Final Results

InterX PLC 21 August 2001 EMBARGOED UNTIL 7.00AM 21 AUGUST 2001 INTERX PLC ('InterX' or the 'Group') Preliminary results for the eleven months ended 30 June 2001 Financial Highlights * Turnover of £5.6m. * Operating loss before amortisation of goodwill of £21.7m. * Operating loss after amortisation of goodwill of £59.2m. * Loss per share of 189.90p. * Cash at 30 June 2001 of £17.0m. Operational Highlights * Simon Barker appointed Chief Executive on 13 February 2001. * Results of strategic review announced on 27 March 2001. * Monthly cash burn reduced by 50%. * InterX Net2020, InterX's new Single View Portal product, launched in June. Commenting on the results Simon Barker, Chief Executive, said: 'Notwithstanding the difficulties which the Group has experienced during the period under review, my confidence in the commercial potential of our software remains undiminished. The change in strategy and the enormous amount of hard work carried out in the past few months stand us in good stead. I look forward to the outcome for the current financial year with confidence.' For further information, please contact: Simon Barker, Chief Executive 020 8817 4401 Simon Miesegaes, Finance Director Chairman's Statement Introduction The eleven month financial period upon which I report, 6 August 2000 to 30 June 2001, has witnessed enormous upheaval within the global technology market. This has required the Group to take prompt and decisive action with regard to its own strategy to commercialise and grow its software business. The appointment of Simon Barker as Chief Executive on 13 February 2001, the significant redundancies and other cost-cutting measures announced on 27 February 2001, and the ensuing Strategic Review, the results of which we reported on 27 March 2001, are all evidence of your Board's determination to build a successful software business. I draw your attention to the Chief Executive's Review, which details the progress we have made since February and also gives a summary of the technology which underpins our continuing positive outlook. Results Turnover and operating loss before amortisation of goodwill for the eleven month period ended 30 June 2001 were £5.6m and £21.7m respectively. Operating loss after amortisation of goodwill was £59.2m. Loss per share was 189.90 pence (2000: 79.69 pence). Cash at 30 June 2001 was £17.0m. I draw your attention to the analysis included in the Finance Director's Review, which reviews these results on both a quarterly and a comparative like-for-like basis. Dividend The Board still believes that the level of expenditure required to realise the substantial opportunities available to the Group is such that it is not appropriate for the Group to pay dividends in the short or medium term. The directors, therefore, do not recommend the payment of a dividend (2000: Nil). Staff I would like to thank all the staff at InterX for their enormous efforts and commitment, through what has not been an easy time. During the period under review, the Board has put in place a share option scheme which now firmly aligns the interests of both shareholders and staff. Prospects Current market conditions are forcing all businesses to re-evaluate their strategies, especially with regard to the internet. Proven business principles, such as proper business control, return on investment and profitability, have replaced those of 'new world' hype. In addition, managements are focusing on retaining and maximising the return from their existing customers, and not simply chasing new customers at any cost. The result is that investment plans are being re-evaluated; the increased use of existing assets is the order of the day. InterX's technology is directly relevant to these market conditions and the strategic repositioning in March of this year has placed us in a strong position to take advantage of them. The Group still has many challenges ahead of it. The current economic climate will dictate that, initially, the sales cycle may well be protracted. I am increasingly confident, however, that confirmation of our business proposition and significant revenue growth await us in this financial year. Richard Jewson Chairman 21 August 2001 Chief Executive's Review Background In April 2000, InterX merged with Cromwell Media Limited ('Cromwell') and raised £50m for development of the business. Cromwell was a UK internet software company in which InterX already had a stake of 34% and which had developed a technology called BladeRunner - an internet application platform. InterX recruited additional senior management with global software experience and the business was reorganised to focus on commercially developing and selling BladeRunner as an 'eCRM' solution, in competition to products from global companies such as BroadVision, Vignette, Art Technology Group and IBM. As previously reported, sales of BladeRunner were disappointing and, accordingly, the Board announced senior management changes and a comprehensive restructuring programme in February 2001. It was at this time that I became Chief Executive. Business control One of the major reasons why online businesses have failed is that they have not been run according to well-proven business principles. Every businessman knows that you have to have control over all processes and activities in order to run an efficient and profitable operation. Proper control enables measurement, analysis and the correct response. Almost every online business in existence will fail to fulfil its potential in the absence of such control. We have yet to identify any other technology that exposes the level of detail as to what exactly users do within an online environment to the extent that BladeRunner does. Furthermore, BladeRunner provides this audit and tracking capability, regardless of the type of 'device' (e.g. browser, WAP phone, PDA, iDTV) used to access the website in question. Put simply, BladeRunner technology provides the environment within which an online business can achieve the required level of business control. Strategic review The Board's decision, as a result of the Strategic Review announced in March 2001, to stop selling BladeRunner as an eCRM platform requires explanation. The reasons for this decision were as follows: * BladeRunner is a superb internet application platform and eCRM 'chemistry set'. However, the market had already been defined by the big players who had, through first mover advantage, created the market expectation 'tick list' for eCRM software. Whereas BladeRunner could be used to fulfil this 'tick list' functionality, the market leaders had more 'out-of-the-box' functionality. * this same 'tick list' did not have 'Business Control', our unique selling point, on it. This meant that it was extremely difficult to justify any increased cost of the implementation; * the major consultancies and system integrators, organisations which specialise in the implementation of customer solutions, had already invested significant resources in acquiring the skills to implement our competitors' technology. In the absence of strong customer demand for the additional capabilities of BladeRunner, these organisations had little incentive to retrain their consultants in a new, competing technology; and * the market demand for large, expensive eCRM solutions evaporated in the latter part of 2000, as enthusiasm to develop online businesses dissipated. The decision to use BladeRunner as a development platform for a new range of innovative and unique enterprise software products is a focused response to the above. In taking this new direction we will be guided by the following product principles: * to make products that play to the strengths of the unique BladeRunner architecture; * to gain first mover advantage; * to deliver products that are compelling and relevant for prevailing market conditions; * to reduce dramatically the cost to the customer of gaining the benefit of BladeRunner by reducing the initial cost and complexity of implementation; * to create products that add significant profitability to our integrator and technical partners without the requirement for significant new investment on their part; and * to provide products that do not demand that customers throw out what they already have. In conjunction with establishing these product principles in March 2001, we immediately started a major cost-cutting programme that included sizeable and widely-reported redundancies. The net effect of this was to cut our cash burn-rate by about 50% - to under £1m per month net of interest. We also reorganised the Group to consolidate all research, development and product teams into one integrated research & development department. More recently we have disbanded the large project services team and replaced it with a consulting group focused on creating packaged consulting products capable of resale and rebranding by our partners. This consulting group also reports into research & development, reflecting the fact that the packaged consulting products cannot be created in isolation from the software products themselves. Additionally, we restructured the 'go-to-market' activities of business development, alliances and sales into a seamless business development group with focused targets to generate revenue from specific partners and qualified direct sales opportunities. Into this revised structure we have recently commenced targeted recruitment to strengthen our product development and partner acquisition teams. We have also developed a comprehensive range of marketing materials, including a completely new website, and have commenced certain focused marketing activities in preparation for the first product launch. InterX Net2020 The first of our new products, InterX Net2020, was launched in June of this year at the GIGA IT Forum in Rome, to coincide with the launch of www.morethan.com, Royal & SunAlliance's new retail brand - 'MORE TH>N'. This new online service operates on the first version of InterX Net2020. Full customer shipment of Version 1.6, our first volume product, which incorporates many additional features, is planned for September 2001. This version meets all the product principles identified at the time of the Strategic Review. The reason why it can do what it does is, once again, the unique architecture of the core BladeRunner platform. InterX Net2020 is a Single View Portal. It allows companies to unify their legacy web infrastructures into a single 'virtual' web system that has the capabilities of a full BladeRunner system while re-using and re-purposing all their existing online systems. As such, users of the system think that they are logged on to just one site, while the company that has installed InterX Net2020 can view and record all user activity across all the online businesses. Rather than taking months, InterX Net2020 can be implemented in a matter of weeks. These capabilities mean that InterX Net2020 can be used to respond to urgent business requirements, including: * corporate re-branding; * mergers and acquisitions; * joint ventures; * white labelling projects; and * high-value online sponsorship revenue initiatives. InterX Net2020 can also be used as the unifying platform upon which new projects may be commenced within the customer business in question. For example: * business process re-engineering projects, including unified content management implementations and business intelligence projects; * multi-device proposition projects; * online security projects; and * enterprise architecture projects. These qualities make InterX Net2020 a compelling proposition for both integration and technical partners. The response from partners, trade analysts and prospective customers confirms the significant potential of the product. What we now have to do is grow the sales channels and start delivering revenue. InterX Partners Limited ('IXP') As part of the transition to a software business during 1999 and 2000, InterX made a number of strategic investments which are managed through our subsidiary, IXP. Our holdings in these businesses were taken in order to provide a strategic positioning of the Group's technology within certain key vertical markets: IT, Media & Publishing and Life Sciences. We have referred to these holdings, which are set out below, as 'leverageable investments'. ComputerWeekly.com Limited ('CW') is one of the UK's leading online IT information and recruitment services, incorporating the product information system of ITNetwork.com, a business started by InterX in 1999. In April of this year CW launched a new service, operating on a BladeRunner platform, called 'cw360.com'. CW provide InterX with an important reference site for its technical capabilities and the service is used by some 120,000 IT professionals. InterX holds a 25% stake in CW. The remaining 75% is held by Reed Business Information Limited ('RBI'), part of the Reed Elsevier Group. CW's IT product information is supplied by Electronic Product Intelligence Limited ('EPI'), a wholly owned subsidiary of the Group. EPI has certain joint venture obligations to CW which are no longer core to the strategy of the Group, nor are they profitable. Accordingly, the Group is in advanced discussions with RBI to have EPI released from these obligations together with a reduction in the Group's shareholding in CW. Subsequent to this restructuring the Group will account for its residual holding in CW as an investment. Diligenti Limited ('Diligenti') was formed in July 2000 with the intention of providing the life sciences industry with an innovative new approach to communicating with patient, consumer and professional audiences. Diligenti, following an intensive programme of corporate acquisition, rebranding and management restructuring, is already providing knowledge management services to some of the world's largest pharmaceutical companies. Diligenti is now divided into three trading businesses: * Diligenti Healthcare Limited ('DHC'), through its offices in New Jersey, London and Paris, offers pharmaceutical and healthcare companies unique levels of access to both professional and consumer markets, for delivery of marketing and communication programmes. As part of this proposition, DHC owns, as a result of the acquisition of ClinNet Systems Inc. in September 2000, www.newsrounds.com, an online medical news and intranet service for healthcare professionals on both sides of the Atlantic. * Exemplar Inc ('Exemplar'), a NASDAQ-listed company (Symbol HCEV), is a leading national provider of healthcare screening and welfare management services to corporates in the United States. With offices in a number of US states, Exemplar employs approximately 350 staff testing 4.5m consumer lives annually through a network of 60 mobile testing laboratories and some 15,000 affiliated clinics. Exemplar recently announced significant joint venture initiatives with 3M and Hoffman la Roche. Diligenti currently owns 58.8% of Exemplar and has an option to convert an existing loan of $5m into equity, which would result in an increased holding of 74.1%. * Konsus Limited is an early stage business based in London, which is piloting a range of risk assessment and agricultural research services to the agrifood industry based on a recently productised proprietary technology called Aura. Diligenti, through its use of the Group's technologies, will provide InterX with both a referenceable site within the global life sciences industry and an opportunity for InterX to introduce its technology into the US market. InterX owns 33.9% of Diligenti, having made a £4m investment in July 2000. At the same time InterX also provided Diligenti with a £16m acquisition fund and working capital facility, which is due for repayment by 31 December 2001. In December 2000, Diligenti secured significant second round funding at an enhanced valuation to InterX's original investment. Diligenti is currently in negotiations with third parties regarding a third round of funding - funds that will be used for further investment in technology and working capital to deliver its current joint venture opportunities. Conclusion Notwithstanding the difficulties, which the Group has experienced during the period under review, my confidence in the commercial potential of our software remains undiminished. The change in strategy and the enormous amount of work carried out in the past few months stand us in good stead. I look forward to the outcome for the current financial year with confidence. Simon Barker A.C.A. Chief Executive Finance Director's Review Profit and loss account The eleven month period ended 30 June 2001 was the Group's first full trading period as a software company. In view of this, a comparison with the previous year's Group results, which included the results of Ideal, is not appropriate. The most useful information is that which sets out a basic analysis of the four sets of quarterly results which we have reported on during the period together with the full year comparative results of the software business, the remaining share capital of which we acquired in the year ended 5 August 2000. This is set out below. The reduction in turnover seen in Q3 and Q4 reflects the decision, announced in March 2001 to shareholders, as part of the strategic review, to stop selling the BladeRunner product and to run off contracts with existing customers. Q3 saw a restructuring charge of £1.6m in respect of the costs of restructuring the business and in particular the cost of making 58 employees redundant. In Q4, the 'cash burn-rate' was approximately £1.1m net of interest in each of the two months, reflecting the impact of the cost saving measures taken in March 2001 and recent recruitment and marketing activities referred to in the Chief Executive's review. Staff numbers at 30 June 2001 were 134, of which 73 were in R&D, 22 in Sales and Marketing and 39 in General and Administration. Goodwill continues to be amortised on a straight line basis over five years. I comment on the valuation of goodwill in the balance sheet section of this review. Revenues were lower than anticipated in our associated companies but this has been matched to some extent by a reduction in costs. There is no taxation charge for the period. Tax losses at 30 June 2001 were estimated to be £18m. No account has been taken of this in the balance sheet. Losses per share, after exceptional items and amortisation of goodwill, were 189.90 pence (2000 79.69 pence). Losses per share, before exceptional items and amortisation of goodwill were 73.53 pence (2000 18.80 pence). The weighted average number of shares for the period was 31,632,728. InteX plc Cromwell Eleven months ended 30 June Media 2001 Limited Year ended 5 August 2000 Total Q1 Q2 Q3 Q4 Total Two Months £'000 £'000 £'000 £'000 £'000 £'000 Turnover 2,001 1,897 985 708 5,591 3,221 Gross 71 (2,374) (927) (259) (3,489) 259 profit/(loss) Overheads - R&D (647) (873) (642) (672) (2,834) (1,940) - S&M (1,197) (1,401) (940) (720) (4,258) - - G&A (3,566) (3,175) (2,159) (961) (9,861) - - Restructuring (5,410) (5,449) (3,741) (2,353) (16,953) (1,940) - Other - - (1,596) - (1,596) - (89) 89 - 308 308 - (5,499) (5,360) (5,337) (2,045) (18,241) (1,940) Operating (5,428) (7,734) (6,264) (2,304) (21,730) (1,681) loss before amortisation of goodwill Statement of total recognised gains and losses During the period, Diligenti, one of the Company's associates, secured its second round of funding, which resulted in a dilution in our shareholding from 37.5% to 33.9%. The unrealised gain, of £3.4m resulting from this deemed disposal, has been included in the Group statement of total recognised gains and losses, along with foreign exchange differences arising from the translation of Diligenti's overseas holdings. Balance sheet Goodwill, as mentioned above, continues to be written off over five years. The Board has carried out a review of both its valuation and the period over which goodwill is being amortised. The Group has set itself challenging revenue targets and on the basis of these being met, the Board does not believe that the goodwill has been impaired. In view of these targets it is the Board's view that, while currently appropriate, the value of goodwill should be reviewed on an annual basis. Tangible assets consist primarily of assets acquired during the fitting out of our offices at 27 West. During the period the properties at Cox Lane were sold under an option agreement to Bell Microproducts Inc., the acquiror of Ideal in the previous period. The net book value of the properties was £13.3m; the sale proceeds were £16m, which, after expenses, generated a profit of £1.9m. Investments represent investments in own shares held by employee share trusts and our share of our associated companies' net assets; where losses exceed the cost of our investment, the balance has been transferred to provisions. Trade debtors at 30 June 2001 were all within the 30 day band at the period end. Other debtors included some £5.4m in respect of deposits placed with the landlord of 27 West, some £752,000 in respect of interest earned on our loan to Diligenti Limited, VAT due to the Group of £410,000 and some £758,000 in respect of monies due from our brokers following the sale of shares by the trustees of InterX Technology Employee Benefit Trust on 29 June 2001. Trade creditor days at 30 June 2001 were 71 days, reflecting continued tight working capital management. Other creditors included some £1.2m in respect of a creditor arising upon the sale of Ideal; it is possible that this will be reversed following agreement with the Inland Revenue on the exit charge payable by Ideal. Other significant creditors include the liability that exists in respect of the rent free period we had at 27 West and the taxation liability to be paid over as a result of options exercised during the period. This taxation liability has been settled since the period end and was funded out of the £758,000 debtor from the sale of shares mentioned above. Provisions include some £697,000 in respect of associated company losses which exceed the cost of investment and some £188,000 in respect of the restructuring provision. Cash flow At 30 June 2001, the Group had cash reserves of £17.0m compared to £34.5m at 5 August 2000. During the period some £13.6m was advanced to Diligenti as part of the £16m working capital facility we provided to them in July 2000. This was matched to a large extent by the receipt of £16m in respect of the properties purchased from the Group by Bell. The sale of Ideal was completed at the end of the previous financial year. Accordingly, expenses of some £1.4m incurred during the sale process were paid in the financial period under review. The cash outflow was matched by the cash inflow of £1.4m in respect of the first tranche of deferred consideration. Capital expenditure of £4.7m was incurred during the period principally in respect of the computer equipment purchased together with the expenditure incurred in the fit out of 27 West as mentioned above. The outflow arising from operating activities and net interest receivable was £15.7m. Cash reserves continue to be placed on a combination of long term, medium term and overnight bank deposits. Financial control Strict financial control remains in place; this is fundamental to the security and future success of the Group. Simon Miesegaes A.C.A. Finance Director INTERX PLC Group Profit and Loss Account for the eleven months ended 30 June 2001 (2000: year ended 5 August) 2001 2000 (Audited) (Audited) Notes £'000 £'000 Turnover Product licences 1,163 400 Services 4,428 1,417 Other - 1,280 Continuing operations 5,591 3,097 Discounted operations - 400,048 2 5,591 403,145 Cost of Sales Product licences (65) - Services (9,015) (25) Other - 560 Continuing operations (9,080) (585) Discontinued operations - (371,865) (9,080) (372,450) Gross (loss)/profit Product licences 1,098 400 Services (4,587) 1,392 Other - 720 Continuing operations (3,489) 2,512 Discontinued operations - 28,183 2 (3,489) 30,695 Other operating income - 1,430 Overheads Distribution costs Trading - (14,439) Ideal restructuring 3 - (467) Sales and marketing (4,258) - (4,258) (14,906) Administrative expenses Research and development (2,834) (440) Trading (9,861) (21,309) InterX restructuring 3 (1,596) - Gain on sale of investment in own shares 3 308 - IT Network write off of website 3 - (1,359) Purchase of domain name 3 - (603) Amortisation of goodwill (37,425) (13,609) (51,408) (37,320) (55,666) (52,226) Operating loss before amortisation of (21,730) (6,492) goodwill - Amortisation of goodwill (37,425) (13,609) Operating loss Continuing operations (59,155) (23,934) Discontinued operations - 3,833 (59,155) (20,101) INTERX PLC Group Profit and Loss Account for the eleven months ended 30 June 2001 (2000: year ended 5 August) 2001 2000 (Audited) (Audited) Notes £'000 £'000 Operating loss (59,155) (20,101) Share of associates' operating losses (4,987) (445) Profit on sale of fixed assets 3 1,095 - Profit on sale of discounted operations 3 - 400 Loss on ordinary activities before interest (62,237) (20,146) and taxation Interest receivable 2,123 759 Interest payable (464) (1,233) Loss on ordinary activities before taxation (60,578) (20,620) Tax on loss on ordinary activities 4 - 153 Loss on ordinary, activities after taxation (60,578) (20,467) Share of associates' minority interests 506 - Loss for the financial period (60,072) (20,467) Basic loss per share 5 (189.90)p (79.69)p Ideal restructuring - 1.82p InterX restructuring 5.05p - Gain on sale of investment in own shares (0.97)p - IT Network write off of website - 5.29p Purchase of domain name - 2.35p Amortisation of goodwill 118.31p 52.99p Profit on sale of fixed assets (6.02)p - Profit on sale of discontinued operations - (1.56)p Loss per share before exceptional items and (73.53)p (18.80)p amortisation of goodwill Diluted loss per share after exceptional (189.90)p (76.69)p items and amortisation of goodwill Group Statement of Total Recognised Gains and Losses for the eleven months ended 30th June 2001(2000: year ended 5 August) Loss for the financial period Group (55,203) (20,022) Share of associates (4,869) (445) (60,072) (20,467) Deemed disposal of part of interest in associates Group 3,422 - Share of associate (25) - 3,397 - Loss of foreign currency translation Share of associate (390) - 3,007 - Total recognised gains and losses relation (57,065) (20,467) to the period INTERX PLC Balance sheet at 30 June 2001 (2000: 5 August) Group 2001 2000 Fixed assets Notes £'000 £'000 Goodwill 153,101 190,526 Intangible assets 349 212 Tangible assets 5,060 15,965 Investments 3,319 4,136 161,829 210,839 Current assets Debtors - due within one year 18,016 4,523 - due after one year 5,423 4,823 Cash at bank, in hand and term deposits 16,975 34,504 40,414 43,850 Creditors: amounts falling due within one year (11,214) (8,323) Net current assets 29,200 35,527 Total assets less current liabilities 191,029 246,366 Creditors: amounts falling due after more than (35) (68) one year Provisions for liabilities and charges (885) - Net assets 190,109 246,298 Capital and reserves Called up share capital 1,750 1,742 Share premium account 6 55,799 55,385 Capital redemption reserve 6 31 31 Other reserves 6 201,917 198,066 Profit and loss account 6 (69,388) (8,926) Equity shareholders' funds 190,109 246,298 INTERX PLC Group Cash Flow Statement for the eleven months ended 30 June 2001 (2000: year ended 5 August) 2001 2000 Notes £'000 £'000 Net cash outflow from operating activities 7 (16,854) (34,742) Returns on investments and servicing of finance Interest received 1,151 759 Interest paid (8) (1,378) Net cash inflow/(outflow) from returns on 1,143 (619) investments and servicing of finance Taxation 41 (468) Capital expenditure and financial investment Purchase of intangible fixed assets (248) (81) Purchase of tangible fixed assets (4,414) (3,668) Sale of tangible fixed assets 16,246 39 Loan to associate (13,640) - Purchase of trade investment - 663 Sale of trade investment - (663) Net cash outflow from capital expenditure and (2,056) (3,710) financial investment Acquisitions and disposals Acquisition of subsidiary undertaking (200) (2,832) Net cash acquired with subsidiary undertaking - 384 Disposal of subsidiary undertaking 8 11,597 Net overdraft sold with subsidiary undertaking - 19,935 Investment in associates - (6,634) Net cash (outflow)/inflow from acquisitions and (192) 22,450 disposals Equity dividends paid - (1,695) Cash outflow before management of liquid resources (17,918) (18,784) and financing Management of liquid resources Cash placed on term deposits (73,758) - Term deposits matured 58,508 - Net cash outflow from management of liquid resources (15,250) - Financing Repayment of loans - (7,861) Issue of ordinary share capitaI 422 52,953 Capital element of finance lease rental payments (33) (45) Net cash inflow from financing 389 45,047 (Decrease)/increase in cash in the period 8, 9 (32,779) 26,263 INTERX PLC Notes To The Financial Statements for the eleven months ended 30 June 2001 (2000: year ended 5 August) 1. Basis of preparation The comparative figures for the year ended 5 August 2000 have been extracted from the Group's statutory accounts to that date; these received an unqualified audit report, did not contain a statement under section 237(2) or 237(3) of the Companies'Act 1985 and have been filed with the Registrar of Companies. This preliminary statement, which is unaudited and does not constitute statutory accounts, has been prepared on the basis of the accounting policies laid down in those statutory accounts. The accounting policies adopted in respect of the period are consistent with those of the previous year. 2. Segmental information During the period the Group operated only in one business segment, namely technology. The table below shows the results for the comparative period. Year ended 5 August 2000 Electronic Parent Product Technology Company Intelligence Distribution Total £'000 £'000 £'000 £'000 £'000 Turnover 1,817 - 1,280 400,048 403,145 Cost of (25) - (560) (371,865) (372,450) sales Gross 1,792 - 720 28,183 30,695 profit Other - - - 1,430 1,430 operating income Distribution costs -Trading - - - (14,439) (14,439) -Ideal - - - (467) (467) restructuring - - - (14,906) (14,906) Administrative expenses -Trading (2,924) (2,737) (5,214) (10,874) (21,749) -Amortisation (13,609) - - - (13,609) of goodwill -Purchase of - (603) - - (603) domain name -IT Network - - (1,359) - (1,359) write-off of website (16,533) (3,340) (6,573) (10,874) (37,320) Operating (14,741) (3,340) (5,853) 3,833 (20,101) (loss)/profit Share of (198) (100) (147) - (445) associates' results Exceptional - - - 400 400 items reported after operating results Finance (474) charges (net) Loss before (20,620) tax At 5 August 2000 Segment net 186,770 58,543 985 - 246,298 assets Geographical analysis of turnover and gross profit Turnover and gross loss in the eleven months ended 30 June 2001 and net operating assets at 30 June 2001 and 5 August 2000 related entirely to operations in the UK. Turnover and gross profit for the year ended 5 August 2000 by destination are analysed as follows: UK Europe Total £'000 £'000 £'000 Turnover 356,673 46,472 403,145 Gross profit 29,154 1,541 30,695 Gross margin 8.2% 3.3% 7.6% 3. Exceptional items 2001 2000 £'000 £'000 Reported before operating loss The InterX restructuring costs which arose as a (1,596) - result of the redundancy programme The gain on sale of investment in own shares which resulted from the sale of shares under option in the InterX Technology Employee 308 - Benefit Trust The Ideal restructuring costs which arose from redundancy programmes which were implemented - (467) The IT Network costs which relate to the impairment - (1,359) of the website previously capitalised The purchase of the interx.com domain name and other - (603) related names together with trademarks (1,288) (2,429) Reported after operating loss The profit on sale of fixed assets relates to the disposal, to the new owners of Ideal, of two properties occupied by Ideal 1,905 - The profit on sale of discontinued operations relates to the disposal of the Group's interest in the ordinary share capital of Ideal, and is stated after provision for expenses associated with the disposal - 400 1,905 400 4. Taxation Corporation tax on loss for the period at 31% - - Corporation tax prior year adjustment (credit) - (50) Transfer from deferred taxation - (103) - (153) 5. Loss per share The loss per share is calculated by reference to the following loss and numbers of shares: Loss for the financial period After exceptional items and amortisation of (60,072) (20,467) goodwill Exceptional items and amortisation of goodwill gross amount 36,808 15,638 taxation effect - - Before exceptional items and amortisation of (23,264) (4,829) goodwill Weighted average number of shares No. of shares No. of shares Weighted average ordinary shares in issue 34,977,215 25,682,338 during period Weighted average ordinary shares held by (3,344,487) - Group's employee benefit trusts For basic and diluted loss per share 31,632,728 25,682,338 6. Share capital and reserves Movements in share capital and reserves were as follows: Group Share Capital Profit Share premium redemption Other and loss capital account reserve reserves Account Total £'000 £'000 £'000 £'000 £'000 £'000 At 6 1,742 55,385 31 198,066 (8,926) 246,298 August 2000 Allotment of shares following exercise 8 414 - - - 422 of share options Options - - - 454 - 454 reserve Other - - - 3,397 (390) 3,007 recognised gains and losses Loss for - - - - (60,072) (60,072) the financial period At 30 1,750 55,799 31 201,917 (69,388) 190,109 June 2001 The options reserve relates to the reserve arising from the gifting of 417,000 existing issued ordinary shares into the Onshore Trust. The cumulative amount of goodwill written off against the Group's reserves, net of goodwill relating to undertakings disposed of, is £992,000 (2000: £992,000). 7. Reconciliation of operating loss to net cash outflow from operating activities 2001 2000 £'000 £'000 Operating loss (59,155) (20,101) Depreciation charges 1,105 3,063 Amortisation of goodwill 37,425 13,609 Amortisation of intangible fixed assets 112 23 Amount written off website development - 1,359 Elimination of share of licence sale to associate 102 - Loss on disposal of fixed assets 70 163 (20,341) (1,884) Increase in stock - (17,060) Increase in debtors (835) (36,103) Increase in creditors 4,322 20,305 Net cash outflow from operating activities (16,854) (34,742) Net cash outflow from operating activities comprises: Continuing operating activities (16,854) (4,998) Discontinued operating activities - (29,744) (16,854) (34,742) Included within the capital expenditure and financial investment cash flows in the Group cash flow statement is an amount of £16m for the sale proceeds from the disposal to Bell of the two properties occupied by Ideal. The disposal resulted in a profit on sale of £1.9m, reflecting the net book value of the properties disposed of £13.3m and accrued expenses of £0.8m. 8. Analysis of net funds At 6 August At 30 June 2000 Cash flow 2001 £'000 £'000 £'000 Cash at bank and in hand 34,504 (32,779) 1,725 Term deposits - 15,250 15,250 34,504 (17,529) 16,975 Finance leases (103) 33 (70) Net funds 34,401 (17,496) 16,905 9. Reconciliation of net cash flow to movement in net funds 2001 2000 £'000 £'000 (Decrease)/increase in cash in the period (32,779) 26,263 Net cash outflow from decrease in debt and lease 33 7,906 financing Net cash outflow from increase in liquid resources 15,250 - Change in net funds resulting from cash flows (17,496) 34,169 Finance leases acquired with subsidiary undertaking - (136) New finance leases - (250) Finance leases sold with subsidiary undertaking - 238 Arrangement fee amortisation - (67) Movement in net funds in the period (17,496) 33,954 Net funds at start of period 34,401 447 Net funds at end of period 16,905 34,401 A copy of this report is being sent to all shareholders. Copies are available to the public on request from the Company's registered office at 27 Great West Road, Brentford, Middlesex, TW8 9AS.

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