QXL.com Annual Report 2000 2000

Transcription

7739 QXL cover
QXL.com annual report 2000
QXL.com plc annual report 2000
100
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7739 Front section 1
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Page ii
The Internet m
world a single
There are no lim
(or how fast) ecan reach. QXL
of the largest
e-commerce co
the Internet.
02
Timeline
32
Report of the board on remuneration
04
Momentum
33
Corporate governance
06
Compelling
35
Statement of directors’ responsibilities
08
No borders
35
Auditors‘ report to the members of QXL.com plc
10
Whatever
36
Consolidated profit and loss account
12
Inspirational
36
Statement of group total recognised gains and losses
14
Chairman’s statement
37
Group balance sheet
18
Chief Executive Officer’s review
38
Company balance sheet
22
Review of operations
39
Consolidated cash flow statement
25
Financial review
40
Principal accounting policies
28
Board of directors
42
Notes to the financial statements
30
Directors’ report
64
Directors and Company information
ii QXL.com plc
Annual report 2000
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Page 01
akes the
community.
its to how far
commerce
.com is one
pan-European
mmunities on
01 QXL.com plc
Annual report 2000
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Page 02
Our auction co
has over 557,0
and is growing
trade in9 langu
all of Europe.
British Midland
01
02
03
1997
04
x
September
05
06
December
Quixell renamed QXL to reflect European expansion
Launch of consumer-to-consumer auctions
Quixell founded by journalist Tim Jackson
1999
November
Quixell hosts its first online auction
January
1998
x
July
Quixell signs partnership with AOL UK
QXL.fr auction site goes live in France
February
Apax Partners invests $12 million in QXL
01
April
September
Jim Rose appointed Chief Executive Officer
Auctions expanded to include electrical and household goods
June
October
£20.65 million raised in private placement
Quixell.de auction site goes live in Germany
QXL.it site goes live in Italy
Quixell Travel Shop opens
New Media Age award for Best Use of E-Commerce
November
August
UK’s first online charity auction, supporting Express Link-up
Acquisition of two leading UK consumer-to-consumer auction sites
September
02 QXL.com plc
Annual report 2000
Multi-year pan-European partnership agreed with ZDNet
x
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mmunity
00 members;
fast. They
ages across
STER
BLOCKBU
07
09
08
10
11
12
October
February
QXL.com floated on London Stock Exchange and Nasdaq National Market
£40.2 million raised in placing on London Stock Exchange
QXL.nl site goes live in the Netherlands
QXL.es site goes live in Spain
Antiques and collectables valuation deal signed with Hugh Scully
Exclusive contract to auction Wembley Stadium
Evening delivery service launched with Securicor Omega
02
March
03
November
Over 10,000 British Midland seats auctioned
07
Exclusive agreement with Blockbuster UK 08
KLM and Alitalia offer airline seats across Europe
04
09
December
Acquisition of largest auction site in Poland, allegro.pl
Acquisition of DinSide Auksjon, Norway’s largest auction site, to form QXL.no
Contract with iobox to offer SMS service
Announced acquisition of 50% of television auction technology firm ibidlive
Proposed acquisition of Bidlet, the leading Swedish e-commerce site announced
05
Launch of QXL.com co-branded marbles™ Internet credit card
2000
x
April
Two-for-one bonus issue announced
January
Agreement with BT Cellnet to offer WAP auctions
Acquisition of Jubii Auktion, the largest Danish online auction site, to create QXL.dk
Exclusive agreement with TESCOnet
QXL.de becomes the exclusive integrated auction service of Freenet.de,
Germany’s leading free ISP
Acquisition of live auction technology company Idefi
QXL.nl signs strategic deals with four Netherlands Internet portals
Proposed merger with ricardo announced
03 QXL.com plc
Annual report 2000
06
11
May
12
10
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As we extend
a virtuous circle
momentum. M
bring more bar
in turn attract m
04 QXL.com plc
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our reach,
is gaining
ore users
gains, which
ore users…
Rapid growth in members and e-mail subscribers
Members
E-mail subscribers
in thousands
Rapid growth in items listed for auction
Number of items
in thousands
750
3,000
600
2,400
450
1,800
300
1,200
150
600
0
0
2nd quarter
7.1
FY 1999
3rd quarter
15.3
05 QXL.com plc
Annual report 2000
4th quarter
30.4
1st quarter
133.8
FY 2000
2nd quarter
246
3rd quarter
453
4th quarter
681
2nd quarter
17
FY 1999
3rd quarter
45.9
4th quarter
138.8
1st quarter
359
FY 2000
2nd quarter
871
3rd quarter
1,300
4th quarter
2,900
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Recognised brand name in Europe
Compelling sales promotions
Attractive offers from merchant partners
Easy search for items
Clear product categories
Simple to join and sell
Innovative value-added service
Photo to increase item attractiveness
One click away from auction
Multi-lingual
Security – vital for e-commerce success
Every aspect of our web site has been designed with
our members in mind. By making it attractive, strongly
branded and easy to use, we encourage members to
use our web site again and again. We continually
look for new ways in which to improve our members’
online experience.
compelling
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no borders
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Europe is an increasingly unified market, but it still
has barriers of language and currency. Our European
community shares a multilingual, multi-currency
technology platform. It even handles different VAT
rates. Each national site has distinctive local content –
and you can shop them all from anywhere.
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whatever
We offer our community an ever-growing choice.
You can buy or sell electrical and household goods,
cars, holidays, antiques, collectibles… whatever.
In April you could have bought a Lordship of the
Manor or a ship moored in the heart of London.
Through most of this year you can bid for your
own piece of Wembley Stadium’s history.
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inspirational
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Our people share a vision – across the board, from
inspirational managers to passionate techies. From many
different disciplines and nationalities, we’re creating an
environment that attracts and excites the brightest talent.
This is a team that can make things happen fast.
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Chairman’s stat
The momentum
building gives u
competitive ad
14 QXL.com plc
Annual report 2000
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ement
we are
s a formidable
vantage.
15 QXL.com plc
Annual report 2000
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QXL.com has come a long way in the 21⁄2 years since
its inception.
Eighteen months ago, we were a predominantly
UK-based online auction business. Most of our online
auctions consisted of computers and electrical goods
from our own inventory. At that stage, we did not
charge success fees for our consumer-to-consumer
auctions.
Today, the majority of our members are outside of
the UK and the business-to-consumer auctions where we
hold inventory comprise less than a tenth of our current
gross auction value. We are also rapidly increasing
the number of business-to-consumer auctions in which
we act as agent. In our last quarter, 72% of our
gross auction value was from consumer-to-consumer
transactions and in December 1999, we successfully
introduced commissions for consumer-to-consumer
auctions for our UK-based sellers.
In October, we floated on the London Stock
Exchange and the Nasdaq National Market. At the
time, we expected to be in two additional European
countries within six months from the date of our initial
public offering. By March 2000, we were in five
additional countries – with another three countries
expected to follow on completion of our acquisition of
Bidlet AB and merger with ricardo.de AG.
We work with high-profile merchant and marketing
partners who recognise the strength of our brand and
the purchasing power of our 557,000-strong auction
community. You will find our online auctions promoted
on AOL and ZDNet pages across Europe. You will
also find our auctions advertised on TESCOnet and in
Blockbuster stores. We have auctioned thousands of
airline seats for British Midland, KLM and Alitalia and
are auctioning not just seats but the whole of Wembley
Stadium and related memorabilia to raise funds for
its replacement.
16 QXL.com plc
Annual report 2000
We have grown quickly, but believe that we have
implemented a robust, scalable technology that will
support yet more growth in our online auctions.
We have also improved our customer service to keep
our members coming back for more auctions. We have
been ranked the top e-commerce site in Europe in terms
of customer service, security and ease of use by
Forrester Research. In short, we have exploited our
first mover advantage to take a leading competitive
position across Europe.
Performance Our key growth indicators accelerated
during the year.
The number of members registered to buy and sell
on our web sites grew 1,700% to 557,000 at the end
of the year. The total number of items listed for auction
on our web sites during the year increased to
5.4 million items from 212,515 items for the previous
year. The gross auction value of all items sold on our
web sites increased 546% to £20.5 million during
the year.
Our pre-tax loss of £76 million (1998: £2 million)
included £45 million of exceptional items. Excluding
these exceptional items, our loss was £31 million for
the year.
Capital structure and shareholder value
Our initial public offering in October 1999 valued the
Company at approximately £263 million and raised
£48 million (net of expenses) for the Company.
The proceeds from our initial public offering were
in addition to the £19 million (net of expenses) in
private equity funding we raised in June 1999.
Subsequently, in February 2000, we raised
approximately £39 million (net of expenses) in
a placing of our shares.
In April 2000, we announced a two-for-one bonus
issue of our shares.
Chairman’s statement continued
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Acquisitions To extend our reach we acquired:
eSwap and Humpty Dumpty, two leading
consumer-to-consumer auction sites in the UK,
in August.
Norway’s largest auction site, DinSide Auksjon,
in December.
Denmark’s largest auction site, Jubii Auktion, in January.
Poland’s largest auction site, Allegro.pl, in March.
In March 2000, we announced the proposed
acquisition of Bidlet, the leading Scandinavian online
auction service, in a transaction scheduled for
completion in August 2000.
In May 2000, we announced the proposed merger
with ricardo, a leading German e-commerce and
online auction site with additional online auction
services in the Netherlands, Switzerland and the UK.
To extend our technology and branding we made
a strategic investment of 50% in ibidlive NV, which
designs and operates interactive systems for live
auctions on TV, and acquired Idefi, which has
complementary live Internet auction technology.
Tim Jackson, who had led the Company since founding
it in 1997, stepped down as Chief Executive Officer in
May 1999. In March 2000, he resigned as a director
but remains involved as a special adviser to the
Chairman and Chief Executive Officer.
It is proposed that Peter Sederowsky, the Chairman
of Bidlet, join the board of directors as a non-executive
director on completion of the acquisition of Bidlet.
It is also anticipated that Eckhard Pfeiffer, Chairman
of ricardo, and Christoph Linkwitz, Chief Executive
Officer of ricardo, join us as non-executive directors
on completion of the merger with ricardo.
The rate of growth of the Company means that most
of our staff have joined us in the past year, bringing
a diversity of skills and experience. To all of them:
welcome, thank you and onward! You’re doing an
outstanding job.
Outlook The next year has begun momentously
with the proposed combinations with Bidlet and
ricardo. Management has moved quickly to a business
model that is highly scalable and with strong profit
potential. With an exciting 12 months behind us, we
have even more to look forward to this year.
People In May 1999, Jim Rose joined us as Chief
Executive Officer. He had previously headed United
News & Media’s marketing information business,
United Information Group. His experience in
leading fast-growth information based companies
is proving invaluable.
Shlomo Kalish, a director nominated by Jerusalem
Global, one of our venture capital backers, left the
board prior to our initial public offering and François
Tison resigned from the board in November 1999.
17 QXL.com plc
Annual report 2000
Jonathan Bulkeley Chairman
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Chief Executive
review Dotcom
to the same ru
companies. You
on quality, cust
and profitabilit
you build a lon
blue chip busin
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Officer’s
s are subject
les as other
need to focus
omer service
y. That is how
g term
ess.
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Being a dotcom is exhilarating, but it doesn’t suspend
the laws of physics. Like everyone else, we are subject
to old-fashioned home truths. It is not possible to build
durable Internet companies on a bright idea and a
shoestring. You need heavy investment and robust
systems. You also need excellent people and
management as well as unwavering focus on your
customers and profitability, just like any other business.
At QXL.com, we are seeking to build a pan-European,
blue chip Internet company. We are also seeking to
build a lasting business by getting the fundamentals right.
We feel that it is essential to deliver our service with
a local experience. This means local content, local
language, local currency and local customer service
for each national market. Our offices in Amsterdam,
Copenhagen, Hamburg, London, Madrid, Milan,
Oslo, Paris and Poznan manage local marketing,
promotions, merchandise and content. Our technology
and hosting is largely centralised in London to leverage
economies of scale, but each country has its own
webmaster to manage the look and feel of its local
QXL site.
We now derive revenue from both consumer-toconsumer and business-to-consumer auctions and are
continually reducing the proportion of our gross auction
value derived from auctions where we hold inventory.
The business model The online auction model
is well established in the US. Our online auction
model integrates consumer-to-consumer and
business-to-consumer auctions. We believe that our
auction model offers consumers a wider choice and
that our auction model is an empowering consumer
tool: members can buy and sell new and second-hand
merchandise and the range available appeals to
members of all ages and interests.
Our chosen market, Europe, is rapidly gaining on the
US in Internet use: International Data Communications,
an industry research company, estimates that there will
be 168.5 million Internet users in Western Europe by
the end of 2003. In terms of population, Western
Europe is a bigger market than the US, with a
population of 388 million people across the European
Economic Area. However, the European market is an
altogether more complex market in that European
countries are not all the same.
Achieving critical mass In online auctions, we
believe that scale is important, so we seek to achieve
a leading position in each major European market as
quickly as possible. We believe that we are making
great progress towards achieving this critical mass and
becoming the venue of choice for buyers and sellers
across Europe.
In the past year, we have launched new online
auction sites in Italy, the Netherlands and Spain
and have acquired leading online auction sites in
Norway, Denmark and Poland. In addition, we have
grown from 12 to 185 employees. As a result of
our increased market capitalisation since our initial
public offering, we are in the FTSE 250 and
techMARK 100 indices.
20 QXL.com plc
Annual report 2000
Chief Executive Officer’s review continued
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Technology platform In Summer 1999, we
migrated our online auction system to a platform that
we believe is robust and capable of growing with us.
It is hosted in the Docklands in London and uses proven
technology from companies such as Sun Microsystems,
Oracle and EMC to complement our own proprietary
components. We believe that the multilingual,
multi-currency capability of our technology makes it the
ideal solution for buyers and sellers wanting a simple,
user-friendly way to access the entire European market.
We did not experience any material disruptions of
our systems during the transition into the year 2000
and we do not expect any residual year 2000
problems this year. Over the Christmas and New Year
holiday season, we achieved over 99% fulfilment on
deliveries in our business-to-consumer auctions.
Sales and marketing Our sales and marketing
expenditure accounted for approximately 65% of our
operating expenses (before exceptionals) for the past
year. As a result, we have seen strong growth in our
key operating metrics.
We have been building membership through online
advertising on portals and Internet service providers,
as well as offline through traditional print and
poster advertising. We believe that we have also
stimulated interest in our online auction service through
multi-platform TV and Internet auctions on Sky TV.
Our marketing teams in each country have been
very successful in sourcing merchandise and services
as well as recruiting merchant partners. Our partners
and suppliers include: Alitalia, Black & Decker, British
Midland, BT, Hewlett Packard, Hoover, KLM, Kodak,
Sharp, Thomas Cook, Toshiba, and Vodafone.
21 QXL.com plc
Annual report 2000
Driving the pace We are currently in the investment
phase of building a sustainable and profitable
business. To succeed, we need to satisfy our members,
shareholders and employees alike. We intend to
continue to build the QXL.com brand to establish it as
synonymous with quality, service and value.
Since the year end, we have extended the offering
to our members by launching our World of Antiques
valuation service with Hugh Scully. We have also
broadened member access by forming partnerships
with leading UK supermarket Tesco to create a
co-branded auction page on its TESCOnet portal
and with BT Cellnet to enable access to our online
auctions on WAP phones. In addition, we have
developed a new revenue stream by selling
advertising on our web sites. Finally, in May 2000,
we kicked off the auctions of thousands of items from
Wembley Stadium – from football memorabilia to
the hallowed turf.
Looking ahead to the new year, we believe that
the nature of our offering, combined with the local
customisation of the QXL.com web sites throughout
Europe and with the integration of our proposed
combinations with Bidlet and ricardo, positions us
well to take advantage of the growth in the European
online auction market.
James Rose Chief Executive Officer
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Review of operations
Page 22
Building our community
Membership growth Over the past year, the number of
members in our online trading community grew over 1,700% to
557,000 members.
Recognition Our achievements have been recognised by several
independent organisations:
In September 1999, Forrester Research selected us as Europe’s
number one e-commerce site for customer service, security and ease
of use
In June 1999, New Media Age awarded us its Effectiveness Award
for ‘Best use of e-commerce in the UK’
We have been awarded the top spot in the Bain & Company
e25 index twice in a row.
Broadening access We have formed a growing number of
partnerships with Internet service providers, portals and web sites
across Europe. We believe that this form of marketing, where we
co-brand web pages, integrate links to our sites within the portal
pages or develop special promotions with the partner, gives
consumers easy, direct access to QXL.com auctions. Our partners
include AOL, ZDNet, LineOne, Planet Internet, World Online,
and Freenet.de.
We have also launched an Affiliate Programme in the UK, which
rewards third party web sites for directing visitors to our web site.
Be Free Inc, a leader in performance marketing, provides the tools
for us to enable affiliate partners to carry banner advertising for
QXL.com and to be compensated for each visitor who clicks
through to the QXL.com site.
Building our revenue streams
Expanding merchandise and services The number of items
listed for auction during the year was 5.4 million, up from 212,515
the previous year.
We have teams of category-specific sales managers out in the
field every day talking to everyone from small dealers at trade
fairs to large, well-known suppliers to bring an exciting range of
merchandise and services to our members.
In October 1999, we won the exclusive contract to auction
pieces of Wembley Stadium, from the hallowed turf to the taps in the
dressing rooms. The worldwide interest in Wembley Stadium, which
hosted the 1948 Olympics, Live Aid and some of football’s most
legendary moments, makes it an ideal subject for an Internet auction.
22 QXL.com plc
Annual report 2000
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In November 1999, we hosted the Internet’s largest-ever auction of
airline tickets: 13,000 British Midland airline seats to 30 European
destinations, at a rate of approximately 300 airline seats a day.
We exceeded our expectations and in February 1999, British
Midland asked us to offer a further 20,000 airline seats with an
expanded range of flights covering virtually all its routes. The success
of these online auctions attracted more airlines to become merchant
partners: we have subsequently entered into agreements with KLM in
the Netherlands, with Alitalia in Italy and with Air Liberté in France.
In March 2000, we signed an agreement with Blockbuster
in the UK, making QXL.com the exclusive online auctioneer on
Blockbuster.co.uk and providing a unique retail channel for ex-rental
videos and other products. Users of the Blockbuster.co.uk web site
will have access to a co-branded auction site where they can bid
for home entertainment products and gain access to QXL.com.
We will have a fixed presence on the Blockbuster home page and
will benefit from promotions in 670 Blockbuster stores throughout
the UK.
We are seeking to extend our appeal to a wider audience,
particularly the more mature consumers who are increasingly using
the Internet. We believe that our newly-launched World of Antiques
service, featuring former BBC TV Antiques Roadshow anchorman
Hugh Scully, will be a major attraction. It provides unique content
about antiques and collectibles and offers online valuations for
a fixed fee of £12 per item valued.
Advertising We have recently started selling online advertising
packages for the QXL.com site. The UK’s Driver and Vehicle Licensing
Agency selected QXL.com for a banner campaign promoting its
personalised number plate division. In June 2000, we secured
the first sponsor for e-mail newsletters that we send to our members
each week.
Building our technology
Having rebuilt our online auction technology platform during the past
year, we are now extending our capabilities to create new kinds of
online auctions and to reach members on the move through SMS
and WAP technology.
We believe that two acquisitions, completed shortly after the end
of the past year, have further strengthened our online auction
technology. We acquired 50% of ibidlive NV, an Amsterdam-based
business that designs and operates interactive systems for live
auctions on TV, the Internet and telephone. Prior to acquiring
this equity interest, we had already worked with ibidlive on two
TV auctions with Sky TV. We also acquired Idefi SA, a
23 QXL.com plc
Annual report 2000
Luxembourg-based developer of live Internet auction technology.
Their technology enables us to host real-time auctions, which we
believe is an exciting new format for online auctions. We have
begun to use their technology on our French web site and we
intend to implement it on our other web sites in the near future.
In March 2000, we announced an alliance with iobox, a leading
mobile Internet portal technology, to enable members with mobile
phones to be updated on the progress of their bids through SMS
messaging. We also plan to introduce a personalised system that
notifies members of auctions in the categories they choose.
In April 2000, we announced an alliance with BT Cellnet, the
leading UK provider of mobile Internet services, to make our auctions
accessible to WAP mobile phones through its Genie Internet platform.
Building our customer service Quality customer service is
essential to building loyalty, repeat business and word-of-mouth
recommendations. We are investing heavily to earn a reputation
for excellence.
We receive many customer enquiries each day by e-mail in
a variety of languages. It is vital to deal with these quickly and
accurately, both to maintain member satisfaction and to gather
feedback on our service. In November 1999, we introduced
the Kana Response system which has helped us streamline
our e-mail response process and collect detailed analysis for
management information.
Keeping registered users informed about the latest merchandise
and services coming up for auction is one of the keys to maintaining
member satisfaction. In December 1999, we announced an
agreement with Exactis.com, a leading provider of permission-based,
precision e-mail marketing products. Through Exactis’ servers, we
deliver over a million e-mails a week to alert our registered users
individually to bargains and exciting auctions of interest in their
chosen language. Registered users can choose to receive this
information in either plain text or the more visually exciting
HTML format.
To provide the best customer experience, online retailers need to
offer a reliable and flexible delivery service. In February 2000, we
launched a new solution with Securicor Omega Express, offering
deliveries on weekday evenings for our members in the UK.
As a further enhancement to member security, in March 2000, we
launched a co-branded marbles™ credit card with a ‘safe shopping
promise’: if the credit card is used fraudulently either on the Internet
or for traditional shopping, the member is not charged. QXL.com
members can apply for the card online.
Further value-added services currently under development to
enhance member confidence include the SafePay escrow service
and SafeShip, a consumer-to-consumer delivery service.
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Page 24
Making our contribution While growing strongly, we have
developed a programme of community support and cause-related
marketing activities by regularly hosting auctions on behalf of
charities across Europe. For example, in October 1999, we
partnered with Microsoft to help raise over £38,000 for the
NSPCC and, in January 2000, we worked with EMAP to raise
over £46,000 to benefit several local charities.
In December last year, we teamed up with The Auction Channel
on Sky Sports for a sale of sporting memorabilia in aid of the Cancer
Research Campaign. The auction was conducted live in London, with
simultaneous bidding in person, on QXL.com and on TV.
Proposed transactions
In March 2000, we announced the proposed acquisition of
Bidlet AB, the leading e-commerce and online auction site in
Sweden, in a share-for-share exchange. The consideration is to
be satisfied by the issue of 27.75 QXL.com Ordinary Shares for
each Bidlet share issued and to be issued, representing a maximum
aggregate consideration of approximately 70.5 million QXL.com
Ordinary Shares. Bidlet is a leading operator of online auctions in
Scandinavia, conducting business-to-consumer online auctions in each
of Sweden, Norway, Denmark and Finland. Bidlet also conducts
consumer-to-consumer online auctions in Sweden. Since its launch
in April 1999, it has grown rapidly to become the number one
e-commerce web site in Sweden (based on unique visitors, as
determined by MediaMetrix Europe in January 2000). Bidlet currently
offers innovative online auction services for mobile devices, including
two-way SMS bidding and a WAP service.
In May 2000, we announced the proposed merger with
ricardo.de AG, a German online auction company, in a
share-for-share exchange. The consideration is to be satisfied by
the issue of 42.6 QXL.com Ordinary Shares for each ricardo share,
representing a maximum aggregate consideration of approximately
371.1 million QXL.com Ordinary Shares. ricardo is a leading
e-commerce and online auction site in Germany with additional
online auction services in the Netherlands, Switzerland and the
United Kingdom, with over 670,000 registered users as at
31 March 2000. ricardo operates consumer-to-consumer online
auction services as well as business-to-consumer online auction
services in Germany, Switzerland, the Netherlands and the
United Kingdom. It also operates business-to-business online auction
services in Germany.
24 QXL.com plc
Annual report 2000
Review of operations continued
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Financial review
Page 25
Key operating metrics
During the past year, we have successfully continued to migrate
our primarily inventory-based, business-to-consumer online auction
model to primarily non-inventory based business-to-consumer and
consumer-to-consumer online auction models. At the same time, we
have shown significant growth on all of our key operating metrics:
gross auction value, members and the number of items listed for
auction on our web sites.
Our gross auction value increased 546% to £20.5 million for the
year ended 31 March 2000, compared to £3.2 million for the year
ended 31 March 1999. Our members increased to 557,000
members as of 31 March 2000, compared to 30,403 members for
the prior year. The total number of items listed for auction increased
to 5.4 million items for the year ended 31 March 2000, compared
to 212,515 items for the year ended 31 March 1999.
For the year ended 31 March 2000, we completed
business-to-consumer online auctions of merchandise and services
with an aggregate gross auction value of £7.9 million, representing
approximately 38% of the gross auction value in that period.
Approximately 77% of our business-to-consumer gross auction value
was conducted on a principal basis and the remaining 23% on an
agency basis, where we charged a commission on successfully
completed transactions. For online auctions conducted on a principal
basis, we have increasingly reduced inventory risk by obtaining
merchandise on a ‘drop ship’ basis, where merchants sell their
merchandise through QXL.com yet ship directly to our members.
During the year ended 31 March 2000, we completed
consumer-to-consumer online auctions of merchandise and
services with an aggregate gross auction value of £12.6 million.
This represented approximately 62% of the gross auction value in that
period and more than a 1,700 % increase over the prior year.
Financial statements
Turnover Turnover for the year ended 31 March 2000 increased
171% to £6.9 million, from £2.6 million for the year ended
31 March 1999. This increase in turnover was due to significant
growth in our member base, an expanded selection of merchandise
and services offered and an increase in the number of items
listed for auction. We intend to continue to broaden our member
base, increase the number of auctions and expand the range
of items offered. We expect our gross auction value to continue
to grow faster than our turnover as we continue to migrate our
business-to-consumer auctions in which we act as principal to
business-to-consumer and consumer-to-consumer auctions in
which we act as agent.
In the year ended 31 March 2000, we began selling advertising
on our web site, but did not derive significant turnover from this.
Also in the year ended 31 March 2000, we introduced
commissions for auctions successfully completed by our UK-based
sellers in consumer-to-consumer transactions, but did not derive
significant turnover from this. We intend to start charging fees for
successfully completed consumer-to-consumer auctions in other
European markets in the second half of the 2000 calendar year.
25 QXL.com plc
Annual report 2000
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Page 26
Cost of sales Cost of sales increased to £6.2 million for the year
ended 31 March 2000, from £2.3 million for the year ended
31 March 1999. This increase in cost of sales, in absolute terms,
was primarily due to the increased volume of merchandise we sold
as principal and related shipping costs. Cost of sales decreased
as a percentage of turnover as we continued to migrate our
business-to-consumer auctions in which we act as principal to
business-to-consumer and consumer-to-consumer auctions in
which we act as agent. We expect cost of sales to continue to
decrease as a percentage of turnover in the future as this trend
continues. Gross margin grew from 8.1% to 10.8% as a result.
Operating expenses Distribution expenses, which mainly
comprise our sales and marketing expenses, increased to
£21.7 million (before exceptional items) for the year ended
31 March 2000, from £836,000 for the year ended 31 March
1999. This increase reflects growth in the number and scale of our
strategic marketing relationships online and offline as we invested
in the development of our brand and launched marketing campaigns
across Europe. We expect sales and marketing expenses to continue
to increase slightly in absolute terms in the short term, but decrease
as a percentage of turnover, as we increase these efforts and
expand into traditional advertising media to further promote the
QXL.com brand.
Technology and development expenses increased to £6.8 million
(before exceptional items) for the year ended 31 March 2000,
from £371,000 for the year ended 31 March 1999. This increase
was primarily due to an increase in the number of technology and
development personnel and related costs and development of our
web sites. We believe that continued investment in technology is
critical to attaining our strategic objectives and, as a result, we
expect technology and development expenses to increase in absolute
terms, but decrease as a percentage of turnover.
General and administrative expenses increased to £4.9 million
in the year ended 31 March 2000, from £1.1 million in the year
ended 31 March 1999. This increase was principally the result of
increased personnel costs and professional fees. We expect general
and administrative expenses to increase slightly in absolute terms as
we hire personnel and as a result of the additional reporting and
corporate communication requirements of public companies.
We incurred three principal types of exceptional charges,
each of which were primarily non-cash charges, in the year ended
31 March 2000. We did not incur any exceptional charges in
the year ended 31 March 1999.
We incurred exceptional goodwill impairment charges of
£22.4 million relating to the acquisitions of the online auction
businesses of Humpty Dumpty Limited, DinSide AS, Jubii A/S
and SurfStopShop sp.zoo.
We incurred an exceptional development charge of £10.8 million,
which primarily related to the share options issued in connection with
the launch of the World of Antiques service.
We made a provision of £11.6 million in respect of our National
Insurance liability. In accordance with UK GAAP, we make a full
provision on the grant of employee share options for any National
Insurance liability which may be incurred on a gain in the
Company’s share price. This provision will be revised to take account
of the movement in our share price at each balance sheet date.
Our results presented in accordance with US GAAP will continue to
provide for this liability over the vesting period of the options.
Operating loss Losses on ordinary activities before taxation in
the year ended 31 March 2000 were £31.0 million (before
exceptional items as outlined above), compared to losses of
£2.1 million in the year ended 31 March 1999.
Gross auction value
Business-to-consumer
Consumer-to-consumer
£000's
Gross margin
Per cent of margin
per cent
10,000
16
8,000
12
6,000
8
4,000
4
2,000
0
0
4th quarter
FY 1999
26 QXL.com plc
Annual report 2000
1st quarter
FY 2000
2nd quarter
3rd quarter
4th quarter
4th quarter
FY 1999
Financial review
1st quarter
FY 2000
2nd quarter
3rd quarter
4th quarter
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Page 27
Interest Interest receivable of £1.8 million was earned on bank
deposits in the year ended 31 March 2000. We did not earn any
interest in the year ended 31 March 1999.
Acquisitions and investments During the year ended
31 March 2000, we acquired a number of online auction
companies and businesses across Europe. The consideration for
each of the acquisitions consisted of our Ordinary Shares, except
where stated below:
Provision for income tax We have incurred a net loss since
our inception and we expect to incur losses for the foreseeable future.
In July 1999, we acquired the online auction businesses of eSwap
As of 31 March 2000, we had approximately £42.0 million of
and Humpty Dumpty, two of the UK’s leading consumer-to-consumer
UK net operating loss to carry forwards to offset against future
auction sites, for a combination of cash and equity.
taxable income.
In December 1999, we acquired the online auction business of
Loss per Ordinary Share Our loss per equity share for the year DinSide Auksjon, Norway’s largest auction site.
was 27.0p per Ordinary Share. In accordance with UK GAAP, this
In January 2000, we acquired the online auction business of
figure is stated after taking into account the effect of the two-for-one
Jubii Auktion, the largest Danish auction site.
bonus issue of shares, which was effective on 6 April 2000.
In March 2000, we acquired the online auction business of
Financing and treasury In June 1999, we raised approximately Allegro, Poland’s largest auction site, for cash consideration.
£19 million (net of expenses) in private equity funding. Our initial
public offering in October 1999 raised a further £49 million
In addition, in December 1999, we announced our investment in
(net of expenses) and in February 2000 we raised approximately
ibidlive N.V., which designs and operates interactive systems for live
£39 million (net of expenses) through a placement of 2.5 million
auctions on TV, and, in April 2000, we announced the acquisition of
Ordinary Shares. This increased our cash and cash equivalents at
Idefi S.A., which has complementary live Internet auction technology.
31 March 2000 to £77.7 million.
The bulk of the Group’s financial assets are held as one-toYear 2000 compliance
three month Sterling denominated fixed and floating rate deposits.
Cash flow In the year ended 31 March 2000, we invested
£7.7 million to upgrade and develop our systems to manage
increased transaction volumes across our web sites. We believe
that our systems will provide a sound basis for continued expansion
in the future.
As a result of our operating losses and our investment in our
systems, our cash outflow before financing was £37.4 million. This
was offset by receipts from issuing shares and warrants totalling
£108.7 million.
27 QXL.com plc
Annual report 2000
We undertook extensive planning and preparation to avoid
Year 2000 problems and are pleased to report that we have
so far not encountered any Year 2000 compliance problems.
The incremental cost of complying with the Year 2000 problems
was not material.
Robert Dighero Chief Financial Officer
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Page 28
Board of directors
Jonathan Bulkeley Chairman (39)
Jonathan Bulkeley has served as the non-executive Chairman
of the Board of QXL.com since February 1998. He was Chief
Executive Officer of barnesandnoble.com Inc. until January 2000.
From July 1995 to December 1998, he was Managing Director
of AOL UK, a joint venture with Bertelsmann, responsible for the
development, creation and marketing of interactive services in the
United Kingdom. He also served as Vice President of Business
Development for AOL, prior to his move to the UK. Before joining
AOL, Mr Bulkeley was director of marketing and development for
Money magazine, and held sales and marketing positions at
Time and Discover. He is also a director of HealthCentral.com
and LifeMinders.com. He received a BA from Yale University.
James Rose Chief Executive Officer (39)
James Rose has served as Chief Executive Officer and as a director
of QXL.com since May 1999. From August 1998 to May 1999,
he served as Chief Executive Officer of United Information Group,
the marketing subsidiary of United News and Media. From
November 1996 to August 1998, Mr. Rose served as CEO of
Blackwell Information Services, a global provider of academic
and professional information. At Blackwell, he was responsible
for all Internet development, including the launch of the Blackwell
Online Bookshop. He has also been Managing Director
for Dun & Bradstreet/AC Nielsen in the UK, Ireland and
South Africa, and a management consultant with Deloitte
& Touche. Mr Rose received an MBA from the Kellogg School
of Management, Chicago.
Robert Dighero Chief Financial Officer (34)
Robert Dighero has served as Chief Financial Officer of QXL.com
since June 1998 and as a director since August 1999. Prior
to joining QXL.com, Mr. Dighero was Chief Financial Officer
of AOL UK from October 1995. He has also worked for
Bertelsmann, focusing on acquisition strategies in the new media
sector and previously worked as a management consultant at
Bain and Company. Mr Dighero received an MA (Hons) and
an MEng (Hons) from Cambridge University and received an
MBA with Dean’s List honours from INSEAD in France.
28 QXL.com plc
Annual report 2000
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Page 29
Stanislas Laurent Senior Vice President,
Sales and Marketing – director (31)
Stan Laurent has been QXL.com’s Senior Vice President, Sales
and Marketing since September 1998, and has served as a
director since August 1999. Before joining QXL.com, Mr Laurent
was director in charge of finance, strategy and operations at
AOL France from 1995 to 1998. From 1991 to 1993, he was
a manager at the Treuhandanstadt, the German privatisation
agency. Mr Laurent received a Diploma in Business from Ecole
Superieure de Commerce de Paris and an MBA from Harvard
Business School.
29 QXL.com plc
Annual report 2000
Peter Englander Non-executive director (47)
Peter Englander has served as a non-executive director of
QXL.com since February 1999. He is also a director and
shareholder of Apax Partners & Co. Ventures Ltd. Before joining
Apax on its formation in 1981, he worked for Air Products and
the Boston Consulting Group. He received a BSc in Chemical
Engineering from the Manchester Institute of Science of
Technology, a SM from the Sloan School of Management
of the Massachusetts Institute of Technology and a PhD from
London University in the area of technological innovation.
He is also a director of Eyretel plc and several privately
held companies.
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Directors’ report
Page 30
The directors present their report and the audited financial statements for the year
ended 31 March 2000.
Constitution On 17 September 1999, the Company re-registered as a public
company with the name QXL.com plc.
On 14 October 1999 the Company gained admission to and was listed on
the London Stock Exchange and the Nasdaq National Market.
Principal activity The principal activity of the Group is the provision of a
pan-European online auction service. The activities of the Group have been
discussed in more detail in the Chairman’s, Chief Executive Officer’s and
Chief Financial Officer’s reports.
Dividends The directors do not recommend the payment of a dividend.
Development costs The Group has continued to develop its web sites and
supporting technical infrastructure. In September 1999 there was a major enhancement
to the look and functionality of the Company’s technology when the then two
independent sites, www.qxl.com and exchange.qxl.com, were merged together into
www.qxl.com. This new site initially operated in four languages. Since then two further
language options have been developed in house as well as a number of additional
value added services.
The charge to the profit and loss account for the year before the exceptional item
(note 3) and after capitalising internally developed software (note 14) amounted to
£2,840,000 (1999: £248,000) and represents amounts incurred in augmenting
and refining current functionality.
Donations During the year the Group made a charitable donation of £6,875
(1999: £nil). No political donations were made (1999: £nil).
Post balance sheet events Post balance sheet events are detailed in note 31.
30 QXL.com plc
Annual report 2000
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Page 31
Directors The directors of the Company who served during the year were:
Role at
31 March 2000
Date of
appointment
Date of
resignation
Chairman and non-executive director
–
–
Mr J M Rose
Chief Executive Officer
27/4/99
–
Mr R S Dighero
Chief Financial Officer
25/8/99
–
Dr P D Englander
Non-executive director
–
–
Mr S M A Laurent
Senior Vice President –
Sales and Marketing director
25/8/99
–
Mr T D A Jackson
–
26/3/00
Mr F Tison
17/9/99
25/11/99
Director
Mr J B Bulkeley
Policy and practice on payment of creditors It is the Company‘s policy to
abide by the payment terms set by suppliers whenever it is satisfied that the supplier
has provided the goods or services in accordance with the agreed terms and
conditions. The average time taken by the Company to pay suppliers was 35 days
(1999: 35 days). The Company does not presently follow any specific code or
standard on payment practice.
Substantial shareholdings The following shows substantial shareholdings
(i.e. 3% or greater) in the issued ordinary share capital of QXL.com plc.
The information below is at 8 June 2000, after the two-for-one bonus issue that
occurred on 6 April 2000.
Name of shareholder
Apax UK VI
Notes
1
Number
of shares
Percentage
of shares
60,997,440
17.04%
35,696,640
9.97%
Mr J B Tellio
21/6/99
10/9/99
Europ@web B.V.
Ms E Marbach
–
25/8/99
The Lakeville Trust
2
23,496,570
6.56%
Mr S Kalish
–
25/8/99
The Fenwick Trust
3
19,104,850
5.34%
The Argentarius Foundation
4
16,020,390
4.48%
The Artesian Trust
2
13,707,714
3.83%
Dr P D Englander and Mr J B Bulkeley retire by rotation and being eligible offer
themselves for re-election.
Details of the directors’ individual remuneration, interests in shares and share options
are shown in note 6 to the financial statements.
Directors interests in contracts The directors had no interests in contracts during
the year.
Committees The remuneration and audit committees were both established in August
1999. Prior to this date the functions of these committees were carried out by the full
board. At present there is no nomination committee and its functions are being carried
out by the full board.
Both committees meet on a quarterly basis. They are both currently composed of
Mr J B Bulkeley, Dr P D Englander and Mr J M Rose. Mr R S Dighero attends the audit
committee meetings by invitation.
Directors’ interests in the above holdings are as follows:
1 Dr P D Englander has a pecuniary interest in the Apax Funds.
2 Ms E Marbach, the wife of Mr T D A Jackson, is a beneficiary of the Lakeville Trust
and the Artesian Trust.
3 Mr J B Bulkeley is a beneficiary of the Fenwick Trust.
4 The Argentarius Foundation is a registered charity. Mr T D A Jackson and his wife,
Ms E Marbach, disclaim beneficial ownership of the shares held by the Argentarius
Foundation.
Auditors The auditors, PricewaterhouseCoopers, have indicated their willingness to
continue in office and a resolution that they be reappointed will be proposed at the
annual general meeting.
By order of the board
A Dhanji
Company Secretary
13 June 2000
London
31 QXL.com plc
Annual report 2000
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Page 32
Report of the board on remuneration
Composition of the remuneration committee The remuneration committee
was set up in August 1999 and is governed by the terms of reference that were
adopted by the board on 25 August 1999. Prior to this time the functions of the
committee were carried out by the full board.
It is currently composed of Mr J B Bulkeley, Dr P D Englander and Mr J M Rose.
Compliance Since its formation, the committee has been responsible for determining
the total reward package of the Company’s executive directors and senior management.
Remuneration policy The committee’s aim is to ensure that the remuneration
policy enables the Company to motivate and retain high calibre executive directors.
In furtherance of this aim the committee seeks to ensure that the total reward packages
are aligned with the performance of the Company and the interests of the shareholders.
The Company’s present executive directors have been in their current roles
since before the initial public offering in October 1999. Mr R S Dighero and
Mr S M A Laurent were appointed as directors in August 1999. Prior to this time
both individuals had been senior executives with the Company for 17 and 11 months
respectively. They were employed by the founder and then director Mr T D A Jackson
who offered them reward packages commensurate to their ability and the risk
associated in joining a start up venture. Neither of them received any additional
rewards on their appointment as directors. Performance based adjustments were
made during the year on the anniversaries of the date of their employment.
The employment of Mr J M Rose in April 1999 was achieved with the assistance
of a leading executive recruitment agency. They also advised the then board on an
appropriate reward package.
The reward packages of executive directors are straightforward, principally
comprising a basic salary and share options. Two of the executive directors also
received a bonus in December 1999.
The packages are now reviewed annually, in April. This is done in conjunction
with professional third party advice.
Long-term incentives By constructing the share option agreements so that shares
vest between the first and fourth anniversary of their grant dates the committee
believes that the current share scheme focuses the executive directors on sustaining the
performance of the Company into the long term. Additional options can be granted at
the annual review. These are made if, in the view of the committee, the individual has
demonstrated an ongoing commitment and contribution to the growth of the Company.
Service contracts All full time working directors have terms of service which can
be terminated by the Company on not less than 12 months’ notice (Mr J M Rose,
six months) and by the individual on not less than six months’ notice.
Non-executive directors are subject to letters of engagement. Their terms of
office last for no more than three years and can be determined by either party on
six months notice.
Directors are subject to re-election on a regular basis that does not exceed three
years. Details of directors subject to re-election at the next annual general meeting
are contained in the directors’ report.
Directors’ reward package information Details of the directors’ individual
remuneration and interests in shares and share options are shown in note 6 to the
financial statements.
32 QXL.com plc
Annual report 2000
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Page 33
Corporate governance
The board is committed to ensuring a high level of business integrity and
professionalism and fully endorses the Principles of Good Governance and the Code
of Best Practice encompassed in the Combined Code appended to the Listing Rules
by the London Stock Exchange.
The Company can confirm that, since the listing of its shares on the London Stock
Exchange on 14 October 1999, it has substantially complied with the Provisions of
the Code of Best Practice. Explanations of any non-compliance are addressed below.
Board of directors The Chairman is responsible for running the board which
currently comprises five directors of whom two are non-executive. Biographical details
of the directors and their roles can be found on pages 28 and 29.
Neither of the non-executive directors is involved in the day-to-day management of
the business. However, neither of them is considered to be independent due to their
interests in the shares of the Company. Under the Code of Best Practice (Section 1-A3)
the board should comprise at least one-third non-executive directors, of whom a
majority should be independent. The board, with the help of a leading specialist
recruitment agency, is still actively searching for three non-executive directors of suitable
calibre and experience and has plans that this outstanding issue will be resolved by
making appropriate appointments by 31 October 2000.
The board meets on a monthly basis and has a formal schedule of matters
specifically reserved for its decision. As the executive members of the board are all
based in London, they are able to meet on a more frequent basis, conferencing in
absent members if the need arises. Consequently the directors are being informed
and updated continually with relevant information. The number of officially recorded
meetings of the directors during the year was far greater than 12.
The board is supplied with management information on a monthly basis.
This includes financial data, cash flows and non-financial metrics and is compared
with the board-approved budget and latest expectations. The board regularly
requests and reviews further analysis as it considers it necessary. In addition, key
metric information is made available to all management on a daily basis
Since early 1998 a rolling five-year marketing activity driven plan has been
maintained. Each year a detailed budget for the following 12 months is prepared and
the five year plan is updated. The board approves both of these. Specific resources
have been set aside by the board to ensure that the Group’s sales and marketing
budget is spent effectively.
The day-to-day management of the business has been delegated to an executive
team that meets weekly. The team comprises the executive directors and certain other
senior staff and is run by the Chief Executive Officer. The Company thus maintains
a clear division of responsibility between its Chairman and Chief Executive Officer.
In addition the directors have access to the advice and services of the Company
Secretary and should the need arise procedures are in place for them to seek
professional advice at the Company’s expense.
In addition to the main board there are two further committees. The audit committee
comprises the non-executive directors and the Chief Executive Officer and meets
quarterly. The remuneration committee is, at present, composed of the same individuals
and it also meets on a quarterly basis. Under the Code of Best Practice (Section 1-B2)
it should be comprised solely of independent non-executive directors. As soon as is
practical after the appointment of the independent non-executive directors, the board
will ensure that the membership of the remuneration committee complies with the
Combined Code.
In addition to the above, the Code of Best Practice suggests that a nominations
committee be established (Section 1-A5) and comprise mainly independent
non-executive directors. This has not yet been done. The board has proposed
that a nominations committee be formed once sufficient numbers of independent
non-executive directors have been appointed. In the interim period the board carries
out the duties of the nominations committee.
The report of the remuneration committee is given on page 32 and details of
directors’ reward packages are disclosed in note 6 to the financial statements
33 QXL.com plc
Annual report 2000
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Shareholder relations The board considers communications with its shareholders
to be very important.
Results are published on a quarterly and annual basis, and copies of these results
are available on the Company’s web site along with up to date Company news and
details of shareholder meetings. Additionally, shareholders and other interested parties
can obtain copies of all reports by writing to the Company Secretary. At the annual
general meeting, the Chairman will address the shareholders on the performance of the
Company in the past year and on current and future activities. Shareholders will have
the opportunity of questioning the Chairman and other directors at that the annual
general meeting or subsequently by e-mail.
On a quarterly basis, the Company also holds meetings with its major institutional
investors. Certain events require the Company to hold extraordinary general meetings.
As these are held, the Company will take the opportunity of updating shareholders on
additional current events.
On an ongoing basis the Company issues Stock Exchange announcements of
significant matters relating to the development of the business. Copies of all of these are
accessible by anyone from the Company’s web site.
Audit and internal control The audit committee was established on 25 August
1999 and operates under terms of reference approved by the board. Its main
functions are to:
• recommend and review the appointment of the Companys’ auditors; their fees, and
any questions of or relating to their resignation or removal, and review the nature and
extent of non-auditing services;
• review the quarterly and annual financial statements before submission to the board;
• discuss the results of the audit and any problems and reservations arising from the
preparation and audit of such financial statements, and any matters which the auditors
may wish to discuss;
• review the auditors’ management letters and the response thereto of the management
of the Company or any other subsidiary of the Company;
• review the Company’s statements on internal control systems prior to endorsement
by the board; and
The Company has laid down clear management responsibilities for maintaining an
adequate control environment. The organisational structure of the Company is such that
it is able to respond quickly to developments in the business which impact the control
environment. During the year management has produced a financial procedures manual
which is updated as the business develops. The scope of this document is currently
being widened to cover non-financial processes. The increasing size of the Group has
facilitated the increasing segregation of financial duties. These combined further ensure
the completeness, accuracy and integrity of financial reporting for the Group.
The board also recognises that the Group is inherently exposed to a high level of risk
due to the rapidly evolving nature of the industry in which it operates. The board has
recently implemented a formal risk reporting process. The preparation of these reports
has been delegated to management who will report to the board formally on a
quarterly basis. During the year the assessment of key business risks was part of the
monthly board agenda and executive team meetings. Additionally during the year
regular meetings were held between the Chief Financial Officer and Chief Technology
Officer focusing on the impact of technological changes on the business and the
identification of potential risks which may arise.
Currently there is no internal audit function. The board has reviewed the need for
one, and will continue to do so, on a quarterly basis. In future this function will be
delegated to the audit committee.
The Company is actively applying The Principles of Good Governance and
the Code of Best Practice (the Combined Code), however as a result of the
Company’s rapid growth, the directors have so far been unable to fully implement
the Combined Code. The board will by 31 December 2000 have established
procedures necessary to implement the requirements of the Combined Code relating
to internal control as reflected in the September 1999 guidance “Internal Control:
Guidance for Directors on the Combined Code” (the Turnbull guidance). In respect
of the application of principle D.2 of the Combined Code, the board has adopted
the transitional approach to disclosure set out in the letter from the London Stock
Exchange dated 27 September 1999 and therefore the above statements regarding
the directors review of the effectiveness of internal controls relates only to internal
financial control procedures.
The board is responsible for the Group’s system of internal financial controls.
However, it should be recognised that the system of internal financial controls provides
reasonable but not absolute assurance against loss or misstatement.
As part of the preparation for the initial public offering in October, the board
reviewed the effectiveness of the Group’s financial controls that provide reasonable
assurances that neither material loss nor misstatements will occur.
Going concern The Company’s directors are responsible for considering whether it
is appropriate to prepare financial statements on a going concern basis. The directors
fully appreciate the importance of sufficient cash resources in the industry that the
Company operates in. This, together with a lack of borrowing facilities, has meant that
throughout the life of the Company significant resource has been expended on cash
flow forecasting. The directors have therefore been able to satisfy themselves that the
Company, Group and potentially enlarged Group (note 31) will be able to continue in
business for the foreseeable future. Consequently these financial statements have been
prepared on a going concern basis.
34 QXL.com plc
Annual report 2000
Corporate governance continued
• review the internal financial control systems of the Company.
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Statement of directors’ responsibilities
The directors are required by UK Company law to prepare financial statements for
each financial year that give a true and fair view of the state of affairs of the Company
and the Group, as at the end of the financial year and of the profit or loss of the
Group for that year.
The directors confirm that suitable accounting policies have been used and applied
consistently and that reasonable and prudent judgements and estimates have been made
in the preparation of the financial statements for the year ended 31 March 2000.
The directors also confirm that applicable accounting standards have been followed
and that the financial statements have been prepared on a going concern basis.
The directors are responsible for keeping proper accounting records, for
safeguarding the assets of the Company and the Group, and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
Auditors’ report to the
members of QXL.com plc
We have audited the financial statements on pages 36 to 62.
Respective responsibilities of directors and auditors The directors are
responsible for preparing the Annual Report. As described above, this includes
responsibility for preparing the financial statements, in accordance with applicable
United Kingdom accounting standards. Our responsibilities, as independent auditors,
are established in the United Kingdom by statute, the Auditing Practices Board, the
Listing Rules of the Financial Services Authority and our profession’s ethical guidance.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the United Kingdom
Companies Act. We also report to you if, in our opinion, the directors’ report is not
consistent with the financial statements, if the Company has not kept proper accounting
records, if we have not received all the information and explanations we require for
our audit, or if information specified by law or the Listing Rules regarding directors’
remuneration and transactions is not disclosed.
We read the other information contained in the Annual Report and consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements.
We review whether the statements on pages 33 and 34 reflects the Company’s
compliance with the seven provisions of the Combined Code specified for our
review by the Financial Services Authority, and we report if it does not. We are not
required to consider whether the board’s statements on internal control cover all risks
and controls, or to form an opinion on the effectiveness of the Group’s corporate
governance procedures or its risk and control procedures.
Basis of audit opinion We conducted our audit in accordance with Auditing
Standards issued by the Auditing Practices Board. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and judgements
made by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the Company’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or other irregularity or error. In forming
our opinion we also evaluated the overall adequacy of the presentation of information
in the financial statements.
Opinion In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 31 March 2000 and of its loss and cash
flows for the year then ended and have been properly prepared in accordance with
the Companies Act 1985.
PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
13 June 2000
35 QXL.com plc
Annual report 2000
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Page 36
Consolidated profit and loss account
for the year ended 31 March 2000
Notes
Year ended
31 March
2000
Excluding
exceptional
items
£‘000
Year ended
31 March
2000
Exceptional
items
£‘000
Year ended
31 March
2000
Total
£’000
Year ended
31 March
1999
£’000
6,870
–
6,870
2,545
22
–
22
–
Turnover
Operations before acquisitions
Acquisitions
Continuing operations
1
6,892
–
6,892
2,545
Cost of sales
2
(6,151)
–
(6,151)
(2,340)
Gross profit
741
–
741
205
Distribution costs
2,3
(21,710)
(22,418)
(44,128)
(836)
Administrative expenses
2,3
(11,818)
(22,351)
(34,169)
(1,473)
(33,528)
(44,769)
(78,297)
(2,309)
(32,581)
(22,351)
(54,932)
(2,104)
(206)
(22,418)
(22,624)
–
(32,787)
(44,769)
(77,556)
(2,104)
Net operating expenses
Operating loss
Operations before acquisition
Acquisitions
Continuing operations
2,4
Interest receivable and similar income
7
Interest payable and similar charges
8
Loss on ordinary activities before taxation
Tax on loss on ordinary activities
9
Loss on ordinary activities after taxation
Dividends and appropriations – non-equity
10
Retained loss for the financial year
1,777
59
(13)
(7)
(75,792)
(2,052)
–
–
(75,792)
(2,052)
(2,112)
(343)
(77,904)
(2,395)
Loss per equity share
– basic and diluted
12
(27.0)p
(72.6)p
There is no difference between the loss on ordinary activities before taxation and the retained loss for the period stated above, and their historical cost equivalents.
Statement of group total recognised gains and losses
Year ended
31 March
2000
£‘000
Loss attributable to shareholders
Exchange adjustments
Total recognised losses for the year
36 QXL.com plc
Annual report 2000
(75,792)
341
(75,451)
Year ended
31 March
1999
£‘000
(2,052)
–
(2,052)
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Page 37
Group balance sheet
as at 31 March 2000
Notes
31 March
2000
£‘000
31 March
1999
£‘000
Intangible assets
13
435
–
Tangible assets
14
7,233
181
7,668
181
Fixed assets
Current assets
Stock
17
401
357
Debtors
18
6,374
437
Cash at bank and in hand
19
77,662
6,557
84,437
7,351
Creditors: amounts falling due within one year
20
(9,731)
(933)
Net current assets
74,706
6,418
Total assets less current liabilities
82,374
6,599
Creditors: amounts falling due after one year
21
(337)
–
Provisions for liabilities and charges
22
(11,557)
–
Net assets
70,480
6,599
Capital and reserves
Called up share capital
23
119
1
Share capital to be issued
24
9,294
–
Share premium account
26
111,919
8,784
Merger reserve
26
6,617
–
Warrant reserve
26
–
7
Profit and loss account
26
(57,469)
(2,193)
Total shareholders’ funds
27
70,480
6,599
70,480
(819)
–
7,418
70,480
6,599
Analysed as:
Equity shareholders’ funds/(deficit)
Non-equity shareholders’ funds
27
These financial statements were approved by the board of directors on 13 June 2000.
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Page 38
Company balance sheet
as at 31 March 2000
Notes
31 March
2000
£‘000
31 March
1999
£‘000
Intangible assets
13
90
–
Tangible assets
14
6,791
181
Investments
15
356
24
7,237
205
Fixed assets
Current assets
Stock
17
401
357
Debtors
18
6,320
418
19
76,440
6,552
83,161
7,327
Creditors: amounts falling due within one year
20
(7,339)
(933)
Net current assets
75,822
6,394
Total assets less current liabilities
83,059
6,599
Creditors: amounts falling due after one year
21
(337)
–
Provisions for liabilities and charges
22
(11,557)
–
Net assets
71,165
6,599
Capital and reserves
Called up share capital
23
119
1
Share capital to be issued
24
9,294
–
Share premium account
26
111,919
8,784
Warrant reserve
26
–
7
Profit and loss account
26
(50,167)
(2,193)
Total shareholders’ funds
27
71,165
6,599
71,165
(819)
–
7,418
71,165
6,599
Analysed as:
Equity shareholders’ funds/(deficit)
Non-equity shareholders’ funds
27
These financial statements were approved by the board of directors on 13 June 2000 and were signed on its behalf by:
R Dighero Director
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Page 39
Consolidated cash flow statement
Note
Net cash outflow from operating activities
30
31 March
2000
£‘000
31 March
1999
£‘000
(28,954)
(2,133)
Returns on investments and servicing of finance
1,590
Interest received
Interest paid
Issue costs of non-equity shares
59
(7)
(7)
(1,283)
(248)
300
(196)
Capital expenditure and financial investment
Purchase of tangible fixed assets
(7,718)
(187)
(1,027)
–
(37,399)
(2,516)
Acquisitions
Payments to acquire trades or businesses
Cash outflow before management of liquid resources and financing
Financing
116,535
Gross receipts from issuing shares and warrants
Increase in short-term deposits
Issue costs of equity shares and warrants
Capital element of finance lease repaid
Increase in cash in the period
39 QXL.com plc
Annual report 2000
30
9,295
(69,167)
–
(7,832)
(255)
(199)
–
1,938
6,524
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Page 40
Principal accounting policies
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
accounting policies, which have been applied consistently, is set out below.
Basis of accounting The financial statements have been prepared under the
historical cost convention and on a going concern basis.
Basis of consolidation The consolidated profit and loss account and balance
sheet include the financial statements of the Company and its subsidiary
undertakings made up to the year end. The results of subsidiaries acquired are
included in the consolidated profit and loss account from the date control passes.
Intra Group sales and profits are eliminated fully on consolidation.
On the acquisition of a subsidiary, all of the subsidiary’s assets and liabilities that
exist at the date of acquisition are recorded at their fair values reflecting their condition
at that date. All changes to those assets and liabilities and the resulting gains and
losses that arise after the Group has gained control of the subsidiary are charged to
the post acquisition profit and loss account.
Goodwill Goodwill arising on consolidation represents the excess of the fair value
of the consideration paid over the fair value of the identifiable assets acquired.
Goodwill acquired on purchase is reviewed for impairment on an individual
acquisition basis and is expensed through the profit and loss account to the extent
that, in the directors’ opinion, it has been impaired in value.
Any capitalised goodwill is amortised on a straight-line basis over its expected
useful economic life.
Goodwill amortisation and impairment charges are included within distribution
charges within the profit and loss account as in the directors’ opinion the amounts
expended on goodwill provide significant marketing benefit to the Group during the
early phases of its development.
Turnover Turnover represents amounts receivable for merchandise and services net
of VAT and returns.
In the Group’s business-to-consumer auctions of merchandise and services, the
Group operates as either principal or agent. When the Group acts as principal, it
recognises income once credit card authorisation has been obtained and merchandise
has been despatched. When the Group acts as agent, it charges a commission on
successfully completed auctions. Such income is recognised on completion of the
auction process and forwarding of the sales information to the principal.
In the Group’s consumer-to-consumer auctions, the Group recognises commissions as
turnover upon completion of the auction process.
Tangible fixed assets Tangible fixed assets are stated at cost less depreciation.
Depreciation is provided at rates calculated to write off the cost less the estimated
residual value of each asset over its expected useful economic life, at the following
annual rates:
Computer servers
at 25% per annum on a straight-line basis.
Computer systems and equipment
Furniture and office equipment
Computer software
at 33% or 50% per annum on a straight-line basis
The Group also capitalises directly identifiable bought in services and own staff
costs incurred in developing its web sites and other internal software development
costs incurred up to the date that the asset is brought into use. Capitalised projects
must have a measurable economic viability in their own right. Amounts capitalised
are written down over their expected useful economic lives on a straight-line basis at
rates between 6.25% and 12.5% per month.
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Page 41
Development expenditure Development expenditure includes expenses
incurred by the Group to improve the current functionality of, and to manage,
monitor and operate the Group’s web sites. Development costs are expensed
through administrative costs as incurred except where, as described above,
separately identifiable expenditure has been incurred on bringing specific
projects into use.
Shares
Stock compensation The Group charges the difference between the fair value at
grant date of share options granted to employees and the exercise price of the
options to the profit and loss account on a straight-line basis over the vesting period
of the share options. It is now Company policy not to issue stock at less than its fair
market value.
Stock Stock is valued on a first-in-first-out basis and is stated at the lower of cost
and net realisable value.
National insurance Employers national insurance contributions become payable on
exercise of unapproved share options issued after 5 April 1999 on the difference
between the market value of the Company’s Ordinary Shares at the date of exercise
and the exercise price of the underlying options. Provision for this liability is made
based upon the market value of the Company’s shares at the balance sheet date as
an estimate of the value at the future exercise date.
Finance leases Where assets are financed by leasing agreements that give rights
and obligations approximating to ownership, the assets are treated as if they had
been purchased outright. The amount capitalised is the present value of the minimum
lease payments during the lease term. The corresponding lease commitments are
shown as obligations to the lessor. Lease payments are split between capital and
interest elements using the annuity method. Depreciation on the relevant assets and
interest are charged to the profit and loss account.
Operating leases Amounts payable under operating leases are charged to
profit and loss on a straight-line basis over the lease term.
Foreign currency transactions Assets and liabilities denominated in foreign
currencies are translated into sterling at rates of exchange ruling at the balance
sheet date. Transactions in foreign currencies are translated into sterling at the rate
of exchange ruling at the date of the transaction.
Assets and liabilities of subsidiaries in foreign currencies are translated into
sterling at rates of exchange ruling at the end of the year, and results of foreign
subsidiaries are translated at the average rate of exchange ruling throughout the year.
Differences on exchange arising from the retranslation of the opening net investment
in subsidiary companies are taken to reserves and reported in the statement of total
recognised gains and losses. All other exchange differences are taken to the profit
and loss account as they arise.
Warrants exercised after the year end Warrants exercised after the year end but
before the date these financial statements were approved have been valued at the
market value on the date that they were exercisable. The resulting amounts are
included within shareholders funds as ‘Shares to be issued’.
Bonus issues In September 1999, the Company effectively made a bonus issue on
a nine-for-one basis (note 23). All share information in these financial statements
(except the comparative information in note 23) has been adjusted to reflect this issue.
In April 2000, the Company made a further bonus issue on a two-for-one basis.
With the exception of the substantial shareholdings note in the directors’ report and
note 12, Loss per equity share, none of the share information in these financial
statements reflects this issue.
Pension costs The Group pays defined contributions to personal money purchase
pension schemes for some employees. The charge in the financial statements
represents contributions payable in the year.
Advertising costs All advertising costs are expensed through distribution costs
as incurred.
Related party transactions Financial Reporting Standard 8, ‘Related Party
Transactions’, requires the disclosure of the details of material transactions between
the reporting entity and related parties. The Company has taken advantage of
exemptions under Financial Reporting Standard 8 not to disclose transactions
between Group companies.
Finance costs In accordance with the provisions of Financial Reporting
Standard 4, ‘Capital Instruments’, finance costs relating to non-equity shareholders’
funds are treated as appropriations.
41 QXL.com plc
Annual report 2000
Principal accounting policies continued
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Notes to the financial statements
1 Turnover
In the period under review materially all of turnover and loss by origin and destination was in the United Kingdom and generated from the single activity of providing online
auctions. Net assets are solely attributable to that activity.
2 Cost of sales, gross profit, distribution costs and administrative expenses
Turnover
Cost of sales
31 March
2000
Excluding
acquisitions
£’000
31 March
2000
Acquisitions
£’000
31 March
2000
Total
continuing
£’000
1999
Total
continuing
£’000
6,870
22
6,892
2,545
(6,151)
(2,340)
(6,151)
–
719
22
741
205
21,610
100
21,710
836
–
22,418
22,418
–
Total distribution costs
21,610
22,518
44,128
836
Administrative expenses
11,690
128
11,818
1,473
Exceptional items – development expenditure and national insurance provision
22,351
–
22,351
–
Total administrative expenses
34,041
128
34,169
1,473
Net operating expenses
55,651
22,646
78,297
2,309
(54,932)
(22,624)
(77,556)
(2,104)
Notes
31 March
2000
£’000
31 March
1999
£’000
(i)
22,418
–
Development of ‘World of Antiques’
(ii)
10,794
–
National insurance provision
(iii)
11,557
–
22,351
–
Gross profit
Distribution costs
Exceptional items – goodwill impairment provision
Operating loss
There were no discontinued operations and no operations were acquired in the year to 31 March 1999.
3 Exceptional items
Distribution costs:
Goodwill impairment provision
Administration expenses:
(i) Goodwill impairment provision Note 16 details the goodwill that has arisen on the acquisitions of subsidiary undertakings and businesses during the year. UK GAAP
obliges the directors to consider the carrying value of the goodwill arising on each income generating unit and immediately write down the balance if in their opinion there has
been an impairment.
The strategy of the Company has been, and remains, one of building a pan-European business through organic as well as acquisitive growth. Acquisition targets are selected
on the basis of their prospective strategic value to the Group, not necessarily on their stand alone value.
In many cases, consideration values have been significantly higher than net asset values. This is typical of Internet companies which have tended to be valued based on
multiples of revenues or key operating metrics such as numbers of members.
A second impact on the value of consideration has been the requirement under UK GAAP to value shares issued at the market value on the day that a transaction becomes
unconditional. Due to share price volatility, certain transactions have been recorded at a higher value than originally expected at the time that the transaction was announced,
although the number of shares remained fixed.
As a consequence of these two effects a large amount of goodwill has arisen on consolidation.
Currently UK GAAP prescribes that the carrying value of goodwill should be no more than the higher of the stand alone value of the asset in use and its net realisable value.
42 QXL.com plc
Annual report 2000
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3 Exceptional items (continued)
The value in use has to be determined by discounting the projected net cash flows of each income generating unit by the Company’s weighted average cost of capital.
It is not expected that within the next five years cumulative net cash flows of any of the individual businesses acquired would have been positive on a stand alone basis. It is
expected that the businesses acquired will generate positive cash flows beyond year five but on a stand alone basis this could not be relied upon with any certainty. As a result,
applying a relatively high cost of capital to these distant cash flows renders an immaterial present value. Thus, in the directors’ opinion the prudent valuation in use of these assets
on a stand alone basis is negligible.
The net realisable value of each of the income generating units is also difficult to determine. Since the acquisitions last year there are now fewer potential purchasers in the market
with two of the prior potential rivals soon to become part of the Group (note 31). In the absence of an active market and taking into consideration the extent of recent
fundamental changes in the valuations which equity markets are prepared to place on Internet businesses, the directors believe that a prudent estimate of the net realisable value
of the businesses acquired during the year is equivalent to the value of the databases of members acquired. Consequently, in the opinion of the directors UK, GAAP requires
recognition of an impairment in the carrying value of goodwill to amounts equivalent to the values of these databases.
The Company estimates the fair value of acquired databases based upon the lower of its average online acquisition cost per member and the average expected contribution
per member over an 18 month period.
The carrying value of goodwill in the balance sheet is being amortised over 18 months. In the opinion of the directors, given the nature of the industry in which the Company
operates and the risk factors it faces, 18 months is felt to be both prudent and in line with policies of businesses in the same sector.
(ii) Development of ‘World of Antiques’ On 19 October 1999 the Company entered into an agreement with Mr Hugh Scully to lead the development of
‘Hugh Scully’s World of Antiques’ a new online valuation service. The total amount due under the agreement was £3 million which was payable in two instalments. Additionally
the agreement granted options to Mr Scully for 1,025,641 shares at an exercise price of, the then fair market value, £1.95 each, exercisable on the web site going live.
The options were in two parts, 256,410 options were exercisable and were exercised on the signing of the contract. The remaining options (adjusted for the two-for-one bonus
issue on 6 April 2000) were exercisable when ‘Hugh Scully’s World of Antiques’ was launched.
‘Hugh Scully’s World of Antiques’ was launched on 11 April 2000 and Mr Scully has since served notice of his intention to exercise all remaining options. Under UK GAAP
the options have been valued at the mid-market price as at the close of business on 11 April 2000.
The fair values of the shares issued, together with the cash element of £1 million, amounts to £10.794 million and has been written off in the year to 31 March 2000 as
development expenditure.
Summary of the transaction
Notes
31 March
2000
£’000
3,000
Cash amount due under the agreement
(2,000)
Less exercise price for options
1,000
Net cash payable
Options exercised in October 1999
23
500
Options exercised in April 2000
24
9,294
Value of development work – charged as exceptional development costs
10,794
Of the £1 million net cash payable, £800,000 was paid in May 2000 and is included in other creditors.
(iii) National insurance provision on share options Gains arising on the exercise of unapproved share options granted to employees since 6 April 1999 attract
employers national insurance. Full provision has been made for the estimated national insurance on all outstanding options at 31 March 2000 that had been granted since
6 April 1999 based upon the market value of the Company’s share price at the balance sheet date.
The Company grants share options to all its employees. The combination of the number of shares options issued during the year and the movements in the share price during
the year has lead to a provision for potential employers national insurance of £11,557,000 at 31 March 2000 (1999: £nil). The directors consider the resulting material
charge for the year to be exceptional.
Based upon the share price at close of business on 9 June 2000, the provision at that date was £4,060,000 resulting in a credit to the profit and loss account of
£7,497,000.
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Page 44
4 Operating loss
The operating loss is stated after charging:
31 March
2000
£‘000
31 March
1999
£‘000
Exchange loss
478
12
Amortisation of intangible fixed assets
152
–
1,475
14
64
–
17
–
241
63
50
8
341
1
2,840
248
Depreciation of tangible fixed assets – owned assets
– under finance leases
Loss on disposals of fixed assets
Operating lease rentals – land and buildings
Auditors’ remuneration – audit (Group and Company)
Auditors’ remuneration – other services*
Development expenditure (excluding exceptional item in note 3)
*In addition to these amounts, fees of £601,000 were also charged by PricewaterhouseCoopers in connection with the Company’s initial public offering in October 1999.
These have been charged against share premium.
5 Directors and employees
The average monthly number of persons (including directors) employed by the Company during the year was:
31 March
2000
Number
31 March
1999
Number
Sales and marketing
59
8
Technical
17
8
General and administration
32
12
108
28
31 March
2000
£’000
31 March
1999
£’000
2,647
678
Charge for share awards
175
44
Social security costs
273
57
11,557
–
9
14
14,661
793
Staff costs for the above persons:
Wages and salaries
National insurance on share options (note 3)
Pension costs
44 QXL.com plc
Annual report 2000
Notes to the financial statements continued
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Page 45
6 Directors’ emoluments
All share information in this note is stated (comparatives restated) after reflecting the capital restructuring during the year, an effective nine-for-one bonus issue (note 23) and before
the effects of the two-for-one bonus issue on 6 April 2000.
Directors’ remuneration
Basic salary
£’000
Benefits
£’000
Bonuses paid
£’000
Fees
£’000
Total
remuneration
excluding
pensions
31 March
2000
£’000
–
–
–
7
7
–
50
1
10
–
61
–
Dr P D Englander
–
–
–
7
7
–
Mr S M A Laurent
50
1
10
–
61
–
174
1
–
–
175
–
13
–
–
7
20
68
Mr F Tison
–
–
–
2
2
–
Mr J B Tellio
–
–
–
–
–
–
Ms E Marbach
–
–
–
–
–
–
Mr S Kalish
–
–
–
–
–
–
287
3
20
23
333
68
Mr J B Bulkeley (Chairman)
Mr R S Dighero
Mr J M Rose
Mr T D A Jackson
Total
remuneration
excluding
pensions
31 March
1999
£’000
Directors’ pension entitlements
Payments made into a
money purchase scheme
31 March 2000
£’000
Payments made into a
money purchase scheme
31 March 1999
£’000
1
–
12
10
13
10
Mr R S Dighero
Mr T D A Jackson
Directors’ interests in shares
The interests of the Directors in the shares of the Company at 31 March 2000, together with their interests at 31 March 1999 were:
Number of shares of £0.001 each
At 31 March
2000
or date of
resignation
Ordinary
Shares
Mr T D A Jackson
At 31 March 1999
Ordinary
Shares
Series A
Preference
Shares
Series B
Preference
Shares
1,822,370 13,780,840
–
–
Ms E Marbach
12,798,070
9,154,400
–
–
Mr J B Bulkeley
7,870,310
–
6,316,100
1,179,210
Mr T D A Jackson is a trustee and beneficiary of the Argentarius Settlement. The shares disclosed above in the second column relate to the total holding of the
Argentarius Settlement.
Ms E Marbach, the wife of Mr T D A Jackson, is a beneficiary of the Lakeville and Artesian Trusts.
The Argentarius Foundation holds 5,340,130 shares. Mr T D A Jackson and Ms E Marbach are trustees of the Foundation but have disclaimed beneficial ownership.
The figures above do not include any in respect of this Foundation.
Dr P D Englander does not hold shares in his own right but is interested in the shares held by Apax UK VI LP. At 31 March 2000 20,332,480 Ordinary Shares
(1999: 4,215,870 Ordinary Shares and 16,116,610 Series C Preference Shares) were held by the Apax UK VI LP fund, of which Apax Partners & Co. Ventures Limited
is the manager. Dr P D Englander is a director of Apax Partners & Co. Ventures Limited.
45 QXL.com plc
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6 Directors’ emoluments (continued)
Directors’ interests in share options
Number of Ordinary Shares
1 April 1999
or date of
appointment.
Granted
during year.
Exercised
during year.
31 March 2000
or date of
resignation
Exercise price*
750,000
–
(375,000)
375,000
7.36c (4.61)p
Mr J M Rose
3,555,700
–
–
Mr R S Dighero
1,961,960
–
392,390
Mr J B Bulkeley (Chairman)
Mr S M A Laurent
Mr S Kalish
Totals
Gain made on
exercise
£’000
Earliest
exercise date
Expiry
708
Mar 1999
Mar 2005
3,555,700 55.84c (35.00)p
Apr 2000
Apr 2009
–
1,961,960
4.46p
Apr 2000
Apr 2008
–
–
392,390
159.40p
July 2000
July 2009
2,354,350
–
–
2,354,350
1,250,000
–
–
1,250,000
8.16p
Apr 2000
Sept 2008
711,960
–
–
711,960
20.40p
Apr 2000
Sept 2008
196,200
–
–
196,200
193.00p
Sept 2000
Sept 2009
2,158,160
–
–
2,158,160
–
150,000
–
150,000
159.40p
July 2000
July 2009
8,818,210
150,000
(375,000) 8,593,210
Market price
on date of
exercise
193.00p
708
*Some of the option agreements have exercise prices denominated in cents (c), the rest are in pence (p).
No share options have lapsed during the year. The earliest exercise date takes account of lock up periods agreed at the time of the Company’s initial public offering in
October 1999, restricting exercise of options. The market price at the end of the financial year was 1032.00p and the range of market prices during the period was
between 33.89p and 2277.50p.
7 Interest receivable and similar income
All interest receivable and similar income consisted of interest earned on bank deposits.
8 Interest payable and similar charges
31 March
2000
£’000
31 March
1999
£‘000
Finance leases
6
–
Bank loans and overdrafts
7
7
13
7
9 Taxation
No taxation charge has arisen for the year. The Company has estimated tax losses of £43.7 million (1999: £2 million) available to carry forward and offset against future
trading profits. This represents an unprovided deferred tax asset of approximately £13.5 million.
46 QXL.com plc
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10 Dividends and appropriations
Non-equity dividends were appropriated as follows:
31 March
2000
£’000
31 March
1999
£‘000
Series C preference dividend at 8% of subscribed amount
319
88
Series D preference dividend at 8% of subscribed amount
510
–
1,283
255
2,112
343
Appropriation for issue costs
In accordance with Financial Reporting Standard 4, ‘Capital Instruments’, cumulative dividends and issue costs relating to Preference Shares have been charged in the profit
and loss account for the year. The dividend amounts have been added back to the profit and loss reserve as the dividends are not payable until declared. Under the Articles
of Association of the Company, these dividends will not be declared since the Preference Shares to which they relate converted into Ordinary Shares on initial public offering.
The issue cost appropriation is transferred to the share premium account.
11 Loss for the year
As permitted by Section 230(1) of the Companies Act 1985, the parent company’s profit and loss account has not been included in these financial statements. The parent
company’s loss after taxation for the financial year was £68,149,000 (1999: loss £2,052,000 ).
12 Loss per equity share
31 March 2000
Loss
£’000
Weighted
average
number
of shares
Per share
amount
pence
31 March 1999
Loss
£’000
Weighted
average
number
of shares
Per share
amount
pence
The calculation of earnings per share is based on:
Loss after taxation
Less: appropriations for Preference Shares
Losses attributable to ordinary shareholders
(75,792)
(2,052)
(2,112)
(343)
(77,904) 288,548,331
(27.0)p
(2,395) 3,300,476
(72.6)p
In accordance with UK GAAP the March 2000 figure is based on the weighted average number of shares after the bonus issue of 6 April 2000.
The Company has or had share options, warrants and in 1999 had Convertible Preference Shares which are potential Ordinary Shares. However the impact on the net loss
of these potential Ordinary Shares is anti-dilutive.
47 QXL.com plc
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Page 48
13 Intangible assets
Goodwill
£’000
Group
Cost at 1 April 1999
–
Additions during the year (note 16)
23,005
31 March 2000
23,005
Amortisation at 1 April 1999
–
Exceptional impairment provision (note 3)
22,418
Charge for the year
152
31 March 2000
22,570
Net book value at 31 March 2000
435
–
Goodwill
£’000
Company
–
Additions during the year (note 16)
3,179
31 March 2000
3,179
Amortisation at 1 April 1999
–
Exceptional impairment provision
2,999
Charge for the year
90
31 March 2000
3,089
90
48 QXL.com plc
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Page 49
14 Tangible assets
Group
Additions
Additions through acquisition
Disposals
31 March 2000
Depreciation at 1 April 1999
Charge for year
Disposals
31 March 2000
Furniture and
office equipment
£’000
Computer
systems and
equipment
£’000
Internal
computer
software
capitalised
£’000
External
computer
software
capitalised
£’000
Total
£’000
19
143
–
36
198
276
5,368
2,324
466
8,434
–
–
–
174
174
(4)
(19)
–
–
(23)
291
5,492
2,324
676
8,783
4
13
–
–
17
65
722
653
98
1,539
(1)
(5)
–
–
(6)
68
730
653
98
1,550
223
4,762
1,671
578
7,233
15
130
–
36
181
Included within ‘Computer systems and equipment’ are assets held under finance leases, with a net book value of £640,000 (1999: £nil), Depreciation charged during the year
to these assets was £63,000 (1999; £nil).
Furniture and
office equipment
£’000
Computer
systems and
equipment
£’000
Internal
computer
software
capitalised
£’000
External
computer
software
capitalised
£’000
Total
£’000
19
143
–
36
198
Additions
130
5,194
2,283
466
8,073
Disposals
(4)
(19)
–
–
(23)
145
5,318
2,283
502
8,248
4
13
–
–
17
30
703
614
98
1,445
–
(5)
–
–
(5)
34
711
614
98
1,457
111
4,607
1,669
404
6,791
15
130
–
36
181
Company
31 March 2000
Depreciation at 1 April 1999
Charge for year
Disposals
31 March 2000
Included within ‘Computer systems and equipment’ are assets held under finance leases, with a net book value of £640,000 (1999: £nil), depreciation charged during the year
to these assets was £63,000 (1999: £nil).
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Page 50
15 Investments in group undertakings
31 March
2000
£‘000
31 March
1999
£‘000
At 1 April 1999
24
–
Additions in year
13,299
24
Company
(12,967)
Impairment provision
At 31 March 2000
356
–
24
The following subsidiary undertakings have been included in these consolidated financial statements using acquisition accounting:
Name of undertaking
QXL Sarl
QXL GmbH
Country of
incorporation
Shares
£’000
Inter-company
loans
£’000
Impairment
provision
£’000
Book value
£’000
France
6
–
–
6
Germany
18
–
–
18
24
–
–
24
At 1 April 1999
Acquired:
QXL Auksjon Norge AS
Norway
9
13,221
(12,967)
263
QXL Denmark ApS
Denmark
2
–
–
2
Poland
–
48
–
48
Italy
3
–
–
3
QXL B.V.
Netherlands
–
–
–
–
QXL S.L.
Spain
2
–
–
2
QXL Finland OY
Finland
5
–
–
5
QXL Sweden AB
Sweden
7
–
–
7
QXL Marketing e Projectos Lda
Portugal
–
–
–
–
Quixell Ltd
UK
–
–
–
–
Quixell Ltd
Eire
–
–
–
–
Greece
2
–
–
2
54
13,269
QXL sp.zoo
Set up by the Company:
QXL Srl
(Under incorporation)
At 31 March 2000
(12,967)
356
QXL.com plc owns 100% of the share capital and voting rights in each of the above with the exception of QXL Srl in which it owns 95%. The other 5% is owned by Quixell
Limited (UK).
All shares are Ordinary Shares. The principal activity of all the trading Group companies is the provision of Internet auction related services. QXL Finland OY, QXL Marketing
e Projectos Lda, Quixell Limited (UK), QXL Sweden AB and Quixell Limited (Eire) were dormant.
QXL B.V., QXL S.L., QXL Marketing e Projectos Lda and QXL Auksjon Norge AS have December year ends due to local legal requirements. All other companies have
March year ends.
Acquired subsidiaries Note 16 discloses how the investments have been treated in the Company’s accounts and the goodwill arising on acquisition has been calculated.
Note 3 describes an exceptional provision for the impairment of goodwill arising. The impairment shown above in respect of the Company’s investment in QXL Auksjon
Norge AS arises for similar reasons.
50 QXL.com plc
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Page 51
16 Acquisitions
All acquisitions were of businesses in their start up phase. In the opinion of the directors the pre-acquisition results were not material and are not presented in these
financial statements.
Humpty Dumpty/eSwap On 6 July 1999, QXL Limited entered into asset purchase agreements with Humpty Dumpty Limited. Under the terms of the agreements,
QXL Limited acquired the membership databases of www.HumptyDumpty.co.uk and www.eSwap.co.uk.
The consideration comprised two parts. £1 million, of which £200,000 was deferred and is payable in equal instalments on 1 July 2000 and 1 July 2001 and
1,269,230 Ordinary Shares. At the date the transaction became unconditional the share price was 166.00p. The total consideration has therefore been valued at
£3,107,000. In addition, £72,000 of stamp duty was paid on the transaction.
QXL Auksjon Norge AS On 8 December 1999, QXL Auksjon Norge AS, a subsidiary of QXL.com plc, completed an asset purchase agreement with Dinside AS.
Under the terms of the agreement, QXL Auksjon Norge AS acquired the online auction business of Dinside AS, a membership database and a functioning local
language web site.
The consideration comprised 1,296,154 Ordinary Shares issued by QXL.com plc. At the date the transaction became unconditional the share price was 1020.00p.
The consideration has therefore been valued at £13,221,000. The amount of the consideration is represented as a long-term loan from QXL.com plc to QXL Auksjon Norge AS.
QXL Denmark ApS On 11 January 2000, QXL.com plc entered into a share purchase agreement to acquire all of the issued and outstanding shares of QXL Denmark ApS
from Jubii A/S. Unconditional control was acquired on this date. QXL.com plc effectively acquired the online auction business of Jubii A/S, a membership database and a
functioning local language web site.
Prior to the transaction Jubii A/S, with QXL.com plc’s agreement, had incorporated a wholly owned subsidiary QXL Denmark ApS. Jubii A/S then transferred its online auction
business into QXL Denmark ApS and sold the company to QXL.com plc.
The consideration comprised 510,000 Ordinary Shares which were issued on 14 March 2000. At the date the transaction became unconditional the share price was
1297.50p. The consideration has therefore been valued at £6,617,000.
Advantage has been taken of the merger relief provisions set out in Section131 of the Companies Act 1985 and the Company has not recorded any share premium in
respect of this transaction.
QXL sp.zoo On 13 March 2000, QXL sp.zoo completed an asset purchase agreement with SurfStopShop sp.zoo. Under the terms of the agreement, QXL sp.zoo acquired
the online auction business of SurfStopShop sp.zoo. The assets acquired comprised a membership database and a functioning local language web site.
The consideration under the agreement was US$75,000 (£47,000), which was satisfied in cash, US$15,000 (£9,000) of which was deferred and paid in April 2000.
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16 Acquisitions (continued)
Fair value table and calculation of goodwill
Book value
£’000
Revaluation
£’000
Fair value
£’000
–
–
–
Goodwill
£’000
Humpty Dumpty/eSwap
Net assets acquired:
Consideration satisfied by:
Cash (including £111,000 of acquisition costs)
911
Deferred cash consideration
200
Shares issued (1,269,230 at 166.00p)
2,107
3,218
Group and Company – goodwill arising on acquisition
3,218
3,218
QXL Auksjon Norge AS
Fixed assets
–
68
68
Cash (all acquisition costs)
63
Shares issued (1,296,154 at 1020.00p)
13,221
13,284
Goodwill arising on acquisition
13,216
13,216
QXL Denmark ApS
Fixed assets
Debtors
Creditors
12
68
80
1
–
1
(11)
–
(11)
2
68
70
Cash (all acquisition costs)
15
Shares issued (510,000 at1297.50p)
6,617
6,632
6,562
6,562
QXL sp.zoo
Fixed assets
–
38
38
Cash (no acquisition costs)
38
Deferred cash consideration
9
47
9
Group only – total goodwill additions for the year (note 13)
23,005
All the fixed asset fair value adjustments were made to reflect the values of the web sites acquired.
52 QXL.com plc
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9
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Page 53
17 Stock
Group
31 March
2000
£’000
Group
31 March
1999
£’000
Company
31 March
2000
£’000
Company
31 March
1999
£’000
401
357
401
357
Group
31 March
2000
£’000
Group
31 March
1999
£’000
Company
31 March
2000
£’000
Company
31 March
1999
£’000
Trade debtors
549
96
549
96
Other debtors
4,301
128
3,301
128
Prepayments and accrued income
1,524
213
1,299
194
–
–
1,171
–-
6,374
437
6,320
418
Group
31 March
2000
£’000
Group
31 March
1999
£’000
Company
31 March
2000
£’000
Company
31 March
1999
£’000
8,495
6,557
7,273
6,552
69,167
–
69,167
–
77,662
6,557
76,440
6,552
Group
31 March
2000
£’000
Group
31 March
1999
£’000
Company
31 March
2000
£’000
Company
31 March
1999
£’000
267
–
267
–
Trade creditors
4,004
725
4,004
725
Other creditors
3,399
4
1,104
4
126
37
126
37
1,935
167
1,838
167
9,731
933
7,339
933
Goods for resale
The directors do not consider that the replacement cost of stock differs substantially from the historical cost.
18 Debtors
Amounts due within one year:
Amounts due from subsidiary undertakings
19 Cash at bank and in hand
Short-term deposits
20 Creditors: amounts falling due within one year
Finance lease obligations
Other taxation and social security
Accruals
53 QXL.com plc
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21 Creditors: amounts falling due after one year
Group
31 March
2000
£’000
Group
31 March
1999
£’000
Company
31 March
2000
£’000
Company
31 March
1999
£’000
Finance lease obligations
237
–
237
–
Other creditors
100
–
100
–
337
–
337
–
Group
31 March
2000
£’000
Group
31 March
1999
£’000
Company
31 March
2000
£’000
Company
31 March
1999
£’000
Due within one year
267
–
267
–
Due in more than one year and less than five years
237
–
237
–
504
–
504
–
Group and
Company
31 March
2000
£’000
Group and
Company
31 March
1999
£’000
–
–
Charged during the year
11,557
–
At 31 March 2000
11,557
–
Group and
Company
31 March
2000
£’000
Group and
Company
31 March
1999
£’000
Within one year
5,310
–
Between one and two years
2,897
–
Between two and five years
3,350
–
11,557
–
Maturity of financial liabilities Future minimum payments under finance leases are as follows:
Other creditors, which comprises a deferred payment on acquisition, falls due for payment in more that one year but less than two.
22 Provisions for liabilities and charges
National insurance on share options
At 1 April 1999
The charge for the year, which is based on the closing share price on 31 March of 1032.00p, has been treated as exceptional (note 3).
The maturity profile of this financial liability, assuming that all outstanding share options are exercised
at the earliest opportunity, is as follows:
54 QXL.com plc
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Page 55
23 Share capital
31 March
2000
£’000
31 March
1999
£’000
200,000
1,591
Nil (1999: 17,659,590) Series A Preference Shares of £0.001 each
–
177
Nil (1999: 1,732,710) Series B Preference Shares of £0.001 each
–
17
Nil (1999: 21,488,820) Series C Preference Shares of £0.001 each
–
215
Nil (1999: nil) Series D Preference Shares of £0.001 each
–
–
200,000
2,000
118,804
302
Nil (1999: 17,659,590) Series A Preference Shares of £0.001 each
–
177
Nil (1999: 1,732,710) Series B Preference Shares of £0.001 each
–
17
Nil (1999: 21,488,820) Series C Preference Shares of £0.001 each
–
215
Nil (1999: nil) Series D Preference Shares of £0.001 each
–
–
118,804
711
Authorised
200,000,000 (1999 : 159,118,880) Ordinary Shares of £0.001 each
Allotted, called up and fully paid
118,804,474 (1999 : 30,232,820) Ordinary Shares of £0.001 each
On 21 June 1999, the Company converted 1,275,436 shares of the authorised Ordinary share capital to the same number of Series D Preference Shares of £0.001 each.
At the time of the initial public offering these shares, along with the Series A, B and C Preference Shares, converted to Ordinary Shares.
On 9 September 1999 the Company re-organised its share capital. A bonus issue of 99 shares for each share held, was made concurrent with a five-for-one reverse share
split and a two-for-one reverse share split. The effect of this was an increase in the par value of Ordinary Shares from £0.0001 to £0.001. This change has been reflected in
the comparative number of shares shown for 1999. Consequently a transfer was made between share premium and share capital of £70,000.
Share issues
The following shares were issued during the year:
Group and Company
Group only
Number
Share capital
£
Share premium
£’000
Issue costs
£’000
Net premium
£’000
Merger reserve
£’000
12,754,360
12,754
20,650
1,283
19,367
–
Series D Preference Shares, to provide funds for the
development of the business
1,269,230
1,269
2,107
–
2,107
–
Consideration for the acquisition of the auction
business from Humpty Dumpty Ltd
Sept 1999
17,910
18
6
–
6
–
Exercise of warrants
Sept 1999
243,470
244
85
–
85
–
Exercise of warrants
Sept 1999
375,000
375
16
–
16
–
Exercise of options
Oct 1999
28,468,000
28,468
55,484
6,614
48,870
–
Initial Public Offering to provide funds for the
development of the business
Oct 1999
256,410
256
500
–
500
–
Shares issued as part payment for the acquisition
of World of Antiques
Dec 1999
1,296,154
1,296
13,219
–
13,219
–
business from DinSide AS
Feb 2000
2,500,000
2,500
40,247
1,218
39,029
–
Provision of additional funds for business development
Mar 2000
510,000
510
–
–
–
6,617
business from Jubii A/S
47,690,534
47,690
132,314
9,115
123,199
6,617
Movement for the year
71,113,940
711
–
70,403
118,804,474
118,804
Date
June 1999
July 1999
55 QXL.com plc
Annual report 2000
Reason for issue
Shares outstanding at 1 April 1999
Transfer in respect of the September 1999
capital re-organisation
Shares outstanding at 31 March 2000
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23 Share capital (continued)
Subsequent to the year end the Company approved a bonus issue of two Ordinary Shares, nominal value £0.001 each, in QXL.com plc for every Ordinary Share held.
This resulted in an increase in the issued share capital to 356,413,422 Ordinary Shares, nominal value £0.001, as at 6 April 2000.
Ordinary Shares Ordinary Shares are equal in value and have an equitable interest in the Company. The holders of Ordinary Shares are entitled to any dividends declared
in relation thereto by the directors. Each holder of an Ordinary Share is entitled to one vote at general meetings of the Company. The holders of Ordinary Shares, upon the
liquidation of the Company, are entitled to share in the surplus assets of the Company once all Preference Share interests have been paid out.
Series A Preference Shares Holders of Series A Preference Shares had the same rights as holders of Ordinary Shares in relation to dividends declared. Series A Preference
Shares conferred, upon the holder, the right to convert each Series A Preference Share into one Ordinary Share. The holder could convert the Series A Preference Shares at any
time and the shares converted automatically on the sale or flotation of the Company. Holders of Series A Preference Shares, in the event of a liquidation of the Company or a
reduction in the capital of the Company, received their subscribed amount in priority over holders of Ordinary Shares of the Company and were entitled to share in any surplus
assets of the Company after all Preference Share interests had been paid. Holders of Series A Preference Shares were entitled to vote at general meetings of the Company.
All Series A Preference Shares were converted into Ordinary Shares on 14 October 1999 on admission of the Company to the London Stock Exchange.
Series B Preference Shares Holders of Series B Preference Shares had the same rights as holders of Ordinary Shares in relation to dividends declared, and conferred
upon the holder the right to convert each such share into one Ordinary Share. The holder could convert the Series B Preference Shares at any time and the shares converted
automatically on the sale or flotation of the Company. Holders of Series B Preference Shares, in the event of liquidation of the Company or a reduction in the capital of the
Company, received their subscribed amount in priority over Ordinary and Series A Preference Shares and were entitled to share in any surplus assets of the Company after
all Preference Share interests had been paid. Holders of Series B Preference Shares were entitled to vote at general meetings of the Company. All Series B Preference Shares
converted to Ordinary Shares on 14 October 1999 on admission of the Company to the London Stock Exchange.
Series C Preference Shares Series C Preference Shares conferred upon the holder the right to convert each such share into one Ordinary Share. The holder could convert
the Series C Preference Shares at any time and the shares converted immediately on sale or flotation of the Company. In converting Series C Preference Shares to Ordinary
Shares, the value of each Ordinary Share on conversion had to be greater than the subscription price of each Series C Preference Share. If the value of the Ordinary Share
on conversion had been lower than the subscription price of the Series C Preference Share, the Company would pay to the holder, an amount equal to the total difference
between the subscription price for the Series C Preference Shares and the value of Ordinary Shares on conversion, and any dividend arrears calculated to the redemption date.
The Series C Preference Shares had a fixed cumulative preferential dividend, at the gross rate of 8% per annum, calculated on the subscription price paid, and such dividend
accrued daily. The preferential dividend was only payable upon liquidation, redemption (conversion to Ordinary Shares), or upon a qualifying realisation occurring on or after
5 August 2000. A qualifying realisation was either a sale in which the controlling interest of the Company changed or the listing of the Company on an internationally
recognised stock exchange (as listed in the Company’s Articles of Association). Series C Preference Shares ranked above Ordinary, Series A Preference, and Series B Preference
Shares in the event of liquidation of the Company or a reduction in the capital of the Company. In such circumstances, holders were entitled to receive an amount equal to the
amount they subscribed for their shares, and were also entitled to share in any surplus assets of the Company after all Preference Share interests had been paid. Holders of Series
C Preference Shares were entitled to vote at general meetings of the Company. All Series C Preference Shares were converted to Ordinary Shares on 14 October 1999 on
admission of the Company to the London Stock Exchange.
Series D Preference Shares Series D Preference Shares conferred upon the holder the right to convert each such share into one Ordinary Share. The holder could convert
the Series D Preference Shares at any time and the shares converted immediately on sale or flotation of the Company. In converting Series D Preference Shares to Ordinary
Shares, the value of each Ordinary Share on conversion had to be greater than the subscription price of each Series D Preference Share. If the value of the Ordinary Share on
conversion had been lower than the subscription price of the Series D Preference Share, the Company would pay to the holder, an amount equal to the total difference between
the subscription price for the Series D Preference Shares and the value of Ordinary Shares on conversion, and any QXL.com plc dividend arrears calculated to the redemption
date. The Series D Preference Shares had a fixed cumulative preferential dividend, at the gross rate of 8% per annum, calculated on the subscription price paid, and such
dividend accrued daily. The preferential dividend was payable only upon liquidation, redemption (conversion to Ordinary Shares), or upon a qualifying realisation occurring on
or after 5 August 2000. A qualifying realisation was either a sale in which the controlling interest of the Company changed or the listing of the Company on an internationally
recognised stock exchange (as listed in the Company’s Articles of Association). Series D preference shares ranked above Ordinary, Series A preference, Series B preference,
and Series C preference shares in the event of liquidation of the Company, or a reduction in capital of the Company. In such circumstances, holders were entitled to receive
an amount equal to the amount they subscribed for their shares, and were also entitled to share in any surplus assets of the Company after all Preference Share interests had
been paid. Holders of Series D Preference Shares were entitled to vote at general meetings of the Company. All Series D Preference Shares were converted to Ordinary Shares
on 14 October 1999 on admission of the Company to the London Stock Exchange.
All the Preference Shares converted to Ordinary Shares on 14 October 1999.
56 QXL.com plc
Annual report 2000
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24 Share capital to be issued
Share capital to be issued of £9.294 million relates to shares still to be issued to Mr H Scully under the agreement referred to in note 3.
25 Options and warrants in shares of QXL.com plc
At 31 March
1999
Granted
during year
Number
exercised
during year
Directors in total (note 6)
4,673,920
4,294,290
(375,000)
– 8,593,210
4.46p
to 193.00p
Staff in total
4,480,560
4,953,821
–
(821,000) 8,613,381
4.46p
to 2107.00p
1,791
43,400
(1,791)
–
43,400
–
558.43c (350.00)p
1999
to 2002
24,347
–
(24,347)
–
–
–
583.43c (365.70)p
1999
to 2001
–
1,025,641
(256,410)
–
769,231
Options
Cancelled
during year
At 31 March
2000
Exercise price
pence
Exercise price
cents
Exercise
period
7.36c (4.61)p
1999
to 55.84c (35.00)p to 2009
–
1999
to 2009
Warrants
Advisers:
Ordinary Shares
Preference Shares
Mr Hugh Scully:
Ordinary Shares
195.00p
–
Options issued to directors and staff are in respect of Ordinary Shares. Employee options vest over a four year period based on the date the option is granted.
On 22 April 1999, a change was made to the vesting profile of all employee share option agreements such that 25% of the options vest on the anniversary of the
date the options were granted and the remaining entitlement vests in 12 quarterly instalments.
57 QXL.com plc
Annual report 2000
1999
to 2000
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Page 58
26 Share premium and reserves
Group
Company
Share premium
account
£’000
Merger
reserve
£’000
Warrant
reserve
£’000
Profit and
loss account
£’000
Share premium
account
£’000
Warrant
reserve
£’000
Profit and
loss account
£’000
8,784
–
7
(2,193)
8,784
7
(2,193)
Transferred on exercise
7
–
(7)
–
7
(7)
–
Retained loss for the financial year
–
–
–
(77,904)
–
–
(70,261)
Premium issued on shares to former owners of QXL Denmark ApS
–
6,617
–
–
–
–
–
124,482
–
–
–
124,482
–
–
(1,283)
–
–
1,283
(1,283)
–
1,283
123,199
–
–
–
123,199
–
–
–
–
–
829
–
–
829
(71)
–
–
–
(71)
–
–
Accrued compensation expense
–
–
–
175
–
–
175
Exchange adjustment
–
–
–
341
–
–
–-
(20,000)
–
–
20,000
(20,000)
–
20,000
111,919
6,617
–
(57,469)
111,919
–
(50,167)
Note
Balance at 1 April 1999
Premium on issue of other shares
Transfer in respect of non-equity issue costs
Net premium on issue of other shares
23
Reversal of preference dividend appropriation
Transfer from share premium to capital on bonus issue
Transfer to distributable reserves in respect of
the capital reduction exercise
Balance at 31 March 2000
23
In order to re-register as a public limited company in September 1999 the Company was required to have positive distributable reserves. To achieve this, in September 1999 the
Company made a successful application to the Courts and obtained consent to transfer £20 million from share premium to distributable reserves.
27 Reconciliation of movement in shareholders’ funds
Loss for the year
Dividends and appropriations
Group and
Company
31 March
1999
£’000
Group
31 March
2000
£’000
Company
31 March
2000
£’000
(75,792)
(68,149)
(2,052)
(2,112)
(2,112)
(343)
(77,904)
(70,261)
(2,395)
6,617
–
–
124,529
124,529
9,040
9,294
9,294
–
Translation adjustment
341
–
–
Share based compensation
175
175
–
–
–
7
829
829
88
63,881
64,566
6,740
6,599
6,599
(141)
70,480
71,165
6,599
Issue of capital to former owners of QXL Denmark ApS
Issue of capital including share premium
Capital to be issued
Warrants
Reversal of non-equity dividends
Movement for the year
Opening shareholders’ funds
Closing shareholders’ funds
58 QXL.com plc
Annual report 2000
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28 Financial commitments
At 31 March 2000 the Company had annual commitments under non-cancellable operating leases of £321,000 (1999: £nil) expiring within two to five years.
29 Financial instruments
Financial instruments and risk management The Group invests surplus funds in triple A rated sterling denominated bonds and in overnight money market deposits.
The main risks arising from the Group’s financial instruments are interest risk and foreign currency risk. Interest rates are monitored to ensure best available returns are achieved.
The Group’s principal exposure to exchange rate fluctuations arises on the translation of overseas net assets and losses into sterling for reporting purposes and on the translation of
inter company balances which fund overseas subsidiaries. Additional risk existed in the period to June 1999 as the majority of the Group’s early financing was denominated in
US dollars. On an operating basis funds are exchanged monthly into euros at spot rates to meet the cash needs of the continental subsidiaries.
Since June 1999 funds have been raised in sterling. The Group’s policy is to invest in sterling bonds until such time as funds are required by the business. It is not Group policy to
trade or speculate in financial instruments.
Short-term debtors and creditors Short-term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosures.
Interest rate profile of financial assets The interest rate profile of the Group’s financial assets at 31 March 2000 was:
Cash at bank
and in hand
£’000
Short-term
deposits
£’000
31 March
2000
£’000
31 March
1999
£’000
Sterling
7,231
69,167
76,398
6,557
Euro/euro denominated
1,061
–
1,061
–
Currency
(4)
–
(4)
–
7
–
7
–
200
–
200
–
Total
8,495
69,167
77,662
6,557
Floating rate
8,495
–
8,495
6,557
–
69,167
69,167
–
8,495
69,167
77,662
6,557
US dollar
Swedish krone
Norwegian krone
Fixed rate
Interest rates on floating rate financial assets are linked to base rates.
Interest rate profile of financial liabilities Other than noted below none of the Group’s creditors meet the definition of a financial liability.
Maturity of financial liabilities At the year end, the Group’s financial liabilities other than short-term payables comprised a deferred payment on acquisition of a subsidiary
(note 16); a finance lease creditor (note 21) and a provision for national insurance on share options (note 22).
Borrowing facilities The Group does not have any borrowing facilities.
Currency exposures At the year end, the Group’s currency exposures relate to cash and cash equivalents and payables translated at the rate of exchange at that date.
Fair value In the opinion of the directors there is no material difference between the fair value of the Group’s financial instruments and their carrying value.
59 QXL.com plc
Annual report 2000
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30 Notes to the cash flow statement
Reconciliation of operating profit to net cash outflow from operating activities
31 March
2000
£‘000
31 March
1999
£‘000
(77,556)
(2,104)
Continuing operating activities
Operating loss
1,539
14
Loss on disposal of fixed assets
17
–
Goodwill impairment provision
22,418
–
152
–
9,794
–
175
–
Depreciation of fixed assets
Amortisation of intangible fixed assets
Non-cash development costs
Share based compensation
(44)
(357)
Increase in debtors
(6,109)
(406)
Increase in creditors
9,103
720
11,557
–
Increase in stocks
Increase in provisions
Net cash outflow from operating activities
(28,954)
(2,133)
Operations before acquisitions
(28,746)
(2,133)
(208)
–
(28,954)
(2,133)
31 March
2000
£‘000
31 March
1999
£‘000
1,938
6,524
Movement in deposits
69,167
–
Movement in funds for the year
71,105
6,524
6,557
33
77,662
6,557
Acquisitions
Reconciliation of movement in net funds
Reconciliation to net funds
Increase in net cash
Funds at 1 April 1999
Funds at 31 March 2000
Reconciliation of movement in net debt
1 April
1999
£‘000
Cash flows
£‘000
Non-cash
changes
£‘000
31 March
2000
£‘000
6,557
1,938
–
8,495
–
69,167
–
69,167
6,557
71,105
–
77,662
Finance leases due after one year
–
199
(466)
(267)
Finance leases due within one year
–
–
(237)
(237)
6,557
71,304
(703)
Cash in bank and in hand
Short-term deposits
Total
60 QXL.com plc
Annual report 2000
77,158
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Page 61
31 Post balance sheet events
ricardo.de AG On 16 May 2000, QXL.com announced that it proposed to merge with ricardo.de AG to form QXL ricardo plc in a share-for-share exchange. ricardo.de is a
leading e-commerce and online auction site in Germany.
The consideration is to be satisfied by the issue of 42.6 Ordinary Shares for each ricardo share, representing a maximum aggregate consideration of approximately
371.1 million Ordinary Shares, with a value of approximately £668 million, based upon the closing price of the Ordinary Shares on the London Stock Exchange on
15 May 2000. ricardo shareholders will receive a maximum of 43.8% of the enlarged pro forma issued share capital of QXL.com (including Ordinary Shares to be issued
in connection with the acquisition of Bidlet AB) as at 15 May 2000, or 48.2% of the pro forma issued share capital of QXL.com (not including Ordinary Shares to be issued
in connection with the acquisition of Bidlet AB). ricardo shareholders will receive a maximum of 42.6% of the enlarged pro forma fully diluted share capital of QXL.com
(including Ordinary Shares to be issued in connection with the acquisition of Bidlet AB) as of 15 May 2000 or 46.4% of the pro forma fully diluted share capital of QXL.com
(not including Ordinary Shares to be issued in connection with the acquisition of Bidlet AB).
A number of ricardo shareholders, representing approximately 54% of ricardo’s fully diluted share capital (the ‘Majority Shareholders’), have entered into a private
transaction with QXL.com (the ‘Private Transaction’). The Majority Shareholders have also entered into lock-up arrangements with QXL.com with respect to the Ordinary Shares
that they will receive at completion. QXL.com expects to make a public tender offer to the shareholders of ricardo (the ‘Public Offer’) under the German Takeover Code to acquire
all outstanding shares of ricardo in exchange for Ordinary Shares. The Vorstand and Supervisory Board of ricardo have unanimously recommended the proposed Public Offer
to the shareholders of ricardo.
The Majority Shareholders will have the right to nominate two directors, expected to be Eckhard Pfeiffer and Christoph Linkwitz, to be appointed to QXL ricardo’s board of
Directors. Further, ricardo intends to nominate two members of its Vorstand, expected to be Stefan Wiskemann and Stefan Glänzer, to join the management team of QXL ricardo.
Jonathan Bulkeley will continue in his present role as Chairman and Jim Rose will continue as Chief Executive Officer of the enlarged group. All other QXL.com board members
will retain their current roles in the enlarged group.
QXL ricardo intends to establish an advisory committee on marketing, business development and product strategy. This committee is expected to be chaired by Eckhard Pfeiffer
and is expected to include Messrs Wiskemann, Glänzer and Linkwitz from ricardo, in addition to Messrs Rose, Laurent and Dighero, from the board of directors of QXL.com.
The advisory committee will advise the board on key strategic issues, such as the development of a pan-European brand, that will lead the enlarged group through its next
stage of growth and development.
QXL ricardo shares will be traded on the London Stock Exchange and QXL ricardo’s ADRs will be traded on the Nasdaq National Market. The company will be domiciled
and headquartered in London.
The Private Transaction and the Public Offer are subject to certain conditions, including the approval of Shareholders at an extraordinary general meeting and the admission
of the new Ordinary Shares to be issued in consideration for the ricardo shares to the Official List of the UK Listing Authority. The board of directors of QXL.com and the board
of directors of ricardo expect the transaction to be completed by the end of August 2000.
Bidlet AB Acquisition agreement On 27 March 2000, QXL.com announced that it proposed to acquire Bidlet AB (publ) (‘Bidlet’) in a share-for-share exchange. Bidlet is the
leading e-commerce and online auction site in Sweden. The consideration for the purchase is the issue of 27.75 New Ordinary Shares for each Bidlet share issued and to be
issued, representing a maximum aggregate consideration of approximately 70.6 million Ordinary Shares. The New Ordinary Shares represent consideration of approximately
£100.2 million, based upon the Closing Price on 9 June 2000. Shareholders of Bidlet will receive a maximum of 14.3% of the enlarged pro forma fully diluted share capital
of QXL.com as at 9 June 2000.
Loan Agreement Under a loan facility agreement dated 17 April 2000 between QXL.com and Bidlet, QXL.com agreed to make available to Bidlet a short-term loan
facility for the purpose of working capital. The amount of the total aggregate loan facility is £11 million. The sum of £3 million was advanced on 17 April 2000 and a further
sum of £1 million was advanced on 15 May 2000. Interest on these sums is charged at a rate of 2% per annum above the three month sterling London Inter-Bank Offer Rate.
Under the terms of the loan facility agreement, if Completion does not take place by 30 June 2000, QXL.com has agreed, upon being so required by Bidlet, to lend Bidlet
a further £7 million on 1 July 2000. By a letter agreement dated 30 May 2000, QXL.com agreed to amend certain provisions of the loan facility agreement and advance
to Bidlet a further sum of £2 million on that date. This advance has been made from the £7 million tranche and is not in addition to it. Repayment of the £6 million advanced
to date is due six months from drawdown or three months from Completion (whichever is the earlier). In the event that Completion does not take place by 30 June 2000,
all sums advanced shall be repaid by 30 September 2000.
On 17 April 2000, QXL.com entered into a deed of charge with Bidlet under which Bidlet granted to QXL.com a floating charge/chattel mortgage with best right over,
inter alia, Bidlet’s intellectual property. Bidlet’s intellectual property includes the name ‘Bidlet’ and certain domain names, copyright in the software used by Bidlet to provide
auction services, and Bidlet’s source code.
ibidlive N.V. On 22 December 1999, QXL.com entered into a subscription and sale agreement (the ‘ibidlive Agreement’) with ibidlive N.V. and certain ibidlive shareholders
(‘ibidlive’). The ibidlive Agreement was completed on 3 April 2000. Under the terms of the ibidlive Agreement, QXL.com acquired 1,750,000 Class A Shares in ibidlive from
certain of the ibidlive shareholders and subscribed for a further 4,280,000 Class A Shares in ibidlive. The 6,030,000 Class A Shares in ibidlive held by QXL.com represent
50% of the issued share capital of ibidlive. The consideration was satisfied by the issue of a total of 506,431 QXL.com Ordinary Shares. ibidlive develops and sells live
television auction technology and operates interactive television auctions.
The value of the consideration was £4,811,000 which was paid by issuing shares in QXL.com. The net assets acquired are not expected to be material to the
QXL.com Group.
Idefi S.A. On 29 March 2000, QXL.com entered into a sale and purchase agreement to acquire all of the outstanding issued shares in Idefi S.A. and the minority interest
in I-Deal SAS not already owned by Idefi S.A. The consideration under the Idefi S.A. Agreement, which was completed on 14 April 2000, was satisfied by the issue of
392,340 Ordinary Shares (this reflects the bonus issue on April 6). Idefi S.A. is a holding company. I-Deal S.A.S. is a developer of web based live auction technology.
The maximum value of the consideration, which was partly paid by issuing shares in QXL.com plc, was £2,525,000. The net assets acquired are not expected to be material to
the Group.
Bonus issue At an extraordinary general meeting held on 3 April 2000, the Company ‘s shareholders passed a resolution approving the bonus issue of two Ordinary Shares,
nominal value £0.001 each, in QXL.com for every Ordinary Share held in the capital of QXL.com plc on the effective date of 6 April 2000.
61 QXL.com plc
Annual report 2000
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Page 62
32 Related party transactions
ibidlive NV After the subscription and sale agreement was signed on 22 December 1999 (note 31) the following transactions occurred between the two Groups prior to
31 March 2000:
QXL.com plc paid £175,000 to Articulate (UK) Limited, a wholly owned subsidiary of ibidlive NV, for the rights to exploit TV auction technology. This amount is included
in fixed assets at the year end. No depreciation has yet been provided since the asset is not yet in productive use.
QXL.com plc charged ibidlive NV £115,000 for advertising services that comprised the provision of a button on QXL.com’s homepage.
QXL.com loaned amounts, interest free, to the ibidlive Group to fund working capital requirements. The total loans outstanding at 31 March 2000 was £1,040,000.
All outstanding amounts were repaid on 15 May 2000.
Transactions relevant to the comparatives only:
Loans to the Company from Mr T D A Jackson and Ms E Marbach, outstanding from the previous year of £20,000 and £80,000 respectively, were repaid with interest.
The interest calculated on these loans, before repayment, was at the rate of 2% above base rate.
In 1998 the Company entered into a marketing agreement with AOL UK, to the value of £85,000. At the time the contract was signed, Mr J Bulkeley was Managing
Director of AOL UK.
62 QXL.com plc
Annual report 2000
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Page 63
Forward-looking statements This document may contain forward-looking statements that relate to the Company’s plans, objectives, estimates and goals. The Company’s business is subject to
numerous risks and uncertainties, including risks associated with: only having a limited operating history; regulation of auctions and the Internet; probable variability in the Company’s quarterly operating
results; the Company’s results of operations not being indicative of future performance; significant losses being incurred as a result of expansion of the Company’s business; risks associated with
acquisitions; dependence on growth of online consumer-to-consumer commerce market; risks associated with development and growth of the Company’s foreign language web sites; intense competition;
failure to develop the Company’s brand; failure to expand the Company’s systems; risks associated with managing internal growth and retaining and recruiting personnel; international expansion;
online commerce security; risks associated with not developing new services, features and functions; risks associated with intellectual property rights; fraudulent activity of our members and suppliers;
and seasonality. These and other risks and uncertainties, which are described in more detail in the Company’s Registration Statement on Form F-1 filed with the US Securities and Exchange Commission
and in the Company’s Prospectus dated 21 September 1999 filed with the UK Listing Authority and the Registrar of Companies in England and Wales, could cause the Company’s actual results and
developments to be materially different from those expressed or implied by any of these forward-looking statements.
63 QXL.com plc
Annual report 2000
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Page 64
Directors and Company information
Directors
Jonathan Brereton Bulkeley (Non-executive Chairman of the board)
James Malcom Rose (Chief Executive Officer)
Robert Simon Dighero (Chief Financial Officer)
Peter David Englander, PhD (Non-executive director)
Stanislas Marie André Laurent (Senior Vice President – Sales and Marketing)
Company secretary
Anisa Dhanji
Company registration number
3430894
Registered office
Landmark House
Hammersmith Bridge Road
London W6 9DP
Auditors
PricewaterhouseCoopers
1 Embankment Place
London WC2N 6NN
Solicitors
Brobeck Hale and Dorr
Hasilwood House
60 Bishopsgate
London EC2N 4AJ
Bankers
National Westminster Bank plc
PO Box 12258
1 Princes Street
London EC2R 8PA
Financial adviser
Credit Suisse First Boston (Europe) Limited
One Cabot Square
London E14 4QJ
Broker
Credit Suisse First Boston de Zoete & Bevan Limited
One Cabot Square
London E14 4QJ
This Annual Report is available in electronic format on the QXL.com web
site at www.qxl.com.
64 QXL.com plc
Annual report 2000
Listings
The Ordinary Shares of QXL.com plc are listed on the London Stock Exchange under the
symbol “QXL” and American Depository Shares, each representing five Ordinary Shares,
are quoted on the Nasdaq National Market under the symbol “QXLC”.
Registrars
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex BN99 6DA
Depositary
The Bank of New York
101 Barclay Street
New York, NY 10286
Reports to ADR holders
QXL.com plc will file its Annual Report on Form 20-F with the US Securities and
Exchange Commission in due course. ADR holders may request a copy of the Annual
Report on Form 20-F or this Annual Report by writing to:
Investor Relations Department
QXL.com plc
Landmark House
London W6 9DP
E-mail: [email protected]
Investor relations
Alison Cabot (Vice President, Communications)
QXL.com plc
Landmark House
London W6 9DP
Telephone: +44 20 8962 7100
Fax: +44 20 8962 7335
E-mail: [email protected]
Annual general meeting
The annual general meeting of the Company will be held
on 14 August 2000 at 11.00 am at the offices of:
Financial Dynamics
Holborn Gate
26 Southampton Buildings
London WC2A 1PB
7739 QXL cover
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Page 1
1
Designed and produced by Radley Yeldar London
3:54 PM
Page 2
QXL.com plc annual report 2000
QXL.com plc
Landmark House
London W6 9DP
Telephone: +44 20 8962 7100
Facsimile: +44 20 8962 7335
QXL.com annual report 2000
19/7/00
www.qxl.com
7739 QXL cover

QXL.com Annual Report 2000 2000

Transcription

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