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)

Companies

Eckoh (ECK)
UK 100

Latest directors dealings