365 Corp: UK-centric growth continues

The results show the company's turnover reaching 22.4m for the year to 31 March 2000 and 7.3m for the fourth quarter, an increase of 30% over quarter three.

The increase mirrors a big growth in the number of unique users, up five-fold on the same quarter in 1999 to 1.75m.

Gross profit margins for the year to 31 March 2000 also improved compared to the eight months to 31 March 1999, from 38.5% to 43.75%, but declined slightly over the last quarter to 39.7%. The improvement over the 1999 figures was attributed by the company to “lower start-up costs … in relation to new service launches and improved supplier discounts”.

Improved gross margins have not filtered through to the bottom line, however, with pre-tax losses for the year to 31 March 2000 reaching 14.75m or just under 5m for the forth quarter of 2000. Operating margins both for the last quarter of 2000 and the year as a whole were also worse than for the eight months to 31 March 1999, due to an sharp increase in administrative expenses to 25.8m for the year to 31 March 2000. The company points to exceptional items such amortisation of goodwill payments of 5.1m relating to the acquisition of Symphony Telecom, and 2.7m worth of National Insurance contributions on staff share option schemes for this development as well as costs resulting from continuing investment in the further development of content and delivery platforms on the consumer side.

Highlights for 365's consumer division include the development of new multilingual and cross platform content which is deliverable over fixed-line telephone and internet to mobile communications and idTV. This saw the launch during the year of 365 Television that will be developing idTV content for the company. On the consumer side, the company also strengthened its position through the acquisition of Datanet for 27.9m in shares and cash, which will improve 365's coverage of rugby, cricket, Formula 1 racing, and horse racing, and of gardening site Oxalis, which has since its acquisition been renamed Gardening 365. The company's most recent consumer-related agreement will see it providing WAP sports content for British Telecom's Mobility service.

On the business side, the company can point to both an increase in overall business clients and on the average amounts these clients spent on 365 services. During the year, the company also acquired the SME telephone systems and services company Fenfones Communications, and the entire share capital of Datacom, a joint venture with Fenfones.

Development after the date of the results included the development of a joint venture with MTV Telecom called Island6 and the acquisition of Teletalk for 5m, 3m of which was paid in cash.

Although the results show the company making steady progress, both in terms of revenues and underlying profitability - once the effects of goodwill amortisation and National Insurance contributions are removed - 365's bottom line is unlikely to demonstrate this in the near future as goodwill amortisation payments from subsequent acquisitions are likely to kick in.

Another worrying point for the company is its dependence on the UK market, from which it derives more than 98% of its turnover, and although revenues from its service in Chile seem to be growing very fast, but from a very low base, this is unlikely to change 365's dependence in the near future. More worryingly, revenues from the potentially very lucrative German market have remained low at just under 100,000 and appear to be lacking the dynamic growth seen in Chile.