RNS Number:8021M
Freeserve PLC
26 June 2000
Part 1
Freeserve announces strong fourth quarter growth
Freeserve plc ("Freeserve"), the UK's leading Internet portal, today
announces its results for the full year and the fourth quarter ended 29 April
2000. Key highlights are as follows:
Full Year Results
- seven fold increase in total turnover to #19.6 million compared to the
prior year
- 137% increase in page impressions to 151.5 million in May 2000 compared
to May 1999
- 64% increase in active registered accounts to 1.934 million compared to
the prior year end
- fall in churn by one third to 8.2% compared to the prior year
Fourth Quarter Results
- 41% increase in total turnover to #7.3 million compared to the previous
quarter
- operating loss of #3.9 million (before share-based compensation,
amortisation of goodwill and exceptional items) compared to #4.3
million in the previous quarter
- increase in e-commerce merchants to 232, compared to 121 at the end of
the previous quarter
- 2.5 billion minutes of use, up 14% compared to the previous quarter
- consistently ranked as the UK's leading provider of home Internet
service by market share
- increased reach to 35.7% in MMXI Europe's latest survey, compared to
32.3% at the end of the previous quarter
- acquisition of Smartgroups, a leading provider of community tools
- establishment of Clearlybusiness.com, a business-to-business portal
providing services to small companies in joint venture with Barclays
PLC
Current Trading and Recent Developments
- health and well-being channel in partnership with Superdrug,
ThinkNatural and Planet Medica
- successful implementation of two new unmetered access propositions
- 1.967 million active registered accounts as at 24 June 2000
- 218 million average minutes of use in the first eight weeks of the
quarter, up from 206 million for the previous quarter
John Pluthero, Chief Executive Officer, Freeserve plc, commented:
"These results demonstrate the growing strength of our financial performance,
which is underpinned by the ever-increasing popularity of our portals. Our
revenues are up, our operating losses are down, our reach is increased.
"Where others have over-promised and under-delivered, we have consistently
offered our consumers the best choice of low-cost, high-quality Internet
access. With the launch of our first WAP and broadband ADSL products we are
ideally positioned to capitalise on the opportunities presented by the multi-
access, multi-platform environment."
For further enquiries, please contact
Freeserve plc
John Pluthero, Chief Executive Officer +44 (0) 20 7638 9571(on 26 June)
Nicholas Backhouse, Chief Financial Officer +44 (0) 870 909 0666
(from 27 June onwards)
Citigate Dewe Rogerson
Julian Walker +44 (0) 20 7638 9571
Patrick Toyne-Sewell +44 (0) 20 7638 9571
FINANCIAL AND OPERATING HIGHLIGHTS
Quarter Quarter Quarter Full Full
4 3 4 Year Year
restated(1)
1999/00 1999/00 1998/99 1999/00 1998/99
12 weeks 12 weeks 12 weeks 52 32
weeks(2) weeks(2)
ended ended ended ended ended
29 Apr 5 Feb 1 May 29 Apr 1 May
2000 2000 1999 2000 1999
===== ===== ===== ===== =====
Turnover (#000) 7,251 5,145 1,654 19,557 2,737
Operating loss before
share-based
compensation, (3,881) (4,258) (809) (17,498) (1,511)
amortisation of
goodwill and
exceptional items
(#000)
Loss before
exceptional items and (5,439) (5,668) (809) (19,741) (1,511)
taxation (#000) (3)
===== ===== ===== ===== =====
Number of gross sign-
ups in the period(4) 543 589 672 2,346 1,776
(000)
Average weekly number
of gross sign-ups(4) 45 49 56 45 56
(000)
Number of active
registered accounts at 1,934 1,822 1,181 1,934 1,181
period end(5) (000)
Average four-weekly 7.6% 7.0% 11.9% 8.2% 12.2%
churn(6)
Minutes of use(7) 2,476 2,170 1,495 8,746 2,632
(million)
Average weekly minutes
of use(7) (million) 206 181 125 168 82
===== ===== ===== ===== =====
May February May
2000 2000 1999
===== ===== =====
Monthly page 151.5 162.8 63.8
impressions (million)
===== ===== =====
1. The results for Quarter 3 1999/00 have been restated to reflect equity
accounting for TelePost from December 1999(described in Liquidity and
Capital Resources).
2. Freeserve commenced business on 22 September 1998. Freeserve prepares
quarterly reports to the end of the sixteenth, twenty-eighth, fortieth and
fifty-second financial week.
3. Loss before exceptional items and taxation represents loss on ordinary
activities before taxation excluding exceptional operating items,
exceptional profit on partial disposal and amounts written off
investments.
4. Gross sign-ups are defined as the number of new registered accounts that
have accessed Freeserve's site within 28 days of registration.
5. An active registered account is defined as a registered account at the
period end that has been used within 40 days prior to the period end.
6. Churn is defined as those accounts which have become inactive during a
period, expressed as a percentage of total active accounts at the
beginning of that period.
7. Minutes of use is the total minutes during the period that users were
connected to the Internet through Freeserve, including time spent on the
Freeserve Web site and time spent on other Web sites after connecting to
the Internet through Freeserve.
CHIEF EXECUTIVE OFFICER'S REVIEW
Freeserve is the most recognised UK Internet brand with 93% consumer
awareness, ensuring that our portals are a destination of choice and driving
the continued growth of advertising and e-commerce revenues. These results
firmly underline the popularity of our portals in the UK's home Internet
market. Our market-leading franchise, built upon the provision of best value
and dependable Internet service, has been strengthened by our unmetered access
propositions, which combine competitive prices with a choice of products
tailored for the main patterns of customer use.
Internet portals
During the quarter, we completed the redesign of the main Freeserve site,
which now demonstrates more clearly the breadth and depth of content including
editorial comment, integration of community functionality and our new search
engine, all within a user-friendly environment. The redesign was followed by
a major advertising campaign across television, print, radio and billboards
emphasising the Freeserve portal brand. The impact of both the new site
design and advertising campaign is demonstrated by the April MMXI Europe
survey giving Freeserve reach to UK home Internet users of 35.7% (representing
over 3.4 million unique visitors) up from 32.3% at the end of the previous
quarter.
With more than 3.4 million unique visitors to our site, we are able to attract
the most exciting new products, services and functionality to our portal,
strengthening its appeal and further increasing levels of traffic to our
sites. Online Caroline, our innovative interactive online drama, has proved
tremendously successful with an average 84% episode-on-episode retention of
users. In May we announced an agreement with Hat Trick kpe Interactive for
the exclusive online distribution rights to 'Have I Got News For You', one of
BBC 2's most popular television series. This further demonstrates our ability
to attract leading entertainment properties to our portals and to create
unique online advertising and sponsorship opportunities. In a joint venture
with Internet Trading Clubs, we launched our automotive channel, fsmotorist,
offering import and fleet-style discounts on new cars and associated
after-care products and services.
Clearlybusiness.com, our joint venture small business portal with Barclays
PLC, has now been test-launched and will be promoted by Barclays' network of
almost 2,000 business advisers, through direct marketing and start-up
information packs. Barclays.net is now a co-branded Freeserve site, and we
will be distributing access CDs through the Barclays branch network. We have
also announced new channels for homes & gardens and health, the latter in
joint venture with a consortium comprising Superdrug, ThinkNatural and Planet
Medica.
Smartgroups, our wholly-owned provider of e-mail-based community tools for
individuals, clubs and societies acquired in April this year, has now been
integrated into our sites. With already over 9,000 operating groups and over
70,000 members, Smartgroups is demonstrating its considerable potential for
viral marketing. Smartgroups was the first online communities site to launch
a WAP facility, enabling members to access their group wherever they are using
a WAP-enabled mobile phone.
Tomorrow sees the launch of a substantial e-commerce promotion, in which
250,000 items from over 50 participating merchant partners are being offered
at significant discounts. This is one of the largest ever e-commerce
promotions to take place in the UK, and further demonstrates our ability to
negotiate significant offers for our users.
Internet access
During the period we announced two new unmetered access offers. Unlimited
Freeserve Time, available since mid-April, allows unmetered Internet use at
anytime and Off Peak Freeserve Time, launched on 1 June, provides for
unmetered Internet use at evenings and weekends. These products were launched
in a controlled and scalable way ensuring the best quality service throughout.
Broadband strategy
The nationwide roll-out of our broadband ADSL service for consumers is due to
commence on 1 September 2000. We will deliver a diverse range of content and
services using the enhanced video and audio functionality that broadband ADSL
makes possible, at a price to consumers which is keenly competitive.
The ADSL trials, which have been running since February, have enabled us to
develop new content partnerships. Among the 50 rich-media participants in our
trial are ITN, peoplesound.com, The National Trust, @jakarta,
Darkerthanblue.com and Virgin Music.
In mid-June we began pre-selling our business ADSL proposition in flagship PC
World stores around the UK, and the installation of these lines is imminent.
Our aim is to be the UK's premier broadband portal destination allowing us to
maximise advertising and e-commerce as well as new revenue streams, including
pay-per-view and pay-per-download. To realise this, our broadband portal will
remain platform-agnostic. We fully intend to exploit alternative forms of
delivery and leverage the cross-promotion opportunities from our narrowband
portal and the competitive advantages afforded to us by our large user base.
Internet investments
We continue to make strategic investments in Internet and new technology
businesses that provide new products and services to our members. During the
quarter, we completed the acquisition of Intracus, which trades as Smartgroups
and invested in ThinkVentures, our European investment vehicle for early
stage Internet and new technology investments. Since the year end we have
completed the investment of a minority holding in NetCall, an
Internet-controlled telephony company.
OPERATING DATA AND FINANCIAL REVIEW
Results of Operations
Turnover for the fourth quarter was #7.3 million, an increase of 41% compared
to the third quarter.
Connectivity revenues benefited from a further increase in Freeserve's share
of the Energis net termination payment from 1 April 2000, an increase in total
minutes online and a higher percentage of minutes online at peak rates.
E-commerce and advertising revenue grew by 20% compared to the previous
quarter. Advertising revenue showed continued growth due to an increase in
pages sold and with effective revenue per thousand page impressions averaging
#3.13. During the period, we ran campaigns for 129 advertisers, including
Adidas, Mazda, Orange, Royal Mail, Stepstone, Thomas Cook and Zanussi. From 1
June 2000, advertising sales have been brought in-house. In the medium term,
we expect the focus of a team dedicated to Freeserve advertising and
sponsorship sales to increase our share of the UK online advertising market.
E-commerce revenues also grew strongly, notwithstanding a comparative prior
quarter that included Christmas and the January sales. We had 232 merchants
at the end of the quarter compared to 121 at the previous quarter end. As
well as increases in the number of merchants on shop@freeserve and FSauctions,
this quarter saw the launch of Marketplace, the Freeserve shopping centre for
small, independent retailers.
Operating expenses before share-based compensation, amortisation of goodwill
and exceptional items totalled #11.1 million compared to #9.4 million in the
previous quarter. The increase in costs is attributable, in particular, to
the costs of our recent multi-media brand campaign that commenced in April.
At the quarter end, Freeserve employed 193 staff compared to 126 at the end of
the third quarter. This reflects further recruitment, in particular to our
portals and emerging technology teams and the acquisition of Smartgroups.
Goodwill amortisation increased to #0.3 million following the acquisition of
Intracus Limited (trading as Smartgroups.com) on 13 April 2000.
Share-based compensation of employees totalled #0.8 million compared to #1.0
million in the previous quarter. It includes a provision for the employer's
National Insurance liability arising on employee share option gains that has
been spread over their vesting period. If we were to mark the liability to
market, the provision for employer's National Insurance within share-based
compensation would have been higher by #0.7 million.
Share of operating losses of associates increased to #1.3 million from #1.2
million in the third quarter. Goodwill amortisation in respect of associates
of #0.2 million represents the amortisation of goodwill arising on the
acquisition of our interest in TelePost.
Exceptional amounts written off investments of #1.3 million reflect the
decrease in value of our shares in NetCall between the announcement of the
acquisition of these shares and the year end.
Loss on ordinary activities before taxation totalled #6.5 million compared to
#4.2 million in the previous quarter.
Operating Data and Current Trading
During the quarter, gross sign-ups totalled 543,000 and averaged 45,000 per
week, compared to 49,000 per week in the previous quarter, which included the
peak period for sign-ups as a result of sales of PCs at Christmas and New
Year. As anticipated, average four-weekly churn increased to 7.6% compared to
7.0% in the third quarter, due to the higher level of gross sign-ups in the
third quarter and the propensity of new Internet accounts to churn.
Active registered accounts increased by 112,000, an average of 9,000 per week,
to 1.934 million accounts, notwithstanding the seasonal trend in gross
sign-ups and churn and the impact, since the middle of March, of potential new
Internet users delaying their choice of service provider whilst they awaited
the arrival of unmetered access.
Minutes of use during the quarter were 2.5 billion or 206 million minutes per
week, representing a 14% increase compared to the third quarter. The average
time online per active user per day increased to approximately 16 minutes.
Page impressions for May 2000 totalled 151.5 million, 7% lower than the
result for February 2000 due to restricted availability of chat for a period
of time in May following the site redesign.
At 24 June 2000, active registered accounts totalled 1.967 million, up 33,000
on the year end. The number of active registered accounts has recently begun
to benefit in particular from the launch of Freeserve's second unmetered
access offer. Minutes of use in the first eight weeks of the current quarter
averaged 218 million per week and churn has consistently fallen.
Liquidity and Capital Resources
During the quarter, Freeserve acquired 100% of the issued share capital of
Intracus Limited (trading as Smartgroups.com) for #30.6 million plus up to
#10.0 million conditional performance payments over three years. All
consideration is payable in new Ordinary shares of Freeserve. Smartgroups.com
is a leading provider of e-mail based community tools to individuals, clubs
and societies.
Following an equity issue by Streets Online Limited (formerly Infront
Limited), Freeserve invested a further #1.5 million by exercising its
anti-dilution rights in respect of the investment. Freeserve also invested
#0.8 million in ThinkVentures.com, a European investment vehicle specialising
in early stage Internet and new technology investments and exercised its
co-investment rights alongside ThinkVentures in respect of MyKindaPlace.com.
Minority investments in Floot.com Limited and Ubik.net Limited were made
during the quarter.
Tangible fixed asset additions mainly represent the acquisition of a freehold
office in London for #4.3 million and the cost of migrating to a fully
resilient, dual-located Sun platform for the redesigned Freeserve portal.
At the quarter end Freeserve had cash and cash-based investments of #63.5
million.
Since the year end, Freeserve completed a strategic alliance with NetCall plc,
a company that pioneers Internet-controlled telephony. Under the agreement,
Freeserve acquired 2.5 million new ordinary shares in NetCall and NetCall
acquired from Freeserve approximately 1.8 million shares in TelePost.
Following this transaction, Freeserve holds 33.5% of TelePost's equity and
8.6% of NetCall's equity. Freeserve has equity accounted its interest in
TelePost from the date the equity was acquired in December 1999. The third
quarter results have been restated to reflect this. At the year end, the
TelePost shares sold to NetCall have continued to be included in current asset
investments. Freeserve also holds $8.3 million of loan notes in TelePost, to
which are attached warrants over equity. On a fully diluted basis, assuming
exercise of the warrants, Freeserve's interest in TelePost represents 39.4% of
TelePost's fully diluted equity.
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