 5,184,375 shares on 15 December 1999 to raise a further £7.9m for the Company, net of expenses. During the eight months to 31 March 1999 the Company raised cash through private placements of ordinary shares totalling £10.43m (before expenses of £0.51m) primarily to fund the acquisition of Symphony Telecom and for general working capital requirements. Consolidated profit and loss account for the quarter and year ended 31 March 2000 Quarter ended Quarter Year ended 8 months 31 March 2000 ended 31 31 March ended 31 unaudited March 1999 2000 March £'000 unaudited unaudited 1999 £'000 £'000 unaudited Note £'000 Turnover Continuing 6,960 2,492 21,638 2,588 operations Acquisitions 359 - 782 - 3 7,319 2,492 22,420 2,588 Cost of sales (4,400) (1,577) (12,610) (1,580) Gross profit 2,919 915 9,810 1,008 Administrative 5,780 1,161 15,719 1,871 expenses before the following: Amortisation of 3,309 338 5,097 338 goodwill Provision for NIC and similar taxes on share options (370) - 2,696 - Shares issued at - - 2,261 - below market value Total 8,719 1,499 25,773 2,209 administrative expenses Operating 3 (2,861) (246) (5,909) (863) profit/(loss) before goodwill amortisation, provision for NIC and similar taxes on share options and shares issued at below market value Continuing (3,295) (584) (11,534) (1,201) operations Acquisitions (2,505) - (4,429) - Operating loss 3 (5,800) (584) (15,963) (1,201) Net interest 836 35 1,208 47 receivable Loss on ordinary (4,964) (549) (14,755) (1,154) activities before taxation Taxation (6) (1) (6) (4) Loss on ordinary (4,970) (550) (14,761) (1,158) activities after taxation Minority 76 37 158 38 interests Retained loss (4,894) (513) (14,603) (1,120) for the period Loss per 4 ordinary share Basic and diluted loss per share before amortisation of goodwill, provision for NIC and similar taxes on share options and shares issued at below market value 1.0p 0.2p 3.0p 1.2p Basic and 2.6p 0.5p 9.5p 1.7p diluted loss per share Statement of total recognised gains and losses for the quarter and year ended 31 March 2000 Quarter ended Quarter ended Year ended 8 months 31 March 2000 31 March 1999 31 March ended 31 unaudited unaudited 2000 March £'000 £'000 unaudited 1999 £'000 unaudited £'000 Retained loss for (4,894) (513) (14,603) (1,120) the period Exchange (37) 31 (17) 31 adjustments Total recognised (4,931) (482) (14,620) (1,089) losses for the period Consolidated balance sheet As at 31 March 2000 31 March 31 December 31 March 2000 1999 1999 unaudited unaudited audited Note £'000 £'000 £'000 Fixed assets Intangible fixed assets 40,660 10,101 9,798 Tangible fixed assets 1,675 1,122 728 42,335 11,223 10,526 Current assets Stock - finished goods 587 43 16 Debtors 8,284 5,437 2,482 Investments - short term 49,500 61,000 - deposits Cash at bank and in hand 3,340 1,947 5,316 61,711 68,427 7,814 Creditors: amounts falling due within one year (8,309) (6,986) (3,750) Net current assets 53,402 61,441 4,064 Total assets less current liabilities 95,737 72,664 14,590 Creditors: amounts (245) (11) (25) falling due after more than one year Provisions for liabilities and charges 9 (2,696) (3,066) - Net assets 92,796 69,587 14,565 Capital and reserves 5 Called up share capital 493 458 319 Shares to be issued 80 1,001 - Share premium account 72,220 72,262 11,517 Merger reserve 34,844 5,770 4,937 Profit and loss account (14,688) (9,757) (2,144) Total equity 6 92,949 69,734 14,629 shareholders' funds Minority interests (153) (147) (64) Capital employed 92,796 69,587 14,565 Consolidated cash flow statement for the quarter and year ended 31 March 2000 Quarter Quarter Year 8 months ended 31 ended 31 ended 31 ended 31 March March 1999 March March 2000 unaudited 2000 1999 Note unaudited £'000 unaudited unaudited £'000 £'000 £'000 Net cash outflow from operating activities 7 (4,683) (180) (7,463) (701) Returns on investment and servicing of finance Net interest 508 35 880 47 Taxation (265) - (265) - Capital expenditure and financial investment Purchase of (143) (247) (819) (269) tangible fixed assets Proceeds from sale - 5 - 5 of tangible fixed assets Purchase of (410) - (410) - intangible fixed assets (553) (242) (1,229) (264) Acquisitions Net overdraft (204) 1,258 (192) 1,258 acquired with subsidiaries Purchase of 8 (5,042) (5,675) (5,216) (5,675) subsidiaries (5,246) (4,417) (5,408) (4,417) Cash outflow (10,239) (4,804) (13,485) (5,335) before use of liquid resources and financing Management of liquid resources Decrease/(increase) 11,500 - (49,500) - in short-term deposits Financing Issue of shares 9 10,427 66,362 10,427 Expenses on issue (51) (506) (5,527) (506) of shares Capital element of (33) (3) (33) (3) finance lease payments (75) 9,918 60,802 9,918 Increase/(decrease) 1,186 5,114 (2,183) 4,583 in cash in the period MORE TO FOLLOW QRRUARARRSRVORR

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