RNS Number:8022M
Freeserve PLC
26 June 2000
Part 2
Consolidated Profit and Loss Account
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
Note 2000 unaudited 2000 audited
unaudited #000 audited #000
#000 #000
===== ===== ===== =====
Turnover 2 7,251 1,654 19,557 2,737
===== ===== ===== =====
Operating loss
Continuing (3,977) (809) (18,427) (1,511)
operations
Acquisitions 2 (1,029) - (1,985) -
Exceptional items 2,3 237 - (3,323) -
----- ----- ----- -----
Operating loss 2 (4,769) (809) (23,735) (1,511)
Share of operating (1,319) - (2,484) -
loss of associates
Goodwill (165) - (258) -
amortisation in
respect of
associates
----- ----- ----- -----
(6,253) (809) (26,477) (1,511)
Exceptional profit 4 (20) - 1,432 -
on partial disposal
----- ----- ----- -----
Loss on ordinary (6,273) (809) (25,045) (1,511)
activities before
interest
Net interest 5 1,051 - 3,413 -
Amounts written off 9 (1,300) - (1,300) -
investments
----- ----- ----- -----
Loss on ordinary (6,522) (809) (22,932) (1,511)
activities before
taxation
Taxation credit on 6 650 250 4,310 467
loss on ordinary
activities
----- ----- ----- -----
Loss on ordinary (5,872) (559) (18,622) (1,044)
activities after
taxation
Equity minority 113 - 141 -
interests
----- ----- ----- -----
Retained loss for (5,759) (559) (18,481) (1,044)
the period
===== ===== ===== =====
Loss per Ordinary
share (pence)
Basic 7 (0.6) (2795.0) (2.2) (5220.0)
Adjusted basic 7 (0.5) (2795.0) (1.8) (5220.0)
Diluted 7 (0.6) (2795.0) (2.3) (5220.0)
Adjusted diluted 7 (0.5) (2795.0) (1.9) (5220.0)
There are no recognised gains and losses other than the loss for the period.
The Freeserve business commenced trading on 22 September 1998.
Consolidated Balance Sheet
29 April 1 May 1999
2000 audited
Note audited #000
#000
===== =====
Fixed assets
Intangible assets - goodwill 37,814 -
Tangible assets 11,643 137
Investments 8 39,950 -
----- -----
89,407 137
Current assets
Debtors 13,575 1,846
Investments 9 35,588 -
Cash at bank and in hand 31,071 -
----- -----
80,234 1,846
Creditors - due within one year (20,398) (3,026)
----- -----
Net current assets/(liabilities) 59,836 (1,180)
----- -----
Total assets less current 149,243 (1,043)
liabilities
Creditors - due after more than (1,050) -
one year
Provisions for liabilities and (1,452) (10)
charges
Equity minority interests (407) -
----- -----
146,334 (1,053)
===== =====
Equity shareholders' funds
Ordinary share capital 10 101 -
Share premium account 10 148,688 -
Shares to be issued 10 16,929 -
Capital reserve 10 1,432 -
Profit and loss account 10 (20,966) (1,053)
----- -----
146,184 (1,053)
Non-equity shareholders' funds
Preference share capital 10 150 -
----- -----
Shareholders' funds/(deficit) 11 146,334 (1,053)
===== =====
Consolidated Cash Flow Statement
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
Note 2000 unaudited 2000 audited
unaudited #000 audited #000
#000 #000
===== ===== ===== =====
Net cash outflow 12 (3,188) (945) (12,749) (1,706)
from operating
activities
Returns on
investments and
servicing of finance
Interest received 1,090 - 3,174 -
Taxation - - 477 -
Capital expenditure
and financial
investment
Purchase of fixed (2,752) - (25,784) -
asset investments
Purchase of tangible (8,341) (141) (9,407) (141)
assets
Purchase of own - - (10,800) -
shares
----- ----- ----- -----
(11,093) (141) (45,991) (141)
----- ----- ----- -----
Acquisitions and
disposals
Cash consideration (48) - (2,164) -
for acquisition of
subsidiary
Net cash acquired 2,794 - 2,911 -
with subsidiary
Acquisition of (1,667) - (9,497) -
associates
Partial disposal of 4 (20) - 1,980 -
subsidiary
----- ----- ----- -----
1,059 - (6,770) -
----- ----- ----- -----
----- ----- ----- -----
Net cash flow before (12,132) (1,086) (61,859) (1,847)
management of liquid
resources and
financing
Management of liquid
resources
Decrease/(increase) 9,776 - (32,437) -
in current asset
investments
Financing
Issue of Ordinary - - 135,092 -
share capital
Issue costs in (84) - (8,028) -
respect of initial
public offer
Issue of Preference - - 150 -
share capital
Working capital - 1,086 (1,847) 1,847
funding from the
Dixons Group
----- ----- ----- -----
(84) 1,086 125,367 1,847
----- ----- ----- -----
(Decrease)/increase (2,440) - 31,071 -
in cash in the
period
===== ===== ===== =====
Notes to the Preliminary Audited Results
1 Basis of preparation
The preliminary audited results have been prepared using accounting policies
consistent with those set out in the financial statements for the 52 weeks
ended 1 May 1999. The report does not constitute statutory accounts within
the meaning of section 240 of the Companies Act 1985 but is derived from
those accounts. The statutory accounts will be delivered to the Registrar of
Companies not later than 1 December 2000.
The financial information for 52 weeks ended 1 May 1999 has been extracted
from the financial statements for that period. Those statements, which
contain an unqualified auditors' report and did not contain a statement under
s237 (2) or (3) Companies Act 1985, have been delivered to the Registrar of
Companies.
The financial information for the 12 weeks ended 29 April 2000 and 52 weeks
ended 29 April 2000 was approved by the directors on 25 June 2000.
2 Operating loss
Freeserve plc reports on a four weekly basis so that the financial period is
split into thirteen periods of four weeks. It prepares quarterly reports at
the end of the sixteenth, twenty-eighth, fortieth and fifty-second week.
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
2000 #000 2000 #000
#000 #000
===== ===== ===== =====
Turnover:
- connectivity 3,843 869 9,692 1,608
- e-commerce and 3,408 785 9,865 1,129
advertising
----- ----- ----- -----
7,251 1,654 19,557 2,737
Cost of sales (51) - (51) -
----- ----- ----- -----
Gross profit 7,200 1,654 19,506 2,737
Sales and marketing (6,504) (1,555) (22,868) (2,722)
Product technology and (2,354) (328) (6,840) (510)
development
----- ----- ----- -----
Distribution costs (8,858) (1,883) (29,708) (3,232)
Administrative expenses (2,223) (580) (7,296) (1,016)
----- ----- ----- -----
Operating loss before (3,881) (809) (17,498) (1,511)
share-based compensation
and goodwill amortisation
Goodwill amortisation (332) - (731) -
Share-based compensation (793) - (2,183) -
Exceptional item - 237 - (3,323) -
administrative expenses
----- ----- ----- -----
Operating loss (4,769) (809) (23,735) (1,511)
===== ===== ===== =====
Freeserve plc is engaged in one line of business as a UK Internet portal.
All operations are derived from activities in the UK.
Operating loss for the 52 weeks ended 29 April 2000 includes #1,985,000 loss
in respect of acquisitions during the period. This comprises turnover
#148,000; cost of sales #11,000; sales and marketing expense #393,000; product
technology and development #880,000; administrative expenses #118,000; and
goodwill amortisation #731,000.
Share-based compensation includes a provision for the employer's National
Insurance liability arising on unapproved share option gains and long term
incentive plan awards. The provision is based on the market price at the
quarter end, but spread over the vesting period of the options. The
provision is calculated four-weekly, but where the market price has fallen, no
release has been made. If the liability were marked to the market price in
full, an additional #0.7 million provision would be required.
The exceptional item for the 52 weeks ended 29 April 2000 represents flotation
fees, expenses and one-off marketing costs incurred in respect of the initial
public offer of Freeserve plc.
3 Initial public offer of Freeserve plc
On 2 August 1999, Freeserve plc was admitted to the London Stock Exchange and
Nasdaq, with an initial public offer of a minority interest in Freeserve plc.
The Ordinary shares were offered at 150 pence per share ($23.67 per American
Depository Share (ADS), each representing 10 Ordinary shares). The offer
comprised 153,043,478 shares in the form of Ordinary shares or ADSs of which
90,000,000 were new shares issued by Freeserve plc and 63,043,478 were shares
sold by the Dixons Group. In addition, the joint global co-ordinators
exercised their over-allotment option to purchase an additional 22,956,522
shares from the Dixons Group. The offer was allocated to institutional and
retail investors.
From this initial public offer, Freeserve plc received gross proceeds of
#135.0 million before issue costs of #8.4 million and flotation fees, expenses
and marketing costs of #3.3 million.
On completion of the offer and exercise of the over-allotment option, the
Dixons Group held 80.11% of the Ordinary shares of Freeserve plc.
4 Exceptional profit on partial disposal
On 21 January 2000, Freeserve Auctions Limited issued 9.9% of its enlarged
share capital to Newsquest Media Group Limited. Net proceeds of #1.98 million
in cash were received and there was a consolidated net gain of #1.432 million
after minority interests. Further net gains may be earned in respect of
advertising support in the future.
Freeserve plc now owns 72.1% of Freeserve Auctions Limited.
5 Net interest
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
2000 #000 2000 #000
#000 #000
===== ===== ===== =====
Interest receivable and 1,096 - 3,524 -
similar income
Share of associates (45) - (111) -
interest payable
----- ----- ----- -----
1,051 - 3,413 -
===== ===== ===== =====
6 Taxation
Freeserve plc has a tax sharing arrangement with the Dixons Group, whereby
tax losses incurred by the Freeserve Group can be surrendered to the Dixons
Group at a price at least equal to the UK statutory rate of taxation.
The tax credit is based on the anticipated value of the losses available to
surrender. The tax credit before exceptional items is low because of the
inclusion of non tax-deductible items such as goodwill amortisation. No tax
credit has been recognised in respect of the losses of associated companies.
Included within the tax credit is a deferred taxation charge for the year of
#395,000.
7 Loss per Ordinary share
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
2000 2000
===== ===== ===== =====
Basic and diluted loss (5,759) (559) (18,481) (1,044)
(#000)
===== ===== ===== =====
Basic weighted average 1,002,259 20 829,619 20
number of shares (000s)
Employee share options - - (21,573) -
----- ----- ----- -----
Diluted weighted average 1,002,259 20 808,046 20
number of shares
===== ===== ===== =====
Basic loss per Ordinary (0.6)p (2795.0)p (2.2)p (5220.0)p
share
Exceptional items, net of 0.1 p - 0.4 p -
taxation
----- ----- ----- -----
Adjusted basic loss per (0.5)p (2795.0)p (1.8)p (5220.0)p
Ordinary share
===== ===== ===== =====
Diluted loss per Ordinary (0.6)p (2795.0)p (2.3)p (5220.0)p
share
Exceptional items, net of 0.1 p - 0.4 p -
taxation
----- ----- ----- -----
Adjusted diluted loss per (0.5)p (2795.0)p (1.9)p (5220.0)p
Ordinary share
===== ===== ===== =====
Adjusted basic and diluted loss per Ordinary share exclude exceptional items.
Exceptional items for the purposes of the adjusted loss, represent the
exceptional operating expenses incurred on flotation, exceptional profit on
partial disposal of Freeserve Auctions Limited and amounts written off
investments.
Basic and diluted loss per Ordinary share is calculated in accordance with UK
Financial Reporting Standard 14 Earnings Per Share which is not materially
different from the US Statement of Financial Accounting Standard 128 Earnings
Per Share.
The weighted average number of shares has been restated for the share split
on 29 June 1999, whereby two existing Ordinary shares of #1 each were split
into 20,000 Ordinary shares of 0.01 pence each.
8 Fixed asset investments
29 April 2000 1 May 1999
#000 #000
===== =====
Investments in associates
Share of net assets 1,323 -
Loans 6,407 -
Goodwill arising on acquisition 6,368 -
less amortisation
Shares in other companies 15,420 -
Own shares held by Employee Benefit 10,432 -
Trust
----- -----
39,950 -
===== =====
9 Current asset investments
29 April 2000 1 May 1999
#000 #000
===== =====
Shares held in TelePost Inc 3,151 -
Cash-based investments 32,437 -
----- -----
35,588 -
===== =====
In May 2000, after the period end, Freeserve plc disposed of 1.78 million
shares in TelePost Inc to Netcall plc. Freeserve plc purchased 2,500,000
Ordinary shares in Netcall plc. The carrying value of these TelePost Inc
shares has been reduced by #1.3 million to reflect the market price of Netcall
plc at the year end.
10 Share capital and reserves
Ordinary Share Shares to
share premium be issued
capital account #000
#000 #000
===== ===== =====
As at 1 May 1999 - - -
Subscription of additional shares 90 - -
by Dixons Group prior to the
initial public offer
Gross proceeds from initial 9 134,991 -
public offer
Issue costs in respect of initial - (8,366) -
public offer
Shares issued to Energis Holdings 2 - -
Limited
Shares issued / to be issued in - 1,474 58
respect of the acquisition of
Babyworld.com Limited
Shares issued / to be issued in - 20,589 16,131
respect of the acquisition of
Intracus Limited
Cost of shares to be issued in - - 740
respect of employees long term
incentive plan
----- ----- -----
At 29 April 2000 101 148,688 16,929
===== ===== =====
Profit Preference
Capital and loss share
reserve account capital
#000 #000 #000
===== ===== =====
As at 1 May 1999 - (1,053) -
Retained loss for the period - (18,481) -
Subscription of additional shares - - 150
by Dixons Group prior to the
initial public offer
Transfer to capital reserve 1,432 (1,432) -
----- ----- -----
At 29 April 2000 1,432 (20,966) 150
===== ===== =====
On 29 June 1999, the two existing Ordinary shares of #1 each were split into
20,000 Ordinary shares of 0.01 pence each. On 29 June 1999, the Dixons Group
subscribed for 899,980,000 new Ordinary shares at par and on 5 July 1999 for
150,000 new Preference shares of #1 each.
On 2 August 1999, Freeserve plc issued 90,000,000 new Ordinary shares at
#1.50 each in an initial public offer. Issue costs of #8.4 million have been
charged to the share premium account.
Upon closing of the initial public offer, Energis Holdings Limited, a
subsidiary of Energis plc, Freeserve's network infrastructure provider,
subscribed for 17,325,000 new Ordinary shares at par.
On 6 August 1999, 983,158 new Ordinary shares were issued, in part
consideration for the acquisition of Babyworld.com Limited. Provided certain
conditions are not breached regarding restriction of the vendor's business
activities, confidentiality and continued service, a further 38,778 new
Ordinary shares will be issued on 6 August 2001.
On 21 January 2000, a consolidated net gain of #1.432 million arose on the
deemed disposal in respect of shares issued by Freeserve Auctions Limited to
Newsquest Media Group Limited.
On 13 April 2000, 5,315,579 new Ordinary shares were issued in part
consideration for the acquisition of Intracus Limited. Loan notes were also
issued which, providing certain conditions are not breached regarding
continued service and assuming certain performance targets are met, will be
redeemed by the issue of further Ordinary shares.
11 Reconciliation of movement in shareholders' funds
29 April 2000 1 May 1999
#000 #000
===== =====
Opening shareholders' deficit (1,053) (9)
Retained loss for the period (18,481) (1,044)
Ordinary shares issued or to be 165,718 -
issued
Preference shares issued 150 -
----- -----
Net additions / (reductions) 147,387 (1,044)
to shareholders' funds
----- -----
Closing shareholders' funds / 146,334 (1,053)
(deficit)
===== =====
12 Net cash outflow from operating activities
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
2000 #000 2000 #000
#000 #000
===== ===== ===== =====
Operating loss (4,769) (809) (23,735) (1,511)
Depreciation 230 4 379 4
Goodwill amortisation 332 - 731 -
Non-cash compensation 586 - 1,108 -
expense
Increase in debtors (3,624) (1,144) (6,129) (1,369)
Increase in creditors 4,057 1,004 14,897 1,170
----- ----- ----- -----
(3,188) (945) (12,749) (1,706)
===== ===== ===== =====
13 Reconciliation of net cash flow to movement in net funds
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
2000 #000 2000 #000
#000 #000
===== ===== ===== =====
(Decrease)/increase in (2,440) - 31,071 -
cash in the period
(Decrease)/increase in (9,776) - 32,437 -
liquid resources
----- ----- ----- -----
Movement in net funds in (12,216) - 63,508 -
the period
Opening net funds 75,724 - - -
----- ----- ----- -----
Closing net funds 63,508 - 63,508 -
===== ===== ===== =====
14 Acquisitions
On 6 August 1999, Freeserve plc acquired 100% of the issued share capital
of Babyworld.com Limited for a consideration of #3.642 million. The purchase
consideration was satisfied by the issue of 1,021,936 Ordinary shares at
#1.50 each and #2.110 million cash. The amount of goodwill arising as a
result of the acquisition was #3.564 million.
On 13 April 2000, Freeserve plc acquired 100% of the issued share capital of
Intracus Limited. The purchase consideration was #30.64 million, plus up to
#10 million if performance targets over the next three years are met. The
purchase consideration was satisfied entirely by the issue of 5.3 million
Ordinary shares at #3.873 and of 2.8 million loan notes which can be
converted to shares. The total non-cash consideration was #36.7 million.
The value of the net assets acquired was #2.2 million, and the amount of
goodwill arising as a result of the acquisition was #35.0 million.
15 Summary of differences between UK and US GAAP
12 weeks 12 weeks 52 weeks 52 weeks
ended ended ended ended
29 April 1 May 1999 29 April 1 May 1999
2000 #000 2000 #000
#000 #000
===== ===== ===== =====
Net loss as reported in (5,759) (559) (18,481) (1,044)
accordance with UK GAAP
Non-employee share-based (1,445) - (4,661) -
compensation to Energis
Employee share-based (923) - (923) -
compensation 128 - 599 -
Warrant amortisation
NI liability on share 552 - 552 -
awards
Goodwill amortisation on (47) - (47) -
Intracus Limited
Taxation impact of US GAAP (166) - (166) -
adjustments
----- ----- ----- -----
Net loss as reported in (7,660) (559) (23,127) (1,044)
accordance with US GAAP
===== ===== ===== =====
Loss per Ordinary share in
accordance with US GAAP
Basic (0.8)p (2795.0)p (2.8)p (5220.0)p
Diluted (0.8)p (2795.0)p (2.9)p (5220.0)p
===== ===== ===== =====
The financial report has been prepared in accordance with UK generally
accepted accounting principles (UK GAAP) which differ in certain significant
respects from US GAAP.
On completion of the initial public offer, Energis subscribed for 17,325,000
new Ordinary shares at par value. For US GAAP purposes the difference between
the par value and the fair market value at the date Freeserve plc shares began
trading on the London Stock Exchange is recognised in the profit and loss
account over the term of the contract with Energis. Under UK GAAP there is no
charge to income.
Employee share-based compensation is charged on the difference between the
exercise price of share awards and the market price on the day of the grant or
the cost of such shares held by the Employee Benefit Trust available to meet
the awards over the vesting period. Under US GAAP, no account is taken of the
cost of the shares held by the Employee Benefit Trust.
In connection with an e-commerce agreement entered into, Freeserve received
cash and a warrant over shares. Under US GAAP the cash and fair value of the
warrant received are deferred and recognised as revenue over the term of the
agreement. Under UK GAAP the warrant was assigned a nominal value.
Employers National Insurance liability on share awards is provided based on
the market price at the close of each period, spread over the vesting period
under both UK GAAP and US GAAP. Where a reduction in market price
necessitates a release of that accrual, no release is made; the accrual is
held until the calculated liability again exceeds that provided. Under US
GAAP the excess accrual would be released.
Consideration paid on the acquisition of Intracus Limited has been calculated
based on the market price of Freeserve plc Ordinary shares as at the date of
completion. Under US GAAP consideration is measured based on the average
market price over a reasonable time at the date of announcement.
Additionally under UK GAAP the performance consideration is included within
the acquisition price. Under US GAAP this consideration is accounted for as
a contingent compensation expense. As such, this expense will be recognised
when the performance criteria have been met.
END
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