4th Qrtr & Final Results-Pt.2

365 Corporation PLC 31 May 2000 PART 2 Notes to the quarterly and full year financial statements 1. Basis of preparation The quarterly financial statements for the fourth quarter and year ended 31 March 2000 have been prepared using accounting policies consistent with those set out in the Company's consolidated 1999 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 three months and 8 months ended 31 March 1999 has been extracted from the accounting records of the Company and the consolidated 1999 statutory accounts. It consolidates the results of operations of Symphony Telecom, which was acquired on 2 February 1999. The balances as at 31 March 1999 have been extracted from the accountants' report included in the prospectus. The accountants' report was extracted from the statutory accounts which have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain any statement under section 237 of the Companies Act 1985. The preliminary announcement for the fourth quarter and year ended 31 March 2000 was approved by the Board on 30 May 2000 and will be posted to shareholders on 5 June 2000. The statutory accounts for the year ended 31 March 2000 will be finalized 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. 2. Operating data for July 1999 to April 2000 July Aug Sept Consumer Division Unique users(1) Sport Football 266,472 366,401 376,161 Cricket 143,835 145,745 148,354 Rugby 6,759 38,719 Other 2,540 Total Sport 410,307 518,905 565,774 Entertainment 34,110 46,894 117,837 Lifestyle 82,475 93,197 95,980 Total unique users 526,892 658,996 779,591 User sessions(2) Sport Football 2,681,722 3,196,288 3,275,769 Cricket 4,458,870 4,518,080 4,598,974 Rugby 16,796 69,603 Other 3,429 Total Sport 7,140,592 7,731,164 7,947,775 Entertainment 156,347 187,589 248,240 Lifestyle 518,980 577,147 571,906 Total user sessions 7,815,919 8,495,900 8,767,921 Audiotext minutes(3) 6,152,836 6,136,871 6,072,885 Business Division Business 1,740 1,838 2,170 customers(4) Business minutes(5) 8,118,687 7,910,244 10,047,227 Oct Nov Dec Consumer Division Unique users(1) Sport Football 394,449 439,945 478,057 Cricket 146,807 148,128 156,595 Rugby 128,811 66,107 25,508 Other 833 413 248 Total Sport 670,900 654,593 660,408 Entertainment 143,402 151,201 224,962 Lifestyle 119,968 138,473 145,912 Total unique users 934,270 944,267 1,031,282 User sessions(2) Sport Football 3,482,203 3,633,080 3,734,444 Cricket 4,551,017 4,443,840 4,697,850 Rugby 402,091 279,699 107,715 Other 1,029 488 269 Total Sport 8,436,340 8,357,107 8,540,278 Entertainment 457,136 462,265 558,999 Lifestyle 662,849 770,147 792,391 Total user sessions 9,556,325 9,589,519 9,891,668 Audiotext minutes(3) 6,758,761 5,874,780 6,063,240 Business Division Business 2,366 2,475 2,484 customers(4) Business minutes(5) 10,348,644 10,969,562 9,243,583 Jan Feb Mar Apr Consumer Division Unique users(1) Sport Football 486,065 522,521 606,562 606,753 Cricket 167,334 169,136 224,147 258,812 Rugby 62,085 108,999 186,646 166,281 Other 15,478 13,554 196,394 211,670 Total Sport 730,962 814,210 1,213,749 1,243,516 Entertainment 204,935 263,762 365,726 322,146 Lifestyle 158,058 141,019 172,297 242,478 Total unique 1,093,955 1,218,991 1,751,772 1,808,140 users User sessions(2) Sport Football 3,970,551 3,693,553 3,978,832 4,112,883 Cricket 5,020,020 5,074,080 5,348,137 5,516,242 Rugby 236,053 338,357 896,534 911,175 Other 18,795 20,430 427,077 454,682 Total Sport 9,245,419 9,126,420 10,650,580 10,994,982 Entertainment 561,572 529,264 760,129 724,539 Lifestyle 809,857 766,527 920,990 1,101,860 Total user 10,616,848 10,422,211 12,331,699 12,821,381 sessions Audiotext 6,397,747 5,823,731 5,783,772 6,076,274 minutes(3) Business Division Business 2,592 2,808 2,989 3,114 customers(4) Business 10,630,120 13,630,006 14,447,806 15,314,675 minutes(5) 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 audiotext telephone 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 audiotext telephone services represents a user session. 3. 365 defines the number of audiotext minutes in a month as the number of minutes recorded by 365 and its carriers in respect of calls to 365's audiotext 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 Turnover, loss or profit before taxation and net assets are classified below by class of business and by geographical area by origin, which is not materially different from geographical area by destination. (a) Full year analysis Consumer Division Business Division Business Analysis Year to 31 8 months to Year to 31 8 months to March 2000 31 March March 2000 31 March 1999 1999 £'000 Turnover Consumer internet 1,537 228 - - Audiotext 13,139 1,711 - - Business services - - 7,701 649 Other 43 - - - 14,719 1,939 7,701 649 Continuing 14,555 1,939 7,083 649 operations Acquisitions 164 - 618 - Cost of sales 7,235 1,116 5,375 464 Gross profit 7,484 823 2,326 185 Administrative expenses before goodwill amortisation, NIC and similar taxes on share options and 9,382 1,353 3,884 283 shares issued at below market value Operating loss before goodwill amortisation, NIC and similar taxes on share options and (1,898) (530) (1,558) (98) shares issued at below market value Goodwill amortisation 4,338 270 759 68 Provision for NIC and similar taxes on 814 - 691 - share options Shares issued at below market value - - - - Operating loss (7,050) (800) (3,008) (166) Continuing (3,426) (800) (2,203) (166) operations Acquisitions (3,624) - (805) - Net interest 20 1 (9) - receivable/(payable) Loss on ordinary activities before (7,030) (799) (3,017) (166) taxation Net assets Net assets/ 36,337 10,799 6,671 (347) (liabilities), including allocated goodwill Continuing 8,674 10,799 1,632 (347) operations Acquisitions 27,663 - 5,039 - Group Overhead Total Group Business Analysis Year to 31 8 months Year to 31 8 months to March 2000 to 31 March March 2000 31 March 1999 1999 Turnover Consumer internet - - 1,537 228 Audiotext - - 13,139 1,711 Business services - - 7,701 649 Other - - 43 - - - 22,420 2,588 Continuing - - 21,638 2,588 operations Acquisitions - - 782 - Cost of sales - - 12,610 1,580 Gross profit - - 9,810 1,008 Administrative expenses before goodwill amortisation, NIC and similar taxes on share options and 2,453 235 15,719 1,871 shares issued at below market value Operating loss before goodwill amortisation, NIC and similar taxes on share options and (2,453) (235) (5,909) (863) shares issued at below market value Goodwill - - 5,097 338 amortisation Provision for NIC 1,191 - 2,696 - and similar taxes on share options Shares issued at 2,261 - 2,261 - below market value Operating loss (5,905) (235) (15,963) (1,201) Continuing (5,905) (235) (11,534) (1,201) operations Acquisitions - - (4,429) - Net interest 1,197 46 1,208 47 receivable/(payable) Loss on ordinary (4,708) (189) (14,755) (1,154) activities before taxation Net assets Net assets/ 49,788 4,113 92,796 14,565 (liabilities), including allocated goodwill Continuing 49,788 4,113 60,094 14,565 operations Acquisitions - - 32,702 - The 1999 comparatives include the results of the Symphony group for the two month period since acquisition in February 1999. Segmental analysis (Continued) (a) Full year analysis (Continued) Turnover Loss before taxation Geographical Year to 31 8 months to Year to 31 8 months to 31 analysis March 2000 31 March March 2000 March 1999 1999 Continuing operations United Kingdom 21,281 2,480 (9,750) (1,160) Germany 93 51 (45) (6) Chile 263 57 (41) 12 South Africa 1 - (489) - 21,638 2,588 (10,325) (1,154) Acquisitions United Kingdom 672 - (2,508) - France 90 - (1,624) - USA 20 - (298) - 782 - (4,430) - Total group 22,420 2,588 (14,755) (1,154) Net assets/(liabilities) Geographical analysis At 31 March 2000 At 31 March 1999 Continuing operations United Kingdom 60,109 14,634 Germany 31 (67) Chile 24 (2) South Africa (70) - 60,094 14,565 Acquisitions United Kingdom 31,605 - France 125 - USA 972 - 32,702 - Total group 92,796 14,565 (b) Quarterly segmental analysis Turnover Quarter Quarter ended 31 Year ended 31 8 months ended ended 31 March 1999 March 31 March 1999 March 2000 2000 Geographical analysis United Kingdom 7,217 2,384 21,953 2,480 France 41 - 90 - Germany - 51 93 51 Chile 47 57 263 57 South Africa 1 - 1 - USA 13 - 20 - 7,319 2,492 22,420 2,588 Business Analysis Audiotext 3,647 1,711 13,139 1,711 Consumer 701 132 1,537 228 internet Other 43 - 43 - Consumer 4,391 1,843 14,719 1,939 division Business 2,928 649 7,701 649 division Group - - - - overhead Total 7,319 2,492 22,420 2,588 Continuing 6,960 2,492 21,638 2,588 operations Acquisitions 359 - 782 - Profit/(loss) before goodwill amortisation, provision for NIC and similar taxes on share options and shares issued at below market value Quarter Quarter ended Year ended 31 8 months ended ended 31 31 March 1999 March 31 March March 2000 2000 1999 Geographical analysis United Kingdom (2,209) (252) (4,665) (869) France (293) - (658) - Germany (29) (6) (45) (6) Chile (37) 12 (28) 12 South Africa (195) - (422) - USA (98) - (91) - (2,861) (246) (5,909) (863) Business Analysis Audiotext 538 279 3,216 279 Consumer (1,850) (192) (5,114) (809) internet Other - - - - Consumer (1,312) 87 (1,898) (530) division Business (907) (98) (1,558) (98) division Group overhead (642) (235) (2,453) (235) Total (2,861) (246) (5,909) (863) Continuing (2,770) (246) (4,651) (863) operations Acquisitions (91) - (1,258) - 4. Loss per ordinary share of 0.25p each Quarter ended 31 Quarter ended 31 March March 2000 1999 £'000 £'000 Loss for the period before the (1,955) (175) following: Goodwill amortisation (3,309) (338) Provision for NIC and similar taxes on 370 - share options Shares issued at below market value - - Loss for the period (4,894) (513) Weighted average number of shares in the period: Basic and diluted 188,609,005 98,658,704 Basic and diluted loss per share before 1.0p 0.2p amortisation of goodwill, provision for NIC and similar taxes on share options and shares issued at below market value Goodwill amortisation 1.8p 0.3p Provision for NIC and similar taxes on (0.2p) - share options Shares issued at below market value - - Basic and diluted loss per share 2.6p 0.5p Year 8 months ended 31 March ended 31 March 2000 1999 £'000 £'000 Loss for the period before the (4,549) (782) following: Goodwill amortisation (5,097) (338) Provision for NIC and similar taxes on (2,696) - share options Shares issued at below market value (2,261) - Loss for the period (14,603) (1,120) Weighted average number of shares in the period: Basic and diluted 154,120,345 67,941,356 Basic and diluted loss per share before 3.0p 1.2p amortisation of goodwill, provision for NIC and similar taxes on share options and shares issued at below market value Goodwill amortisation 3.3p 0.5p Provision for NIC and similar taxes on 1.7p - share options Shares issued at below market value 1.5p - Basic and diluted loss per share 9.5p 1.7p The weighted average number of shares has been restated to reflect the 4-for-1 share split in November 1999. 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 year. 5(a) Share capital and reserves - full year Share Shares Merger capital to be Share reserve issued premium Profit and account loss account £'000 £'000 £'000 £'000 £'000 Balance at 1 April 319 - 11,517 4,937 (2,144) 1999 Loss for the year - - - - (14,603) Exchange differences - - - - (17) Shares issued at 4 - - - 2,076 below market value Shares issued as part of fundraising 126 - 66,221 - - exercises Costs incurred on issue of shares as part of fundraising 2 - (5,527) - - exercises Shares issued under - - 9 - - the share option schemes Shares issued in connection with the acquisition of 42 - - 29,907 - subsidiary undertakings Contingent share - 80 - - - consideration in respect of the acquisition of a subsidiary undertakings Balance at 31 March 493 80 72,220 34,844 (14,688) 2000 5(b) Share capital and reserves - 4th quarter Ordinary Shares to Share Merger Profit and share be issued premium reserve loss capital account account £'000 £'000 £'000 £'000 £'000 At 1 January 2000 458 1,001 72,262 5,770 (9,757) Retained loss for the period - - - - (4,894) Exchange adjustments - - - - (37) Shares issued in respect of share - - 9 - - options exercised Shares issued for 35 (879) - 29,074 - acquisitions Movement in fair value of contingent share consideration - (42) - - - Additional IPO costs - - (51) - - At 31 March 2000 493 80 72,220 34,844 (14,688) On 31 January 2000 the Company issued 351,562 ordinary shares as part of the consideration for the acquisition of e-Merchants in December 1999. The difference between the fair value and nominal value of the shares has been transferred to the merger reserve. On 24 February 2000 the Company acquired the entire issued share capital of Datanet Holdings Limited. The consideration for the acquisition was £27,713,200 satisfied by £2,128,000 in cash and £25,585,200 by the allotment of 12,420,000 ordinary shares of 0.25p each. Costs of £230,000 were capitalised as part of the investment. On 29 February 2000 the Company acquired the entire issued share capital of Fenfones Limited. The consideration for the acquisition was £4,984,200 satisfied by £2,520,000 in cash and £2,464,200 by the allotment of 1,193,317 ordinary shares of 0.25p each. Costs of £68,510 were capitalised as part of the investment. On 13 March 2000 the Company acquired the entire issued share capital of Oxalis Limited. The consideration for the acquisition was £224,930 satisfied by £45,000 in cash and £179,930 by the allotment of 69,204 ordinary shares of 0.25p each. Costs of £1,125 were capitalised as part of the investment. On 22 March 2000 the Company issued 32,000 ordinary shares to employees following the exercise of share options granted in 1998. On 31 March 2000 the Company issued 80,500 ordinary shares to employees following the exercise of share options granted in 1998. 6. Reconciliation of movements in shareholders' funds Quarter Quarter Year ended 8 months ended 31 ended 31 31 March ended 31 March March 1999 2000 March 2000 £'000 £'000 1999 £'000 £'000 Opening shareholders' 69,734 189 14,629 796 funds Loss for the period (4,894) (513) (14,603) (1,120) New share capital (net of expenses) issued for cash (51) 9,922 60,826 9,922 Shares issued for acquisitions 29,109 5,000 29,949 5,000 Reversal of charge in - - 2,076 - respect of shares issued at below market value Movement in contingent (921) - 80 - share consideration Employee share options 9 - 9 - exercised Exchange adjustments (37) 31 (17) 31 offset in reserves Closing shareholders' 92,949 14,629 92,949 14,629 funds 7. Net cash outflow from operating activities Quarter Quarter Year 8 months ended 31 ended 31 ended 31 ended 31 March March 1999 March 2000 March 1999 2000 £'000 £'000 £'000 £'000 Operating loss (5,800) (584) (15,963) (1,201) Depreciation 109 57 408 72 Amortisation of intangible 3,342 338 5,130 338 assets (Increase)/decrease in (159) 6 (186) 6 stock (Increase)/decrease in (817) (653) (3,669) (622) debtors (Decrease)/increase in (1,366) 655 4,733 705 creditors/provisions Share issue in lieu of - 1 - 1 directors' fees Loss on disposal of fixed 8 - 8 - assets Charge in respect of - - 2,076 - shares issued at below market value (4,683) (180) (7,463) (701) 8. Acquisitions (a) Datanet Holdings Limited On 24 February 2000, 365 acquired the entire issued share capital of Datanet Holdings Limited and its subsidiary Datanet Marketing Services Limited ('Datanet') for a total consideration of £27,943,000, consisting of a consideration of £25,585,000 which was financed by the issue of 12,420,000 ordinary shares in the Company on 24 February 2000, a cash consideration of £2,128,000 and acquisition costs of £230,000. £'000 Fair value of net liabilities (291) acquired Goodwill 28,234 Cost of acquisition 27,943 Comprising: Cash 2,128 Shares issued 25,585 Acquisition costs 230 27,943 Goodwill arising on the acquisition of Datanet is being amortised on a straight line basis over the estimated economic useful life of 18 months. (b) Fenfones Communications Limited On 29 February 2000, 365 acquired the entire issued share capital of Fenfones Communications Limited and the remaining 50% of the issued share capital of Datacom Networks Limited for a consideration of £5,053,000, consisting of a consideration of £2,464,000 which was financed by the issue of 1,193,317 ordinary shares in the Company on 29 February 2000, a cash consideration of £2,520,000 and acquisition costs of £69,000. £'000 Book value of net assets acquired 171 Accounting policy alignment (4) Goodwill 4,886 Cost of acquisition 5,053 Comprising: Cash 2,520 Shares issued 2,464 Acquisition costs 69 5,053 The fair value adjustment for alignment of accounting policies reflects the write off of capitalised software licences and development costs in accordance with the group's policy. Goodwill arising on the acquisition of Fenfones is being amortised on a straight-line basis over the estimated economic useful life of 5 years. (c) Oxalis Limited On 14 March 2000, 365 acquired 100% of the issued share capital of Oxalis Limited for a consideration of £226,000, consisting of a consideration of £180,000, which was financed by the issue of 69,204 ordinary shares in the Company on 31 March 2000, a cash consideration of £45,000 and acquisition costs of £1,000. A further cash consideration of up to £225,000 is contingent on Oxalis meeting certain revenue targets, the fair value of which is currently assessed as being immaterial. £'000 Fair value of net liabilities (2) acquired Goodwill 228 Cost of acquisition 226 Comprising: Cash 45 Shares issued 180 Acquisition costs 1 226 Goodwill arising on the acquisition of Oxalis is being amortised on a straight-line basis over the estimated economic useful life of 18 months 9. Future liabilities On exercise of share options issued after 6 April 1999, the Company will be required to pay National Insurance and similar foreign taxes on the difference between the exercise price and market value of the shares issued. The Company will become unconditionally liable to pay the National Insurance and similar foreign taxes upon exercise of the options, which are exercisable over a period of up to ten years from the date of the grant. The Company therefore makes a provision following the grant of options, as opposed to on vesting or on exercise. The amount of the National Insurance payable will depend on the number of employees who remain with the Company and exercise their options, the market price of the Company's ordinary shares at the time of exercise and the prevailing National Insurance rates at the time. The accounts for the fourth quarter include an adjustment arising from the movement in the Company's share price between 31 December 1999 and 31 March 2000.

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