365 continues growth towards profitability

However, its business wing, which trades as Symphony Telecom providing a ‘one stop shop' for telecommunications solutions, continued to grow much faster than the other operations, having increased revenues 11% to 6.8m for Q4, continuing the 36% growth generated over the previous three months. In part, the rise is attributable to the division's seven strategic acquisitions over the year, but they accounted for only 4.3m of its total 21.0m turnover.

In the final quarter, revenues from the consumer wing of its business, which had flattened in Q3, grew much more slightly by 3.3% to 7.75m, while unique users of the service also rose 3% to 2.95m.

Martin Turner, deputy CEO and FD, flagged up a review of 365's operations as part of its drive towards profit, saying: “Non-core or unprofitable parts of the business are being reorganised, sold or closed.”

He added that, while the question of a demerger of one of the divisions had “arisen from time to time over the past year”, there are no plans to do anything of that nature.

Turner pointed to the increasing synergies between the two arms of 365, in particular the impending launch of its voice portal Eckoh, and said 365 now feels there are “real benefits to be gained by keeping the two businesses together”.

Eckoh is now scheduled to launch in June, building on the company's existing content and technical infrastructure to deliver information and commerce services through any fixed line or mobile phone. 365 has already established partnerships with the likes of William Hill, Domino's Pizza, Teleflorist and Ticketmaster for the venture.

The company attributes the consumer division's relative immunity from the downturn in internet advertising to the diversification of its revenue streams, including the growth of its e-commerce, content sales, SMS services, subscription charges and shares of access revenues, and it predicts that its position will be shored up further over the next year, as increasing numbers of competitors cease or scale down their operations.

Turner said: “We expect 365 to become one of the few remaining creators and owners of an increasingly scarce commodity - quality digital content.”

He confirmed that the company remained on the lookout for suitable acquisitions to bolster its consumer offering, but emphasised that any purchase would be approached with caution: “While it would be tempting to think we could go out there and buy every low valued company, in reality many of their values are low because they're losing money”.

365 incurred pre-tax losses of 45.1m over the year, a growth of 250% on those from the previous year; however, these included goodwill amortisation of 25.4m, in contrast with only 5m for 1999-2000, and goodwill impairment instigated in the final quarter against all the consumer division acquisitions, reflecting the fall in market valuations within this sector.

Disregarding these exceptional costs, the company's operating loss was 16.9m.

365's operating activities over the year consumed 20m in cash, more than 167% more than the previous period. However, the company still retains a balance of 26m, which it anticipates will be sufficient to see it through to profitability.

Shares in 365 remained fairly static, rising by 1.49% on morning trading to 17p.