RNS Number:7896I
Host Europe PLC
17 March 2003
HOST EUROPE PLC ("Host Europe" or the "Company")
Preliminary Results for the year ended 31 December 2002
Host Europe is one of Europe's leading internet hosting providers to the SME
market. Today's results show turnover up 44% to #13.7 million and EBITDA profit
of #2.08 million.
HIGHLIGHTS
Year ended 31 Year ended 31
December 2002 December 2001
#'000 #'000
Turnover 13,708 9,529 +44%
Gross Profit 10,323 7,312 +41%
Earnings before interest, tax, depreciation and 2,079 500 +316%
amortisation (EBITDA)
Profit before taxation and excluding goodwill 27 (1,051)
amortisation and impairment charges
Retained loss for the period (163) (34,232)
Net cash inflow from operating activities 3,273 806 +306%
Loss per share (0.01)p (3.38)p
Unrestricted cash at bank 2,520 937 +169%
* Turnover up strongly by 44% including organic growth year-on-year of 41%.
* Continued significant improvement in trading performance, with EBITDA up 316%.
* The Group became increasingly cash generative during the year, with operating cash inflow of #2,207,000 for the
second half of the year compared to #1,066,000 in the first half.
* Significant improvement in key operating metrics, with domains under management up from 285,000 to over 435,000;
shared server accounts from 64,000 to 75,000; dedicated/co-located servers hosted up from 3,200 to 4,200 and total
customers up from 55,000 to 91,000.
* Following a significant development effort, the Group launched a major upgrade to its shared server hosting
platform in October, establishing the Group at the forefront of shared server platform technology.
* Dedicated server product range extended and enhanced with the launch of enterprise hosting solutions and the
addition of easy-to-use server management software to all existing products. In addition, a partner programme was
launched to attract repeat dedicated server business from web design and systems integration companies.
* The 123-reg.co.uk brand has become a leader in the UK's domain name registration market. Services were extended
with the launch of an easy-to-use web site builder product, a competitive dial-up connectivity service and low-cost
hosting and e-mail services providing a broad range of up-sell products.
Maurice Benisty, Chairman of Host Europe, commented:
"Over the course of 2002 Host Europe has increased market share in the fast growing internet hosting market. Strong
revenue growth has been achieved without a corresponding increase in our fixed operating or capital costs which in turn
has delivered significant improvements in profitability and cash flows.
We believe that Host Europe is well positioned to capitalise on continued market growth for the foreseeable future as
internet usage and broadband penetration continues to improve. I would like to thank all our employees for their hard
work which has resulted in the strong set of results being reported here today. It is our focus on first rate customer
service and continued product development, combined with sound financial management, that will continue to drive our
success going forward."
Enquiries:
Host Europe plc
Stephen Halstead, Finance Director Tel: 020 8896 7500
Walters Associates
Alex Walters Tel: 07771 713608
CHAIRMAN'S STATEMENT
Introduction
The internet hosting market has undergone significant upheaval over the past three years as a large scale
infrastructure led investment boom has given way to a withdrawal from the market of some of the sector's largest
participants. During this period Host Europe has maintained an unrelenting focus on the segment of the market that we
understand, namely the provision of internet hosting solutions to the small to medium sized enterprise market ("SME").
As a result of this focus, and of the continued move by the SME market to establish and develop an online presence, the
Group has been able to continually deliver significant revenue and profits growth against what has been a difficult
economic background.
Whilst 2001 represented a year of investment for the Group in data-centre infrastructure, new product launches and
geographical expansion, 2002 has been a year where the focus of the Board has been on delivering a return on that
investment to our shareholders. Revenues have increased from #9,529,000 in 2001 to #13,708,000 in 2002 and EBITDA has
grown from #500,000 to #2,079,000 whilst our investment in capital expenditure and acquisition related spend fell from
#3,084,000 to #1,364,000, over the corresponding period. Our ability to reduce direct unit costs and control increases
in fixed costs as our top line continues to grow rapidly has contributed significantly to this performance. Host Europe
management has been incentivised to improve our operating metrics and to continue to increase the efficiency of the
business processes adopted by the company. The achievement of these objectives has delivered the strong improvement in
the financial performance of the business over the course of 2002.
In the first half of 2002 we announced a change in our accounting estimate relating to the amortisation of goodwill. To
reflect the continual growth and development of the internet and Host Europe's progress in achieving positive free cash
flow and operating profit before goodwill amortisation, the economic life of all acquired goodwill has been increased
to 20 years from the date that each acquisition was completed. As a result of the change the company can now focus on
delivering a net profit to its shareholders over the course of 2003 with a balance sheet that more accurately reflects
the value of the assets contained within the business.
Operating cash flows were very strong with an inflow of #3,273,000 for 2002 and reflects both the operating leverage of
the business and significant improvements in working capital management achieved over the past twelve months. We
anticipate this positive trend continuing as the Group continues to reap the rewards from the investment we have made
in building a large recurring revenue base. Unrestricted cash at bank increased to #2,520,000 at year-end representing
an increase of #1,583,000 against previous year's levels.
Following the strong growth in net cash flows during 2002 and our expectation that positive net cash flows, excluding
any acquisition activity, will continue in the medium term, we will seek shareholder approval at the next Annual
General Meeting to offset the retained losses of Host Europe PLC against the share premium account and authorise the
Board to buy back Host Europe ordinary shares. In addition, subject to generating sufficient profits in 2003, we would
be able to pay a dividend to shareholders from 2004 onwards should the Board consider it appropriate. The reduction in
the share premium account will also require court approval and this will be sort should the relevant resolutions be
passed at the AGM.
Strategy
Host Europe's strategy is to focus geographically on the UK and German markets and leverage off common standards and
platforms for its operations. Whilst we are always evaluating entry points into other markets, it is the Group's
priority to meet our profitability targets in both territories prior to expanding further into Europe. We are confident
in our ability to produce a positive operating result in Germany over the course of 2003 and we continue to see strong
growth potential in the German market.
Our product strategy is focussed primarily on the development of services that are related to, and enhance, our
existing product set, namely domain name registration, shared hosting and dedicated servers. New product development
has been an important area of investment for Host Europe. Accordingly the past six months has seen the introduction of
a new control panel for our shared server products, a low cost hosting solution for our 123-reg customers and
continuing enhancements and improvements to our high end enterprise hosting solutions. This will continue to be the
case for the Group as we refine our products so as to take market share from our competitors and meet new market
demands.
In addition to new product development, we continue to develop new sales channels to further penetrate the SME market.
This has been a particular priority with the high-end dedicated server range where we have enhanced our marketing
activities and have introduced a field sales team to target some of the larger SME customers not reached by our current
sales and marketing channels.
As at the end of 2002, Host Europe had over 91,000 customers, all of whom have a direct billing relationship with the
Group. Over the course of 2003 we will be looking to continue to launch new services to that customer base, both
through internally developed products and as a reseller of products developed by our partners. This is an effort that
will take place in the UK as well as Germany where a number of exciting new initiatives have already been launched.
In summary, our focus over the course of 2003 will be to make further progress in achieving the EBITA and EBITDA
medium-term targets set out earlier this year of 10% and 20% margins on revenue, respectively. We will do this
primarily through a strategy of organic growth as we continue to leverage the investment we have made in our fixed
asset infrastructure over the past three years. We will be seeking to further identify efficiency gains within the
business, increase market share through investments in our products and capitalise on continued growth in the market
for hosting services.
People
Our performance and potential for the future depend on the dedicated people who make up our Company. In 2002 we
launched a programme called "a measure of our success", this programme helps our employees understand their department
and the groups targets. The programme has been a huge success with all of our employees striving towards the company's
goals. 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.
Employee numbers in the UK increased to 100 as of 31 December 2002, and with the 36 people employed in Germany, overall
employee numbers increased from 110 at the end of December 2001 to 136 at the end of December 2002.
Current trading and prospects
Despite an uncertain economic climate, we have made a strong start to 2003.
We believe that the rapid growth in broadband usage, the increasing emphasis being placed on developing a high quality
internet presence for the SME market and our ability to further develop our sales channels will enable us to maintain
this positive momentum over the course of 2003.
Maurice Benisty
Chairman
17 March 2003
OPERATIONAL REVIEW
Performance
During the year, Host Europe enjoyed further exceptional growth whilst achieving significant improvements in
profitability and cash flows. The following table summarises the Group's performance over the past 3 years:
2000 2001 2002
Turnover - #'000 4,160 9,529 13,708
EBITDA - #'000 (1,268) 500 2,079
Operating cash flow - #'000 (797) 806 3,273
Domain names managed - Total No. 76,000 285,000 435,000
Shared servers hosted - Total No. 31,000 64,000 75,000
Dedicated and co-located servers - Total No. 1,200 3,200 4,200
Customers - Total No. 18,000 55,000 91,000
As the table shows, Host Europe turnover was up by 44% for the year ended 31 December 2002 compared to the same period
in 2001. Our strong product offerings and effective sales and marketing strategy enabled the Group to win many new
customers and to extend our relationships with existing customers. Revenues were #13,708,000 compared to pro forma
revenues for 2001 of #9,713,000, which assumes Host Europe GmbH had been owned for the full year in 2001, representing
organic growth of 41%. Earnings before interest, tax, depreciation and amortisation showed a profit of #2,079,000,
compared to #500,000 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 year was #163,000, compared to #34,232,000 for 2001, and includes a charge for goodwill
amortisation and impairment of #532,000 (2001: #33,368,000). Excluding charges for goodwill amortisation and
impairment, operating profit for 2002 was #101,000 compared to a loss of #778,000 in 2001. The improvement in
underlying profitability reflects our ability to develop increased revenues whilst constraining our cost base. The
loss per share was 0.01p compared to 3.38p in 2001. Adjusted earnings per share, excluding goodwill amortisation and
impairment, was 0.03 p (2001: loss of 0.09p).
Net cash as at 31 December 2002 was #2,520,000 (2001: #937,000). Operating cash inflow for the year was #3,273,000
compared to #806,000 during 2001. The increase in free cash is the result of strong improvements in operating cash
flows, improved working capital management and constrained capital expenditure. Achieving strong cash generation will
continue to be a major focus in 2003 allowing the Group to take full advantage of the growth opportunities in internet
hosting in our prime markets, the UK and Germany.
Our strategy over the past 12 months has been to further enhance and broaden our product offerings in our three core
segments, dedicated server hosting, shared server hosting and domain name registration, as well as broaden our channel
to market. We have increased and strengthened our internal product development resources with the aim of maintaining a
clear technological lead over our major competitors, being able to launch new related products to leverage off our
large customer base, and further improve the automation and efficiency of our internal systems.
In the UK, our dedicated server business (www.dedicated-servers.co.uk) has seen continued strong demand reflecting our
success in developing a broad the range of products from basic server solutions to high-end enterprise level solutions
comprising significant value added system management 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, though revenues were again static year on year as higher spending customers upgrade to our dedicated server
hosting solutions. Demand for our domain name registration and e-mail services through www.123-reg.co.uk has been
robust over the course of 2002 with our market share of monthly new domain name sales increasing from an estimated
12.5% to 15.3% over the 12 month period. An increasing proportion of the revenue from our 123-reg brand comes from
higher margin add on services.
In Germany sales were up over 67% compared to 2001 with all product segments showing strong growth. Having completed
the successful migration of our German infrastructure to a 4,300 sq ft carrier class data centre, management is now
able to focus solely on the profitable development of our product offering and sales and marketing strategy.
Developments
Our business development is highly focused on product development, sales and marketing for our three product areas;
Dedicated Servers, Shared Hosting and Domain Name Registration. Our strategy has been to roll out common products and
services throughout the UK and Germany with all new product development delivered through a central team based in
Nottingham.
Dedicated Servers. Our dedicated server range of products includes a broad range of managed and unmanaged dedicated
web server services. During the year, we launched our range of enterprise hosting solutions, which target customers
with sophisticated requirements looking to outsource the provision and management of their hosting infrastructure. We
have continued to invest in the development of our server management software for all Linux and Windows dedicated
servers, which differentiates our products from those of our competitors and improves the value proposition we offer to
our customers. Having established a high quality and competitive offering of services to meet the needs of customers
with more sophisticated hosting requirements, in January 2003, we introduced a field sales team to enable the Group to
penetrate the market for hosting contracts in the #25,000 to #100,000+ per annum range. Initial results have been
promising and we expect these efforts to enable the Group to achieve further strong growth in the dedicated server
product line. To leverage off our leading range of products we have also introduced a partner programme to incentivise
web consultants and system integrators to bring us repeat business. Furthermore, a significant proportion of the
growth in dedicated server revenues has come from existing customers upgrading from low-end dedicated solutions or
shared hosting to our extensive range of scaleable higher-end solutions. A key aspiration of the group has been to
enable customers to seamlessly move between our different product ranges and therefore retain customers within the
group as our customers' businesses grow.
Shared Hosting. Shared server hosting continues to be a very important revenue generator for the Group. This is an
area where we have experienced significant competition at the lower consumer orientated end of the product range where
barriers to entry are low and demand is highly price sensitive. To counter this competition, we launched a low-cost
hosting offering through our 123-reg brand and a highly competitive easy-to-use web site builder product that allows
consumers to establish a web presence easily and cheaply. In October, following a major development effort by the
groups product development team, we launched MyServerWorld 10.0TM, a set of web-based tools and features that firmly
establishes the Group at the forefront of shared server web hosting technology. The range of features and ease of use
of MyServerWorld 10.0TM provide the Group with a major competitive advantage in the professional, business and reseller
sector of the shared hosting market. Resellers of our shared hosting products have always been an important part of our
shared hosting strategy, the release of MyServerWorld 10.0TM has brought about significant benefits to these customers,
most importantly the ability for our resellers to used white label products and interfaces. In addition, we
significantly increased the specification of our packages to include, for example, greater disk space and data transfer
allowances than the vast majority of our competitors. Building on this development effort, we will seek to
aggressively increase our share of the shared server hosting market during 2003. We are also focused on broadening our
channels of distribution and to that end we have formed an alliance with WorldPay to promote Host Europe's products and
services to WorldPay's 16,000 customers.
Domain Name Registration ("DNR"). Through our highly automated domain registration service 123-reg.co.uk, we have
increased our market share of .co.uk names registered from an estimated 12.5% in December 2001 to 15.3% at the end of
December 2002. In addition to generating meaningful revenues and profits, our DNR service now has over 40,000
customers and represents an important source of hosting business as customers upgrade to shared and dedicated hosting
solutions. In addition to upgrading customers, during the year we have launched a low-cost shared server hosting
offering, an easy-to-use web site builder product, a competitive dial-up connectivity service and low-cost e-mail
services to provide a broad range of up-sell products.
The Group now owns 5,700 sq ft of data centre space in the UK, split between Nottingham and London, and has a further
4,300 sq ft of space rented in Germany. Based on current dedicated and co-located server growth trends, we plan to
extend our London data centre in the second half of 2003. Relative to the cost of initially establishing the data
centre facility, the expected cost of expansion will be modest. It is envisaged that there will be no additional data
centre space requirements in Germany during the current year.
The remaining 49% of One-2-One in Germany was acquired in August 2002 and was satisfied by the issue to the Vendors,
Mike Behrendt and Uwe Braun, of 32,971,076 and 4,926,713 new ordinary shares respectively as consideration. Mr
Behrendt, who is no longer employed by the Company, has undertaken not, save in specified circumstances, to dispose of
any shares for a period of 6 months. Subsequently, he can sell up to 989,132 shares per quarter until 12 August 2004.
He may also dispose of further shares if certain price thresholds are achieved or breached. In addition, Uwe Braun,
who is now our General Manager in Germany, received 4,565,428 loyalty shares for having remained employed by Host
Europe beyond 1st July 2002, as per the terms of the original agreement.
During the year we continued to invest in the development of our internal systems and processes to further improve
efficiency and customer service. The programmes we have implemented have been wide ranging but include the
consolidation of core functions such as sales, marketing, customer services, technical support and product development
to our Nottingham office to lower operating costs and the development of sales source tracking systems to enable the
group to accurately cut ineffective advertising. The results of our work are apparent in the improved profitability and
cash flow we have achieved and, during 2003, will allow the Group to further grow revenues whilst constraining our cost
base.
Abby Hardoon Jonathan Brealey
Chief Executive Officer Group Managing Director
17 March 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
31 DECEMBER 2002
2002 2002 2001 2001
#'000 #'000 #'000 #'000
Group turnover 13,708 9,529
Cost of sales (3,385) (2,217)
Gross Profit 10,323 7,312
Administrative expenses
General administrative expenses (8,244) (6,812)
Depreciation (1,978) (1,278)
Goodwill amortisation and impairment
charge (532) (33,368)
(10,754) (41,458)
Operating loss (431) (34,146)
Provision for impairment in value of - (276)
other investments
Interest receivable 130 159
Interest payable (204) (156)
Loss on ordinary activities before (505) (34,419)
taxation
Taxation on loss from ordinary 250 91
activities
Loss on ordinary activities after (255) (34,328)
taxation
Minority interest 92 96
Retained loss for the year (163) (34,232)
Loss per share - basic and diluted (0.01)p (3.38)p
Earnings / (loss) per share -
excluding goodwill amortisation and
impairment charge 0.03p (0.09)p
All amounts relate to continuing activities.
All recognised gains and losses are included in the profit and loss account.
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2002
2002 2002 2001 2001
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets 9,534 9,685
Tangible assets 3,770 3,909
13,304 13,594
Current assets
Debtors 1,378 1,528
Long term deposits 2,170 2,870
Cash at bank and in hand 2,520 937
6,068 5,335
Creditors: amounts falling due within one year 6,301 3,627
Net current (liabilities)/assets (233) 1,708
Total assets less current liabilites 13,071 15,302
Creditors:amounts falling due after more than one 212 2,491
year
Provisions for liabilities and charges 149 149
Net assets 12,710 12,662
Capital and reserves
Called up share capital 11,637 10,440
Share premium account 7,427 7,351
Shares to be issued - deferred consideration - 9,800
Share scheme reserve 56 176
Merger reserve 42,917 33,888
Profit and loss account (49,327) (49,303)
Shareholders' funds - equity 12,710 12,352
Minority interest - equity - 310
12,710 12,662
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2002 2001 2001
#'000 #'000 #'000 #'000
Net cash inflow from operating activities 3,273 806
Returns on investments and servicing of finance
Interest received 130 159
Interest paid (92) (106)
Interest element of finance lease (112) (50)
rental payments
(74) 3
Capital expenditure and financial investment
Payments to develop intangible assets (101) -
Purchase of tangible fixed assets (1,263) (1,779)
Payments to acquire other investments - (120)
Proceeds on disposal of fixed assets - 36
(1,364) (1,863)
Acquisitions and disposals
Purchase of subsidiary undertakings - (1,207)
Net cash acquired with subsidiary undertakings - (14)
Net cash outflow from acquisitions and disposals - (1,221)
Net cash inflow/(outflow) before use of liquid 1,835 (2,275)
resources and financing
Management of liquid resources
Decrease/(increase) in long term deposits 700 (1,700)
Financing
New bank loan 104 -
Issue of ordinary share capital - 2,500
Expenses of issue of ordinary share capital - (20)
Exercise of share options - 3
Capital element of finance lease payments (1,056) (213)
Net cash (outflow) / inflow from financing (952) 2,270
Increase (decrease) in cash 1,583 (1,705)
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 years ended 31 December 2002 and 31 December
2001 have been extracted from the audited Group financial statements for those years. The auditors' report on the 2001
financial statements, which have been filed with the Registrar of Companies, was unqualified and did not contain any
statement under section 237(2) or (3) of the Companies Act 1985.
2. Annual Report
The Annual Report for the results for the year ended 31 December 2002 will be mailed to shareholders on or before 8
April 2003 and available on our web site shortly thereafter.
3. Loss per share
The calculation of loss per share is based on the following information:
2002 2001
Number of Number of
Shares Shares
Weighted average number of shares:
For basic and diluted earnings 1,105,625,273 1,013,935,381
____________ ____________
Basic and diluted
2002 2001
#'000 #'000
Loss for the financial year (163) (34,232)
Goodwill amortisation and impairment charge 532 33,368
_______ _______
Earnings / (loss) before goodwill amortisation and impairment charge 369 (864)
_______ _______
-
Per Share Per Share
p p
(Loss) (0.01) (3.38)
Goodwill amortisation and impairment charge 0.04 3.29
_______ _______
Earnings / (loss) per share before goodwill amortisation and impairment 0.03 (0.09)
charge
_______ _______
4. Reconciliation of operating loss to net cash inflow from operating activities
2002 2001
#'000 #'000
Operating loss (431) (34,146)
Depreciation 1,978 1,278
Amortisation of development expenditure 3 -
Amortisation and impairment charge 532 33,368
Profit on disposal of assets - (9)
Decrease/(increase) in debtors 400 (338)
Increase in creditors 791 653
________ ________
Net cash inflow from operating activities 3,273 806
______ ______
5. Reconciliation of net cash flow to movement in net funds
2002 2001
#'000 #'000
Increase/(decrease) in cash in the year 1,583 (1,705)
Cash inflow/(outflow) from (decrease)/increase in long term deposits (700) 1,700
Cash outflow from decrease in lease financing 952 213
________ ________
Change in net funds resulting from cash flows 1,835 208
New finance leases (567) (1,096)
________ _______
Movement in net funds in the year 1,268 (888)
Net funds at 1 January 2002 924 1,812
________ _______
Net funds at 31 December 2002 2,192 924
________ _______
6. Reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA)
2002 2001
#'000 #'000
Loss on ordinary activities before interest (431) (34,146)
Depreciation 1,978 1,278
Goodwill amortisation and impairment charge 532 33,368
________ _______
Earnings before interest, tax, depreciation and amortisation 2,079 500
________ _______
This information is provided by RNS
The company news service from the London Stock Exchange
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