RNS Number:1764L
Virtual Internet PLC
5 October 2001
Date: 5 October 2001
Enquiries:
Tom Turcan, CEO
Jonathan Wales, CFO
Virtual Internet plc Tel: 020 7460 4060
John Bick, Holborn Tel: 020 7929 5599
john.bick@holbornpr.co.uk
Virtual Internet plc
Results For The Nine Month Period Ended 31 July 2001
Virtual Internet plc, a leading provider of online intellectual property
protection and hosting services for international businesses, announces its
results for the nine month period ended 31 July 2001.
Financial Highlights 3 month 9 month 9 month Year
period period period ended
ended ended ended 31 October
31 July 31 July 31 July 2000
2001 2001 2000
# # # #
Turnover 2,276,706 6,251,915 4,162,224 6,259,257
Gross profit 1,538,350 4,447,988 2,905,819 4,383,461
Adjusted loss before taxation*(2,497,488) (5,281,721) (2,888,583) (4,342,755)
Loss on ordinary activities
before taxation (12,628,583) (17,223,243) (6,237,385) (7,998,119)
Adjusted loss per share 9.99p 21.22p 12.87p 18.89p
Loss per share - basic and 50.61p 69.19p 27.72p 34.81p
diluted
Cash at bank 10,031,543 10,031,543 21,691,881 19,197,011
*Adjusted by excluding
goodwill amortisation,
employee share incentive
scheme and impairment of
goodwill.
* Turnover growth of 50 per cent for the nine month period ended 31
July 2001 against the nine month period ended 31 July 2000
* Cash position of #10.03m at period end
* Adjusted loss before taxation of #5.28m before goodwill impairment of
#10.13m
* Net Searchers continues to strengthen its position in the market for
online brand protection services
* Hosting market remains challenging; cost structure under review
* RegistryPro agreement with ICANN expected in near future
* Board continues to implement measures to ensure profitability can be
achieved within current financial resources
Chief Executive Officer's Report
Turnover for the nine month period ended 31 July 2001 increased by 50 per cent
to #6.25m from #4.16m for the nine month period ended 31 July 2000. Gross
profit was #4.45m compared with #2.91m for the nine month period ended 31 July
2000. The gross profit margin in the period increased to 71% from 70% for the
nine month period ended 31 July 2000. The loss before taxation, goodwill
amortisation and impairment and the employee share incentive scheme charge
amounted to #5.28m compared with #2.89m for the nine month period ended 31
July 2000.
The losses reflect the cost of customer acquisition across the Group. In Net
Searchers, in particular, the return on customer acquisition activities is
realised over an extended period. The Board continues to focus on reducing
costs and increasing operational efficiencies to ensure its strategy can be
implemented without requiring additional external capital. The Group had cash
resources of #10.03 million as at 31 July 2001.
In the light of the continuing uncertainty in the economic climate as a whole,
and the widespread fall in valuations for companies operating in the internet
services sector, the Board considers it prudent to write off the goodwill in
the balance sheet as part of its regular goodwill impairment review. This has
the effect of recording a #10.13m loss for the quarter in addition to the
Group's adjusted operating loss of #5.28m.
Net Searchers
Net Searchers, the online intellectual property protection division, has
continued to perform satisfactorily. The major focus for the period has been
helping clients with the introduction of the new .INFO and .BIZ top level
domain names - the first to launch of the seven new TLDs selected by ICANN in
November 2000. Special protections were available in the start up periods for
intellectual property owners, presenting Net Searchers the opportunity to
demonstrate its expertise as a specialist registrar for large corporations and
law firms. Net Searchers achieved a share of over 5% of all .INFO "sunrise"
registrations, placing it well within the world's top ten registrars for this
type of registration, and the largest in the UK. The share of .BIZ IP claims
registrations has not yet been published.
A number of new clients have been acquired in the period, and we are pleased
to note that our penetration as a service provider to the world's leading
brands* has increased from 33% to 40%. We anticipate the new clients acquired
in the quarter under review will generate additional revenue in the next
quarter and through the next financial year. (*The top 100 brands as valued
by Interbrand, July 2001).
The Board is pleased with the interest being attracted by the new Name Console
service, a software tool allowing corporations and law firms to centralise
administration of domain name management services within their companies and
among their clients. The use of indirect channels to market (such as law firms
and telcos) is proving effective in reducing order processing and customer
acquisition costs.
Hosting Services
The market for hosting services continues to be difficult. Nevertheless, the
Virtual Internet hosting division continues to see an encouraging take up of
the new product range launched in the previous quarter, and an increase in
average order value over the period. A number of new procedures to streamline
customer support have been introduced, including a new online customer support
system and the centralisation of technical support for European operations in
the UK. Further centralisation of Group resources and aggressive cost cutting
is planned.
In addition the UK operation (which accounts for 74% of the division's
revenue) successfully implemented a cost saving exercise designed to reduce
customer acquisition costs. These savings, together with use of the Group's
new CRM system, will enable the division to make more efficient use of its
marketing budget and improve new sales generation, particularly from the
significant existing client base. A new reseller referral scheme has also been
introduced.
As indicated in the interim statement for the 6 month period ended 30 April
2001, the Group has continued to align its investment in the hosting division
with the business opportunity in the current economic climate. While the
measures implemented over the last three months have shown encouraging
improvements in a number of key performance indicators, the Board is actively
considering the strategic and restructuring options for the hosting division
and expects to take further steps before the end of the current financial
year.
RegistryPro
Registrypro, the Group's joint venture with Register.com to operate the new
.pro tld continues to make progress, albeit more slowly than had been
anticipated. It is hoped that ICANN will be in a position to announce that the
Registry Agreement, which formally grants the licence, has been signed
shortly.
Board Changes
Jason Drummond, the Company's founder, will become a non-executive director of
the Company from 1st November 2001. The Board would like to thank Jason for
his vision and energy as an executive director and is pleased to continue to
have his input and support as non-executive. Mark Cartwright, previously
Chief Technology Officer, becomes Managing Director, Hosting. Mark has been
with the Company since April 2000, and has been closely involved with the
creation and management of the new range of hosting services following their
launch earlier this year.
Outlook
Despite the global economic slowdown, the Board believes Net Searchers is well
placed to continue growing revenues within its specialist market sector, and to
reduce its cost of sales as improvements in the efficiency of the order
fulfilment process take effect. It is too early to predict the impact of recent
global events on our activities, but the Board will maintain a very cautious
outlook until the effects are more clearly understood.
The review of strategic and restructuring options continues for our hosting
activities, and in the meantime costs are being further reduced where
appropriate. The Virtual Internet brand is well established in the sector, but
the challenge continues to be keeping a tight control of costs and maximising
the income generating potential.
Although the Board's focus across the activities of the Group is to control
expenditure, the Group's strong cash position compared to a number of its UK
competitors enables it to continue to execute its long term strategy of growing
revenues and reaching profitability within its existing financial resources.
Tom Turcan
Chief Executive Officer
Virtual Internet plc
SUMMARISED GROUP PROFIT AND LOSS ACCOUNT
Unaudited Unaudited
9 month 9 month
period period Year
ended ended ended
31 July 31 July 31 October
Note 2001 2000 2000
# # #
Turnover 6,251,915 4,162,224 6,259,257
Cost of sales 1,803,927 1,256,408 1,875,796
--------- --------- ---------
Gross profit 4,447,988 2,905,816 4,383,461
--------- --------- ---------
Selling and distribution 4,009,220 986,024 2,068,456
costs
Administrative expenses:
Before goodwill 6,093,182 5,057,769 7,186,580
amortisation and
exceptional items
Goodwill amortisation 1,692,658 2,465,795 3,293,997
Employee share incentives 2 120,236 876,012 361,367
Impairment of goodwill 10,128,628 - -
---------- --------- ----------
18,034,704 8,399,576 10,841,944
---------- --------- ----------
(17,595,936) (6,479,784) (8,526,939)
Other operating income - 10 -
---------- ---------- ---------
Group operating loss (17,595,936) (6,479,774) (8,526,939)
Share of loss of joint (132,843) - (70,264)
venture
---------- ---------- ---------
Total operating loss: (17,728,779) (6,479,774) (8,597,203)
Group and share of
associate
Interest receivable and 545,640 353,130 655,893
similar income
Interest payable and (40,104) (110,741) (56,809)
similar charges
---------- --------- ---------
Loss on ordinary (17,223,243) (6,237,385) (7,998,119)
activities before
taxation
Tax on loss on ordinary - - -
activities
--------- --------- ---------
Retained loss for the (17,223,243) (6,237,385) (7,998,119)
period
---------- --------- ---------
Loss per share - basic 69.19p 27.72p 34.81p
and diluted
Loss per share - adjusted 21.22p 12.87p 18.89p
Virtual Internet plc
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited
9 month 9 month Year
period ended period ended ended
31 July 31 July 31 October
2001 2000 2000
# # #
Loss for the financial
period attributable to
members
of the parent company (17,223,243) (6,237,385) (7,998,119)
Exchange difference on
retranslation of net assets
of
subsidiary undertakings 5,777 8,470 6,882
---------- --------- ---------
Total recognised loss
relating to
the period (17,217,466) (6,228,915) (7,991,237)
---------- --------- ---------
Virtual Internet plc
SUMMARISED GROUP BALANCE SHEET
Unaudited Unaudited
31 July 31 July 31 October
2001 2000 2000
# # #
FIXED ASSETS
Intangible assets - 11,451,134 10,902,726
Tangible assets 3,282,888 1,330,351 1,708,569
--------- ---------- ----------
3,282,888 12,781,485 12,611,295
--------- ---------- ----------
CURRENT ASSETS
Stocks 288,487 70,000 247,471
Debtors 3,408,386 1,761,368 2,523,330
Cash at bank and in hand 10,031,543 21,691,881 19,506,529
---------- ---------- ----------
13,728,416 23,523,249 22,277,330
CREDITORS: amounts falling due 2,187,005 2,042,668 3,194,674
within one year
---------- ---------- ----------
NET CURRENT ASSETS 11,541,411 21,480,581 19,082,656
---------- ---------- ----------
TOTAL ASSETS LESS CURRENT 14,824,299 34,262,066 31,693,951
LIABILITIES
CREDITORS: amounts falling due 135,037 174,275 179,710
after more than one year
PROVISIONS FOR LIABILITIES AND 5,352 68,505 23,271
CHARGES
---------- ---------- ----------
14,683,910 34,019,286 31,490,970
---------- ---------- ----------
CAPITAL AND RESERVES
Called up share capital 6,278,320 6,094,729 6,177,229
Share premium account 26,615,805 26,017,369 26,443,753
Other reserves 11,389,926 12,548,039 11,734,661
Profit and loss account (29,600,141) (10,640,851) (12,864,673)
---------- ---------- ----------
Shareholders' funds: Equity 14,683,910 34,019,286 31,490,970
---------- ---------- ----------
Virtual Internet plc
GROUP CASHFLOW STATEMENT
Unaudited Unaudited
9 month 9 month
period period Year
ended ended ended
31 July 31 July 31 October
2001 2000 2000
Note # # #
NET CASH OUTFLOW FROM
OPERATING ACTIVITIES 4 (6,753,565) (3,234,042) (5,223,604)
--------- --------- ---------
RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE
Interest received 545,640 353,130 655,893
Interest paid (40,104) (110,741) (56,809)
------- -------- -------
505,536 242,389 599,084
------- -------- -------
TAXATION
Corporation tax paid - - -
--------- ------- ---------
CAPITAL EXPENDITURE
Payments to acquire (2,125,043) (762,702) (1,283,795)
tangible fixed assets
--------- ------- ---------
ACQUISITIONS AND
DISPOSALS
Purchase of subsidiary (905,126) - (284,620)
undertaking
Investment in joint (132,843) - (70,264)
venture
--------- ------- -------
(1,037,969) - (354,884)
--------- ------- -------
NET CASH OUTFLOW BEFORE
USE OF
MANAGEMENT OF LIQUID (9,411,041) (3,754,355) (6,263,199)
RESOURCES AND FINANCING
--------- --------- ---------
MANAGEMENT OF LIQUID
RESOURCES
Decrease/(increase) in 9,620,000 (21,420,776) (18,420,776)
short term deposits
--------- ---------- ----------
FINANCING
Issue of ordinary share 286,143 24,918,294 27,013,763
capital
Issue costs - - (2,098,085)
Repayment of short-term 4,103 (7,519) (19,204)
loans
Repayment of long-term (44,673) 8,710 14,145
loans
Repayment of loan notes - (279,224) (279,224)
-------- ---------- ----------
245,573 24,640,261 24,631,395
-------- ---------- ----------
INCREASE/(DECREASE) IN 454,532 (534,870) (52,580)
CASH
------ ------- -------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Unaudited Unaudited
9 month 9 month
period period Year
ended ended ended
31 July 31 July 31 October
2001 2000 2000
# # #
Increase/(decrease) in cash 454,532 (534,870) (52,850)
Cash outflow from movement in loans 40,570 278,033 284,283
Cash (inflow)/outflow from movement (9,620,000) 21,420,776 18,420,776
in liquid resources
--------- ---------- ----------
Change in net funds resulting from (9,124,898) 21,163,939 18,652,479
cash flows
---------- ---------- ----------
Movement in net funds (9,124,898) 21,163,939 18,652,479
Net funds at beginning of period 18,971,661 319,182 319,182
---------- ---------- ----------
Net funds at end of period 9,846,763 21,483,121 18,971,661
--------- ---------- ----------
Virtual Internet plc
NOTES TO THE UNAUDITED NINE MONTH PERIOD ENDED 31 JULY 2001
1. BASIS OF PREPARATION OF INTERIM FINANCIAL INFORMATION
The interim financial information for all periods has been prepared on the
basis of the accounting policies set out in the group's statutory accounts for
the period ended 31 October 2000. Expenses are accrued in accordance with the
same principles used in the preparation of the annual accounts.
2. EMPLOYEE SHARE INCENTIVES
In accordance with UITF Abstract 17, "Employee Share Schemes", the company
recognises a charge to the profit and loss account for the amount by which the
fair market value of any share options or benefits likely to be issued exceeds
their respective exercise price on the date of the grant. These costs are
recognised on a straight line basis over the period to which they relate.
In accordance with UITF Abstract 25, "National Insurance Contributions on
Share Option Gains", the Company provides for national insurance contributions
on options granted or benefits likely to be issued on or after 6 April 1999
under its Unapproved Share Option Schemes and Employee Benefit Trust ("EBT").
Provision is made over the vesting period of the options on benefits likely to
be issued at the prevailing rate of employer's national insurance on the
difference between the period end share value and the grant price, being the
directors' best estimate of the ultimate liability at each period end.
During the year ended 31 October 2000, the trustees of the EBT determined that
the potential benefits which had been made available to employees of the Group
since the EBT was set up should be awarded and that no more awards should be
made under the scheme as the Group had set up new employee share incentive
schemes.
On the setting up of the EBT it was envisaged that the award to beneficiaries
would be made only in shares. However, some beneficiaries of the trust were
given the choice of whether to receive their award in shares or cash. As a
result of this change the UITF 17 charge associated with those awards made in
cash has been reversed and replaced with a charge which reflects the cash to
be paid to the beneficiary.
Unaudited Unaudited
9 month 9 month
Period Period Year
ended ended ended
31 July 31 July 31 October
2001 2000 2000
# # #
Recognised in arriving at operating
loss:
Employee Benefit Trust ("EBT")
- UITF 17 charge/(credit) - 883,007 (29,776)
- Employer's national insurance - (6,995) (30,362)
- Benefits awarded in cash - - 248,829
Long Term Incentive Plan ("LTIP")
- UITF 17 charge 138,155 - 149,405
-Employer's national insurance (17,919) - 23,271
------- ------- -------
120,236 876,012 361,367
------- ------- -------
3. LOSS PER ORDINARY SHARE
Unaudited Unaudited
9 month 9 month
period period Year
ended ended ended
31 July 31 July 31 October
2001 2000 2000
The calculation of basic loss per ordinary No. No. No.
share is based on the effective weighted
average number of shares in issue during
the period 24,890,994 22,499,443 22,978,598
---------- ---------- ----------
The adjusted loss per share is based on
the loss after tax before goodwill
amortisation and the charge in connection
with the Employee Share Incentives:
# # #
Loss after tax as reported 17,223,243 6,237,385 7,998,119
Less: Goodwill amortisation (1,692,658) (2,465,795) (3,293,997)
Goodwill impairment (10,128,628) - -
Charge in connection with
Employee
Share Incentives (120,236) (876,012) (361,367)
---------- --------- ---------
5,281,721 2,895,578 4,342,755
---------- --------- ---------
The effective weighted average number of ordinary shares used in the adjusted
loss per share calculation are the same as used in calculating the basic loss
per share.
4. reconciliation of operating loss to net cash outflow from operating
activities
Unaudited Unaudited
9 month 9 month
period period Year
ended ended ended
31 July 31 July 31 October
2001 2000 2000
# # #
Operating loss (17,595,936) (6,479,774) (8,526,939)
Depreciation 550,724 198,123 345,824
Amortisation of goodwill 1,692,658 2,465,795 3,293,997
Increase in stocks (41,016) (50,000) (227,471)
Increase in debtors (885,046) (1,009,508) (1,771,470)
(Decrease)/increase in creditors (701,047) 765,310 1,595,055
(Decrease)/increase in other (19,476) (6,995) (52,229)
provisions
Charge in connection with UITF 17 116,946 883,007 119,629
Goodwill impairment 10,128,628 - -
---------- --------- ---------
Net cash outflow from operating (6,753,565) (3,234,042) (5,223,604)
activities
--------- --------- ---------
5. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this interim statement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. The financial information for the full preceding period is based on the
statutory accounts for the financial period ended 31 October 2000. Those
accounts, upon which the auditors issued an unqualified opinion and made no
statement under section 237 of the Companies Act 1985, have been delivered to
the Registrar of Companies.
INDEPENDENT REVIEW REPORT
to Virtual Internet plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 5 to 12 and we have read the other information contained in the
report for the nine month period ended 31 July 2001 and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Directors' responsibilities
The report for the nine months ended 31 July 2001, including the financial
information contained therein, is the responsibility of, and has been approved
by the directors. The Listing Rules of the Financial Services Authority
require that the accounting policies and presentation applied to the figures
for the nine months ended 31 July 2001 should be consistent with those applied
in preparing the preceding annual accounts except where any changes, and the
reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board. A review consists principally of
making enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed
in accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on
the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the nine months
ended 31 July 2001.
Ernst & Young LLP
London
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