1st Quarter Results-Part 1
28 September 2000 - 9:01AM
UK Regulatory
RNS Number:6633R
Freeserve PLC
28 September 2000
Part 1
28 September 2000
Freeserve announces strong first quarter growth and market leadership in
unmetered access
Freeserve plc ("Freeserve"), the UK's leading Internet portal, today
announces its first quarter results for the sixteen week quarter ended 19
August 2000. Key highlights are as follows:
Current Trading and Recent Developments
* 2.053 million active registered accounts as at 24 September 2000,
representing 9,800 new net accounts per week since the quarter end
* market leader in unmetered access with over 250,000 active registered
accounts on Freeserve's two unmetered access propositions as at 24
September 2000
* 310 million average weekly minutes of use in the first 5 weeks of the
new quarter, 22 average daily minutes per user; up 43% on the average for
last year
* launch of FreeservePlus - the first and only operational high-speed
broadband ADSL service for business and consumers
* announcement of Internet TV portal for Bush Internet TV, ONdigital and
other TV platforms
First Quarter Results
* total turnover of #14.6 million, a more than four fold increase compared
to Quarter 1 last year
* operating loss of #14.6 million after the #6.7 million cost of a non-
repeating brand repositioning
* 2.004 million active registered accounts, up 43% on Quarter 1 last year
* 4.0 billion minutes of use compared to 2.2 billion in the same quarter
last year
* four-weekly churn further reduced on average to 6.9% in the quarter
* 186.2 million page impressions in August 2000 (76.1 million in August
1999)
* 72% increase in page impressions per active account compared to August
last year
* further increased reach to 3.6 million unique visitors in MMXI Europe's
latest survey
* joint venture property portal with Bradford & Bingley Group which
includes Charcolonline
* strategic agreement with gameplay to operate the Freeserve games channel
* launch of the Freeserve branded WAP mobile phone and portal
John Pluthero, Chief Executive Officer, Freeserve plc, commented:
"In the first quarter, we registered our two millionth active account,
recorded nearly four billion minutes of use and increased our revenue over
four fold on the same period a year ago.
"Our leadership of the UK Internet market has been extended by the popularity
of our unmetered access offers. Our customers have already increased their
use of the Internet by nearly one half on last year. As we extend the
availability of unmetered access we will drive more users to our portals,
reduce our churn, increase time online and generate higher e-commerce and
advertising revenues."
For further enquiries, please contact:
Freeserve plc
John Pluthero, Chief Executive ) Tel: +44 (0) 207 638 9571 on
Officer ) 28 September
Nicholas Backhouse, Chief ) Tel: +44 (0) 870 909 0666 from
Financial Officer ) 29 September onwards
Citigate Dewe Rogerson
Julian Walker Tel: +44 (0) 207 638 9571
Patrick Toyne Sewell Tel: +44 (0) 207 638 9571
FINANCIAL AND OPERATING HIGHLIGHTS
Quarter 1 Quarter 4 Quarter 1
2000/01 1999/00 1999/00
16 weeks 12 weeks 16 weeks
ended ended ended
19 Aug 29 Apr 21 Aug
2000 2000 1999
-------- -------- --------
Turnover (#000) 14,594 7,251 3,382
Operating loss before share-
based compensation, amortisation
of goodwill and exceptional
items (#000) (14,623) (3,881) (5,074)
Loss after taxation (#000) (13,483) (5,872) (7,094)
-------- -------- --------
Number of gross sign-ups in the
period(1) (000) 612 543 710
Average weekly number of gross 38 45 44
sign-ups(1) (000)
Number of active registered
accounts at period end(2) (000) 2,004 1,934 1,406
Average four-weekly churn(3) 6.9% 7.6% 9.5%
Minutes of use(4) (million) 3,961 2,476 2,213
Average weekly minutes of use(4)
(million) 248 206 138
-------- -------- --------
Aug May Aug
2000 2000 1999
-------- -------- --------
Monthly page impressions
(million) 186.2 151.5 76.1
-------- -------- --------
1. Gross sign-ups are defined as the number of new registered
accounts that have accessed Freeserve's site within 28 days of
registration.
2. 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.
3. 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.
4. 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
Almost two years ago to the day, Freeserve invented free mass
market Internet access and created a market leading position. In
this quarter we have leveraged our scale and first-mover advantage
to further consolidate the marketplace with our unmetered access
offers, and we are well on the way to achieving our aim of at
least 50% market share.
Our strategic aim of repeating these achievements by becoming the
leading provider of broadband Internet services has been advanced
by our launch of the UK's first consumer ADSL service. Our
position in broadband and TV access is being strengthened
significantly by harnessing the capabilities we have in
infrastructure, distribution and customer recruitment. Our blend
of entrepreneurial skills and capabilities in emerging platforms
means that we are ideally positioned to again outperform the
national PTT and other competitors, and remain at the heart of
Internet use in the UK.
Internet access
Of our 2.0 million active registered users, over 250,000 have
signed up to our two unmetered access offers, Unlimited Freeserve
Time and Off Peak Freeserve Time. These two products were launched
in mid-April and June respectively. Our unmetered offers are
having a profound effect upon the amount of time spent online by
Freeserve users and are proving instrumental in further
consolidating our leadership of the UK Internet market.
Freeserve users are spending on average 43% more time online
compared with last year. Average daily use of the Internet is now
22 minutes, up from 15 minutes last year. In June, for the first
time, we recorded one billion minutes of use in a single calendar
month.
Our unmetered access propositions have strengthened our market
leading position and, according to Fletcher Research, our share of
the UK Internet market is now 37%, more than twice that of our
nearest competitor. By contrast, in the quarter numerous competing
ISP's withdrew from unmetered access while we continue to leverage
our scale with our network partners.
We are capitalising on the significant opportunities that directly
result from the launch of unmetered access. The substantial
increase in time spent online by our users has been accompanied by
our page impressions more than doubling to 186.2 million in August
2000 compared to August 1999, while average page impressions per
active account have increased by 72% on this month last year.
Revenues from advertising and e-commerce more than tripled
compared to the same quarter last year.
Our firm leadership of the market for unmetered Internet access
means that we are strongly positioned for the introduction of Flat
Rate Internet Access Call Origination (FRIACO). These new
wholesale price arrangements and our strong partnership with
Energis will combine to enable us to make a positive margin on our
narrowband access products.
FRIACO will also enhance the closer relationship we now have with
our customers. By taking over the billing relationship with our
users from BT, we anticipate further improvements in our churn and
customer retention levels.
We now have a portfolio of products offering choice for consumers
in pay-as-you-go and unmetered narrowband, broadband, TV and
mobile Internet.
Portals
We continue to leverage our winning combination of access products
to strengthen our portal position. With 3.6 million unique
visitors in August 2000, we continue to attract to our portals
known online and offline businesses for the provision of new
Internet content, services and functionality.
A joint venture property portal with Bradford & Bingley Group,
announced during the quarter, will from mid-Autumn aggregate
mortgage and property choice, and offer to our users extensive
wealth management and independent advice from Charcolonline, the
UK's leading Independent Financial Adviser.
Our agreement with gameplay, a leading European e-commerce and
online gaming company, means we are strongly positioned to exploit
the rapidly growing market for the playing, sales and downloading
of games online. A new co-branded gaming site operated by gameplay
will be exclusively established for the Freeserve narrowband and
broadband portals for a first class consumer proposition that will
feature online gaming, server-side gaming, streaming
demonstrations of new games, digital downloads and the sale of
packaged games software on our sites.
This quarter also saw the launch of our online share trading
platform, StockAcademy.co.uk, in joint venture with
GlobalNetFinancial.com. StockAcademy is the only site that
enables users to set up an account and immediately trade shares
online.
Our number one UK Internet brand, scale and reach continue to
attract new e-commerce and advertising partners to our portals.
The breadth and diversity of our portal offering continues to
receive widespread recognition, and in September 2000 Freeserve
was presented with the European E-commerce Association's award for
Best Consumer Website.
Broadband, WAP and Internet TV
By becoming the first high-speed, 'always on' broadband portal to
launch in the UK on 4 September 2000, we signalled our intent to
be the leading provider of ADSL and other broadband Internet
services in the UK.
The enhanced video, audio and telecommunications functionality
that broadband allows is rapidly creating new opportunities and
potential revenue streams for Freeserve. From voice-over-IP,
allowing use of the Internet for voice telephony, to pay-per-view
and pay-per-download, Freeserve will be at the forefront of next-
generation Internet content, services and use.
The Internet access capabilities we possess, coupled with our 2
million accounts, are proving attractive to telecommunications
providers seeking to roll-out ADSL in competition to BT as the
unbundling of the local loop nears. The scale of competition among
these providers will help to spur on the take-up of ADSL
broadband, with all the attendant benefits we are currently
experiencing with our unmetered narrowband Internet access offers.
The Freeserve branded WAP (Wireless Application Protocol) mobile
phone launched during the quarter and is now the best selling WAP
phone in Dixons Group stores. The Freeserve mobile Internet portal
has a primary position on the menu structure on this and all other
BT Cellnet mobile WAP phones sold via Dixons Group.
Further demonstrating our unique distribution capabilities through
Dixons Group, today we are announcing two Internet TV initiatives
involving Freeserve properties.
A specially created version of the Freeserve portal is being
'hardcoded' into Bush Interactive television sets and set-top boxes
sold through Dixons and Currys stores from 16 October 2000.
Freeserve has joint exclusivity with Bush Internet TV on these
access devices sold via Dixons Group stores.
Separately, several Freeserve properties, including iCircle and
FSauctions, will from October be available on set-top boxes used
to receive ONdigital's terrestrial interactive television and home
Internet service, ONnet.
We expect to increase the availability of the Freeserve Internet
TV portal to other platforms as convergence with the Internet
becomes a wider consumer application.
OPERATING DATA AND FINANCIAL REVIEW
Results of Operations
Turnover for the first quarter was #14.6 million, a four fold
increase compared to the same quarter last year.
E-commerce and advertising revenue of #5.4 million grew by over
three fold compared to Quarter 1 last year. We are starting to
reap the benefit of bringing our advertising sales in-house from 1
June 2000. During the quarter, we ran campaigns for 163
advertisers including Barclaycard, Boots, Disney, Renault, Sky and
the Woolwich. E-commerce revenues also grew strongly with over 300
merchants across Freeserve's three shopping centres,
Shop@freeserve, Freeserve Marketplace and FSauctions plus those of
iCircle and Clearlybusiness compared to 23 at Quarter 1 last year.
Connectivity revenue of #9.2 million grew by over five fold
compared to Quarter 1 last year. This growth is due to increased
time online, a higher share of Energis revenue for our No Ties
metered package and revenues from unmetered access. Revenues from
unmetered access include a share of the monthly fee for Unlimited
Freeserve Time and associated telephony revenues and a share of
daytime telephony revenue from Off Peak Freeserve Time.
Operating expenses before share-based compensation, amortisation
of goodwill and exceptional items totalled #24.4 million compared
to #8.5 million in Quarter 1 last year. The increase in costs is
mainly attributable to increases in sales and marketing and
product technology and development costs. Sales and marketing
expenses were #13.7 million due to the #6.7 million multi-media
advertising campaign which successfully repositioned our brand as
both ISP and portal, and this will not be repeated in future
quarters. Product technology and development costs increased to
#7.3 million reflecting the costs of developing our portals and
new access platforms and, in particular, the associated staff
costs. At the quarter end, Freeserve employed 289 staff compared
to 68 at the end of Quarter 1 last year.
Goodwill amortisation totalled #0.9 million for the quarter and
mainly represents the amortisation of goodwill arising on the
acquisition of Intracus Limited (trading as Smartgroups.com).
Share-based compensation of employees totalled #1.2 million
compared to #0.1 million in the same quarter last year.
The share of operating losses of associates (representing
TelePost, StockAcademy and FSmotorist) totalled #1.4 million.
Goodwill amortisation in respect of associates of #0.2 million
represents the amortisation of goodwill arising on the acquisition
of our interest in TelePost.
The loss on ordinary activities after taxation totalled #13.5
million compared to #7.1 million in Quarter 1 in the prior year.
Operating Data and Current Trading
During the quarter, gross sign-ups totalled 612,000 and averaged
38,000 per week. Average four-weekly churn improved substantially
to 6.9% compared to 9.5% in Quarter 1 last year, reflecting the
impact of the introduction of our unmetered access offers, the
high quality of our service and the continuing enhancements made
to our portal offering. Since the quarter end, churn has
continued to fall.
During the quarter, active registered accounts increased by 70,000
to 2.004 million accounts, notwithstanding the seasonal slowdown
over the summer period. Since the quarter end, active accounts
have increased at an average of 9,800 per week and totalled 2.053
million at 24 September 2000, reflecting the continued roll-out of
our unmetered access propositions and the end of the holiday
season.
Minutes of use during the quarter were 4.0 billion or 248 million
minutes per week, representing an 80% increase on Quarter 1 last
year. The increase is principally due to the 52% increase in the
average account base and increasing time online per active
account. Average time online per user per day represented 18
minutes. Continuing this trend of increasing time online, average
minutes of use in the first five weeks of the current quarter rose
to 310 million per week, a 25% increase since Quarter 1.
Page impressions for August 2000 totalled 186.2 million, a 145%
increase on the result for August 1999 and a 72% increase in
average page impressions per active account.
Liquidity and Capital Resources
During the quarter, 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 held 33.5% of TelePost's equity and 8.6% of
NetCall's equity. Freeserve also held $8.3 million of loan notes
in TelePost, to which are attached warrants over equity. During
the quarter, $3.0 million of warrants were exercised. On a fully
diluted basis, assuming exercise of the remaining warrants,
Freeserve's interest in TelePost represents 39.4% of TelePost's
fully diluted equity.
Freeserve issued a convertible loan of #0.3 million during the
quarter to Streets Online Limited.
At the quarter end, Freeserve held cash and cash-based investments
of #53.6 million, compared to #63.5 million at the end of the last
quarter.
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