HOST EUROPE PLC
('Host Europe' or 'the Company' or 'the Group')
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2001
Host Europe PLC is one of Europe’s leading Internet hosting providers to the SME market. Today’s final results show turnover up over 129% to £9.53 million and EBITDA profit of £500,000 for the twelve months ended 31 December 2001.
Highlights
Year ended 31 December 2001 Year ended 31 December 2000
£'000 £'000
Turnover 9,529 4,160
Gross Profit 7,312 3,226
Earnings before interest, tax, depreciation and amortisation (EBITDA) 500 (1,268)
Retained loss for the period (34,232) (14,364)
Net cash inflow/(outflow) from operating activities 806 (797)
Loss per share (3.38p) (1.78p)
Cash at bank 937 2,642
§ Significant growth across all key financial metrics with turnover up 129% including organic growth year-on-year of 65%.
§ Strong growth in operating cash flow with the Company reporting an inflow of £822,000 for the second half of the year.
§ Significant improvement in key operating metrics with domains under management up from 76,000 to over 285,000; shared server accounts from 31,000 to 64,000 and dedicated/co-located servers hosted up from 1,200 to 3,200.
§ Successful launch of managed hosting services, including data backup, systems monitoring and firewall security, adding further value to the range of dedicated servers.
§ Completed new 2,500 sq ft London data centre and signed a new lease on 4,300 sq ft in Cologne, bringing total Group data centre space to 10,000 sq ft.
§ Graham J Duncan to retire as Chairman of the Board of Host Europe PLC at the forthcoming AGM but will continue to work with the Company in an advisory capacity. Maurice Benisty, currently a Non-Executive Director, to become new Chairman of Host Europe PLC.
§ Jonathan Brealey promoted to Group Managing Director where he will be responsible for the continued operational success of Host Europe PLC and will report to Abby Hardoon, Chief Executive.
§ Increased financial flexibility with committed leasing facilities for the purchase of up to £1.6m of IT hardware and software and committed undrawn borrowing facilities of £0.25m.
§ Goodwill amortisation charge for the year of £33,368,000 (2000: £12,914,000) includes an additional impairment charge of £14,812,000 following a prudent review of the balance sheet carrying value of goodwill at year-end.
Abby Hardoon, Chief Executive of Host Europe, commented:
“We have significantly increased EBITDA profitability and operating cash flow as well as achieving strong growth. We are extremely proud of this achievement, which has been attained against a backdrop of challenging market conditions. Our focus going forward will be to continue to extend our product offering and geographic coverage whilst ensuring we further improve the financial performance of the Group.
Our Chairman, Graham Duncan, will be retiring from the Board at the AGM and I would like to thank Graham for all his hard work in seeing Host Europe through the acquisition of our German business and look forward to a continued working relationship with him in an advisory role over the course of 2002. I am pleased to announce that Maurice Benisty has agreed to become our Chairman and also welcome Jonathan Brealey in his expanded role within Host Europe. I feel confident that we have the right team in place to achieve our objectives.”
19 March 2002
Enquiries:
Host Europe PLC Tel: 0208 896 7500
Abby Hardoon, Chief Executive
Stephen Halstead, Chief Financial Officer
Chairman's statement
Introduction
It has been an important year of progress and, despite a challenging economic environment for our industry, we are pleased to report, for the year ended 31 December 2001, revenue of £9,529,000 (2000: £4,160,000), EBITDA profit of £500,000 (2000: loss of £1,268,000) and operating cash inflow of £806,000 (2000: outflow of £797,000). Significantly, the Group was free net cash flow positive during the fourth quarter of 2001 as a result of strong operating cash flows and reduced capital expenditure. The retained loss for the year was £34,232,000 (2000: £14,364,000) and includes an additional goodwill impairment charge of £14,812,000 following a prudent review of the balance sheet carrying value of goodwill at the year-end. The investment we have made in our infrastructure and the development of a strong portfolio of hosting products and services is starting to yield results. Our business is now highly scaleable and the emphasis going forward will be to grow revenues substantially at a low marginal cost to the Group.
Host Europe has made excellent progress towards achieving its mission to become one of the top three European providers of internet hosting solutions to the small to medium sized enterprise (“SME”) market. In conjunction with strong organic growth in the UK, we took a major step in the development of our business internationally through the acquisition of One-2-One Advertising & Telecommunications GmbH (“One-2-One”) in Germany. As a result, Host Europe has a strong foothold in the two largest markets for internet hosting in Europe, and has built a leading position in the European market for the provision of dedicated servers to SMEs. In addition, we have further expanded the range of higher value and higher margin managed services that we offer to customers with more sophisticated requirements.
Strategy
Host Europe’s strategy is to consolidate its leadership position through the continual development of innovative products, the provision of excellent customer service and tight cost control. The Board is convinced that most small and medium sized businesses will choose to outsource their internet hosting services due to lack of internal expertise, for cost savings purposes or due to concerns with reliability or performance. Our customers rely on Host Europe’s internet hosting expertise and state of the art infrastructure, and by standardising products and services and operating efficiently we are able to provide excellent value for money to our customers. We are committed to building on our expertise in managing relationships with SMEs and enhancing the service we offer under our leading internet hosting brands. We are developing an organisation with the competence, scale and resources to deliver the highest quality service to our customers as efficiently as possible.
The building of long lasting customer relationships is of crucial importance to the success of Host Europe, aided by the provision of excellent technical support and customer service. Providing a high quality of service makes our customers more likely to renew their hosting contracts, buy additional products and services and recommend Host Europe to friends and colleagues. We are delighted that our largest source of new business enquiries and orders is from recommendations.
Rapid product development and deployment have established Host Europe as a leader in the UK and a significant player in Germany. Further enhancements to our product range, continued development of our higher end managed services and the introduction of additional products and services to cross-sell to our ever-growing customer base, should provide the impetus for continued strong organic revenue growth during 2002.
In addition to pursuing strong organic growth, the Group continues to seek and evaluate potential acquisition targets with a view to strengthening its position as a leading European hosting company. Rolling out our proven products and services would add significant value to acquired companies in unserved territories. Further consolidation of the UK and German hosting markets would also provide the potential to cut significant costs through the integration of operations and your Board remains alert to interesting opportunities that could add value, particularly in these depressed markets.
Board changes
Over the course of the past two years we have recognised the strong operational management skills demonstrated by Jonathan Brealey and have therefore promoted him to the position of Group Managing Director. In this role Jonathan's primary objective will be to continue to develop new products for the Group, build best in class service practices and ensure common front and back office systems throughout the UK and German businesses. Jonathan will report to Abby Hardoon, Chief Executive of the Group.
In addition to executive management changes, I will retire from the Board as Non-Executive Chairman at the time of the forthcoming Annual General Meeting, but will continue to work with Host Europe in an advisory role. I look forward to a continued relationship with the Company knowing that it is in a good position to expand its business going forward. Maurice Benisty, who has been a Non-Executive Director of the Company since the business came to the AIM market in September 1999, will replace me as Non-Executive Chairman and I wish him well in his new role.
People
Our performance and potential for the future depend on the dedicated people who make up our Company. We take this opportunity to thank all our employees for their commitment to serving our customers. They continue to show that it is by focusing on the needs of our customers that we can achieve the ambitious targets we consistently set ourselves.
Staff numbers in the UK remained at 79 as of 31 December 2001, and with the 31 staff employed in Germany, overall staff numbers increased from 79 at the end of December 2000 to 110 at the end of December 2001.
Current trading and prospects
Despite a challenging economic climate, we have made an encouraging start to the year.
We are optimistic the internet hosting market will continue to grow in Europe over the next few years in response to higher levels of broadband access penetration and internet usage generally. As the complexity of internet hosting increases, we expect SMEs will choose to outsource their hosting requirements to service providers such as ourselves in ever increasing numbers. It is estimated that Western European web hosting spending will continue to grow from €2.1bn in 2001 to €7.7bn by 2005 (Source: IDC 2001) with over 60% of the demand represented by SMEs during this period. The track record we are establishing demonstrates our ability to capitalise on this opportunity.
Graham J Duncan
Chairman
19 March 2002
Chief Executive’s statement
Performance
Against a background of highly competitive markets, the year to 31 December 2001 was one of further exceptional growth for Host Europe. The following table summarises the Group’s performance over the past 24 months:
1st Half 2000 2nd Half 2000 1st Half 2001 2nd Half 2001
Turnover - £’000 1,080 3,080 4,174 5,355
EBITDA - £’000 (1,157) (111) 60 440
Operating cash flow - £’000 (765) (32) (16) 822
Domain names managed – Total No. 36,000 76,000 190,000 285,000
Shared servers hosted – Total No. 23,000 31,000 51,000 64,000
Dedicated and co-located servers – Total No. 370 1,200 2,300 3,200
Customers – Total No. 14,000 18,000 31,000 55,000
As the table shows, Host Europe has continued to achieve strong growth during 2001 with turnover up by over 129% for the year ended 31 December 2001 compared to the same period in 2000. We continue to win many new customers and to extend our relationships with existing customers. Pro forma revenues, assuming all subsidiary undertakings had been consolidated for the full year for both 2000 and 2001, were £9,713,000 compared to £5,863,000 for 2000, representing organic growth of 65%. Earnings before interest, tax, depreciation and amortisation showed a profit of £500,000, compared to a loss of £1,268,000 for the previous year, reflecting the Group’s ability to continue to aggressively grow sales whilst maintaining tight control of costs.
Retained loss for the period was £34,232,000, compared to £14,364,000 for the same period in 2000, and includes a charge for goodwill amortisation and impairment of £33,368,000 (2000: £12,914,000). The goodwill amortisation charge for the year includes an additional impairment charge of £14,812,000 following a prudent review of the balance sheet carrying value of goodwill at the year-end. The goodwill impairment charge relates to the write down of goodwill that arose on the acquisition of Magic Moments Design Limited and WebFusion Internet Solutions Limited. Adjusted loss per share, excluding amortisation, was 0.09p (2000: 0.18p).
Net cash as at 31 December 2001 was £937,000. Operating cash inflow for the year was £806,000 compared to an outflow of £797,000 during 2000. During the second half of the year net free cash outflow was reduced to £9,000 with positive net free cash flow being achieved in the final quarter of 2001. This was achieved as a result of strong operating cash flows and reduced levels of capital expenditure following the completion of a significant expansion of our UK data centre facilities in the first half of the year. We are now focussed on investing our internally generated cash flow into the development of the rapidly growing dedicated server business in the UK and Germany.
Our strategy over the past 12 months has been to aggressively promote our domain name registration and dedicated server business lines to counter price pressure experienced for our shared hosting products. In the UK, demand for our domain name registration and e-mail services through www.123-reg.co.uk has been robust over the course of 2001 with our market share of monthly new domain name sales increasing from an estimated 7% to 12.5% over the 12 month period. Our dedicated server business (www.dedicated-servers.co.uk) has seen continued strong demand with annual revenue per server on new business increasing from £1,450 to £2,200 as we broaden the range of products available and develop new value added services. Shared hosting under our WebFusion (www.webfusion.co.uk) and Magic Moments (www.magic-moments.com) brands has continued to grow over the period, in terms of number of domains hosted, however revenues have been static year on year as higher spending customers move on to our dedicated server packages.
In Germany we believe that the market for hosting solutions is less developed than that of the UK. As a result, we see considerable further potential for growth in demand for our dedicated server range. The launch of our dedicated server range in Germany in June 2001 has been the key driver for the doubling of our German revenue base over the course of the year, with German sales of dedicated servers now accounting for 30% of the volume for the Group as a whole. Notwithstanding the investment made in sales development in Germany, EBITDA profitability was achieved in the second half of the year.
Developments
In March 2001, the Group completed the acquisition of 51% of One-2-One for a total consideration of £2.2 million of which £1.0m was retained within One-2-One to fund the ongoing development of the company. The acquisition represents a significant step in the implementation of the Group’s strategy, building on its position as a leading provider of internet hosting services in the UK by gaining exposure to the German market. We are very encouraged by the development of the dedicated servers business and the financial performance of the business is showing continual improvement as regards to both sales and profitability. Therefore, the Group is likely to exercise the option to purchase the remaining 49% of One-2-One not currently owned by the Group for a consideration of up to a maximum of 44,212,343 ordinary shares in Host Europe PLC (equivalent to £928,000 at the year-end share price), representing excellent value for the Group. A further 4,565,428 ordinary shares are likely to be issued in July 2002, in accordance with the terms of the purchase agreement, to reward Uwe Braun, Germany Country Manager.
The Board has been delighted with the progress and full integration of WebFusion since its acquisition in May 2000. Under the terms of the purchase agreement the vendors of WebFusion, having achieved certain sales targets for 2001, are entitled to the final maximum deferred consideration of 77,165,354 ordinary shares (equivalent to £1,620,000 at the year-end share price). Application will be made shortly for admission of these shares to trading on AIM.
We recently announced the successful launch of our new high-end web hosting solutions designed to cope with the demands of hosting large corporate web sites. The new Corporate and Advance solutions, available on Windows or Linux operating systems, are aimed at businesses that need high-capacity, high-quality dedicated hosting solutions. Packages are bundled with either two or three web servers and include load balancing, firewall protection and daily data backup services. In addition, we are achieving considerable success in winning contracts for managed hosting services with an annual value in the £10,000 to £50,000 range. The Group is developing a strong team of technical experts and automated systems to deliver these high quality, high value services to our customers.
In the first half of 2001, the Group completed the construction of its new data centre facility in London and it is anticipated that the Group has enough data centre space in the UK to last throughout 2002. In Germany, Host Europe will be moving its current Cologne-based offices and data centre infrastructure into KPNQwest’s EuroRing™ facility in Cologne. The full facility, comprising 4,300 sq ft of data centre space will be leased for an initial term of five years and brings the Group’s total data centre space to 10,000 sq ft. Host Europe also plans to move its German staff into the building, which will be fully branded as a Host Europe office. The Group has been able to reach a very attractive agreement that avoids the necessity for significant infrastructure capital expenditure in Germany while at the same time allowing us to continue to control our own operations in order to meet the strong demand for our hosting services in the German market. As a result of these developments capital expenditure for 2002, both in the UK and Germany, will be directly related to customer demand for our dedicated server services.
Significant focus has been given to improving the efficiency of our operations through the automation of our business processes. The result was that whilst UK revenues rose significantly during the year the number of UK employees remained the same. Work is continuing in Germany in order to further enhance systems and processes to achieve further operational efficiencies across the Group.
Abby Hardoon
Chief Executive
19 March 2002
HOST EUROPE PLC
Consolidated profit and loss account for the year ended 31 December 2001
Note unaudited unaudited audited audited
2001 2001 2000 2000
£'000 £'000 £'000 £'000
Turnover
Continuing operations:
- ongoing 8,032 4,160
- acquisition - One-2-One Advertising and
Telecommunications GmbH 1,497 -
_______ ________
Group turnover 9,529 4,160
Cost of sales (2,217) (934)
_______ ________
Gross profit 7,312 3,226
Administrative expenses
General administrative expenses (6,812) (4,494)
Depreciation (1,278) (376)
Goodwill amortisation and impairment charge (33,368) (12,914)
_______ ________
(41,458) (17,784)
_______ ________
Operating loss
Continuing operations:
- ongoing (33,448) (14,558)
- acquisition – One-2-One Advertising and
Telecommunications GmbH (698) -
_______ ________
Loss on ordinary activities before interest (34,146) (14,558)
Provision for impairment in value of other investments (276) -
Interest receivable 159 228
Interest payable (156) (34)
_______ ________
Loss on ordinary activities before taxation (34,419) (14,364)
Taxation on loss from ordinary activities 91 -
_______ ________
Loss on ordinary activities after taxation (34,328) (14,364)
Minority Interest 96 -
_______ ________
Retained loss for the period (34,232) (14,364)
_______ ________
Loss per share – basic and diluted 3 (3.38)p (1.78)p
Loss per share – excluding goodwill amortisation
and impairment charge (0.09)p (0.18)p
_______ ________
All recognised gains and losses are included in the profit and loss account.
HOST EUROPE PLC
Consolidated balance sheet at 31 December 2001
unaudited unaudited audited audited
2001 2001 2000 2000
(as restated) (as restated)
£'000 £'000 £'000 £'000
Fixed assets
Intangible assets 9,685 41,251
Tangible assets 3,909 2,144
Investments - 156
_______ _______
13,594 43,551
Current assets
Debtors 1,528 1,102
Long term deposits 2,870 1,170
Cash at bank and in hand 937 2,642
_______ _______
5,335 4,914
Creditors: amounts falling due
within one year 3,627 2,167
_______ _______
Net current assets 1,708 2,747
_______ _______
Total assets less current liabilities 15,302 46,298
Creditors: amounts falling due after
more than one year 2,491 2,000
Provisions for liabilities and charges 149 240
_______ _______
Net assets 12,662 44,058
_______ _______
Capital and reserves
Called up share capital 10,440 9,091
Share premium account 7,351 5,458
Shares to be issued - deferred consideration 9,800 18,800
Share scheme reserve 176 176
Merger reserve 33,888 25,597
Profit and loss account (49,303) (15,064)
_______ _______
Shareholders' funds - equity 12,352 44,058
Minority interests – equity 310 -
_______ _______
12,662 44,058
_______ _______
HOST EUROPE PLC
Consolidated cash flow statement for the year ended 31 December 2001
unaudited unaudited audited audited
Note 2001 2001 2000 2000
£'000 £'000 £'000 £'000
Net cash inflow/(outflow) from
operating activities 4 806 (797)
Returns on investments and
servicing of finance
Interest received 159 228
Interest paid (106) (34)
Interest element of finance lease
rental payments (50) -
_______ _______
3 194
Taxation
Corporation tax paid - (19)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,779) (1,940)
Payments to acquire other investments (120) (156)
Proceeds on disposal of fixed assets 36 13
_______ _______
(1,863) (2,083)
Acquisitions and disposals
Purchase of subsidiary undertakings (1,207) (475)
Net cash acquired with subsidiary
undertakings (14) 241
_______ _______
Net cash outflow from acquisitions
and disposals (1,221) (234)
_______ _______
Net cash outflow before use of liquid
resources and financing (2,275) (2,939)
Management of liquid resources
Increase in long term deposits (1,700) (1,170)
Financing
Issue of ordinary share capital 2,500 4,900
Expenses of issue of ordinary share capital (20) (174)
Exercise of share options 3 52
Capital element of finance lease repayments (213) -
_______ _______
Net cash inflow from financing 2,270 4,778
_______ _______
(Decrease)/increase in cash (1,705) 669
_______ _______
Notes to the Financial Information
1. Publication of non-statutory accounts
The financial information contained in this preliminary statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2001 has been extracted from the unaudited Group financial statements.
2. Annual Report
The Annual Report for the results for the year to 31 December 2001 will be mailed to shareholders on 11 April 2002 and available on our web site shortly thereafter.
The following are extracts from the notes to the unaudited Group financial statements for the year ended 31 December 2001.
3. Loss per share
The calculation of loss per share is based on the following information:
2001 2000
Number of Number of
Shares Shares
Weighted average number of shares:
For basic and diluted earnings 1,013,935,381 807,585,490
____________ ____________
Loss: Basic and diluted
2001 2000
£’000 £’000
Loss for the financial year (34,232) (14,364)
Goodwill amortisation and impairment charge 33,368 12,914
_______ _______
(864) (1,450)
_______ _______
Per share Per share
p p
(Loss) (3.38) (1.78)
Goodwill amortisation and impairment charge 3.29 1.60
_______ _______
(Loss) before goodwill amortisation and impairment charge (0.09) (0.18)
_______ _______
4. Reconciliation of operating loss to net cash inflow/ (outflow) from operating activities
2001 2000
£'000 £'000
Operating loss (34,146) (14,558)
Depreciation 1,278 376
Amortisation and impairment charge 33,368 12,914
Profit on disposal of assets (9) (2)
Increase in debtors (338) (636)
Increase in creditors 653 1,069
Increase in provisions - 40
_______ _______
Net cash inflow from operating activities 806 (797)
_______ _______
5. Reconciliation of net cash flow to movement in net funds
2001 2000
£'000 £'000
(Decrease)/ increase in cash in the year (1,705) 669
Cash outflow from increase in long term deposits 1,700 1,170
Cash outflow from decrease in lease financing 213 -
_______ _______
Change in net funds resulting from cash flows 208 1,839
New finance leases (1,096) -
Loan notes issued and expected to be issued in connection with
the acquisition of WebFusion Internet Solutions Limited - (2,000)
_______ _______
Movement in net funds in the year (888) (161)
Net funds at 1 January 2001 1,812 1,973
_______ _______
Net funds at 31 December 2001 924 1,812
_______ _______
6. Reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA)
2001 2000
£'000 £'000
Loss on ordinary activities before interest (34,146) (14,558)
Depreciation 1,278 376
Amortisation and impairment charge 33,368 12,914
_______ _______
Earnings before interest, tax, depreciation and amortisation 500 (1,268)
_______ _______
7. Restated financial statements
The financial statements have been restated to reflect that section 131 merger relief was available on the acquisition of Magic Moments Internet Services Limited in 1999 and WebFusion Internet Solutions Limited in 2000. Accordingly the shares issued or to be issued in connection with those acquisitions have been recorded at their nominal value and not at their fair value at acquisition in the Company balance sheet. In the consolidated balance sheet the difference between the fair value of the shares issued or to be issued and their nominal value has been credited to merger reserve.
